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DAVID KIPLING v. DUNBAR BANK PLC FOR SUSPENSION AND INTERDICT AND SUSPENSION AND INTERDICT AD INTERIM


Submitted: 06 March 2012

OUTER HOUSE, COURT OF SESSION

[2012] CSOH 40

P1276/10

OPINION OF LORD DRUMMOND YOUNG

in the Petition of

DAVID KIPLING

Petitioner;

against

DUNBAR BANK PLC

Respondent:

for suspension and interdict and suspension and interdict ad interim

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Act: Paterson; MBM Commercial LLP

Alt: Thomson; Semple Fraser

6 March 2012

[1] On 9 November 2010 messengers-at-arms acting on behalf of the respondent served a charge for payment upon the petitioner. The charge purported to proceed upon an extract personal guarantee granted by the petitioner in favour of the respondent dated 15 May 2007, which had been registered in the Books of Council and Session for preservation and execution on 15 October 2010. The charge required the petitioner to make payment to the respondent of the sum of £1,048,947.67.

[2] Following service of the charge, the petitioner brought proceedings for suspension of the charge and interdict against the respondent's causing or permitting any diligence to be done against the petitioner following upon the charge. In the petition as originally framed, it was averred that the petitioner was not due to pay the sum claimed to the respondent on three grounds. First, it was averred that the respondent had agreed in March 2010 not to pursue recovery under the personal guarantee granted by the petitioner and had therefore waived its right to pursue recovery under that guarantee, or was alternatively personally barred from doing so. Secondly, it was said that the level of the debt purportedly due under the guarantee had not been ascertained, with the result that the charge was incompetent. Thirdly, it was alleged that the interest claimed in the charge was not due for payment, thereby rendering service of the charge wrongful. On 23 November 2010 Lord Pentland granted interim suspension and interim interdict as sought by the petitioner.

[3] Thereafter answers were lodged by the respondent and the pleadings were adjusted. On 9 November 2011 the petition and answers called in the By Order (Adjustment) Roll. I was informed that negotiations had taken place between the parties prior to that hearing and it had been agreed that the petitioner would lodge a minute of amendment deleting the second and third of the three grounds on which suspension and interdict had originally been sought. On that basis, parties agreed that the remaining averments should proceed to proof before answer. A proof diet was fixed for 1-3 May 2012.

[4] The petitioner then lodged a minute of amendment which deleted the second and third grounds on which suspension and interdict was sought. Before that, however, in the course of adjustment of the pleadings the petitioner had made significant changes to the averments of fact in support of the first ground. The background to these averments is that the petitioner had granted the guarantee in support of the obligations to the respondent of a company, GSK Developments Ltd. The respondent had agreed to lend money to that company in January 2007 in order to finance a housing development near Bridge of Earn. A subsequent facility agreement entered into in May 2007 provided for a personal guarantee granted by the petitioner. Subsequent facility agreements were entered into in November 2007 and January 2009, each replacing the previous agreement. These included guarantees by the petitioner. In March 2010 the respondent sought to replace the 2009 facility agreement with a further agreement, and the petitioner's argument was that in the course of negotiations his personal guarantee was cancelled by agreement of the parties or was otherwise waived by the respondent.

[5] On this matter, the petitioner's original averments were as follows. In early March 2010 the company entered into discussions with the respondent to increase its borrowings. It was envisaged that the 2009 facility agreement would be cancelled and a new facility agreement entered into. Discussions regarding the petitioner's guarantee took place between him and the respondent's lending manager, Mr Mark Smith. The 2010 facility agreement was sent to the petitioner in late February or early March, but was not signed either by the company or by him at the time. Neither the company nor the petitioner was prepared to enter into a new facility agreement and increase the company's borrowings unless the personal guarantee were cancelled. On about 14 March 2010 the petitioner requested a meeting to discuss the terms of the proposed new facility agreement. Such a meeting took place at the respondent's Glasgow office on a date between 14 and 17 March. At the meeting the petitioner sought assurances that the personal guarantee would not be enforced if the company entered into the 2010 facility agreement. Mr Smith confirmed at the meeting that the personal guarantee would not be enforced if the 2010 agreement were entered into by the company. The petitioner e-mailed Mr Smith on 17 March to seek written confirmation of the undertaking provided verbally at the meeting that the personal guarantee would not be enforced. Mr Smith confirmed that the personal guarantee would not be called upon by the respondent if the 2010 agreement were entered into by the company. In those circumstances, it is averred, the company entered into the 2010 facility agreement on the understanding that the personal guarantee would not be enforced. On that basis, it was said that the respondent had waived its right to seek to enforce the personal guarantee. An additional case was made based on personal bar.

