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Justices Rule Firm Chartering Vessel For Transport of Oil Obligated to Provide Safe Berth

March 30, 2020 by Dan McCue
Justices Rule Firm Chartering Vessel For Transport of Oil Obligated to Provide Safe Berth
A model of the Supreme Court chamber. (Photo by Dan McCue)

WASHINGTON – In a case with implications to both maritime transportation and international trade, the Supreme Court ruled a firm that contracted for a delivery of oil was obligated to provide “safe berth” for the vessel carrying it.

The underlying facts of the case go back to November 26, 2004, the day a single-hulled tanker, the M/T Athos I, struck a large anchor submerged in the Delaware River, and as a result, dumped more than 263,000 gallons of heavy oil into the tidal waters just outside Philadelphia, Pennsylvania.

Several weeks earlier, a syndicate of CITGO interests collectively referred to as CARCO contracted with the Frescati Shipping Company to have it pick up crude oil from Venezuela and deliver it to CARCO’s marine terminal in Paulsboro, New Jersey.

Frescati’s vessel, the Athos I, successfully completed the 1,900 mile journey, but as it approached its intended berth, it struck the unknown hazard and involuntarily discharged its cargo.

As the designated responsible party under the Oil Pollution Act, Frescati spent $143 million cleaning up the river, though it was ultimately reimbursed $88 million by the United States because the Act limited the ship owner’s liability to $45 million.

Following the cleanup, Fresacti and the United States sued CARCO to recover their respective portions of the cleanup costs. Both claims state CARCO was ultimately at fault for the spill because it breached a contractual “safe-berth clause” in the sub charter agreement.

Specifically, the argument was, once CARCO hired the vessel, it had an obligation to ensure the vessel could come and go from its berth and “always stay safely afloat.”

The case was originally tried in a 41-day bench trial by U.S. Judge John Fullam, who found CARCO was not liable for the cleanup costs.

The Third U.S. Circuit Court of Appeals disagreed, holding the clause embodied an express warranty of safety, made without regard to the charterer’s diligence in selecting the berth.

On Monday, the Supreme Court upheld the decision.

Writing for the majority, Justice Sonia Sotomayor said, “the question before us is whether the safe-berth clause is a warranty of safety, imposing liability for an unsafe berth. Regardless of CARCO’s diligence in selecting the berth, we hold that it is.”

Sotomayor emphasized, however, that decision will “provide a legal backdrop against which future [charter parties] will be negotiated.”

Chief Justice John Roberts joined Sotomayor in the decisions, as did Associate Justices, Ruth Bader Ginsburg, Stephen Breyer, Elena Kagan, Neil Gorsuch and Brett Kavanaugh.

Associate Justice Clarence Thomas wrote a dissent, in which he was joined by Samuel Alito.

“The majority concludes that the safe-berth clause in the contract at issue unambiguously created a warranty of safety by the charterer,” Thomas wrote. “Although this interpretation provides a clear background rule for the maritime industry to contract against, it is the wrong rule and finds no basis in the contract’s plain text.

“I would hold that the plain language of the safe-berth clause contains no warranty of safety and remand for fact finding on whether industry custom and usage establish such a warranty in this case,” Thomas concluded.

The Supreme Court is continuing to rely on virtual operations to get its work done during the coronavirus outbreak.

Last week, following guidelines set forth by the Centers of Disease Control, the justices held their weekly conference meeting remotely, with only Chief Justice Roberts in the justices’ conference room.

The justices added only one new case to their merits docket for next term. They did not act on the federal government’s challenge to California’s “sanctuary state” laws, which prohibit state and local law enforcement officials from cooperating with federal immigration officials.

Instead, they agreed to hear an appeal filed by the federal government on behalf of law enforcement officials who were sued by a Michigan man whom they had tried to arrest when they mistakenly believed that he was a fugitive they were seeking.

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