Welcome to the latest edition of Banking and Finance Insights, in which we highlight recent legal developments which may be of interest to in-house legal teams and others. This edition includes updates on recent case law, legal publications and regulatory reform.
We would be happy to discuss in more detail any of the issues covered in this edition and would also welcome any requests for future editions – please do get in touch with one of the team.
Cases of interest
By Susan Mitchell
- Undue influence – independent legal advice
In June, the Supreme Court issued a significant judgment on the issue of when a lender is “put on inquiry” that one party’s agreement to a joint borrowing transaction may have been obtained by undue influence, overruling the Court of Appeal’s decision (as discussed in the July 2024 edition of Insights). In Waller-Edwards v One Savings Bank Plc, the Supreme Court rejected the nuanced approach of the Court of Appeal (which required that the transaction be looked at as a whole to decide whether, as a matter of fact and degree, the loan was made for the purposes of one borrower rather than for joint purposes). The Supreme Court held instead that:
- the question is a binary one – either there is, on the face of the transaction, a surety element (giving rise to a heightened risk of undue influence) or there is not
- where one party in a non-commercial relationship has, for no consideration, taken on a legal liability that is not theirs and for which they would otherwise have no responsibility, that should be treated as a surety transaction rather than as a joint loan, and the lender should carry out the steps identified in the “Etridge protocols”. The purpose of the loan and who benefits from it is not the point
- the court adopted a bright line test (which it stated is clear and promotes certainty) – a creditor is put on inquiry in any non-commercial hybrid transaction where, on the face of the transaction, there is more than a de minimis element of borrowing which serves to discharge the debts of one of the borrowers and so might not be to the financial advantage of the other.
Conclusion
This decision, while potentially widening the scope for challenges based on undue influence, should provide greater clarity and operational simplicity for lenders. The requirements of the “Etridge protocols” (such as insisting on independent legal advice) should be applied to joint borrowings where any non-de minimis part of the loan is to be applied to debts which are not incurred by all borrowers. Lenders should also bear in mind the Supreme Court’s warning that the use of the Etridge steps will not absolve a lender of the need to exercise careful judgment if there are any “red flags” indicating there may be undue influence.
- Implied duties of good faith and rationality; execution of deeds
In (1) Macdonald Hotels Limited and (2) Macdonald Botley Park Limited v Bank of Scotland plc, the issues considered by the High Court included whether a Braganza duty should be implied into the power of Bank of Scotland (BoS) to give or withhold consent to disposals of secured assets. A Braganza duty (named after the leading case, Braganza v BP Shipping Limited) is an implied obligation to exercise a contractual discretion in good faith, and not arbitrarily or capriciously.
The factual background to the case (following the international banking crisis in 2008) was a series of discussions and amendments to loan arrangements between the Macdonald Hotels group and BoS, and BoS requirements that the group dispose of assets and deleverage the business. One of the arguments before the court related to whether a Braganza duty should be implied into a facility agreement disposal restriction (which prohibited disposals without the prior written approval of BoS), and (if so) the requirements this would place on BoS in reaching its decision on whether or not to consent to such a disposal.
The court held that:
- such a Braganza term should be implied – there was no blanket prohibition on asset disposals, but instead BoS had agreed that Macdonald could seek a change in the security
- in considering such a request, BoS (a) was free to act in what it perceived to be in its own best interests; (b) was not obliged to balance its interest against those of Macdonald Hotels; and (c) was not obliged to do anything other than exercise its own judgment (necessarily arrived at by its officials and subject to its own internal management controls) in arriving at a conclusion. However, neither party could have intended that BoS would be entitled to refuse consent for a reason or reasons unconnected with what it perceived to be its own commercial best interests or refuse consent when no reasonable entity in the position of BoS could have refused consent
- BoS had not acted in breach of this implied term by preferring its own commercial best interests over those of Macdonald Hotels.
The judgment also contained obiter comments concerning the drafting required where a deed is only to be executed as a deed by some parties and under hand by others.
Conclusion
This case provides a reminder that inclusion of a lender consent carve-out to facility agreement restrictions placed on a borrower can lead to a Braganza duty of the lender being implied into the relevant provision (even if the carve-out allows the lender to act in its sole discretion or similar). It also provides useful guidance on the way a court may analyse the decision-making process a lender needs to follow to comply with such an implied term. It may be worth lenders bearing in mind that refusal to include such a carve-out would remove the risk of a Braganza duty being implied.
Case update
Powers of Attorney and Legal Assignments
In January, the City of London Law Society Financial Law Committee published a note commenting on Frischmann v Vaxeal Holdings SA and others [2023]. The Committee stated their opinion is that, where an English or overseas company or an English LLP is executing a legal assignment, the requirement in section 136 of the Law of Property Act 1925 for the assignment to be by writing under the hand of the assignor is satisfied where the assignment is executed by an English company or English LLP acting by its attorney as envisaged by section 47 of the Companies Act 2006 or by an overseas company acting by its attorney.
The Frischmann case (which we discussed in our first edition of Insights back in February 2024) related to execution by an individual, holding that the section 136 requirement was not satisfied by a son signing as his father’s attorney and therefore the assignment took effect only as an equitable assignment. However, there was widespread concern that it could be interpreted as applying a similar rule to execution by companies and LLPs, so the FLC’s contribution is a welcome clarification.
Regulatory update
By Jessica Caws
Consumer credit reform is on the horizon
The Government has consulted on proposals to reform the Consumer Credit Act 1974 (CCA) framework. The regime is vast and complicated, and as a result HM Treasury has decided to split its consultation into two phases. Phase 1, which closed for comment on 21 July 2025, dealt with information requirements, sanctions and criminal offences.
The legislation governing consumer credit has not kept up with the way in which the consumer lending market has changed; it is poorly adapted to technology and is complex and confusing. The Government is looking to put in place a simpler regime which allows flexibility and innovation (supporting the use of technology) while still delivering good consumer outcomes.
One of the key areas the Government intends to reform is that around information provision. The current regime can be confusing (with requirements dotted around legislation) and doesn’t always assist consumer understanding. Drafting consumer credit agreements requires a specialist with knowledge of the workings of the legislation. The Government proposes instead an information disclosure regime contained only in the FCA Handbook, which is aligned with Consumer Duty.
Currently, where a firm breaches certain information requirements in the CCA, the agreement may be unenforceable. The Government confirms its view that the sanctions provide little benefit for consumers and that it is no longer necessary to include these in the consumer credit regime.
Reform of the CCA to reflect more modern practices as to lending (and the taking out of loans) is long overdue. No doubt industry will support consumer credit regime reform with open arms. Phase 1 is now closed for comment, and we should expect Phase 2 imminently.
Key Contacts
The content of this article is for general information only. It is not, and should not be taken as, legal advice. If you require any further information in relation to this article please contact the author in the first instance. Law covered as at September 2025.