ESSO Petroleum CO. LTD. v. Mardon [1966 E. No. 2571] [ PDF

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Date and Time: Thursday, 15 October, 2020 5:57:00 PM MYT Job Number: 127692868

Document (1) 1. ESSO PETROLEUM CO. LTD. v. MARDON [1966 E. No. 2571] [1976] Q.B. 801, [1976] Q.B. 801 Client/Matter: -NoneSearch Terms: Esso Petroleum v Mardon [1976] QB 801 Search Type: Natural Language

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Esso Petroleum Co Ltd v Mardon Overview | [1976] QB 801, | [1976] 2 All ER 5, Sol Jo 131, | [1977] 1 EGLR 57, 2 BLR 85

| [1976] 2 WLR 583,

| [1976] 2 Lloyd's Rep 305, 120

ESSO PETROLEUM CO. LTD. v. MARDON [1966 E. No. 2571] [1976] Q.B. 801 [COURT OF APPEAL] Lord Denning M.R., Ormrod and Shaw L.JJ. 1975 Dec. 8, 9, 10, 11, 12, 15;1976 Feb. 6 Negligence — Duty of care to whom? — Careless misrepresentation — Pre — contractual situation — Negotiations for tenancy of petrol station — Petroleum company making statement concerning potential through put of station — Company aware that prospective tenant relying on accuracy of statement in taking tenancy — Whether company owing duty of care to tenant — Whether special relationship between parties — Whether breach of duty Contract — Condition or warranty — Pre — contractual statement — Negotiations for tenancy of petrol station — Statement by petrol company as to potential throughput — Tenancy taken in reliance on statement — Whether statement constituting warranty Damages — Measure of damages — Pre — contractual statement — Forecast of petrol station potential throughput — Compensation for breach of warranty and negligent statement — Loss of earnings In 1961 the plaintiffs, a large oil company, found a site on a busy main street which they considered suitable for a filling station as an outlet for their petrol sales. One of their servants with some 40 years' experience of the trade calculated that the potential throughput was likely to reach 200,000 gallons by the third year of operation. On the basis of that estimate they bought the site and started to build the station; but the local planning authority refused permission for the pumps to front on to the main street and the station had to be built back to front. Despite that fundamental alteration in siting, the plaintiffs early in 1963 interviewed the defendant, a prospective tenant, and the same experienced servant together with a local colleague gave him the same estimated throughput of 200,000 gallons. The defendant suggested that 100,000 to 150,000 was more likely, but his doubts, as the judge found, were quelled by his trust in the greater experience and expertise of the plaintiffs' servants; and on April 10, 1963, he entered into a written tenancy agreement for three years at a rent of £2,500 for the first two years and £3,000 for the third. Despite his best endeavours the throughput in the first 15 months was only 78,000 gallons, mainly because the pumps were screened from the main street passing public. In July 1964, after he had sunk all his capital in the business - £6,270, provided by a private limited company in which he and his wife held all the shares - and had incurred a large bank overdraft he gave the plaintiffs notice. As they wanted to keep the station open and controlled by a good tenant they offered him a new tenancy agreement at a yearly rent of £1,000 plus a surcharge on petrol sold and he entered into it on September 1, 1964. But the losses continued; the plaintiffs gave the defendant no real help, and when he could not pay cash for the petrol supplied they cut off his supplies. In December [*802]

Page 2 of 27 ESSO PETROLEUM CO. LTD. v. MARDON [1966 E. No. 2571] [1976] Q.B. 801 1966 they issued a writ claiming possession of the premises, moneys owed, and mesne profits. The defendant gave up ,possession in March 1967; and he counterclaimed for damages for breach of the warranty as to the potential throughput, and alternatively for negligent misrepresentation by virtue of which he had been induced to enter into the contract of April 10, 1963, and the second agreement of September 1, 1964. Lawson J. held that the statement as to potential throughput was not a warranty such as to give the defendant a cause of action in contract for breach of warranty, but that the plaintiffs were liable for the negligent representation, albeit made during pre-contractual negotiations. In a separate judgment on the assessment of damages on the counterclaim he held that the causal effect of the negligent statement had become spent at September 1, 1964, when the second tenancy agreement was made; and he awarded as damages the capital sum lost in the business and the bank overdraft, rejecting the plaintiffs' contention that the lost capital having been provided by a limited company was not the defendant's loss but he declined to award the defendant any further damages for loss of a bargain or loss of profits or earnings. On the defendant's appeal and the plaintiffs' cross-appeal: -

