A recent decision from the Third Circuit Court of Appeals, In Re Petition of
Frescati Shipping Company, Ltd., 2013 WL 2099746 (2013) should be of interest,
if not concern, to many in the maritime industry. Addressing multiple claims
with an incomplete factual record, the Third Circuit revisited the intent and
scope of the safe berth warranty in a charter agreement.
The Facts of the Case
At all relevant times, Frescati was the owner of the
Athos 1,
an oil tanker. It time chartered the vessel to Star Tankers. Star Tankers, in
turn, voyage chartered the vessel to a group of affiliated oil companies,
CARCO.
The time charter between Frescati and Star Tankers required Star Tankers to
“exercise due diligence to ensure the vessel is only employed between and at
safe places.” The voyage charter between Star Tankers and CARCO provided “the
vessel shall load and discharge at any safe place or wharf…” That is, the safe
berth obligations in the charters were different. The time charter required
only the exercise of due diligence to direct the vessel to a safe berth; the
voyage charter required a safe berth.
CARCO owned a terminal on the Delaware River. It was inshore of an anchorage
area, which was inshore of the navigation channel. The anchorage’s border
ranged from 130 to 670 feet off CARCO’s dock. CARCO maintained a
triangular-shaped area of waters adjacent to the berth up to the border of the
anchorage. It inspected the area for depth but did not search for debris.
CARCO provided the master of the
Athos 1 with a copy
of its port manual. It stated the maximum allowable draft at the terminal was
38 feet but was subject to change. CARCO understood the
Athos 1
would have a 37-foot draft. The master claimed to have loaded the vessel to a
draft of 36 feet, 7 inches. Four days before the
Athos 1
was to dock, the maximum berth draft was changed to 36 feet but this change was
not communicated to the vessel’s master.
Vessel of the size of the
Athos 1 customarily came
up the Delaware River, and made a 180-degree starboard turn into the anchorage.
Then, they were pushed through the anchorage to CARCO’s dock by tugs. The
Athos
1 began to follow this procedure. When the vessel was
approximately 900 feet from CARCO’s dock and halfway through the anchorage, it
suddenly listed to port and oil became visible on the water. It was later
determined that an abandoned anchor lying on the bottom of the river punched
two holes in the
Athos 1's hull through which 263,000
gallons of crude oil spilled into the river.
The anchor, whose presence was unknown to the parties until the accident
investigation, had been in the same position for at least three years. Its
owner was never identified.
Frescati was designated the “responsible party” under the Oil Pollution Act
of 1990 and incurred $180 million in cleanup costs and repair of the damage to
the
Athos 1
The Lawsuits and Trial
Frescati filed an admiralty action in federal district court seeking to
limit its liability for the spill. It was able to limit its liability to $45.474
million because it had cooperated in the cleanup effort. It was also able to
recover $88 million of its cleanup costs from the Oil Spill Liability Trust
Fund established under the Oil Pollution Act, because it had complied with the
Act’s terms.
CARCO filed a claim in the limitation proceeding to recover the value of the
oil lost in the spill. Frescati filed a cross claim against CARCO seeking to
recover its non-reimbursed clean up costs, alleging CARCO violated the safe
berth warranty in the voyage charter. The United States filed a separate
lawsuit against CARCO to recover the amount it had paid to Frescati from the
trust fund.
The district court found in favor of CARCO. It held Frescati was not a
beneficiary of the voyage charter between CARCO and Star Tankers, and could not
recover from CARCO if CARCO breached the safe berth warranty in that agreement.
The district court also held CARCO was not negligent when it did not search for
debris in the anchorage outside its berth. The district court attributed sole
fault to the unknown party that had dropped the anchor. Frescati and the United
States appealed the district court’s judgment to the Third Circuit Court of
Appeals.
The Appeal
The Third Circuit disagreed with the district court’s analysis of the legal
issues and remanded the case to the district court for further factual
findings. However, it provided guidelines for the district court to follow.
Among other issues, the Third Circuit analyzed: 1) whether Frescati was a
beneficiary of the safe berth warranty in the charter between Star Tankers and
CARCO; 2) what the scope of the safe berth warranty was; 3) whether CARCO
breached the safe berth warranty; and 4) whether CARCO could be liable for
negligence.
