On March 30, 2020, the United States Supreme Court issued a decision that can impact the way Charter Party Agreements are negotiated. Particularly, given the present COVID-19 orders that purport to limit whether vessels can enter certain ports, orders that appear to change on a daily basis, this decision should serve notice to those negotiating Charter Party Agreements.
CITGO Asphalt Refining Company, et al. v. Frescati Shipping Company, Ltd., et al. No. 18-565 (March 30, 2020) resolves the interpretation of a “safe berth” clause in a shipping contract. In a 7-2 ruling, the Court held that a “safe berth” clause establishes a warranty of safety, thereby imposing liability for an unsafe berth regardless of a party’s diligence in selecting the berth. See Id at 1.
The facts of the case date back to 2004 when CITGO and related companies contracted with Frescati Shipping Co. for the shipment of crude oil from Venezuela to New Jersey. Frescati, the operator and owner of the oil tanker M/T Athos I, had chartered the tanker to Star Tankers. The oil tanker was then sub-chartered by Star Tankers to CITGO Asphalt Refining Company and others (collectively CARCO). Shortly before reaching her destination, M/T Athos I allided with an anchor in the Delaware River from an abandoned ship, puncturing the hull of the oil tanker and causing 264,000 gallons of crude oil to spill into the river. As the owner of the oil tanker, Frescati was required pursuant to the Oil Pollution Act (“OPA 90”) to clean up the spill and pay all associated costs. The total cost of the cleanup was $133 million. Under OPA 90, Frescati’s liability was limited to $45 million. As such, the Oil Spill Liability Trust Fund reimbursed Frescati for the additional $88 million. Frescati and the Federal Government sued CARCO alleging that CARCO had breached the “safe berth” clause in the subcharter agreement between CARCO and Star Tankers. The “safe berth” clause in the subcharter agreement provided as follows:
“SAFE BERTHING – SHIFTING. 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.” Id at 18.
Frescati as an intended third-party beneficiary of the subcharter agreement, and the United States alleged that the clause obligated CARCO to choose a berth that was safe and that would allow the oil tanker “to come and go ‘always safely afloat.’” Id. at 1. The Third Circuit agreed with Frescati and the United States and held that the “safe berth” clause embodied an express warranty of safety “made without regard to the amount of diligence taken by the charterer.” Id at 4. With that said, the Third Circuit found that CARCO was liable for breaching the warranty. Id at 5.
The Supreme Court granted certiorari to resolve