J U D G M E N T

1. LORD JUSTICE SCOTT BAKER: Lord Justice Thomas will give the first judgment.

2. LORD JUSTICE THOMAS: This is an appeal by leave of His Honour Judge Critchlow, from a judgment he gave in the Reading County Court on 3 April 2003.

The Facts

3. The appellant is a First Officer pilot. He was employed in 2001 by Virgin Air. At that time there was a risk of redundancy at Virgin Air. He supplied his CV to recruitment agents who had been retained by the respondents.

4. On 19 September 2001 he was interviewed by the respondents who were looking for four pilots. He told the respondents he could be released from Virgin without difficulty. He was not selected as one of the initial four. However, one of those dropped out. On 8 October 2001 the respondents wrote to him offering him a position as a First Officer. The letter stated that the offer was subject to two conditions, the second of which was that he would have to accept and sign a formal contract of employment with the respondents. The letter went on to state that the commencement date for the offer would be 5 November 2001 and that there would be a B757 refresher ground school and simulator course at a date to be confirmed.

5. The judge found that on or about 20 October, the appellant accepted that offer by signing the letter in the following terms:

"I accept the present offer of employment subject to the terms which are outlined in this letter."

He then posted it, but heard nothing further.

6. On 5 November 2001, he telephoned the recruitment agencies because he knew from the offer letter that that was the day he was meant to begin working. As result of a further conversation that day, the appellant started a training course that very same day for a B757, as envisaged in the letter of offer.

7. It is of importance to note that at that time he was still employed by Virgin, but he was able to go on the course as he was on leave. The course began with ground school training and he completed that part of the course. He would have proceeded to the course on the simulator but for the events which then occurred.

8. The judge found that when he attended the course he believed that he was going to be made redundant by Virgin, but had not at that time received a contract from the respondents; that was only sent to him on or about 6/7 November. However, on 5 November 2001 Virgin wrote to the appellant to tell him that there was a course which it had been arranged for him to attend on 5 December 2001.

9. Before the judge there was a number of letters and considerable evidence about what took place between 6/7 November 2001 when he received the contract and learned that Virgin were intending to keep him and what he had communicated to the respondent. It is not necessary for me to refer to those matters as they only go to the judge's view of the appellant's credibility.

10. On 22 November 2001 the appellant wrote to the respondents. He was still on the course. He said in that letter that he had accepted work in December because without it he would be unable to pay his mortgage. The judge found that this was disingenuous because he was still employed by Virgin. He was, in fact, keeping his options open because, until he had a formal contract with the respondents, he had taken the view that he did not want to relinquish his position with Virgin. On 24 November 2001 the appellant had a conversation with the respondents in which he clearly must have indicated that he did not intend to join them. On 25 November he wrote to the respondents informing them that he would not be committing himself to them.

11. The respondents then contacted Virgin and learned that the appellant was still employed by them. He was not employed by the respondents and he was then dismissed by Virgin. On the evidence before the judge, he had some difficulty in obtaining employment during the course of 2002.

12. The respondents sought to recover the costs of the course for the appellant. He had initially offered to pay when he had announced his intention not to join them.

The Proceedings

13. On 4 July 2002, because no payment had been received, the claimants began proceedings against the appellant claiming a sum which, by amendment, was reduced to £13,845.82. That sum was calculated as the net loss that the respondents had suffered from the expenditure incurred sending him on the course, less a rebate allowed by the course providers; it also took into account the credit that the respondents had given him for salary during the period of November when he was on the course.

14. The claim brought by the respondents against the appellant was founded on the basis that there was a contract, and in the alternative, on a claim in deceit. The trial took place in March 2003 which lasted one day. During the course of the trial, for reasons which are not entirely clear, the case was assigned from the fast track to the multi track. After the conclusion of the trial written closing submissions were exchanged.

15. On 3 April 2003, the learned judge gave judgment. He dismissed the claim under the contract, but found against the appellant on the claim in deceit. The judgment was in writing but, unfortunately, it was not read through properly by the judge; the copy that has been provided to this court contains two pages of repetitive paragraphs that are similar to, but not in identical terms to, earlier paragraphs of the judgment. It is very unfortunate that the judgment was not returned to the judge for him to read properly and then to provide to this court an amended copy. The learned judge gave permission to appeal. We do not know why because he failed to give any explanation for that decision.

