Scottish Court of Session Decisions

The proposal included the pursuers' Supplier Questionnaire ("the questionnaire") duly completed by the first defenders, the Systems Requirements Analysis, a list of purported clients of the first defenders and a substantial volume of other detailed and specific technical information.

[6] When considering those averments it is necessary to bear in mind also various other passages in the pursuers' pleadings. Those include the admission which appears later in article 13:

They also include the following passages from article 3:

The pursuers also refer for its terms to a letter to Mr Phair from the managing director of BEC Group Limited dated 11 April 1994 (No. 7/2 of process). It was in the following terms:

That letter was referred to in the course of the debate as the "letter of comfort", and I too shall adopt that terminology.

[7] The second chapter of the pursuers' averments of fraudulent misrepresentation relates to their second conclusion, in which they seek declarator that they are entitled to rescind an oral agreement between them and first defenders the terms of which are set out in their letter of 2 November 1995. I shall refer to that agreement as "the 1995 agreement". The letter of 2 November 1995 (No. 6/12 of process) was in the following terms:

[8] The averments setting out the case that the 1995 Agreement was induced by fraudulent misrepresentations made by the second defender are to be found in article 15 of the condescendence, and are in the following terms:

[9] In considering those averments it is also necessary to have regard to the earlier averments about the nature of the data corruption. The following averments appear in article 8 of the condescendence:

[10] In article 15 of the condescendence the pursuers found on the alleged misrepresentation about the role of the Intel chip in the causation of the data corruption problems for a second purpose over and above their reliance upon it as the ground for reduction of the 1995 Agreement. They aver:

[11] Mr Artis, who appeared as junior counsel for the defenders, argued that the representations relied on by the pursuers were of the sort to which section 6 of the Mercantile Law Amendment (Scotland) Act 1856 ("the 1856 Act") applied, and that it followed that in so far as those representations were not said to have been made in writing, the averments were irrelevant and should be excluded from probation. Section 6 (which was repealed with effect from 1 August 1995 by the Requirements of Writing (Scotland) Act 1995, and was therefore still in force at the time at which the representations mentioned in article 13 of the condescendence are said to have been made) was in inter alia the following terms:

Mr Artis, while admitting that much that was written about section 6 treated it as relating only to representations as to financial credit (Glegg on Reparation, 229; Stair Memorial Encyclopaedia, Vol. 3, §1008; see also (cited by Mr Clancy for the pursuers) Gloag on Contract, 473, 475 and Gloag & Irvine on Rights in Security and Cautionary Obligations, 718), submitted that the representations on which the pursuers sought to found were representations by one party (the second defender) as to the "character, conduct, ... trade or dealings" of another (the first defenders), and were accordingly within the scope of the section.

[12] In my view the authorities which Mr Artis cited (and to which I shall refer shortly) demonstrate that his attempt to rely on section 6 of the 1856 Act in the circumstances of this case was ill founded. To fall within the scope of section 6 representations require to be not only fraudulent (Andrew Oliver & Son Ltd v Douglas 1981 SC 192), but also "of the character and made for the purpose and with the intent specified" in the section (Clydesdale Bank Ltd v Paton (1896) 23 R (HL) 22, per Lord Watson at 26). In construing the section in order to determine the category of representations to which it applies, it is necessary to bear in mind (1) that it was enacted in order to bring Scots law into line with English law (Andrew Oliver & Son Ltd per Lord Stewart at 198), and (2) that the corresponding provision of English law (section 6 of Lord Tenterden's Act (the Statute of Frauds Amendment Act 1828)) was construed according to the mischief it was enacted to remedy, namely the evasion of the provision of the Statute of Frauds requiring that a guarantee to be enforceable be in writing (Banbury v Bank of Montreal [1918] AC 626, per Lord Finlay LC at 639, Lord Atkinson at 690-693, Lord Parker of Waddington at 706). In my view, representations, to be within the scope of section 6, must bear on the financial standing or creditworthiness of the person to whom they relate, and must be made for the purpose identified in the section. The representations in the present case were not of the sort to which section 6 applied, either in the first place in their character or nature, or in the second place (even more clearly) in the purpose for which they were made. They were not representations as to credit, and were not made to obtain credit, money, goods or the postponement of a debt or other obligation. I am therefore of opinion that this aspect of Mr Artis's argument (which was neither expanded upon nor departed from by senior counsel, Mr Campbell) fails.

