US Supreme Court Rules- Warranty of Safety in Charterparties is an Absolute Obligation (Citgo Asphalt Refining Co v. Frescati Shipping Co Ltd)

The tanker, Athos I, was directed to a berth by her charterers at a terminal in Philadelphia in 2004. As the vessel was approaching the berth, she struck a submerged anchor. As a result, the vessel’s hull was damaged and some 263,000 gallons of crude oil spilled into the Delaware River. The cost of the clean-up operations was around US$180m.

The owners of the Athos I brought an action against the voyage charterer contenting that the charterer was in breach of its warranty to provide a safe port/safe berth for the ship to discharge the cargo and was therefore liable to reimburse the ship owner for the costs of the clean-up paid by them. The relevant provision in the charterparty provided:

‘…the vessel shall load and discharge at any safe place or wharf… 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….’

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The district court gave the judgment against the owners of the Athos I on the basis that the obligation of the charterer under the charterparty was to exercise due diligence in providing a safe berth/safe port and that was satisfied in the case. On appeal, the US Court of Appeals for the Third Circuit reversed the district court’s decision. In doing so, the Third Circuit aligned itself with the Second Circuit ignoring a case decided in 1990 by the Fifth Circuit (whereby it was held that a due diligence standard should be read into a charterer’s warranty of a safe berth/safe port).

The US Supreme Court (7-2) came to the conclusion that such a form clause commonly used in the industry must be construed as an express warranty of safety and imposes on the charterer an absolute duty to select and provide safe berth. The majority emphasized that the safe berth clause in the charterparty was clear and unambiguous.

The majority (an opinion delivered by Justice Sotomayor) rejected charterer’s that the safe berth clause imposes simply a duty to exercise due diligence. In their view, such a due diligence standard resonates more in tort, rather than contract. The parties could have adopted a due diligence standard explicitly in the safe berth clause, as they did elsewhere in the contract. The absence of similar language in the safe berth clause provides further evidence that the parties did not seek to imply such a limitation on the duty of the charterer.

The Supreme Court’s decision follows the traditional approach adopted by the English law with regard to warranty of safety of a port/berth (The Eastern City [1958] 2 Lloyd’s Rep 127) and will certainly be welcomed by the industry (i.e. shipowners) and, their hull underwriters who in most cases will end up pursuing charterers when a chartered vessel is damaged in a port/berth which turns out to be unsafe. It is worth to note that the judgment does not prevent this obligation from being watered down by a due diligence standard in a charterparty as long as clear and apposite wording is employed to this end.

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