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MARINE & OFFSHORE (SCOTLAND) LIMITED AGAINST ROBERT JACK AND OTHERS


Submitted: 23 June 2017

Web Blue CoS

OUTER HOUSE, COURT OF SESSION

[2017] CSOH 89

CA118/16

OPINION OF LORD BANNATYNE

In the cause

MARINE & OFFSHORE (SCOTLAND) LIMITED

Pursuers

against

ROBERT JACK AND OTHERS

Defenders

Pursuer:  McIlvride QC;  Harper Macleod LLP

Defender:  Thomson (Second and Third Defender);  Beveridge & Kellas

23 June 2017

Introduction
[1]        This matter came before me for debate in terms of the second and third defenders’ first plea-in-law.  This was a second diet of debate.  At the first diet of debate, the pursuers had sought leave to amend, which was granted.  They thereafter lodged a substantial Minute of Amendment.  In terms of their first plea-in-law, the second and third defenders challenged the relevancy and specification of certain aspects of the pursuers’ pleadings in so far as directed against them.

[2]        The first defender was not represented at the debate.  The pursuer’s case against him had already been sent to Proof Before Answer.

 

Background
[3]        The pursuers made the following averments with respect to the background to the dispute.  The pursuers at all material times carried on the business of providing both onshore and offshore services.  The first defender was, from around May 2011 until April 2014, employed by the pursuers as an Area Manager.  The second defender was, from before August 2012 until around March 2013, employed by Talisman Sinospek Energy UK Ltd (“Talisman”) as their Fabric Maintenance Delivery Lead.  Between around September 2012 and June 2014, the pursuers provided passive fire protection services to Talisman.  The employee of the pursuers who secured the order for those services from Talisman was the first defender.  The employee of Talisman who was responsible for selecting the supplier of those services was the second defender.  The first defender identified four specialist inspectors who were willing and able to provide said services to Talisman.  The first defender procured that these inspectors entered into contracts with the third defenders in terms of which the inspectors were to provide their services as agency labour.  The first defender then, on behalf of the pursuers, contracted with the third defenders for the supply to the pursuers of the same inspectors on an agency basis.  The second defender is the controlling mind of the third defenders.

[4]        The action as laid against the second and third defenders, proceeds on two, alternative, grounds.  The first is that the second and third defenders, together with the first defender devised and executed a scheme under which they procured that the pursuers paid excessive sums for agency labour provided by the third defenders and thereafter shared the excess among them (“the fraudulent scheme”).  It was with the respect to this first ground on which the action proceeded that the relevancy and specification argument was directed.

 

Submissions on behalf of the second and third defenders
[5]        Mr Thomson advanced two detailed arguments.

[6]        His first argument related to the relevancy and specification of the fraudulent scheme itself.  He first submitted that to succeed against the second and third defenders on the fraudulent scheme ground, the pursuers require to aver and prove conscious dishonesty on the part of the second and third defenders (see:  Derry v Peek 1889 14 App Cas 337, HL).  Secondly, the pursuers’ averments require to specify clearly the acts which are founded upon, when those acts were committed, who committed those acts, and the circumstances founded upon as yielding an inference of fraud (see:  Royal Bank of Scotland v Holmes 1999 SLT 563).  It was his general submission that the pursuers’ pleadings did not meet the requirements as set out in these authorities.

[7]        In development of the above argument he said this:  there are no relevant averments establishing the necessary state of mind on the part of the second and third defenders to give rise to an allegation of fraud against them.  In particular there are no averments that the second and third defenders intended to deceive the pursuers, far less the means by which the second and third defenders participated in any particular scheme or contrivance which was intended to, and in fact did, have affect so as to deceive the pursuers.

[8]        Mr Thomson first directed my attention to the following averments in Article 2 of Condescendence at page 3:

“The second defender was from before August 2012 until around March 2013 employed by Talisman Sinospek Energy UK Limited (formerly incorporated under the name Talisman Energy UK Limited and hereinafter “Talisman”) as Fabric Maintenance Lead.  He had previously had around 20 years’ experience in the oil and gas industry.  Between around September 2012 and June 2014, the pursuers provided passive fire protection services to Talisman.  The employee of the pursuers who secured the orders for those services from Talisman was the first defender.  The employee of Talisman who was responsible for selecting the supplier of those services was the second defender.”

