[2016] CSOH 44




In the cause






Pursuer:  Buchannan;  Balfour + Manson LLP

Defenders:  MacColl;  DLA Piper Scotland LLP

18 March 2016

[1]        In this action, the pursuer seeks reduction of a personal guarantee executed by him on 19 March 2008, which failing a declarator that it is of no effect in respect of funds advanced under a loan facility of later date. 


(i)         The background facts
[2]        The pursuer is 46 years of age.  He was educated at Gordonstoun and Reading University and, from about the mid‑1980s, has had a career in property management and property and land development.  The content of his curriculum vitae, as it stood at 2007, indicated that in the period from 1989 to 2005 he had gained good business acumen, and specifically that he had experience in the acquisition of development opportunities and in advising developers on all angles of residential and mixed use property development. 

[3]        In about 2006, the pursuer, together with Mr Kenneth Tough, a business partner, sought to purchase and develop an area of land at Hilton of Cadboll near Fearn, Tain.  To that end, the pursuer and Mr Tough established Edenroc Isle of Man LP (“Edenroc”), a limited partnership registered in the Isle of Man and having its principal place of business there, which acted through its general partner, Cadboll Homes Limited.  In the conveyancing transaction which followed, Edenroc was the eventual purchaser of the development site.  In order to achieve the acquisition and development of the land, Edenroc sought funding from the defenders, then known as Dunbar Bank plc.

[4]        The negotiations between Edenroc and the defenders in relation to that funding extended from early August 2007 until mid-March 2008.  During that period, extensive correspondence, including numerous email messages and various draft proposals, was sent between the parties.  In particular, some six loan facility letters, constituting offers of loan, were sent by the defenders to Edenroc.  To varying extents, each was different in its terms.  It was understood that each succeeding facility letter superseded the last.  Only the last of that series, dated 14 March 2008, was executed. 

[5]        A common feature of the loan facility letters, dated 3 August 2007, 24 August 2007, 11 March 2008, and a second of 11 March 2008, was a reference to required security in the form of a joint and several guarantee by the pursuer and Mr Tough in the principal sum of £1,000,000 plus interest, charges, costs and expenses.  The subsequent loan facility letters, dated 12 March 2008 and 14 March 2008 made no reference to such a guarantee.  However the second loan facility letter of 11 March 2008 and those of 12 March 2008 and 14 March 2008 included a term to the effect that:  “The security for the Indebtedness will consist of:  ...  Any other security as we may, at our absolute discretion, require.”  Mr William Cowie, a solicitor who was a witness at the diet of proof, considered that provision to be a standard term in such documents.  In cross-examination, the pursuer accepted that as at 19 March 2008 he was aware that the provision in the loan facility letter of 14 March 2008, couched in those terms at clause 5(vi), could embrace a personal guarantee to be provided by him. 

[6]        The loan facility letter, dated 12 March 2008, was sent with a separate letter of even date, being a single page addressed to Edenroc as the borrower, through Cadboll Homes Limited, its general partner, confirming that the intended security falling under that provision was to be a joint and several guarantee by the pursuer and Mr Tough in the principal sum of £1,000,000 plus interest, charges, costs and expenses.  That separate letter had an annexed form attached, which Edenroc, as the borrower, and the pursuer and Mr Tough, as guarantors, were requested to sign as evidence of their agreement to that proposal.  The pursuer signed that form. 

[7]        Following the issue and execution of the loan facility letter of 14 March 2008, it was arranged that the formalities of the loan transaction would be executed on 19 March 2008.  The pursuer was requested to attend the offices of the solicitor acting for Edenroc in order to sign a personal guarantee, the execution of which was necessary before the funds required to complete the acquisition of the development site could be drawn down. 

[8]        On arrival at the solicitor’s offices, the pursuer was presented with an eight page document, the cover page of which indicated that it was an “Individual Guarantee by Simon Christopher Philip Barr in favour of Dunbar Bank plc”.  The pursuer duly signed the document.  It is that personal guarantee which the pursuer seeks to have reduced.

