The Supreme Court ruled yesterday that a bank had a duty to investigate whether a woman was under the undue influence of her partner when she took out a mortgage that would be used in part to pay her partner’s debts.
The case was brought by homeowner Catherine Waller-Edwards who, according to the ruling, started a relationship in 2011 with Nicholas Bishop, a property developer and builder.
According to the ruling, she was emotionally vulnerable at the time. She was, however, also financially secure and owned her own home mortgage free.
Waller-Edwards was the sole owner of a mortgage-free home worth £585,000 with savings of around £150,000 when she got into a relationship with Bishop in 2011.
She was said to be “emotionally vulnerable but financially independent” at the time.
Waller-Edwards said in 2012, Bishop persuaded her to exchange her home and savings for a property he was building, which already had a charge against it. In 2013, this property was remortgaged for £384,000, and the money was to be used to purchase a buy-to-let property for the couple and repay an existing mortgage of £200,000.
OSB was not aware that the loan was also used to make a divorce payment of £142,000 to Bishop’s ex-wife.
After the remortgage was complete in October 2013, the relationship ended. Waller-Edwards continued to live in the property, and the two fell into arrears. Possession proceedings began in November 2021 when the mortgage defaulted.
But the Supreme Court held unanimously that One Savings Bank (OSB) PLC should have carried out checks to discover whether undue influence was placed on Waller-Edwards by her partner, Nicholas Bishop, because it knew that money it was lending to allow her to remortgage her home would be used in a way that did not benefit her financially.
A spokesperson for OSB said: “We note the judgement of the Supreme Court. We are naturally disappointed by the decision, which was based on a very particular set of facts.
“This is a complex case arising from a loan in 2013, and we are assessing the implications of the ruling, although we note that cases involving undue influence are rare. At the same time, we will review our current procedures.”
Reflecting o the ruling. Jennifer Richardson, financial crime partner at law firm Blackfords LLP, said: “This significantly increases the liability on lenders to undertake checks in respect of those it is lending to, however the decision also raises a lot of questions about how this will be applied in the case of mortgage brokers for example.
“Will this liability extend to them as well? Should this lead to a more stringent regulatory regime? Solicitors for example are often expected to identify similar situations when dealing with clients, and face regulatory investigations by the SRA if they fail to do so. It may be that we see a similar tightening of regulation amongst lenders as a result of this case.”
