This is a strange quest altogether.
It lacks the option to find out the true identity of the Paladins of Tyr, then tell them about it, and DO NOT FIGHT (which starts automatically), but find out in more detail and offer help to the demons.
It would be an evil passage.
Or, find out that the Paladins of Tyr are really the paladins of Tyr. That would be a good passage.
Now the decision to help paladins is stupid passage.
One of the corpses when casting the "talk to the dead" spell confirms that they are indeed demons. But why don't they turn into demons and behave like paladins even after being revealed?
I only helped Karlach because I didn't want to be dumb. She is also a strange character, logically it should be "good" but I can't call her good.
