A decision in the Western Australian Court of Appeal has limited the ability of a loan guarantor to challenge its payment obligations under a guarantee - an issue that has been up in the air in recent years.Lenders rely on contract provisions (called suspension clauses) that restrict guarantors from avoiding payment by issuing counterclaims. These provisions typically require payment under the guarantee before any counterclaim can be dealt with.But in the 2013 case, O'Brien v Bank of Western Australia, the New South Wales Court of Appeal found that suspension clauses could not prevail over statutory remedies, such as misleading and deceptive conduct.DLA Piper partners Gary Segal and Josephine Gardiner said in a note to clients: "This meant that lenders were no longer necessarily entitled to summary judgments for money owning under guarantees."The outcome of the case had caused some concern."However, in the latest case to deal with the issue, Palaniappan v Westpac Banking Corp, the WA Court of Appeal ruled that the guarantor could not delay or withhold payment to the lender as a result of a counterclaim seeking statutory remedies.In 2011 Westpac subsidiary St George Bank loaned A$18 million to property developer Murray Riverside. The loan was secured by three properties and a guarantee from Palaniappan, a director of Murray Riverside.The following year Murray Riverside defaulted. The bank appointed receivers, who raised around $11 million from the sale of assets, and issued the guarantor with a notice of demand for the shortfall.The matter went to court, with Palaniappan claiming that the receivers had breached their duty in exercising their power of sale. Palaniappan said the receivers had committed a number of breaches, including not obtaining market valuations on the assets, not advertising sufficiently, accepting a sale price under market value and failing to investigate another offer that could have yielded a higher price.He claimed that the lender could only enforce the guarantee to the extent of the shortfall minus an amount reflecting the impact of the alleged breaches.The court rejected his claim, ruling that the guarantee had been drafted so that it clearly indicated that the guarantor could not defer payment due under the guarantee pending litigation over the claim.Palaniappan appealed, arguing that the conduct relating to the sale gave rise to statutory causes of action under the Competition and Consumer Act.The appeal court held that the guarantee should be enforced, ruling that none of the bank's or its agent's alleged unconscionable conduct was related to the guarantee contract and occurred after a valid guarantee contract was entered into by the parties."The conduct wasn't directly related to the guarantee or loan facilities, which means that the debt was always due and payable," Segal and Gardiner said."The O'Brien case threw the effectiveness of suspension clauses into doubt, the key concern being that a suspension clause could not be drafted broadly enough to permit the granting of a summary judgment if a guarantor raised a statutory remedy."The impact of the Palaniappan case is to limit the scope of the O'Brien decision.