Supreme Court Rules on CITGO v. Frescati Shipping

On 26 November 2004, M/T Athos I hit a submerged anchor enroute to a CITGO terminal in New Jersey. The allision occurred within the federally-maintained anchorage in the Delaware River leading up to that terminal, not alongside the terminal itself. The tanker ruptured, causing an oil spill that impacted 280 miles of shoreline along the Delaware River, prompting a massive and costly cleanup effort. Frescati shipping, the owner of the Athos I, paid for the cleanup, was partially reimbursed by the US Government, and then both Frescati the US Government sued CITGO for the cleanup costs.

CITGO had executed a charterparty -a maritime contract between ship owners and charterers -with Frescati which included a “safe berth” clause, which guaranteed, among other things, that the berth had sufficient draft to accommodate the vessel. CITGO argued that the submerged anchor was outside of their berth and located in an area maintained by the U.S. Army Corps of Engineers, and so they were not responsible. Frescati argued that they were, and the ensuing lawsuits made their way up to the Supreme Court, which recently ruled on the case.

The Supreme Court has concluded that the language of the safe-berth clause in the voyage charterparty in CITGO Asphalt Refining Company (“CITGO”) v. Frescati Shipping unambiguously establishes a contractual warranty of a safe berth, and that CITGO has identified “no reason to contravene the clause’s obvious meaning.” While the decision is limited to charterparties, the potential impact on public terminals that handle common carriers has yet to be identified. The Court emphasized, however, that “our decision today…does no more than provide a legal backdrop against which future [charterparties] will be negotiated.” Charterers remain free “to contract around unqualified language that would otherwise establish a warranty of safety, by expressly limiting the extent of their obligations or liability. For the foregoing reasons, we conclude that the plain language of the safe-berth clause establishes a warranty of safety and therefore affirm the judgment of the Third Circuit.”

The potential impact of this decision on other marine terminals, including public terminals, is presently unclear. According to JoAnne Zawitoski, Esq. on our Board of Advisors at IAMPE, “the ruling does not specifically address the common law concept of a wharfinger’s duty to a vessel at its berth, although this issue was raised by the briefs in the case.” Under general maritime tort law, a wharfinger or marine terminal operator has a duty of care to make sure its berth is reasonably safe, which could include an approach within the marine terminal operator’s “zone of responsibility.” This is a negligence-based concept, not any kind of guarantee, and requires a marine terminal to make only reasonable efforts to keep its berth in good condition and to remove any obstructions to navigation that it KNOWS or SHOULD have known about in its own area of responsibility around the berth. Moreover, any contributory negligence by the vessel owner/operator or pilot could reduce or eliminate the marine terminal’s tort liability. By contrast, in the CITGO v Frescati case upon which the ruling was made, a private marine terminal had entered into a contractual agreement with the vessel under which the terminal had warranted or promised that its berth would be safe for the vessel’s docking. The Supreme Court held that in the case of such a contract, negligence principles did not apply.

Under the charter terms, CITGO was obligated to provide a “safe berth”, which was interpreted by the final Court ruling as including the approach to the berth, even though not owned or maintained by CITGO. Many public port and terminal tariffs/schedules have not included language that specifically addresses the risk of vessel becoming damaged by striking a submerged object on its approach to the berth, whether transiting through federally-maintained areas or otherwise. This Supreme Court decision could prompt a review of those tariffs/schedules, which constitute an implied contract between a marine terminal operator and its customer.