Esso Petroleum Co Ltd v Mardon

A representation made to induce a contract may amount to a contractual warranty where, viewed in the whole context, the parties intended it to form part of the basis of their contractual relations. That question does not turn solely on whether the statement is expressed as opinion or forecast. Special knowledge, the purpose of the statement and the recipient’s reliance may support the inference.

A person with special knowledge who carelessly gives a representation intended to induce the other party to contract may also owe a duty of care for negligent misrepresentation. Damages compensate the loss caused by entering the transaction, including losses reasonably incurred while attempting to mitigate its consequences.

Esso Petroleum Company Ltd granted Philip Lionel Mardon a tenancy of a newly developed filling station after representing that its estimated annual petrol throughput would reach 200,000 gallons. Esso had not revised that estimate after planning requirements made the station substantially less visible and accessible.

The throughput was far lower. Mr Mardon suffered capital and overdraft losses. A later rental-surcharge agreement reduced the rent but did not make the business viable. Lawson J rejected the pleaded warranty but held Esso liable for negligent misstatement and limited recoverable loss to September 1964. Mr Mardon appealed on warranty, damages and causation. Esso cross-appealed on liability.

1. The appeal was allowed and the cross-appeal dismissed. The court held unanimously that Esso was liable to Mr Mardon. Lawson J had erred in rejecting the contractual claim and in treating September 1964 as a cut-off date for loss.
2. Warranty. The Master of the Rolls, with whom Ormrod and Shaw LJJ agreed in result, held that Esso did not guarantee that the station would achieve a throughput of 200,000 gallons. However, its experienced representatives had warranted that the estimate was a sound and reliable assessment made with reasonable care and skill. Whether a representation is a warranty depends on the parties’ intention in the whole context. A forecast may therefore be contractual where it is made by a party with substantially superior knowledge, for the purpose of inducing the contract, and is relied on as a vital basis for it. The uncorrected estimate was negligent and the warranty was broken.
3. Negligent misrepresentation. The court also held that, if no warranty had arisen, Esso was liable under the principle in Hedley Byrne v Heller & Partners Ltd [1964] AC 465. A person possessing or professing special knowledge who gives advice, information or an opinion to induce a contract must take reasonable care that it is reliable. A contract made after the representation does not, without more, extinguish that duty. Esso had the relevant expertise, assumed responsibility for its estimate and induced the tenancy.
4. Damages and mitigation. The proper measure was the loss caused by entering the transaction, not the benefit of an unpromised bargain. The later agreement was a reasonable attempt by both parties to mitigate the consequences of Esso’s original default. It neither broke causation nor released Esso from losses thereafter. Mr Mardon could recover capital and overdraft losses attributable to the failed business, subject to credit for assets. The court left interest and loss of earnings for agreement or further argument, and made no final order on those matters or costs at that stage.

• Court of Appeal — Mr Mardon’s appeal was allowed and Esso’s cross-appeal dismissed in Esso Petroleum Co Ltd v Mardon [1976] QB 801. The court held that Esso had given a warranty and was also liable for negligent misrepresentation; it rejected the September 1964 cut-off for loss.
• Queen’s Bench Division (Lawson J) — held Esso liable for negligent misstatement under Hedley Byrne v Heller & Partners Ltd [1964] AC 465, rejected the warranty claim, and awarded damages limited to losses before September 1964. Citation not stated in the judgment.