High court’s safe-berth ruling favors shipowner over charterer

The U.S. Supreme Court has ruled that charterer Citgo is liable, not the shipowner, for the cost of cleaning up the 15-year-old Athos I oil spill in the Delaware River, deciding that the safe-berth clause in the charter contract should be interpreted as a safety warranty.

The tanker, chartered by Citgo Asphalt Refining Co. and other parties, hit an abandoned 9-ton anchor on Nov. 26, 2004, resulting in a spill of 264,000 gallons of heavy crude oil. The incident occurred as the 750-foot Cyprus-flagged and Tsakos-managed ship was approaching its berth at a Citgo refinery in Paulsboro, N.J. The tanker was carrying 325,000 barrels, or about 13.6 million gallons, of Venezuelan crude.

After Athos I hit the anchor, crewmembers aboard two assisting tugboats noticed an oil slick coming from the 21-year-old, single-hull ship. It began to list 8 degrees to port and lost power. After tracing the leak, the crew transferred the oil to other tanks to avoid further spillage.

The next day, divers found a 6-foot gash in the No. 7 center cargo tank. Another underwater inspection on Nov. 28 revealed a smaller puncture near the gash. The No. 7 ballast tank also was breached.

The U.S. Coast Guard concluded there was no negligence or violation on the part of the ship’s crew or its pilot. Oil from the tanker drifted 115 miles downriver, impacting 280 miles of shoreline in Pennsylvania, New Jersey and Delaware.

The shipowner, Frescati Shipping Co. Ltd., paid $133 million to clean up the spill, of which $88 million was reimbursed by the U.S. Oil Spill Liability Trust Fund. Frescati and the federal government eventually sued Citgo and other parties involved in the charter to recoup the costs, arguing they had breached the safe-berth clause by failing to provide a suitable docking site.

In a 7-2 vote on March 30, the Supreme Court affirmed an earlier decision by the 3rd Circuit Court of Appeals, with Justice Sonia Sotomayor writing the majority opinion. Conservative Justices Clarence Thomas and Samuel Alito wrote in their dissent that the contract’s safe-berth clause did not constitute a safety guarantee. They added that more information was needed on whether industry standards establish such a warranty.

In a prepared statement, Citgo President and CEO Carlos Jorda expressed disappointment with the ruling but said “we respect the court’s interpretation and can finally close this chapter on the (Athos I) case.”

Holland & Knight, the law firm representing Athos I’s owner, said the decision clarifies 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.”

Kathy Metcalf, president and CEO of the Chamber of Shipping of America, applauded the ruling. The group represents U.S.-based companies that own, operate or charter oceangoing cargo vessels.

“Shipowners should be able to rely on the safe-berth clause,” she said. “And when local conditions result in damage to the ship and the environment beyond the control and knowledge of the ship’s owner and crew, the liability should be placed on those in the best position to have that local knowledge.”

Metcalf’s reaction mirrors that of the international trade organizations BIMCO, Intercargo and Intertanko, which said in a joint statement that “the U.S. Supreme Court has made a sound and robust decision consistent with the shipping industry’s long-held understanding.”

The standard safe-berth language in many charter contracts states 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 therefrom always safely afloat.”

Maritime attorney Michael Chalos, best known for his defense of Capt. Joseph Hazelwood in the Exxon Valdez oil spill case, said the question now for the maritime industry “is whether safe-berth clauses of future charter parties will be revised to specifically state that the clause is not a warranty of safety, but merely one that only requires due diligence on the part of the charterer to make the berth and its approaches safe.”

“As the clause is a matter of contract negotiation and interpretation, the language of the clause can be revised to mitigate or even eliminate the holding of the Supreme Court in this case,” Chalos said. “Obviously, lawyers for charterers will push for the due-diligence language, while lawyers for vessel owners would counsel against any such change in light of the Supreme Court holding in this case.”

Chalos said that the ultimate result of the decision “will depend for the most part on market forces. That is, if the market is strong for owners, then the current language of the clause will remain in place. If the market favors the charterers, there may be revisions to the clause that favor the charterers’ position.”

Maritime attorney James Mercante said that contracting parties “will be sharpening their pencils to make appropriate additions or deletions to the safe-berth clause. Indeed, the most telling impact will likely be that brokers, owners and charterers will now diligently read all of the traditional clauses contained in form contracts.”

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