The contractual position of lithium-ion batteries in transit

This article originally appeared in the February 2024 issue of the Fire Protection Associations' Fire & Risk Management Journal.

The logistics and supply chain industry is required to move all manner of goods. Many of these can give rise to considerable risks of loss or damage to the cargo, to other cargo carried alongside, the carrying vehicle, vessel or aircraft, and personnel. Whilst the carriage and storage of dangerous goods is nothing new, following a number of high- profile disasters at sea and media attention on fires caused by lithium-ion batteries, the industry will have to review how it addresses these risks.

This note will not consider the regulatory position although it should be noted that changes are planned as the relevant regulatory bodies seek to keep up with the ever-changing technology involved with such batteries. Instead, it will concentrate on the contractual position between the parties in the logistics chain.

Lithium-ion batteries are used in many products and with the drive for green energy, such use is likely to increase yet further. Of course, the products in which they are used need to be moved, stored, and handled. Those forwarders dealing with the motor industry, electronics industries, and the movement of consumer products will have to adapt to the carriage of lithium-ion batteries (or products which include such batteries) if they intend to stay current and continue in business.

Many forwarders, carriers, warehouse keepers, and others in the logistics industry will trade subject to standard trading terms which will impose a number of conditions into the relevant contract which address the question of dangerous goods. Many of these standard terms rely on reasonably old precedent wordings which may need reviewing in light of the evolving risks faced.

It is difficult to generalise about the risks posed by lithium- ion batteries and products containing these batteries. The batteries are evolving and new technology is being developed and deployed on a continuing basis. Some of these batteries hold a much higher charge, some hold their charge for longer periods, and some are inherently safer than others. As such, there is quite a variance in the safety and risks associated with different types of lithium-ion batteries.

Typically, lithium-ion battery fires occur for a number of reasons:

• Internal defects
• Physical damage
• Electrical abuse (overcharging, over-discharging, or short circuit)
• Thermal abuse

Some of these events will occur prior to the goods being handed over for carriage or storage but some, however, may well occur during the provision of the storage or carriage services. That can have an important impact on the contractual position.

Contract terms and dangerous goods

The standard contract terms commonly seen in the logistics industry typically address dangerous goods by allowing the customer to submit goods which are considered to be dangerous or which might become dangerous. However, these terms will insist that the customer advises the forwarder in writing of the nature of the goods, the risks posed by the goods, and any special precautions required. The clauses also frequently provide the forwarder with the option of disposing of or destroying the goods in order to eliminate the risk presented.

At common law, there is an implied undertaking that the person handing the goods (the shipper), is not handing over dangerous goods to the carrier unless the shipper expressly notifies the carrier of the dangerous nature of the cargo or the carrier is (or ought to be) aware of the dangerous nature of the cargo (Bamfield v Goole and Sheffield Transport Co. Ltd [1910] 2KB 94).

This undertaking is a strict obligation and is not subject to the shipper’s knowledge – see The Giannis N.K. [1994] 2 Lloyd’s Rep 171. The indemnity and other liabilities arising in relation to the shipping of dangerous cargo arise without the need for any negligence or knowledge on the part of the shipper.

This gives rise to a number of questions. First, when are goods considered to be “dangerous” or otherwise give rise to the risks identified? Second, to what degree do such clauses protect the forwarder in the event that the goods turn out to be dangerous?

What is "dangerous"?

Many “dangerous” goods are listed within the various regulatory codes - International Maritime Dangerous Goods Code (IMDG), ADR, or the International Air Transport Association’s (IATA) Dangerous Goods Regulations (DGR). However, many of the contractual provisions addressing dangerous goods make it clear that they are not tied to those codes in terms of defining dangerous goods. Instead, they concentrate on the risks posed by the goods. Typically, these clauses will consider the threat posed by the goods at the outset of the services but also take into consideration the risk of the goods becoming dangerous throughout the course of the services.

English courts have adopted a wide interpretation to any attempts to define “dangerous goods” as they recognise that the driving force behind such clauses is to protect the carrier or warehouse keeper from the effects of the dangerous goods – see the Giannis N.K. (supra).

But what of the position where a logistics provider holds itself out as being a specialist in carrying, storing, or handling the goods in question?

Where a logistics provider agrees to handle goods which might pose a particular danger, that agreement has to be understood in the context of the relationship between the cargo owner and the logistics provider. Any undertaking not to present goods of a dangerous nature must be understood as being restricted to goods with a propensity to cause damage or injury of such a level or nature as to be different in kind from the propensity which is naturally associated with goods of that description – see the Athanasia Comninos [1990] 1 Lloyd’s Rep 277.

It is clear from that case that the Courts will be cautious about labelling cargo dangerous or safe in the abstract. Rather, it is important to consider the knowledge of the logistics provider and the facilities available to the logistics provider to deal with the cargo.

Where goods carry with them an inherent risk or danger, the parties should exchange a Material Data Safety Sheet (an “MSDS”) which details the risks presented by the cargo and measures to be taken in the event of an incident. Regrettably, these documents are used without sufficient regularity in the forwarding and supply chain industry. The use of such documents would certainly assist shippers of goods establish that they had provided the carriers with the required information about the goods.

