Resolving a dispute is often a matter of common sense

When a cause of a dispute is difficult to prove, English law usually errs on the side of common sense, as demonstrated in the recent case of BHP Billiton Petroleum v Dalmine, writes Daniel Atkinson.

WHEN A failure of either part or all of the works occurs, it may be difficult to identify precisely the cause. It may be caused by a number of separate events, or by the unique combination of two or more events. This creates significant problems in deciding liability. English law prefers a simple approach to causation.

Fortunately, the courts take a common sense approach, which engineers will understand - and those advising on the resolution of disputes should note.

In any dispute resolution procedure, it is important to identify which party is required to prove a particular alleged cause of failure. This is what occurred in the case of BHP Billiton Petroleum v Dalmine, heard by the Court of Appeal on February 19.

Dalmine is an Italian steelmaker that manufactured and provided British Steel with 300 mm-diameter steel pipes used in the construction of a sub-sea gas pipeline in the Liverpool Bay area of the Irish Sea.

British Steel was employed by BHP as the supplier of the pipes, and it had entered into a subcontract with Dalmine for their manufacture. There were no contractual relations directly between BHP and Dalmine.

Gas bubbles were noticed on the surface of the sea, which showed that the pipeline had failed. It had to be replaced.

Technical investigations revealed that cracks had developed in the roots of the welds that joined the pipes together. The cracks had propagated from the weld roots into the parent metal of the adjacent pipe. These had developed into through-wall cracks, linking the interior and exterior walls of the pipe. They had been caused by a combination of excessive hardness of the weld root metal and the exposure of the pipeline to a combination of hydrogen sulphide and water, which makes the steel brittle. The effect is known as sulphide stress corrosion cracking (SSCC).

The propagation of the cracks into the parent pipe metal was due to the fact that the force exerted by the tip of the crack exceeded the resistance of which the parent type steel was capable.

The resistance of the pipe metal depended on the material property referred to as the carbon equivalent value (CEV).

It emerged that Dalmine had fraudulently misrepresented the CEV material property of certain pipes. BHP had relied on Dalmine's deceit and had accepted and used the pipes. Had it known the true property of the pipes, it would have rejected them.

BHP sued both Dalmine and British Steel, although its claim against the latter failed due to the effect of limitation and exclusion clauses in the contract. The judge found against Dalmine but Dalmine appealed. The issue was whether the incorporation of non-compliant pipe caused the pipeline to fail or whether it would have failed anyway.

At each of the six welds where a leak occurred, at least one of the pipes either side of the weld came from deliveries of pipe from Dalmine that did not comply with the specification.

Dalmine's case was based on the negative hypothesis that a pipeline built entirely of compliant pipes would have failed in any event. The real cause of the failure of the pipeline it said, was not the presence of non-compliant pipes but other factors that had contributed to the initiation of the cracking in the weld roots.

Dalmine argued that the onus was on BHP to prove that, but for the incorporation of noncompliant pipes, the pipeline would not have failed in any event. This is the "but-for" test of causation complicated by application to a negative hypothesis.

The court considered that Dalmine's approach was unrealistically theoretical. The purpose of the "but-for" test was to eliminate irrelevant causes.

The plain facts were that the pipeline had not failed at any point other than where the pipe on one or both sides of the weld had been non-compliant. SSCC, possibly in combination with the welding procedure, may have caused some cracks to initiate, but nowhere had it caused such cracks to propagate sufficiently to cause the pipeline to fail. If the pipeline had failed at some welded joint between a pair of compliant pipes, then BHP might have had to show that the cause of the pipeline's failure was non-compliant pipe rather than the welding procedure and/or SSCC.

The issue was not whether the non-compliant pipe had caused the loss of this particular pipeline, but whether the combination of welding procedure and SSCC would have caused the loss of another pipeline - a hypothetical pipeline - even if that had been constructed solely out of compliant pipes.

The cause of the loss was pipe failure solely where non-compliant pipe was in place. The Appeal Court said that if the law, and common sense, were to regard the cause of failure to be some other condition of the pipeline besides the presence of the noncompliant pipe, Dalmine would have to prove that compliant pipes would have failed in any event.

Hence Dalmine was saddled with the burden of proving its own negative hypothetical case - a burden it conceded it could not sustain. Its appeal was dismissed.

The decision shows the common sense approach of the courts to a difficult issue and the importance of identifying precisely the nature of the dispute.

Key points

In any dispute resolution procedure it is important to identify which party is required to prove a particular alleged cause of failure, as that responsibility may ultimately determine the outcome of the case.

In the case of BHP Billiton Petroleum v Dalmine, the defendant (Dalmine) had supplied non-compliant steel pipe, which BHP incorporated into its sub-sea gas pipeline.

The pipeline subsequently failed.

In the Appeal Court, Dalmine based its case on the negative hypothesis that a pipeline built entirely of compliant pipes would have failed in any event.

As each of the six leaks was associated with at least one length of non-compliant pipe, the Appeal Court ruled that it was for Dalmine to prove that compliant pipes would have failed in any event.

Dalmine could not prove its negative hypothesis, common sense prevailed and the appeal was dismissed.