Factual and Procedural Background
The Plaintiff ("Borealis") sought damages from the Defendant ("Geogas") for breach of contract arising from the supply of approximately 5,200 metric tonnes of butane feedstock to Borealis' integrated olefin plant located in The City, Sweden, in September 2003. Borealis alleged that the goods supplied were heavily contaminated with fluorides, specifically 2 methyl 2 fluoro propane ("2M2F"), which cracked during normal processing to produce hydrofluoric acid ("HF"). This contamination caused serious physical damage to the plant’s heat exchangers and consequential business interruption.
It was agreed that the goods were contaminated and that Geogas breached an implied contractual term requiring the goods to be of satisfactory quality, though Geogas disputed other alleged breaches. The trial primarily focused on issues of causation, remoteness, mitigation, and quantum of damages.
The contract was formed orally and confirmed in writing on 22nd August 2003, whereby Geogas agreed to sell and Borealis to buy butane at a specified price, with Norenergy Oilbrokers AS acting as broker. The contaminated butane was sourced from a refinery in The State, USA, loaded onto the vessel "Henning Maersk," and delivered to the plant’s storage cavern ("the cavern") on 12th September 2003.
Shortly after discharge commenced, a pH alarm was triggered indicating acid presence in the system. Subsequently, gas alarms indicated leaks in the cracker plant’s heat exchangers. Investigations confirmed extensive corrosion and damage to titanium tubes in the heat exchangers due to HF formed from the contaminated feedstock.
Borealis did not test for fluoride contamination prior to discharge, nor did Geogas' inspector at loading. Borealis was unaware of the contamination and the risk posed by fluoride compounds. The plant operated with a pH alarm system designed to detect weak acids but not strong acids like HF. The ammonia injection system was intended to neutralize weak acids but was ineffective against HF at the temperatures involved.
During the trial, the parties narrowed the issues, with Geogas conceding breach of satisfactory quality but focusing its defense on Borealis' alleged failure to respond appropriately to the pH alarm, and on remoteness and mitigation of loss.
Legal Issues Presented
- Whether Borealis’ failure to act promptly on the pH alarm broke the chain of causation or constituted a failure to mitigate damages (the "Geogas secondary case").
- Whether certain losses claimed by Borealis were too remote to be recoverable.
- Whether Borealis failed to mitigate losses related to the replenishment and use of the contaminated storage cavern.
- Determination of the quantum of damages recoverable by Borealis.
Arguments of the Parties
Defendant's Arguments
- Borealis failed to react appropriately to the pH alarm sounding on 12th September 2003, which should have led to prompt ammonia injection, laboratory testing, management involvement, and cessation of use of the contaminated feedstock within 22 hours.
- This failure broke the chain of causation and/or constituted a failure to mitigate losses, limiting Geogas’ liability for physical and consequential damages.
- Loss of profits in September 2004 and losses due to the unavailability of the cavern were too remote and not within Geogas’ assumed responsibility.
- Borealis unreasonably delayed replenishing the cavern, leading to avoidable losses.
- Disputes as to quantum included alleged over-inclusiveness of repair costs, failure to negotiate discounts, and lack of proof for certain personnel and equipment costs.
Plaintiff's Arguments
- Borealis did not know and could not reasonably have known of the fluoride contamination or the risk posed by HF; the pH alarm system was designed for weak acids and was a low priority alarm with known unreliability.
- Borealis’ response to the pH alarm was not unreasonable given the plant’s operational experience and the context.
- The timeline proposed by Geogas for stopping the contaminated feedstock was artificial and unrealistic, and physical damage would not have been avoided even with earlier action.
- The losses claimed were not too remote as contamination and damage to the plant and cavern were foreseeable consequences.
- Borealis acted reasonably and prudently in replenishing the cavern in stages, with independent testing, and did not unreasonably delay mitigation.