[9]        The pursuer’s position is that he understood that he was in fact signing a joint and several guarantee, rendering him liable in respect of £1,000,000 on such a basis, together with Mr Tough.  He seeks the reduction of the individual guarantee on the basis that he was induced to sign it by misrepresentations on the part of the defenders. 

[10]      The pursuer accepts that following the completion of the loan transaction on 19 March 2008, funds were advanced by the defenders to Edenroc, and that a sum in excess of £1,000,000 is now due by Edenroc to the defenders. 

[11]      I heard the evidence of three witnesses:  the pursuer, Mr Cowie, a partner of R & R Urquhart LLP, Solicitors, a friend of the pursuer’s, who otherwise had acted as his solicitor but who, in this transaction, was acting on behalf of Edenroc, and Mr Ross Connelly, a representative of the defenders. 


(ii)        Discussion
[12]      It was agreed that counsel for both parties would provide written submissions.  I do not repeat these submissions in detail, but the essential arguments set out in them are reflected in what follows.
[13]      For the pursuer, it was submitted that the content of the prior loan facility letters and other correspondence sent by the defenders to Edenroc had constituted relevant misrepresentations and that, in addition, the defender’s position in relation to the pursuer’s personal guarantee had been misrepresented by Mr Mark Smith, an employee of the defenders, in the course of conversations with the pursuer. 

[14]      The submissions presented for the pursuer concentrated exhaustively on the detail and nuances of the actings of the relevant parties, both before and after the date of execution of the personal guarantee, and on the inferences which it was said could in consequence be legitimately drawn, but in essence they resolved to the basic contentions that in determining whether there had been misrepresentations, and if so, their effect, it was necessary to have regard to (1) the form and content of the various loan facility letters, including the separate letters seeking confirmed agreement to security in the form of a joint and several guarantee, and (2) the context of the whole transaction, including the fact that the defenders dealt directly with the pursuer, as guarantor, rather than through solicitors.

[15]      The foundation of the pursuer’s case, however, was provided by the evidence of the pursuer himself.  In a number of respects, he presented as an unsatisfactory witness. 

[16]      Against the background of his stated relevant business expertise, he maintained that when called to Mr Cowie’s offices on 19 March 2008, to sign the personal guarantee, he did not first read the document and was therefore unaware of its content, and did not think it necessary to seek legal advice as to its import, or even to wonder if that might be appropriate, notwithstanding the presence of Mr Cowie, his friend, and in the normal event his solicitor, who witnessed the signing of the document.  In his evidence, Mr Cowie stated that the fact that the document was an individual guarantee was self-apparent and that no legal qualification was necessary to recognise that.  Despite the fact that the cover sheet of the document plainly bore to be that of an individual guarantee, which in cross-examination he accepted, the pursuer maintained that his understanding was that he was signing a joint and several guarantee on the basis that, having signed to confirm his agreement to a joint and several guarantee as the preferred security in relation to the prior loan facility letter of 12 March 2008, all that he was doing was formalising that agreement.

[17]      Against that, it is difficult to accept that the pursuer would have been unable to differentiate between the terms and effect of the document he signed on 19 March 2008 and the form annexed to the letter of 12 March 2008 sent with the loan facility letter of the same date.  It was argued for the pursuer that, by virtue of him having signed that form, there was in effect an agreement between him and the defenders that the security to be provided by him was to be a joint and several guarantee and that the signed form was, in itself, a guarantee in short form.  However, the terms of the letter of 12 March 2008 and of its annexed form do not support either proposition.  Properly interpreted, the signed form simply indicated the pursuer’s agreement to provide a joint and several guarantee on the basis of the defender’s loan offer proposals as they stood at 12 March 2008, prior to subsequent change.  It did not constitute an agreement between the pursuer and the defenders that, on any basis of offer, a joint and several guarantee and nothing else would be required, and does not, in itself, constitute a guarantee.  In terms of the letter to which it was annexed, it was stipulated:

“We refer to our Facility Letter to you dated 12 March 2008 and confirm that the security specified in clause 5(vi) is to be as follows:  


A Joint and Several Guarantee from Ken Tough and Simon Barr …”


The pursuer’s signature simply indicated his willingness to provide such a guarantee in the event of funds being advanced in terms of the loan facility offer of 12 March 2008. 

