April, 2020 - ATHOS I Absolute Warranty of Safety
On 30th March, 2020, in a landmark decision which followed fifteen years of litigation, the US Supreme Court held that the safe port clause in the standard ASBATANKVOY form constitutes an express warranty of safety by the charterer as a matter of US law.
Background
On 26th November, 2004, the ATHOS 1 was berthing on the Delaware River in New Jersey when an abandoned ship anchor punctured the ship’s hull. This caused approximately 264,000 gallons of crude oil to spill into the river, creating the third worst marine oil spill in US history. The charterers, CITGO Asphalt Refining Co, who were also the owners of the discharge terminal, had chosen the berth.
The question before the court was whether the safe port clause in the charterparty was a promise by the charterer that the port would be safe for the ship, or merely an undertaking to “exercise due diligence” or reasonable care to ensure that it would be safe.
The Supreme Court’s Decision
The United States Supreme Court was asked to consider clause 9 of the widely used ASBATANKVOY form charterparty, which provides: “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, any lighterage being at the expense, risk and peril of the Charterer…”
The court held that the plain language of the clause established a warranty of safety, upholding the decision reached by the 3rd Circuit Court of Appeal. The clause imposed on the charterer a duty to select a safe berth and, given the unqualified language of the clause, that duty was absolute. There was no requirement for the clause to state the term “warranty”, as long as the clause included a statement of material fact regarding the condition of the berth selected by the charterer.
Implications of the decision
This decision brings US law into line with the long established position under English law, namely that clause 9 of ASBATANKVOY is an absolute warranty of safety of the load and/or discharge port or ports nominated by the charterer.
As similar safe port/berth clauses appear in other industry standard charterparty forms, such as the NYPE form, Members should be aware that the decision is not limited to the tanker trade, and may be of wider application. That said, it is of particular relevance to contracts based on the ASBATANKVOY form, which is subject to US law as a matter of default.
Whilst the ruling will be welcome news for owners, the decision provides certainty for both owners and charterers when using the standard industry form. Importantly, the court made clear that the decision did no more than provide a legal backdrop against which future charterparties may be negotiated, reinforcing that parties remain free to contract as they wish.
The full text of the Supreme Court’s decision in Citgo Asphalt Refining Co., et al. v. Frescati Shipping Co., Ltd., et al., No. 18-565, 2020 U.S. LEXIS 1925 (March 30, 2020), can be found here: https://www.supremecourt.gov/opinions/19pdf/18-565_3d93.pdf
Please contact the Managers for further advice in relation to any of the issues discussed above.