Act: Davies; Harper Macleod LLP

Alt: Dunlop, DLA Piper LLP

27 March 2009

[1] This is an action for suspension and interdict of summary diligence and sequestration proceedings. The petitioner is a company director and the respondents are Anglo Irish Asset Finance plc. The action arises out of a guarantee dated 3 October 2005 given by the petitioner and another, Mr Liam Muldoon, jointly and severally, to the respondents of a loan facility granted by the respondents to a company, Park Circus Homes (Glasgow) Limited of which the petitioner is a director. I will refer to the petitioner as "the guarantor", to the respondents as "the lender" and Park Circus Homes Limited as "the principal", being the terms used in the guarantee.

[2] The lender lent the principal approximately £21,000,000. The principal was involved in development of a site at Kelvin Quay, Glasgow. At one time it was expected that the development would be completed by July 2007. That did not happen and on 31 March 2008 administrators were appointed to the principal. The lender wrote to the principal on 31 March 2008 requiring payment of the principal sum and interest due amounting to £21,131,869. The lender wrote to the guarantor on 20 May 2008 requiring payment of £2,000,000. Interest at 10.9475% was claimed from the day of the letter until settlement. The significance of the letters is a matter of dispute. The guarantee contains in clause 16.2 the guarantors' consent to registration of the guarantee and of any certificate issued on behalf of the lender under clause 8.4 for preservation and execution. The guarantee was registered in the Books of Council and Session on 16 May 2008. The lender served a charge on 28 May 2008 on the guarantor for payment of £2,005,65.97. The charge shows that the sum is made up of a principal sum of £2,000,000 with interest of £5,398.77, a fee of £50.10 and a further fee of £17.10. No payment was made. Thereafter the lender petitioned for sequestration of the guarantor at Glasgow Sheriff Court. The diligence and the petition for sequestration have been suspended ad interim by this court. The case called before me for debate on the procedure roll.

[3] The guarantee includes the following terms.

1. "GUARANTEE

1.1 In consideration of the Lender granting time, credit and banking facilities to the Principal, the Guarantors unconditionally guarantee the payment or discharge of the Secured Liabilities and shall on demand in writing pay or discharge them to the Lender. This Guarantee shall continue until determined in accordance with the terms of clause 6.

1.2 The Guarantors' liability under this Guarantee is joint and several and shall be limited to the following:

1.2.1 £2,000,000 in respect of the Principal comprised in the Secured Liabilities on the date of demand on the Guarantors or any Guarantor under this Guarantee;

1.2.2 All interest, discount, commission or charges comprised in the Secured Liabilities; and

1.2.3 All such further amounts of interest and any other sums due by the Guarantors to the Lender under or in respect of this Guarantee.

1.3 The Guarantors' liability under this Guarantee shall not be discharged or affected by anything that would not have discharged or affected it if the Guarantors or any of them had been a principal debtor instead of a guarantor."

Thus by clause 1 of the guarantee the guarantor is bound to pay on demand to the lender the Secured Liabilities, limited to £2,000,000 with interest. Her liability is not to be affected by anything which would not have affected her liability had she been a principal debtor.

[4] Clause 4 of the guarantee provides that the lender may at any time and without prior notice to the guarantor exercise a right of set off or retention in respect of all money at any time standing to the credit of any of the guarantor's accounts against payment of all money at any time owing from the guarantor to the lender. Clause 7 provides that the lender shall not be obliged before enforcing the guarantee to take any action against the principal.

[5] Clause 8 provides as follows:

"8. DEMAND FOR PAYMENT AND EVIDENCE OF SUMS DUE

8.1 A demand for payment or any other demand or notice under this Guarantee may be made or given by any manager or officer of the Lender by letter addressed to the Guarantors or any of them or the personal representatives of the Guarantors or any of their personal representatives and sent by prepaid first class post to or left at the Guarantors existing or last known place of business or usual abode (or if more than one, any one of such places).

.....

8.4 A certificate by any manager or officer of the Lender as to the amount of the Secured Liabilities or any part of them shall, in the absence of manifest and demonstrable error, be conclusive and binding on the Guarantors and any Guarantor."

[6] Thus provision is made for payment on demand, and for a certificate from the Lender as to amount of the Secured Liabilities to be binding and conclusive.

[7] Clause 9 provides as follows:

"9. WAIVER OF GUARANTOR'S RIGHTS

The Guarantors agree that their liability under this guarantee shall not be reduced, discharged or mitigated by:

.....