[18]      The pursuer’s evidence was that, when in attendance at the solicitor’s offices on 19 March 2008, he simply signed what Mr Cowie asked him to sign and was there, at the offices, for that purpose for a matter of some 10‑15 minutes. 

[19]      The legal principle to be applied in such circumstances is well established.  In the context of cautionary obligations it is well settled that as a general rule the cautioner is expected to look after his own interests and to make such enquiries as he considers necessary or appropriate (Smith v Bank of Scotland 1997 SC(HL)111, 117E). 

[20]      When questioned as to whether he had asked Mr Cowie about the document’s content, the pursuer’s response was that he had not.  When asked why not, his response was that “he didn’t know to”.  There was evidence that there was some urgency in securing the execution of the loan agreement.  The sellers of the land were anxious to close the transaction and the execution of the loan agreement had originally been intended to take place the previous day.  It was a stipulated necessary requirement, known to the pursuer, that personal guarantees required to be in place before the funds could be drawn down.  In that context, however, in cross-examination, the pursuer agreed that no one compelled him to sign and that, rather, it was in his own commercial interests to sign in order to secure the funding necessary for the acquisition of the development site.

[21]      He was adamant that he had not read the document, but he conceded that he had signed it freely and unilaterally in order to provide security for Edenroc’s debt to the defenders, up to a limit of £1,000,000 plus interest.  His evidence was that he knew he was going to Mr Cowie’s offices to sign a personal guarantee, and that he could have asked Mr Cowie about anything of concern.  He agreed that in addition to the guarantee which he was to sign, a separate guarantee was to be signed by Mr Tough.  In re‑examination, when asked why he did not ask anything of Mr Cowie, his response was again that “he did not know to ask questions”. 

[22]      Mr Cowie’s evidence was that he had no recollection of what the pursuer had said or done at the relevant time.  The pursuer’s evidence on the whole issue of his signing of the individual guarantee therefore stood on its own, without support. 

[23]      A major factor, said by the pursuer to have induced him to sign the document, was the alleged fact of misrepresentations by Mr Smith, of the defenders, as to how the defenders dealt with personal guarantees.  Throughout his evidence, the pursuer maintained that Mr Smith had informed him specifically that “as a bank, we have never called up a guarantee” and that, as a matter of fact, the defenders had never done so.  Mr Smith was not called as a witness, and accordingly, the pursuer’s evidence in this regard also stands on its own, without support.  Mr Connelly in evidence stated that in the period 2007-2009 there was no policy within the defender’s organisation not to enforce guarantees, that, on the contrary, such an approach would have been against the bank’s existing policy, and that, in any event, such a policy would defy logic, and that it was “beyond belief” that such a policy could have existed.

[24]      The pursuer also maintained that it was represented to him by the defenders that the maximum liability to which he would be exposed under a personal guarantee would be £500,000, and that subsequently it was represented to him that such maximum exposure would be reduced to £250,000. 

