The increasing use of electric vehicles (EVs) globally in the past decade has led to a rise in the number of EVs being transported by sea, resulting in a growing concern about the associated risks. Recent years have seen fires breaking out on cargo ships, car carriers, and roll-on/roll-off (RoRo) vessels engaged in the sea transport of EVs.
As the EV market is expected to continue its growth for at least another ten years, the maritime sector is faced with challenges related to the safe carriage of EVs and lithium-ion (Li-ion) batteries. Various stakeholders in the shipping industry, including the UK Government, have issued best practice recommendations and guidance. For instance, the UK Government’s Marine Guidance Note (MGN) 653 (M) offers best practices for the safe carriage and potential charging of EVs on Ro-Ro passenger ferries.
This article focuses on the regulations and legal issues applicable to the sea transport of EVs and Li-ion batteries.
Regulations
Fire safety requirements for ships are set out in the International Convention for the Safety of Life at Sea 1974 (SOLAS) Chapter II-2, as amended over the years, with the most recent amendments coming into force on 1 January 2024. There are specific requirements for vehicle carriers and RoRo vessels (Regulation 20-2).
The International Maritime Dangerous Goods Code (IMDG Code) sets outs comprehensive requirements for the sea carriage of dangerous goods. The IMDG Code is considered to be an extension of SOLAS Chapter VII and is based on the UN Recommendations on the Transport of Dangerous Goods, which specify the basic requirements for all modes of transport.
The IMDG Code classifies substances into different categories and indicates how they should be packaged and handled. Signatories to SOLAS must comply with the IMDG Code by incorporating it into domestic law.
Under the Code, EVs and Li-ion batteries as classified as dangerous goods but Special Provision (SP) 961 exempts EVs from the IMDG Code if they are transported on Ro-Ro vessels and other vessels that have designated areas approved by the flag state for storing vehicles. Therefore, EVs can be shipped as non-dangerous goods if the other conditions specified in SP 961 are met. EVs that are shipped in container slots on a Ro-Ro vessel have to be shipped as dangerous goods. EVs that do not satisfy the SP 961 criteria must be declared as dangerous goods but may be exempted from the IMDG Code’s requirements concerning the marking, labelling and placarding of the vehicles and containers if they meet the criteria of SP 962. EVs that are shipped by container vessel must be declared as dangerous goods.
The IMO’s Sub-Committee on Ship Systems and Equipment (SSE) is due to have discussions on improving fire protection measures on
Hague/Hague-Visby Rules
Where bills of lading are subject to the Hague or Hague-Visby Rules (HVR) or where a charterparty incorporates the Rules, then a number of considerations can arise.
Fire exception
Pursuant to Article IV Rule 2(b) of the HVR, known as the fire exception, neither the carrier nor the shipowner is responsible for loss or damage arising or resulting from fire, unless the fire is caused by the actual fault or privity of the shipowner or carrier.
Seaworthiness
However, under Article III Rule 1, the carrier has an overriding obligation to exercise due diligence to make the ship seaworthy before and at the beginning of the voyage. The seaworthiness requirement also extends to cargo-worthiness, and whether the vessel is fit to carry the cargo.
If the vessel lacks the requisite firefighting equipment or systems, alternatively if the crew are not adequately trained to firefight, these may be relevant factors going to the carrier’s liability and may potentially prevent the carrier from relying on any of the Article IV defences, including the fire exception.
The English law test for seaworthiness – from the decision in McFadden -v- Blue Star Line [1905] 1 KB – is whether a prudent owner or carrier that knew of the relevant defect would have required it to be fixed before the voyage commenced.
Given the serious risks associated with the carriage of EVs and Li-ion batteries, the question arises whether a carrier’s agreement to accept a cargo of EVs or Li-ion batteries means that they have not exercised due diligence and that the vessel was unseaworthy from the outset.
In this regard, the Supreme Court decision in the CMA CGM Libra [2021] UKSC 51 confirmed that the presence of dangerous cargo can amount to unseaworthiness, so that the carrier may be liable where it is unable to show that it exercised due diligence.
Furthermore, dangerous cargo can constitute a ‘relevant defect’ for the purposes of the prudent owner test.
