U.S. Court of Appeals for the Ninth Circuit, Milos Product Tanker Corp. v. Valero, Docket No. 23-55655

Transportation by Sea

 

Maritime Transportation Contract (or Charter Party)

 

Common Carrier v. Private-Carriage Case

 

Bill of Lading

 

Letter of Indemnity

 

Freight Costs

 

 

-       If a contract allocates freight liability to a nonparty

 

-       For common carriage contracts, the published rate forms an “offer,” which is “accepted” by receipt of the goods under a bill of lading, charter party, or default rules obligating a consignee (about default rules, see Interstate Commerce Act (“ICA”), 49 U.S.C. §§ 101 et seq.; see also 49 C.F.R. §1035.1)

 

 

 

 

Appeal from the United States District Court for the Central District of California.

 

 

Defendant–Appellant Valero Marketing and Supply company (“Valero”) appeals the district court’s grant of summary judgment for Plaintiff–Appellee Milos Product Tanker Corporation (“Milos”). In 2020, Milos transported by sea roughly 40,000 tons of jet fuel belonging to Valero. This transport cost a little over $1,000,000. But after Milos delivered, Valero refused to pay. Valero had already paid freight costs when it bought the fuel from a third company, Koch Refining International PTE Ltd., Co. (“Koch”), and had no intention of paying twice. Koch was also unwilling to pay Milos. Milos’s contract was with a fourth company, GP Global PTE Ltd. on behalf of Gulf Petrochem FCZ (“GP Global”), which arranged the voyage. But GP Global had “experienced financial difficulties” and could not pay. So Milos sued Valero for, relevant here, breach of contract.

 

 

Reviewing de novo, we agree with Valero. Valero was not party to the contract between Milos and GP Global. That contract specifically stated that GP Global would pay freight. Why Valero’s payment for freight to Koch never made it to Milos through GP Global is beyond the scope of this case. And States Marine (States Marine International, Inc. v. Seattle-First National Bank, 524 F.2d 245, 248 (9th Cir. 1975)) does not support an implied obligation for Valero to pay. States Marine modestly extended freight rules established in railroad cases to ocean carriers “operating under tariffs”—that is, from railroad common carriers to ocean common carriers. In both railroad and ocean contexts, common carriers must publish their rates and are subject to default terms of a universal bill of lading. These distinctions permit a presumption that whoever accepts delivery of a shipment from a common carrier understands what they are liable to pay. But in a private-carriage case like this one, notice of shipping costs and default terms cannot be presumed. It was therefore error to find that Valero had an implied obligation to pay under States Marine, and we must reverse.

 

 

(…) The Charter Party authorized the ship captain to sign bills of lading for the cargo. A bill of lading is a document “issued by the shipowner when goods are loaded on its ship, and may, depending on the circumstances, serve as a receipt, a document of title, a contract for the carriage of goods, or all of the above.” Asoma Corp. v. SK Shipping Co., 467 F.3d 817, 823 (2d Cir. 2006). Ordinarily, a carrier like Milos is responsible for releasing cargo only to the party who presents an original bill of lading. See C-ART, Ltd. v. Hong Kong Islands Line Am., S.A., 940 F.2d 530, 532 (9th Cir. 1991).

 

 

(…) On July 14, Valero agreed to purchase the jet fuel from Koch on “cost and freight” (“CFR”) terms. Under CFR terms, the seller arranges and pays for transportation to the port of delivery, while the buyer assumes title and risk of loss as soon as the cargo is loaded onto the carrier at the port of origin. See, e.g., BP Oil Int'l, Ltd. v. Empresa Estatal Petroleos de Ecuador, 332 F.3d 333, 338 (5th Cir. 2003).

 

 

