Enforcing against joint borrowers: UK Supreme Court raises the bar for banks

On 4 June 2025, the UK Supreme Court handed down an important judgment on lending to parties in non-commercial relationships: Waller-Edwards v One Savings Bank Plc.¹

The judgment addressed a situation that has often been a challenge for lenders. When might a guarantor or co-borrower be able to avoid liability on the basis that they only agreed to take on the relevant obligation as a result of “undue influence” by the primary borrower? What does it take for a bank to be “on inquiry” as to the existence of undue influence?

In England, the law has long been governed by a trio of House of Lords decisions, culminating in Royal Bank of Scotland v Etridge.² There are two categories of case:

1. “Surety” cases, where the vulnerable partner guarantees (or borrows to pay off) the debts of the other partner. Banks are “on inquiry” if they know that the parties are in a non-commercial relationship and the transaction is on its face disadvantageous to the vulnerable partner. Unless the bank takes particular steps, which usually entail ensuring that independent legal advice is taken, the transaction may be set aside if undue influence is later found to exist.

2. “Joint borrowing” cases, where the parties borrow money jointly for a shared purpose. In these cases, banks are not “on inquiry” because the transaction is not obviously to the detriment to the vulnerable partner.

In the decision released this week, the UK Supreme Court was faced with a “hybrid” case. The bank lent £384,000 to a couple jointly. Most of it was for joint purposes. But £39,500 was for one partner’s personal car and credit card debt (and therefore not to the benefit of the other partner).

The Court of Appeal held that the bank was not “on inquiry”. Overall, assessed as a matter of fact and degree, the transaction was for the couple’s joint purposes.

The Supreme Court disagreed. It held that the bank was “on inquiry”. While the bulk of the transaction concerned borrowing for joint purposes, there was a more than trivial aspect that fell within the “surety” category of case.

Given that the bank had apparently not taken steps to ensure that independent advice had been given to Ms Waller-Edwards (the partner who had been subjected to undue influence), the bank’s ability to enforce its security against her was put in doubt. The Supreme Court sent the case back to the Court below to consider what remedies should follow as a result.

Impact for New Zealand

New Zealand law in this area is unsettled.

Judges and commentators have said that New Zealand is “highly likely” to follow the English approach, at least in banking cases.³ Courts have also proceeded on the assumption that Etridge represents the law,⁴ and borrowers/guarantors have relied on it in defeating summary judgment applications brought by lenders.⁵

However, Etridge has not been definitively adopted in New Zealand. Doing so would constitute a departure from the earlier, less strict, approach adopted by the Court of Appeal in Wilkinson v ASB Bank Ltd.⁶ On that approach, a bank is only on inquiry if it has sufficient knowledge of facts to give rise to a presumption of undue influence.

Given the recent developments in the UK arising from Waller-Edwards, it is possible that this area of the law will receive greater attention in New Zealand in the future.

If the issue does receive further attention, consideration will need to be given to New Zealand’s regulatory landscape, particularly the Credit Contracts and Consumer Finance Act 2003 and the Responsible Lending Code. Compliance with a bank’s regulatory obligations is likely to go a very significant way towards addressing issues which arise in cases like Waller-Edwards and Etridge. However the question of undue influence is conceptually distinct from the question of regulatory compliance and this week’s case is sure to be of interest to parties considering this longstanding and difficult issue.

If you have any questions about the matters raised in this article, please get in touch with the contacts listed or your usual Bell Gully adviser.

^[1]^{Waller-Edwards v One Savings Bank Plc [2025] UKSC 22 – available here.}
^{[2] Barclays Bank v O’Brien [1994] 1 AC 180; CIBC Mortgages plc v Pitt [1994] AC 200; Royal Bank of Scotland v Etridge [2002] 2 AC 773.
[3] Hogan v Commercial Factors Ltd [2006] 3 NZLR 618 (CA) at [44]; Burrows, Finn and Todd Law of Contract in New Zealand (7th ed, 2022) at 445.}
^{[4] ANZ National Bank Ltd v Smith (2009) 10 NZCPR 898.}
^{[5] Rutherford v Bank of New Zealand HC Wellington CIV-2006-485-1345, 5 February 2007; Rabobank New Zealand Ltd v Balderston HC Wellington CIV-2006-485-117, 4 May 2006.}
^{[6] Wilkinson v ASB Bank Ltd [1998] 1 NZLR 674 (CA).}

Disclaimer: This publication is necessarily brief and general in nature. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.