The case of Esso Petroleum Co Ltd v Mardon [1976] EWCA Civ 4 is a landmark decision in English contract law, primarily concerning issues of misrepresentation and negligence. It addresses the legal divide between statements of opinion and statements of fact, particularly when a party makes a representation while holding themselves out as having expert knowledge.
The case is significant as it not only clarifies the boundaries between contract and tort in relation to negligent misrepresentation but also establishes important principles regarding the duty of care owed by professionals who provide advice or forecasts based on specialised knowledge.
Facts of Esso Petroleum Co Ltd v Mardon
The dispute in Esso Petroleum Co Ltd v Mardon arose when Mr. Mardon, the plaintiff, purchased a petrol station franchised by the defendant, Esso Petroleum. During the course of negotiations, Esso provided an estimate of the petrol station’s expected throughput, which they claimed would be 200,000 gallons per year.
This figure was crucial because the rent for the petrol station was based on this sales estimate. However, what Mr. Mardon was not informed of was the decision made by the local council regarding the planning permission for the area. The council had decided that there would be no direct access to the petrol station from the main street, a decision that Esso was aware of but failed to disclose to Mr. Mardon. This restriction would inevitably result in a reduced number of customers visiting the petrol station.
Despite this, Esso continued to present the inflated sales estimate as a reliable forecast, which Mr. Mardon relied upon when entering into the tenancy agreement. Unfortunately, the reality did not match the estimate, and the business was unable to generate sufficient revenue.
Over time, from 1964 onwards, Mr. Mardon negotiated a lower rent with Esso, but his financial situation did not improve, and he continued to sustain losses. Subsequently, Esso sought possession of the property, prompting Mr. Mardon to counterclaim for damages on the grounds of negligent misrepresentation and breach of warranty, relying on the principles outlined in Hedley Byrne v Heller [1964] AC 465.
Legal Issues
The central legal issues in Esso Petroleum Co Ltd v Mardon revolved around two main questions:
- Whether the plaintiff could bring a claim for misrepresentation despite the fact that Esso’s statement was presented as an estimate, rather than a definitive statement of fact.
- Whether the defendant, Esso, owed a duty of care to Mr. Mardon, which would support a claim for negligence based on their expert forecast of petrol sales.
Judgement of the Court in Esso Petroleum Co Ltd v Mardon
The case was heard before the Court of Appeal, where Lord Denning MR delivered the leading judgement. The Court of Appeal ruled in favour of Mr. Mardon, confirming that he was entitled to claim damages for the losses suffered as a result of Esso’s negligent misstatement.
Contractual Warranty and Expert Knowledge
Lord Denning MR acknowledged that the statement made by Esso was not a warranty in the strict sense, as it did not guarantee that the petrol station would indeed generate 200,000 gallons of throughput. However, he recognised that Esso, by virtue of its position as a supplier of the petrol station franchise, had special knowledge and expertise in this area. Esso had provided a forecast based on their considerable experience and knowledge of the local market, including information on the traffic patterns in the town and the throughput of comparable stations.
Lord Denning concluded that the forecast of 200,000 gallons could be interpreted as a warranty in the sense that Esso made it with the reasonable care and skill expected of a party with such special knowledge. The forecast was intended to induce Mr. Mardon to rely on it when calculating the value of the business, including the rent. The Court held that such a forecast, made by a party with special knowledge, could be seen as a representation that the forecast was sound and reliable. If it turned out that the forecast was unsound and no person with reasonable skill or experience would have made it, then it amounted to a breach of warranty.
Duty of Care in Negligence
Lord Denning also addressed the issue of negligence, distinguishing Esso Petroleum Co Ltd v Mardon from previous cases such as Bisset v Wilkinson [1927] AC 177, where both parties were equally able to form an opinion. In Esso Petroleum Co Ltd v Mardon, Esso, as the franchiser with expert knowledge, was in a much better position than Mr. Mardon, who relied on their forecast. Denning stressed that when a party with special knowledge or skill makes a representation with the intention that the other party will rely on it, the person making the representation owes a duty of care to ensure that the representation is accurate and reliable.
The judgement in Esso Petroleum Co Ltd v Mardon made clear that a party who possesses expert knowledge has an obligation to use reasonable care when providing forecasts or representations that may influence the decisions of others. This principle is consistent with the duty of care in tort law, which is comparable to the duty owed by an employer to an employee, or vice versa. The Court also stated that if there were no contractual warranty, Esso would still be liable for negligent misrepresentation in tort. This highlighted the broader application of tort law to negligent misstatements made by professionals.
Conclusion
In conclusion, Esso Petroleum Co Ltd v Mardon [1976] EWCA Civ 4 serves as a vital case in the development of English contract law, particularly in the areas of misrepresentation and negligence. The case highlights the importance of distinguishing between statements of opinion and fact, especially when one party has specialised knowledge that the other party relies upon. It also underscores the potential for tort liability in situations where negligent misstatements lead to financial loss, and the duty of care owed by professionals who provide forecasts and advice to others.
