URL: http://www.bailii.org/ew/cases/EWCA/Civ/1976/4.html
Cite as: [1976] 2 All ER 5, [1976] QB 801, [1976] EWCA Civ 4
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JISCBAILII_CONTRACT
Neutral Citation Number:
Case No. 1966 E No. 2971
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN’S BENCH DIVISION
(MR. JUSTICE LAWSON)
Royal Courts of Justice
6th February 1976
B e f o r e :
THE MASTER OF THE ROLLS
LORD JUSTICE ORMROD
and
LORD JUSTICE SHAW
____________________
ESSO PETROLEUM COMPANY LIMITED
Plaintiffs
(Respondents)
v.
PHILIP LIONEL MARDON
Defendant
(Appellant)
____________________
(Transcript of the Shorthand Notes of the Association of Official
Shorthandwriters Ltd., Room 392, Royal Courts of Justice, and
2 New Square, Lincoln’s Inn, W.C.2).
____________________
MR R. MUNRO Q.C., MR. P. CRESSWELL and MR J. PEPPITT (instructed by Messrs. Durrant Piesse, Solicitors, London) appeared on behalf of the Plaintiffs (Respondents).
MR J. HALL Q.C. and MR A RAWLEY (instructed by Messrs. Batchelor, Fry, Coulson & Barden, Solicitors, London, agents for Messrs. Bellis, Kennan, Gibble & Co., Solicitors, Southport) appeared on behalf of the Defendant (Appellant).
____________________
HTML VERSION OF JUDGMENT
____________________
Crown Copyright ©
THE MASTER OF THE ROLLS: “This is”, said the Judge, “a tragic story of wasted endeavour and financial disaster”. It is a long story starting as long ago as 1961, and finishing in 1967. Since then eight years have been spent in litigation.
In 1961 Esso Petroleum wanted an outlet for their petrol in Southport. They found a vacant site which was very suitable. It was on Eastbank Street, one of the busiest streets of the town. It had already got outline planning permission for a filling station. Esso thought of putting in a bid for the site. But, before doing so, they made calculations to see if it would be a paying proposition. They made a careful forecast of the “estimated annual consumption” of petrol. This was the yardstick by which they measured the worth of a filling station. They called it the “e.a.c.”. In this case they estimated that the throughput of petrol would reach 200,000 gallons a year by the second year after development. This would accrue to their benefit by sales of petrol. In addition, they would get a sub3tantial rental from a tenant. On 25th May, 1961, the Esso local representatives recommended the go ahead. They gave the figures, and said:
“We feel most strongly that this does genuinely represent a first-class opportunity of gaining representation in the centre of Southport”.
On that recommendation Esso bought the site and proceeded to erect a service station.
But then something happened which falsified all their calculations. Esso had thought that they could have the forecourt and pumps fronting on to the busy main street. But the Southport Corporation, who were the planning authority, refused to allow this. They insisted that the station should be built “back to front”. So that only the showroom fronted on to the main street. The forecourt and pumps were at the back of the site and only accessible by side streets. They could not be seen from the main street. Esso had no choice but to comply with these planning requirements. They built the station “back to front”. It was finished early in 1963.
Now at this point Esso made an error which the Judge described as a “fatal error”. They did not revise their original estimate which they had made in 1961. They still assessed the e.a.c. (estimated annual consumption) of petrol at 200,000 gallons. Whereas they should have made a reappraisal in the light of the building being now “back to front”. This adversely affected the site’s potential: because passing traffic could not see the station. It would reduce the throughput greatly. The Judge found that this “fatal error” was due to want of care on the part of Esso . There can be no doubt about it.
It was under the influence of this “fatal error” that Esso sought to find a tenant for the service station. They found an excellent man, Mr. Philip Lionel Mardon . He was seen by Esso ‘s local manager, Mr. Leitch. Now Mr. Leitch had had forty years’ experience in the petrol trade. It was on his calculations and recommendations that Esso had bought this site and developed it. At the decisive interview Mr. Leitch was accompanied by the new area manager, Mr. Allen. I will give what took place in the words of the Judge:
“Mr. Mardon was told that Esso estimated that the throughput of the Eastbank Street site, in its third year of operation, would amount to 200,000 gallons a year. I also find that Mr. Mardon then indicated that he thought 100,000 to 150,000 gallons would be a more realistic estimate, but he was convinced by the far greater expertise of, particularly, Mr. Leitch. Mr. Allen is by far the younger man, and although on his appointment as manager for the area I am satisfied he made his own observations as to the potentiality of the Eastbank Street site, in the result he accepted Mr. Leitch’s estimate. Mr. Mardon , having indicated that he thought that a lower figure would be a more realistic estimate, had his doubts quelled by the experience and the estimate furnished by Mr. Leitch; and it was for that reason, I am satisfied, because of what he was told about the estimated throughput in the third year that he proceeded to negotiate for, and to obtain the grant of, a three-year tenancy at a rent of £2,500 a year for the first two years, rising to £3,000 yearly in the last year”.
To the Judge’s summary, I would only add a few questions and answers by Mr. Allen in evidence:
(Q) Now we know that the person who originally put forward this estimated 200,000 gallons forecast was Mr. Leitch?
(A) Yes.
(Q) Would somebody have checked Mr. Leitch’s figures before they reached you?
(A) Oh, very much so.
(Q) You have told My Lord that, at that interview, you might have said that Eastbank was capable of achieving a throughput of 200,000 gallons after the second complete year?
(A) Yes.
(Q) Would that have been your honest opinion at the time?
(A) Most certainly”.
All the dealings were based on that estimate of a throughput of 200,000 gallons. It was on that estimate that Esso developed the site at a cost of £40,000: and that the tenant agreed to pay a rent of £2,500, rising to £3,000. A few answers by Mr. Allen will show this:
“(Q) Would you agree that the potential throughput of a station is an important factor in assessing what rent to charge a tenant?
(A) Yes.
(Q) The rent would be substantially higher if your estimate was one of 200,000 gallons than if your estimate was one of 100,000?
(A) Generally speaking, that is right.
(Q) You would be able to command a higher rent if the throughput was 200,000 than if it was 100,000?
(A) Had it been an estimated throughput of 100,000 gallons, they ( Esso ) would not have bought it in the first place”.
Having induced Mr. Mardon to accept, Mr. Leitch and Mr. Allen sent this telegram to their head office:
“We have interviewed a Mr. Philip Lionel Mardon for tenancy and find him excellent in all respects. We recommend strongly that he be granted tenancy”.
So a tenancy was granted to Mr. Mardon . It was dated 10th April, 1963, and was for three years at a rent of £2,500 for the first two years, and £3,000 for the third year. It required him to keep open all day every day of the week, including Sunday. It forbad him to assign or underlet.
On the next day Mr. Mardon went into occupation of the service station and did everything that could be desired of him. He was an extremely good tenant and he tried every method to increase the sales and profitability of the service station. Esso freely acknowledge this.
