Borealis AB v Geogas Trading SA

JurisdictionEngland & Wales
JudgeLORD JUSTICE GROSS,Lord Justice Gross
Judgment Date09 November 2010
Neutral Citation[2010] EWHC 2789 (Comm)
Docket NumberCase No: 2008 FOLIO 482
CourtQueen's Bench Division (Commercial Court)
Date09 November 2010
Between
Borealis AB
Claimant
and
Geogas Trading SA
Defendant

[2010] EWHC 2789 (Comm)

Before: Lord Justice Gross

Case No: 2008 FOLIO 482

IN THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

COMMERCIAL COURT

Veronique Buehrlen QC and Henry King (instructed by Clyde & Co) for the Claimant

Michael Ashcroft (instructed by Thomas Cooper) for the Defendant

Hearing dates: 19/4; 21/4; 22/4; 26/4; 27/4; 28/4; 29/4; 4/5; 5/5; 6/5; 10/5; 17/5; 18/5 2010

Approved Judgment

LORD JUSTICE GROSS Lord Justice Gross

Lord Justice Gross:

INTRODUCTION

1

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.

2

It is common ground that the goods were contaminated with fluorides. It is further admitted by Geogas that it was in breach of contract – in that the contamination of the goods (by 2 methyl 2 fluoro propane, “ 2M2F”) placed Geogas in breach of an implied term of the contract to the effect that the goods must be of satisfactory quality. Geogas does not, however, concede that it was in breach of contract in other respects alleged by Borealis.

3

Against this background, the trial was essentially about causation, remoteness, mitigation and quantum.

4

Much of the factual history is common ground and can largely be taken from the relevant section of the most helpful List of Issues, prepared by counsel.

5

Parties: Borealis is a well known producer of polyethylene and polypropylene (“plastics”) for use in various applications with production sites all over the world. The plant includes an ethylene cracker complex that processes hydrocarbon feedstocks (such as butane and propane) to produce ethylene and propylene.

6

Geogas is a well-known trader in, inter alia, liquefied petroleum gas (“LPG”), including butane.

7

The contract: By an oral agreement, evidenced in and/or subsequently reduced into writing, entered into between Borealis and Geogas on 22 nd August, 2003, Geogas agreed to sell and Borealis agreed to buy 5,200 mt (5% more or less at Geogas' option) of butane (i.e., the goods), at a price of US$259.50 per mt (“the contract”).

8

A firm called Norenergy Oilbrokers AS (“Norenergy”) acted as the parties' broker. The documents evidencing the contract include Norenergy's e-mail sent to the parties at 18.11 on the 22 nd August, 2003 confirming the transaction (“the 22 nd August e-mail”) and a further e-mail sent to the parties at 11.53 on the 25 th August, 2003 (“the 25th August e-mail”), setting out the detailed terms.

9

The 22 nd August e-mail stated “quality: field grade as per specs in separate e-mail”.

10

The 25 th August e-mail confirmed the sale of 5,200mt of “commercial butane to be delivered colder than zero deg c” on, inter alia, the following express terms:

“ quality: field grade with specs as follows:

c3 and lighter less than 1pct

nc4 80pct

ic4 14pct

butenes 3pct

c5 plus less than 2pct

sulphur less than 50ppm

oxygenates nil

water nil

copper corr 1 max

origin: us east coast

quantity: 5,200mt 5 pct molso

delivery: cif one safe port/berth stenungsund

during period 7–12 th september 2003

price : usd 259.50 mt

vessel: gt henning maersk….

inspection: at loadport to be inspected by independent inspector to be appointed and paid for by seller. At discharge port cargo to be inspected by independent inspector to be appointed and paid for by buyer ”

11

As is common ground, there were implied terms of the contract:

i) That the goods would correspond with their contractual description;

ii) That the goods would be of satisfactory quality.

12

Delivery: The goods (in the event, 5,455.662 mt of butane) were sourced by Geogas from petrochemical facilities owned by Sunoco Inc. (“Sunoco”), situated at Marcus Hook, Pennsylvania. The goods were loaded onto the carrying vessel, the “Henning Maersk” (“the vessel”), on the 27 th and 28 th August, 2003 and the vessel arrived at Stenungsund on the 12 th September, 2003.

