[2025] EWHC 1972 (Comm)

Mrs Bandak seeks to rely on an allegation that her former husband Mr Emmett exerted “presumed” undue influence over her, of which she asserts CPF One had constructive notice.

The law on undue influence was set out by the Judicial Committee of the House of Lords in Royal Bank of Scotland v Etridge [2002] 2 AC 773. A summary of the principles laid down by the House can be found in Snell’s Equity (35th edition, Sweet & Maxwell) at paragraphs 8-019, 8-020, 8-028 to 8-033 and 37-024 to 37-028.

Those principles were recently reaffirmed by the Supreme Court in Waller-Edwards v One Savings Bank plc [2025] UKSC 22, at [20] to [22], [29], and at [32] to [36], where Lady Simler (with whom Lord Briggs, Lord Hamblen, Lord Stephens, and Lady Rose agreed) said this:

“32.

The test formulated in [Barclays Bank plc v O’Brien [1994] 1 AC 180] and [Etridge] for situations involving non-commercial sureties was new. It moved away from a test of actual or constructive notice in fixing the bank with knowledge, and introduced a low threshold for putting the bank on inquiry unless further steps were taken to bring home to the surety the risks she was running. [Etridge] was an extension of O’Brien and to the extent that the threshold had been misunderstood, [Etridge] confirmed that the low-level set for triggering a requirement on the bank was much lower than required to satisfy a court that the transaction was in fact procured by undue influence. No factual inquiry or assessment of any kind was required of the bank. Rather, the ‘on inquiry’ threshold is triggered whenever a wife offers to stand surety for her husband’s debts; in other words, in every case where the relationship between the surety and the debtor is ‘non-commercial’ because the surety is gratuitously taking on a liability to pay a debt on behalf of her husband for which she is not otherwise legally liable. However, the quid pro quo for that low threshold was the correspondingly modest requirement imposed on a bank ‘put on inquiry’ as to the steps it must take to avoid being affected by the rights of the wife whose consent may have been procured by her husband’s wrongdoing. As Lord Hobhouse of Woodborough explained at [108] of [Etridge]:

‘... the advantage of this low threshold is that it assists banks to put in place procedures which do not require an exercise of judgment by their officials and I accept Lord Nicholls’s affirmation of the low threshold. This, however, is not to say that banks are at liberty to close their eyes to evidence of higher levels of risk or fail to respond appropriately to higher risks of which they have notice.’

33.

The steps that must be taken by a bank in these circumstances have been described as ‘the Etridge protocol’. Lord Nicholls set them out at [79]. They can be summarised as follows:

(a)

The bank must communicate directly with the wife, informing her that for her own protection it will require written confirmation from a solicitor, acting for her, to the effect that the solicitor has fully explained to her the nature of the transaction and its practical implications for her; and that the purpose of this requirement is that she will not be able to dispute that she is legally bound by the transaction once the surety documents are signed.

(b)

The bank must ask the wife to nominate a solicitor she is willing to instruct to advise her, separately from her husband, and act for her in giving the necessary confirmation to the bank; that solicitor may be the same solicitor who is acting for the husband but if a solicitor is already acting, she should be asked whether she would prefer a different solicitor.

34.

Lord Nicholls made clear that the bank should not proceed with the transaction until it has received an appropriate response directly from the wife. The bank should provide information to the wife about the husband’s financial affairs, either directly or through solicitors, and if consent from the husband to do so is not forthcoming, the transaction cannot proceed. In an exceptional case where the bank suspects the wife has been misled (or is not acting of her own free will), the bank must inform the wife’s solicitor of the facts giving rise to the suspicion. The bank should obtain written confirmation from the wife’s solicitor that the information and necessary advice have been given.

35.

Plainly, the risk that the wife’s consent has been procured by undue influence or misrepresentation will not be eliminated by compliance with the Etridge protocol. But those steps are liable to reduce it to a level which makes it appropriate for a lender to proceed: see [3], [37] and [148].

36.

Finally, Lord Nicholls described the development of the principle in O’Brien in the following way:

‘89. ... It is a workable principle. It is also simple, coherent and eminently desirable. I venture to think this is the way the law is moving, and should continue to move. Equity, it is said, is not past the age of child-bearing. In the present context the equitable concept of being “put on inquiry” is the parent of a principle of general application, a principle which imposes no more than a modest obligation on banks and other creditors. The existence of this obligation in all non-commercial cases does not go beyond the reasonable requirements of the present times. In future, banks and other creditors should regulate their affairs accordingly.’”

It is worth bearing in mind that, previously in Etridge, Lord Nicholls (with whom all the Law Lords agreed) had said this:

“30.

I return to husband and wife cases. I do not think that, in the ordinary course, a guarantee of the character I have mentioned is to be regarded as a transaction which, failing proof to the contrary, is explicable only on the basis that it has been procured by the exercise of undue influence by the husband. Wives frequently enter into such transactions. There are good and sufficient reasons why they are willing to do so, despite the risks involved for them and their families. They may be enthusiastic. They may not. They may be less optimistic than their husbands about the prospects of the husbands’ businesses. They may be anxious, perhaps exceedingly so. But this is a far cry from saying that such transactions as a class are to be regarded as prima facie evidence of the exercise of undue influence by husbands.

31.

I have emphasised the phrase ‘in the ordinary course’. There will be cases where a wife's signature of a guarantee or a charge of her share in the matrimonial home does call for explanation. Nothing I have said above is directed at such a case.

…

32.

I add a cautionary note, prompted by some of the first instance judgments in the cases currently being considered by the House. It concerns the general approach to be adopted by a court when considering whether a wife’s guarantee of her husband’s bank overdraft was procured by her husband’s undue influence. Undue influence has a connotation of impropriety. In the eye of the law, undue influence means that influence has been misused. Statements or conduct by a husband which do not pass beyond the bounds of what may be expected of a reasonable husband in the circumstances should not, without more, be castigated as undue influence. Similarly, when a husband is forecasting the future of his business, and expressing his hopes or fears, a degree of hyperbole may be only natural. Courts should not too readily treat such exaggerations as misstatements.

33.

Inaccurate explanations of a proposed transaction are a different matter. So are cases where a husband, in whom a wife has reposed trust and confidence for the management of their financial affairs, prefers his interests to hers and makes a choice for both of them on that footing. Such a husband abuses the influence he has. He fails to discharge the obligation of candour and fairness he owes a wife who is looking to him to make the major financial decisions.”

So, pausing there, and shortly put, the question is whether, as a matter of fact, a husband’s influence over his wife has been abused, although one must bear in mind the purpose behind the presumption laid down by Lord Nicholls (at [6]):

“Undue influence is one of the grounds of relief developed by the courts of equity as a court of conscience. The objective is to ensure that the influence of one person over the other is not abused.”

The essence of the presumption is to prevent abuse or wrongdoing; it is not to save the surety from bad judgment.