The Supreme Court held that a bright line test is the correct legal test for deciding when a lender is put on inquiry in a non-commercial hybrid loan transaction.
Previous case law established that banks and other lenders are put on inquiry whenever, on the face of a three-way transaction, the vulnerable partner in the relationship is offering to stand surety for their partner’s debts.
This case concerned a less straightforward transaction involving a non-commercial loan sought by a couple that was, on the face of it, partly for their joint benefit and partly for one’s sole benefit.
The Supreme Court held that these so-called “hybrid” transactions should be treated as surety transactions and that lenders should be put on inquiry.
The Supreme Court, in allowing the appeal, outlined the reasons why the bright line approach is preferable to the fact and degree approach endorsed by the lower courts. These included the binary basis, achieving “workable simplicity” and encouraging banks to prevent future litigation.
Read the full article below
Case Digest July 2025 No. 10
Read the full judgment here.