[25]      It is clear from the evidence that the pursuer had sufficient financial acumen to assess the benefit of establishing a separate legal entity, based in the Isle of Man, as the principal vehicle for the development project, and that he was accustomed to projects which involved sophisticated financial arrangements.  In 2010, prior to the failing of the project, which resulted in a debt in excess of £1,000,000 becoming due to the defenders, the pursuer transferred his interest in the joint ownership of his family home to the sole ownership of his wife for no consideration.  His explanation for that transaction was that, since at the time he was to be working in Malaysia and would be far from home, the change in title would make it easier to sell the property and to “upsize”, as only his wife would be required to execute any documentation.  Mr Cowie, who acted for the pursuer in the transfer of title, understood that the transfer of title had been put in place by the pursuer in order to remove the assets from the reach of his creditors.  As Mr Cowie put it in the course of his evidence, the pursuer had led him to believe that he had made the change “to protect the family assets if the worst happened”.  He confirmed that in his view the pursuer was familiar with sophisticated financial arrangements.  Mr Cowie saw nothing unusual in the fact that the defenders chose to deal directly with the petitioner, rather than through solicitors, when it was necessary to do so, and would have expected that to be the case.  As it was put in cross-examination to Mr Cowie, who agreed with the suggestion, the pursuer was not “un pauvre naïf”.  Indeed,  the pursuer, in cross-examination, accepted that it was important and sensible to read documents before signing them, that if in doubt it was prudent to seek advice about a document’s content and meaning, and that solicitors were well placed to offer such advice.  Mr Cowie, who was present when the pursuer signed the individual guarantee and who knew him well, confirmed that if he had thought the pursuer was doing something foolish or might have needed advice, he would have spoken to him accordingly.

[26]      On an objective assessment of the content of the pursuer’s evidence, I find him not to have been a credible witness.  Given his expertise in the field of land and property development, the concept that he was unaware of what he was signing and did not consider the importance of the obligation to which he was committing, such as to see no merit in reading the document before signing it, is, to say the least, implausible.  His account of what he maintained Mr Smith said to him in relation to the likelihood of any guarantee being enforced, is also, to say the least, implausible.  The notion that a bank would not seek to enforce a guarantee in circumstances where there was default on a loan makes no commercial sense, but, in any event, in the light of my assessment of the pursuer’s credibility, I do not accept on the balance of probability that Mr Smith in fact said such a thing, or that, even if he had, the pursuer would have placed reliance upon it.

[27]      The principal misrepresentation on which the pursuer placed weight, in maintaining that in reliance upon it he was induced to sign the individual guarantee, is that the security required from him would be a joint and several guarantee.  The pursuer points to the prior series of loan facility letters which make reference to such a security and submits, in effect, that on that basis he was entitled to assume that it was such a security which he was required to sign on 19 March 2008.

[28]      In line with the submission for the defenders, the content of the series of loan facility letters, however, bears scrutiny.  Assessed objectively, they reflect the changing aspects of an ongoing negotiation.  The terms of the various loan facility letters differ in relation to a number of issues including the extent of the predetermined level of the loan to be advanced, the specification of the purposes to which the loan was to be put, and the type of security to be required.  Although the pursuer placed reliance on the fact that amongst the stipulated types of security to be required there was, up to and including the date of 12 March 2008, consistent reference to a joint and several guarantee to be executed by the pursuer and Mr Tough, it is significant that that provision was absent from the loan facility letter of 14 March 2008, and that it and the three preceding loan facility letters dated 11 March 2008, the second of 11 March 2008, and 12 March 2008, all included an express provision to the effect that the terms of the loan facility letter in question superseded those of the preceding offer.  Unlike their predecessors, neither the loan facility letter of 12 March 2008 nor that of 14 March 2008 specified a joint and several guarantee by the pursuer and Mr Tough amongst the list of securities required. In cross-examination, the pursuer accepted that in 2008 he was aware that the terms of offer of loan facilities might go through a number of changes.  Mr Cowie accepted that where commercial land transactions were concerned, changing circumstances were to be expected.

[29]      It was argued for the pursuer that, because of his known involvement with the entities set up for the purposes of the development project, the representations complained of were made to him indirectly.  However, it is significant that the loan facility letters themselves were communications expressly between two corporate entities, the defenders on the one hand, and Edenroc, on the other.  Accordingly, on the face of that correspondence, any representations made by the defenders were made not to the pursuer, but to Edenroc. 

