The United States Supreme Court granted the application of
industry groups, BIMCO, Intertanko and Intercargo to file an Amicus Curiae
brief in the recently decided case Citgo Asphalt Refining Co. v. Frescati
Shipping Co., Ltd., (Athos l).
Amicus briefs are prepared by non-parties to the dispute in
order to set out argument and legal authority relevant to the case under
review. The lawyers representing BIMCO, Intertanko and Intercargo, Chris Nolan
and Robert Denig of Holland and Knight LLC, share their advice to those
negotiating charter parties subject to U.S. law when considering safe port and
berth clauses.
In this time of pandemic, the authors also consider the Supreme
Court’s decision in the context of a Master’s implicit right to refuse a
charterer’s order to enter a port the Master considers unsafe.
The Decision
In Citgo Asphalt Refining Co. v.
Frescati Shipping Co., Ltd., (Athos l) the U.S. Supreme Court has provided
a roadmap for interpreting safe berth/safe port clauses under U.S. law, ruling
that the 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.
In a 7-2 opinion, the Supreme Court
considered the key terms in the agreement consistent with the intent of the
parties as is necessary in any contract dispute. Because the safe berth clause
was clear and unambiguous, the majority found that the analysis began and ended
with a plain meaning reading of the key terms in the clause itself.
Negotiating a charter party is a
balance of leverage and sometimes a leap of faith. Certain issues are more
important to companies than others, and for those issues, the language of
clauses will be negotiated over email drafts for hours, days or weeks depending
on its import and often insurance concerns. For the remainder of the clauses,
they are often standard, with form language added, subtracted or amended over
time based on industry clauses, personal preferences or the whims of previous
counsel from a bygone era. The US Supreme Court, in a March 30, 2020, opinion
in Citgo Asphalt Refining Co. v. Frescati Shipping Co., Ltd.,
provided a roadmap for interpreting one of the most prevalent and important of
these charter party clauses, the safe berth/safe port clause, ruling that the
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 a
safe berth.
Industry significance
The dispute arose from a 2004 oil
spill in the Delaware River involving the M/T Athos I. After a
1,900-mile voyage from Venezuela, the Athos I struck a submerged
9-ton abandoned anchor only 900 feet from its intended berth, puncturing the
hull of vessel and causing 264,000 gallons of heavy crude oil to spill into the
river. The ship owning interest of the Athos I was designated the
"responsible party" for the spill, pursuant to the Oil Pollution Act
of 1990, and initially bore the costs of the environmental cleanup, for which
the costs topped USD 100 million.
Following the environmental response,
the shipowner and federal government sought to recoup money expended for
cleanup costs from the vessel's voyage charterer. The safe berth clause at
issue was dissected by district court judges and the US Court of Appeals for
the Third Circuit over the course of a handful of trials and appeals of notable
length and cost. Yet the most important legal issue concerned the
interpretation of the standard industry Asbatankvoy safe berth clause slightly
revised in the charter as follows:
Safe Berthing-Shifting: The vessel shall load and discharge at any safe place or wharf,
or alongside vessels or lighters reachable on her arrival, 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.
Significantly, the Supreme
Court decision turned on the plain-meaning interpretation of two words in the
popular clause: "safe" and "always."
Interpreting your safe-berth clauses
In a 7-2 opinion authored by Justice
Sonia Sotomayor, the Supreme Court considered the key terms in the agreement
consistent with the intent of the parties as is required in any contract
dispute. Because the safe berth clause was clear and unambiguous, the majority
concluded that the analysis began and ended with a plain-meaning reading of key
terms in the clause itself. After 15 years of court submissions and appeals,
how could the language of the clause be so clear to the majority? Below
are three considerations that every Gard Member should be mindful of when
reviewing their charters to determine how they are impacted:
1.Consult your dictionary: The safe berth clause required the charterer to designate a
"safe place" for the vessel to traverse so long as it could continue
to the selected port "always safely afloat." The use of the word
"safe" must have connoted the designation of a safe berth "free
from harm or risk" per the simple definition in a Webster's dictionary. Additionally,
a vessel's travel "always" in a manner that is "safely
afloat" must mean in every instance; all of the time. These simple
concepts, when read together, must "bind the charterer to a warranty of
safety."
2.Look for limiting clause language: The interpretation of a safe berth clause friendlier to
charterer interests would not have absolute warranty-type language. The
majority opinion surveyed several key clauses in the charter party where the
parties affirmatively included language requiring the exercising of "due
diligence" and found several. This inclusion of the concept of tort-based
fault in a contractual setting with other clauses reaffirmed the warranty
nature of the safe berth clause because it did not include this
liability-limiting qualified language.
3.Assess other industry forms: Although not dispositive, it did not aid the charterer's
position that other industry forms not chosen by the parties provided a roadmap
for properly limiting an absolute warranty of safely. In a footnote, the Court
quoted the Intertankvoy form safe berth clause which includes "safe"
port and "always" afloat language though qualified with a charterer
being required to only exercise "due diligence" in selecting the
berth.
The big picture when fixing your next
charter party
In sum, the contract interpretation,
guided by decades of Second Circuit (New York) and the United States Society of
Maritime Arbitrators arbitral award holdings that the safe berth clause
expressed an absolute warranty of safety, resulted in the Supreme Court ruling
in favor of the shipowner. The Court's decision carries an impact broader than
just the interpretation of the Asbatankvoy safe-berth clause. While the
dissenting opinion noted the majority ruling "provides a clear background
rule for the maritime industry to contract against," the majority ruling
added important context for charterers when confirming that "[c]harterers
remain free to contract around unqualified language that would other[wise]
establish a warranty of safety, by expressly limiting the extent of their
obligations or liability."
In every pending dispute involving an
incident arising out of the interpretation of the safe berth clause, the
Supreme Court has provided clear guideposts for companies and their counsel.
When drafting and negotiating future agreements, traders, brokers and their
lawyers should reflect on the few simple steps to provide more certainty
concerning the obligations being undertaken. Carefully including the term
"warranty" or "due diligence" around the use of
"safe" berth and "always" afloat will be useful, initial
steps to help avoid a two-decade legal saga. Further contractual nuance will be
addressed with the particularities of the shipping company's business in mind.
Covid-19 implications?
The shipping industry is adapting to
the Covid-19 crisis impacting the globe. Interestingly, an advisory
paragraph in the Supreme Court’s decision is informative for any owner and
charterer facing concerning when entering port. The Court reminded the
parties that vessel masters have an "implicit" right to refuse entry
to a port should they find it unsafe and that refusal requires charterers to
pay the associated costs. The refusal, though, has to be a "justifiable
refusal.' This is a high bar, but one we may very well face in US ports with
hotspot Covid-19 ratios let alone in ports worldwide. While it is less
likely an entire port will be deemed unsafe today, given the safety precautions
being taken to keep people healthy and cargoes flowing, conditions continue to
evolve. If a master refused to enter port due to coronavirus conditions,
he or she would have to keep a careful evidentiary record of conditions on the
ground as guided by shoreside operations, Gard and their able legal experts.
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