 

[9]        Mr Thomson observed that there were no averments that the first defender was the person responsible with the pursuers for agreeing prices with Talisman.  Nor were there any averments to the effect that the second defender was the person responsible at Talisman for agreeing prices.  There was no suggestion that they had agreed the prices.  Beyond that there was no averment of knowledge on the part of the second and third defenders that the rates were fixed. This was an essential averment given the nature of the loss averred.

[10]      These averments were then followed by a section added in paragraph 3(a) of the pursuers’ Minute of Amendment which is in the following terms:

“The first and second defenders have been involved in discussions regarding the placing of orders by Talisman with the pursuers before any orders were placed.  It is believed and averred the matters discussed included the prices which the pursuers proposed to charge and Talisman was willing to pay.”

 

[11]      Mr Thomson submitted that the foregoing averment prefaced with the words believed and averred was irrelevant as there was no averred factual basis for this averment.  Nothing in the averments immediately preceding it (as above set out) or elsewhere formed a factual basis for this averment.

[12]      Paragraph 3(a) of the Minute of Amendment thereafter averred this:

“After the pursuers began fulfilling orders for Talisman the second defender remained involved in supervising the contracts on Talisman’s behalf.  On 17 December 2012 he emailed the first defender to request that the pursuers submitted further ‘CTRs’, being the ‘Kaefer CTR Request Forms’ submitted by the pursuers which preceded the issuing of orders by Talisman.  In both the CTRs and the Talisman orders the rates for labour were fixed prices.  On 6, 13, 20, 27 and 31 January 2013 the second defender, on behalf of Talisman, countersigned timesheets submitted by the pursuers in support of invoices rendered by them.  It is believed and averred that the second defender was at all material times aware that the rates which were to be, and subsequently were, charged by the pursuers to Talisman were fixed rated agreed between them.”

 

[13]      Mr Thomson submitted that once again there was no factual basis for this averment prefaced, believed and averred.

[14]      He submitted that as soon as the second and third defenders did not have knowledge of the rates, and in particular that they were fixed rates, the essential foundation of the fraud case directed against them disappeared.

[15]      In advancing the argument that where the formulation of believed and averred is used in pleadings an averred factual basis for that averment is required, Mr Thomson relied on what was said in the Opinion of the Court in Burnett v Menzies Dougal WS 2005 CSIH 67 at paragraph 16:

“The proper use of the formula ‘believed and averred’ is described in the first sentence of the passage from the Opinion of Lord Justice Clerk Thomson in Brown quoted in paragraph 14, and in the passages from the opinion of Lord Osborne in Strathmore Group  and from Macphail, Sheriff Court Practice, quoted in para 15.  In our opinion, any material fact may be pled by means of the formula ‘believed and averred’ if there are also averments of primary fact which are capable of supporting the inference that the matter which is believed and averred is true.”

 

[16]      Mr Thomson then moved on to look at paragraph 3(f) of the Minute of Amendment which is in the following terms:

“Nor were they responsible for authorising payment of the invoices rendered by the third defenders.  Payment of each of the third defenders’ invoices was authorised by the first defender in accordance with the authority for operational matters at Aberdeen which had been delegated to him.  For internal administrative purposes copies of the invoices rendered by the third defenders were signed by a member of the pursuers’ staff to confirm that payment had been approved.  The invoices were signed either by the first defender or by other members of staff on the first defender’s instructions.”

 

[17]      Mr Thomson submitted that the above section of the pleadings was irrelevant in that it was not averred that the second and third defenders were aware of these matters or that this was part of the fraudulent scheme.

[18]      Mr Thomson then moved on to look at the following averments:

In Article 2 of Condescendence at page 3, lines 1 to 6 where the following was averred:

“From around January 2012 the managing director of the pursuers’ International Offshore Division, of which the Aberdeen office formed part, Craig Rose, was principally based in Singapore.  From around March 2013 Mr Rose was based in Dubai.  Authority for operation matters in Aberdeen, including the acquiring of new business and responsibility for staff matters was delegated to the first defender.”

 

Secondly he looked at averments made in Article 2 at page 5, lines 18 to 22 which averments were as follows:

“The second defender was introduced to Mr Rose by the first defender and the first defender, the second defender and Mr Rose had coffee together.  Mr Rose did not discuss the terms on which the third defenders were proposing to provide the inspectors, or the terms of the Agency Contract, with the second defender on that occasion or at any other time.” 