[30]      On 16 February 2011, by email, Mr Kevin Taylor, a solicitor acting for the pursuer, made representations to the defenders on the pursuer’s behalf, indicating the concerns which the pursuer had in relation to the intended enforcement by the defenders of inter alia the pursuer’s personal guarantee.  The pursuer confirmed in evidence that Mr Taylor had been fully informed by him in relation to the whole circumstances of the provision of the pursuer’s personal guarantee.  It is significant, however, that despite the recording of the pursuer’s specific concerns in that email, no mention is made of the pursuer’s understanding of the anticipated level of security to be provided by him, any proposed reduction of that level of security, any representations said to have been made by Mark Smith, or any suggestion that the pursuer had executed his individual guarantee in reliance on the terms of loan facility letters of earlier date than that of 14 March 2008  or other associated correspondence. 


(i)         The facts
[31]      The development project failed in about 2011, with consequent unpaid amounts outstanding to the defenders in excess of £1,000,000.  The defenders have since sought to enforce the pursuer’s individual guarantee.  The terms of the guarantee include the following: 

“1.       Personal Obligation


In consideration of the Bank granting time, credit, banking facilities and/or accommodation to the Principal, the Guarantor hereby irrevocably guarantees the payment or discharge of, and will on demand in writing, pay or discharge to the Bank all monies, obligations and liabilities which shall for the time being be due, owing or incurred by the Principal to the Bank in any manner whatsoever ...”.


[32]      The pursuer seeks a declarator that the personal guarantee signed by him in favour of the defenders is not a form of security for debt due in respect of a later loan facility letter, dated 17 June 2009.  The submission presented on behalf of the pursuer was that the funds secured by the pursuer’s personal guarantee were limited to those extended in terms of the loan facility letter, dated 14 March 2008. 


(ii)        Discussion
[33]      The pursuer gave evidence that, as at March 2010, the loan facility letter dated 17 June 2009 was not signed on behalf of Edenroc and that he did not know whether or not it was ever signed.  Mr Cowie stated that he did not believe the loan facility offer was ever completed.  In the written submissions for the pursuer it is stated:  “… the 2009 facility was not agreed by the debtor”.  The defenders’ submissions on the issue were to the effect that there was no evidence before this court as to whether or not Edenroc and the defenders entered into a subsequent loan facility agreement proceeding upon a loan facility letter dated 17 June 2009, that, in addition, the evidence presented did not go so far as to prove that funds were ever advanced in terms of that loan facility letter, and that, further, on a plain reading of its terms, the document signed by the pursuer was in any event an “all monies” guarantee.


(i)         Reduction
[34]      Given the development of the communications between the defenders and Edenroc, viewed in the context of an ongoing negotiation, and given the terms of the series of loan facility letters, culminating in that of 14 March 2008, the evidence does not support the contention that, as at the date of execution of the loan agreement following upon that loan facility letter, the defenders falsely represented to the pursuer that the guarantee required of him would be a joint and several guarantee by him, together with Mr Tough. 

[35]      Not only does the evidence provide no support for the contention that misrepresentations were made, neither does it support the contention that any such representations were made to the pursuer, even indirectly.  There was no evidence of any express representation that, for the purposes of the completion of the loan transaction on 19 March 2008, in accordance with the loan facility letter of 14 March 2008, a joint and several guarantee would be required of the pursuer.  Neither, on a proper reading of the relevant documentation, is there is a basis for inferring, however implicitly, that, for those purposes, the security required of the pursuer would be of that form.

[36]      The pursuer was not a party to the loan facility letters.  The terms of the relevant correspondence reflect the fact that the pursuer had gone to some trouble to set up a separate legal entity, in the shape of Edenroc, as the principal vehicle of the development project and the identified borrower of the funds to be advanced by the defenders.  In these circumstances, where the pursuer had deliberately created that separate and distinct legal entity, the submission that the relevant correspondence was in effect directed to him was based on the premise that it was known to the defenders that he had an interest in the underlying development project.  It was not submitted in terms that it was appropriate to “lift the veil” of that separate legal personality and indeed there was nothing in the evidence, implicitly or otherwise, which could have formed a legitimate basis for such an approach. 

