On March 30, 2020, the United States Supreme Court issued its decision in CITGO Asphalt Refining Co. v. Frescati Shipping Co., a long-running litigation over the allocation of liability as between a vessel owner and charterer for oil spill cleanup costs. The Court held that the safe-berth provision at issue in that case imposed an unqualified warranty of safety to select a safe birth on the sub-charterer.1 The Court’s ruling has important implications for owners and charterers who enter into charter party agreements containing safe-berth clauses.
In 2004, CITGO Asphalt Refining Co. and others (“CARCO”) entered into a sub-charter agreement with Star Tankers, which chartered the oil tanker M/T Athos I from respondent Frescati Shipping, the vessel owner. During the final 900-foot stretch of the vessel’s journey to New Jersey, its hull was punctured by an abandoned anchor, causing 264,000 gallons of heavy crude oil to spill into the Delaware River. Frescati Shipping, as the vessel owner, was deemed the “responsible party” under the Oil Pollution Act of 1990.
Frescati Shipping, along with the United States (operator of the Oil Spill Liability Trust Fund), brought suit against CARCO for the cleanup costs. After a lengthy trial and evidentiary hearing before the district court and two appeals, the United States Court of Appeals for the Third Circuit ruled in Frescati Shipping and the United States’ favor, finding: (i) that Frescati Shipping was an implied third party beneficiary of the subcharter agreement, and therefore could sue CARCO for breach of contract; and (ii) the safe-berth clause in the subcharter agreement embodied an express warranty of safety “made without regard to the amount of diligence taken by the charterer,” and thus, CARCO was liable to Frescati Shipping and the United States for breaching that warranty.2
CARCO appealed the Third Circuit’s ruling to the Supreme Court, which heard the appeal to resolve the issue of whether the safe-berth provision in question only imposed a duty of due diligence or, alternatively, established a warranty of safety.3 The former approach, adopted by the Fifth Circuit4, had allowed a charterer to avoid liability by establishing it had done due diligence in selecting a birth.
The Court reviewed the language of the safe-berth clause at issue, which had been agreed under an Association of Ship Brokers. & Agents (U.S.A.), Inc. tanker voyage (“ASBATANKVOY”) form, finding that it had imposed an unqualified warranty of safety to select a safe birth, siding with the Third Circuit’s approach and that of the Second Circuit.5 The language at issue provided that the charterer “shall . . . designat[e] and procur[e]” a “safe place or wharf,” which the Court construed as “unqualified” language creating an “absolute” duty to select a safe birth. The fact that the safe-berth provision did not explicitly invoke the term “warranty” did not alter the charterer’s duty under the provision.6
In this case, there was no language in the ASBATANKVOY form limiting the warranty to an obligation of due diligence. The Court suggested that parties were free to contract for a liability limitation, but failed to do so with this provision, and reasoned “[w]here the parties intended to limit obligations based on due diligence elsewhere in the charter party, they did so expressly.” By affirming the Third Circuit ruling, the Court indicated that the Second Circuit’s approach of “interpreting the language of unqualified safe-berth clauses to embody an express warranty of safety” was preferable to the Fifth Circuit’s policy-based approach. Still, the Court emphasized: “[c]harterers 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.”7
In light of the Court’s ruling, charterers and owners should review the language in the safe-berth provisions in their charter party agreements to determine the scope of their exposure or protection, as the case may be. If you should have any questions, please contact Bruce Paulsen at 212-574-1533 or Brian Maloney at 212-574-1448.
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1 A “safe-berth” clause is a provision in a charter party agreement requiring the charterer to provide a “safe berth at which the vessel may load and discharge cargo.” Id. at 2.
2 Frescati Shipping Co. v. Citgo Asphalt Ref. Co., 718 F.3d 184, 200 (3d Cir. 2013).
3 See CITGO Asphalt Refining Co. v. Frescati Shipping Co., 589 U.S. ___, 2 (2020).
4 Orduna S. A. v. Zen-Noh Grain Corp., 913 F. 2d 1149 (5th Cir. 1990).
5 See Paragon Oil Co. v. Republic Tankers, S. A., 310 F. 2d 169 (2d Cir. 1962).
6 See CITGO Asphalt Refining Co., 589 U.S. at 6, 7, 16.
7 Id. at 9, 14-16