While some ferry companies are reported to have banned the carriage of EVs completely, it is not arguably commercial to expect that carriers will refuse, or continue to refuse, outright to transport EVs and Li-ion batteries because of the fire risks and associated hazards. In an environment where other owners/carriers are agreeing to ship goods of this nature, then it might be unrealistic to expect a carrier to refuse the business. In such circumstances, a strict application of the prudent owner test may potentially be inappropriate. If that is the case, and only time will tell as to how the English courts decide to deal with this complex issue in practice going forward, then the crucial consideration with regard to a carrier’s liability may come down to whether it exercised due diligence.
In terms of cargo claims, it should be noted that if the relevant contract of carriage is a charterparty that incorporates the Interclub Agreement (ICA), then clause 8 provides a simple mechanism to apportion any cargo claims. Essentially, if the damage results from unseaworthiness of the vessel, then owners are liable. If the damage is due to stowage and handling of the cargo, then the charterers are liable. Claims for shortage or loss caused by other factors are split 50/50 unless there is clear evidence that one party is at fault. However, under the ICA, there is no due diligence qualification with regard to seaworthiness, which may make it more difficult to avoid liability in such cases.
Care of the cargo
Under Art III Rule 2 of the HVR, the carrier must properly and carefully carry the cargo. Where it can be demonstrated that the cargo was properly declared but the carrier failed to correctly load, handle, stow, carry, keep and care for the cargo in line with the IMDG Code (and potentially also industry guidance), it may be liable.
Due diligence
As to what will amount to due diligence in the above circumstances, this may be a multi-faceted question. Merely complying with the regulations will in most cases not be sufficient. However, industry experience of dealing with the transport of EVs and Li-ion batteries is increasing, as are the number of best practice recommendations and guidance publications from a range of experts and other industry stakeholders.
A shipowner may also undertake its own risk assessment and implement practices and procedures that fulfil its due diligence obligations. Among other things, ensuring that its firefighting systems and equipment are fit for purpose, training the crew adequately and carrying out regular testing of firefighting practices on board are all obvious measures that can be implemented.
Additionally, establishing systems to identify whether there are EVs and/or Li-ion batteries in any containers and where to store these containers, are other steps that can be taken to reduce the risk.
Dangerous cargo indemnity
Article IV Rule 6 of the HVR is the dangerous goods indemnity. It provides that where the shipper ships dangerous goods without having made the carrier aware of their nature and character, the carrier can destroy them or land them at any place before discharge without any liability to cargo interests and the shipper will be strictly liable to the carrier for all direct or indirect losses or damages arising as a result.
The carrier is, therefore, in principle protected if the shipper has mis-declared the cargo. However, the carrier must first demonstrate that it exercised due diligence to make the ship seaworthy before it can rely on any such indemnity.
In practice, determining where liability lies may be complicated. Among other relevant factors will be whether the carrier consented to the carriage of the dangerous goods while aware of their nature and character. What level of knowledge is required on the part of the carrier to amount to consent for these purposes? Were the goods mis-declared or was the declaration simply not detailed enough? These questions, and others, may be answered if a dispute involving a fire said to be caused by the carriage of EVs or Li-ion batteries comes to the English Court in due course and there is a ruling on the matter.
Insurance cover
A shipowner may find itself denied insurance cover by its hull and machinery and/or P & I insurers if the ship is unseaworthy or there is wilful misconduct or defective/insufficiency of packaging.
If the carrier is found not to be liable, then cargo interests will need to rely on their own insurance cover to recover their losses. If they have a cargo policy that only covers loss suffered as a result of a fortuitous event, there may be an argument that the shipment of Li-ion batteries entails known dangers and the loss may be considered non-fortuitous, for example, because it was caused by defective packing. There may also be situations where cargo interests’ insurance does not cover any third party liabilities they may face.
Comment
Fires onboard are said to be the main cause of marine insurance losses, with mis-declaration or non-declaration of cargoes being a key issue. Loss prevention, therefore, remains crucial.
However, it remains important to understand the legal and regulatory background in case any loss or damage is sustained.
For further information, please contact:
Jeff (Jeongkue) Park, Partner, Hill Dickinson
jeff.park@hilldickinson.com