[13] The principal issues in the debate turned on the application of the appropriate standard of relevancy and specification to the pursuers' pleadings. In large measure counsel were in agreement as to what those standards were. Mr Artis began his submissions on this point by referring to two recent decisions of my own. In Wright v Cotias Investments Inc. 2000 SCLR 324 at 343B-C I said:

In Royal Bank of Scotland plc v Holmes 1999 SLT 563 at 569K-L I said:

Of the older reported cases, Mr Artis relied on Drummond's Trustees v Melville (1861) 23 D 450. In that case, Lord President McNeill said at 462:

At 463 his Lordship added:

As Mr Cullen, senior counsel for the pursuers, pointed out, these comments were made in the context of a case in which there were general averments that the pursuers had been "led to believe" certain things, but no clear specification of what the defender had said or done to induce that belief. I accept that to an extent the dicta require to be read in that context, but they do, it seems to me, afford support to the general proposition that averments of fraud require to be clearly specified.

[14] It seems to me that, in identifying the tests which averments of fraudulent misrepresentation must pass, it is worth making the distinction between relevancy and specification. So far as relevancy is concerned, to make a case that a contract was induced by fraudulent misrepresentation, the pursuer must in my opinion set out in averment (i) the representation that was made, (ii) that the representation was false, (iii) that the maker of the representation knew when he made it that it was false (or acted recklessly, in that he did not know and was indifferent to whether it was true or false), (iv) that the maker of the representation, if not the defender, was one for whose actings the defender was in law answerable, and (v) that the pursuer was induced by the representation to enter into the contract in question. So far as specification is concerned, the authorities in my view justify the conclusion that when fraud is alleged, a high standard of specification is required. It seems to me that it is appropriate to bear in mind that the rule requiring pleadings to be specific is founded in fairness. The party against whom any allegation is made is entitled to have fair notice in the other party's pleadings of the substance of the allegation. Where the allegation is of fraud, the courts have applied that rule of fairness particularly strictly. But, in my view, even in a case of fraud, a defender is not entitled to complain of lack of specification if the pursuer's pleadings give him what in the circumstances amounts to fair notice of the allegation. He cannot, through reliance on the authorities about the high standard of specification required in cases of fraud, demand that the pursuer's averments go into more detail than is necessary to give fair notice of the case. Subject to that point, however, it must in my view be borne in mind that the strict standard of specification will be applied to each of the essential elements of the case identified above.

[15] Mr Artis submitted that dishonesty was an essential element of fraud. He cited Gloag and Henderson, The Law of Scotland, tenth edition, § 9.3, for the proposition:

I accept that, subject to the qualification, made later in the paragraph, that in this context such dishonesty may be inferred from recklessness in the making of a false statement, where the maker did not know or care whether it was true or false. Part at least of Mr Artis's purpose in citing that statement was to go on to develop the proposition that in judging whether a statement was dishonest, allowance has to be made for sales puff, expressions of pride and natural exaggeration in the context of commercial dealings. In that connection he cited City of Edinburgh Brewery Co. Ltd v Gibson's Trustee (1869) 7 M 886, a case about a company prospectus, in which Lord President Inglis said (at 891):

(See also per Lord Ardmillan at 893.) I accept that that is a point that requires to be borne in mind when considering the pursuers' averment that they were induced to contract by fraudulent misrepresentation on the part if the second defender. It seems to me to be a matter of circumstance and degree.

[16] In dealing with the last of the five elements of the case which I have enumerated in paragraph [14] above, namely whether the pursuers have relevantly averred that they were induced to enter into the contract by the alleged fraudulent misrepresentations, Mr Artis submitted that regard required to be had also to the other factors that influenced the pursuers' decision. In that connection, he cited two cases. The first was McLellan v Gibson (1843) 5 D 1032, which does no more than vouch the proposition that there must be proof that the alleged false statement had been relied on and formed the reason for the pursuer entering into the transaction. The second was A. W. Gamage Ltd v Charlesworth's Trustee 1910 SC 257 in which the majority of the court, although accepting that a fraudulent misrepresentation had been made, declined to hold that it had induced the contract. Mr Artis relied in particular on the following passage in the opinion of Lord Johnston (at 268):

At 270 his Lordship added:

I again have no difficulty in accepting the validity of those points, but shall return to the question of their application to the relevancy and specification of the pursuers' pleadings in due course.

