Waller-Edwards v One Savings Bank Plc

Appellant

Julian Malins KC

Marc Beaumont

(Instructed by Howard Kennedy LLP)

Respondent

Joanne Wicks KC

Antonia Halker

(Instructed by Equivo Ltd, Northampton)

Lady Simler (with whom Lord Briggs, Lord Hamblen, Lord Stephens and Lady Rose agree):

Introduction

1. The law recognises that there are certain (non-commercial) relationships where there is a heightened risk that one party has an undue influence over the other: the husband-and-wife relationship is an obvious example but there are others too. In certain circumstances the vulnerable party to such a relationship (say, a wife) who has been induced to enter into a financial transaction by the undue influence of her husband, is entitled to have it set aside as against the husband. The question that can then arise is whether the undue influence as between husband and wife affects the lender with whom the husband has been dealing, even where the lender has entered into the transaction in good faith and without actual knowledge of the undue influence.
2. Following a series of well-known cases discussed below (Barclays Bank plc v O'Brien [1994] 1 AC 180 ("O'Brien"), CIBC Mortgages plc v Pitt [1994] 1 AC 200 ("Pitt") and Royal Bank of Scotland plc v Etridge (No 2) [2001] UKHL 44; [2002] 2 AC 773 ("Etridge No 2"), the law regards banks and other lenders as put on inquiry (that one party's agreement to the transaction may have been obtained by undue influence) whenever on the face of a three-way transaction, the wife (or other vulnerable partner in the relationship) is offering to stand surety for her husband's debts (or vice versa). By contrast, where on the face of the transaction the lending is advanced to husband and wife jointly, the bank is not put on inquiry unless the bank is aware that the loan is being made for the husband's purposes as distinct from their joint purposes. The distinction between these two cases is straightforward and binary.
3. But it is common ground on this appeal that there may be less straightforward transactions involving non-commercial loans sought by a husband and wife that are, on the face of it, partly for their joint benefit and partly for either the husband or wife's sole benefit and therefore to that extent apparently to the financial disadvantage of the other. This sort of transaction is described below as a "hybrid" transaction. The issue for resolution on this appeal is to identify the correct legal test for deciding when a lender is put on inquiry in a non-commercial hybrid loan transaction.
4. The courts below held, and the Court of Appeal agreed, that the test is one of fact and degree. In other words, the Court of Appeal said that the court is required "to look at a non-commercial hybrid transaction as a whole and to decide, as a matter of fact and degree, whether the loan was being made for the purposes of the borrower with the debts, as distinct from their joint purposes"…