[37]      Given the aspects of the pursuer’s evidence which I have identified, and taking his acknowledged relevant business experience into account, my overall assessment of him as a witness is that I found him to be lacking in candour when describing the critical events of the case.  I did not find him to be a credible witness in so far as he maintained that his understanding was that, on 19 March 2008, he was being asked to sign a joint and several guarantee as the security to be provided by him, that he did not to any extent read the document which he signed, that he did not appreciate the significance of what he was being asked to do and that he did not know to seek advice if in doubt.  In particular, I did not believe his evidence that he was induced by the defenders to sign the guarantee and that, but for his reliance on what he claimed was represented to him, he would not have signed it.  For what it is worth, his evidence in chief provided a different rationale for signing the guarantee and thereby allowing the drawing down of the necessary funds. As he confirmed, in the prevailing circumstances where there was some pressure to secure the purchase of the site, he nevertheless knew that the acquisition of the land and its proposed development was “a good deal”. 

[38]      Since I do not accept the pursuer’s account of events, and in the light of my assessment of the content of the correspondence between the defenders and Edenroc, I find that no misrepresentations were made to the pursuer and that he was not induced by actings of the defenders to sign the individual guarantee which he now seeks to challenge.  On behalf of the pursuer, extensive reliance was placed on the authority of the decision in Royal Bank of Scotland PLC v O’Donnell 2015 SC 258.  Given my finding that, in the circumstances of this case, no representations were in fact made to the pursuer, that authority is not in point.  

[39]      The subsidiary argument, advanced on behalf of the pursuer, was that by the date of 19 March 2008 there was in place what amounted to an agreement between the pursuer and the defenders as to the form and content of personal guarantee to be required of him, and that the content of the document in fact signed by him on that date was inconsistent with that agreement.  Given my assessment of the character of the loan facility letters and the associated correspondence, I find that there is no basis for such an assertion.  The provision of a personal guarantee by the pursuer, of any particular form or content, for the purposes of the loan facility letter of 14 March 2008, was not something required in implement of any pre-existing agreement between the pursuer and the defenders. 

[40]      It follows that the case for reduction of the individual guarantee dated 19 March 2008 must fail. 


(ii)        Declarator
[41]      Given the state of the available evidence relating to the loan facility letter of 17 June 2009, in particular as to whether it was ever actually executed or as to whether funds were ever advanced in accordance with its terms, the issue of the competency of the remedy of declarator sought in that regard necessarily arises.  It is well settled that decree of declarator will not be pronounced in respect of an abstract, hypothetical or academic question.  The state of the available evidence is such that the pursuer has not demonstrated any possible liability which might arise from the loan facility letter in question.  That being so, since the remedy, second concluded for, is not in respect of a live and practical question, declarator is not appropriate. 

[42]      Had it been necessary for me to determine the matter, I would, in any event, have found that the individual guarantee signed by the pursuer is indeed an “all monies” guarantee in respect of any borrowings of Edenroc, the principal.  That is apparent from a plain reading of its terms, and indeed that interpretation was accepted in evidence by Mr Cowie.  The interpretation of the provision is properly to be derived from the meaning to be gleaned from the language used, through the eyes of a reasonable reader (Arnold v Britton 2015 AC 169 at paragraph (17)).  The terms of the pursuer’s personal guarantee are clear and speak for themselves.  

[43]      The contrary argument, presented on behalf of the pursuer, under reference to a contended application of the definition of “Indebtedness”, in terms of the loan facility letter of 14 March 2008, to the effect of the personal guarantee, though inventive, was not persuasive. 

[44]      Given the character which I ascribe to the pursuer’s individual guarantee, further arguments for the pursuer, in reliance of the authority of Triodosbank NV v Dobbs [2005] EWCA Civ 630, are not applicable. 


[45]      In the result, for the reasons I have stated, I will repel the pursuer’s second, third and fourth pleas-in-law, sustain the defenders’ second, third and fifth pleas-in-law and pronounce decree of absolvitor.  I shall reserve, meantime all questions of expenses.