[17] Properly understood, the defenders' criticisms of this aspect of the pursuers' pleadings were principally concerned with specification rather than relevancy. It was not, as I understood it, disputed that in their pleadings the pursuers had purported to address each of the necessary components (identified in paragraph [14] above) of a relevant case that they had been induced to enter into the principal contracts by fraudulent misrepresentations made by the second defender. Rather the complaint was that in a number of respects the pursuers' averments addressed these matters inadequately and failed to give the requisite degree of specification. Mr Campbell categorised the criticisms as relating to the specification of the averments (a) about the representations, (b) about reliance and (iii) about the falsity of the representations and the second defender's knowledge of that falsity. It is convenient to record and examine the submissions under those subheadings.

1. The Representations

[18] I begin consideration of this aspect of the parties' submissions by noting that the only averments on which the pursuers relied as averments of misrepresentations are those highlighted in bold in paragraph [5] above, namely that:

"The second defender stated that the first defenders had at their disposal a workforce of sufficiently skilled personnel, the resources and the experience to implement MTMS successfully" (which I shall call "the oral representation");

and,

"The first defenders' response to the ITT stated that the first defenders had achieved BS5750 accreditation. ... That response [i.e. the first defenders' response to the ITT] deliberately gave the impression that the first defenders were an integral part of the BEC Group. It deliberately gave the impression that the staff and resources of the BEC Group and its experience of implementing MTMS would be at the disposal of the first defenders in their dealings with the pursuers" (which I shall call "the questionnaire representation").

It is therefore sufficient to concentrate attention on the sufficiency of those averments as averments of the misrepresentations made.

[19] It was submitted on the defenders' behalf that the pursuers' averments did not adequately specify the "context" (Mr Artis's expression) of the oral representation. Mr Artis drew attention to the averment that meetings took place in the period between December 1993 and July 1994, and to the fact that it was not identified when in that period of negotiation the representation founded on was made, or what was under discussion when it was made. Moreover, given what was averred about the matters of which the second defender "informed" Mr Phair concerning his involvement with BEC Group Ltd and that company's involvement in the development of MTMS, it was important to know whether the representation founded on had been made before or after the pursuers obtained the letter of comfort from BEC Group Ltd. Further, the formulation of the representation was vague. It was not clear what was meant by "sufficient" skill, or what was meant by personnel, resources and experience being "at [the first defenders'] disposal". So far as the questionnaire representation, made by means of the response to the ITT, was concerned, Mr Artis submitted that no adequate factual basis was averred for the assertion that it was intended to give the impression ("deliberately gave the impression") that the first defenders were part of the BEC Group. Mr Campbell pointed out that the pursuers did not challenge the truth of what the second defender is averred to have said to Mr Phair about his involvement with BEC Group Ltd and its role in the development of MTMS; admitted that they knew that the first defenders and BEC Group Ltd were separate companies, and that they had access to the first defenders' accounts, which would have shown that they were not a subsidiary of BEC Group Ltd; and admitted receipt of the letter of comfort. The presence of all those circumstances made it essential that the pursuers make clear averments about the evolution of the negotiations and about when in the course of that evolution (and in particular when in relation to the pursuers' access to the admitted sources of accurate information) the representations relied upon were made. Mr Campbell made the further submission that the averment about the oral representation was wholly inspecific. It failed to identify what personnel, resources and experience would have been sufficient. He suggested that if a representation of sufficiency of resources was to be said to be false, it was necessary to make averments by reference to which such sufficiency could be tested.

[20] Mr Clancy for the pursuers accepted that it was necessary for the pursuers' averments to place the representations relied upon in their proper context. He submitted, however, that the pursuers' pleadings adequately did so. The general context of the oral representation was the course of meetings between December 1993 and July 1994 to discuss the possible contract. The more particular context was the occasion on which Mr Phair drew to the second defender's attention the press report about the 80% dissatisfaction rate amongst purchasers of such computer systems. On a fair reading of the pursuers' pleadings it was clear that it was in that context that the second defender was said to have, first, assured Mr Phair that MTMS could and would be successfully supplied and installed (which it was accepted was a mere expression of confidence, not a representation), and secondly, made the oral representation. The context of that representation was therefore clearly specified. The place at which the representation was made was specified - the series of meetings were averred to have taken place at the pursuers' offices. The occasion was adequately identified by reference to the query about the press report. It clearly post-dated the questionnaire representation, and antedated the conclusion of the contract. Since the pursuers' position was that the work content of the proposed contract did not change in the course of the negotiations, further specification of date was unnecessary. So far as the actual content of the oral representation was concerned, it was unnecessary to aver the precise words used. It was sufficient to set out the substance of what had been said.