 

[19]      Finally Mr Thomson looked at the following averments added by paragraph 3(g) of the Minute of Amendment.

“The first defender reported to Mr Rose, after the event, that he had secured work from Talisman and had agreed on the pursuers’ behalf to obtain agency labour from the third defenders.  He did not disclose to Mr Rose the rates which he had agreed with the third defenders.  He did not provide Mr Rose with a copy of any written agreement which had been entered into with the third defenders on the pursuers’ behalf”

 

[20]      Mr Thomson’s position regarding the above averments was that they were fundamentally irrelevant.  This did not relevantly set forth a case of deception.  The pursuers nowhere allege, that they were unaware that the contract between them and Talisman had been entered into;  that the inspectors were being provided under that contract;  or that the invoices rendered by the third defenders were being rendered and paid by it.  The pursuers’ failure to make any averments about these matters is all the more startling given its failure to respond, other than as above, to the averments of the defenders concerning the involvement of many of the pursuers’ officers in the contract between the pursuers and the third defenders.  To compound matters, on the basis of the pursuers’ averments that the sums being charged were “materially greater” than the equivalent salary costs or “prices readily available on the open market for agency labour”, both of which matters the pursuers characterise in averment as “obvious” it is simply impossible to decern how it could be the case that the pursuer was in any sense “deceived” by the supposed fraud.  In short, if there was no deception, there was no fraud.  At the very least, however if the pursuers are to plead a relevant case against the second and third defenders that they participated in some “fraudulent scheme” it would on any view be incumbent on the pursuers to make averments explaining the basis upon which they can allege that there was something underhand in the provision of agency labour to it by the third defenders that it, as a company, was unaware of what was going on.

[21]      Beyond the above, there were no averments in the foregoing passages that the failure to disclose by the first defender to Mr Rose was known by the second and third defenders or was part of the fraudulent scheme.  There was no basis for laying at the door of the second and third defenders what the first defender had done or not done in relation to Mr Rose.

[22]      The next passage examined by Mr Thomson was in Article 3 of Condescendence at page 7

and was in the following terms:

On 16 May 2013 the first defender sent an email to the second defender in which he stated ‘I’m going to pay MCA today for the March invoice I think it is.  Do you know what the amount I am due was going to be?  Can you work it out now pal and let me know, reason being I will split the amount I am due with you to give you some money back now pal ...’  In a series of texts exchanged between the first and second defenders on 2 September 2013 they arranged to meet that afternoon.  The purpose of the meeting was explained by the second defender to be ‘so that I can give you your money.’  On 1 November 2013 the second defender sent a text message to the first defender in which he states ‘Hi pal meant to text last night with your figure but I was out last night having a few beers, now I’m dying.  It’s [around] £3,450, not as good as it’s been but still not to be knocked ...’  The first defender replied on the same day to say ‘No worries pal, MCA money should be in now.  Would you be free to sort out money today pal?’  In a text to the second defender dated 4 December 2013 the first defender stated ‘Hi son, did the guy come yet?  MCA will be in bank tomorrow morning.  Will you manage to square me up tomorrow?’  The second defender replied later that day to say ‘... no worries pal as soon as it hits our bank and can then transfer it into my current account and go and collect it.  I will work it out tonight pal but it will be much and such as the last one ...’  On 24 December 2013 the first defender advised the second defender by text that ‘GRH and MCA should have cleared in the bank’  Later that day the second defender replied to say ‘money is in your bank mate.  Can you let me know if it is in?’  The texts and emails condescended upon are referred to for their terms which are held as repeated herein brevitatis causa.  The third defender have made payments to the first defender from their account of £7,000 on 11 March 2013, £6,000 on 5 April 2013, £4,140 on 16 May 2013 and £4,000 on 24 December 2013.  The first defender admits in his defences in the present action that ‘to the best of his recollection’  (i) he was paid 5 or 6 ‘finder’s fees’ in connection with the inspectors provided to Talisman;  (ii) those payments were made by the second defender’;  and (iii) 5 of the 6 payments were made in cash.”

 

[23]      His submission was that nothing could be taken from this passage in that first:  there was no challenge by the pursuers that work had been carried out in terms of the contract and there was no case that the hours charged were fictitious.  In these circumstances there was nothing wrong with discussion as to what to charge.  Moreover, the fact that money passed between the first and second defenders did not give rise to an inference of conscious dishonesty.

