Esso Petroleum Co. Ltd v Mardon [1976]

English Contract Law

Esso Petroleum Co. Ltd v Mardon [1976]
‘Gas’ by Edward Hopper

Prior to the Misrepresentation Act 1967 many cases involving mistruths and false inducements relied upon rules of collateral warranty and negligent misrepresentation to establish liability, however on this occasion an international oil company was betrayed by their own haste when attempting to victimise a willing but inexperienced employee.

In 1961 the cross-appellants looked to construct a new filling station within the busy streets of Southport, and so having established the location and calculated the potential value of business it was agreed that once opened the station could very well expect to turnover around 200,000 gallons of petrol per year within its first three years of trading. 

With such positive projections the cross-appellants purchased the site and began work, however during the planning permission stage they were delivered an unexpected blow when the local authority expressed that the petrol pumps were not permitted to face the road, but were instead to be positioned at the rear of the building.

This unexpected design change heavily reduced their previous calculations, however undeterred they sought to recruit a leaseholder for the site, and so after a successful interview the appellant was conditionally offered the post while subject to rents based upon the now unrealistic sales volumes, however during his interview the appellant queried the figures presented while the cross-appellants argued there was no cause for concern and that the original projections remained reliable.

Despite his concerns, the appellant accepted the position before working tirelessly for two years, until faced with financial ruin after losing money from the severely reduced sales, considerable personal investment and a sizeable overdraft no longer repayable, he approached the cross-appellants with every intention to quit, whereupon they agreed to reduce the rent and offer bonus payments from the sale of petrol in order to offset his losses. 

As an act of continued faith the appellant agreed to honour a twelve month contract, however his circumstances continued to deteriorate, and despite the cross-appellants offering him a more profitable station, their support diminished until the arrangement became unsustainable, and yet in 1966 the cross-appellants issued a writ for non-payment of petrol supplied during their working relationship.

Naturally shocked and angered, the appellant counter-claimed for damages caused through the loss of earnings, damage to his health, lost opportunities through his efforts to make the site a success, breach of warranty through the misleading statements made in relation to sales turnover, negligent misrepresentation and the inducement to take employment where the outcome was never going to be the one presented during his interview.

In the first instance the Court of the Queen’s Bench held that the cross-appellants comments were tantamount to opinions and not warranties, but that the claim for negligent misrepresentation was enforceable until the date of the revised employment contract in 1964, while in the Court of Appeal the appellant relied upon Hedley Byrne & Co Ltd v Heller & Partners Ltd, in which the House of Lords had held that:

“[I]f someone possessed of a special skill undertakes, quite irrespective of contract, to apply that skill for the assistance of another person who relies upon such skill, a duty of care will arise. The fact that the service is to be given by means of or by the instrumentality of words can make no difference.”

And so having examined the finer points of collateral warranty and the limitations of contractual breaches, the Court unanimously upheld the appeal on grounds that the flow of damages were unmistakably linked to the claims made and that remoteness could not stand when factoring in the sources of revenue used by the appellant when trying so hard to keep the station afloat, while finally clarifying that:

“[I]f a man, who has or professes to have special knowledge or skill, makes a representation by virtue thereof to another be it advice, information or opinion with the intention of inducing him to enter into a contract with him, he is under a duty to use reasonable care to see that the representation is correct, and that the advice, information or opinion is reliable.”

Author: Neil Egan-Ronayne

Author, legal scholar and foodie...

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