But the throughput was most disappointing. It never got anywhere near the 200,000 gallons. Mr. Mardon put all his available capital into it. It was over £6,000. He raised an overdraft with the bank and used it in the business. He put all his work and endeavour into it. No one could have done more to make it a success. Yet, when the accounts were taken for the first fifteen months, the throughput was only 78,000 gallons. After paying all outgoings, such as rent, wages and so forth, there was a net loss of £5,800. The position was so serious that Mr. Mardon felt he could not continue. On 17th July, 1964, he wrote to Mr. Allen: “I reluctantly give notice to quit forthwith. This is an endeavour to salvage as much as I can in lieu of inevitable bankruptcy”.
Mr. Allen did not reply in writing but saw Mr. Mardon . But, as a result, he put in a written report to his superiors recommending that Mr. Mardon ‘s rent should be reduced to £1,000 a year, plus a surcharge according to the amount of petrol sold. Mr. Allen telexed to his superiors on several occasions pressing for a decision. It culminated in a telex he sent on 28th August, 1964:
“Unless we hear soon the tenant is likely to resign and we will have difficulty in replacing this man with a tenant of the same high standard”.
This brought results. On 1st September, 1964, an new tenancy agreement was made in writing. It granted Mr. Mardon a tenancy for one year certain and thereafter determinable on three months’ notice. The rent was reduced to £1,000 a year, and a surcharge of 1d.to 2d. a gallon, according to the amount sold.
Again Mr. Mardon tried hard to make a success of the service station! but again he failed. It was not his fault. The site was simply not good enough to have a throughput of more than 60,000 or 70,000 gallons. He lost more and more money over it. In order to help him, Esso tried to get another site for him – a “cream” site – so that he could run the two sites in conjunction to offset his losses. But they never found him one. Eventually on 1st January, 1966, he wrote to Esso appealing to them to find a solution. He consulted solicitors who wrote on his behalf. But Esso did nothing to help. Quite the contrary. They insisted on the petrol being paid for every day on delivery. On 28th August, 1966 (when by some mistake or misunderstanding whilst Mr. Mardon was away) they came and drained his tanks of petrol and cut off his supplies. That put him out of business as a petrol station. He carried on as best he could with odd jobs for customers, like washing cars. Esso had no pity for him. On 1st December, 1966 they issued a writ against him claiming possession and £1,139.33 for petrol supplied. This defeated him. On 7th March, 1967 he gave up the site. He had tried for four years to make a success of it. It was all wasted endeavour. He had lost all his capital and had incurred a large overdraft. It was a financial disaster.
Such being the facts, I turn to consider the law. It is founded on the representation that the estimated throughput of the service station was 200,000 gallons. No claim can be brought under the Misrepresentation Act, 1967, because that Act did not come into force until 22nd April, 1967: whereas this representation was made in April 1963. So the claim is put in two ways: First, that the representation was a collateral warranty. Second, that it was a negligent misrepresentation. I will take them in order.
Collateral warranty: Ever since Hailbut Symons & Co. v. Buckleton, (1913) Appeal Cases 30, we have had to contend with the law as laid down by the House of Lords that an innocent misrepresentation gives no right to damages. In order to escape from that rule, the pleader used to allege -I often did it myself – that the misrepresentation was fraudulent, or alternatively a collateral warranty. At the trial we nearly always succeeded on collateral warranty. We had to reckon, of course, with the dictum of Lord Moulton that “such collateral contracts must from their very nature be rare”. But more often than not the Court elevated the innocent, misrepresentation into a collateral warranty: and thereby did justice – in advance of the Misrepresentation Act, 1967. I remember scores of cases of that kind, especially on the sale of a business. A representation as to the profits that had been made in the past was invariably held to be a warranty. Besides that experience, there have been many cases since I have sat in this Court where we have readily held a representation – which induces a person to enter into a contract – to be a warranty sounding in damages. I summarised them in Dick Bently Productions v. Harold Smith Motors (1965) 1 Weekly Law Reports at page 627, when I said:”..,
“Looking at the cases once more, as we have so often done, it seems to me that if a representation is made in the course of dealings for a contract for the very purpose of inducing the other party to act on it, and actually inducing him to act upon it, by entering into the contract, that is prima facie ground for inferring that it was intended as a warranty. It is not necessary to speak of it as being collateral. Sufficient that it was intended to be acted upon and was in fact acted on”.
Mr. Ross-Munro, Q.C., retaliated, however, by citing Bisset v. Wilkinson (1927) Appeal Cases 177, when the Privy Council said that a statement by a New Zealand farmer that an area of land “would carry 2,000 sheep” was only an expression of opinion. He submitted that the forecast here of 200,000 gallons was an expression of opinion and not a statement of fact: and that it could not be interpreted as a warranty or promise.
Now, I would quite agree with Mr. Ross-Munro that it was not a warranty – in this sense – that it did not guarantee that the throughput would be 200,000 gallons. But, nevertheless, it was a forecast made by a party – Esso – who had special knowledge and skill. It was the yardstick (the e.a.c.) by which they measured the worth of a filling station. They knew the facts. They knew the traffic in the town. They knew the throughput of comparable stations. They had much experience and expertise at their disposal. They were in a much better position than Mr. Mardon to make a forecast. It seems to me that if such a person makes a forecast – intending that the other should act upon it and he does act upon it – it can well be interpreted as a warranty that the forecast is sound and reliable in this sense that they made it with reasonable care and skill. It is just as if Esso said to Mr. Mardon :
“Our forecast of throughput is 200,000 gallons. You can rely upon it as being a sound forecast of what the service station should do. The rent is calculated on that footing”.
If the forecast turned out to be an unsound forecast, such as no person of skill or experience should have made, there is a breach of warranty. Just as there is a breach of warranty when a forecast is made “expected to load” by a certain date if the maker has no reasonable grounds for it, see Sunday v. Keighley (1922) 27 Commonwealth Cases 296 or bunkers “expected 600/700 tons”, The Pantanassa (1958) 2 Lloyd 449 at pages 455-7 by Mr. Justice Diplock. It is very different from the Hew Zealand case where the land had never been used as a sheep-farm and both parties were equally able to form an opinion as to its carrying capacity – see particularly 1927 Appeal Cases at pages 183-4.
In the present case it seems to me that there was a warranty that the forecast was sound, that is, Esso made it with reasonable care and skill. That warranty was broken. Most negligently Esso made a “fatal error” in the forecast they stated to Mr. Mardon , and on which he took the tenancy. For this they are liable in damages. The Judge, however declined to find a warranty. So I must go further.
Negligent misrepresentation: Assuming that there was no warranty, the question arises whether Esso are liable for negligent mis-statement under the doctrine of Hedley Byrne v. Heller & Partners Ltd.(1964) Appeal Gases 465. It has been suggested that Hedley Byrne cannot be used so as to impose liability for negligent pre-contractual statements: and that, in a pre-contract situation, the remedy (at any rate before the 1967 Act) was only in warranty or nothing. Thus in Hedley Byrne itself Lord Reid said (at page 483):
“… Where there is a contract there is no difficulty as regards the contracting parties: the question is whether there is a warranty”.
