The borrower and her partner cohabited in a property that was owned in joint names subject to a declaration of trust providing that 1% was held for the partner and 99% for the borrower. The borrower had exchanged her mortgage-free property (worth around £585,000) plus £150,000 for the property, and had been persuaded to accept two charges over the property. In 2013 the bank was approached for a buy-to-let mortgage over the property and agreed to lend £384,000. So far as the bank knew at the time of mortgage transaction, the mortgage advance was being used: (a) as to some £200,000 to pay off a previous mortgage, (b) as to some £40,000 (to pay off a £24,000 debt on the partner's car and £16,000 on his credit card), and (c) as to some £142,000 to purchase another property. In reality, some £233,800 of the bank loan was used to pay off the previous mortgage and the partner’s debts, with the remaining balance transferred to the partner’s ex-wife in respect of a divorce settlement. Subsequently, the relationship between the borrower and the partner ended. The partner moved out of the property and ceased paying the mortgage instalments. Following default in the repayments due in respect of the loan, the bank brought possession proceedings. The trial judge decided, and the appeal judge agreed, that the mortgage had been entered into as a result of the then-partner’s undue influence but that as a matter of fact and degree, the bank had not been put on inquiry of the undue influence that had been exerted over the borrower by the partner. Permission for a further appeal was limited to the question of the correct legal test in a hybrid case, namely a situation in which the borrowers sought a loan partly for their joint non-commercial purposes and partly for the benefit of one borrower only.
On the borrower’s appeal—
Held, appeal dismissed. In a hybrid non-commercial loan situation such as the present case, the correct test was not to ask whether the lender was put on inquiry unless the element of the transaction that was for the sole benefit of one of the borrowers was trivial. Such a test would introduce some uncertainty and (per Peter Jackson and Falk LJJ) be unduly onerous to lenders and to many borrowers. Rather, the correct test was to require the court to look at the transaction as a whole and to decide, as a matter of fact and degree, whether the loan was being made for the purposes of the borrower with the debts, as distinct from their joint purposes. In the present case, the judges below had not erred in deciding that the loan was, looked at as a whole and from the point of view of what the bank knew, a joint borrowing made for their joint purposes (paras 25, 33–36, 38–39, 40, 43).
Marc Beaumont (instructed directly) for the borrower.
Antonia Halker and John Ditchburn (instructed by Equivo Ltd) for the bank.