[24]      In Article 3 of Condescendence at page 8, this is averred:

“Each (first and second defenders) was aware that in procuring that the pursuers paid those prices to the third defenders the pursuers would suffer a loss of profit.”

 

[25]      Mr Thomson submitted that the above averment contained nothing which fixed the second and third defenders with the knowledge that the pursuers would suffer a loss.   There was nothing in the pleadings to that point for the reasons advanced that could fix the second and third defenders with such knowledge. 

[26]      Finally, looking generally at the averments in Article 3 of Condescendence at page 8, Mr Thomson accepted that there were averments made there that higher rates than market rates were charged by the third defenders to the pursuers.  However, the charging of higher rates did not of itself give rise to an inference of fraud. Moreover, as he had earlier submitted, there were no averments that the second and third defenders were aware of the first defender’s delegated authority or of what he did or did not do with respect to Mr Rose.   

[27]      Having reviewed the averments founding the case of fraud Mr Thomson returned to the definition of what required to be averred and proved in a fraud case.  He then submitted that there was no basis for the various believed and averred averments as there had been no averments of fact to that point of dishonesty.  The averments at their highest as directed against the second and third defenders, amounted to no more than their rendering invoices at excessive rates, however, that was not fraud.  There was no proper factual foundation pled that the second and third defenders had been consciously dishonest.  Accordingly, the case based on fraud was irrelevant.

[28]      With respect to the issue of loss, the point made by Mr Thomson was a short one:  there were no relevant averments that the pursuers suffered loss as a result of any fraud for which the second and third defenders were responsible.

[29]      In expansion of that argument he first submitted that the pursuers averments were to the effect that there was a “fixed rate” agreed with Talisman under reference to the CTR request form submitted by the pursuers to Talisman.  However, an essential averment was absent, namely this:  it was not averred that but for the fraud, the same fixed rates would have been charged.  It would only be if such an averment were made that the pursuers would have sustained the loss averred which was a loss of profit figure based on the fixed rates and the prevailing market rate for the inspectors which the pursuer said could be obtained.

[30]      Beyond that, he submitted that the pursuers made no averments to explain the mechanism by which they contracted with Talisman, including in particular the process by which the “fixed rates” in question were arrived at.  The second and third defenders had placed calls upon the pursuers with respect to that issue, it was incumbent on the pursuers, if they wished to dispute the defence as set out, (that these were not fixed rates) to set out its position fully and candidly on record.  They had not done so and the court was therefore entitled to proceed on the basis that this was because the pursuers had no answer to the defenders averments and to treat these averments as well founded (see:  Albyn Housing Society Ltd v Active Air Conditioning Limited trading as Active Sustainable Energy Systems 2016 CSOH 110).  Approaching matters on that basis, it was plain that, but for the supposed fraud, the pursuers would have earned less, not more profit.  That is to say, the pursuers simply did not suffer any loss of profit as a result of the supposed fraud.

[31]      For the above reasons, the case as directed against the second and third defenders was irrelevant and lacking in specification.

 

Reply for the Pursuers
[32]      Mr McIlvride began by saying this, it was his position that this matter could not be determined at the stage of a debate and without any evidence.  It could not be said the pursuers were bound to fail in establishing the fraudulent scheme case even if all that they aver was proved.

[33]      He went on to say that the above is particularly so in a case of this kind where a great deal will inevitably depend upon nuances of evidence and the case cannot, and should not, be disposed of on a “trial by pleading” (see:  Heather Capital Ltd (in liquidation) v Levy McRae and Heather Capital (in liquidation) v Burness Paull LLP 2017 CSIH 19, per Lord Glennie at paragraph 100).  To succeed at debate the second and third defenders had to persuade the court that on the pursuers’ averments, even if all were proved, the pursuers were bound to fail in establishing that the court could infer that the second and third defenders were involved in a fraudulent scheme (see: McMullen Group Holdings Ltd v Harwood 2011 CSOH 132).

[34]      He submitted that the pursuers’ case met the requirements of Derry v Peek and Royal Bank of Scotland v Holmes which he accepted set out the requirements for pleading a relevant case of fraud. 

[35]      It was his position that the pursuers offered to prove the following:

1.   Prior to his employment by the pursuers the first defender had acquired many years' experience in the oil and gas industry.

2.   From around January 2012 Authority for operation[al] matters in Aberdeen, including the acquiring of new business and responsibility for staff matters, was delegated to the first defender.

