Banking and finance legal update: Q2 2025

Bright line test for undue influence applies to hybrid cases

The Supreme Court has clarified when a lender is considered to be “on inquiry” about potential undue influence in non-commercial loan transactions involving more than one borrower where part of the loan is applied to discharge the other borrower’s debt.

Traditionally, courts have distinguished between:

• Joint borrowing cases: Where two individuals borrow money together for a shared, non-commercial purpose (e.g. buying a home). In these cases, lenders are generally not expected to investigate potential undue influence.
• Surety cases: Where one person provides a guarantee or security for another’s debt. Here, lenders are expected to be on inquiry and must follow the Etridge guidelines to protect against undue influence.

In this case, the borrower argued that her situation was a hybrid: although the loan was in joint names, part of it (£39,500 out of £384,000) was used to pay off her partner’s personal debts. She claimed this made it a surety case, and the lender should have followed the Etridge guidelines.

The lower courts rejected that argument. But the Supreme Court allowed an appeal by the borrower, ruling that:

• If any more than a de minimis part of a joint loan is used to pay off one borrower’s personal debts and the lender is aware of this, the transaction must be treated as a surety case.
• In such cases, the lender is on inquiry and must follow the Etridge guidelines to ensure the borrower is entering the agreement freely and with informed consent.
• There is no need to assess the transaction as a whole to decide, as a matter of fact and degree, whether or not there is a surety element that gives rise to a heightened risk of undue influence.

This decision broadens the scope of when lenders must follow the Etridge guidelines, but also provides a clear and predictable rule that benefits lenders by removing uncertainty.

What are the key takeaway points?

• A lender is put on inquiry of undue influence in any non-commercial hybrid transaction where it appears on the face of it that more than a de minimis element of the borrowing is to repay the debts of only one of the borrowers.
• A lender is not expected to ascertain whether there is a case of undue influence. Once the lender is on notice, they are simply expected to take reasonable steps to satisfy themselves that the vulnerable partner understands the implications of the proposed transaction by following the Etridge guidelines.
• Lenders should review internal procedures to ensure Etridge compliance in all relevant hybrid cases.

Find out more

Waller-Edwards v One Savings Bank plc [2025] UKSC 22 (4 June 2025)

Waller-Edwards v One Savings Bank Plc: bright line test for undue influence applies to hybrid cases

Asymmetric jurisdiction clauses and The Hague Judgments Convention

The Hague Convention of 2 July 2019 on the recognition and enforcement of foreign judgments in civil or commercial matters (Hague Judgments Convention) entered into force between the UK and (amongst others) EU member states (except Denmark) on 1 July 2025. The Hague Judgments Convention provides a framework for the recognition and enforcement of civil or commercial foreign judgments internationally.

The Hague Judgments Convention is expected to make it easier to enforce judgments from the English courts in EU member states who are party to it. Before Brexit, English judgments were enforceable in the courts of EU member states under the Recast Brussels Regulation, subject to certain exceptions.

Following the UK’s withdrawal from the EU and the end of the transition period, the European enforcement regime ceased to apply to the enforcement of English judgments in the EU. Instead, the 2005 Hague Convention on Choice of Court Agreements applied, but only to judgments of courts of contracting states designated in exclusive jurisdiction clauses (for example where both the lender and the obligors can only bring proceedings in the English courts). Lenders had typically preferred to use asymmetric jurisdiction clauses (for example where the lender can bring proceedings in any jurisdiction of its choice, but the obligors can only bring proceedings in the English courts), rather than exclusive jurisdiction clauses in English law finance documents. However, when the European enforcement regime ceased to apply to English judgments, some lenders adopted exclusive jurisdiction clauses instead in order to ensure finance documents fell within the scope of the 2005 Hague Convention. The entry into force of The Hague Judgments Convention should largely address this issue.

However, in a separate development, in the recent case of Società Italiana Lastre SpA (SIL) v Agora SARL Case C 537/23 ECLI:EU:C:2025:120, the European Court of Justice (ECJ) held that as a matter of EU law, asymmetric jurisdiction clauses can be valid but subject to certain restrictions, including that clause confers jurisdiction only on the courts of one or more EU member or Lugano Convention states (the EU, Denmark, Iceland, Norway and Switzerland). Whilst the ECJ did not rule on what should happen where an asymmetric jurisdiction clause limits obligors to bringing proceedings in the English courts but allows a lender to bring proceedings in other courts, the decision increases the likelihood that a court in an EU member state would refuse to uphold such a clause.

What are the key takeaway points?

