Commercial Awareness Update – W/C 15th April 2024

THE BALTIMORE BRIDGE CATASTROPHE

On the 26^th of March at 1:30 am ET (5.30 am GMT) the Dali, a 300m cargo ship carrying fifty-six containers with 764 tonnes of hazardous materials, crashed into the Francis Scott Key Bridge, otherwise known as the ‘Baltimore Bridge’.

The crew had sent out a distress call that they had suffered a power failure, moments before the crash. Unable to steer or control speed, the vessel could not be manoeuvred to avoid the bridge in time.

Upon impact, six bridge workers who had been repairing potholes were killed. Although some containers were damaged, no water contamination was found in the Patapsco River.

Background

The ‘Baltimore Bridge’ was opened in 1977 with its original structure not designed for compatibility with large container vessels like the Dali.

A 2021 report by the American Society of Civil Engineers found that 42 % of U.S. bridges were more than 50 years old and 7.5% had weak structures.

Unfortunately, this included the ‘Baltimore Bridge’ because its pier protection was poor, lacking artificial islands or steel ‘sacrificial dolphins’ on the river floor, to divert vessels on course to collision.

Economic impact

The U.S. Federal Government has announced it will cover the burden of damages; however, this will involve many parties. The bridge’s collapse has resulted in the suspension of Baltimore Port stranding over forty ships. As a key economic player for the state of Maryland, it was a gateway connecting the U.S. with the international trade sector. The following statistics highlight this:

• In 2023 the port managed 52.3 million tonnes of foreign cargo worth $80 billion.
• It was the main port for importing cars into the U.S., with 847,000 cars and light trucks having entered the country via this route.
• It has also imported 1.3 million tonnes of farm and construction machinery.
• The Baltimore Port created 140,000 jobs.
• The port is the U.S.’s second-largest coal export institution.

Although a temporary route has been created for commercially essential transports, the bridge’s collapse has further destabilised the shipping industry alongside other major events like the Panama Canal drought and the Red Sea Conflict. All these issues combined increase the cost of international trade and threaten global supply chains.

Companies like Ford Motors, Toyota, Volvo and JLR all expect shipment delays and reduced profits. Furthermore, Baltimore is home to 50,000 small businesses with over 500,000 employees, all of which are expected to suffer.

Daily, over 10,000 vehicles transited the bridge. The economic impact of the bridge’s collapse can already be seen as over five hundred small businesses have applied for disaster relief loans and 15,000 jobs have been directly affected. SBA (The U.S. Small Business Administration) is offering 30-year loans with interest rates at 4% for businesses and 3.25% for non-profits.

Insurers are expected to compensate for losses such as bridge damage, port shipment delays and the tragic loss of life. Barclays Plc specialists have estimated that insurers would have to pay $3 billion in damages including $1.2 billion for the Bridge repairs and between $350-$700 million for wrongful death Britania P&I Club is responsible for providing protection and indemnity insurance to Dali. This type of insurance covers ship liability in case of crashes, oil spills and other disasters.

The company is part of The International Group of P&I clubs consisting of twelve mutual insurers which cover first incurred losses of up to $10million and split remaining costs with the wider group.

The attribution of liability depends on determining whether the crash was caused by negligence or mechanical failure.

Legal impact

Law firms dealing with the case must consider the following issues:

Liability:

• Was the Dali following the correct navigation procedures?
• Was the crash caused by mechanical failures or human errors?

Negligence:

Negligence will be established if found that the crew or bridge maintenance team failed to uphold safety standards. For example, if the crew failed to navigate safely or if the bridge authorities and maintenance team failed to issue sufficient warning about potential hazards at Baltimore Bride, considering its old structure.

Regulatory compliance:

• The Dali must have complied with the International Maritime Organisation (IMO) and the U.S. Coast Guard’s regulations. Where in breach, liability could be attributed to specific parties.
• Legal remedies for families who suffered a loss.
• Wrongful death claims if the investigation establishes negligence.
• Personal injury claims compensating for medical expenses, lost wages and suffering to the injured victims.

