The Importance of Safe Berth Clauses in Light of The Coronavirus Pandemic

Apr 24, 2020

Large harbor cranes loading container ships in the port of Rotterdam.

The Supreme Court Opinion in Athos I

On March 30, 2020 the Supreme Court of the United States issued its opinion in the case of CITGO Asphalt Refining Co. et al. v. Frescati Shipping Co., Ltd., et al.. The Supreme Court opinion clarified U.S. law on the issue of safe berth clauses in charter party contracts and sets a bright line standard for liability in the context of safe berth clauses enforced under U.S. law. In the context of the global coronavirus pandemic, charterers must now assess whether the coronavirus has rendered any port unsafe and if so, whether the terms of their charter party will hold them to the strict liability standard established in the Athos I case for selecting an unsafe berth.

The Athos I case arose from an incident in 2004 where the 748 foot oil tanker M/T Athos I struck a nine ton anchor abandon and forgotten on the Delaware river bed. The Athos I was fully loaded with crude oil from Venezuela and when the anchor tore through the vessel’s hull, 265,000 gallons of oil were released into the Delaware river. Over 280 miles of shoreline were affected by the spill. Ultimately the pollution response cost a total of $133 million. Under the Oil Pollution Act of 1990 (OPA) the owner of a vessel is statutorily responsible for oil pollution cleanup costs, without regard to fault. However, the OPA also limits the owner’s liability if they promptly assist with cleanup efforts. Furthermore, the federal government (specifically, the Oil Spill Liability Trust Fund) will reimburse vessel owners for cleanup costs which exceed a statutory limit. Both vessel owners and the federal government may then pursue claims against any third party allegedly at fault for the incident. In the case of the Athos I, the owner, Frescati, as the statutorily responsible party, was initially responsible for cleanup costs. Frescati paid $133 Million, of which $88 million was reimbursed by the federal government. Frescati then sued the charterer for the $45 million not covered by the government, while the government sued the charterer for the $88 million it covered.

The terms of the safe berth clause in the Athos I charter party required that “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 always safely afloat.” This clause is from a standard form contract commonly used in shipping industry charter parties. The charterer, CITGO Asphalt Refining Co. (CARCO) argued that there was actually an implicit due diligence standard in the safe berth clause, though it was not referenced explicitly in the clause itself. It is true that prior to the Supreme Court’s opinion in the Athos I case there was a difference of opinion on how to interpret safe berth clauses among federal district courts. The 2nd circuit interpreted unqualified safe berth clauses as constituting an express and unlimited warranty of safety. The 5th circuit courts, on the other hand, have held that unqualified safe berth clauses only imposed a duty of due diligence on the charterer. Naturally, CARCO argued that the Supreme Court should follow the precedent set by the 5th Circuit Courts.

The Supreme Court first held that the safe berth clause was a warranty even though it did not expressly invoke the term “warranty”. Having established that CARCO did in fact bind itself to a warranty of safety, the court examined the plain language of the safe berth clause to see of that warranty was limited or qualified in any respect. The Supreme Court found it was not. Since the safe berth clause at issue did not expressly limit the liability of the charterer, the court held that the charterer’s liability was unqualified and not subject to any conditions, essentially imposing a strict liability standard on the charterer, CARCO. Finally, the Court confirmed that charterers are always free to expressly limit their liability in the terms of the safe berth clause. This is particularly significant for the shipping industry; charterers have been put on notice that a safe berth clause will impose strict liability unless the charterer’s liability is expressly qualified or limited by the terms of the clause. In fact, other industry form charter parties have clauses which do explicitly limit the liability that may arise from the charterer’s selection of berth. For example, the standard form safe berth clause from INTERTANKVOY provides the following language: “Charterers shall use due diligence to ascertain that any places to which they order the vessel are safe for the vessel and that she will lie there always afloat.” Under these terms, the charterer’s liability is qualified. It need only show that it used due diligence to ascertain the safety of the berth. The charterer is not liable for any danger that would not be discoverable by due diligence, such as a submerged abandon anchor.

The Athos I case has been closely watched by members of the maritime and trade industries. The opinion would have been a major legal development for the shipping industry in its own right, but it has taken on added significance in the context of the coronavirus pandemic. The question of whether the coronavirus renders a port unsafe is forefront on everyone’s mind right now. Ship owners and charterers should consider whether the coronavirus implicates any “safe berth” or “safe port” clauses in their charter party agreements and if so, what their rights and obligations are under the terms of their charter party agreements.

The International Maritime Group (IMG) is a boutique law firm that provides tailored legal services to businesses, financial institutions, and governments. Our firm has a reputation for solving complex legal problems—on time and under budget. Our aim is to always be more than just our clients' attorneys, but their trusted advisors as well.

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