Undue influence in joint borrowing: the Supreme Court’s new "bright line" test for lenders

The Supreme Court has overturned the Court of Appeal's decision in OneSavings Bank Plc v Waller-Edwards [2025] UKSC 22 (“OSB”) and established a new test for when lenders are deemed to be put “on inquiry” of undue influence when making non-commercial joint loans, and are therefore required to comply with the steps set out in Royal Bank of Scotland plc v Etridge (No 2) [2002] 2 AC 773 (“Etridge”). Our article on the Court of Appeal's decision in this case can be found here.

A recap – undue influence

A lender may find itself unable to enforce a guarantee or third-party security granted in its favour by an individual in support of a loan made available to another customer, if the individual was induced to grant the guarantee or security because of the other customer's "undue influence", and the lender was aware or deemed to have notice of the undue influence at the time.

Etridge remains the leading case on undue influence, where the House of Lords set out detailed guidance for lenders in these situations which must be followed to rebut any arguments of undue influence.

Undue influence is presumed in the case of a "non-commercial" relationship between the surety and principal, with a lender automatically put "on inquiry". It would also be presumed in the case of a joint loan made solely for one borrower's benefit (as the other borrower is effectively standing as surety).

The central question in this case was whether a lender should be put on inquiry in the case of a non-commercial joint loan, where part of the loan is for one borrower's benefit.

A recap – the facts of the case

As a reminder, the OSB case involved a loan made by OneSavings Bank Plc (the "Respondent") to Ms Waller-Edwards (the "Appellant") and her partner at the time, Mr Bishop, secured on a property held in their joint names. The Respondent understood that a portion of the loan (£39,500 of the total £384,000) was to be used to repay personal debts in the name of Mr Bishop.

When the Respondent sought to enforce its security following default, the Appellant challenged the transaction, arguing that her agreement to enter into the loan and provide security was obtained through undue influence and that the Respondent ought to have been put on inquiry.

The lower courts held that the surety element (the £39,500 used for Mr Bishop’s debts) was not significant enough to tip the transaction into a surety case and require the Etridge protocol. The Court of Appeal endorsed a “fact and degree” approach, requiring courts to look at the transaction as a whole to decide whether it was, in substance, a joint borrowing or a surety scenario.

The Supreme Court’s decision – a new “bright line” test

A year later, the case was brought before the Supreme Court. The Appellant argued that the "fact and degree" approach created uncertainty and risk for both lenders and those vulnerable to undue influence. She instead proposed a clear "bright line" test where if a non-commercial loan includes anything more than a trivial benefit for one party alone, the lender should be deemed to be on inquiry and must follow the Etridge protocol.

The Supreme Court agreed with this argument. Lady Simler, giving the judgment of the Court, found that the “fact and degree” test was too uncertain and burdensome. Instead, the Court adopted the “bright line” approach, stressing that this reflects the binary nature of the Etridge principle-either a surety element is present in the transaction, putting the lender on notice, or it is not.

The Court emphasised that this new test is simple, clear, and easy for lenders to apply in practice. It allows lenders to put in place standard procedures, without requiring staff to make difficult or subjective decisions about the nature of each loan. This approach, the Court said, restores the workable simplicity originally intended by Etridge.

Practical implications for lenders

This decision has significant implications for lenders:

A low threshold: The “bright line” test creates a new rule for when lenders must follow the principles of Etridge: if any "non-trivial" part of a non-commercial joint loan is for one party's sole benefit, the Etridge steps must be followed. Instead of providing a set threshold for what this would be, the Supreme Court relied on established principles of a de minimis amount being one that is "trifling, insubstantial, inconsequential, immaterial, irrelevant or negligible". In light of this, lenders should treat all joint borrowing cases with an element of sole benefit for a single borrower as transactions where Etridge should be applied.
Scope of protection: The decision strengthens the protection available to vulnerable parties in non-commercial relationships. The new rule will ensure that individuals are better informed and advised before taking on liabilities that may not be to their financial advantage.
Operational impact: Lenders should review their procedures to ensure that, in any joint loan with a non-trivial sole benefit element, the Etridge protocol is triggered as a matter of course. To avoid disputes over whether a benefit is trivial, it is sensible to apply the Etridge guidelines whenever there is any indication that one borrower may benefit solely.

Conclusion

The Supreme Court’s judgment in OSB marks a significant development in the law of undue influence and lender obligations. Lenders should, as a default position, follow the Etridge guidelines whenever a non-commercial joint loan includes any element that benefits only one borrower, to avoid discussion about whether that benefit is trivial or de minimis entirely. Lenders will still be able to enjoy the comfort granted to them by their security, but should enjoy it by being disciplined and ensuring their processes are updated to reflect this new approach. Failure to comply may risk their security being deemed unenforceable.