The law firm representing borrowers in an appeal ruling against a savings bank yesterday published the impact of the Supreme Court’s decision on victims of economic abuse.
Attorney Howard Kennedy, representing Catherine Waller-Edwards’ successful appeal against the lender, said it was a “landmark development” to protect individuals vulnerable to “undue influence” in financial decisions.
The key to the case is whether the OSB should follow a specific procedure (called the Etridge protocol) to ensure that Waller-Edwards understands the full meaning of the same property as Nicholas Bishop, the partner at the time, at that time.
The agreement requires lenders to confirm that the borrower has received independent legal advice if the mortgage with another person is for the benefit of that person.
Waller-Edwards’ case is particularly complex because the funds raised from the accounts are used for several different purposes and therefore are “mixed” loans.
Part of the mortgage is used to repay the bishop’s sole debt, but partly for the common good of the couple.
Background of the case
The situation that leads to re-loaning is also complicated.
Waller-Edwards owns a £600,000 home without a mortgage, saves £150,000 and has a £7,000 pension before establishing a relationship with Bishop in 2011.
But she agreed to exchange the home and savings for property Bishop is already responsible for another lender.
The couple then deducted a £384,000 mortgage from a savings bank and cashed out the new property, which the bishop said was repaying the first mortgage, clearing £39,000 debt and jointly investing in another buying and selling property.
In fact, without the knowledge of OSB, Bishop also used £142,000 from the mortgage to pay his ex-wife the divorce agreement.
After the OSB approval was still settled, the relationship between Bishop and Waller-Edwards collapsed and he moved out and the mortgage on the house was defaulted.
The OSB initiated a ownership lawsuit in 2021, which Waller-Edwards appealed, but was overturned, and the final case ended in the Supreme Court with a ruling yesterday.
In this case, the key issue is the fact that the re-loan is a “mixed” transaction, as the money is used for different purposes, not all payments for both interests.
Although the bank did not know the payment to the bishop’s ex-wife, which was for his benefit, not Waller-Edwards’ benefits, the lender realized the £39,000 used to clear the debt.
As a result, Waller-Edwards’ legal team was able to successfully argue that she effectively acted as a guarantee of the element, which made it a so-called “guarantor” deal rather than a co-collateral.
Another aspect of the legal argument is whether the £39,000 element is large enough to trigger the lender, needing to follow the agreement and checking that the borrower is not acting “under undue influence”.
Yesterday’s ruling clarified that in any case, the borrower should follow the agreement if one borrower is liable for the debts of another borrower without any obvious advantage.
Landmark ruling on victims of economic abuse
“The Supreme Court’s ruling is a landmark development in the Improper Impact Act, the most important thing since Etridge,” said Joel Leigh, partner at Howard Kennedy.
“It is worth noting that hybrid trading has been around for a long time and only feasible tests have been confirmed.
“While some lenders may have taken a cautious approach, the lack of formal approval may leave many vulnerable people without recourse.
“These people rely on partners who abuse trust are attracted to transactions that expose them financially.
“Many people will lose their homes, reputation and stability, lack the means or confidence to challenge it.
“Even those who are ready to challenge such contracts will face a tough battle because if there is no law to recognize a mixed deal, it is doomed to fail unless (as in Catherine’s case) is taken to the Supreme Court on the land.
“The Supreme Court’s judgment provides long-term clarity and important safeguards: From now on, in any non-commercial hybrid transaction, the minimum limit is exceeded [trivial] The guaranteed element is sufficient for the lender to make an inquiry and requires compliance with the Etridge protocol.
“Catherine’s struggle not only ensured justice for her, but also reshaped the legal landscape and expanded meaningful protections for men and women at risk of economic abuse within relationships.”
Response from lenders
“We have noticed the Supreme Court’s decision.
“We will naturally be disappointed with this decision, which is based on a very special set of facts.
“This is a complex case, caused by a loan in 2013 and we are evaluating the implications of the ruling, although we note that cases involving undue impacts are rare.
“At the same time, we will review the current process.”