• With The Hague Judgments Convention coming into force between the UK and EU member states, the enforcement of judgments from the English courts in the courts of EU member states (except Denmark) is expected to become easier.
• Lenders may be more willing to use asymmetric (one-sided) jurisdiction clauses, as judgments arising from agreements containing such clauses will generally be enforceable in the courts of EU member states under The Hague Judgments Convention.
• However, the outcome in the Lastre case makes it more likely that a court in an EU member state presented with a dispute in breach of such an asymmetric jurisdiction clause would refuse to stay proceedings in favour of the English courts, therefore lenders may still be somewhat cautious around the use of such clauses.
• Lenders may expect to see adjustments to foreign legal opinions to address these developments.

Find out more

Convention of 2 July 2019 on the Recognition and Enforcement of Foreign Judgments in Civil or Commercial Matters

Società Italiana Lastre SpA (SIL) v Agora SARL Case C 537/23 ECLI:EU:C:2025:120

Examining the burden of proof that a mortgaged asset has not been sold at undervalue

The recent Privy Council case Finlayson v Caterpillar Financial Services Corp [2025] UKPC 24 acts as a reminder that, when it comes to proving whether or not a mortgagee has complied with its duty to take reasonable precautions to obtain the best price on the sale of a secured asset, the burden of proof generally lies with the mortgagor.

The case involved a loan of $9,680,000 (BSD) for the construction of a mega yacht. The loan was guaranteed by the beneficial owners of the borrower and secured against the yacht. The borrower defaulted and the lender took steps to enforce its security. Some repairs to the yacht were required and with permission of a Florida court, the parties undertook those repairs at a cost of $1.7m. The yacht was then sold for £2.43m. Following the sale, the outstanding debt was around £2.76m.

The lender started proceedings against the guarantors to recover the debt. In response, the guarantors claimed that: (i) the lender had failed to comply with its duty as mortgagee to take reasonable precautions to obtain the best price reasonably obtainable at the time of the sale; (ii) that the yacht was sold at an undervalue; and (iii) if the lender had complied with its duty the proceeds of sale would have paid off the outstanding debt. Therefore they, as guarantors, were not liable.

Initially the Supreme Court of the Bahamas found that the lender did comply with its duty on sale of the yacht. The guarantors appealed and the Court of Appeal of The Bahamas dismissed the appeal. It stated that, in this case, the burden of proving a breach of this duty rested on the mortgagor. Therefore, the Court of Appeal held that at trial, for the appellants to have succeeded in their defence, they had to satisfy the court that the lender did not take reasonable care to perform its “duty of taking reasonable precautions to obtain the best price reasonably obtainable at the time of the sale”.

The guarantors then appealed to the Judicial Committee of the Privy Council. The guarantors argued that the Court of Appeal was wrong in holding that the burden of proof rested on the mortgagor. However, the court confirmed that the case they sought to rely on to support this argument (Tse Kwong Lam v Wong Chit Sen [1983] 1 WLR 1349) was an exception to the general rule that the burden of proof is on the mortgagor. In Tse Kwong Lam v Wong Chit Sen, the mortgagee was subject to a conflict of interest as it had an interest in the company which bought the asset. That wasn’t the case in this situation and so the Court of Appeal had been correct and the appeal was dismissed.

What are the key takeaway points?

• When demonstrating that a mortgagee has not complied with its duty to obtain best price, the burden lies with the mortgagor.
• The exception is where the mortgagee has a conflict of interest. If the lender were to sell to a buyer in which it had an interest, it should be prepared to show that the sale was made in good faith and that reasonable precautions were taken to obtain the best price reasonably obtainable at the time of the sale. This can be done through sources such as valuations and additional independent opinions.

Find out more

Finlayson v Caterpillar Financial Services Corp [2025] UKPC 24

Liability for historical building safety defects under Building Safety Act 2022 (BSA) and Defective Premises Act 1972 (DPA)

In a significant and profound case for the construction industry following the Grenfell tragedy, the Supreme Court has upheld a decision that allows developers to recover the costs of repair from negligent contractors and designers. Even where its liability to building owners had been “timed-out”, and the defects had been repaired “voluntarily”, the cost can still be recovered. This will have significant consequences for designers, contractors, and manufacturers who are found negligent in respect of historic cladding and fire safety defects.

To read our full update on the case please see here.

What are the key takeaway points?