[21] In relation to the questionnaire representation, Mr Clancy accepted that by the time they entered into the contracts the pursuers had in their possession information which, properly understood, indicated that there was no formal connection between the first defenders and BEC Group Ltd. He submitted, however, that what mattered was not the nature of the legal relationship between the two companies, but the de facto relationship asserted in the questionnaire. He drew attention to a number of aspects of the response to the ITT (No. 6/3 of process). The cover sheet, although identifying the first defenders in the bottom right-hand corner, bore the BEC Group logo and was headed "BEC Group". The introduction spoke of "BEC" without differentiation, and referred to the "Scottish Implementation Teams and Customer Support Centre" based in Cumbernauld (the first defenders' address). The questionnaire bore to be completed by the second defender in name of BEC Group Ltd. The first defenders were identified as "the office ... which will service this assignment". Staff numbers were given broken down between "Total UK" and "Proposed Office". Reference was also made to the responses to paragraphs 15, 16, 17, 18 and 55 of the questionnaire. Question 19 was "What internal review and approval procedures do you have to ensure quality control?" and the response was "BS5750". The client list provided was of clients of BEC Group. The nature of the questionnaire, Mr Clancy submitted, was such as to make it clear that the responses would be relied upon by the pursuers. They therefore could not be dismissed as mere sales puff. The content of the answers was such as to afford a properly specific basis for the inference that the first defenders were seeking deliberately to give the impression that BEC Group's staff, resources and experience of implementing MTMS would be at the first defenders' disposal in their dealings with the pursuers. That representation, made at the outset of negotiations, remained on the table throughout their course and was never withdrawn before the contracts were concluded.

[22] Mr Cullen, while accepting the need for specific averment of the representations founded upon, made a distinction between the degree of specification possessed by the representation itself and the degree of specification of the representation required in the pursuers' pleadings. The pursuers could not be expected to express the representation more specifically than the second defender had done. If a general or vague representation was made, that did not mean that it could not be founded on as and shown to be a fraudulent misrepresentation. What a pursuer required to do was give fair notice of what he asserted the representation had been. So far as the oral representation was concerned, the averment was a clear formulation of what the second defender is alleged to have said. If that is what he said, the pursuers cannot be criticised for not saying what he meant by " a workforce of sufficiently skilled personnel, the resources and the experience to implement MTMS successfully". If "sufficiently" is vague, the vagueness lay in the representation; it is not a vagueness in the pursuers' averment. Regarding the specification of the time and circumstances of the making of the oral representation, Mr Cullen in effect reiterated the points made by Mr Clancy. So far as the questionnaire representation was concerned, Mr Cullen emphasised that the pursuers' case was not that they had been misled as to the formal relationship between BEC Group Ltd and the first defenders, but that they had been led to believe by the answers to the questionnaire that the resources and experience of BEC Group Ltd would be available to the first defenders in implementing the contracts. There was ample in the questionnaire to support not only the reasonableness of the inference that the pursuers say they drew from that material, but also the inference that the first defenders had set out deliberately to create that impression. The response to question 19 amounted either to a false assertion that the first defenders had BS5750 accreditation, or to a representation that BEC Group's accreditation was relevant to the ability of the first defenders to fulfil the proposed contract.