If a logistics provider holds itself out as being a specialist in the carriage of electronic items or if it agrees that it is able and willing to carry goods which clearly contain lithium-ion batteries, the logistics provider may well be holding itself out as having sufficient knowledge, ability, and equipment to safely handle lithium-ion batteries. In the context of such a representation, a court might well find that lithium-ion batteries are not, in themselves, to be considered dangerous goods (insofar as the batteries do not pose any special or unforeseen danger above that ordinarily associated with lithium-ion batteries). Alternatively, the forwarder may be indicating that, even if the goods are “dangerous”, the forwarder has received sufficient notice of the nature of the goods.

That is not to say that the logistics provider is accepting any lithium-ion batteries regardless of their condition. As discussed, if the lithium-ion battery is in good condition, it poses a limited risk of fire. If the cargo owner hands over damaged lithium-ion batteries (which carry a much greater risk of fire) then those may well be considered to be dangerous goods and a special notification should be made. Similarly, if, unknown to the logistics provider, the batteries have a manufacturing defect which exposes them to a much increased risk of fire, these too would likely be considered to be dangerous insofar as they present a much greater danger than should be anticipated.

As explained above, the cargo owner’s knowledge of the manufacturing defect or damage is not relevant to the exclusion or the indemnity.

What level of protection?

The clauses usually seek to exclude the logistics provider’s liability in the event of loss or damage to the dangerous goods. The clauses also seek to provide the forwarder with the possibility of an indemnity in the event that the dangerous goods cause loss or damage to the forwarder.

The standard terms often impose wide indemnity and exemption clauses but these have to be considered in the context of the relationship between the parties. When carrying or storing lithium-ion batteries (or, indeed, any cargo), a logistics provider will be expected to exercise reasonable skill and care. Whilst an exclusion clause may be sufficient to protect the logistics provider from unexpected risks arising from the dangers of the cargo, it is unlikely to protect them from loss or damage occurring by reason of its own negligence or other failure to properly care for the goods.

Lithium-ion batteries are increasingly common in consumer electronic goods; indeed, there may be a point at which logistics providers should appreciate that where they provide services in relation to goods containing batteries, this may well involve handling lithium-ion batteries. Moreover, the risk of fire from such batteries is becoming so widely known, it may be difficult for a logistics provider to complain that it was not aware of that risk.

English law has long been reluctant to allow parties to rely on exclusion clauses for events such as fire where those events have been caused by the negligence of the party seeking to rely on the exclusion (Hollier v Rambler Motors AMC Ltd [1971] EWCA Civ 12). If a logistics provider causes lithium-ion batteries to catch fire due to its negligent handling of the batteries, it is unlikely to be able to rely on a contractual exclusion for fire unless the clause is so widely drafted as to make it clear that it excludes liability even for fire caused by the negligence of the logistics provider (Heath Steel Mines v The Erwin Schroder [1970] Ex C.R. 426). Most of the standard trading terms do not go that far as it is a commercially difficult position to sell.

Although many of the contract terms explain that the logistics provider will not carry dangerous goods without notice or that the shipper will not tender for carriage such dangerous goods without notice, a logistics provider might undo such protection if it accepts goods for carriage which it knows (or should know) contain lithium-ion batteries. A logistics provider may find it difficult to rely on the contractual prohibitions when a claim arises – see Datec Electronics Holdings Ltd v United Parcels Services Limited [2007] UKHL 23.

An evidential issue

Whilst the law is reasonably settled in allocating responsibility for the handling, storing, and carrying dangerous goods, lithium-ion batteries pose a particular evidential issue in relation to establishing the cause of fire. As identified above, fires might occur for a number of reasons; some of which may arise before the logistics provider receives the goods whereas others may have been caused during the logistics services.

The logistics industry is centred around bailment relationships. Initially, the burden of proof is on the bailor (the person handing over the goods) to show that it delivered the goods to the bailee (the logistics provider) in good order and condition.

The bailee (being in possession of the goods at the time of the loss) then has to show that it was not responsible for any loss that occurred (Volcafe Ltd and others v Compania Sub Americana De Vapores SA [2018] UKSC 61).

Lithium-ion batteries pose a particular evidential issue. Any fault or damage to the cells may not be immediately apparent on handing over the cargo. There is, of course, the possibility that the cells might become damaged during the course of handling, storage, or transportation. The opportunities to investigate the time and the cause of the loss are very limited once a significant fire has occurred.

It is likely that the initial problem will be one for the cargo owners to overcome. They have to establish that the batteries were handed over in good order and condition and that the batteries did not have any manufacturing defects or faults. This might be established with inspection certificates or other documentation demonstrating that the batteries have been properly manufactured, handled, and tested. The burden will shift to the logistics provider to establish how it handled the cargo during the provision of the services. The evidence available, in the event of a catastrophic fire, will often be very limited.

Read other items in Marine Brief - March 2024