3.   The second defender was from before August 2012 until around March 2013 employed by Talisman.

4.   He had previously had around 20 years' experience in the oil and gas industry.

5.   Between around September 2012 and June 2014 the pursuers provided passive fire protection services to Talisman.

6.   The employee of the pursuers who secured the orders for those services from Talisman was the first defender.  The employee of Talisman who was responsible for selecting the supplier of those services was the second defender.

7.   The first and second defenders had discussed the prices the pursuers were proposing to charge and Talisman were prepared to pay.

8.   After the pursuers began fulfilling orders for Talisman the first defender remained involved in supervising the contracts on Talisman's behalf.

9.   The first defender identified four specialist inspectors who were willing and able to provide the services the pursuers required to supply to Talisman.  He procured that the inspectors entered into contracts with the third defenders, in terms of which the inspectors were to provide their services as agency labour.

10. The first defender then, on behalf of the pursuers, contracted with the third defenders for the supply to the pursuers of the same inspectors on an agency basis.

11. Responsibility for obtaining orders of the kind placed by Talisman and for sourcing any additional labour which required to be used in fulfilling the orders placed by Talisman had been delegated by Mr. Rose (the first defender's superior) to the first defender alone.

12. The first defender reported to Mr. Rose, after the event, that he had secured work from Talisman and had agreed on the pursuers' behalf to obtain agency labour from the third defenders.  He did not disclose to Mr. Rose the rates which he had agreed with the third defenders.  He did not provide Mr. Rose with a copy of any written agreement which had been entered into with the third defenders on the pursuers' behalf.

13. Following the first defender's ending of his employment with the pursuers no written agreement between the pursuers and the third defenders could be found at the pursuers' Aberdeen premises.

14. Mr. Rose believed at all material times that in obtaining the additional labour required to perform the orders placed by Talisman the first defender had done so in accordance with prevailing market rates.  He was not at any time aware that the first defender had caused the pursuers to contract with the third defenders at rates which were around double the prevailing market rates.

15. Between September 2012 and April 2014 the pursuers on the instructions of the first defender placed orders with the third defenders for agency labour and the third defenders rendered 22 invoices to the pursuers in respect of the labour supplied.

16. In those invoices the third defenders charged for their onshore agency labour services at the rate of £625 plus VAT per day.  The market rate for those services was around £275 plus VAT per day.

17. The rate charged by the third defenders for offshore agency labour services was £725 plus VAT per day.  The market rate for those services was around £400 plus VAT per day.

18. It is believed and averred that as a result of their experience in the oil and gas industry and the nature of their roles as an Area Manager and Fabric Maintenance Delivery Lead both the first and second defenders were in 2012 and 2013 familiar with the prevailing market rates for employees or agency labour providing services such as those provided by the inspectors.

19. When the first of the inspectors was approached by the first defender and agreed to provide his services he understood that he had agreed to become an employee of the pursuers.  He was only advised subsequently by the first defender that he would instead require to enter into a contract with the third defenders.

20. When the third defenders ceased providing the inspectors' services to the pursuers as agency labour, one of them in or around April 2014 agreed to accept employment with the pursuers at an annual salary of £66,000.

21. It is believed and averred that all four inspectors would have accepted employment with the pursuers at that salary, in preference to providing those services as agency labour supplied by the third defenders, had they been offered that option by the first defender.

22. Alternatively, it is believed and averred that other specialist inspectors, if approached, would have accepted employment with the pursuers at that salary.  (all article 2 of the condescendence)

23. In a series of texts and emails between the first and second defender they discussed how much the third defenders should charge in monthly invoices rendered to the pursuers; when payment of those invoices would be made by the pursuers; and what the first defender's "cut" or "share" would be.

24. The third defenders have made payments to the first defender from their bank account.

25. It is believed and averred that part of the inflated sums paid by the pursuers to the third defenders were paid by the third defenders to the first defender and that part of those sums were paid by the second defender to the first defender.

26.       In relation to the third defenders' dealings with the pursuers and with the first defender in relation to the supply of the inspectors the second defender was the directing mind and will of the company.  It was he who conducted the discussions and negotiations with the pursuers and the first defender.  It was he who discussed and agreed with the first defender how much the third defenders should charge the pursuers for the inspectors' serviced from time to time.  It was he who determined what sums should be invoiced to the pursuers.  It was he who determined what sums should be paid by the third defenders directly or indirectly through the second defender.

