Mortgage lender not fixed with constructive notice of undue influence

In order to be fixed with constructive notice of undue influence, a mortgage lender must be put on inquiry as to the position and fail to take action. The High Court has considered this issue in Waller-Edwards v One Savings Bank plc [2023] EWHC 2386 (Ch), an appeal from the county court. The case concerned an order for possession of property called Spectrum and adjoining land in Wimborne, Dorset, made in favour of One Savings Bank against Nicholas Bishop and Catherine Waller-Edwards in December 2022. Waller-Edwards argued that her consent to the legal charge of October 2013 was procured by the undue influence of Bishop, her then partner, that the bank was fixed with constructive notice of the undue influence and that she was entitled to have the charge set aside. The defendants commenced a relationship in 2011 when the second defendant was financially independent. Waller-Edwards was persuaded by Bishop, a builder, to exchange her property and savings for Spectrum, which he was in the process of constructing. On the exchange it became apparent that Spectrum was subject to an existing charge to a third party, Higgins. Waller-Edwards was persuaded to proceed and to agree to an extension and replacement of the Higgins charge to fund the construction works to the tune of £220,000. The £384,000 raised by remortgage to the bank repaid the first charge, with the remainder going to Bishop, who paid £142,000 to his wife as a divorce payment. The defendants split up shortly afterwards. The judge decided that while Waller-Edwards’ consent had been procured by undue influence, the bank was not put on inquiry in respect of it. The question on Waller-Edwards’ appeal was solely whether the bank was on inquiry as to the undue influence. The bank’s understanding of the remortgage was that the defendants were a couple who jointly owned property which they were looking to remortgage to pay off existing debt and buy another property. A mortgage lender is not put on inquiry simply because the relationship between the borrowers is non-commercial. This was not a surety-type case where the transaction was not on its face to the financial advantage of the wife or person in an equivalent position: see Barclays Bank v O’Brien [1994] 1 AC 180. The fact that just over 10% of the total borrowing was to repay Bishop’s debts was not sufficient to put the bank on inquiry. Solicitors’ knowledge of the divorce payment acquired prior to their instruction by the bank could not be imputed to it. Waller-Edwards’ rights against Bishop were not enforceable against the bank. Louise Clark is a property law consultant and mediator