9.4 any grant of time, indulgence waiver or concession to the Principal or any other person.

....

9.7 the invalidity, illegality, unenforceability, irregularity or frustration of the Secured Liabilities or obligations of any of the Guarantors;

9.8 any claim or enforcement of payment from the Principal; or

9.9 any act or omission which would not have discharged or affected the liability of any of the Guarantors had it been a principal instead of a guarantor or by anything done or omitted by any person which but for this provision might operate to exonerate or discharge or otherwise reduce or extinguish any of the Guarantors' liability under this Guarantee."

[8] Clause 13 is in the following terms:

"PRIMARY OBLIGATION

As a separate and independent stipulation all sums of money which may not be recoverable from the Guarantors on the footing of a guarantee whether by reason of any legal limitation, disability or incapacity of or on the Principal or any other fact or circumstance and whether known to the Lender or not shall nevertheless be recoverable from the Guarantors as sole or principal debtor and shall be paid by the Guarantors on demand in writing by the Lender."

[9] The "Secured Liabilities" are defined by clause 15.9 thus:

"15.9

'Secured Liabilities' means all and any monies and liabilities which shall for the time being (and whether on or at any time after demand) be due, owing or incurred in whatsoever manner by the Principal to the Lender and/or the Lender's Group, whether actually or contingently and whether incurred solely severally or jointly and whether as principal or surety and whether on account of money advanced, bills of exchange, promissory notes, guarantees indemnities or otherwise, including interest, discount, commission and other lawful charges or expenses which the Lender and /or the Lender's Group may in the course of their business charge or incur ... together with

15.9.1 (on a full indemnity basis) all costs and expenses (including without limitation legal costs) recoverable by the Lender and /or the Lender's group from the Principal;

15.9.2 (on a full indemnity basis) all costs and expenses (including without limitation legal costs) charged or incurred by the Lender and/or the Lender's Group in perfecting or in about the recovery or attempted recovery of money due to the Lender and/or the Lender's Group under this Guarantee; and

15.9.3 interest calculated and accruing daily from demand in accordance with usual rates and practice of the Lender and/or the Lender's Group (as the case may be) in the amounts set out in clauses 15.9.1 and 15.9.2".

[10] Clause 16.2 is in the following terms:

"16.2 The Guarantor consents to the registration of this Guarantee and of any certificate issued on behalf of the Lender under clause 8.4 for preservation and execution under Scots law."

[11] Mr Dunlop argued that the guarantor's pleadings were irrelevant. He argued that the petition set out four bases on which the prayer should be granted, Mr Davies having indicated that he did not intend to argue the case on record concerning defective service. The four bases were as follows:

1. That there is insufficient certainty in the deed creating the obligation to allow it to be enforced by summary diligence.

2. Personal bar.

3. Waiver.

4. That the debt is not due because there are claims by the principal against the lender, and by the guarantor against the lender.

[12] Mr Dunlop addressed each basis separately as follows:

Certainty. He argued that the law is set out by Lord McCluskey in the case of Tennent v Glass 1990 SLT 282. The question may be simply put thus:

"Is summary diligence competent when the sum is not ascertained?"

According to Mr Dunlop's argument the answer to that question is that summary diligence is competent when there is a method by which the sum due is to be ascertained. He referred to the quotation in the case of Tennent v Glass made by Lord McCluskey of Professor Halliday at page 285, as follows:

"an obligation for payment of money constituted by the writ must be sufficiently definite as to amount and time of payment and identification of the creditor and debtor that it could properly be incorporated in a court decree. If the obligation expressed in the writ is for payment of an indefinite sum ... the obligation may be made specific if the writ contains provision for the conclusive ascertainment of the amount due at any particular time as by a certificate of the creditor or an officer of the creditor bank."

