While you were scrubbing Covid-19 off your hands, the Supreme Court issued a decision providing a clear background rule for the maritime industry.
The cast in this dispute includes an abandoned anchor, a tanker, crude oil and a subcharter agreement. The plot unfolds with the tanker approaching its berth when its hull is punctured by the anchor, oil spills, and then the owner pays for the cleanup. Things get interesting when the vessel owner spins around (shaking the subcharter agreement) and demands repayment for cleanup costs from the subcharterer.
The question for the Supreme Court was whether the “safe berth” clause was a warranty of safety or merely a duty to exercise due diligence. That is, liability attaches once a warranty is breached and it doesn’t matter how much spit and polish effort you made not to breach. In the past, some courts held that a safe berth clause only imposed a duty of due diligence while other courts held that such language imposed a warranty of safety. If it’s a warranty, liability is imposed for an unsafe berth without regard to the care taken by the subcharterer.
Thirty pages of opinion later (including a dissent) we learn that the Supreme Court views a safe berth clause as being a warranty. The fact that the safe berth clause in the agreement didn’t include the word “warranty” wasn’t determinative. The Supreme Court explained that plain statements of material fact in a charter party are warranties, regardless of their label.
What’s important about the ruling maybe isn’t the outcome, but what the outcome should remind everyone. Maritime players can’t get lax with the documents they use in support of their transactions. All that effort to find a client, seal the deal and get paid is lost if the paperwork doesn’t reflect your intentions or understanding. Here, the parties could just define what they mean when they use the term safe berth. They can contract out of the Supreme Court’s definition and edit such a clause to refer to exercising due diligence.
A couple of well-placed words can probably make clear everyone’s obligations and avoid this kind of dispute.