U.S. Supreme Court Rules on Whether Safe-Berth Clause Establishes Warranty of Safety

In 2004, a 748-foot oil tanker known as the M/T Athos I collided with a nine-ton anchor that had been left on the bed of the Delaware River, causing approximately 264,000 gallons of heavy crude oil to spill into the river. The owner of the vessel, Frescati Shipping (Frescati), and the federal government sought reimbursement of cleanup costs from the sub-charterer, Citgo Asphalt Refining Company and Others (CARCO). The United States Supreme Court recently weighed in on the litigation, finding that CARCO was liable for cleanup costs because the plain language of a safe-berth clause in the sub-charter shipping agreement established a warranty of safety. Citgo Asphalt Refining Co. v. Frescati Shipping Co., No. 18-565 (2020).

As required by the Oil Pollution Act of 1990, Frescati was the “responsible party” and had to pay $45 million toward cleanup. The federal government covered an additional $88 million of the cleanup costs with funds from the Oil Spill Liability Trust Fund (Fund). Frescati and the federal government subsequently sued to recover these costs from CARCO. They pointed to the safe-berth clause in their sub-charter agreement, which provided that “[t]he 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.” Frescati and the federal government jointly asserted the language amounted to an express warranty of the safety of the berth selected by CARCO. CARCO, on the other hand, argued that the language only imposed a duty of due diligence and not a warranty of safety. Prior to the case reaching the U.S. Supreme Court, the U.S. Court of Appeals for the Third Circuit sided with Frescati and the federal government, holding that the safe-berth clause was an express warranty of safety “made without regard to the amount of diligence taken by the charterer” in selecting the berth.

Justice Sotomayor, writing for a 7-2 majority, explained that the case hinged on the text of the safe-berth clause. The clause contains no qualifying language and therefore imposes an absolute duty on the charterer to select a safe berth. The Court noted that even though the clause did not actually invoke the term “warranty,” factual statements in a charter agreement can be warranties regardless of how they are labeled. The Court rejected CARCO’s argument that the safe-berth clause merely imposes a duty of due diligence in selecting a safe berth, noting that tort concepts such as due diligence have no place in contract analysis. Parties are free to contract for limitations on liability, the Court explained, but there was no such qualification in the form used by these parties.

Justice Thomas, in a dissenting opinion that was joined by Justice Alito, argued that the majority’s interpretation finds no basis in the underlying contract’s plain text. Instead, he read the majority’s interpretation to provide the charterer with the right to designate a berth but allow the vessel the right to refuse it if unsafe. He found it notable that the safe-berth clause contained no warranty language, especially because the contract elsewhere contained terms like “owner warrants” or “charterer warrants.”

In summary, a safe-berth clause in a sub-charter shipping agreement establishes a warranty of safety because factual statements in the charter agreement were considered warranties, regardless of the plain language in the agreement. As a result, the construction of safe-berth clauses moving forward will be carefully considered within and beyond the marine shipping industry.