Borealis AB v Geogas Trading SA

An innocent party’s conduct after a contractual breach breaks the chain of causation only if it becomes the true cause of the loss and destroys the causative potency of the breach. Mere unreasonable conduct will not ordinarily suffice where the breach remains an effective cause. The claimant’s actual knowledge of the breach, danger and need for remedial action is highly significant. Where the claimant is unaware of the breach, only reckless conduct will normally break the chain.

Contractual remoteness remains governed in the ordinary case by whether the loss was not unlikely to result from the breach. The claimant need take only reasonable mitigating steps. The burden of proving avoidable loss lies on the defendant, and remedial conduct should not be judged with hindsight or excessive precision.

Borealis AB bought butane from Geogas Trading SA for use at its Swedish ethylene cracker plant. The supplied cargo was heavily contaminated with fluorides. When cracked, the contaminant produced hydrofluoric acid which severely corroded heat-exchanger tubes and interrupted production.

Geogas admitted breach of the implied term that the goods were of satisfactory quality. The remaining issues were whether Borealis’s response to a low-pH alarm broke the chain of causation or failed to mitigate its loss, whether specified losses were too remote, and the proper quantum of damages.

1. The claim succeeded. Geogas’s admitted supply of fluoride-contaminated butane remained an effective cause of Borealis’s physical and consequential loss. Borealis was entitled to recover the agreed September 2003 lost profit of €2,902,237, subject to the quantum rulings below.

2. The low-pH alarm did not give Borealis actual or constructive knowledge that its feedstock contained fluorides or that hydrofluoric acid was attacking titanium tubes. The alarm was designed principally to address weak acids affecting carbon-steel equipment and had historically been treated as a low-priority, unreliable alarm. Borealis’s response fell short of best practice, but was not unreasonable in the circumstances.

3. In any event, any shortcomings did not break causation. Applying the practical and fact-sensitive approach stated in County Ltd v Girozentrale [1996] 3 All ER 834, Borealis remained in the grip of Geogas’s unknown breach and unknown danger. Its conduct neither obliterated nor destroyed the causative potency of that breach. The proposed earlier steps would also not probably have avoided the physical damage or production losses.

4. The remoteness defence failed. Under the orthodox Hadley v Baxendale and The Heron II test, losses from inspection and reinstallation of damaged equipment, contamination of the cavern’s contents, and loss of the cavern’s use were not unlikely consequences of supplying heavily contaminated feedstock. No exceptional circumstance required a separate assumption-of-responsibility analysis under The Achilleas [2008] UKHL 48.

5. The mitigation defence concerning restoration of the cavern also failed. Borealis’s staged replenishment, independent testing and cautious return to cracking were reasonable after the contamination incident. Geogas had not proved unreasonable delay.

6. The court awarded €1,250,000 for supplier repair costs, €75,000 for personnel costs, €6,000 for operating Borealis’s own repair equipment, €19,066 for storing corroded tubes, €15,000 for spare parts, and €36,101 for September 2004 lost production. The parties were to assist with the order and costs.

not stated in the judgment.