27.       Each of the defenders knew, as was obvious, that the prices charged by the third defenders to the pursuers were materially greater than the prices at which those services were readily available as agency labour on the open market.

28.       Each was aware that in procuring that the pursuers paid those prices to the third defenders the pursuers would suffer a loss of profit.

29.       It is believed and averred that in procuring that the pursuers obtained orders from Talisman and fulfilled those orders using agency labour provided by the third defenders at prices which greatly exceeded the true market rate, the defenders acted in concert (the third defenders acting through their directing mind and will, the second defender) in devising and executing a scheme by which they intended to, and did, defraud the pursuers.

30.       None of the payments to the first defender were disclosed to the pursuers by either the second or third defenders.  (Art.3)

[36]      It was his submission that when the above averments were taken as a whole they were sufficient, if proved, to enable the court to hold that the second defender entered into a scheme which was intended, and did, result in the pursuers paying labour charges to the third defenders which the second defender were greatly inflated, all with a view to the third defenders, and thereafter first and second defenders, profiting from those overpayments.

[37]      He submitted that the averments of primary fact supported those averments which were made on a believed and averred basis.  He in particular relied on, when making that submission, on the circumstance that:  it can fairly be inferred that the fact that the rates charged were inflated was obvious to the first and second defenders, both of whom had many years’ experience in the oil and gas industry;  secondly, if discussed placing of orders it was reasonable inference that the first and second defenders discussed prices.  It was his submission that when all the averments were taken together the inference of fraud was capable of being made and that was all that was required to plead a relevant case. 

[38]      As regards the relevancy and specification of the averments made regarding quantum he said as follows.

[39]      The pursuers have made it plain in their pleadings that they accept they did not sustain a loss on their contract with Talisman in the sense that the sums received from Talisman exceeded those paid by the pursuers to the third defenders.  The question put in issue is whether, but for the defenders’ fraudulent scheme, the pursuers would have made a greater profit.  That is to say, have the pursuers been deprived of, and therefore suffered a loss of, a substantial element of the profit they would otherwise have made?

[40]      The second and third defenders appear to contend that the pursuers have nevertheless made no relevant averments of loss because it is said that it is ‘indisputably the case’ that the rates proposed by the pursuers to Talisman were calculated by applying an uplift to the rates to be charged by the third defenders, therefore (so the defenders’ argument runs), but for the supposed fraud the pursuers would have earned less, not more, profit.

[41]      It is submitted that contention is unsound.  The pursuer’s averments, if proved, will establish that it was the second and third defenders who set the level of the sums to be paid by the pursuers to the third defenders in the knowledge of the fixed sums Talisman had agreed to pay the pursuers and not vice versa.

 

Discussion
The Relevancy and Specification of the Averments Anent Loss
[42]      The pursuers’ averments of loss arising from the fraudulent scheme are very brief and are these:

“The pursuers have made payment to the third defenders of £777,175 excluding VAT.  In accordance with the orders placed by Talisman and accepted by the pursuers the invoices rendered by the pursuers to Talisman include charges for the services of the inspectors at fixed rates.  Copies of the orders and invoices are produced and referred to for their terms brevitatis causa.  The total sums paid by Talisman in respect of the orders exceed the sums paid by the pursuers to the third defenders.  However, had the pursuers obtained the services of the inspectors at the prevailing market rates the pursuers’ profits would have been increased by £368,525.”  (My emphasis).

 

[43]      It flows from the above formulation of loss that in order to establish a loss, the pursuers have to establish an agreement between the pursuers and Talisman setting fixed rates in relation to these services.  In the absence of the pursuers establishing such an agreement they could not establish the loss of profit which founds their loss claim.

[44]      The pursuers, in other words, are offering to prove that the rates for the services of the inspectors which they would have charged to Talisman would not have varied, had they been able to obtain “the prevailing market rate”.  The first observation I would make with respect to the averments of loss is this:  the pursuers do not expressly aver that these rates would have been the same if there had been no fraudulent scheme.  This I believe is a fundamental averment necessary to make the pursuers’ averments of loss relevant and it is not there.

[45]      Beyond the above simple relevancy question, there are, I believe, major relevancy/specification issues with respect to the averments of loss.