(…) We begin with the law governing maritime freight liability. It is “well settled” that the party who sends the goods—the “shipper” or “consignor”—is “primarily liable to the carrier for freight charges.” States Marine, 524 F.2d at 247 (citing Louisville & Nashville R.R. Co. v. Cent. Iron & Coal Co., 265 U.S. 59, 67 (1924)). That is true even when a bill of lading purports to impose liability on the receiver of the goods (the “consignee”). Louisville & Nashville R.R. Co., 265 U.S. at 67. After all, “the shipper is presumably the consignor; the transportation ordered by him is presumably on his own behalf; and a promise by him to pay therefor is inferred.” Id. However, a contract or statute may form binding obligations that modify the general rule. See States Marine, 524 F.2d at 247–48. Of the two, a contract may be more significant because statutory default terms only come into play in the absence of a contract. See Louisville & Nashville R.R. Co., 265 U.S. at 65–67. That is natural because parties are generally free to negotiate and assign freight liability however they like. Id. (the shipper’s obligation to pay freight is not “absolute”—a “carrier and shipper are free to contract” as to “when or by whom the payment should be made”). If a contract allocates freight liability to a party, that ends the court’s inquiry. See Travelers Indem. Co. v. Bailey, 557 U.S. 137, 150–51 (2009) (citing 11 WILLISTON ON CONTRACTS § 30:4 (4th ed. 1999)); see also C.A.R. Transp. Brokerage Co. v. Darden Rests., Inc., 213 F.3d 474, 479 (9th Cir. 2000) (citing Fikse & Co. v. United States, 23 Cl. Ct. 200, 204 (1991)); In re Roll Form Prods., Inc., 662 F.2d 150, 154 (2d Cir.1981) (citing Consol. Freightways Corp. v. Admiral Corp., 442 F.2d 56, 62 (7^th Cir. 1971)).

 

 

If a contract allocates freight liability to a nonparty, then the court must determine whether the nonparty consented to be bound under the contract. In re M/V Rickmers Genoa Litig., 622 F. Supp. 2d 56, 71–72 (S.D.N.Y. 2009), aff'd sub nom. Chem One, Ltd. v. M/V Rickmers Genoa, 502 Fed. App’x 66 (2d Cir. 2012). For example, a bill of lading might allocate freight liability to a consignee. But the consignee would not be obligated to pay freight without evidence the consignee consented to be bound under the bill of lading. That evidence can be supplied by context. See, e.g., Ingram Barge Co. v. Zen-Noh Grain Corp., 3 F.4th 275, 279 (6th Cir. 2021). Typically, consignees demonstrate consent to be bound by presenting the bill of lading and accepting the goods under it. See id. at 282 (White, J., dissenting) (citing Neilsen v. Jesup, 30 F. 138, 139 (S.D.N.Y. 1887); Pacific Coast Fruit Distribs. v. Pa. R.R. Co., 217 F.2d 273, 275 (9th Cir. 1954)). Similarly, consignees may show their consent to be bound under a bill of lading by suing on the bill of lading, or by silence in context of longstanding dealings, or by the consignee’s agent negotiating the bill of lading. See Ingram Barge, 3 F.4th at 279. Notice that all these contexts show the consignee is aware of the terms to which they are agreeing.

 

 

If no contract allocates freight liability, courts may still find an implied promise to pay in some circumstances. For example, common carriers must charge publicly posted rates and are subject to default terms of a uniform bill of lading. See Interstate Commerce Act (“ICA”), 49 U.S.C. §§ 101 et seq.; see also 49 C.F.R. §1035.1. In that context, “where the parties fail to agree or where discriminatory practices are present, . . . the ICA's default terms bind the parties.” C.A.R. Transp. Brokerage Co., 213 F.3d at 479 (citing In re Roll Form Prods., Inc., 662 F.2d at 154).

 

 

A narrow reading of States Marine is in harmony with basic principles of contract formation. “The law of private carriage, now primarily charter parties, . . .  is still governed by the principle of freedom of contract.” Common Carriage and Private Carriage, 1 ADMIRALTY & MAR. LAW § 10:3 (6th ed.). Parties to a freight contract, like any other contract, are free to assign liability as they wish, provided their allocation does not run afoul of the law. See Oak Harbor Freight Lines, Inc. v. Sears Roebuck, & Co., 513 F.3d 949, 956 (9th Cir. 2008) (citing Louisville & Nashville R.R. Co., 265 U.S. at 66–67); C.A.R. Transp. Brokerage Co, 213 F.3d at 479. Beyond that, an offer generally must precede acceptance. See 1 WILLISTON ON CONTRACTS § 4:16; RESTATEMENT (SECOND) OF CONTRACTS § 23 (AM. L. INST.1981); see also Schnabel v. Trilegiant Corp., 697 F.3d 110, 121 (2d Cir. 2012). For common carriage contracts, the published rate forms an “offer,” which is “accepted” by receipt of the goods under a bill of lading, charter party, or default rules obligating a consignee. Without a published rate, it would be quite possible for a private consignee’s “acceptance” to precede the “offer” of the private carrier’s rates. And the consignee’s “acceptance” could only demonstrate a meeting of the minds if consignee liability was one of the terms of the transaction.

