'Safe Berth Warranties' Are Actual Guarantees of Port Safety, Not Due Diligence Promises, Says 3rd Circuit
“Safe berth warranties” are an express assurance of a ship’s safety when coming into a port, and not just a promise that the guarantor will perform due diligence, said the 3rd U.S. Circuit Court of Appeals as it overturned a lower court’s judgment against the owner of an oil tanker associated with a spill. Frescati Shipping Company is attempting to recoup some of the $180 million it paid out in cleanup costs and ship damages after a 2004 oil spill in the Delaware River near Paulsboro, N.J. The appeals court also found that Frescati could benefit from the safe berth warranty, even though it was not a party to the original agreement. Furthermore, the “named port exception” to safe berth warranties does not apply to hazards that are unknown to parties and that are not reasonably foreseeable, the 3rd Circuit said, and so does not apply in this case where a submerged ship anchor caused the spill.
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Ship Involved in 2004 Delaware River Oil Spill
Frescati owned the Athos I, a single-hulled oil tanker measuring 748 feet long and more than 105 feet wide. The Athos I had been chartered into a tanker pool assembled by Star Tankers, under which Star Tanker arranged for the employment of the vessel, but Frescati remained responsible for the navigation and operation of the vessel. CITGO Asphalt Refining Company (CARCO) contracted with Star Tanker in 2004 for the Athos I to transport a shipment of heavy crude oil from Venezuela to its asphalt refining facility in Paulsboro.
On Nov. 26, 2004, while making its approach to the dock at CARCO’s facility, the Athos I hit a submerged anchor. The anchor punched two holes into the side of the ship. About 263,000 gallons of heavy crude oil spilled out into the Delaware River. As the responsible party under the Oil Pollution Act, Frescati would pay nearly $180 million in clean-up costs and damages to the ship. Because Frescati cooperated, the federal government reimbursed the company for about $88 million of the cleanup costs.
The Eastern Pennsylvania District Court ruled that CARCO was not liable for the accident, despite having a “safe berth warranty” with Star Tankers guaranteeing the safety of its facility’s dock. According to the lower court, Frescati couldn’t claim the protection of the warranty, because it was not a party to the agreement. But even if Frescati could claim the warranty’s protection, the agreement was only a promise by CARCO to exercise due diligence, and not an unconditional guarantee of safety upon which a claim could be made, the District Court said. The warranty was in any case moot under the “named port exception,” because CARCO specified the port of destination ahead of time, it said. As such, the captain of the Athos I had the responsibility to reject the port as unsafe.
Appeals Court Says Facility Guarantee Means CARCO May Be Liable
On appeal, the 3rd Circuit said it would have remanded the District Court’s decision anyway -- it didn’t separate its conclusions of fact and law, and “held back making many of the factual findings that would support those conclusions, in effect going from first base to third base across the pitcher’s mound.” But the appeals court also found fault with the District Court’s legal conclusions themselves.
First, although Frescati was not a named beneficiary on the safe berth warranty between Star Tankers and CARCO, its ship Athos I benefits from the warranty, so Frescati is a third-party beneficiary. The warranty covers the ship, and for the ship’s owner not to benefit would be “nonsensical.” The 3rd Circuit also said the safe berth guaranty was an express assurance of safety, and not just a promise of due diligence. Although the 5th Circuit has said it makes more sense to read the guaranty as a due diligence requirement because it makes more sense to fault the master of a ship for an accident, rather than the contracting party, the 3rd Circuit here said that interpretation is flawed because the contracting party in many cases, including this one, knows the port of destination better than the ship’s master. Finally, the “named port exception” limitation on safe berth warranty liability doesn’t apply here. Even though the master of the ship accepted the Paulsboro facility as safe, an anchor on the bottom of the Delaware Bay was unforeseeable, the 3rd Circuit said.
The appeals court remanded to the lower court to determine liability based on findings of fact that were not included in the District Court’s original opinion, such as the actual draft of the ship and whether the promised amount of clearance was actually provided by CARCO. The appeals court also directed the lower court to decide factual issues related to a negligence claim raised by Frescati against CARCO.
(USA v. Citgo Asphalt Refining Company, 3rd Circuit No. 11-2576/2577, dated 05/16/13)