Gard P&I club lawyers, Kim Jefferies, Frank J. Gonynor, and Adrian Moylon comment on the US Supreme Court decision in Athos I
The US Supreme Court decision in Athos I holds that the sub-charterer was responsible, via the safe berth clause, to the vessel owner to indemnify for all the costs of a major pollution clean-up.
The Citgo Asphalt Refining Co. (CARCO), et al. v. Frescati Shipping Co., Ltd. et al. (aka the Athos I case), is a cautionary tale of the wording of clauses which may apply to a party that is in the chain of charter parties, but was not an actual signatory to the contract containing the clause in question. The case illustrates the high costs of pollution cases in the US and the commensurate lengthy litigation that can ensue.
The case and appeals hinged on whether the safe berth provision in an ASBATANKVOY charter party, was an absolute warranty or guarantee of safety, or merely required the charterer to use due diligence in selecting the berth or port. Different courts held different opinions and 16 years after the spill took place in 2004, the case was settled against the sub-charterer in the US court. The case also has implications in English law, as discussed in the observations by Gard’s US and UK lawyers.
The Supreme Court decision also conforms with the English law view that charterers are free to contractually limit exposure by choosing more charterer-friendly provisions. In the real world, it is the high-volume traders, like oil companies and major commodity traders, that can negotiate for due diligence standards. Freedom to contract is in many cases a function of leverage.
In times of freight volatility, charter chains can become long and complex, with pairs of contractual counterparties selecting not only differing safe port/berth provisions but also law and jurisdiction clauses. Even if not long, such chains typically include one of more time charterers and an ultimate voyage charter. Athos I was time chartered to Star Tankers naming English law and arbitration with a due diligence standard for the safe port and berth clause. The Star Tankers voyage charter to CARCO was subject to US law and jurisdiction. So, owners (and their subrogees including the US Government) not only benefited from the safe berth warranty but also from the law and jurisdiction clause.
"The decision by the US Supreme Court in Athos I did achieve some uniformity of outcome"
It remains to be seen whether the third-party beneficiary analysis will jump the pond. The English practice in litigation under charter party chains, where the head owner has suffered a loss allegedly due to an unsafe port or berth, is that the owner initiates litigation against its charterer who in turn initiates litigation against its own contractual counter-party and so on down the line. Only the parties to the specific charter contract have title to sue, so this cascade of litigation is the norm. Where the charter terms specify English law and arbitration and the terms are back-to-back the parties may agree to streamline an arbitration by all appointing the same arbitrators and combining the proceedings, but this is done merely for convenience and cost-saving. In the enforcement of a safe port/berth warranty there is no recognised right in English law to proceed directly from the top of the chain to the bottom, as was done in the US litigation, even when the terms are identical.
So, the decision by the US Supreme Court in Athos I did achieve some uniformity of outcome for the interpretation of a type of safe berth clause.
Upon further examination, there still exist significant unresolved legal issues and procedural differences in such situations, leaving the door open to future cases to further deal with the remaining complexities. One thing is certain – the charterer’s contractual undertaking to name a safe port and berth, whatever its precise language, is an allocation of risk which can have monumental financial consequences.