[23] So far as this aspect of the matter is concerned, I am of opinion that the pursuers' averments are sufficiently specific to give the defenders fair notice of the allegations made against them. In relation to the oral representation, it is not in my view essential that the averment be expressed in the ipsissima verba employed by the second defender. It is sufficient if the substance of the alleged representation is clearly set out. In my view the averment satisfies that test. In so far as the defenders' counsel criticised the vagueness of the language of the alleged representation, they were, in my view, falling into the error identified by Mr Cullen. The pursuers cannot be expected in their averments to express the representation more precisely than its maker expressed it. A representation may be precisely or vaguely expressed. If it is vaguely expressed, it may be more difficult to prove that it was false. But that is a different matter. So far as averment of the representation is concerned, it is in my view sufficient for the pursuers to set out the substance of what they allege the second defender said. I accept, of course, that fair notice of the alleged representation involves not only specification of what is alleged to have been said, but also specification of when, where and in what circumstances it was made. In the present case, so far as the oral representation was concerned, the place is averred - it is averred that it was made at one of the series of meetings between Mr Phair and the second defender that took place in the pursuers' offices. The pursuers' averments in my view make it adequately clear that the general context of the representation was the course of pre-contract discussion or negotiation that is averred to have taken place over a specified period of six months or so. In my view, the pursuers are entitled to say that the particular context is adequately identified by the averment about Mr Phair's query expressed by reference to the newspaper report about the high level of customer dissatisfaction. That gives notice, arguably better than a mere reference to a date would have done, of the context in which the representation is said to have been made. It was suggested that the pleadings did not make it clear that both the assurance about successful supply and installation of MTMS (which the pursuers do not found upon as a representation) and the oral representation on which they do found were elicited by the query about the press report, but in my view a fair reading of the pursuers' pleadings does make that clear. Much was made of the fact that, in the absence of an averment identifying the date on which the oral representation was made, it is impossible to tell whether it was allegedly made before or after (i) the pursuers received the letter of comfort and (ii) they became aware that the first defenders and BEC Group Ltd were not formally related in terms of corporate structure. It does not seem to me, however, that that matters in relation to the oral representation. Its content is not such as to depend on the formal structural relationship between the two companies. In that context it does not seem to me to be essential, as part of the specification of the oral representation, to identify when it was made relative to the acquisition of information by the pursuers bearing on the absence of a formal connection between the two companies. As Mr Cullen stressed, the pursuers' position is that the work content of the proposed contract remained the same throughout the period of negotiation. There is therefore no question of the representation being true at one stage of the negotiations in relation to work of a certain scope, but untrue at a different stage in relation to work of greater scope. On the whole matter, I am of opinion that the pursuer's pleadings give adequate specification of the oral representation.

[24] So far as the questionnaire representation is concerned, no question arises as to specification of when the representation was made, since the response to the ITT was dated. That representation falls into two parts. The first, relating to BS5750 accreditation, is in my view clearly asserted, and no question of lack of specification arises. There may be an issue as to whether on a proper understanding of the responses to the questionnaire the answer to question 19 truly relates to the first defenders rather than BEC Group Ltd, but that is not a matter of specification. The assertion that the answer did relate to the first defenders is clearly and unequivocally made. The second part of the representation is that a certain impression was deliberately given. The use of the phrase "gave the impression" is similar to the use of the phrase "led to believe" in Drummond's Trustees v Melville. The crucial difference is that while, in that case, what was lacking was any specific averment of what the defender had said or done to lead the pursuers to the belief in question, here there is in my view no such lack. The terms of the response to the ITT, including the questionnaire, are incorporated in the pursuers' pleadings. In my view the terms of the document provide adequate specification of the factual basis for the impression the pursuers say they were given. Moreover, the same material in my view affords a sufficient basis for the contention that in providing the information he did, expressed as it was, the second defender intended to give the impression the pursuers say they were in fact given. The temporal relationship between the answers to the questionnaire and the other information that the pursuers obtained about the relationship between the first defenders and BEC Group Ltd is clear - the answers to the questionnaire came first. How far the impression given by those answers ought to be regarded as having survived the acquisition of the additional information is a matter that cannot, in my view, be determined on mere averment. There does not seem to me to be any necessary inconsistency between knowledge of the true position as a matter of corporate structure and the survival of the induced belief that there was a close practical relationship. Similarly, the question of whether, and if so how far, what was contained in the answers to the questionnaire can be regarded as sales puff or exaggeration or the like is not a matter in my view that can be determined on averment. Looking at the matter as a whole, I am of opinion that the pursuers' averments give adequate specification of the questionnaire representation.

