Supreme Court update: Lenders must follow Etridge where any non-trivial amount of a jointly borrowed non-commercial loan is solely for one borrower

A significant new decision has been handed down by the Supreme Court in the case of Waller-Edwards v OneSavings Bank plc [2025] UKSC 22, clarifying the procedural expectations on lenders to address potential undue influence within a much broader scope of non-commercial lending transactions.

The decision concerns hybrid joint-borrowing transactions, being those where the lender is aware that any fraction of a joint non-commercial loan will be used for one borrower’s sole benefit (effectively making the other borrower a surety in respect of that portion). The Supreme Court has confirmed that in all such cases, unless the said fraction is trivial, the independent legal advice (“ILA”) procedure laid down in Royal Bank of Scotland Plc v Etridge (No 2) [2001] UKHL 44 must be discharged to prevent any challenge to the enforceability of the security in an event of default. This is a departure from previous decisions which held that whether Etridge applied or not should be a ‘fact and degree’ assessment on a case-by-case basis.

Recap of the legal query arising in Waller-Edwards:

The case, which we discussed in a previous article (click here to read) following the earlier Court of Appeal judgment, concerned a loan made jointly to a Ms Waller-Edwards and her ex-partner, Mr Bishop, which had been defaulted on. Ms Waller-Edwards, who had lost her home and significant savings as a result, had sought to have her security set aside. Her argument was that, because it had been brought to the lender’s attention that she would be partially assuming a surety role in respect of 10% of the loan (which was allocated to discharge Mr Bishop’s debts), the lender would have been ‘on inquiry’ that her entry into the transaction may have been procured by undue influence. It had not followed the Etridge procedure necessary in these circumstances, which she claimed rendered the security unenforceable. The Etridge procedure involves ensuring that a surety has received ILA relating to the risks of entering the transaction, and obtaining their confirmation that, in this knowledge, they are content to proceed and are doing so with their eyes wide open.

The lender did not consider the 90/10 ratio of proposed purposes as significant enough to support the notion that Ms Waller-Edwards could be practically regarded as a surety, so they argued that the Etridge protocol was not required.

As to whether lenders will automatically be deemed to be ‘on inquiry’ in a non-commercial loan transaction, previous case law only set precedents for two distinct scenarios:

1. Clear-cut ‘surety’/’guarantor’ cases: i.e. where a person outright (i) guarantees or (ii) gives security as a third party for the another’s debts without being a joint recipient of the loan themselves – lenders will be deemed to have constructive notice that the person acting as surety may be entering the transaction under undue influence. Without discharging the Etridge protocol, there is a risk that their guarantees and/or security will be set aside in a default scenario.
2. ‘Joint borrowing’ cases: i.e. where a joint loan is to be applied wholly towards the borrowers’ joint purposes – in such scenarios, lenders will not be deemed to be on notice of possible undue influence, since both borrowers stand to benefit equally.

Waller-Edwards concerned a ‘hybrid’ of these scenarios, so the question was how to determine whether Etridge should apply in such cases.

Earlier Court of Appeal ruling:

The Court of Appeal had held that whether or not constructive notice of potential undue influence arises in a hybrid case should be determined on a ‘fact and degree’ assessment of the transaction as a whole. They agreed with the lender that the 90/10 ratio of proposed purposes here was not material enough to trigger the Etridge requirements, as the ostensible holistic picture was still of a joint borrowing scenario rather than a surety one.

Ms Waller-Edwards appealed to the Supreme Court.

Supreme Court decision:

The Supreme Court took a different view to the Court of Appeal, unanimously ruling that the lender had failed to account for a tangible risk of undue influence and therefore Etridge should have been followed. The 10% due to be used solely for Mr Bishop’s debts practically amounted to a £39,500 suretyship, which was not a trivial amount.

They confirmed the correct approach for hybrid cases was the adoption of a ‘bright line’ rule: in every hybrid case involving a non-trivial exclusive benefit for one borrower, lenders will be on inquiry of undue influence and expected to discharge Etridge.

The Court of Appeal had considered that such an approach, greatly extending the application of Etridge, would place too onerous an obligation on lenders and potentially increase expense of domestic lending. The Supreme Court disagreed. It considered that, given that it is common for small proportions of loans to borrowers in non-commercial relationships to be applied towards repayment of individual debts, the application of a blanket bright line rule addressed the need for “simplicity of operation” for lenders and would save them having to undertake a holistic, finely balanced examination in each case to assess on balance whether they are on inquiry as a matter of ‘fact and degree’. The ILA process is well-used, and is fairly straightforward and inexpensive to arrange, so the application of the new rule would not be unduly onerous for lenders.

Impact for lenders:

The important take-aways for lenders are as follows:

• Whilst some lenders may have already been erring on the side of caution and practically operating the ‘bright line test’ as standard, there is now no doubt that the Etridge protocol is required in hybrid cases.
• The update will not affect pure joint-borrowing cases, for example to purchase a property in joint names.
• Proposed purposes of any non-commercial joint loan should be clarified at the outset so the ‘hybrid’ nature of a joint loan can be identified. These cases must then be earmarked for an ILA condition precedent to be incorporated, ensuring that completion does not occur until satisfied.
• If counsel have been instructed, ILA can be provided by an alternative solicitor not involved in the transaction at the same firm acting for the lender, or a solicitor from a different firm.
• Lenders should note that they have no onus to look behind the transaction to investigate whether any undue influence is factually at play.

Lenders should discuss any queries on the ILA process and the form of any confirmation letter precedent with their solicitors to ensure this covers the Etridge requirements.

If you would like any further information or advice, please contact Rachel Lewis or Katherine Grant from our Banking & Finance team.

*This information is for guidance purposes only and does not constitute, nor should it be regarded as, a substitute for taking legal advice that is tailored to your circumstances.