Global-Wide: Yachts and Superyachts
The practice of “yacht law,” reduced to its essence, is the practice of both domestic and private international law. It is not unusual for a superyacht transaction to involve the laws of an almost unheard-of number of jurisdictions.
For example, a yacht manufactured in Italy (1) may be sold through brokers in Switzerland (2) and New York (3). The offer to purchase may have been signed on behalf of a Cayman (4) company buyer, in Florida (5) by a Mexican (7) Ultimate Beneficial Owner (UBO) and be governed by Florida law, with dispute resolution in Florida. The seller may be a Maltese (8) company, formed for a Greek (9) UBO. The listing agreement might be governed by English (10) law with dispute resolution in London.
That yacht will be transported from Spain (11) to Florida on a Dutch (12) owned ship flying a Dutch flag with a contract governed by Dutch law, insured by a German (13) underwriter with a contract governed by German law. If financing is involved, the bank may be in another country, as may be the surveyor and the yacht management company. And a decision must be made about the jurisdiction of the vessel’s registration, which may be moved from the Isle of Man (14) to the Marshall Islands (15). And it just might be that the Cayman company buyer is owned by a Canadian (16) trust and the Maltese company seller is owned by a Liechtenstein (17) foundation.
As a lawyer, if that isn’t enough to drive you crazy, there are corporate structure, liability, inheritance and tax issues to deal with. And all of these issues arise in an industry which has evolved a great deal as the average size of yachts has increased dramatically and the number of superyachts has increased almost exponentially over the past several decades. Notwithstanding the recession which began in 2008 and the current COVID pandemic, yacht sales have not only recovered in the “Trump economy” but have increased to the point where inventories of new yachts are diminishing. The difficulty of transcontinental travel, and of travel generally, as well as the impossibility of cruises, somewhat ironically portend well for the industry as a whole.
While a decade ago there was much talk of new markets in China and the Far East, the reality has been that the growth in those submarkets has been limited. Increased geopolitical tensions resulting in another round of tariff wars suggest those expectations were overestimated. That being said, the US customer base has been steady with US buyers representing an almost constant 70% of new superyacht buyers. The Mediterranean remains the steady cruising favourite, with some expansion into the Adriatic, and some growth among smaller superyachts in the Bahamas and Caribbean.
As mentioned above, when yachts are built, financed and repossessed, the domestic laws of the jurisdiction where they are located come into play. When there are problems, dispute resolution almost invariably occurs either in London in arbitration before the London Maritime Arbitrators Association or in the US, conventionally in an American Arbitration Association proceeding. This is likely about to change dramatically with the nascent appearance of the International Yacht Arbitration Council, a project of the worldwide, albeit US based, International Yacht Brokers Association (IYBA). This new arbitration council was formed for the specific purpose of providing a venue for the resolution of disputes regarding yachts to be decided by arbitrators specifically familiar with the yacht industry.
Of note is the fact that the IYBA has also radically transformed the landscape with respect to the legal infrastructure of the brokerage (used) yacht purchases, having introduced the widely respected and increasingly accepted IYBA Purchase and Sale Agreement and its corollary Listing Agreement. Both agreements, developed and updated periodically by a committee of experienced yacht brokers and lawyers, comprehensively address most issues encountered in yacht transactions in a user-friendly manner, balancing the rights of buyers, sellers and brokers in a manner consistent with historical market practices. The purchase and sale agreement, in particular, is a marked improvement over the difficult to work with, dangerous to buyers, and somewhat archaic MYBA Memorandum of Agreement, which previously served as the industry standard.
Not only have the multi-jurisdictional and contractual aspects of yacht law become more complex, so has the regulatory framework. Generally speaking, the larger the yacht, the greater the level of regulation. These regulations, which vary depending on where the yacht is located, and the nationality of its crew, increasingly address safety, health, immigration, environmental and labour issues. And as the value of yachts increases, so does potential liability when accidents or problems arise. This means that insurance issues are increasing important and complex, as are insurance coverage related disputes. Likewise, with commissions to brokers sometimes in the millions, disputes meriting formal resolution processes – in the courts or in arbitration – have increased in number and importance.
As is the case when customers buy a business or real estate, despite yachts being essentially very large and expensive toys, the experience and knowledge of advisors familiar with a particular industry are invaluable. Qualified attorneys assist not only with understanding the clauses of build and buy-sell agreements, but in helping their clients understand what is conventional or accepted in the market, and how to protect against the usual, and even the unexpected, risks associated with buying or owning a yacht. They advise not only with respect to contractual terms, but with the myriad certificates and approvals yachts require in order to navigate. They are also invaluable with respect to the assembly of the professional teams buyers and owners need to manage the purchase, ownership and operation of their yachts.
For example, attorneys can advise regarding the selection of yacht surveyors (inspectors) and with interpreting the results of inspections and sea trials – translating those results into documents to help support transactions, warranty claims, litigation and arbitration, when such arise. They advise with respect to qualified insurance brokers and yacht management companies and, of course, with respect to flag selection. Beyond that, qualified lawyers can share their non-specifically legal experiences dealing with particular shipyards, sales executives, surveyors, insurers, yacht managers and jurisdictions.
When buyers and owners contemplate chartering their yachts, an entirely additional set of rules, forms, construction standards, inspection protocols, practices and customs apply. There are other important considerations to keep in mind, from the customer side, when chartering a yacht as well.
In short, navigating “yacht law” can be as nerve-wracking as navigating on the high seas, especially when the wind starts to blow and the waves begin to crash over the bow.