- Quantum claims were supported by evidence and appropriately allocated, with some limited concessions made.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| County Ltd v Girozentrale [1996] 3 All ER 834 |
Test for breaking the chain of causation in contract; conduct must "obliterate" defendant’s wrongdoing; recklessness by claimant likely breaks chain. |
Applied to assess whether Borealis' failure to respond to pH alarm broke causation; court found no break as Borealis lacked knowledge of breach and conduct was not reckless. |
| Compania Naviera Maropan v Bowaters (The "Stork") [1955] 2 QB 68 |
Sympathetic treatment of conduct under duress; negligence following an order to proceed to unsafe port may not break causation. |
Referenced to illustrate that claimant’s conduct under difficult circumstances will not lightly break chain of causation. |
| Lambert v Lewis [1982] AC 225 |
Reckless conduct by claimant breaks chain of causation; claimant’s knowledge of defect is critical. |
Used to contrast with facts here where Borealis lacked knowledge of contamination and did not act recklessly. |
| Schering Agrochemicals Ltd v Resibel NVSA [1992] CA Transcript 1298 (unreported) |
Failure to mitigate and break in causation where claimant had knowledge of defect and failed to act. |
Applied by analogy; Borealis lacked such knowledge, so failure to mitigate was not established. |
| Barings Plc v Coopers & Lybrand [2003] EWHC 1319 (Ch) |
Fact-sensitive test for breaking chain of causation; unreasonable conduct may break chain but not necessarily reckless. |
Supported court’s fact-sensitive approach to Borealis’ conduct and chain of causation analysis. |
| Hadley v Baxendale (1854) 9 Ex 341 |
Remoteness test: loss recoverable if it is a type of loss reasonably foreseeable by the parties at contract formation. |
Applied to remoteness issues; court found losses claimed were not too remote. |
| Czarnikow v Koufos (The Heron II) [1969] 1 AC 350 |
Clarifies foreseeability standard for remoteness of damages. |
Reinforced orthodox remoteness approach adopted by court. |
| Transfield Inc v Mercator Shipping Inc (The Achilleas) [2008] UKHL 48 |
Introduced "assumption of responsibility" test in remoteness; not generally displacing orthodox test. |
Considered but not applied as no exceptional circumstances warranted departure from orthodox remoteness test. |
| The "Solholt" [1983] 1 Lloyd's Rep. 605 |
Mitigation of loss: plaintiff free to act in own interests; defendant not liable for loss due to plaintiff’s failure to mitigate. |
Applied to mitigation issues; court found no unreasonable failure to mitigate by Borealis. |
| Banco de Portugal v Waterlow [1932] AC 452 |
Reasonableness standard in mitigation; plaintiff’s conduct judged reasonably in context of breach. |
Supported court’s approach to assessing Borealis’ mitigation efforts. |
| Aerospace Publishing v Thames Water Utilities [2007] EWCA Civ 3 |
Principles on diversion of staff time as recoverable loss; burden on claimant to establish disruption. |
Applied to personnel cost claims; court found sufficient evidence of loss and disruption. |
| Al Rawas v Pegasus Energy [2008] EWHC 617 (QB) |
Common sense may fill evidential gaps in proving loss from diversion of staff time. |
Invoked to support court’s practical approach to personnel cost claims. |
| 4 Eng Ltd v Harper [2008] EWHC 915 (Ch) |
Similar principles on proving diversion of staff time and related losses. |
Supported court’s acceptance of personnel cost claims despite some evidential difficulties. |
| The West Wales [1932] P 165 |
Use of own equipment causing loss; not actual expenditure but loss of use is compensable. |
Applied to Borealis’ claim for use of own equipment; court allowed operating costs but not notional hire costs. |
| Lodge Holes Colliery Company v Wednesbury Corporation [1908] AC 323 |
Courts should be slow to scrutinize plaintiff’s mitigation efforts too finely when injured by wrongdoer. |
Supported court’s indulgent approach to Borealis’ mitigation efforts. |
Court's Reasoning and Analysis
The court began by acknowledging that Geogas breached an implied term to supply goods of satisfactory quality, confirmed by the presence of fluoride contamination. The core legal analysis addressed whether Borealis’ response to the pH alarm broke the chain of causation or constituted a failure to mitigate.
The court applied established principles requiring that for a break in causation, the claimant’s conduct must "obliterate" the defendant’s breach as the cause of loss. Reckless conduct by the claimant would ordinarily suffice to break the chain, but mere unreasonableness might not, especially where the claimant lacked knowledge of the breach or its consequences.
Borealis was found unaware of the fluoride contamination and the risk posed by HF. The pH alarm was a low priority, unreliable alarm designed for weak acids, not HF. Borealis’ operational experience justified waiting for routine laboratory testing rather than immediate, drastic action. Expert evidence supporting a prompt response was weighed against practical plant experience and the artificial nature of proposed timelines.
While Borealis’ reaction to the pH alarm was suboptimal and left room for improvement, the court concluded it was not unreasonable in context and did not break the causal chain. Moreover, even if Borealis had acted as Geogas suggested, physical damage and consequential losses would likely not have been avoided due to the nature and timing of the damage.
On remoteness, the court applied the orthodox foreseeability test and rejected Geogas’ arguments that losses in September 2004 and due to cavern unavailability were too remote, finding these losses were a type reasonably foreseeable from the breach.
Regarding mitigation, the court found Borealis acted reasonably in replenishing the cavern cautiously and in stages, with independent testing, and that any delays were not unreasonable or unjustified. Expert criticisms of Borealis’ mitigation were undermined by lack of evidential support or expert credibility concerns.
On quantum, the court accepted the need for practical assessment and rejected some of Geogas’ suggested deductions. Borealis’ claims for repair costs, personnel costs, equipment usage, warehousing, spare parts, and loss of profit were generally upheld with modest adjustments to reflect evidential uncertainties or concessions.
The court applied relevant precedent to support its findings on causation, remoteness, mitigation, and damages quantification, emphasizing fact-sensitive, practical inquiry over rigid application of legal rules.
Holding and Implications
The court DISMISSED the Defendant’s ("Geogas") secondary case that the Plaintiff’s ("Borealis") conduct broke the chain of causation or constituted a failure to mitigate damages. The remoteness and mitigation defences raised by Geogas also failed.
The Plaintiff was entitled to recover damages for physical damage to the plant, consequential losses including loss of profit in September 2003 and 2004, and associated costs, subject to modest adjustments on quantum. The Defendant was held liable for the full extent of the losses caused by its breach of contract.
No new legal principles were established; the decision applied well-settled legal doctrines to the facts, reinforcing the importance of claimant knowledge in causation and mitigation assessments, and adherence to orthodox remoteness rules.