In a much-anticipated decision with huge monetary consequences concerning a vessel oil pollution incident, the US Supreme Court recently settled a dispute that had been in the federal court system for many years in Citgo Asphalt Refining Co. v. Frescati Shipping Co., Ltd., 139 S.Ct. 1599 (2019).
The Supreme Court sets the stage.
In 2004, the M/T Athos I, a 748-foot oil tanker, allided with a 9-ton anchor abandoned on the bed of the Delaware River. The anchor punctured the tanker's hull, causing 264,000 gallons of heavy crude oil to spill into the river. As required by federal statute, respondents Frescati Shipping Company—the Athos I's owner—and the United States covered the costs of cleanup. They then sought to reclaim those costs from petitioners CITGO Asphalt Refining Company and others (collectively CARCO), which had chartered the Athos I for the voyage that occasioned the oil spill. According to Frescati and the United States, CARCO had breached a contractual "safe-berth clause" obligating CARCO to select a "safe" berth that would allow the Athos I to come and go "always safely afloat."
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.
… the agreement between Star Tankers and CARCO was based on a standard industry form contract. It drew essentially verbatim from a widely used template known as the ASBATANKVOY form….
At the core of the parties' dispute is a clause in the charter party requiring the charterer, CARCO, to designate a safe berth at which the vessel may load and discharge cargo. This provision, a standard feature of many charter parties, is customarily known as a safe-berth clause. The safe-berth clause here provides, as relevant, that "[t]he 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."
We granted certiorari, 587 U. S. ___ (2019), to resolve whether the safe-berth clause at issue here merely imposes a duty of diligence, as the Fifth Circuit has held in a similar case, or establishes a warranty of safety, as the Second Circuit has held in other analogous cases…The former interpretation allows a charterer to avoid liability by exercising due diligence in selecting a berth; the latter imposes liability for an unsafe berth without regard to the care taken by the charterer. Because we find it plain from the language of the safe-berth clause that CARCO warranted the safety of the berth it designated, we affirm the judgment of the Third Circuit.
The court's analysis starts from the proposition that the contract had a plain meaning.
Given the unqualified language of the safe-berth clause, it is similarly plain that this acknowledged duty is absolute. The clause requires the charterer to designate a "safe" berth: That means a berth "free from harm or risk.…" Selecting a berth that does not satisfy those conditions constitutes a breach. The safe-berth clause, in other words, binds the charterer to a warranty of safety.
It did not matter to the court that the word "warranty" was not part of the clause.
And crucially, the charterer's assurance of safety is not subject to qualifications or conditions. Under any conception of materiality and any view of the parties' intent, the charterer's assurance surely counts as material. That leaves no doubt that the safe-berth clause establishes a warranty of safety, on equal footing with any other provision of the charter party that invokes express warranty language.
The court refused to consider tort-based concepts, stating that they had no place in the contract analysis. The parties could have contracted to have the clause conditioned or limited to be based on due diligence but did not do so. The court also refused to apply other clauses in the contract and alternative interpretations that might evidence an intent favoring CARCO's position.
We instead take the safe-berth clause at face value. It requires the charterer to select a safe berth, and that requirement here amounts to a warranty of safety.
More often than not, the Supreme Court has gone along with interpretations of maritime law from the well-respected treatise G. Gilmore & C. Black, Law of Admiralty (2d ed. 1975), but here, it did not agree. The court also expressly disagreed with the holding and analysis of the Fifth Circuit Court of Appeals in Orduna S.A. v. Zen-Noh Grain Corp., 913 F. 2d 1149 (5th Cir. 1990), because it used tort-based concepts. Instead, it found a footing for its decision using contract-based principles in the Second Circuit's "long line of decisions interpreting the language of unqualified safe-berth clauses to embody an express warranty of safety."
The court held the following.
We conclude that the language of the safe-berth clause here unambiguously establishes a warranty of safety, and that CARCO has identified "no reason to contravene the clause's obvious meaning." Kirby, 543 U. S., at 31–32. We emphasize, however, that our decision today "does no more than provide a legal backdrop against which future [charter parties] will be negotiated." Id., at 36. 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.
Justices Clarence Thomas and Samuel Alito filed a compelling dissent. It describes the majority decision as "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 factfinding on whether industry custom and usage establish such a warranty in this case." After explaining its reading of the safe-berth clause, the dissent interprets the clause differently, "Thus, under the plain language of the safe-berth clause, the vessel master has a duty of discharge and right of refusal, while the charterer has a right of selection and duty to pay for lighterage."
The dissent is well-reaoned, and one might be able to argue based on how well it is reasoned that the majority's position was result-oriented. It concludes the following.
I appreciate the majority's desire to interpret the safe-berth clause in a manner that provides clarity to the maritime industry. The plain meaning of the contract's text, however, does not support the majority's interpretation. Fortunately, the majority's opinion applies only to this specific contract, and its assertions regarding a material statement of fact are but dicta. Because I would reverse the judgment of the Court of Appeals and remand for further proceedings, I respectfully dissent.
While it is beyond the scope of this article, it would be interesting to know how often justices of the US Supreme Court write dissents to express disagreement over the "plain meaning" of the terms of a contract. Here, on the "ultimate and biggest stage," we have two of our nine preeminent legal minds who disagree over "plain meaning" of the terms in a contract. It should be easy to see why those of us in private practice often disagree with one another on contract interpretation positions and the court system is called on to determine who is right.
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