And in Oleificio Zuccu v. Northern Sales (1965) 2 Lloyds Reports 196 Mr. Justice McNair said that:
“… as at present advised, I consider the submission advanced by the buyers – that the ruling in Hedley Byrne applies as between contracting parties – is without foundation”.
As against these, I took a different view in McInerney v. Lloyds Bank (1974) 1 Lloyds 241, when I said at page 253:
“… If one person, by a negligent mis-statement, induces another to enter into a contract – with himself or a third person -he may be liable in damages”.
In arguing this point, Mr. Ross-Munro, Q.C. took his stand in tis way. He submitted that, when the negotiations between two parties resulted in a contract between them, their rights and duties were governed by the law of contract and not by the law of tort. There was, therefore, no place in their relationship for Hedley Byrne, which was solely a liability in tort. He relied particularly on Clark v. Kirby Smith (1964) Chancery 507 where Mr. Justice Plowman held that the liability of a solicitor for negligence was a liability in contract and not in tort, following the observations of Sir Wilfred Greene, the Master of the Rolls, in Groom v. Crocker (1939) 1 King’s Bench 206. Mr. Ross-Munro might also have cited Bagot v. Stevens Scanlan & Co.(1966) 1 Queen’s Bench 197, about an archtect, and other cases too. But I venture to suggest that those cases are in conflict with other decisions of high authority which were not cited in them.. These decisions show that, in the case of a professional man, the duty to use reasonable care arises not only in contract, but is also imposed by the law apart from contract, and is therefore actionable in tort. It is comparable to the duty of reasonable care which is owed by a master to his servant, or vice versa. It can be put either in contract or in tort: see Lister v. Romford Ice and Gold Storage Co. (1957) Appeal Cases at page 587 by Lord Radcliffe: Matthews v. Kuwait Rechtel Corporation (1959) 2 Queen’s Bench 57. The position was stated by Tiadal C.J., delivering the judgment of the Court of Exchequer Chamber in Boorman v. Brown (1842) 3 Queen’s Bench at page 526:
“… There is a large class of cases where the foundation of the action springs out of privity of contract between the parties, but in which the breach or non-performance, is indifferently either assumpsit or case upon tort. Such are the actions against attorneys, surgeons and other professional men for want of competent skill or proper care in the service they undertake to render … The principle in all these cases would seem to be that the contract creates a duty and the neglect to perform that duty, or the non-feasence, is a ground of action upon a tort”.
That decision was affirmed in the House of Lords in 11 Clark and Finelly 1, when Lord Campbell, giving the one speech, said (at page 44):
“… Wherever there is a contract, and something to be done in the course of the employment which is the subject of that contract, if there is a breach of duty in the course of that employment, the plaintiff may recover either in tort or in contract”.
To this there is to be added the high authority of Viscount Haldane, L.C. in Nocton v. Lord Ashburton (1914) Appeal cases 932 at page 950:
“… The solicitor contracts with his client to be skilful and careful. For failure to perform his obligations, he may be made liable at law in contract or even in tort, for negligence in the breach of a duty imposed on him”.
That seems to me right. A professional man may give advice under a contract for reward; or without a contract, in pursuance of a voluntary assumption of responsibility, gratuitously without reward. In either case he is under one and the same duty to use reasonable care: see Cassidy v. Ministry of Health (1951) 2 King’s Bench at pages 359-360. In the one case it is by reason of a term implied by law. In the other, it is by reason of a duty imposed by law. For a breach of that duty, he is liable in damages: and those damages should be, and are, the same, whether he is sued in contract or in tort.
It follows that I cannot accept Mr. Ross-Munro’s propositions It seems to me that Hedley Byrne, properly understood, covers this particular proposition: If 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. If he negligently gives unsound advice or misleading information or expresses an erroneous opinion, and thereby induces the other aide into a contract with him, he is liable in damages. This proposition is in line with what I said in Candler v. Crane Christmas & Co. (1951) 2 King’s Bench at pages 179-180, which was approved by the majority of the Privy Council in Mutual Life & Citizens Assurance Limited v. Evatt (1971) Appeal Cases 793. And the Judges of the Commonwealth have shown themselves quite ready to apply Hedley Byrne between contracting parties; see in Canada Sealand v. Ocean Cement (1973) 33 Dominion Law Reports (3rd) 625; and New Zealand Capital Motors v. Beecham (1975) 1 New Zealand Law Reports 576.
Applying this principle, it is plain that Esso professed to have – and did in fact have – special knowledge or skill in estimating the throughput of a filling station. They made the representation – they forecast a throughput of 200,000 gallons – intending to induce Mr. Mardon to enter into a tenancy on the faith of it. They made it negligently. It was a “fatal error”. And thereby induced Mr. Mardon to enter into a contract of tenancy that was disastrous to him. For this misrepresentation they are liable in damages.
Now for the measure of damages. Mr. Mardon is not to be compensated here for “loss of a bargain”. He was given no bargain that the throughput would amount to 200,000 gallons a year. He is only to be compensated for having been induced to enter into a contract which turned out to be disastrous for him. Whether it be called breach of warranty or negligent misrepresentation, its effect was not to warrant the throughput, but only to induce him to enter into the contract. So the damages in either case are to be measured by the loss he suffered. Just as in the case of Doyle v. Olby (Ironmongers) (1969) 2 Queen’s Bench 158, he can say:
“…I would not have entered into this contract at all but for your representation. Owing to it, I have lost all the capital I put into it. I also incurred a large overdraft. I have spent four years of my life in wasted endeavour without reward: and it will take me some time to re-establish myself”.
For all such loss he is entitled to recover damages. It is to be measured in a similar way as the loss due to a personal injury. You should look into the future so as to forecast what would have been likely to happen if he had never entered into this contract: and contrast it with his position as it is now as a result of entering into it. The future is necessarily problematical and can only be a rough-and-ready estimate. But it must be done in assessing the loss.
Now for the new agreement of 1st September, 1964. The judge limited the loss to the period from April 1963 to September 1964, when the new agreement was made. He said that from 1st September, 1964, Mr. Mardon was carrying on the business
“on an entirely fresh basis, of which the negligent mis-statement formed no part”.
I am afraid I take a different view. It seems to me that from 1st September 1964, Mr. Mardon acted most reasonably. He was doing what he could to retrieve the position, not only in Ms own interest, but also in the interest of Esso . It was Esso who were anxious for him to stay on. They had no other suitable tenant to replace him. They needed him to keep the station as a going concern and sell their petrol. It is true that by this time the truth was known – that the throughput was very far short of 200,000 gallons – but nevertheless, the effect of the original mis-statement was still there. It laid a heavy hand on all that followed. The new agreement was an attempt to mitigate the effect. It was not a fresh cause which eliminated the past. It seems to me that the losses after 1st September 1964, can be attributed to the original mis-statement, just as those before.