Workers’ compensation:

• The deceased’s families will be advised by specialised attorneys on their compensation rights and deadlines for filing claims.

• By Stefan Iacobescu

A THIRD CATEGORY OF PERSONAL PROPERTY?

Digital assets refer to a wide variety of assets, from cryptocurrencies to tokenized assets and distributed ledger technology.

They are used as valuable things in themselves, as a means of payment, or to represent or be linked to other things or rights.

On February 22, the Law Commission published a consultation on draft legislation to establish a third category of property that would encompass digital assets. It aims to tackle the uncertainty and complexity of property law regarding the recognition, use and enjoyment of digital assets.

The third category

As pointed out by the Commission, because digital assets differ from physical assets and rights-based assets such as financial securities, they do not fit within the traditional categories of personal property neither benefit from the same protections.

Their decentralised nature also poses great challenges when dealing with private international law issues of jurisdiction and conflict of law.

The current state of the law of property on digital assets and the need for reform

The English legal system distinguishes between real property (interests in land) and personal property. The latter is subdivided between things in possession, i.e. tangible property capable of physical possession, and things in action, i.e. property that can only be claimed or enforced through legal proceedings. Historically, these categories have been considered exhaustive, in the sense that any personal property rights must fit within either of these categories.

In the context of new digital assets, their largely decentralized, intangible, data-based and rivalrous nature precludes them, on one hand, from being physically possessed. On the other hand, they can be enjoyed and exploited independently from any legal claim or action, which sets them apart from choses in action.

The High Court’s decision in AA v Persons Unknown [2019] held that cryptocurrencies such as Bitcoin neither consisted of choses in possession nor choses in action. Despite digital assets not fitting within the current property categories, the court decided that cryptoassets should be treated as property under English law, for a proprietary injunction.

In February 2023, the Court of Appeal confirmed that cryptoassets such as bitcoin are property in Tulip Trading Ltd. v. Wladimir Jasper van der Laan [2023] While these decisions contributed immensely to protecting ownership of and setting a legal framework for digital assets, they can be considered to have created a sui generis property right, without defining its limits. This uncertainty poses a threat to owners of digital assets.

Personal property rights are crucial in cases of unlawful interference or alienation of digital assets, of bankruptcy or insolvency, and of rules on succession. Reform is necessary so owners of digital assets have a legal framework they can rely on, and to boost England’s attractiveness for fintech.

The Law Commission’s recommendations

The Commission called for legislation to explicitly recognize a third category of personal property rights – a “third category thing”.

It concluded that despite most digital assets not being choses in action or choses in possession, the law should recognise them as capable of being things to which personal property rights can relate.

The Commission also clarified that factual control (plus intention) can find a legal proprietary interest in a digital asset.

What falls under the classification of the third category of things?

The Commission suggested it was necessary for the framework applying to third category things to strike a balance between increasing legal certainty and maintaining a flexible system that will cater to the ever-evolving nature of new digital assets and adapt to emerging assets.

As such, there is no statutory definition of digital assets attracting personal property rights, apart from the circular notion that “a thing will fall within the third category if it is capable of attracting property rights, but which is not properly a thing in possession or thing in action.

While the Commission did not provide a rigid definition of “third category things”, it concluded that rivalrousness was a central indicator of whether a digital asset fell within the third category things category.

It defines rivalrousness as a resource which the use by one person necessarily prejudices the ability of others to make equivalent use of it at the same time.

Therefore, the Commission shed some light on certain digital assets that could not fall within the third category, for lack of rivalrousness. They include certain digital files and records, email accounts and certain in-game assets, or domain names.

What rights will be attached to the third category of things?

The Commission recommended that specific causes of action and remedies be developed for third category things, that will cater to their unique characteristics.

The Commission also put forward strong arguments in favour of extending the defence of good faith purchaser for value without notice applicable to third category things. It also considered key common law causes of action and, by analogy, considered how these could be applied to third-category things.

It concluded that claims in proprietary restitution and restitution for unjust enrichment likely will be available in the context of third category things, as opposed to claims in conversion, which only apply to things in possession. However, the former will both be unlikely to succeed where assets are “burned”, as the assets will be permanently removed from circulation.

