CITGO Asphalt Ref. Co. v. Frescati Shipping Co. (The “Athos I”) – Supreme Court of the United States, No. 18-565 – 30 March 2020

In 2004, Frescati Shipping Co. (the Owners) allowed CITGO Asphalt Refining Co. (CARCO) to charter their vessel Athos I. While attempting to dock in Port of Paulsboro, New Jersey, the vessel collided with an abandoned anchor, resulting in a major oil spill in the Delaware River. The arbitration primarily focused on the Charterers’ (CARCO)  liability for the spill per the charterparty’s Safe-Berth Clause.

Voyage Details

On Nov. 26, 2004, the tanker Athos I collided with a submerged, abandoned anchor near the CITGO refinery. The Charterers (CARCO) predetermined a berth in Paulsboro, New Jersey, where the collision ruptured the hull, leading to some 264,000 gallons of crude oil to spill into the Delaware River. The spill caused significant environmental damage(s), requiring significant cleanup costs. The Owners (Frescati) and the Charterers (CARCO) held diametrically opposed interpretations of the charterparty’s Safe-Berth Clause.

Relevant Clauses

The Safe-Berth Clause required the Charterers (CARCO) “to ‘designate and procure’ a safe place” for the vessel to berth during cargo loading and discharge, making it an express warranty. As a result, CARCO was liable for any unsafe berth, regardless of due diligence in its selection.

The General Exceptions Clause limited liability in specific scenarios, including “perils of the seas”, but was found inapplicable here. The charterparty placed explicit responsibility for berth safety solely on the Charterers (CARCO). The “express warranty of safety” in the charterparty overrode the General Exceptions Clause.While the Oil Pollution Insurance Clause may have covered other risks, it did not relieve the Charterers of liability under the Safe-Berth Clause. The Charterers (CARCO) were still at fault for the unsafe berth, and associated damage, even with appropriate insurance in place.

Discussion

The Charterers (CARCO) claimed the Safe-Berth Clause required “due diligence”, not a guarantee of safety, going on to claim they should not bear full financial responsibility for the Paulsboro spill. CARCO contented limitation of liability based on the General Exceptions Clause and the Oil-Pollution Insurance Clause in the charterparty. 

The Owners (Frescati) counterclaimed, arguing the Safe-Berth Clause was a clear warranty of safety, and should be interpreted as such, making CARCO strictly liable for the selection of an unsafe berth, the Paulsboro spill, and its cleanup and damage costs. 

Decision

The Supreme Court ruled in favor of the Owners (Frescati Shipping Co.). The Safe-Berth Clause was properly applied as an “express warranty of safety”. The Charterers’ (CARCO) strict liability for Athos I’s collision and the resulting oil spill while attempting to berth in Paulsboro. It was held that CARCO was solely responsible for providing a safe berth for the vessel, regardless of diligence, the charterparty contained clear, unqualified language in the Safe-Berth Clause giving the Charterers (CARCO) express liability for any incidents resulting from an unsafe berth.

Traditional contract law principles state that the named Party is liable for breaches when the contract language is “clear and unqualified”. The Safe-Berth Clause unambiguously imposed liability, without condition, on the Charterers (CARCO). Strict liability is required, even in a no-fault situation, such as this. Prior decisions, especially in the Second Circuit, contained precedent where Safe-Berth Clauses were consistently accepted as a warranty of safety. Particularly, Paragon Oil Co. v. Republic Tankers S.A. reinforced holding the Charterer, presently CARCO, solely responsible for costs and damages arising from an unsafe berth.

The Court distinguished the basis of this case, contract law, from tort law, clarifying the Charterers’ (CARCO) reliance on “due diligence” was inapplicable. The Safe-Berth Clause fell within the scope of contract law, wherein sole responsibility was imposed on the Charterers. CARCO attempted to limit their liability under the General Exceptions Clause, which covered certain incidents such as “perils of the sea”, but were also inapplicable. 

The Supreme Court ruled that the spill was ultimately caused by the unsafe berth, not a “natural peril”, as required by the General Exceptions Clause. Further, the Charterers’ (CARCO) argument concerning the Oil Pollution Insurance Clause was dismissed, as it did not relieve them of the express responsibilities of the Safe-Berth Clause, regardless of risks unrelated to berth safety covered by insurance. 

Dissent and Potential Conflict of Duties

Conflict between the Charterers’ (CARCO) duty to ensure a safe berth and the Master’s duty to refuse the vessel’s entry to an unsafe one was of concern; however, the majority held that the duties did not conflict per the designated roles in the Safe-Berth Clause. 

Conclusion

It was affirmed that the Safe-Berth Clause was a warranty of safety, thus the Charterers (CARCO) were solely liable for the spill. The need for clear contractual language in maritime contracts was emphasized by highlighting the liability risks of unqualified clauses which impose strict terms of liability, regardless of qualifiers, including negligence or fault.