Now for the company position. The initial capital of £6,270 was not provided by Mr. Mardon personally out of his own bank account. It was provided by a private company in which he and his wife held all the shares. It was suggested that this, in some way, prevented Mr. Mardon from claiming for the loss of it. The Judge rejected this suggestion: and so would I. The business of this filling station was undoubtedly the personal business of Mr. Mardon . The money put into it might be obtained by overdraft at the bank or by loan from his own private company – but wherever it came from, it was a loss to him: and he can recover that loss. It is no concern of Esso where it came from, c.f. Dennis v. London Passenger Transport Board (1948) 1 All England Reports 319.
If Mr. Mardon had not been induced to enter into the contract, it is fair to assume that he would have found an alternative business in which to invest his capital. (The Judge said so). It is also fair to assume (as he is a very good man of business) that he would have invested it sufficiently well so that he would not have lost the capital. Nor would he have incurred any overdraft or liabilities that were not covered by his assets. And it may be assumed that he would have made a reasonable return by way of earnings for his own work (in addition to return from his capital). But equally it must be remembered that, after March, 1967 (when he gave up the site at Southport) he should have been able (if fit) to take other employment or start another business and thus mitigate his loss: and gradually get restored to a position equal to that which he would have had if he had never gone into the Esso business. It would take him some time to do this. So the loss of earnings could only be for a limited number of years.
On this footing, the loss which he has suffered would seem to be as follows (subject to further argument by the parties): Capital loss: cash put into the business and lost £6,270; overdraft incurred in running the business, £7,774. Loss of earnings to be discussed. There will be interest to be added for a period to be discussed.
Mr. Mardon also claimed damages for having to sell his house to pay off the overdraft. That seems to me too remote and should be compensated for by interest on the overdraft. He also suffered in health by reason of all the worry over this disaster, and was off work. That should be compensated for by including it in the figure of loss of future earnings.
Conclusion: I would like to express my appreciation of the full and careful way in which the learned Judge found the facts and analysed the law. It has been most helpful to the determining of the case. The result is that Mr. Mardon is entitled to substantial damages on his counterclaim. There remain the issues of interest and costs to be discussed. We are also willing to hear further argument on the assessment of damages.
LORD JUSTICE ORMROD: I agree. Mr. Justice Lawson, after a long and careful enquiry, finally awarded him the sum of £9,007, with interest at 7½% for five years, which represents damages assessed at £10,270, less £1,103 admittedly due by way of rent and mesne profits to the plaintiffs, and £159 for which credit had also to be given to the plaintiffs. The defendant claims to have suffered damage far in excess of this sum. The plaintiffs by their cross-appeal have raised the issue of liability. These damages were awarded for negligent mis-statement on the Hedley Byrne principle, the learned judge having rejected Mr. Mardon ‘s primary submission that he was entitled to damages for breach of warranty.
The award rests on three basic conclusions, all of which have been challenged by Mr. Hall, Q.C., on behalf of the appellant in an able and most helpful argument. The three conclusions are (1) that Mr. Mardon had a cause of action in tort for negligence but not in contract for breach of warranty; (2) that the measure of damages in tort on the facts of this case is narrower in tort than in contract; and (3) that the causal effect of the negligent mis-statement had become spent by September, 1964 which, therefore, became the so-called “cut-off point”, up to which Mr. Mardon could recover his losses but no further.
Mr. Ross-Munro Q.C., for the plaintiffs, challenged the finding of negligence on the ground that the Hedley Byrne principle does not apply to statements made during pre-contract negotiations if they ultimately result in a contract. Alternatively, he submitted that the duty of care only arose where the person making the alleged negligent statement carried on the business or profession of giving advice.
Subject to liability, Mr. Mardon will succeed on this appeal if he can show that any one of the judge’s three conclusions is wrong, and, if he can show that conclusion (3) and either of the other two are wrong, his damages will be substantially increased.
Breach of warranty: The warranty relied upon as pleaded in paragraph 6 of the Defence and Counterclaim was that Mr. Leitch and later Mr. Allen on behalf of Esso , had informed Mr. Mardon that this service station “had a potential throughput of about 200,000 to 250,000 gallons per annum after a couple of years”. None of the material facts is in issue, although the learned judge preferred the evidence of the plaintiffs’ witnesses, namely Mr. Leitch and Mr. Allen, to Mr. Mardon ‘s where they differed. In effect, he discarded the more highly coloured parts of Mr. Mardon ‘s evidence on the ground that he had been living with and brooding over his grievance for a period of years which had affected the accuracy of his recollection. The pivotal finding, which is not challenged, is that Mr. Mardon was, in fact, induced to enter into a tenancy agreement for three years of the plaintiffs’ Eastbank service station, in Eastbank Street, Southport, by representation made by Mr. Leitch and Mr. Allen that the estimated throughput or, as the plaintiffs call it, the e.a.c, meaning estimated annual consumption, of this service station was 200,000 gallons in its third year of operation. This representation was, unquestionably, made in good faith but, as Mr. Justice Lawson rightly found, negligently. It proved to be disastrously wrong; since it was opened by Mr. Mardon in April, 1963, this station has rarely achieved a throughput equal to half the plaintiffs’ estimate. The fact was that this assessment of 200,000 gallons was reasonable when it was made; unfortunately, the plaintiffs never revised it in the light of subsequent developments which made it quite unrealistic.
The learned judge’s reasons for rejecting Mr, Marlon’s contention that this was a warranty are summarised in this passage in his judgment:
“I think the authorities indicate conclusively that to constitute a warranty a statement firstly must be intended on the part of the maker to constitute a promise which can be described as a warranty or, putting it into common language, a statement by which the maker says ‘I guarantee that this will happen’. Secondly, to constitute a warranty a statement must be of such nature that it is susceptible in relation to its content of constituting a clear contractual obligation on the part of the maker of the statement”.
With great respect, I think that in formulating the first of these reasons the learned judge misled himself. It was no part of Mr. Marion’s case that the plaintiffs had warranted that the throughput would reach 200,000 gallons in the third year. His case was that the plaintiffs, through Mr. Leitch and Mr. Allen, had, by implication warranted that on a careful assessment they, that is Esso Petroleum Co. Ltd., had estimated the throughput of this service station at 200,000 gallons in the third year. Mr. Allen in the course of his cross-examination put it in these words (Day 5 page 274): “I would have told him that in our opinion the site was assessed as being capable of doing an estimated throughput of 200,000 gallons in the second full year of the site’s operation”. If it is necessary in this context (which I doubt) to draw a hard and fast distinction between statements of fact and statements of opinion, the learned judge, rightly in my view, regarded this as a statement of fact. It was precisely equivalent to saying that Esso rated this service station as one of their “Grade A” or “Four star” sites.
On this basis, no question of a guaranteed throughput arises; had it failed to reach the estimate owing to a cause or causes outside the plaintiffs’ control, for example, an unforeseen traffic diversion scheme, greatly reducing the traffic flow in Eastbank Street, or the appearance across the street of a rival filling station, there would have been no breach of warranty on the part of the plaintiffs.