[6] The foregoing averments relating to the events on and after 14 March 2010 were deleted by adjustments intimated on 11 July 2011, and replaced by averments to the following effect. When the 2010 facility agreement was sent to the petitioner, the company and the petitioner were concerned that the additional costs and charges that the respondent was seeking to impose in the new facility agreement were excessive. The company and the petitioner were concerned that those charges might result in the development's not breaking even on completion, which would increase the risks faced by the company as a result of the development and would thus increase the risk that the personal guarantee would be called upon by the respondent. The petitioner sought assurances from the respondent that the personal guarantee would not be enforced if the company entered into the 2010 facility agreement. He discussed the issue with Mr Smith, and raised the concern felt by him and the company that the additional costs and charges proposed in the 2010 agreement might result in the development's failing to break even on completion. The petitioner explained that, if the 2010 agreement were to be entered into by the company, he and the company required that the respondent should accept that the personal guarantee would not be enforced. On 14 March the petitioner e-mailed Mr Smith and requested an opportunity to discuss the terms of the proposed new facility agreement. He called Mr Smith on his mobile telephone on 17 March to discuss the proposed agreement. During that conversation the petitioner and Mr Smith discussed the terms of the proposed new facility agreement, including the increased charges and the personal guarantee. The petitioner stated that he would not sign the 2010 facility agreement unless the respondent agreed that the personal guarantee would not be enforced by the respondent. Mr Smith stated that he would seek to obtain an assurance that the guarantee would not be called up by the respondent. A few minutes later the petitioner e-mailed Mr Smith, stating:

"As just discussed I would appreciate if you could get confirmation that my guarantee won't get called on and will return the signed facility letter to you tomorrow on that basis".

Immediately after the foregoing e-mail, the petitioner e-mailed Mr Kevin Knight, the respondent's lending manager, referring to the e-mail to Mr Smith. The petitioner then signed the 2010 facility agreement and placed it in an envelope. He wrote on the outside of the envelope, in bold and underlined, the words "Only to be used on the basis the Personal Guarantee is released". The petitioner delivered the envelope containing the 2010 facility agreement to the respondent's Glasgow office by hand on 18 March.

[7] The petitioner then makes averments to the following effect. During the telephone conversation on 17 March the petitioner clearly stated to Mr Smith that he would only sign the 2010 facility agreement if the respondent agreed not to enforce the personal guarantee. Mr Smith undertook to seek such an assurance. The basis upon which the petitioner was prepared to sign the facility agreement was restated in the e-mail to Mr Smith and in the envelope containing the signed 2010 facility agreement. The respondent did not state that such a term was unacceptable or indicate that it would not accept a condition that the personal guarantee would not be enforced. The respondent proceeded to lend further sums to the company in terms of the 2010 agreement. The petitioner was entitled to believe and did believe that the respondent had committed itself to not enforcing the personal guarantee. That, it is said, amounted to a collateral warranty whereby the respondent agreed not to enforce the guarantee. It followed that service of the charge was wrongful, and the charge should be suspended.