[13] In the present case that method is set out in the guarantee and is by certificate. Mr Dunlop argued that clause 8.4 in the guarantee is the clause that is envisaged by Professor Halliday. Thus it is competent to do summary diligence because there is a way to fix the amount. If the amount due to the lender by the principal is less than £2,000,000, then the amount due by the guarantor is that amount plus interest and is fixed by a certificate issued under 8.4. If the amount due to the lender is more than £2,000,000 then the sum due by the guarantor is £2,000,000 plus interest. Mr Dunlop argued that the letter of 31 March 2008 to the principal (7/1 of process) is a letter which amounts in law to a certificate. It is a demand to the company that they immediately pay their liability, which is well in excess of £2,000,000. He noted that clause 8.4 does not stipulate the form of the certificate. He referred to the dictionary definition from Chambers Dictionary which defines "certificate" as "a written declaration, official or informal, of some facts". Mr Dunlop explained that 7/4 of process is a certificate, lodged the day before the procedure roll hearing, showing what is due. Its purpose was not clear to me. Mr Dunlop did not rely on it. He argued that there is nothing in the guarantee which prescribes the form of the certificate nor does it prescribe that it must be dated. The amount can be ascertained from the deed itself and from the letter. He argued that there was no need for a formal certificate such as that now lodged as 7/4 of process. Mr Dunlop argued that both suspension and interdict are equitable remedies and when the liabilities of the principal are far in excess of £2,000,000 it is not equitable to suspend diligence against the guarantor. A fresh charge could be served on the certificate that is now 7/4 of process at any time. There are no averments that the sum of £2,000,000 is not due.

[14] Moving to the second basis, that of personal bar, Mr Dunlop made reference to the averments at page 6 and 7 of the record. The averment in statement 6 to the effect that the lender's manager said that if the guarantor agreed to the principal going into administration, the lender would not call up the guarantee and in reliance on that statement the guarantor agreed to the appointment of administrators, is said to support a plea of personal bar. Mr Dunlop appreciated that at procedure roll the guarantor's averments should be taken as true, although they are disputed by the lender. He submitted that the question is whether or not the guarantor has averred enough to entitle her to a proof before answer. He referred to the definition of personal bar contained in the case of Gatty v MacLaine 1921 S.C. (H.L.) 1, in the speech of the Lord Chancellor at 7 as follows:

"Where A has by his words or conduct justified B in believing that a certain state of facts exists, and B has acted upon such belief to his prejudice, A is not permitted to affirm against B that a different state of facts existed at the same time."

[15] Mr Dunlop argued that the definition refers to an assertion of a state of facts. That immediately distinguishes it from the current case as the current situation is not an assertion of a state of facts but rather a reference to future intention on the part of the lender. If anything, argued Mr Dunlop, such averments support a plea of waiver. Further, these averments are irrelevant because there are no averments that the petitioner could have avoided the company going into administration. Thus even if the guarantor was encouraged to agree to administration on the basis that the guarantee would not be called up, there are no averments to the effect that the administration would not have happened in any event. There are no relevant averments that the guarantor acted to her prejudice.

[16] Turning to the third basis, that of waiver, Mr Dunlop submitted that he accepted that subject to one argument based on the terms of the guarantee, the averments are enough to instruct a case of waiver which would require a proof before answer. However, he argued that, no doubt to avoid disputes of this type, the parties contracted out of waiver. Clause 9.4 of the guarantee is to the effect that the guarantor agrees that her liability shall not be reduced discharged or mitigated by any waiver to the principal or to any other person. He submitted that "any other person" must include the guarantor. Mr Dunlop argued that it is common in contracts of this type to contract out of waiver. He had searched for cases on the competency of parties doing so and had found none. He did however make reference to McBryde, The Law of Contract in Scotland at paragraph 25.07 which he read as supporting the contention that contracting out of waiver is possible. He submitted that if the parties have addressed the issue in advance then the contract between them stands. Mr Dunlop accepted in discussion that the logical end of his argument is that the lender's manager could have said that the lender would not enforce the guarantee, thereby apparently waiving the lender's right to do so; but the lender could thereafter enforce the guarantee and still argue successfully that he had contracted out of waiver.

[17] Turning to the last basis, that of the argument that the sum was not due because there were claims against the lender, Mr Dunlop referred to statements 7 and 8 of the pleadings. He argued that the guarantor's averments are irrelevant for three reasons:

(i) There is an attempt to set off an illiquid debt against a liquid debt. Mr Dunlop referred to McBryde on Contract at paragraphs 25.45 and 25.46. The requirements for the plea of compensation are there discussed. Mr Dunlop argued that the averments in statement 7 were all directed towards an illiquid debt claimed to be due by the lender to the principal, on the basis that the lender had taken decisions in the management of the project which had led to funds belonging to the principal being used and the principal exceeding its overdraft arrangement with the lender. In statement 8 the guarantor avers that the principal suffered loss and damage due to the way in which the lender's manager instructed the principal to make certain payments to contractors, and to appoint certain contractors. Mr Dunlop argued that this was clearly an attempt to set off an illiquid claim against a liquid claim. Therefore the averments are irrelevant.