 

 

Any implied obligation for private-carrier consignees to pay freight must fit with foundational contract principles. Unlike common-carrier consignees, private-carrier consignees are not presumed to know key terms simply because they receive and accept goods. And they are certainly not expected to know they are liable for freight when an express contract says they are not. Therefore, private-carrier consignees cannot be under the same presumptive obligation to pay freight upon acceptance. A narrow reading of States Marine makes that clear.

 

 

 

(U.S. Court of Appeals for the Ninth Circuit, Sept. 18, 2024, Milos Product Tanker Corp. v. Valero, Docket No. 23-55655, for Publication)

 

U.S. Supreme Court, CITGO Asphalt Refining Co. v. Frescati Shipping Co., Docket No. 18-565, J. Sotomayor

Maritime Law

Admiralty

Transportation Contract

Maritime Contracts

Warranty of Safety

Contractual “Safe-Berth Clause”

Safe-Port Clause

Due Diligence from Tort Law or Contractual Express Warranty of Safety?

Implied Third-Party Beneficiary of the Safe-Berth Clause

Forms:

Charter Parties

ASBATANKVOY Form

Contract Drafting

Contracts to charter a vessel are termed “charter parties”

Allision

886 F. 3d 291, affirmed (Third Circuit)

Held: The plain language of the parties’ safe-berth clause establishes a warranty of safety.

In 2004, the M/T Athos I, a 748-foot oil tanker, allided with a nine-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.

(An allision is “the contact of a vessel with a stationary object such as an anchored vessel or a pier.” Black’s Law Dictionary 94 (11th ed. 2019).)

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.”

During the relevant period, the Athos I was the subject of a series of contracts involving three parties: Frescati, Star Tankers, and CARCO. Frescati owned the Athos I. Star Tankers, an operator of tanker vessels, contracted with Frescati to charter the Athos I for a period of time. CARCO then contracted with Star Tankers to subcharter the Athos I for the inauspicious voyage resulting in the oil spill. Pertinent here is the subcharter agreement between Star Tankers and CARCO. In admiralty, such contracts to charter a vessel are termed “charter parties.” Like many modern charter parties, 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, named after the Association of Ship Brokers & Agents (USA) Inc. (ASBA) trade association that publishes it. 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 “the 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.”

The charter party separately requires CARCO to direct the Athos I to a “safe port” along the Atlantic seaboard of the United States.

The parties agree that the safe-berth clause also encompasses what is often referred to as a “safe-port clause.” The safe-port clause here provides that “the vessel . . . shall, with all convenient dispatch, proceed as ordered to Loading Port(s) named . . . , or so near thereunto as she may safely get (always afloat), . . . and being so loaded shall forthwith proceed, . . . direct to the Discharging Ports, or so near thereunto as she may safely get (always afloat), and deliver said cargo.” Addendum to Brief for Petitioners 4a. The parties do not dispute that the two clauses should be read in conjunction

Pursuant to the charter party, CARCO designated as the berth of discharge its asphalt refinery in Paulsboro, New Jersey, on the shore of the Delaware River. In November 2004, the Athos I set out on a 1,900-mile journey from Puerto Miranda, Venezuela, to Paulsboro, New Jersey, carrying a load of heavy crude oil. The vessel was in the final 900-foot stretch of its journey when an abandoned ship anchor in the Delaware River pierced two holes in the vessel’s hull. Much of the Athos I’s freight drained into the river.

(…) As owner of the Athos I, Frescati was deemed a “responsible party” for the oil spill under OPA. Frescati worked with the U. S. Coast Guard in cleanup efforts and covered the costs of the cleanup.

(…) As relevant here, both Frescati and the United States claimed that CARCO had breached the safe-berth clause by failing to designate a safe berth, and thus was at fault for the spill.

(…) 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.

(…) 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.

