A ROYAL Bank of Scotland funding promise in 2007 to a now-bankrupt developer was not legally binding, the bank has told three appeal judges in Edinburgh.

RBS is attempting to overturn a landmark Court of Session judgment in 2010 which upheld Derek Carlyle's claim that the bank was wrong to withhold the £700,000 development cost of a housing site at Gleneagles, after advancing £1.4m for buying land which it knew had to be developed and could not be sold on.

Mr Carlyle, from Hamilton, was subsequently sequestrated for a minor debt and was last year subjected to a record 12-year bankruptcy restriction order for having spent the £564,000 proceeds of an asset sale in 2008.

His trustee, however, has recently said Mr Carlyle's £3m counter-claim against the bank outweighs the £2m claimed by the bank against his personal guarantee. Trustee Maureen Leslie's disclosure, under pressure from the Scottish Legal Aid Board which had previously refused Mr Carlyle legal aid for the appeal, omitted to include a £910,000 repayment to the bank which was recorded at the bankruptcy hearing.

But the disclosure did prompt the SLAB to reverse its decision and grant Mr Carlyle aid for both junior and senior counsel. RBS had opposed legal aid, and in May asked the court to allow Mr Carlyle to defend himself against its counsel, the Dean of Faculty Richard Keen QC. That was rejected by Lord Justice Clerk, Lady Dorrian and Lord Bracadale, who yesterday heard the bank's case from its junior counsel Alastair Duncan QC.

In the original judgment, Lord Glennie found the bank had incurred a "collateral warranty obligation" in a phone call from commercial banking manager Helen Hutcheson to Mr Carlyle in June 2007, and reproached RBS for a "lack of candour" in its version of events. Mr Carlyle had asked the bank not to advance him the land purchase cash without the development funding.

Mr Duncan told the court that Lord Glennie had erred, both in accepting the existence of any obligation, and in preferring Mr Carlyle's version of the pivotal phone call. But even if Ms Hutcheson had said "it's all approved", Mr Duncan said, "those words are not capable of bearing the inference that the parties intended to enter into a collateral warranty obligation for development funding of £700,000".

He said Mr Carlyle had not asked for clarification, and a binding contract could not have been created by "such an anodyne exchange". It was "commercially absurd" to suggest that the bank could have created an enforceable loan agreement, he said.

A collateral warranty obligation was an English concept and had no application or precedent in Scots law, Mr Duncan said. The Lord Justice Clerk suggested that the phone conversation might be argued in terms of a contract but "did not involve a collateral anything". The hearing concludes today.