The current position
For almost 25 years, solicitors and bankers have been familiar with the Etridge Principles, a set of rules outlined in the case of Royal Bank of Scotland v Etridge addressing the issue of undue influence in the context of secured lending, particularly where one party may have been pressured into the arrangement. These guidelines have been critical in protecting vulnerable individuals.
Bankers must identify such situations and ensure that the person giving the security obtains independent legal advice.
This has generally been the case where a property is jointly owned, but only one of the owners (or a partnership/business of theirs) is using the property to secure funding or where the property is wholly owned by the borrower but there is an occupier, for example, a husband or wife, who is not a legal owner of the property or party to the mortgage.
This principle has just been widened by the 2025 Supreme Court ruling of Waller-Edwards.
Background
The case involved Ms Waller-Edwards, who entered into a £384,000 remortgage agreement with One Savings Bank (OSB) alongside her partner, Mr Bishop. Most of the mortgage advance was to be used jointly but approximately 10% of the total amount was used to pay off Mr Bishop's personal debts, including a car loan and credit card balances. Ms Waller-Edwards later claimed that she was subjected to undue influence by Mr Bishop in agreeing to the remortgage and that OSB failed to ensure she received independent legal advice as required under the Etridge guidelines.
Supreme Court ruling
The Supreme Court unanimously allowed Ms Waller-Edwards' appeal, holding that:
- Where a loan serves both joint and individual purposes - a lender is "put on inquiry" if any non-trivial portion of the loan benefits only one party.
- Being "put on inquiry" obligates the lender to take reasonable steps, such as ensuring the potentially influenced party receives independent legal advice to confirm that their agreement to the transaction is free from undue influence.
- Failure to take these steps may render the transaction voidable at the instance of the influenced party.
Implications
The ruling has significant implications for lenders and legal practitioners:
Lenders must be ever vigilant to prevent undue influence, even when the transaction appears to be a joint borrowing. The lender must now assess whether any part of a loan benefits only one party and, if so, ensure that the other party receives independent legal advice, regardless of whether the transaction is labelled as joint borrowing.
Legal practitioners will need to advise clients involved in such transactions about the importance of independent legal advice to safeguard against potential claims of undue influence.
This decision underscores the courts' commitment to protecting individuals from economic abuse and ensuring fairness in financial transactions, but will likely add delays and costs to the process of obtaining a mortgage as borrowers will face further questions and require independent legal advice in more situations.