Maritime contracts “must be construed like any other contracts: by their terms and consistent with the intent of the parties.” Norfolk Southern R. Co. v. James N. Kirby, Pty Ltd., 543 U. S. 14, 31 (2004); see also 2 T. Schoenbaum, Admiralty & Maritime Law §11:2, p. 7 (6th ed. 2018) (“Federal maritime law includes general principles of contract law”). “‘Where the words of a contract in writing are clear and unambiguous, its meaning is to be ascertained in accordance with its plainly expressed intent.’” M&G Polymers USA, LLC v. Tackett, 574 U. S. 427, 435 (2015) (quoting 11 R. Lord, Williston on Contracts §30:6, p. 108 (4th ed.2012) (Williston)). In such circumstances, the parties’ intent “can be determined from the face of the agreement” and “the language that they used to memorialize that agreement.” 11 Williston §30:6, at 97–98, 112–113. But “when a written contract is ambiguous, its meaning is a question of fact, requiring a determination of the intent of the parties in entering the contract”; that may involve examining “relevant extrinsic evidence of the parties’ intent and the meaning of the words that they used.” Id., §30:7, at 116–119, 124.

Our analysis starts and ends with the language of the safe-berth clause. That clause provides, as relevant, that the charterer “shall . . . designate and procure” a “safe place or wharf,” “provided [that] the Vessel can proceed thereto, lie at, and depart therefrom always safely afloat.” Addendum to Brief for Petitioners 8a. As even CARCO acknowledges, the clause plainly imposes on the charterer at least some “duty to select a ‘safe’ berth.” Brief for Petitioners 21. 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.” Webster’s Collegiate Dictionary 1030 (10th ed. 1994); see also New Oxford American Dictionary 1500 (E. Jewell & F. Abate eds. 2001) (“safe” means “protected from or not exposed to danger or risk”). And the berth must allow the vessel to come and go “always” safely afloat: That means afloat “at all times” and “in any event.” Webster’s Collegiate Dictionary, at 35; see also New Oxford American Dictionary, at 47 (“always” means “at all times; on all occasions”). 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.

No matter that the safe-berth clause does not expressly invoke the term “warranty.” It is well settled as a matter of maritime contracts that “statements of fact contained in a charter party agreement relating to some material matter are called warranties,” regardless of the label ascribed in the charter party. 22 Williston §58.11, at 40–41 (2017); see also Davison v. Von Lingen, 113 U. S. 40, 49–50 (1885) (a stipulation going to “substantive” and “material” parts of a charter party forms “a warranty”); Behn v. Burness, 3 B. & S. 751, 122 Eng. Rep. 281 (K. B. 1863) (“With respect to statements in a [charter party] descriptive of . . . some material incident . . . , if the descriptive statement was intended to be a substantive part of the [charter party], it is to be regarded as a warranty”). What matters, then, is that the safe-berth clause contains a statement of material fact regarding the condition of the berth selected by the charterer.

(…) As a general rule, due diligence and fault-based concepts of tort liability have no place in the contract analysis required here. Under elemental precepts of contract law, an obligor is “liable in damages for breach of contract even if he is without fault.” Restatement (Second) of Contracts, p. 309 (1979) (Restatement (Second)). To put that default contract-law principle in tort-law terms, “Contract liability is strict liability.” Ibid. (emphasis added); see also 23 Williston §63:8, at 499 (2018) (“Liability for a breach of contract is, prima facie, strict liability”). What CARCO thus protests is the straightforward application of contract liability to a breach of contract.

Although contract law generally does not, by its own force, limit liability based on tort concepts of fault, parties are of course free to contract for such limitations. See Restatement (Second), at 309 (obligor who wishes to avoid strict liability for breach may “limit his obligation by agreement”). Here, however, the safe-berth clause is clear that the parties contracted for no such thing.

(…) It also bears mention that many other industry form charter par-ties—not selected by CARCO and Star Tankers—explicitly limit the liability that may flow from a charterer’s selection of a berth. See, e.g., 2E J. Force & L. Lambert, Benedict on Admiralty, ch. XXVII, §27–567 (rev. 7th ed. 2019) (INTERTANKVOY form specifies that “charterers shall exercise due diligence to ascertain that any places to which they order the vessel are safe for the vessel and that she will lie there always afloat”).

(…) The parties also dispute whether the prevailing industry usage of safe-berth clauses supports reading the safe-berth clause here as a warranty or as a promise of due diligence. Because the express language of the safe-berth clause is susceptible to only one meaning, we need not address these arguments.

Secondary sources: T. Schoenbaum, Admiralty & Maritime Law §11:2, p. 7 (6th ed. 2018); J. Force & L. Lambert, Benedict on Admiralty, ch. XXVII, §27–567 (rev. 7th ed. 2019)

(U.S. Supreme Court, March 30, 2020, CITGO Asphalt Refining Co. v. Frescati Shipping Co., Docket No. 18-565, J. Sotomayor)