13

Discharge from the vessel into one of the plant's underground caverns, number UC-731 (“the cavern”), commenced at about 13.20 the same day and was completed at about 00.58 on the 13 th September. At the time of discharge, the cavern already contained some 25,276mt of butane/propane feedstock mixture. As discharge took place, so fluids from the cavern were simultaneously fed to the plant (to the cracking furnaces) as is usual.

14

The contamination: As already noted, the goods were contaminated with a compound subsequently identified as 2M2F.

15

The incident: At about 20.00 on the 13 th September, 2003, a gas alarm in the disengaging basin (indicating contaminated seawater cooling medium returning to the sea) signalled the presence of hydrocarbon gas indicative of leaks in the cracker plant's overhead heat exchangers. Subsequent investigations revealed that numerous tubes in the cracker's primary and secondary heat exchangers sustained an extensive and severe corrosion attack in the hours leading up to the triggering of the gas alarm on the 13 th September – so much so that several of the tubes became perforated allowing (inter alia) ethylene to escape into the atmosphere.

16

Further matters not in dispute: A number of further matters were not in dispute:

i) HF can be extremely destructive.

ii) Cargo containing 2M2F would not be fit for use in the plant.

iii) Borealis did not specifically warn Geogas about the danger of a fluoride compound being present in the goods.

iv) Borealis did not test the goods for fluoride compounds prior to discharge. For that matter, nor did Geogas' inspector when inspecting the goods at the loadport.

v) Representatives of Borealis noted that the smell and appearance of the first set of samples taken from the vessel on the 12 th September, 2003 (prior to discharge) were unusual.

vi) A pH meter (at the plant) indicated that pH in the discharge from the distillate drum (D-1681) dropped from its target level of between pH 5–7, to a range of about pH 3.5–3.7, shortly after discharge of the goods into the cavern had commenced.

vii) After the gas alarm went off at 20.00 on the 13 th September (as described above), Borealis (inter alia) brought heat exchangers E and G on line to continue production while it shut down heat exchangers B, D, F and H in order to investigate the problem.

viii) All production of ethylene using feedstock from the cavern was halted by Borealis at about 21.40 on the 16 th September, 2003.

THE WORKINGS OF THE PLANT

17

General: I must next and in very simple terms, based on the excellent agreed note prepared by counsel, describe the working of the plant.

18

The Stenungsund site comprises a cracker complex, 3 polyethylene plants and an innovation centre. The plant uses naphtha, ethane, propane and butane as feedstock to produce ethylene and propylene which are in turn used to produce high-density polyethylene, low-density polyethylene and patented polyethylene products, primarily for pipe, wire and cable applications.

19

The raw materials are delivered by ship directly to Borealis' harbour in Stenungsund and are stored in four underground “caverns” and one over ground ethylene tank.

20

Butane is stored in cavern UC-731 (i.e., the cavern), along with a proportion of propane (75:25 butane/propane) to create an LPG feed.

21

The cracker alone is a large plant consisting of approximately 950 kilometres of pipes, 20 distillation towers, reactors, some 400 pumps and 20,000 valves.

22

A process flow diagram of the relevant part of the plant for present purposes is attached herewith as Annexe I.

23

In essence, naphtha, ethane, propane and butane/propane (the LPG mix) in various quantities are fed from the caverns (and the over ground ethane tank) to 9 cracking furnaces (F-1601 A-G, V and X), where the feeds are mixed with steam, in a ratio of 70:30 hydrocarbon:steam, and heated to 850–870°deg;deg;C. (It may be noted – though it does not effect this description—that on the date of the incident, 7–8 furnaces were operating.) The effect is to break up long chains of hydrocarbon molecules into shorter ones. The individual product streams from the furnaces are then cooled (quenched) individually, by heat exchangers (not the subject of these proceedings), before being mixed into a single product stream. That product stream is then transported through an overhead transfer line to the T-1651 primary fractionator tower. This is the plant's first stage distillation tower where heavier components in the product stream are separated out from the lighter ones. The lighter components, consisting primarily of ethylene and steam, are taken from the top of T-1651 through overhead pipelines (the T-1651 overhead line) to a set of primary and secondary heat exchangers: E-1651 and E-1656.

24

The E-1651/1656 heat exchangers: E-1651/1656 are made up of 16 heat exchangers – E-1651 A-H and E-1656 A-H. They operate in pairs, each consisting of a primary exchanger sitting above a secondary exchanger: so, e.g., E-1651 A and E-1656 A. Further, they are divided into a North bank and a South bank, each bank consisting of 4 exchanger pairs. The South bank is made...

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