2. Reliance

[25] Mr Artis submitted that A. W. Gamage Ltd v Charlesworth's Trustee was authority for the proposition that where there was a range of factors on which a party had relied in making the decision to enter into a contract, that party required, if he was to make a relevant case that he had been induced by a fraudulent misrepresentation to enter into the contract, to make specific averments explaining why he had been induced to contract by the misrepresentation rather than the other factors. In the present case, account required to be taken of (i) the assistance that the pursuers said they had had from Coopers and Lybrand, (ii) the other information provided by the second defender about the relationship between the first defenders and BEC Group Ltd that was not challenged as false, (iii) the information the pursuers had from the first defenders' bank and accountant, and (iv) the letter of comfort. It the absence of averments of the influence those other factors had on the pursuers' thinking, the averment of inducement was lacking in specification. In relation to the representation that the first defenders had BS5750 accreditation, Mr Campbell pointed to the absence of any suggestion that anyone other than Mr Phair had applied his mind to the matter, and the positive averment that Mr Phair was not qualified to discuss technical issues. There was thus no proper specification of reliance on that representation.

[26] Mr Clancy submitted that the pursuers had said all that was necessary on the subject of inducement and reliance. He pointed to the following averments in article 13 of the condescendence:

Averments to the same effect are to be found in the last two sentences of the passage quoted from article 13 in paragraph [5] above. These averments were, Mr Clancy submitted and Mr Cullen reiterated, sufficiently specific averments of reliance and inducement. They accepted that the pursuers could not succeed unless after proof the court held that they had indeed relied upon the misrepresentations and been induced by them to enter into the contracts, and that that would involve consideration of the whole circumstances, including the other matters mentioned by Mr Artis, and an assessment of the reasonableness of such reliance. All of that, however, was matter for consideration after proof in light of the evidence. It was not a matter that required more specific pleading than the pursuers had made.

[27] I do not consider it appropriate to make any general observations about the degree of specification required in a pursuer's averments that he relied upon alleged misrepresentations so as to be induced by them to enter into a contract. I do not consider that A. W. Gamage Ltd is concerned with the degree of specification required in averments of reliance. Reliance must, of course, be proved, but at least in the circumstances of the present case I am of opinion that fair notice does not require the pursuers to go beyond the averments of reliance that they have made or explain in any greater detail why they relied on the alleged representations, and were induced by them rather than other considerations to enter into the contracts.

[28] The pursuers' averments in support of the contention that the representations founded on were false begin with the general assertion that the first defenders did not have a workforce of sufficiently skilled personnel or the resources to implement MTMS successfully for the pursuers. There then follow a number of more specific averments: (i) the first defenders had only supplied MTMS to one other customer; (ii) they had not acquired BS5750 accreditation; (iii) they had only a few employees who had the technical skills and ability to work on MTMS installation; (iv) they were dealing with or trying to obtain business from other new customers (including three named companies), and did not have enough expertise and resources at their disposal to implement MTMS for the pursuers and those others; (v) they did not have enough expertise and resources to deal with the data corruption and other problems that arose; (vi) they deployed staff to work at the pursuers' premises who had no expertise in implementing MTMS; and (vii) they increasingly tried to obtain assistance from MTMS experts employed by BEC Group Ltd and its parent company, but those experts attended only occasionally and intermittently, and were not on hand to assist in the implementation of MTMS in the manner that the second defender had represented.

[29] The averments about the second defender's knowledge of the falsity of the representations are first expressed in general terms:

There then follow more specific points made about the second defender's state of knowledge:

1. that when he sent the response to the ITT he knew that the first defenders did not have BS5750 accreditation; and
2. that "the representations concerning the history of the BEC Group, the close connections between the first defenders and the BEC Group and about the client list were calculated and intended to fortify the false impression deliberately created by [him] that the first defenders had a sufficiently skilled workforce, the resources and the experience successfully to implement MTMS for the pursuers."

Later, there are averments that the second defender had knowledge of the individual matters listed at (i) to (vii) in paragraph [28] above.

