Supreme Court Holds A Safe-Berth Clause In A Charter Is A Warranty Of Safety By The Charterer

On March 30, 2020, the Supreme Court decision in Citgo Asphalt Refining Company v. Frescati Shipping Co., Ltd, No. 18-565, held that a safe-berth clause in a charter party (a maritime contract for the use of a vessel) constitutes a warranty of safety imposing liability on the charterer, notwithstanding its diligence to select a berth.  The landmark decision, authored by Justice Sotomayor, affirmed the Third Circuit Court of Appeals and resolved a split between the Fifth Circuit and the Second Circuit.  The Court rejected the argument that a charterer may avoid liability under a charter party by simply exercising due diligence in selecting a berth. 

Oil Tanker Strikes an Abandoned Ship Anchor En Route to the Berth Causing an Oil Spill in the Delaware River

The M/T Athos I (Athos), owned by Frescati Shipping Company (Frescati), is a 748 foot oil tanker.  Frescati time-chartered the Athos to Star Tankers (Star), who then sub-chartered the vessel to defendant Citgo Asphalt Refining Company (CARCO).

In November 2004, the Athos, laden with cargo of heavy crude oil, commenced a voyage from Puerto Miranda, Venezuela to Paulsboro, New Jersey.  CARCO designated a berth on the Delaware River for the termination of the voyage and to discharge the cargo.  When the Athos was less than 1/5th of a mile from the designated berth sailing on the Delaware River, the vessel struck an abandoned ship anchor in the water.  The force of the allision (a moving vessel strikes a stationary object) pierced the Athos hull, emptying nearly all its cargo into the navigable waters of the United States.

The Oil Pollution Act, 1990 (OPA), 33 U.S.C. § 2701 required Frescati, as the vessel owner, to pay for the remediation costs for the oil contamination.  Consistent with the statute, Frescati’s liability was limited to $45,000,000 and the Oil Spill Liability Trust Fund also reimbursed Frescati.  Afterward, both Frescati and the United States sued CARCO for indemnity for their remediation costs.  

The Safe-Berth Provision in the CARCO Sub-Charter

The sub-charter between Star and CARCO contained a safe-berth clause – a warranty that the designated port is safe – requiring that CARCO nominate a “safe berth” to allow the Athos to approach and depart the berth “always safety afloat.”  The charter-party required CARGO to nominate the vessel to a “safe port” along the Atlantic seaboard.  The parties agreed that the safe-berth clause incorporated a safe port clause.  In the sub-charter, the safe port clause stated:

“[t]he vessel. . . . .shall with all convenient dispatch, proceed as ordered to Loading Port(s) named . . . or so near thereunto as she may safety get (always afloat) . . . and being so loaded shall forthwith proceed . . . .direct to the Discharging Port[s], or so near thereunto as she may safety get (always afloat), and deliver said cargo.”

Frescati and the United States claimed that CARCO breached the safe-berth and safe port warranties in the sub-charter and accordingly was fully liable for the allision and resulting oil spill.

Third Circuit Holds that a Safe-Berth Clause is a Warranty

Following a 41 day trial, 31 day evidentiary hearing, and two appeals, the Third Circuit held that Frescati and the United States were entitled to recover from CARCO.  In re Frescati Shipping Co., 718 F.3d 184, 200 (3d Cir. 2013).  The Third Circuit held that Frescati was an implied third-party beneficiary of the safe-berth warranty in the sub-charter.  Accordingly, Frescati, and the United States, were entitled to assert the breach of contract claims against CARCO and Star Tankers.  In short, the court held that the safe-berth provision constituted a warranty.  

The Duty to Select a Safe-Berth is Absolute

The Supreme Court analyzed the sub-charter as a maritime contract that must be construed like all contracts under the general maritime law in accord with the intent of the parties. Norfolk Southern R. Co. v. James N. Kirby Pty. Ltd., 543 U.S. 14, 31 (2004).  The court also relied upon 2 T. Schoenbaum, Admiralty & Maritime Law § 11:2, p. 7 (6th ed. 2018)(“[F]ederal maritime lawincludes general principles of contract law.”)  Finally, the court relied upon its decision in M&G Polymers USA, LLC v. Tackett, 574 U.S. 427, 435 (2015) for the principle that: “Where the words of a contract in writing are clear and unambiguous, its meaning is to be ascertained in accordance with its plainly expressed intent.” Id.

The Court held that the plain language of the sub-charter required CASCO to designate a safe-berth and safe port that did not expose the vessel to risk or inherent danger.  The Court concluded that the selection of a berth is a warranty that the berth is safe.  The decision states that the failure to nominate a safe-berth is a breach of the sub-charter and the warranty of safety.

The Court held that the language of the safe-berth clause in the sub-charter unequivocally established a warranty of safety.  The opinion acknowledged, however, that this provision could be modified during negotiation of a charter by parties.

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