Held, allowing the appeal and dismissing the cross-appeal, (1) that the statement as to potential throughput was a contractual warranty for it was a factual statement on a crucial matter made by a party who had, or professed to have, special knowledge and skill with the intention of inducing the other party to enter into the contract of tenancy; that it did induce the defendant to enter into the contract and therefore the plaintiffs were in breach of the warranty and liable in damages for the breach. (2) That in any event the statement was a negligent representation made by a party holding himself out as having special expertise in circumstances which gave rise to the duty to take reasonable care to see that the representation was correct; that that duty of care existed during the precontractual negotiations and survived the making of the written contract which was the outcome of the negotiations; and that therefore the plaintiffs were also liable for damages for the tort of negligence. (3) That on the facts the effect of the negligent statement was not spent by September 1, 1964, when the defendant entered into the second tenancy agreement, for by that act he was acting reasonably in an effort to mitigate the loss to himself and to the plaintiffs, and accordingly the loss sustained after that date was attributable to the original misstatement and was recoverable as damages from the plaintiffs. (4) That the measure of the damages for breach of the warranty and for the negligent statement was the same whether the action was founded in contract or in tort; that the damages recoverable were what the defendant had lost by being induced to enter into the contract; and (per Lord Denning M.R.) should be asessed on the same lines as damages for personal injuries to include estimated loss of earnings. (5) That in the circumstances of the case the court should disregard the fact that the capital sum lost was provided by a private limited company, for to treat the company as a separate legal entity whose loss was not the personal loss of the defendant would be a denial of justice. [*803]

Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. [1964] A.C. 465, H.L.(E.) applied. Bisset v. Wilkinson [1927] A.C. 177, P.C. distinguished. Decision of Lawson J. [1975] Q.B. 819; [1975] 2 W.L.R. 147; [1975] 1 All E.R. 203 reversed in part.

Page 3 of 27 ESSO PETROLEUM CO. LTD. v. MARDON [1966 E. No. 2571] [1976] Q.B. 801

The following cases are referred to in the judgments of the court: Bagot v. Stevens Scanlan & Co. Ltd. [1966] 1 Q.B. 197; [1964] 3 W.L.R. 1162; [1964] 3 All E.R. 577. Bentley (Dick) Productions Ltd. v. Harold Smith (Motors) Ltd. [1965] 1 W.L.R. 623; [1965] 2 All E.R. 65, C.A. Best v. Edwards (1895) 60 J.P. 9. Bisset v. Wilkinson [1927] A.C. 177, P.C. Boorman v. Brown (1842) 3 Q.B. 511; (1844) 11 Cl. & Fin. 1, H.L.(E.). Candler v. Crane, Christmas & Co. [1951] 2 K.B. 164; [1951] 1 All E.R. 426, C.A. Capital Motors Ltd. v. Beecham [1975] 1 N.Z.L.R. 576. Cassidy v. Ministry of Health [1951] 2 K.B. 343; [1951] 1 All E.R. 574, C.A. Clark v. Kirby-Smith [1964] Ch. 506; [1964] 3 W.L.R. 239; [1964] 2 All E.R. 835. De Lassalle v. Guildford [1901] 2 K.B. 215, C.A. Dennis v. London Passenger Transport Board [1948] 1 All E.R. 779. Doyle v. Olby (Ironmongers) Ltd. [1969] 2 Q.B. 158; [1969] 2 W.L.R. 673; [1969] 2 All E.R. 119, C.A. Groom v. Crocker [1939] 1 K.B. 194; [1938] 2 All E.R. 394, C.A. Efploia Shipping Corporation Ltd. v. Canadian Transport Co. Ltd. (The Pantanassa) [1958] 2 Lloyd's Rep. 449. Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. [1964] A.C. 465; [1963] 3 W.L.R. 101; [1963] 2 All E.R. 575, H.L.(E.). Heilbut, Symons & Co. v. Buckleton [1913] A.C. 30, H.L.(E.). Lister v. Romford Ice and Cold Storage Co. Ltd. [1957] A.C. 555; [1957] 2 W.L.R. 158; [1957] 1 All E.R. 125, H.L.(E.). McInerny v. Lloyds Bank Ltd. [1974] 1 Lloyd's Rep. 246, C.A. Matthews v. Kuwait Bechtel Corporation [1959] 2 Q.B. 57; [1959] 2 W.L.R. 702; [1959] 2 All E.R. 345, C.A. Mutual Life and Citizens' Assurance Co. Ltd. v. Evatt [1971] A.C. 793; [1971] 2 W.L.R. 23; [1971] 1 All E.R. 150, P.C. Nocton v. Lord Ashburton [1914] A.C. 932, H.L.(E.). Oleificio Zucchi S.p.A. v. Northern Sales Ltd. [1965] 2 Lloyd's Rep. 496. Reg. v. Smith (Roger) [1975] A.C. 476; [1973] 2 W.L.R. 942; [1973] 2 All E.R. 896, C.A.; [1975] A.C. 476; [1974] 2 W.L.R. 1; [1973] 3 All E.R. 1109, H.L.(E.). Sanday (Samuel) and Co. v. Keighley, Maxted and Co. (1922) 27 Com. Cas. 296, C.A. Sealand of the Pacific Ltd. v. Ocean Cement Ltd. (1973) 33 D.L.R. (3d) 625. Smith v. Land and House Property Corporation (1884) 28 Ch.D. 7, C.A. The following additional cases were cited in argument: Ashcroft v. Curtin [1971] 1 W.L.R. 1731; [1971] 3 All E.R. 1208, C.A. Clarke v. Army and Navy Co-operative Society Ltd. [1903] 1 K.B. 155, C.A. Czarnikow (C.) Ltd. v. Koufos [1969] 1 A.C. 350; [1967] 3 W.L.R. 1491; [1967] 3 All E.R. 686, H.L.(E.).