[30] The criticisms of the averments of falsity advanced on the defenders' behalf can, it seems to me, be grouped in two categories. One was to say that the averments did not properly support the inference of knowing falsehood, because the truth of the averments was not necessarily inconsistent with the truth of the representations or belief in their truth on the part of the second defender. For example, even if it were true that the first defenders had only supplied one other customer, it did not follow that the representations were false. There was no suggestion that that contract had been unsuccessful. The averment yielded no legitimate inference about the first defenders' ability to fulfil the contract with the pursuers. That they had only a few employees with the necessary technical skills did not demonstrate the falsity of the representations, at least in the absence of specific averments about the number of relevantly skilled employees they actually had, and the (larger) number that would have been required to install MTMS successfully. The fact that they were negotiating with other customers, even if such negotiations might have led to other contracts which, in combination with the contract with the pursuers, would have overloaded their resources did not necessarily mean that the representations were false. The second category of criticism related to those elements of the case of falsity that were founded on the way events actually turned out. It could not be said, simply because problems occurred which were not successfully tackled, that a pre-contract assertion that the first defenders had adequate resources to cope with the proposed work was false. Still less could the inference of deliberate dishonesty be supported by those averments. They did not exclude the possibilities (i) that the second defender's assessment of the situation had been mistaken, but offered in good faith, or (ii) that the first defenders had been let down by BEC Group Ltd, in that that company had provided less back-up than the second defender had genuinely believed they would do. There was no averment that the data corruption and other problems ought to have been foreseen by the second defender at the time of making the representations, and the absence of such an averment undermined the logic of inferring from the inability to solve the problems that the representations about sufficiency of resources were deliberately dishonest.

[31] It was, I think, principally in relation to the defenders' submissions about the falsity of the representations and the second defender's knowledge of that falsity that Mr Cullen criticised the defenders' approach which he said involved examining each averment individually, and branding it as irrelevant if it did not by itself support the required inference. He submitted that that approach was erroneous, and that the proper approach was to look at the averments as a whole. The picture was obscured rather than illuminated by the item-by-item approach. Although the pursuers make a number of points on which they seek to rely in support of the conclusion that the representations were false, and some of those points are drawn from the way matters turned out in the event, that was not the whole of the case. It should not be overlooked that the pursuers offer to prove that the first defenders did not themselves have adequate resources to implement the contracts, and that such help as they obtained from BEC Group Ltd was inadequate to fill the gap. In that context, the various more specific points made in the pleadings, even if not individually sufficient to yield the inference of falsity, were relevant adminicles capable of supporting that inference. So far as the second defender's knowledge was concerned, it was appropriate to bear in mind his position in the first defenders, and the level of knowledge of the resources of BEC Group Ltd shown in the answers to the questionnaire. It was against that background that the second defender's knowledge of the falsity of the representation fell to be considered. In the circumstances the averments gave sufficient notice of the pursuers' case. They were sufficient to support a prima facie inference that he had the requisite knowledge, or at least made the representations recklessly with indifference as to their truth. If the second defender wished to say that, if the representations were untrue, they were made in good faith, it was for him to seek to displace the prima facie inference by making and proving appropriate averments.

[32] In my opinion if it were appropriate to consider the averments of the falsity of the representations and of the second defender's knowledge of that falsity item by item, there would be considerable force in a number of the points made by the defenders. Several of the averments are such as not, by themselves, to yield any necessary inference that the representations were false and known to be false when they were made. In my opinion, however, Mr Cullen was right in his submission that it is necessary at this stage to take an overview of those averments. The pursuers offer to prove that the representations were false. It is not, in my view, possible to say at this stage that there is no scope for direct evidence of that fact. The case that the representations were false therefore cannot in my view be said to require averment of individual circumstances from which falsity can be inferred. In so far as such circumstances are averred, the question at this stage is whether it can be said that those circumstances, if proved, could not make any contribution to the process of proving that the representations were false. In my view that cannot be affirmed. After proof, the defenders may well be right that individual factors, even if proved, are of no significance. But that is a different matter from whether the pursuers are entitled to prove them with a view to supporting the conclusion they seek to have the court reach. Equally, the second defender's knowledge of the falsity of the representations may be capable of proof by direct evidence, and must in any event be assessed in light of his position in the first defenders and his former involvement with BEC Group Ltd. It is in my view sufficient, at this stage, that it cannot be said that the pursuers are bound to fail if they prove what they offer to prove.

[33] In the result, therefore, I am of opinion that the pursuers' averments in support of the case that they were induced to enter into the principal contracts by fraudulent misrepresentations made by the second defender are sufficient to be admitted to probation.