The Finding made by the Judge

16. In the hearing before the court, it has become clear, that the crucial finding made by the judge in respect of the claim in deceit can be simply expressed. He found that, the appellant, by attending the course on 5 November 2001, had falsely represented his position as he was still in truth an employee of Virgin. That is the crucial finding of fact made by the judge against the background of the following findings, which I summarise:

1. At no time until 24 November 2001 did the appellant tell the respondent that he was still an employee of Virgin. The judge rejected the appellant's evidence to the contrary.

2. By signing the letter of 8 October 2001, he represented that he would be available for employment on 5 November against the background stating that he would be available for release from Virgin, as mentioned in his interview. The judge found that he had at that time been dishonest.

3. He knew on 5 November 2001 that if he told the respondent that he was still employed by Virgin, he would not have been permitted to go on the course.

4. By starting the course on 5 November he represented to the respondents by his conduct that he was no longer an employee of Virgin and that he was free to be trained for employment by the respondents.

5. That course of conduct was dishonest as he knew that the respondents were under a misapprehension.

6. He remained silent because he was hoping to get a redundancy package from Virgin and because he did not have a contract with the respondents; he did not, as the learned judge put it, "want to burn his bridges".

7. As a result of the representation by conduct to which I have referred, DHL sent him on the course.

The pleadings and the course of the trial before the Judge.

17. The principal ground upon which the learned judge's findings have been challenged before us, is that the case on which the judge found against him was never pleaded. It is not necessary to refer to the precise terms of the pleadings, or to go through in any detail the submissions put before the learned judge after the conclusion of the evidence. With great clarity and great assistance to the court, Mr Darbyshire, who appeared on behalf of the respondents, has accepted that the way in which the learned judge found against the appellant was never pleaded. Nothing was put in the closing submissions in relation to that ground, nor was the case, as found by the judge in the judgment, put expressly to the appellant during the hearing.

The procedural requirements

18. It is important to bear in mind that this appeal is concerned solely with the finding of dishonesty in the claim in deceit. In whatever Tribunal or court, or in whatever level of court or tribunal, when a claim is made in deceit, it is important to remember that that contains as its central ingredient an allegation of dishonesty. As would appear to be the case in the present appeal, a finding of dishonesty usually has consequences for an appellant or a respondent beyond the immediate dispute before them. It can affect their reputation. For that reason, it has been laid down repeatedly by the courts that allegations of fraud must be distinctly pleaded: see Davy v Garrett [1877] Ch D 473 at 489.

19. It is necessary only to refer to a very short passage in the speech of Viscount Maugham in Bradford Third Equitable Benefit Building Society v Borders [1941] 2 All ER 205 at 207 where he says that:

".... if, in a case based on fraud, an amendment is permitted in the Court of Appeal, the court must be exceedingly careful not to draw inferences of dishonest conduct against a witness or a party which have not been suggested in the court below, for they might have been capable of an explanation by the witness in the box, if the amended charge of fraud had been distinctly made at the trial."

The prejudice to the appellant

20. In the particular circumstances of this appeal, we have had regard to the three matters to which I have referred: (i) that the allegation which the judge found in his judgment was not pleaded; (ii) that the allegation was not dealt with in closing submissions; and (iii) that the allegation was never put to the respondent during the hearing. The judge made the finding in circumstances where the principal claim made against the appellant in deceit related to the allegations surrounding the signature of the letter of 8 October 2001 where the learned judge found that the appellant had not behaved dishonestly.

21. On the other hand we also have to consider the substantial body of evidence in the case where, as has been accepted by Mr Tatton-Brown, on behalf of the appellant, many of the issues which might have been raised in relation to the point on which the judge found against the appellant were examined by the court. For example, one of the points which it is said that the appellant did not have an opportunity of dealing with was that he would never have become an employee of the respondents until a formal contract of employment had been signed. That point, as is very candidly accepted by Mr Tatton-Brown, was dealt with. However, although it would appear that the other points raised by Mr Tatton-Brown may have been touched upon by the parties in the course of their evidence and in the course of their submissions when focusing their minds on the allegations that were pleaded, they were not dealt with in the specific context of the allegation that was neither pleaded nor dealt with in closing submissions, or put to the appellant during his evidence.

22. Can this court, in the circumstances, say that it should uphold the finding of the learned judge on the basis that it can be sure that there has been no prejudice, given the particular circumstances of this case, where the judge found that there was no dishonesty in respect of the pleaded allegations and where the only issue in the case is one of dishonesty where the authorities are so clear?