It must be concluded from this observation that there remains a lacuna in the remedies available in the context of third-category things and that the courts should develop specific principles of tortious liability to deal with unlawful interferences with digital assets.

• By Mahault Dignet

ARBITRATION BIAS

Arbitration needs little introduction.

From its cost-effectiveness to being significantly more expedient in comparison to more formal litigation routes, to its applicability in family law and cross-border disputes, it is one of the more popular forms of ADR as facilitated by arbitrators.

Arbitration imposes fiducial obligations and arbitrators are required by law to comply with the regulatory controls as per the Arbitration Act 1996.

However, there are rare happenstances when the ‘warring’ parties may encounter what is defined as arbitration bias.

When may bias occur?

For the arbitration process to be effective and to comply with due process, in that it makes it possible ‘to obtain the fair resolution of disputes’ (s. 1(a) of the Act), consummate independence and impartiality are demanded of the arbitrator as per s. 33, and predominantly, arbitrators strictly subscribe to said requirements.

As previously alluded to, this strict adherence proves illusionary for some, whether intentional or otherwise, with the ensuing result being that of so-defined arbitration bias.

Establishing bias proves difficult in a court of law, however, there are fairly recognisable circumstances in which the risk of bias is amplified. For instance, an arbitrator may be nominated by one or more of the parties, therefore increasing the risks of undetectable bias owing to perhaps previous (undisclosed) dealings with either of the parties in dispute.

It could also be that the appointed arbitrator sits on different panels with similar subjects in discussion, therefore increasing the likelihood of non-intentional disclosure of sensitive information to those not privy to disputes, and an arbitrator might adopt a ‘one size fits all’ stance for various reasons, potentially leading to unconscious bias for those affected by this approach.

Likewise, arbitration is a private process, thus the attraction for many; conversely, however, this confidentiality typically translates into a lack of transparency, which means that parties are not privy to information which may prove detrimental to the efficacy and fairness of resulting arbitral awards, such as the likelihood that the employment of the determined arbitrator poses significant prejudicial risks.

Mitigation

The Act is proactive in ensuring arbitrators remain unbiased throughout due to its strict impositions. However, the Act also provides for holding to account the conduct of arbitrators deemed in breach of said duties.

Sections 23 to 25 of the Act clarify the courts’ position in revoking legitimized authority and the removal or resignation of an arbitrator. For example, s. 24 (1)(a) highlights that an arbitrator may be removed by the courts if there are reasonable and justifiable doubts as to the impartiality of the practitioner.

Moreover, under s. 68, applications can be made to the courts to set aside judgments deemed ‘irregular’, in that a resulting award may be biased due to partiality.

Whilst the provisions seek to mollify bias and right alleged wrongs, the bar is set high in proving alleged bias; the most common bias-based ground under which an application can be made to rectify irregularities is unconscious as opposed to actual, thereby amplifying the difficulties attached to meeting the standard of proof.

Impact on the legal industry

The characteristics previously highlighted which render arbitration a preferred resolution option for many, will effectively be nulled. For example, the relative speed at which clients could resolve disputes and realise justice becomes cumbersome and protracted.

A drawn-out litigation process almost certainly equates to additional mental strain, for instance during a familial melee, and will likely further stress international relations in cross-border disputes.

Certainly, there are additional, perhaps disproportionate costs to consider such as in instances where parties may need to tread formal litigation routes to correct irregular arbitral awards, and as such, sensitive information, unless otherwise struck from public records by a judge, may be made public.

Whilst legal practitioners, through different forms and stages of representation, may benefit from increased client costs, such adverse outcomes for clients only prove damaging to the legal industry.

Reputational damage to practitioners, firms and in general, the legal sector, is arguably the most problematic of the potential effects proven arbitration bias may have. Ironically, in the court of public opinion, the legal sector is not the most trusted or indeed revered primarily owing to breaches of fiduciary duties.

Such happenstances as described afore, may further dent the ongoing seemingly piecemeal confidence in the industry.

• By Aqua Koroma