The guarantor also avers that she has been materially prejudiced by the conduct of the manger, although there is no further specification. That averment is also irrelevant, for lack of specification and also in light of the terms of the guarantee, more fully discussed below.

(ii) In any event, Mr Dunlop argued that the averments about sums of money owed by the lender to the principal were irrelevant because the guarantor does not offer to prove that any such claims would bring the amount due under the guarantee to less than £2,000,000 and in these circumstances there is no need for a lengthy exploration of issues.

(iii) Clause 8.4 provides that a certificate shall be binding and on the basis of a line of English authority, Mr Dunlop submitted that such a clause means what it says. He referred firstly to Arenson v Arenson 1973 1 Ch.346 and to the dissenting judgment of Lord Denning in order to examine a line of authority which he argued was foreshadowed by Lord Denning's remarks at page 361G, to the effect that when two persons agree to be bound by the decision of another person then that decision is binding absent fraud or collusion. He then turned to Campbell v Edwards 1976 1W.L.R. 403 and to Lord Denning's opinion at page 407F as follows:

"It is simply the law of contract. If two persons agree that the price of property should be fixed by a valuer on whom they agree and he gives that valuation honestly and in good faith they are bound by it. Even if he has made a mistake they are still bound by it. The reason is because they have agreed to be bound by it. If there were fraud or collusion of course it would be very different. Fraud or collusion unravels everything."

He then referred to Bache & Co (London) Ltd v Banque Vernes et Commercial de Paris S. A. [1973] 2 Lloyd's Rep. 437 in which there is discussion of a conclusive evidence clause which were in the following terms:

"Notice of default shall from time to time be given by [plaintiffs] to [defendants] and on receipt of any such notice [defendants] will forthwith pay the amount stated therein as due, such notice of default being as between [plaintiffs and defendants] conclusive evidence that [defendants] liability hereunder has accrued in respect of the amount claimed."

The court found that the conclusive evidence clause was binding. Lord Denning at page 440 found that the practice of inserting conclusive evidence clauses was acceptable. He compared a notice of default to a certificate of an arbitrator or engineer in a building contract. He found that if a banker or broker gives a notice of default in pursuance of a conclusive evidence clause, the guarantor must honour it, leaving any cross-claims by the customer to be adjusted in separate proceedings.

Mr Dunlop then turned to the case of IIG Capital LLC v Van Der Merwe [2008] EWCA Civ 542 and referred to Lord Justice Waller's opinion at paragraph 32. As I understood Mr Dunlop's argument this case was referred to as an example of a case in which a clause in very similar terms to clause 8.4 of the current guarantee was held to be binding and that from that I should conclude that the clause 8.4 meant that the guarantor was required by contract to pay the sum certified (acknowledging that there is a dispute concerning the meaning of "certified") by the manager and that any claims for damages she might have would have to be argued afterwards. He referred to it also for the proposition that the guarantee which the guarantor had signed was of the same type as that in the IIG case, that is an on demand obligation, in which the guarantor was primarily liable, and so could rely neither on any defences available to the principal nor on any defences available only to a guarantor. Mr Dunlop referred to the case of Paisley Union Bank v Hamilton and others (1831) 9S. 488 in which a bank agent signed a bond to the bank which provided that a stated amount from the bank book "certified and signed by the cashier" should constitute the balance against him. It was held that an amount dated and subscribed by the accountant and cashier, although having the letters E.E. (errors excepted) subjoined, were sufficient, without further certificate, to warrant diligence on the bond. Mr Dunlop argued that the effect of all of these cases was that the petitioner has an obligation to pay the amount of the loan, or £2,000,000 (with interest) if less. It is not open to the guarantor to argue that her obligation is elided by the lender owing money to the principal. Thus the petition is irrelevant.

[18] Mr Dunlop's position was that if I was with him on all points, I should put the case out By Order because discussion of the appropriate interlocutor would be useful.