Page 4 of 27 ESSO PETROLEUM CO. LTD. v. MARDON [1966 E. No. 2571] [1976] Q.B. 801 [*804] Dillingham Constructions Pty. Ltd. v. Downs [1972] 2 N.S.W.L.R. 49. Dodds and Dodds v. Millman (1964) 45 D.L.R. (2d) 472. Oscar Chess Ltd. v. Williams [1957] 1 W.L.R. 370; [1957] 1 All E.R. 325, C.A. Philips v. Ward [1956] 1 W.L.R. 471; [1956] 1 All E.R. 874, C.A. Routledge v. McKay [1954] 1 W.L.R. 615; [1954] 1 All E.R. 855, C.A.

APPEAL from Lawson J. The plaintiffs, Esso Petroleum Co. Ltd., issued a specially endorsed writ on December 1, 1966, against the defendant, Philip Lionel Mardon. claiming possession of premises consisting of a petrol service station, showroom and offices and other buildings fronting Eastbank Street and known as Eastbank Service Station, Eastbank Street, Southport; the sum of £1,133 13s. 9d. as money due on petrol supplied to the defendant; and mesne profits from December 28, 1966, until possession should be delivered up. They claimed that by an agreement in writing dated September 1, 1964, they had let the petrol service station and other buildings to the defendant for a term of one year from September 1 and thereafter until it should be determined by either party giving to the other three months' notice in writing, at a rent consisting of a surcharge from the premises to be calculated in accordance with a table set out in a schedule; and that under the same agreement the defendant agreed to pay specific amounts above the plaintiffs' appropriate wholesale schedule prices applicable at the date of sale multiplied by the number of gallons of the relevant grade of fuels actually sold by the defendant during the relevant period; that the defendant was in breach of the petrol clause in failing to pay the £1,133 claimed and had not remedied it. By a defence and counterclaim served on February 28, 1967, the defendant admitted the agreement of September 1, 1964, and that the plaintiffs were entitled to possession of the premises which he was in process of delivering up; but he disputed the amount of the sum claimed as excessive. By his counterclaim, as finally amended at the trial in July 1974 before Lawson J., he claimed that before the agreement of September 1, 1964, the plaintiffs and he had entered into an agreement in writing dated April 10, 1963, in respect of the same premises. By paragraph 6 he claimed that in order to induce him to enter into the agreements and in consideration of his so doing the plaintiffs by their servants and/or agents repeatedly represented and warranted to him that the petrol filling station, the subject matter of the agreement, had a potential selling capacity of between 200,000 and 250,000 gallons of petrol per annum which amount would be reached before the expiration of the first agreement, that the plaintiffs were experts in that sphere of business, and that the defendant could rely on such representations and warranties. The representations and warranties were (a) on an occasion at or about the end of February 1963 at the petrol station one Leitch orally informed the defendant that the station had a potential throughput of about 200,000 to 250,000 gallons per annum after a couple of years of building up the business; (b) at a meeting at the plaintiffs' offices in Manchester in March 1963 at which the defendant, Mr. Allen, Mr. Leitch and Mr. Wooldridge were present (i) Mr. Allen informed the defendant that the potential of [*805] the petrol filling station was such that within two years the throughput would be in the region of 200,000 to 250,000 gallons per annum; (ii) the defendant said he thought that this was high and that a figure of 100,000 to 150,000 gallons per annum would be more realistic; (iii) Mr. Allen told the defendant "with all due respect we are the experts. You are, we should say, the layman" or words to the like effect; (c) immediately after the meeting while at lunch the defendant told Leitch that he was still doubtful as to the throughput potential of 200,000 to 250,000 gallons per annum at the end of two years, but that Leitch reassured him, stating that he had had 39 years' experience in the petrol trade and that the defendant should have confidence in his (Leitch's) experience; (d) in or about April or May

