Esso Petroleum Company Ltd v Mardon
| Jurisdiction | England & Wales |
| Judge | THE MASTER OF THE ROLLS,LORD JUSTICE ORMROD,LORD JUSTICE SHAW |
| Judgment Date | 06 February 1976 |
| Judgment citation (vLex) | [1976] EWCA Civ J0206-2 |
| Docket Number | 1966 E No.2971 |
| Court | Court of Appeal (Civil Division) |
| Date | 06 February 1976 |
[1976] EWCA Civ J0206-2
The Master of the Rolls
Lord Justice Ormrod and
Lord Justice Shaw
In The Supreme Court of Judicature
Court of Appeal
On Appeal from the High Court of Justice Queen's Bench Division (Mr. Justice Lawson)
Mr R.MUNRO Q.C. MR.P. CRESSWELL and MR.J.PEPITT (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).
"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 substantial 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 South-ort 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 hewas 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 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 £62,500, 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 be 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, accordingto 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...
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