[8] The respondent's answers deny the petitioner's account of events in March 2010. The respondent avers that had the 2010 facility agreement not been entered into the respondent would have called up the debt due by the company. In that event the respondent would also have called upon the petitioner to make payment in terms of the personal guarantee. At that time the company's indebtedness had reached such a level that the petitioner would have been obliged to make payment of the full sum personally guaranteed by him. Consequently the petitioner's position had not been adversely affected by the execution of the 2010 facility agreement. The 2010 agreement stipulated for payment of an arrangement fee and altered the rate of interest, but those costs were not raised as a concern by the petitioner. The respondent further avers that Mr Smith did not say to the petitioner that the personal guarantee would be waived or otherwise not enforced if the 2010 facility agreement were entered into. Mr Smith had no authority to enter into any such agreement or to offer any such concession. Furthermore, it would have made no sense for the respondent to agree to release the petitioner from his personal guarantee in March 2010, as the need for such a guarantee was reinforced rather than removed by any agreement to provide further lending to the company. By that time the contractor in the development at Bridge of Earn had become insolvent and there were concerns about the value of the land there. It is further averred by the respondent that throughout the various discussions that Mr Smith had with the petitioner, he repeatedly explained that the proposed lending facilities on offer from the respondent were the best terms that the respondent was willing to offer, and that the respondent's credit committee would not sanction any better deal, such as releasing the petitioner from his personal guarantee. On the basis of the foregoing averments, the respondent further avers that it did not enter into any collateral warranty on the terms condescended on by the petitioner, either as a result of an express agreement or as a result of its conduct. The petitioner denies the foregoing averments, and calls upon the respondent to state when it was indicated to the petitioner or the company that the company's indebtedness would be called up unless the new facility agreement were executed.

[9] The respondent has now enrolled a motion to recall the interlocutor pronounced on 23 November 2010 in terms of which interim interdict and interim suspension were granted. Two grounds are advanced. First, it is stated that in the light of the adjustment and amendment of the petitioner's averments it is apparent that interim orders were obtained in circumstances where the petitioner had failed to make full and frank disclosure of all matters material to his application for ex parte interim orders. Secondly, it is said that the grant of interim interdict was based upon pleadings that have since undergone substantial adjustment and amendment, with the result that the averments no longer disclose a sufficient prima facie case. As an alternative, the respondent seeks to have the petitioner ordained to find caution in the sum of £1,035,375 within a period of 14 days.

[10] When the motion called, it was submitted for the respondent that the alterations to the petitioner's case made in July 2011 were fundamental. The petitioner's original case was based on an agreement that was said to have been reached at a meeting with Mr Smith, when Mr Smith agreed on behalf of the respondent that the guarantee would not be enforced. That case had been changed significantly. Now it was not said that any meeting with Mr Smith had ever taken place; instead reliance was placed on a telephone conversation, e-mails and subsequent actings. Further, it was no longer averred that Mr Smith agreed that the respondent would not enforce the personal guarantee; instead, it is averred that he merely undertook to seek to obtain the assurance requested by the petitioner. In addition, the averments regarding the envelope containing the signed facility agreement were new. The two additional grounds on which the petition had proceeded had been deleted. In these circumstances it was clear that full and frank disclosure had not been made, and on that basis the award of interim suspension and interim interdict should be recalled. Reference was made to Bell v Inkersall Investments Ltd, 2006 SC 507, at paragraph [20], and Scottish Ministers v Stirton, 2008 SLT 505, at paragraphs [27]-[29]. Counsel advanced the further argument that the petitioner's pleadings in their present state did not disclose a prima facie case. In this respect, he equiparated the notion of a prima facie case with that of a good arguable case, taking account of both the petitioner's averments and the arguments put forward by the respondent. He relied on Gillespie v Toondale Ltd, 2006 SC 304, at paragraphs [10]-[13], and Holden v Royal Bank of Scotland PLC, [2011] CSOH 84, at paragraphs [11]-[15]; in the latter of those cases, the case put forward for the petitioner was examined critically and described as "extraordinary". Thus when a court considered whether a prima facie case existed for the purposes of the making of an interim order it should not merely consider the literal meaning of the averments on record but also subject that case to critical scrutiny, in the light of all the available facts, to discover whether it appeared to be an arguable case. In the present case the averments made by the petitioner were commercially highly improbable. The respondent had a guarantee, payable on demand, which could have been called up at any time. The purpose of the 2010 facility agreement was to increase the company's borrowings. According to the petitioner, it was to be supposed that the respondent would release the guarantee as a condition of permitting increased borrowings, which did not make sense.