Did the Safe Berth Warranty Benefit Frescati?
The voyage charter between Star Tankers and CARCO required CARCO to send the
Athos 1 to a safe berth. Frescati was not a party to that charter. Nonetheless,
it argued that as the Athos 1’s owner, it was a beneficiary of the safe berth
warranty, and could sue CARCO if it sent the
Athos 1 to
an unsafe berth.
The Third Circuit agreed with Frescati. It relied on two United States
Supreme Court cases involving a stevedore’s warranty of workmanlike service. In
1959, the Supreme Court held vessels are “automatic” third party beneficiaries
of the warranty of workmanlike service given by stevedores to charterers. A
year later, the Supreme Court held the vessel owner, in addition to the vessel
itself, was a beneficiary of the warranty of workmanlike service. Because a safe
berth warranty, like the stevedore’s warranty of workmanlike service, benefits
the vessel itself, the Third Circuit reasoned it would be “nonsensical” to
deprive the vessel’s owner of the benefit of such warranty. Accordingly, it
held Frescati was a beneficiary of the safe berth warranty in the voyage
charter between Star Tankers and CARCO, and could sue CARCO if the warranty
were breached.
The Scope of the Safe Berth Warranty
A port or berth is deemed safe if a vessel can “proceed to it, use it, and
depart from it without, in the absence of abnormal weather or other
occurrences, being exposed to dangers which cannot be avoided by good
navigation and seamanship.” Stated another way, a port is unsafe if a
particular vessel cannot get to it or leave it without harm, absent abnormal or
unavoidable conditions.
The Third Circuit noted the determination of whether a berth is safe must
take into consideration the particulars of the vessel entering it. That is, a
berth may be safe for one type of vessel but not for another type. Further, the
“safe” area is more than the immediate area of the berth, and includes the
adjacent areas the vessel must pass through to enter or leave. Finally, the
court held the safe berth warranty was not limited to known hazards because
that would undermine the strict nature of the warranty.
Was the Safe Berth Warranty Breached?
CARCO agreed if the safe berth warranty applied, it would include the area
in and around the terminal including the anchorage. However, the Third Circuit
held the district court erred in determining CARCO had not breached the
warranty. It reasoned the district court should not have concluded the berth
was safe merely because numerous other ships had entered and left it without
incident. It sent the case back to the district court for further factual
findings including the determination of the actual draft of the
Athos
1and the depth of the water. It stated if the Athos 1 had a draft
of 37 feet or less, then in the absence of bad navigation or seamanship, the
warranty was breached. It also noted if the draft of the
Athos 1cannot
be determined or is found to be more than 37 feet, then it will be necessary to
determine the amount of clearance above the abandoned anchor to confirm whether
CARCO provided 37 feet of water. If it did, the warranty was not breached.
Can CARCO be Held Liable for Negligence?
As readers may recall from “A Wharfinger’s Duties” [
Pacific Maritime
Magazine, September 2009] a wharfinger does not guarantee the safety of a
ship using its dock. Instead, it must use due diligence to determine the
condition of the berth, and if possible remove known obstacles on the approach
to the berth. The Third Circuit considered how far the approach to a berth
might extend. It held “in most instances the approach will begin where the ship
makes its last significant turn from the channel toward its appointed destination
following the usual path of ships docking at that terminal.” It concluded the
Athos
1was well within the approach to CARCO’s terminal when striking
the abandoned anchor. Accordingly, it held CARCO had a duty to exercise
reasonable diligence to provide a safe approach to the terminal. It rejected
CARCO’s argument that it should not be liable because it did not have control
over the area where the anchor had been abandoned. The court noted that
limiting a wharfinger’s duty to areas over which it had assumed responsibility
would allow the wharfinger to “define the scope of its liability regardless of
the port’s actual approach.”
The holdings in In Re Frescati Shipping should not be overlooked by terminal
operators or those engaged in vessel chartering. Doing so can result in
unanticipated liabilities.
Marilyn Raia is of counsel in the San Francisco office of Bullivant
Houser Bailey. She is certified by the State Bar of California as a specialist
in admiralty and maritime law and can be reached at marilyn.raia@bullivant.com
