Commercial Court Reviews Law On Breaking The Chain Of Causation, Mitigation And Remoteness Of Damage

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...

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