[19] Mr Davies answered Mr Dunlop's arguments in the order they were made. He argued that although the guarantee provides for summary diligence to be done on the guarantee that can only be done if the debt is properly constituted before diligence is carried out. The lender had failed to do that. Clause 8.4 of the guarantee provided that a certificate would be binding, and clause by 16.2 the guarantor had consented to registration for preservation and execution of the guarantee and any certificate. In this case, there was no certificate. Thus there is no obligation for payment of a definite amount. While it can be seen from the case of Fisher v Syme (1828) 7S. 97 that consent to summary diligence in respect of a sum unascertained at the date of the consent will be frequently given, there must be strict compliance with the method set out of ascertaining the amount due. In this case, that is by certificate. Mr Davies argued that what gives the warrant for diligence is both the deed and the certificate, as can be seen from clause 16.2 of guarantee. He referred to Stewart on Diligence for the proposition that formalities must be observed particularly in regard to summary diligence where a creditor seeks to avoid proof in court and go straight to a decree in his favour. Mr Davies argued that the certificate produced the previous day (7/4 of process) could on no view have any bearing on diligence carried out in 2008. In the guarantee clause 8.1 provides for a demand for payment whereas clause 8.4 provides for a certificate. Thus there are clearly two separate things, firstly a demand and then a certificate. The demands made by the letters of 31 March 2008 (7/1 of process) and 20 May 2008 (7/2 of process) were of importance because no sums are due under the guarantee unless and until a demand is made. Clause 1.1 obliges the guarantor to pay on demand. Mr Davies referred to the case of Royal Bank of Scotland v Brown 1982 S.C. 89 as authority for the proposition that a demand is necessary. He argued that the document founded on as a certificate is a demand for payment. He argued that the letters of 31 March and 20 May taken together do not set out the amount of interest due and therefore do not set out the total amount due, and therefore are not documents on which summary diligence may proceed. Mr Davies argued that 7/2 of process is a letter to the guarantor and is a plainly a demand for payment rather than a certificate. He argued that there is a clear distinction between certificates and demands; anyone seeing the letters of 31 March or that of 20 May would see them as demands not certificates. By failing to produce a certificate, the lender gave up the opportunity to use summary diligence.

[20] Mr Davies then came to address personal bar and waiver. He agreed that as regards personal bar the leading case is Gatty v MacLaine. He argued that it was not correct that the averments made about future intention cannot found a plea of personal bar. The manager of the lender had led the guarantor to believe that the guarantee would not be enforced if she agreed to the principal going into administration. Further, the prejudice to the guarantor was clear. The principal going into administration would be likely to trigger the calling up of the guarantee. In any event it was in the interests of the principal that it finish the project; that was the most likely way to produce a profit.

[21] As to waiver Mr Davies agreed with Mr Dunlop that there are sufficient averments on which to found a case of waiver; he disagreed with him that the terms of clause 9.4 are such as to prevent the guarantor from relying on the lender's waiver. He argued that the words "any other person" clearly mean a third party. If Mr Dunlop were right in his argument, then even a written waiver could not be relied on. Mr Davies argued that guarantees are to be construed strictly against the lender. He argued that the terms of clause 9.4 were at least ambiguous and so should be construed as referring to third parties. He argued that allowing the lender to contract out of waiver did not make good commercial sense. He argued that he was entitled to a proof before answer on his averments.

[22] Mr Davies then turned to the averments in statements 7 and 8. He submitted that he was not arguing compensation as provided for by the Compensation Act 1592, referred to in McBryde. Rather he argued a different principle, to the effect that where conduct of the lender is such that it is prejudicial to interests of the guarantor, the liabilities of the guarantor are discharged. He referred to Gloag and Irvine, Rights in Security page 865. He argued that he had averred that the conduct of the lender resulted in greater liabilities arising under the guarantee. Thus the guarantor should be discharged to at least the extent that the lender's actions had increased the sum due. As I understood him, Mr Davies had two separate arguments under this heading, being that the guarantor's liabilities would be restricted to the extent that the principal's liabilities would be restricted, were it proved that the lender's actions had led to a greater sum being due than would otherwise have been the case, and separately that the guarantor's liability was discharged completely where it could be proved that the lender had acted to the guarantor's detriment.

[23] Mr Davies made his submissions concerning the binding nature of the certificate on the basis that he made no concession that there was any certificate at all in this case. He submitted that while parties may in some contracts agree that a certificate will be conclusive and binding, the court will always have to decide if that is in fact what has been agreed. He argued that the older Scots approach was that certificates of this type were presumptive and not wholly unchallengeable. Clause 8.4 in this guarantee refers to manifest and demonstrable error, which, he argued, showed that the parties did not regard it as conclusive and binding, as it provided on its face for one party to argue that it was erroneous. He submitted that "error" should be construed widely, and did not refer simply to arithmetic. Mr Davies argued that it was not commercial sense for it to be conclusive; regarding it as conclusive would not stop litigation, but rather move it elsewhere. He submitted that the court should be slow to construe clauses as excluding rights of parties to raise legitimate defences in court.

