#6597 - Borealis V. Geogas - Commercial Remedies BCL

Borealis v. Geogas

Facts

The Claimant (“Borealis”) claims damages from the Defendant (“Geogas”), arising out of the supply by Geogas to Borealis of some 5,200 mt of butane as feedstock for Borealis' integrated olefin plant situated at Stenungsund, Sweden, in September 2003 (“the plant”). It is Borealis' case that, in breach of contract, Geogas supplied butane (“the goods”) heavily contaminated with fluorides that cracked under normal processing conditions to produce, amongst other substances, hydrofluoric acid (“HF”) which, in turn, caused serious and extensive physical damage to the plant and equipment, together with consequential interruption to Borealis' business.

Holding

Summary of general principles

I. A convenient starting point is to be found in the judgment of Sir John Donaldson MR in The “Solholt” [1983] 1 Lloyd's Rep. 605, at p. 608:

“A plaintiff is under no duty to mitigate his loss, despite the habitual use by the lawyers of the phrase ‘duty to mitigate’. He is completely free to act as he judges to be in his best interests. On the other hand, a defendant is not liable for all loss suffered by the plaintiff in consequence of his so acting. A defendant is only liable for such part of the plaintiff's loss as is properly to be regarded as caused by the defendant's breach of duty”

II. As Viscount Haldane, LC, put it in British Westinghouse Electric and Manufacturing Co. Ltd v Underground Electric Railways Co. of London Ltd., [1912] AC 673 at p.689:

“The fundamental basis is thus compensation for pecuniary loss naturally flowing from the breach; but this first principle is qualified by a second, which imposes on a plaintiff the duty of taking all reasonable steps to mitigate the loss consequent on the breach, and debars him from claiming any part of the damage which is due to his neglect to take such steps.”

III. First, the onus of proof on the issue of mitigation is on the defendant: McGregor on Damages (18th ed.), at para. 7-019.

IV. Secondly, the conduct of the innocent party should not be “weighed in nice scales at the instance of the party whose breach of contract has occasioned the difficulty”: per Lord Macmillan in Banco de Portugal v Waterlow [1932] AC 452, at p. 506. Immediately thereafter (ibid), Lord Macmillan said this:

“It is often easy after an emergency has passed to criticise the steps which have been taken to meet it, but such criticism does not come well from those who have themselves created the emergency. The law is satisfied if the party placed in a difficult situation by reason of the breach of a duty owed to him has acted reasonably in the adoption of remedial measures, and he will not be held disentitled to recover the cost of such measures merely because the party in breach can suggest that other measures less burdensome to him might have been taken.”

Application to Facts

The defendant’s claim was that the pH alarm should have alerted the claimants as to the acid content and that the claimant failed to mitigate their loss by continuing to work the factory despite the warning by that alarm.

However, the court rejected this argument based on the following facts:

i) The pH alarm was a low priority (a white not a red) alarm; these alarms had been notoriously unreliable.

ii) The weak acids typically encountered by the plant and with which the pH alarm and ammonia system were designed to deal, took a long time to do damage to the carbon steel – so suggesting that a prompt let alone immediate response to the pH alarm was not thus necessary.

iii) In some 40 years of operating experience, low pH had not been seen as a problem.

iv) Low pH indicated the presence of an acid in the system but not the type of acid; those at the plant did not contemplate encountering HF and had no reason to do so.

v) Laboratory sampling was routinely undertaken on Mondays, Wednesdays and Fridays but, ordinarily, not on weekends.

But...