• For lenders who have provided financing to developers, this decision should provide some comfort that developers may be able to recover defect repair costs from negligent contractors and designers, despite not being legally obliged to third parties to fix them.
• The decision also confirms that developers could have DPA claims against their supply chain in circumstances where they are facing DPA claims from leaseholders due to the extended limitation periods in the DPA brought into force by the BSA.
• Lenders may also be interested in the court’s comments that the statutory duty under the DPA to build dwellings properly, owed to “every person who acquires an interest (whether legal or equitable) in the dwelling”, cannot be read as referring only to consumers or any other particular category of owner, but rather would embrace a major property company which acquires the building as an investment or a bank which acquires an interest in a dwelling when lending on the security of a mortgage.
• On the other hand, lenders funding contractors and designers should be aware of the potential, following this decision, for the pass-down to such entities of liability for defective design, construction and specification for historic activities related to residential development.

Find out more

URS Corp Ltd v BDW Trading Ltd [2025] UKSC 21 (21 May 2025)

Regulations providing registrar powers to annotate the Register of Overseas Entities

On 30 June 2025, the Register of Overseas Entities (Annotation) Regulations 2025 came into force. The regulations allow the Registrar of Companies to annotate the Register of Overseas Entities in circumstances where:

• an overseas entity has been dissolved, wound up or otherwise ceased to exist;
• the Registrar has given an overseas entity a notice under section 1092A of the Companies Act 2006 (a written notice requiring it to provide information in certain circumstances) and the overseas entity has failed to comply with the notice within the timeframe specified in that notice; and
• where the agent which verified the information provided by an overseas entity upon registration is found not to be supervised under the relevant money laundering regulations.

In the case of a failure by an overseas entity to comply with a section 1092A notice, this will result in the overseas entity not being deemed “registered” on the Register of Overseas Entities for the purposes of the legislation. An overseas entity that is not registered will be prohibited from registering a disposition of land at the Land Registry, including a legal charge.

It should be noted that whilst the regulations allow the Registrar to annotate the register where an overseas entity has failed to comply with a section 1092A notice, they do not require the Registrar to do. Therefore, the registration of a disposition (including a legal charge) by an overseas entity which has failed to comply with a section 1092A notice could be prevented even where the register has not been annotated in this way.

What are the key takeaway points?

• The Register of Overseas Entities needs to be checked for any annotations by the Registrar of Companies with effect from 30 June 2025.
• Even where there are no such annotations, if the overseas entity has failed to comply with a notice under section 1092A of the Companies Act 2006 within the requisite timeframe, such an overseas entity may be prevented from registering a disposition of land (including a legal charge).

Find out more

The Register of Overseas Entities (Annotation) Regulations 2025 and explanatory memorandum.

ECCTA – new guidance on identity verification

As part of the ongoing implementation of the Economic Crime and Corporate Transparency Act 2023 (ECCTA), Companies House has issued updated guidance on identity verification requirements for individuals and Authorised Corporate Service Provider (ACSPs). ACSPs are authorised agents who have registered at Companies House and will be able to (amongst other things) verify the identity of clients for Companies House. Under ECCTA, people will need to verify their identity for Companies House if they are a person with significant control (PSC), a director or someone who files with Companies House.

Guidance – key points for individuals

• Individuals can verify their identity online using documents such as a biometric passport or driving licence, along with their current address and the year they moved in.
• Alternatively, UK residents may verify their identity in person at the Post Office, or via their bank or building society which will require a National Insurance number.
• Individuals may also choose to have their identity verified by an ACSP.

Guidance – key points for ACSPs

• ACSPs must be registered with Companies House and meet its identity verification standards before being able to verify someone’s identity and must have completed identity checks that meet the Companies House verification standard.
• ACSPs must collect and retain specific information, including the individual’s email address (used to send a unique identifier) and details of the identity documents used, the date of verification and whether the check was conducted in person or via digital validation.
• ACSPs must keep copies of all identity checks, including copy documents, for seven years from the date of the check. Failure to do so may result in suspension or removal of their authorised status.
• On receipt of a submission, Companies House will email an 11-character personal code to the person that they can use to connect their verified identity to Companies House records. This code links their verified identity to the public register, which will display the individual’s name, the ACSP’s name, the relevant anti-money laundering supervisory body and the date of verification.

Although identity verification is currently voluntary, it will become mandatory for new PSCs and directors from Autumn 2025. A 12-month transition period will apply for existing directors and PSCs. By Spring 2026 identity verification will be mandatory for anyone filing documents at Companies House.

What are the key takeaway points?

• Borrowers will need to ensure that their directors and PSCs are verified within the 12-month transition period ending in Autumn 2026, and keep in mind that any new directors or PSCs appointed from Autumn 2025 will need to verify their identity.
• By Spring 2026, anyone filing company charges (or other documents) at Companies House will need to be an ACSP or verified.

Find out more

Companies House: Verify your identity for Companies House, Companies House: Tell Companies House you have verified someone’s identity