Court: Court of Appeal (Civil Division)
Judgment Date: 6 February 1976
Where Reported: [1976] Q.B. 801; [1976] 2 W.L.R. 583; [1976] 2 All E.R. 5
Legal Issue in Esso Petroleum Co Ltd v Mardon
Esso Petroleum Co Ltd v Mardon presented the legal issue of whether a pre-contractual statement made by a party with expertise could be treated as a contractual warranty or a representation.
Specifically, Esso Petroleum Co Ltd v Mardon examined if Esso’s projection about the potential petrol sales of a service station, given to induce Mardon into a tenancy agreement, could be held as a legally binding promise or merely an opinion.
Material Facts in Esso Petroleum Co Ltd v Mardon
Esso Petroleum Co. Ltd. made a representation to Mr. Mardon regarding the potential annual sales of a petrol station.
Mardon, relying on this representation, entered into a tenancy agreement. The predicted sales were significantly overestimated, resulting in financial losses for Mardon.
Mardon sued Esso for damages, alleging that Esso’s representation was a warranty or, alternatively, a negligent misrepresentation.
Esso’s representation was based on an initial forecast, which was not revised even after significant changes in the station’s layout that impacted its visibility and potential sales.
Judgment in Esso Petroleum Co Ltd v Mardon
The Court of Appeal found Esso liable for negligent misrepresentation. Initially, the trial judge had ruled that the statement was not a warranty but constituted negligent misrepresentation.
On appeal, the Court of Appeal upheld this decision, stating that Esso had a duty of care to Mardon in making the representation and breached this duty by failing to provide an accurate forecast.
The court awarded Mardon damages for the losses he sustained due to relying on Esso’s inaccurate sales forecast.
The Reason for the Decision in Esso Petroleum Co Ltd v Mardon
The Court of Appeal’s decision was primarily based on the principles of negligent misrepresentation, as established in Hedley Byrne & Co Ltd v Heller & Partners Ltd.
Esso, as a large corporation with expertise in the field, was deemed to have a special relationship with Mardon, which created a duty of care when making representations about the petrol station’s potential.
The court found that Esso’s failure to update their sales forecast despite knowing the changes in the station’s layout constituted a breach of this duty.
The decision emphasised that representations made by a party with expertise, intended to induce another party into a contract, can lead to liability if the representation is inaccurate and the other party relies on it to their detriment.
The court rejected the notion that such a statement was merely an opinion, recognising the disparity in knowledge and expertise between Esso and Mardon.
The court also considered the impact of reliance on such representation in commercial decisions, highlighting the importance of accuracy in pre-contractual statements made by parties in a position of knowledge.
The ruling acknowledged the significant consequences that such misrepresentations can have on individuals who depend on these statements for business decisions.
Conclusion
Esso Petroleum v Mardon is a significant case in contract and tort law, highlighting the duty of care that arises in pre-contractual negotiations, especially when one party is in a position of expertise.
Esso Petroleum v Mardon extended the principle of negligent misrepresentation, emphasising that corporations can be held liable for inaccurate representations that induce individuals into contractual relationships.
This judgment serves as a caution to companies to ensure the accuracy of their pre-contractual statements and acknowledges the reliance placed on these statements by less knowledgeable parties.