So far as the learned judge’s second reason is concerned, I have some difficulty in understanding it. The estimated throughput in this case was as much part of the description of the property which was to be let as the number of pumps or the area of the site. However, his reference to the speeches of Lords Haldane, Atkinson and Moulton in Heilbut Symons & Co. v. Buckleton (1913) Appeal Cases 30 may indicate that he was thinking of the difficulty of expressing this representation as a separate collateral contract. Yet it is not really difficult to formulate it in terms such as: “In consideration of you entering into the proposed tenancy we warrant that after careful consideration we have assessed its e.a.c. at 200,000 gallons” and so on. The problem of finding a reliable criterion for deciding whether a statement is to be treated as a “mere representation” carrying no constructual consequences, or as a so-called warranty which forms part of the contract itself, or possibly as a contract collateral to the main contract, has exercised the courts for many years. Where the contract is entirely oral, the difficulties are less, but where it has been reduced to writing the common law’s mistrust of oral evidence, particularly of the parties themselves, and its reluctance to impugn the certainty of the written word, comes into conflict with the principle that the law should so far as possible give effect to the presumed intention of the parties. The one proposition which seems to have survived unscathed is Chief Justice Holts dictum, quoted with approval by Lord Haldane and others in Heilbut Symons & Co. v. Buckleton (supra), that “an affirmation can only be a warranty provided it appears on the evidence to have been so intended”. Another form of it which appears in the judgment of Mr. Justice Wills in Best v. Edwards ( 1895) 60 J.P., 9. which was cited with approval by A.L. Smith, Master of the Rolls, in De Lassalle v. Guildford (1901) 2 King’s Bench 215 is “(was the representation) seriously intended to be the basis of the contractual relations between the parties”. Lord Denning, Master of the Rolls, in Dick Bentley Productions Ltd., v. Harold Smith (Motors) Ltd.(1965) 1 Weekly Law Reports 623 put it this way:
“Looking at the cases once more, as we have done so often it seems to me that if a representation is made in the course of dealings for a contract for the very purpose of inducing the other party to act upon it, and actually inducing him to act upon it, by entering into the contract, that is prima facie ground for inferring that it was intended as a warranty”.
On the other hand there are dicta, particularly in the speeches in Heilbut Symons & Co. v. Buckleton (supra), which suggest a more restrictive or conservative approach, for example, Lord Haldane at page 37 said;
“It is contrary to the general policy of the law of England to presume the making of a collateral contract in the absence of language expressing or implying it”.
And Lord Moulton at page 47 said:
“It is evident, both on principle and on authority, that there may be a contract the consideration for which is the making of some other contract. If you will make such and such a contract I will give you one hundred pounds’, is in every sense of the word a complete legal contract. It is collateral to the main contract, but each has an independent existence, and they do not differ in respect of their possessing to the full the character and status of a contract. But such collateral contracts must from their very nature be rare”. And he continued: “Such collateral contracts, the sole effect of which is to vary or add to the terms of the principal contract, are therefore viewed with suspicion by the law. They must be proved strictly. Not only the terms of such contracts but the existence of an animus contrahendi on the part of all the parties to them must be clearly shown. Any laxity on these points would enable parties to escape from the full performance of the obligations of contracts unquestionably entered into by them and more especially would have the effect of lessening the authority of written contracts by making it possible to vary them by suggesting the existence of verbal collateral agreements relating to the same subject-matter”.
A variety of tests have been suggested to determine the intention of the parties. For example, it is said that to constitute a warranty a representation must be of fact and not of opinion; or a statement about existing facts as opposed to future facts such as a forecast. To quote again, in De Lassalle v. Guildford (supra) A.L. Smith, Master of the Rolls, said:
“In determining whether it was so intended, a decisive test is whether the vendor assumes to assert a fact of which the buyer is ignorant or merely states an opinion or judgment upon a matter of which the vendor has no special knowledge, and on which the buyer may be expected also to have an opinion and to exercise his judgment”.
But he went too far in speaking of the “decisive test” which was strongly disapproved of by Lord Moulton in the Heilbut Symons case at page 50.
In my judgment, these tests are no more than applied common sense. A representation of fact is much more likely to be intended to have contractual effect than a statement of opinion; so it is much easier to infer that in the former case it was so intended, and more difficult in the latter. Similarly, where statements of future fact or forecasts are under consideration, it will require much more cogent evidence to justify the conclusion that such statements were intended to be contractual in character. It is, therefore, with respect to Mr. Ross-Munro Q.C.’s argument, not an answer to say, simply, that the statement relied upon was an expression of opinion or a forecast and therefore cannot be a warranty. In my view, following Lord Moulton in the Heilbut Symons case, at page 50, the test is whether on the totality of the evidence the parties intended or must be taken to have intended that the representation was to form part of the basis of the contractual relations between them. Bisset v. Wilkinson (1927) Appeal Cases 117 fits into this scheme. After a considerable conflict of judicial opinion in Australia, the Privy Council decided finally that the representation that “the land which was the subject matter of the agreement had a carrying capacity of two thousand sheep if only one team was employed in the agricultural work of the said land” was not to be taken as a warranty. It was a statement about the potential of the land in question based not on experience or special expertise and made in the course of negotiations with a buyer who was not ignorant of such matters. As Cheshire & Fifoot point out (8th Ed pp 112 et seq) where the party making the representation has a special knowledge or skill, the inference that the parties intended it to have contractual effect will more readily be drawn.
The present case is exceptional in that the evidence clearly demonstrates that the e.a.c. of this site at Eastbank Street was a vital factor in the calculations of both parties. The internal documents disclosed on discovery show that the decision of Esso ‘s head office to purchase this site in the first place was strongly influenced by, if not dependent on, it having an e.a.c. of 200,000 gallons. The document headed “Proposal for Purchase of Existing Station or Land for Service Station Development” contains a precise calculation of the profit to be expected from this site, on the basis of an annual throughput of 200,000 gallons and the proposed rent to be charged to a tenant. It is a reasonable inference that Esso would never have proceeded with the purchase and development of this site if the e.a.c. had been a lesser figure. Mr. Allen himself said (Day 5, page 300) that had it been 100,000 gallons Esso would not have bought it in the first place. The rent proposed was £1,231, exclusive of the proposed showroom. While not directly calculated on the e.a.c. this figure must have been fairly closely related to it. There can be no doubt that an estimate of this kind, made under such circumstances, by a company with the vast experience of Esso , would reasonably have a great influence on the mind of a man like Mr. Mardon who was negotiating for a tenancy of a newly developed service station. He had had some experience of the business of selling petrol but it was negligible compared with that of a leading oil company. The learned judge rejected his evidence that when he queried the figure of 200,000 gallons Mr. Allen replied that Esso were the experts and he was only a layman but if this was not said in so many words it undoubtedly represents the reality of the relationship.
In these circumstances I think that Mr. Mardon has established the warrantly alleged in paragraph 6 of the Defence and Counterclaim and is entitled to damages for breach of contract.
