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Chain of causation

A recent High Court decision revisits the factors to be considered in deciding whether the chain of causation between breach and damage has been broken, and comments briefly on failure to mitigate losses and remoteness of damage in the context of industrial contamination.

The facts

Borealis claimed damages from Geogas in respect of the supply by Geogas to Borealis’ olefin plant of butane feedstock which was contaminated by fluorides. The fluorides reacted to form hydrofluoric acid which caused serious and extensive damage to plant and equipment, and consequential interruption to Borealis’ business.

Geogas admitted breach of contract but alleged that Borealis’ reactions following the raising of the alarm were such as to break the chain of causation, or alternatively that it was not liable for avoidable losses flowing from a failure to mitigate. It also alleged that a claim for loss of profits almost a year after the incident when Borealis was installing new heat exchangers, and some other heads of loss, were too remote to be recoverable.

The decision

The judge held that although well short of best practice, Borealis’ reaction to the raising of the alarm did not break the chain of causation. The judge considered a number of factors in reaching this decision:

•For the chain to be broken, Borealis’ actions would have had to be the true cause of the loss, and to obliterate Geogas’ wrongdoing.
•Further, little short of unreasonable behaviour on Borealis’ part would be capable of breaking the chain of causation, and then only if Borealis’ actions could be shown to be the true cause of the loss, not if Geogas’ breach remained an effective cause of loss.
•Borealis’ knowledge at the time of the breach was also a key factor: in circumstances where the claimant is unaware of the defendant’s breach of contract (as was the case here), normally (not invariably) only recklessness will break the chain of causation.
•The question of a break in the chain of causation is fact sensitive.

Considering all of the above, Borealis’ actions did not obliterate Geogas’ breach. Borealis behaved reasonably following the breach and was not reckless in its handling of the problems arising.

The judge also found that there was a link between Borealis’ knowledge and the reasonableness of the action taken to mitigate problems. As Borealis did not know (and should not have known) of the breach of contract by Geogas, the actions it took to reduce its losses were reasonable in the circumstances and there was no failure to mitigate.

The fact that a claim is remote in time does not make it remote in law: the claim for loss of profits almost a year after the incident was recoverable. It was “perfectly likely” that production would be lost when inspecting and replacing equipment to which a contaminant had been introduced: the head of loss was not too remote to recover.

This article first appeared in Law-Now, CMS Cameron McKenna's free online information service, and has been reproduced with their permission. For more information about Law-Now, please go to www.law-now.com

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