[46]      The criticality of the issue of fixed rates with respect to the issue of loss is highlighted by the second and third defenders’ averments in response to the pursuers’ averred position on loss as set out in paragraph 2(b) of their answer to the Minute of Amendment where they aver a detailed counter position to the effect that there was no such agreement between the pursuers and Talisman to pay fixed rates and rather that rates were established on a simple cost plus 10% figure and that accordingly no loss of profit has resulted to the pursuers.

[47]      Given the criticality of the averment regarding fixed rates, there is, I believe, considerable merit in the criticisms advanced by Mr Thomson in respect of the issue of relevancy and specification of the pursuers case regarding the fixed rates issue.

[48]      The pursuers at present make a single bald averment that there were fixed rates.  They repeat brevitatis causa certain documentation, however, that is of no assistance as to whether fixed rates had been agreed and as to when and how these had been established.

[49]      It is I think necessary for the pursuers to aver in order to have a sufficiently specific case with respect to the issue of loss the following:

1.     When and how any such agreement fixing rates was reached.

2.     Or when and how a mechanism by which fixed rates was agreed.

[50]      In the absence of such averments, I am persuaded that the second and third defenders cannot know the case which is being made against them.  No proper notice of the case being made by the pursuers on this critical issue is given by the pursuers.

[51]      The degree of specification required depends on the circumstances of each individual case.

[52]      Having regard to the circumstances of this case, I am persuaded that the issue of fixed rates is one on which full and detailed specification is required.  The issue of fixed rates is at the core of the pursuers’ case.

[53]      Not only is this issue a core issue, it is a matter upon which as I have said the second and third defenders in their answers to the Minute of Amendment have set out detailed averments advancing an argument to entirely the opposite effect, namely:  there were no such “fixed rates” and accordingly no loss.  The pursuers have made no substantive reply to these averments, despite calls being placed by the second and third defenders to make such averments. 

[54]      Guidance is given by the Lord Justice Clerk in Gordon v Davidson 1864 2 M 758 at page 768 as to the circumstances in which a call can properly be made and therefore requires to be answered:

“When a pursuer’s statement is irrelevant or verging on irrelevancy, I could understand a call of this kind as a warning to call the pursuer’s attention to the state of his averments, that he might have no reason afterwards to complain that he was taken by surprise, or that he understood that no greater specification was wanted.”

 

[55]      The circumstances of this case seem to fall four square within the guidance given by the Lord Justice Clerk, in that the pursuers made a bald averment, which ex facie lacked any specification.  A call was then placed upon them.  The pursuers were accordingly appropriately warned by the second and third defenders that they required further specification of the pursuers’ position.  Said calls required to be answered if the pursuers were to have a relevant and sufficiently specific case. 

[56]      Mr Thomson in addition relied on the observations by Lord Tyre in Albyn at paragraph 20.  The situation in the present case is, I believe, similar to that before Lord Tyre.  The pursuers’ failure to answer the calls and the detailed averments made on behalf of the defenders, must therefore be taken to be an implied admission that the defenders’ position is correct.

[57]      Even if I am wrong in holding that this case is entirely on all fours with that before Lord Tyre, I am nevertheless satisfied, that strength to the defenders argument that the pursuers’ case is fundamentally lacking in specification with respect to this issue is given by the observations of Lord Tyre.

[58]      Beyond the above, I would observe that these points regarding the relevancy and specification of the pursuers’ averments regarding loss, have been at the forefront of the second and third defenders’ position since the outset.  There were detailed submissions made regarding the pursuers’ averments on this matter at the previous diet of debate which I have earlier referred to in this Opinion.  The Minute of Amendment was supposed to deal with these matters.  For the above reasons, I am satisfied that the Minute of Amendment has not dealt with the issues regarding relevancy and specification of loss and I accordingly am of the view that the averments of loss are irrelevant and lacking in specification.

 

The Relevancy of the Pursuers’ Averments with respect to the Fraudulent Scheme
[59]      The second chapter of the defenders’ argument which in summary was this:  there were no relevant averments that the second and third defenders intended to deceive or with respect to the means by which they participated in such a fraudulent scheme.  I again believe there is some force in this argument.

[60]      This argument is interlinked with the argument that there were no relevant and sufficiently specific averments anent the issue of loss.  It is interlinked in this sense:  the core of the pursuers’ case regarding the fraudulent scheme is knowledge on the part of the second and third defenders of the prices to be fixed for the supply of the inspectors by the pursuers to Talisman and in particular knowledge that these prices were fixed prices.  It would only be in those circumstances ie where the second and third defenders had such knowledge that they would know that the pursuers would sustain a loss of profit as a result of their alleged actings in charging excessive rates for the supply of inspectors. 