Negligent mis-statement: Mr. Ross-Munro, Q.O., challenged the learned judge’s finding of negligence on the Hedley Byrne’ principle on two grounds. In the first place, he relied on the views of the majority of the Privy Council in the case of Mutual Life and Citizens Assurance Ltd. v. Evatt 1971 Appeal Cases 793, that the duty of care is limited to persons who carry on or hold themselves out as carrying on the business or profession of giving advice, and urged this court to adopt the same view. Lord Reid and Lord Morris, both of whom had been parties to the decision in Hedley Byrne Co. Ltd. v. Heller 1964 Appeal Cases 465, however, dissented and re-stated the principle in these words: “It appears to us to be well within the principles established by the Hedley Byrne case .to regard his action in giving such advice as creating a special relationship between him and the inquirer and to translate his moral obligation into a legal obligation to take such care as is reasonable in the whole circumstances”. Like Mr. Justice Lawson I much prefer the reasoning of the minority in this case and think that it should be followed. If the majority view were to be accepted the effect of Hedley Byrne would be so radically curtailed as to be virtually eliminated.
Mr. Ross-Munro’s second point is that this principle has no application to statements made in pre-contract negotiations where they result in a contract. There is no specific reservation of this kind in the speeches in Hedley Byrne, although Lord Reid may have assumed. He said “Where there is a contract there is no difficulty as regards the contracting parties: the question is whether there is a warranty”. This is, I think, a difficult point for it is an attractive argument that, when a contract results, the rights of the parties should be governed by the terms agreed, subject, of course, to the right to sue for damages for fraud or under the Misrepresentation Act,1967. In fact, since this Act was passed there may be virtually no room for an action in negligence in such cases. But if there is a gap, as there is in this case because the Misrepresentation Act was not in force at the relevant time, I see no reason why an action in negligence should not be available in a proper case. Much will depend upon how the law on warranties is applied. If a restrictive view is taken there will be room for this cause of action, but, if not, most, if not all, mis-statements which fall within the Hedley Byrne principle are likely to be regarded as warranties. Had I taken the same view as Mr, Justice Lawson on the warranty point I would certainly have held, with him, that Mr. Mardon had proved his case in negligence. The parties were in the kind of relationship which is sufficient to give rise to a duty on the part of the plaintiffs. There is no magic in the phrase “special relationship”; it means no more than a relationship the nature of which is such that one party, for a variety of possible reasons, will be regarded by the law as under a duty of care to the other. In this case the plaintiffs had all the expertise, experience and authority of a large and efficient organisation carrying on the business of developing service stations to sell their petroleum products through dealers who were expected to invest a substantial amount of capital in the business and to observe the detailed trading requirements laid down in the tenancy agreements. There can be no doubt that the plaintiffs fulfilled the second condition for Hedley Byrne liability. On the evidence they clearly assumed responsibility for the reliability of their own e.a.c.
Damages: I now turn to the difficult question of damages and shall begin by attempting to define the extent of Mr. Mardon ‘s actual loss and then consider how much of it is recoverable in law.
Within the first year of operation it was apparent that the sales of petrol at the Eastbank Service Station were far below the e.a.c. In the three years from April, 1963 to April, 1966 they amounted to 58,375 gallons, 83,306 gallons and 86,502 gallons respectively. The effect on Mr. Mardon was catastrophic. By September, 1964 all the capital which had gone into the business had been lost. This was agreed at the figure of £6,270. He had also incurred a substantial overdraft at that time amounting to some £4,000. His drawings from the business were only £159 because he lived on other resources. It is not suggested and has never been suggested that Mr. Mardon is to be held responsible for any part of this loss. The plaintiffs’ internal memoranda make this absolutely clear. They recognised, too late, that the prospects of this service station had been ruined by compliance with the planning requirements of the Southport Corporation which prevented them from placing the pumps on the street frontage to Eastbank Street, and required them to be sited behind the showrooms and, therefore, largely out of sight of the heavy traffic using Bastbank Street. The e.a.c. was completely invalidated by this change of plan.
In September 1964 the plaintiffs appreciated that Mr. Mardon was in an extremely difficult position. In consequence they made a new agreement with him cancelling the original three-year tenancy agreement at a rent of £2,500 and substituting for it a so-called Rental Surcharge Agreement by which the rent was reduced to £1 ,000 per annum and a proportion of the petrol sales were paid directly to Esso . The losses continued until in April 1967 Mr. Mardon could carry on no longer. By that time his overdraft stood at £7,774 and his creditors stood at £2,716 as set out in Schedule 1 of the Defence and Counterclaim. His capital loss, therefore, totalled £6,270 plus £7,774 plus £2,716 which makes a total of £16,760 from which £690 representing assets must be subtracted leaving a negative balance of £16,070.
In addition to this loss of capital Mr. Mardon has lost the income which he could reasonably have expected to earn from the business, made up partly by loss of the use of his capital and partly by the loss of his time and energy in running the business. This head of loss, of course, continued after the closure of the business because Mr. Mardon no longer had the capital to re-invest in another business. A further source of loss is the interest which has accrued on the overdraft. There were associated losses which are set out in Schedule III of the Counterclaim.
How much of this is recoverable in this action? The figures of £6,270 and £4,000, representing the capital loss up to September, 1964 are undoubtedly recoverable. The judge held that the losses after this date were irrecoverable because Mr. Mardon was not induced by the plaintiffs’ breach of duty to enter into the new agreement in September 1964, the Rental Surcharge arrangement. He, therefore, took September, 1964 as the “cut-off point”. With the greatest respect I do not think that this is the right way of approaching the problem. By September 1964, the breach of contract or of duty was clear to all concerned. The question then was what could be done about it. Mr. Mardon ‘s first obligation was to mitigate his damage thereafter. He might have offered to surrender his tenancy and cease to trade, taking the risk that it would be argued that had he carried on for another year sales would have improved. In fact, as the plaintiffs’ internal memoranda make perfectly plain, they were more than anxious to retain him as a tenant of this service station because they foresaw great difficulty in finding anyone – to take it over. It was very much in their interest to keep this service station open and selling their petrol. It was in these circumstances that Mr. Mardon attempted to carry on with the business. Was this an unreasonable decision? In my judgment he had scarcely an option to do otherwise. He was trapped, as he said, by his losses and his only hope was to carry on in the hope of recovering his position if he could. The third phase followed as the trading position failed to improve. At this stage Mr. Mardon raised with the plaintiffs the possibility that they might give him a “prime site” to run with or “carry” the unsuccessful Eastbank site as a last resort. The plaintiffs did not reject this and discussions took place over a period of time but came to nothing and the end came in April 1967.
I think that the whole of this tragic story is directly attributable to the original mistake of the plaintiffs and that they co-operated with Mr. Mardon in his unsuccessful attempts to escape its consequences. It cannot, therefore, be said that Mr. Mardon failed to mitigate his loss. Accordingly, he is entitled to recover his capital losses up to the time when the business finally closed.