[11] For the petitioner it was submitted that, if the respondent wished to submit that there was no prima facie case, the petition and answers should have been appointed to debate; a motion for recall of an interdict was not the appropriate means of debating the relevancy of the pleadings, provided that there was a case to argue and a case to answer: Reed Stenhouse (UK) Ltd v Brodie, 1986 SLT 354, at 357L-358C. The case put forward by the petitioner was that he repeatedly stated that he would not sign the 2010 facility agreement, unless the respondent agreed that the personal guarantee would not be enforced, and indeed had put that in writing in an e-mail and on the envelope that enclosed the completed agreement. Lending had taken place under the 2010 agreement; the inference was that the assurance sought had been given, by means of a collateral warranty. Reliance was placed on Royal Bank of Scotland PLC v Carlyle, [2010] CSOH 3, a case where it was held after proof that a bank had through a collateral warranty committed itself not merely to advance the funds required for the purchase of property but also to lend the further funding that was required for its development. The petitioner's change of position might cause difficulties at proof, although there could be an explanation in the need for extreme urgency at the time when the petition was drafted. Nevertheless, it could not be said that the petitioner had not put forward a prima facie case. Moreover, a proof before answer had been fixed for early May, and that was the appropriate time for the court to decide whether the parties had entered into a collateral agreement to the effect that the personal guarantee would not be enforced.

[12] I have not found the issues raised by the present motion to be particularly easy, and in considering them I think it important to keep in mind precisely what the court's task is in an application for interim interdict or interim suspension or an application for the recall of such an order. Five general matters appear to me to be pertinent. First, the court's decision on an interim order is not a conclusive determination of the parties' dispute, and in particular does not conclusively decide any factual question that arises in that dispute. Secondly, the orders under consideration are merely temporary orders; they are a holding operation, pending final determination of the dispute between the parties. Thirdly, because of the two foregoing factors, in any motion for the grant or recall of an interim order the court must give consideration to the balance of convenience. By this I mean the prejudice that may occur to each of the parties in the event that an interim order is made or recalled. That requires a judgment as to both the likelihood and the seriousness of such prejudice.

[13] Fourthly, the relative strength of the cases put forward by the parties in averment and argument is important; this means that the court must consider the cogency of the legal and factual case that is said to justify the interim order. Traditionally the latter question has been treated as an aspect of the balance of convenience: NWL Ltd v Woods, [1979] 1 WLR 1294, per Lord Fraser of Tullybelton at 1310. In applications for the recall of diligence the approach used is different in form but similar in substance: in deciding whether the pursuer has put forward a prima facie case the court considers whether that case is cogent and convincing, a good arguable case, taking into account what is said in the defences as well as in the summons: Gillespie v Toondale Ltd, 2006 SC 304, at paragraphs [10]-[13]. A similar approach was applied to the grant of interim interdict in Holden v Royal Bank of Scotland PLC, [2011] CSOH 84, at paragraphs [11]-[15], and the latter decision was particularly founded upon by counsel for the present respondent, who treated the question of prima facie case as including the overall cogency of that case as well as its formal relevancy. However it is categorised, the important point is that the legal and factual case that is said to justify the making of an interim order must be properly scrutinized, and unless that case appears reasonably cogent an interim order should normally be refused or, if already made, recalled.