23. Although the adverse findings of the learned judge as to the credit and general honesty of the appellant are clear from the judgment, I cannot say that there was no prejudice and that the crucial finding of dishonesty would have followed had the point been dealt with as the authorities and Rules require.

24. It is a matter of deep regret that I have reached this conclusion. If the learned judge had simply concentrated on the straightforward elements of the tort of deceit and looked at the pleadings to see what was pleaded, we are sure he would not have fallen into error. However he did not do so. It is, therefore, for those reasons, that I cannot see how it is possible to uphold the crucial finding made by the learned judge.

The Respondent's Notice

25. In very attractive submissions made by Mr Darbyshire, he sought to uphold the decision of the learned judge on a very different ground, even though it was necessary for him to persuade us to overturn a finding of fact made by the judge. He sought to argue that the appellant was dishonest because he had signed the offer letter dishonestly; that the representation made in the letter that he would be in a position to commence the course was a representation that he intended at that time to free himself from the employment of Virgin; that at that time his state of mind was dishonest. He accepts that that would involve this court in reaching a contrary view to the clear finding made by the learned judge.

26. The difficulty with that argument is that it involves the respondents overturning a number of other findings made by the judge which would accord with the general way in which the appellant seems to have behaved. The appellant was in a position where he anticipated being made redundant by Virgin and he looked forward to a significant sum of money by way of redundancy. He was hoping that a decision on his employment with Virgin would be reached before he had to commit himself. In those circumstances, I cannot see any grounds for disturbing the learned judge's findings as to the intention of the appellant at the time he returned the letter. He was hoping at that time that things would work out so he might be free to join DHL when he ceased to be employed by Virgin. Things did not work out that way, but it seems to me that the learned judge's finding is correct on that point.

The appellant's argument on causation

27. There was a further ground of appeal advanced by the appellant relating to the question of whether the learned judge had found that loss had been caused by the deceit upon which the respondents had relied. It is not necessary for me, in view of the conclusion I have reached on the main point, to deal with this ground of the appeal other than briefly.

28. I need not set out the part of the judgment where the learned judge dealt with the point, but it seems to me clear that the argument advanced by the appellant cannot succeed. First, the question of quantum was adjourned to a further hearing; secondly, the case made by the respondent was that the respondents had lost the chance of finding someone else to go on the course. There was evidence of that and, although the terms in which the judge expressed himself in this part of the judgment are extremely difficult to understand, it is clear that that was a loss which, had there been a pleaded deceit, would have been a loss that the respondents had suffered in consequence of the deceit and in respect of which, when quantified, the respondents would have been entitled to recover. In the result, this claim, which took up one day of the court's time, was worth much less than £13,000 claimed.

The Judge's Conduct of the Trial

29. I cannot leave this case without adding this observation. This is a case where the sums involved were, in modern terms, relatively small. We were told at the outset of this appeal that the costs of the respondents already exceed £20,000; those of the appellants for this appeal alone are in the order of £4,000. I cannot, speaking entirely for myself, understand how a case of this kind, was not dealt with by the judge in accordance with the spirit of the Civil Procedure Rules. The proportionality of what was in issue was not taken into account by him. for example, I cannot understand how, in a case involving this relatively small amount of money, any competent judge could possibly accede to a split trial. Furthermore, it is unfortunate that the trial judge did not take a proper grip of this case, find out what the issues really were and ensure that the parties concentrated on those issues. In the result, this case could have been dealt with economically with far less expenditure than has turned out to be case. The judge was at in failing to ensure that the proceedings were conducted properly in the way I have indicated.

30. LORD JUSTICE SCOTT BAKER: I agree that this appeal should be allowed for the reasons given by my Lord. This is a conclusion which I have reached with reluctance because, had the basis upon which the judge found deceit established been pleaded, ventilated in evidence and, in particular, put to the appellant, the judge may well have reached the same conclusion. It is clear that the appellant, in the broad sense, behaved less than honestly. However, the judge's decision depends on a finding of deceit.

31. As my Lord has pointed out, the rules relating to deceit and findings on which it is based are clear. A finding of deceit against a defendant is a grave matter. That is so regardless of the size or value of the claim he faces.

32. I cannot be confident that the appellant has not been prejudiced by the irregularities that led to the finding of deceit by the judge. In these circumstances, it seems to me that there is no alternative but to allow the appeal. I would associate myself with the observations made by my Lord about the costs of this case and the manner in which it proceeded below.

33. In these circumstances, the appeal will be allowed and judgment entered for the defendant.

Order: Appeal allowed with costs to be assessed if not agreed.