[24] Mr Davies then argued that any certificate had to be issued in good faith. In the present case, if the manager had acted as the guarantor averred, then his good faith would be in question.

[25] Mr Davies submitted that if I accepted that there was no certificate then there could be no summary diligence and I should grant the prayer of the petition. If I was not with him on that primary submission then his position was that his averments were such as to require proof before answer. He requested that the matter be put out by order so that further procedure may be discussed.

[26] In reply, Mr Dunlop renewed his argument that the guarantor in this case is equiparated to the principal, as is provided for by clause 9.9. Therefore any defence open only to a guarantor cannot be relied on. He renewed his reference to the IIG case. Mr Dunlop submitted that there were no averments that any actions said to be taken by the principal's manager would have had the effect of reducing the sum due below £2,000,000. There was no averment anywhere that the lender has overstated the overdrawn extent of the account. In relation to Mr Davies' argument about good faith, Mr Dunlop submitted that he had no pleadings to the effect that the lender had not acted in good faith. Good faith was mentioned in statement 3 but no specification was given. Mr Dunlop referred to the case of Thomson v Ross, unreported, Outer House 18 July 2000 for a discussion of the requirements for a case of bad faith. He submitted that the guarantor had no averments at all that the lender's manager had acted in bad faith.

[27] Mr Dunlop renewed his motion that his first plea in law should be upheld, but requested that if I was minded so to do, that I should put the case out by order for further discussion of appropriate procedure.

Discussion
[28] In my opinion the guarantee is an on demand bond, as described in the case of IIG. The letter of 20 May 2008 is a demand for payment, as is the letter of 31 March addressed to the principal. It is quite clear from the letters what sum is outstanding, and from the guarantee it is quite clear that if that sum is in excess of £2,000,000 the lender is entitled to demand from the guarantor the latter sum with interest from the date of the demand. I accept Mr Dunlop's argument that the letters effectively certify the sum due and that there is no need for a certificate in any particular form. I therefore reject Mr Davies' argument that the procedure required to enable summary diligence has not been carried out.

[29] I also agree with Mr Dunlop that the averments of the guarantor in which she seeks to argue personal bar are irrelevant. She does not aver that the lender led her to believe that a state of facts existed; that she acted to her detriment and that he then asserted a different state of facts. While she does aver that she did not wish the principal to go into administration and that the lender's manager said that if she agreed to it going into administration the lender would not call up the guarantee, she does not aver that she was in a position to prevent the principal going into administration. Thus she does not aver that she acted to her prejudice.

[30] In relation to waiver, I had some difficulty with Mr Dunlop's argument but on balance I am persuaded that clause 9.4 does amount to a contracting out by the guarantor of her ability to rely on any waiver by the lender. I am led to that decision by the breadth of the wording of the clause. It seems to me that the words 'or any other person' must include the guarantor. It is important to read any contract in context. In this case clause 9.4 refers to any grant of time, indulgence, waiver or concession to the principal or any other person. One can see that the lender might grant any of these to the principal or indeed to the guarantor; it is hard to see in the context of the contract to what third party he might grant any of these. There may be third parties who have a connection with the project and separate contractual arrangements with the lender. They may be granted indulgence by the lender but it is hard to see why that possibility need be addressed in this contract. Therefore to read the clause as though "any other person" excluded the guarantor and instead referred to third parties seems to me unwarranted by the language used.

[31] I agree with Mr Dunlop that the terms of this guarantee are such that the guarantor is bound to pay on demand. She is in the same situation as the defendant in the IIG case. Thus she cannot rely on any defence which would be open only to a guarantor. The averments made on behalf of the guarantor at the end of statement 8 that she is entitled to be discharged are irrelevant.

[32] The averments in statement 7 are in my opinion irrelevant. The claim that the principal is entitled to set off a claim for damages against a claim for payment is an attempt to set an illiquid debt off against a liquid debt. I accept Mr Dunlop's argument that this is not a relevant defence to a demand for payment. There is no averment anywhere that the principal did not owe the lender the sum demanded. I also accept that the averment concerning good faith is irrelevant. There are no averments that the manager (or any other officer) of the lender acted dishonestly in taking any decision about the management of the principal; or that the manager or any officer of the company acted dishonestly in issuing either of the letters demanding payment. In my opinion it is not sufficient to say only "it was not issued in good faith".

[33] I am therefore of the opinion that Mr Dunlop's attack on the relevancy of this petition succeeds. As both parties requested, I will put the case out by order for discussion on the interlocutor to be pronounced.