Article: US Supreme Court rules safe berth clause is a warranty
14 April 2020
On 30 March 2020, in Citgo Asphalt Refining Co v Fescati Shipping Co Ltd, the US Supreme Court resolved a circuit split on the interpretation of safe-berth clauses. If the clause contains an unqualified warranty of safety, the court determined that the clause imposed an absolute duty on the charterer to select a safe berth. Though the decision was based on the specific wording in the charter party at hand, it suggests parties negotiating a charter party should not infer limitations on liability absent express language. In so ruling, the court kept US law aligned with English law on this important commercial, legal, and insurance point.
Citgo Asphalt Refining Co. (CARCO) negotiated a charter party to transport Venezuelan crude oil to New Jersey on the Athos I, owned by Fescati Shipping Co., Ltd (Fescati). Approximately 900 feet from its intended berth, the ship struck an abandoned anchor. The anchor punctured the hull causing the escape of 264,000 gallons of crude oil. Fescati was designated responsible under the Oil Pollution Act of 1990 and paid cleanup costs exceeding USD 100 million. To recover the cleanup costs, Fescati and the United States (who contributed to the cleanup costs) sued CARCO claiming it breached the safe berth clause in the charter party.
The slightly modified standard industry Asbatankvoy safe berth clause provided as follows:
'The vessel shall load and discharge at any safe place or wharf, or alongside vessels or lighters reachable on her arrival, 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.’
In a 7-2 decision, the court affirmed the 3rd circuit’s interpretation that the safe berth clause established a warranty of safety. The decision provided a plain-meaning interpretation of the words 'safe' and 'always', considering that the concepts of safety and permanency must bind the charterer to a warranty of safety. The court noted that in other clauses of the charter party the parties agreed a due diligence standard, but not in the safe berth clause. To the court, this reinforced the warranty nature of the safe berth clause which did not contain such due diligence language.
That said, the court noted that the outcome might have been different if the charter party had required the CARCO to exercise 'due diligence' in selecting a safe berth, which is the case in other industry forms such as the Intertankvoy form. In concluding that 'charterers remain free to contract around unqualified language that would otherwise establish a warranty of safety by expressly limiting the extent of their obligations or liability', the Supreme Court recognized that that owners and charterers may expressly include language limiting risk if that is intended.