Borealis AB v Geogas Trading SA [2010] EWHC 2789 (Comm)

Dispute

G sold a cargo of butane to B to be used as feedstock by B in its plastics production plant. The butane was contaminated with fluorides, which cracked during processing to form hydrofluoric acid, which in turn triggered a pH alarm at the plant. B took no action in response to the alarm. The acid in the system caused substantial physical damage to the plant, in particular corrosion to the heat exchangers, causing a gas leakage. Production time was lost in the immediate aftermath whilst damaged parts were refitted and at further times during the following year. B claimed loss of profits from plant down time.

G admitted that the contaminated butane was not fit for its purpose and that it had breached the supply contract. However, G argued that its breach did not cause B's loss. Rather, it contended that B's actions (or inactions) in failing to respond to the pH alarm, investigate the problem and take steps to prevent the damage, broke the chain of causation, such that the loss suffered was actually caused by B's own failures, rather than G's breach. Alternatively, on the same facts, G argued that there was a failure by B to mitigate its losses and that those losses were consequently not recoverable.

Commercial court decision

Causation

Under English law, establishing causation is a question of fact, involving a practical enquiry into the effect of the breach and the innocent party's subsequent conduct, including the innocent party's state of knowledge. Generally, the innocent party would be given the "benefit of the doubt". To break the chain of causation, the innocent party's actions would have to have been such as to obliterate the effects of the original breach. This is a high standard. If the breach remained an effective cause, the chain is unlikely to be broken. Unreasonable conduct on the part of the innocent party is unlikely to be sufficient to break the chain of causation, it would probably need to have behaved recklessly.

In this particular case, B's failure to react to the alarm was criticised by the judge. However, he noted that the purpose of the alarm was not to detect the presence of contaminants in feedstock. Furthermore, on the evidence, B had no knowledge of, or reason to suspect, the presence of fluorides in the cargo. Therefore, even if with hindsight B might have done more, the judge concluded that B's actions at the time did not obliterate the effect of the original breach by G and break the chain of causation.

Remoteness of damage

The judge also held that B's losses were not too remote. His view was that they were losses of a type that could be expected, even those claimed for down time a year after the original breach – remoteness in time was not determinative of remoteness of damage in law. The judge said that it was "perfectly likely" that production would be lost whilst B had equipment inspected and replaced.

Mitigation

Finally, just as the judge considered that B's conduct did not break the chain of causation, he also found that B had not failed to mitigate its losses such that they were the "authors" of the loss. Rather, the judge commented that whilst it is often easy, after an emergency, to criticise the steps which have been taken to meet it, such criticism does not come well from those who have themselves created the emergency.

Comment

This case sets a high burden where a contract breaker wishes to argue that it should be relieved of liability because the innocent party's actions broke the chain of causation. The judge held that the innocent party's actions must "obliterate" the effect of the original cause of the loss. It should be noted, however, that the test is likely to be different where it is claimed that the actions of a third party, or the occurrence of an extraneous event, broke the chain of causation.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.