Patrick Chan, Vice President, Head of FDD Skuld Hong Kong, has provided charterer members with information on safe port / berth warranties in sales contracts – and the pitfalls to avoid.
He noted that unsafe port claims could be financially significant, and complex in nature. Charterers needed to make sure that, when a port/berth is nominated, it is in line with the safe port/berth warranty stated in the charterparty.
However, he accepted that in modern day cargo trading the port of discharge was often not determined by charterers, but by the cargo buyers in the sales contract. It was therefore important that charterers were well protected under the sales contract and that they could shift any potential liability onto their contractual counterpart who nominates the discharge port.
What is an unsafe port claim?
An unsafe port claim might arise when a vessel suffers damage while entering, staying at, or departing a port. This can also include any pollution, property damage or various other delay claims faced by owners relating to the incident. Facing such situations, owners will try to recover such losses/claims against charterers under the charterparty. Charterers when faced with such claims will in turn recover against their counterparty in the sales contract.
The obligation for charterers to provide a safe port for the vessel to load and discharge cargo is often contained in the standard charterparty forms such as the NYPE and Asbatankvoy. Charterers should also include an express unsafe port warranty clause in the sales contract.
What constitutes a safe port under English law?
The definition of safety under English case law is long established and well known. It is defined as follows:
A port will not be safe unless, in the relevant period of time, the particular ship can reach it, use it, and return from it, without, in the absence of abnormal occurrence, being exposed to danger which cannot be avoided by good navigation and seamanship.
That definition, however, gives itself to many possible interpretations, given the words “relevant”, “abnormal” “danger”, and the phrase “good navigation and seamanship”.
The writer noted that unsafe port/berth claims were often very fact sensitive and might require extensive investigation, evidence collection and expert input. “The legal costs which may be involved could be very significant for both parties and cases may take years to be resolved”, Chan wrote.
Unsafe port v Unsafe berth
For liability to flow down to the contractual counterpart in the sales contract, it is important that the scope of the safe port warranty clause in the charterparty mirrors that of the sales contract. If the charterparty contains a safe port warranty whilst the sales contract provides a safe berth warranty only, this will create a potential liability gap, as the latter is narrower in scope.
Considering that safe port/berth warranty clauses in sales contract are often bespoke in nature, it would be important for parties to consider the safe port/berth wording extra carefully when negotiating the sales contracts terms, said Chan
Absolute Duty v Due Diligence
In certain safe port/berth warranty clauses in sales contract, parties are only required to exercise due diligence to nominate a safe berth/port. This means that a party does not need to warrant the safety of the port/berth unconditionally. Parties only need to exercise care that a reasonable person is normally expected to take when nominating the port/berth. This includes, but is not limited to, vetting the port/berth before nominating and making the necessary investigation and enquiries locally on the safety aspects. “Having a good paper trail of the port/berth audits would be helpful and good practice”, wrote Chan.
Charterers should be aware that in standard charterparty forms such as the NYPE and Asbatankvoy, charterers are under an absolute duty to employ the vessel to a safe port/berth. Chan observed that this was a much more stringent test, and simply exercising due diligence would not be sufficient to meet the legal test of an absolute warranty. “It is therefore vital that the obligation under the sales contract is not more lenient than charterers’ obligation to owners under the charterparty. Otherwise, there would be a risk of liability not flowing down the contractual chain”, said Chan.
It was understandable that sales contracts and charterparties might not have the exact same jurisdictions clauses wordings, such as LMAA terms vs Oil Majors terms and conditions. However, Chan wrote that there were two elements which should be kept consistent: the jurisdiction governing the substantive law of the contract and the dispute resolution method.
Different countries might have different legal standards and tests for unsafe port claims, and these might yield different results in disputes up and down the contractual chain. Having the case determined by the same standards in the same jurisdiction in both the sales contract and the charterparty would minimize the possibility of a different outcome up and down the contractual chain.
Even different dispute resolution methods such as arbitration and litigation could create a risk of different results in the contractual chain. If the sales contract provides for disputes to be referred to arbitration in London, then the charterparty should ideally follow the same, wrote Chan.
Chan concluded that charterers should always pay special attention to the safe port/berth warranty clauses in the sales contract. The scope and obligation of the safe port/berth warranty clause in the charterparty with owners should mirror that of the sales contract to avoid potential ‘gaps’ in liability.
 The Eastern City  2 Lloyd’s Rep 127 at p.131