Esso Petroleum Co Ltd v Mardon [1976] QB 801; [1976] 2 WLR 583; [1976] 2 All ER 5

KEY POINTS

• This specific examination of negligence and duty of care in a pre-contractual situation involved negotiating a petrol station's tenancy.

  • The petroleum company made a statement regarding the potential throughput of the station during negotiations.

  • The question was whether the company owed a duty of care to the tenant, considering the tenant's reliance on the accuracy of the statement when taking the tenancy.

  • The factors included determining if there is a special relationship between the parties and if there was a breach of duty.

• The case involves examining whether the statement made by the petrol company constitutes a warranty in the context of the tenancy agreement.

  • The tenant took the tenancy in reliance on this statement, which raised the question of whether the statement should be treated as a condition or warranty in the contract.

• The issue of damages comes into play, focusing on the measure of damages for the pre-contractual statement.

• This includes compensation for the breach of warranty and negligent statement, explicitly addressing the loss of earnings resulting from the forecasted potential throughput of the petrol station.

FACTS

• In 1961, Esso Petroleum Co. Ltd (“Plaintiff”) identified a site for a petrol station on a busy street, estimating a potential throughput of 200,000 gallons by the third year.

  • After purchasing the site and facing planning restrictions, they informed a prospective tenant, Philip Lionel Mardon (“Defendant”), of the exact estimate during negotiations in early 1963.

  • Despite doubts, Defendant entered a three-year tenancy agreement in April 1963.

• The station's actual throughput fell short, leading to financial struggles for the Defendant.

  • After accepting a new agreement in September 1964, losses persisted.

• The Plaintiffs, issuing a possession claim in December 1966, faced a counterclaim from the Defendant for damages, citing negligent misrepresentation and breach of warranty.

• Lawson J. ruled that the throughput statement wasn't a warranty but held the Plaintiffs liable for negligent representation.

• Damages were awarded for Defendant's capital loss and bank overdraft until September 1964, rejecting additional claims for loss of bargain, profits, or earnings.

JUDGEMENT

• In the Defendant's appeal and the Plaintiffs' cross-appeal, the court held:

  • The statement on potential throughput was a contractual warranty, inducing the Defendant to enter into the tenancy contract, leading to the plaintiffs' liability for damages.

  • The statement also constituted a negligent representation, with the duty of care extending through pre-contractual negotiations and beyond, resulting in further liability for damages.

  • The effect of the negligent statement persisted beyond September 1, 1964, justifying damages recoverable from the Plaintiffs.

  • The measure of damages for breach of warranty and the negligent statement was the same, encompassing the Defendant's losses, including estimated loss of earnings.

  • The court disregarded the capital source, acknowledging the company's loss as the personal loss of the Defendant to avoid a denial of justice.

COMMENTARY

• The case involved a pre-contractual negotiation for a petrol station's tenancy, where a petroleum company's statement on potential throughput led to questions about their duty of care. Despite doubts, the tenant entered a three-year agreement in 1963.

• Financial struggles ensued due to lower throughput, leading to damages claims for negligent representation and breach of warranty.

• In the appeal, the court held that the statement was a contractual warranty, finding the company liable for damages. 

• Negligent representation was also acknowledged, with damages extending beyond 1964.

• The court deemed the measure of damages the same for breach of warranty and negligence, encompassing the tenant's losses, including estimated loss of earnings. The capital source was disregarded to avoid a denial of justice.