[14] Nevertheless, fifthly, the relative strength of the case that is said to justify an interim order must always be weighed with balance of convenience in the sense of likely prejudice. If the likely prejudice in the absence of an interim order is manifest and serious, an interim order may be justified even on the basis of a relatively meagre legal and factual case. It is, moreover, relevant to consider the prejudice to the respondent if an interim order is maintained until the final determination of the case; if that prejudice is relatively slight the continuation of an interim order may be justified even when the petitioner has put forward a case that appears on balance to be somewhat weaker than the respondent's case. In every case, however, the critical task for the court will be an evaluation of the cogency of the parties' cases and the likely prejudice to each party according to whether or not an interim order is granted or maintained.

[15] In the present case I have come to the conclusion that the interim suspension and interim interdict granted on 20 November 2010 should be maintained at this stage. In so holding, I acknowledge that counsel for the respondent made some relatively forceful criticisms of the petitioner's case. In particular, the petitioner asks the court to hold that the respondent gave up a guarantee in its favour for no obvious return; the debt due by the company to the respondent was payable on demand and could have been called up at any time, and in that event the petitioner's guarantee could also have been called up. Nevertheless, detailed averments are made by the petitioner to the effect that the parties entered into a collateral warranty (strictly, I think, a collateral agreement) whereby the respondent agreed not to enforce the guarantee. It cannot be said that that is impossible; apparently gratuitous benefits are not unknown in the world of business. Consequently I do not think that I can reach a conclusive determination of the factual issues between the parties at this stage; to achieve that, evidence will be required. Moreover, the existing order for interim suspension and interdict is merely temporary; it will only last until the proof, which has been set down for the beginning of May, two months away. Thus the practical effects of the order are limited. In this respect, it is material that the order has existed since November 2010, and it is difficult to believe that a further two months will cause any serious difficulties for the respondent.

[16] The last mentioned point is relevant to the balance of convenience. In that connection, the relative prejudice to the parties resulting from continuation or recall of the interim order is also important. The prejudice to the pursuer if the interim order is recalled is very obvious: the respondent will be able to proceed with diligence and in due course sequestration against him. No doubt a trustee in sequestration will be obliged to have regard to the petitioner's interests, and will be able, if so advised, to proceed with the present proceedings against the respondent. Sequestration is, however, very obviously prejudicial, and this consideration must in my opinion weigh heavily in the final evaluative exercise that the court must perform. So far as the respondent is concerned, the prejudice suffered if the interim order is maintained until proof is much less clear. I asked counsel for the respondent about this matter, and he replied that he could not know at this stage what prejudice might result. He did, however, state that the pursuer had power to deal with his assets other than Scottish heritage, which was subject to an inhibition. Moreover, the petitioner's Scottish heritable property was of relatively limited value and was subject to standard securities. Even on that basis, the property is unlikely to decline greatly in value before the proof. If the petitioner were to alienate his assets in the period prior to the proof, a trustee in sequestration, if appointed, could challenge the alienation on the basis that it amounted to a gratuitous alienation or unfair preference, either under section 34 or 36 of the Bankruptcy (Scotland) Act 1985 or at common law. These are generally effective remedies, especially as under the statutory provisions insolvency will be presumed in respect of any alienation made between now and the decision in the proof. Thus I am not persuaded that the respondent's inability to sequestrate the petitioner now, as against in three or four months time, will cause any irretrievable prejudice.

[17] A further consideration that is material to the balance of convenience is the fact that the change in the petitioner's factual case was intimated in July 2011 but it was only in February 2012 that the respondents thought to have the interim order recalled. That in itself suggests that there is no pressing need for recall. Moreover, at the By Order (Adjustment) Roll hearing that took place on 9 November 2011, it was agreed between parties that the action should proceed to proof before answer. That was on the basis that certain further amendments would be made by the petitioner, but that was duly done. That in itself tends to indicate that the respondent was then content to leave the interim order in place pending the proof. Once again, the inference must be that no significant prejudice was contemplated. When all of the foregoing factors are taken into consideration, I am of opinion that the balance of convenience tends strongly to favour the continuation of the interim orders.