[61]      However, though the pursuers aver in Article 3 of Condescendence that the first defender obtained the orders for the supply of services to Talisman, they do not aver that he set the rates for the supply of the labour to Talisman.  Nor do they aver the second defender, though the person who selected the service provider for Talisman, set the rate.  Nor is there any averment that the first and second defenders in concert set the rate.  There is no averment that the second defender had any knowledge of the rate fixed between the pursuers and Talisman and in particular that this was a fixed rate which would cause the pursuers a loss of profit if rates above the alleged market rates were charged by the third defenders for the supply of the inspectors. 

[62]      The only other averments relative to this point made by the pursuers are these:

“The first and second defenders had been involved in discussions regarding the placing of orders by Talisman with the pursuers before any orders were placed.  It is believed and averred the matters discussed included the prices which the pursuers proposed to charge and Talisman was willing to pay.”

 

[63]      These averments are insufficient for a number of reasons to support a position that the second and third defenders were aware that in procuring that the pursuers charged these prices to the Talisman, the pursuers would suffer a loss profit.

[64]      There is no averment that the second defender was aware of the prices to be set by the pursuers and that this would be a fixed price, which would have been the same, even if what is described, as the market rate had been charged by the third defenders to the pursuers.  Accordingly, in the absence of such an averment of knowledge the second and third defenders could not have known that the pursuers would suffer a loss as they aver.  Absence of the averment of such knowledge is critical given the nature of the fraud and the type of loss averred.

[65]      Moreover, the high point or the pursuers’ averments with respect to this matter is prefaced by the formulation believed and averred “the matter discussed included the prices which the pursuers propose to charge and Talisman was willing to pay”.  This flows from an averment:

“The first and second defenders have been involved in discussions regarding the placing of orders by Talisman with the pursuer before any orders were placed.”

 

[66]      It is not, I am persuaded, a proper inference from such a bald averment that the second and third defenders had knowledge of the fixed price to be set and thus could be aware of the averred loss which would result to the pursuers.

[67]      The pursuers must be aware of how the fixed rate or the means by which it was set was agreed with Talisman, yet the pursuers make no averments regarding that matter and this feeds into the second and third defenders’ earlier argument regarding the irrelevancy and lack of specification with respect to the averred loss.

[68]      It appears to me that in order to plead a relevant case regarding the fraudulent scheme, the pursuers require to plead:  (1) the second and third defenders had knowledge at the material time that a fixed rate had or would be set between the pursuers and Talisman for the supply of the services and (2) that this rate would not alter on the basis of the sum charged by the third defenders to the pursuers for the provision of the inspectors.  In the absence of averments showing such knowledge, the pursuers cannot prove that the second and third defenders in procuring that the pursuers paid those prices to the third defenders, that the second and third defenders would know that the pursuers would suffer a loss of profit.

[69]      I am satisfied that given the nature of the fraud averred and the type of loss which is averred to flow from it the above are essential averments in the absence of which the pursuers case based on a fraudulent scheme is not relevant. 

[70]      Turning to the secondary arguments advanced by Mr Thomson I believe there is also some force in these:  there are insufficient averments of actual deception.  It is not sufficient to aver a lack of knowledge on the part of Mr Rose, the pursuers have to aver in light of their approach to the case that the pursuers as a whole were deceived ie the officers of the company were ignorant of these matters.  Secondly, and in any event, there were no averments that the second and third defenders had any knowledge of the first defenders’ delegated authority and as to what he was or was not telling Mr Rose.  Thirdly, it is not enough in this case for the pursuers to plead a relevant case of fraud that the rates charged were excessive, particularly in circumstances where Talisman have not challenged the pursuers as to the rates they were charged and have paid the various material invoices.  Overcharging does not amount to conscious dishonesty. 

 

Conclusion
[71]      For the foregoing reasons, I find that the pursuers’ case, based on the fraudulent scheme is irrelevant and fundamentally lacking in specification and that those averments accordingly will not be admitted to probation.  It was not a matter of contention that the second part of the pursuers’ case was relevant as directed against the second and third defenders and that accordingly, this should proceed to a Proof Before Answer.  I reserve all questions of expenses.

 

Decision
[72]      I accordingly sustain the second and third defenders’ first plea in law to the above extent.