The UK Supreme Court has established a clear-cut test for determining when lenders are put on inquiry in non-commercial hybrid transactions that combine joint borrowing and surety elements. Where any more than a de minimis portion of a loan serves to discharge one borrower’s debts, the transaction constitutes a surety requiring compliance with the Etridge protocol.

Background

Catherine Waller-Edwards entered a relationship with Nicholas Bishop in 2011, exchanging her mortgage-free home and £150,000 savings for a property subject to charges. In 2013, they jointly re-mortgaged the property for £440,000 with One Savings Bank. Whilst ostensibly for joint purposes, £39,500 was earmarked for Bishop’s personal car loan and credit card debts. Following the relationship breakdown, Waller-Edwards faced possession proceedings. The trial judge found that Bishop had exercised undue influence but held that the Bank was not put on inquiry, applying a “fact and degree” analysis to determine whether the transaction was substantially for joint purposes.

The Court of Appeal dismissed the appeal, endorsing the trial judge’s approach that hybrid transactions required a holistic assessment of whether lending was “being made for the borrower with the debts, as distinct from their joint purposes.”

Judgment

Lady Simler, delivering the unanimous judgment, rejected the Court of Appeal’s fact-sensitive approach. The Court established that the principles from Barclays Bank plc v O’Brien, CIBC Mortgages plc v Pitt, and Royal Bank of Scotland plc v Etridge (No 2) require a binary determination: either a creditor is put on inquiry or not.

The Court distinguished joint borrowing from surety transactions based on risk assessment. Surety transactions carry heightened undue influence risk because one party assumes liability without apparent financial benefit. Hybrid transactions containing surety elements present identical risks regardless of accompanying joint borrowing components.

The Supreme Court established that creditors are put on inquiry in non-commercial hybrid transactions where, on the face of the transaction, there exists more than a de minimis borrowing element serving to discharge one party’s debts. This bright-line test promotes certainty and enables banks to implement standardised procedures without requiring case-by-case risk assessments by underwriting staff.

The Court emphasised that determining liability focuses on whether the vulnerable party has “gratuitously taken on a liability for a debt which is being used to discharge her husband’s indebtedness” rather than who ultimately benefits from borrowed funds.

Endnote

This decision provides crucial clarity for lending institutions by establishing predictable criteria for hybrid transactions whilst maintaining robust protection against economic abuse. The bright line approach harmonises with Etridge’s objective of creating workable, simple procedures that prevent undue influence without imposing disproportionate burdens on legitimate borrowing. Banks can now implement consistent protocols, knowing that any non-trivial surety element triggers protective requirements.

Read the full judgement of the UK Supreme Court at: Waller-Edwards v One Savings Bank [2025] UKSC 22