The income losses present greater difficulties. There has been serious delay in bringing this action to trial which has made matters worse than they might have been. On the other hand, the plaintiffs have had the use of the money representing Mr. Mardon ‘s capital losses up to the present. It is, therefore, not unreasonable that they should be liable for the interest on the overdraft, and on his capital investment.
The claim for loss of profits is, in my opinion, virtually incapable of proof, and I will not deal with that. It remains to consider Mr. Ross-Munro’s final submission that in fact no capital loss fell on Mr. Mardon personally because the £6,270 came from a private company in which he and his wife held all the shares. The judge, who examined with meticulous care the trading arrangements which Mr. Mardon adopted in this business, came to the conclusion that his and the company’s finances were so inextricably inter-mingled that it was impossible to differentiate between them. I agree with this conclusion. This is one of those cases of a business run partly on a one man company’s account and partly on a personal account by the only person who was active in the company. Mr. Mardon simply regarded the capital of the company as, to all intents and purposes, his own money. At an earlier stage in the company’s history someone wrote out some very formal looking minutes but it is absurd to suppose that Mr. and Mrs. Mardon sat down from time to time and held a board meeting. The reality is that the money was made by Mr. Mardon ‘s efforts and whether it found its way into the company’s account or his personal account was largely a matter of chance unless his accountant kept him straight. It would be extremely unrealistic and a denial of justice in a case like this to allow the plaintiffs, who were quite unaffected by the existence of this company, to take advantage of a piece of legalistic purism. As Lord Reid once said:
“The life of the common law is not logic but common sense” (R. v. Haughton and Smith) (1974) 2 Weekly Law Reports 1.
It will be for Mr. Mardon and the company to arrange their own affairs hereafter.
I would therefore allow this appeal and dismiss the cross-appeal.
LORD JUSTICE SHAW: This appeal discloses a sorry history. It has been recounted in all its essential details in the judgment of the Master of the Rolls. I need in truth do no more than say that I respectfully agree with the conclusions which he has stated in regard to the issues raised on this appeal. It is only because this Court is differing from some of the views of Mr. Justice Lawson in respect of matters which may be of general importance that I venture to add a few brief observations.
A cardinal issue in the action was that raised by paragraph 6 of the amended Defence and Counterclaim. There followed a recital of the representations made in the course of the negotiations out of which it was asserted the warranty relied upon emerged.
By paragraph 2 of their amended Defence to Counterclaim the plaintiffs averred that “save that the matters alleged to constitute representations and warranties are not admitted each and every allegation in paragraph 6 of the amended Counterclaim is denied”.
As foreshadowed by this pleading there was little that was material in controversy between the parties as to the factual course of the negotiations which had led up to Mr. Mardon taking the tenancy of the Eastbank filling station. The essential issue was whether or not the representations which at the trial it was admitted had been made gave rise to a warranty as to the capacity of the filling station.
Mr. Ross-Munro Q.C. submitted on behalf of Esso that Mr. Leitch and Mr. Allen did no more than to proffer a forecast of the potential of the filling station. They expressed their opinion and no contractual obligation in the form of a warranty or otherwise could be derived from it as it was honestly stated. Mr. Ross-Munro cited the New Zealand case if Bissett v. Wilkinson 1927 Appeal Cases 117 in the Privy Council but he cannot get much assistance or support from it. At page 182 of the report in the course of the judgment Lord Merrivale refers to Smith v. Land and House Property Corporation (1884) 28 Chancery Division 7, where a vendor’s description of the tenant of the property sold as “a most desirable tenant” was called in question. It was argued for the vendor that this was a statement of opinion and that it imported no representation of fact; but the Court of Appeal held otherwise. In a well known passage Lord Justice Bowen said:
“It is often fallaciously assumed that a statement of opinion cannot involve the statement of fact. In a case where the facts are equally well known to both parties what one of them says to the other is frequently nothing but an expression of opinion. The statement of such opinion is in a sense a statement of fact about the condition of the man’s own mind, but only of an irrelevant fact for it is of no consequence what the opinion is. But if the facts are not equally well known to both sides then a statement by one who knows the facts best often involves a statement of a material fact for he impliedly states that he knows facts which justify his opinion”.
The decision of the New Zealand case itself proceeded on a number of grounds. One of the more important was that the vendor’s assertion, whether it was fact or opinion or both, was not falsified by the evidence. Another relevant factor was that the vendor scarcely had a better basis for any opinion that he might form than the purchasers had.
What is clear from that case is that the answer to the question warranty or no warranty cannot be given by looking simply at the words which are used. How must the respective parties have regarded the representation when it was made? Hew were they then related respectively to the subject matter? What was the purpose of making the representation and might it influence the outcome of what was in negotiation between the parties?
The answers to these questions will provide the touchstone for answering the ultimate and critical question, did the representation made found a warranty by the party making it?
In the present case Mr. Mardon was not merely becoming a tenant of Esso . He was committing himself to further their commercial interest by the use of his capital as well as by the application of his energy and effort. Esso could hardly have expected that they could procure any man with a modicum of business sense to put all his capital as well as his future at risk for a nebulous prospect based on a mere opinion which is casually given and for the Tightness of which all responsibility is disclaimed.
In the world of business the suggestion that this was the real nature and effect of what was said by Messrs. Leitch and Allen to Mr. Mardon as to the potential throughput would be derided as nonsensical. It bears no better appearance in a Court of Law despite Mr. Ross-Munro’ s able and urbane presentation of the case for Esso . That organisation stood in a very different position from Mr. Mardon in regard to the information available to them for the purpose of assessing the potential capacity of the filling station. They also had a wealth of experience from which it was to be expected they could evolve a sound and trustworthy estimate of the potential of a given filling station. They would understand better than anyone who was not in a similar position what effect such factors as location, size, appearance and accessibility would be likely to have; and, taking account of these and other matters they knew to be relevant, they could put forward not merely an informed but an authoritative assessment on which reliance could be placed by persons minded to enter into a business relationship with them.
The representations which were admittedly made to Mr. Mardon conveyed and in my view were intended to convey that Esso warranted that information which they had available to them and on which the representations were founded, established the Eastbank filling station in the category of stations with a potential 200,000 gallons throughput attainable in two years or thereabouts.
It so happens that when that station had actually been developed, it was contemplated that the pumps would face the roadway so as to be in full view of passing traffic. But when planning consent was granted it was for a development which screened the pumps from the road. This was a serious drawback and was bound adversely to affect the station’s potential. Nevertheless, in their negotiations with Mr. Mardon, Esso adhered to their original estimate. All that need be said is that, if those responsible for the original estimate were right when it was made, those who later maintained that figure to Mr. Mardon could hardly have had real confidence in its accuracy then. Yet Mr. Leitch professed to Mr. Mardon during a lunch at Manchester that he was confident about the forecast he had given.
Mr. Mardon complained that “he had been sold a pup”. I think he had. Moreover it was a warranted pup so that Esso are in breach of warranty and liable in damages accordingly.
