A safe berth is just that, US court rules

On March 29th the US Supreme Court rules that the traditional language in which the charterer promises to send the ship to a safe berth, which shall be procured by the charter, is a warranty that the berth will, in fact, be safe. It is not merely a promise that the charterer will exercise due diligence in selecting a safe port, reports law firm Montgomery McCracken .

Shipping industry associations BIMCO, INTERCARGO and INTERTANKO welcomed the ruling.

Søren Larsen, Deputy Secretary General of BIMCO, said that “the US Supreme Court has made a sound and robust decision consistent with the shipping industry’s long-held understanding of risk allocation in safe port and safe berth clauses. A different result would have compromised the essential clarity and certainty provided by standard charter parties on which our industry depends”.

The vessel owner said that “the many years of effort, which have culminated in the decision, underscore our confidence in the rule of law while the Supreme Court’s decision underlines the importance and significance of safe, well-respected, understood and applied marine navigation practices, which have, for decades, safeguarded human life at sea, the protection and preservation of the marine environment as well as property”.

The decision arose out of the Athos I oil spill on the Delaware River in 2004. The ship was on a voyage charter using the ASBATANKVOY form to a CITGO-owned asphalt refinery in Paulsboro, New Jersey. The Tsakos-managed oil tanker had been chartered by CITGO when it struck a uncharted nine-ton anchor while docking at the CITGO facility, puncturing the tanker’s hull and, as a result, spilling approximately 263,000 gallons of crude oil into the river.

Under the Oil Pollution Act of 1990, her owners were deemed to be the “responsible party” for paying for the clean-up costs, even though the ship was entirely seaworthy and the captain and crew were not in any way negligent in navigating her.

Cleanup costs amounting to $133m were paid by Frescati Shipping Co under their OPA obligations, of which $88m was reimbursed by the US Oil Spill Liability Trust Fund.

The US Coast Guard concluded in its Marine Casualty Investigation Report that the cause of the incident was the abandoned anchor lying on the seabed, and there was no negligence or violation on the part of the ship’s crew or embarked pilot. No fines or penalties were ever issued.

Frescati and the US eventually sued CITGO and others (collectively CARCO) to recoup the costs, arguing that CARCO had breached the safe-berth clause by failing to designate a safe berth, and therefore was at fault for the spill.

CITGO raised several defences, including an argument that the language in the Charter only obligated it to exercise due diligence in selecting a safe berth.

This argument was based upon a Fifth Circuit decision that was contrary to a long line of cases decided by the Second Circuit, which held that the very same language was a warranty.

After two trials, and two trips to the Court of Appeals for the Third Circuit, the Supreme Court took up the case to resolve the split in the circuits on how the language should be read.

Montgomery McCracken attorneys, Alfred J Kuffler, John Levy, and Eugene J O’Connor were assisted by a team of lawyers in navigating the case through the trials for the vessel owners.

The Court affirmed the Third Circuit decision and left in place a judgment with interest for the Owners against CITGO for about $73m. The Oil Pollution Liability Trust Fund’s judgment against CITGO for about $88m was also affirmed.

Justice Sotomayor delivered the 5-2 majority opinion of the Court.

The Supreme Court decision ultimately puts to rest the interpretation of the “safe berth” warranty under US law.