[34] It is convenient to begin consideration of this part of the case by noting that the pursuers rely on the second defender's alleged fraudulent misrepresentation about the role of the Intel chip in causing the data corruption problems in two separate ways. First, the rely on that misrepresentation as ground for reduction of the 1995 Agreement. Secondly, however, they aver that but for that misrepresentation they would have rescinded the principal contracts in August 1995, and on that basis rely on the misrepresentation as the ground for claiming damages in respect of the additional loss which they incurred through not rescinding the principal contracts at that stage. Mr Artis advanced a submission that the averments about the pursuers' not having rescinded the principal contracts in August were irrelevant, because that could not be said to be a result of the allegedly fraudulent inducement of the 1995 Agreement, since that agreement came later. In my view, however, that submission proceeded on a failure to understand that the pursuers were averring two separate consequences of the misrepresentation about the Intel chip. These consequences (in chronological order) were (i) that the pursuers were persuaded not to rescind the principal contracts in August 1995 and (ii) that they were induced to enter into the 1995 Agreement. In my view the pursuers pleadings make it adequately clear that they are founding on the misrepresentation about the Intel chip for those two separate purposes.

[36] There is, in my view, no difficulty about the level of specification of the representation in this branch of the case. The substance of the representation was that the cause of the data corruption was a faulty Intel chip. Mr Artis, however, submitted that there was lack of specification of when that misrepresentation was made. There is, in my view no substance in that submission. The pursuers' averments set out that the representation was first made by the second defender "to the pursuers' Operations Manager, Steve Nicol and to their IT Administrator, Robert Reid, in the course of meetings in the pursuers' premises at or around this time". Reference back to the previous sentence makes it clear that "this time" was July 1995. Reliance is then placed on the letter of 6 August 1995 in which it was asserted that diagnostic software had reported that the chip was one of a batch which could generate corruption of data. That letter is not relied upon in isolation, but as an elaboration of the oral representation averred in the preceding sentence. These seem to me to be adequately specific averments of when the representation was made. Mr Artis submitted, further, that the letter of 6 August contained no inducement to enter into the 1995 Agreement. It was simply a report of the outcome of running the diagnostic software. The pursuers' averments did not set out how the alleged misrepresentation had induced the 1995 Agreement. In my view there is no merit in this submission either. The text of the letter of 2 November 1995 setting out the terms of the agreement, which is incorporated in the pursuers' pleadings, includes the statement:

That is in my view an ample basis for the subsequent averment that the pursuers entered into the 1995 Agreement in reliance on that representation.

[36] Mr Campbell concentrated his criticism of the specification of this branch of the case on the averments of the second defender's knowledge of the falsity of the representation. The averments are:

Mr Campbell's submission was that there were no averments setting out a proper circumstantial basis for the assertion of knowledge. It was not said that no person of relevant competence could have held the view that the chip was responsible for the problem. Mr Cullen submitted that the averment of knowledge had to be viewed in the context of the averments about the nature of the date corruption encountered and the averments in article 8 about the nature of corruption produced by a faulty Intel chip. The pursuers' case was that a faulty chip would have been incapable of causing the problem encountered and that the running of diagnostic tests could not have identified a faulty chip as the cause of the particular type of corruption encountered. In these circumstances, it could not honestly be asserted, as the letter of 6 August appeared to do, that diagnostic software had yielded a result supporting the previous representation that the Intel chip was to blame for the data corruption. Those averments were a sufficient basis for an inference that the representation was, by August when the letter was written, one which the second defender either knew was false, or made recklessly without any basis for thinking it was true.

[37] In my view the pursuers' averments give fair notice of what the case against the second defender is. The representation is clearly identified. The circumstances in which it was made and elaborated upon are set out. That the pursuers relied on it is clearly set out by reference to the letter of 2 November. That it was untrue the pursuers offer to prove by showing that scientifically it could not be true. That the second defender knew it was untrue or acted recklessly is a conclusion which, in my view, the pursuers may be entitled to invite the court to draw if the circumstances which they aver are proved. I am therefore of opinion that the averments in article 15 of the condescendence ought to be admitted to probation.

[38] For the reasons which I have discussed I have come to the conclusion that the averments which the defenders attacked have not been shown to be irrelevant or lacking in specification. I am therefore of opinion that there is no ground for excluding from probation the averments in articles 13 and 15 of the condescendence. I am therefore minded to allow a proof before answer on the whole case, but before doing so I shall put the case out By Order to ascertain whether parties are agreed that there should be a single proof on all issues, and to discuss what further preparatory steps are required before the proof can take place.