In this regard I would differ from the finding of the learned judge below in holding as he did that no warranty was given by Esso . Mr. Justice Lawson did, however, decide that Esso owed Mr. Mardon a duty to take care in relation to the statement made to him as to the potential of the filling station and that they were in breach of that duty. I agree entirely with the reasons and conclusions of the learned judge upon this part of the case. Thus, even if it were right that Esso did not give a warranty to Mr. Mardon , they would be liable to him in negligence following the principle enunciated in Hedley Byrne v. Heller & Partners Ltd. (1964) Appeal Cases 465 unless a further argument advanced by Mr. Ross-Munro stood in the way.
He contended that where the negotiations between the parties concerned actually culminate in a contract between them they cannot look outside that contract in the assertion of any claim by one against the other which is founded on the subject matter of the negotiations and of the contract. To such a situation, Mr. Ross-Munro submitted, the Hedley Byrne principle had no application. It would follow that, notwithstanding the fact that one party to the negotiations induced the other by a negligent misrepresentation to enter into the contract, the other would have no remedy unless one were available under the Misrepresentation Act, 1967. As the matters of which Mr. Mardon complained occurred in 1963 his only available means to redress would be such as his contract with Esso afforded; so that if there was no warranty he would have no remedy at all.
It is difficult to see why, in principle, a right to claim damages for negligent misrepresentation which has arisen in favour of a party to a negotiation should not survive the event of the making of a contract as the outcome of that negotiation. It may, of course, be that the contract ultimately made either expressly of by implication shows that, once it has been entered into, the rights and liabilities of the parties are to be those and only those which have their origin in the contract itself.
In any other case there is no valid argument apart from legal technicality for the proposition that a subsequent contract vitiates a cause of action in negligence which had previously arisen in the course of negotiation.
In the present case the proposition would not save Esso from liability if they be held to have given a warranty.
Thus Mr. Mardon is entitled in my view to damages for breach of warranty or for negligent misrepresentation.
Before considering how those damages are to be computed, it is necessary to consider the “cut off” of the incidence of damage at 1st September, 1964 as found by the Judge. He took the view that the new agreement then made between Mr. Mardon and Esso , having been entered into voluntarily by Mr. Mardon , had no relation to the first agreement and its consequences. Accordingly, so the Judge held, any loss suffered by Mr. Mardon while the second agreement was in operation and thereafter was unrelated to the negligent misrepresentation and to the breach of any warranty. It would follow, as the Judge held, that such late loss was not to be taken into account in assessing the compensation to which Mr. Mardon was entitled.
This conclusion in this respect is a fallacious one and has its origin in an erroneous view of what took place between the parties in September 1964.
Mr. Mardon was not then saying that he had made a bad bargain and that he wanted a better one for the future. What had happened was that he had been brought to the brink of bankruptcy in consequence of Esso ‘s false assertion as to the potential of the filling station. In that desperate situation he looked for some means of averting complete ruin – an outcome for which Esso would have had to face responsibility. They, for their part, wanted to preserve the Eastbank site as a going concern with no break in the continuity of the business there. The new arrangement so far from being unrelated to the original agreement, offered a reasonable means of mitigating the damage and loss which Mr. Mardon had sustained through Esso ‘s default in regard to the first contract. If the second agreement had not been made, Mr. Mardon , denuded as he was of his savings and surrounded by debt, might not have found employment for a very long time. In that case his claim for damages could have been extended over many years and it might have been more considerable in respect of each year for which Esso were held liable.
The second agreement was thus in a practical sense an extension of the first for it was the best means that offered a prospect of salvaging something from the wreck for both sides. Esso cannot claim to be exonerated from liability as from the 1st September, 1964. The Judge’s conclusion that they could so claim erred in law.
Another argument on behalf of Esso in relation to damages was that it was not Mr. Mardon ‘s money that had been brought into the venture and lost. It was, said Mr. Ross-Munro, the money of a company in which Mr. Mardon and his wife were the only shareholders. It was a company which had no business for it had sold the goodwill of the business which it had once conducted. It does not appear to have had any creditors either. So Mr. and Mrs. Mardon could at any time have wound the company up by their own resolution and taken the money standing to its credit in its bank account for themselves as their own money.
Mr. Mardon did not go through this formality which could have been initiated over the breakfast table in his home. Instead he drew cheques on his company’s account. It was to all intents and purposes his and his wife’s money. If the bare title was with the company then I would hold that Mr. Mardon borrowed the money and remains accountable to his dormant company.
I thought the argument a very unattractive one. It is also a bad one and can be forgotten.
As to the computation of damages, these present a very difficult problem. I agree with the formulation proposed by the Master of the Rolls. I would therefore allow this appeal with costs.
THE MASTER OF THE ROLLS: The upshot of it all is that Mr. Mardon has succeeded on all the points of principle which were argued in this court. The assessment of damages cannot be finally decided now. On the loss of capital and overdraft, we think he ought to be able to recover that. We have left open the question of interest on it, and we have left open the question of his loss of earnings, which he would have made if he had not been introduced to this business. But, as I have indicated in my judgment, we feel that those are matters which probably counsel would like to consider and perhaps be able to agree between themselves; but, if they cannot, they can mention it to us again with any figures they would like to put forward on it. We think perhaps that it is a little bit difficult to expect counsel to be able to deal with those questions at the moment at the end of our judgment.
MR. HALL: I would be grateful for a little time to follow your Lordship’s proposal, and I think my learned friend probably would too.
MR MUKRO: I would be extremely grateful, my Lord. I have scribbled down what I thought were arguments, but they would have been very unhelpful.
THE MASTER OF THE ROLLS: We have been talking about it ourselves, and we think we would like some help. It is one of those things which if you could agree that would be the best way.
MR. MUKRO: Obviously we will try, my Lord.
THE MASTER OF THE ROLLS: If you cannot agree, you may be able to give us some figures that we could work upon. It is the interest on the capital losses, how they should be assessed for what period, and thing like that. If you can agree, very well; if you cannot, perhaps you could give us some fundamental figures. I suppose we ought to leave the question of costs until that has been dealt with.
MR. MUKRO, I was about to mention, as your Lordships no doubt appreciate, that there is another ground of appeal from my learned friend, successful as he has been for the moment, as to whether Mr. Justice Lawson was right only to give five years interest at 7 per cent. That was a matter which everybody agreed should be left over.
THE MASTER OF THE ROLLS: That would be included amongst the other matters which you would like us to consider on another occasions if you cannot agree?
MR. MUKRO: Yes my Lord.
LORD JUSTICE ORMROD: My problem is in finding some way of assessing the amount of Mr. Mardon ‘s loss and the loss of the use of the capital, both in the business and afterwards.
THE MASTER OF THE ROLLS: It is so difficult that we hope you will agree.
MR. HALL: We will do our best, certainly.
THE MASTER OF THE ROLLS: Very well; then we will not make any final order today. MR. MUNRO: I am much obliged, my Lord.
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