CITGO Asphalt Refining Co. et al. v. Frescati Shipping Co., Ltd. et al.
On March 30, 2020, the U.S. Supreme Court held that “the plain language of the parties’ safe-berth clause establishes a warranty of safety.”
The decision brings U.S. law into alignment with the long-standing position under English law, as established by Leeds Shipping Co. v. Societe Francaise Bunge SA (The Eastern City)  2 Lloyd’s Rep. 127. The Eastern City and subsequent case law has confirmed that unqualified safe-berth clauses represent a warranty of safety for charterers’ nominated loading and discharge ports.
In November 2004, the sub-chartered oil tanker M/T Athos I allided with an abandoned nine-ton ship anchor during a journey from Venezuela to New Jersey. The unchartered anchor, lying on the Delaware River’s bed just outside the CITGO berth at Paulsboro, New Jersey, punctured the tanker’s hull, causing 264,000 gallons of heavy crude oil to spill into the river. Following the Exxon-Valdez oil spill in 1989, which led to the passing of the Oil Pollution Act of 1990 (OPA), Frescati (as owner) was deemed responsible for the cleanup costs, regardless of fault.
Under OPA, Frescati was held to be the “responsible party regardless of fault” and was called to cover the spill’s cleanup costs. The Oil Spill Liability Trust Fund (Fund), operated by the U.S. federal government, then reimbursed Frescati for the cleanup costs, which exceeded the Act’s $48 million liability limit. Frescati, as the statutorily responsible party, and the United States (through the Fund) then pursued legal claims against the sub-charterers, CITGO Asphalt Refining Co. et al. (CARCO) in order to recover the clean-up expenses.
The Supreme Court’s decision
The U.S. Supreme Court in its decision concluded that CARCO had breached the contractual “safe-berth” clause in the charter, which was on an amended Asbatankvoy form and provided that “[t]he vessel shall load and discharge at any safe place or wharf,…which shall be designated and procured by the Charterer, provided the Vessel can proceed thereto, lie at, and depart therefrom always safely afloat, any lighterage being at the expense, risk and peril of the Charterer.”
CARCO had failed to select a “safe” (that is, free from harm or risk) berth for the vessel’s loading and discharging operations. Frescati was deemed to be an implied third-party beneficiary to the charter-party between CARCO and the operator, Star Tankers. The contractual obligation was held to amount to a warranty regarding the safety of the sub-charterers’ selected berth. The safe-berth clause therefore embodies a warranty of safety and not a mere duty of due diligence. Following the precepts of contract law, the warranty obligor is “strictly liable for a breach of contract, without regard to fault/diligence.” The unqualified language of the clause constituted an absolute contractual duty, while the lack of the express mentioning of the term “warranty” did not affect the fact that the contractual duty amounted to a warranty obligation.
The Court further directed that where a charter contains a clause expressly providing for liability for the designation of an unsafe berth, the charterer cannot rely upon (i) a general exclusion clause regarding the “perils of the sea” or (ii) oil-pollution insurance to cover the expenses since this covers risks that go beyond those resulting from the selection of an unsafe berth. The Court concluded that this decision provides “a legal backdrop against which future charter-parties will be negotiated.” Charterers may still, however, contract “around unqualified language that would otherwise establish a warranty of safety, by expressly limiting the extent of their obligations or liability.”