Page 5 of 27 ESSO PETROLEUM CO. LTD. v. MARDON [1966 E. No. 2571] [1976] Q.B. 801 1963 Leitch assured the defendant that he would have a successful business because the plaintiffs were convinced of the existence of the throughput potential and by reason thereof had pursued their planning application in respect of the station to appeal; (e) between about the beginning of May 1963 and the beginning of 1964 one Kinrade on a number of occasions orally informed the defendant that the station was a nice site and should do very well; and that it would take some little time to build up to the potential yearly throughput of 200,000 to 250,000 gallons; (f) prior to the defendant entering into the agreement dated September 1, 1964 (which was signed on or about September 18, 1964), and after the defendant had written the plaintiffs a letter dated July 17, 1964, there was a further meeting attended by the defendant, Allen, and Wooldridge, at the plaintiffs' offices at Manchester, at which the defendant complained that it looked much as though the petrol filling station had not a throughput potential of 200,000 to 250,000 gallons per annum. Allen and Wooldridge both questioned the defendant as to his method of running the petrol filling station, implying that it was his own fault that the throughput potential was not being realised. Allen used words to the effect that properly run the petrol filling station had the represented throughput potential and that in any event the initial two year period had not yet expired. After giving particulars of the alleged negligence the counterclaim stated that in consequence of the breaches of warranty and misrepresentations and/or by reason of the plaintiffs' breach of their duty of care and/or by reason of their negligence the defendant had sustained damage, the moneys he had expended in equipping the premises in order to trade therefrom had been lost, he had traded at a loss, he had lost the profits which he would have made had the station been as represented and warranted, the plaintiffs had exercised their right to forfeiture of the agreement of September 1, 1964, and the defendant, to minimise further loss, had been compelled to give up the premises. The counterclaim concluded that the defendant would give particulars of his damage in a schedule to be delivered separately; and he counterclaimed for damages and such further or other relief as might be just. Schedules of damage were later provided. By their defence to the counterclaim the plaintiffs denied the allegations in paragraph 6 of the counterclaim. Lawson J., in a reserved judgment on liability delivered on July 31, 1974 [1975] Q.B. 819, held that the statement as to potential throughput did not constitute a contractual warranty but that, as the plaintiffs had [*806] known that the defendant relied on their expertise in making the statement before he decided to take a tenancy of the filling station, that had created a special relationship under which they owed him a duty of care on the principles stated in Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. [1964] A.C. 465, although the statement was made during pre-contractual negotiations, and as the plaintiffs were in breach of that duty they were liable to him in negligence. On January 13, 1975, Lawson J., in an unreported judgment, assessed the damages on the basis that the measure of damages was narrower in tort than in contract, in that the plaintiffs were not liable for any loss of a bargain or profits but only for the proved losses they foresaw or should reasonably have foreseen as flowing from the negligent misstatement. He held further than the causal effect of the negligent misstatement had become spent by September 1, 1964, the date of the second tenancy agreement, so that that date became the "cut-off point" beyond which the defendant could not recover damages. He awarded the defendant the net sum of £9,007, with interest at 7 per cent. for five years (£2,520) and only three-fifths of his taxed costs, but granted leave to appeal against the order as to costs. The sum of £9,007 represented a total of £10,270 damages, consisting of £6,270 loss of capital at September 1, 1964, and £4,000, the defendant's bank overdraft at that date, from which fell to be deducted the sum of £1,262 as money and mesne profits due to the plaintiffs on their claim. The judge disregarded a submission for the plaintiffs that the capital sum was provided from the private company in which the defendant and his wife held all the shares, holding that in all the circumstances it would be wrong to draw a distinction between the defendant and his company since in all practical senses the Eastbank Street business was his business operated by means of his financial resources at all material times by his overdrawing on his trading account at his bankers and that the company's bank account was mainly supported by his trading account.

Page 6 of 27 ESSO PETROLEUM CO. LTD. v. MARDON [1966 E. No. 2571] [1976] Q.B. 801

By his notice of appeal the defendant asked that the judgment be varied so as to give him a right to recover damages for breach of collateral warranty in addition to or in substitution for negligent misstatement; as to the proper measure and quantum of damages; as to the interest on the damages; and as to costs. He asked that judgment might be entered on his counterclaim for the sum claimed in the schedules to his counterclaim, namely, £82,417.22, or such other sum as might be just, together with interest thereon for such period and at such rate as might appear just to the court, together with the whole of his costs, or alternatively that a new trial might be ordered. His grounds of appeal were, inter alia, (1) that the judge erred in law in failing to find that the plaintiffs had entered into a collateral warranty with the defendant and in failing to award him damages for breach of that warranty in the following circumstances: (a) the judge rightly found that prior to April 10, 1963, the plaintiffs made a statement of existing fact to the defendant, viz., that the petrol filling station then had the potentia...