Inner House holds that personal guarantees may be included in deeds of assignation of security rights after appeal by purchasers of bank debts

About this case:

• Citation:
  [2023] CSIH 4
• Judgment:
  External link
• Court:
  Court of Session Inner House
• Judge:
  Lord Woolman

Promontoria (Chestnut) Ltd argued that the commercial sheriff had erred in finding that personal guarantees could not be included in a deed of assignation under the Conveyancing and Feudal Reform (Scotland) Act 1970. The respondent, Giovanni Guidi, contended that the deed was insufficiently precise as to what was due by him to the bank.

The appeal was heard by the Lord President, Lord Carloway, together with Lord Woolman and Lord Pentland. Crawford KC appeared for the appellants and E MacLean, advocate, appeared for the respondent, although Mr Guidi represented himself at the post-summar roll.

Precise amount due

The respondent, who was the pursuer in the original action, was the founding director of three property companies based in Glasgow. In relation to one of these companies, Fieldoak Ltd, he granted a personal guarantee capped at £450,000 in favour of the Clydesdale Bank, as well as a standard security over his home in Bothwell. The Fieldoak rights were transferred to the appellants in 2015 as part of a sale of loans and securities.

A standard debt recovery procedure followed in respect of Fieldoak’s debts. In late 2016 the appellants looked to the respondent to honour his personal guarantee and served on him a charge for payment of the £450,000. No sums were paid, and Mr Guidi was sequestrated in early 2017. In 2018 the respondent raised twin actions in Hamilton Sheriff Court seeking recall of the sequestration, later sisted, and reduction of the deed of assignation on the grounds of invalidity.

It was held by the commercial sheriff that the assignation of the standard security was invalid, but the assignation of the personal guarantee was valid. An appeal was made to the Sheriff Appeal Court, which remitted the case to the Court of Session on the basis that it raised issues of principle that would be relevant to other Promontoria-related cases throughout the UK.

Counsel for the appellants invited the court to dismiss the action on the grounds that the respondent’s arguments were without merit. The respondent contended that the sheriff was wrong to reject his argument that, for the assignation of the guarantee to be valid, it required to specify the precise amount due by him to the bank in order to comply with the 1970 Act.

Words were unequivocal

Delivering the opinion of the court, Lord Woolman said of the respondent’s main argument on the precise sum due: ““The 1970 Act has an important feature. It does not demand strict adherence to the statutory wording. It is enough that the document in question conforms ‘as closely as may be’. That reflects the recommendations of the Halliday Committee, which gave rise to the 1970 Act. Its aim was to simplify the assignation of security rights. That legislative approach chimes with the wider jurisprudence. Where a document does not conform to prescribed wording, it is not necessarily invalid.”

He continued: “The commercial sheriff correctly rejected this argument. On a practical level, it will often be difficult to determine that figure. Further, it is not of critical importance. It is certainly of no moment to the assignee. We approve the previous decisions that have reached the same conclusion.”

Addressing the validity of the assignation generally, Lord Woolman said: “The commercial sheriff concluded that a deed of assignation should not only identify the subjects and the parties. It should also be unilateral, unconditional and only deal with standard securities, not for example personal guarantees or floating charges. With regard to the last three elements, we disagree. In the context of a bulk assignation of this type, it was likely (if not inevitable) that there would be multiple parties and different financial instruments.”

He went on to say: “On behalf of Mr Guidi, it was faintly argued that there was no positive averment that payment had been made. We regard that to be an ineluctable inference. It defies belief to suppose that the Bank has arranged its affairs since 2015 on the basis that it has transferred the sheaf of debts to PCL without receiving the purchase price.”

He concluded: “The words of the assignation are unequivocal. PCL acquired the Bank’s whole right, title and interest to the Fieldoak facility agreement, the personal guarantee and the standard security. There is no merit in Mr Guidi’s arguments.”

The court therefore recalled the interlocutor of the sheriff and dismissed the action.