[18] In the final evaluation, that assessment of the balance of convenience must be set against the relative strengths of the parties' cases as disclosed in the pleadings and productions. As I have indicated, this aspect of the case does tend to favour the respondent. Nevertheless, I am of opinion that I cannot hold at this stage that the petitioner's case is so unlikely to succeed that its weakness outweighs the manifest strength of the petitioner's position on the balance of convenience. For that reason I will refuse the motion for recall.

[19] I will also refuse the motion for caution as an alternative to recall. The effect of the caution would be to provide a guarantee for the sum that the respondent claims to be due under the guarantee. In terms of Rule of Court 60.2(2) caution is no longer required as a condition of interim interdict or interim suspension, and the question of whether caution should be ordered is a matter for the court's discretion. In my opinion it would be unusual to order caution in circumstances such as the present. Although the petitioner has come to court seeking the remedy of suspension and interdict, he does so in order to defend himself against a claim made by the respondent, a claim which might lead to his sequestration. In that situation he is to be regarded for practical purposes as if he were a defender, and caution should not normally be ordered: Stephen v Skinner, 1860, 22 D 1122. Moreover, if the respondent is successful following proof it is unlikely that there will be any substantial claim for damages against the petitioner; the respondent will rather proceed to enforce its charge and, if necessary, to sequestrate the petitioner. For the reasons discussed above, it is unlikely that the respondent will suffer any serious loss as a result of the continuation of the interim orders between now and the time fixed for the proof. In Wright v Thomson, 1974 SLT (Notes) 15, Lord Maxwell expressed the opinion that a finding of caution will not normally be necessary if it does not appear that the defender would have a substantial claim of damages in the event that the interim interdict should prove wrongous. That is subject to an exception where the petitioner is insolvent: ibid; but in the present case the petitioner is not at present said to be insolvent, and in any event the rule that caution will not normally be ordered from a party seeking interim interdict who is in reality a defender is applicable whether or not that person is insolvent.

[20] In addition to his arguments based on the lack of a prima facie case, counsel for the respondent submitted that the petitioner had obtained the original interim interdict and interim suspension on averments that were seriously inaccurate. As a result it could not be said that the petitioner made full and frank disclosure, and it was said that the interim order should be recalled on that ground. I am unwilling to accede to that suggestion. It is no doubt true that a party seeking interim interdict or interim suspension must disclose the relevant circumstances as fully as he can, including circumstances that are unfavourable to his case: Bell v Inkersall Investments Ltd, supra, at paragraph [20], and Scottish Ministers v Stirton, supra, at paragraphs [27]-[29]. If there is a failure to make disclosure, however, it is normally appropriate for the court to consider whether on the information currently before it, including the facts not disclosed previously, the order appears to be justified: Scottish Ministers v Stirton, 2006 SLT 316, per Lord Macfadyen at paragraph [25]. It is only in an extreme case that an interim order should be recalled solely on the basis that the disclosure was not made at an earlier stage: Scottish Ministers v Stirton, 2008 SLT 505, per Lord Glennie at paragraph [29]. In my opinion the present case is not so extreme that the interim order should be recalled. It is possible that the errors in the petitioner's original case arose from the haste with which the original interim order was required, but in any event I do not think that the changes in the pleadings made by adjustment were so serious as to deny the petitioner any remedy.

[21] Finally, I should record that counsel for the petitioner submitted that, if the respondent wanted the interim order recalled, it should have had the petition and answers sent to debate when the case called in the By Order (Adjustment) Roll on 9 November 2011. That, it was said, would have allowed the issues in the case to be discussed thoroughly, which was not possible in a motion for recall of the interim order. The difficulty with that course of action is that the challenge that is made to the petitioner's case is not so much based on its relevancy as on its factual improbability. That is no doubt why the respondent agreed to a proof before answer. Consequently I do not attach weight to that submission.

[22] For the foregoing reasons I will refuse the respondent's motion for recall of the interim suspension and interim interdict pronounced by Lord Pentland on 23 November 2010.