GLOBAL-WIDE: An introduction to Yachts & Superyachts

The complexity of “yacht law” cannot be overstated. The attorney’s role varies from getting phone calls in the early morning hours regarding an injury to a guest using a jet-ski; to having to get a yacht out of port on an ebb tide to be able to close in international waters before the closing deadline; to having an Office of Foreign Assets Control (OFAC) hold on a wire transfer when a yacht is in international waters ready to close. Issues arise from an almost infinite set of fact patterns.

Jurisdiction 

Yacht law is the practice of both domestic and international law across a wide variety of specialisms – sale of goods, financing, insurance, employment law, maritime law, multinational regulatory compliance, dispute resolution, business law, corporate law and tax law. In addition to the incredibly diverse subject matter, 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 non-sanctioned Russian (9) UBO. The listing agreement might be governed by English (10) law with dispute resolution in London.

That yacht may be transported from Spain (11) to Florida on a Dutch-owned (12) 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 French (14) and the yacht management company might be in Monaco (15). And a decision must be made about the jurisdiction of the vessel’s registration, which may be moved from the Isle of Man (16) to the Marshall Islands (17). And it just might be that the Cayman company buyer is owned by a Canadian (18) trust and the Maltese company seller is owned by a Liechtenstein (19) foundation.

If that is not enough, there might have been an injury resulting in death to a Spanish (20) guest or a New Zealand (21) crew member which occurred in Greek (22) waters. It is enough to make anyone’s head spin. 

Other Issues 

There is also corporate structure, liability, inheritance, immigration, and tax issues (duties, sales tax and VAT) 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.

Although the volume of yacht sales has diminished somewhat since the dramatic increase during the COVID-19 period, demand and activity remain strong and healthy. Predictions that inflationary pressures and geopolitical uncertainty would affect the market have proved accurate but the alarmism of the doomsday crowd appears to have been unwarranted.

The buy-side continues to be dominated by US customers. Talk of expanding markets in China and the Far East is a now-distant memory. The Mediterranean remains the steady cruising favourite. Although growth in the number of increasingly larger superyachts cruising in Florida, the New York area, The Bahamas and the Caribbean, has resulted in a dearth of mooring option in US waters and is pushing marina growth in the Caribbean and The Bahamas.

The Role of the IYBA 

Since the moment yachts are built, financed and repossessed, the domestic laws of the jurisdiction where they are located are all in play. With respect to dispute resolution, the International Yacht Arbitration Council (IYAC), a project of the International Yacht Brokers Association (IYBA) is increasingly challenging the long-established primacy of the London Maritime Arbitrators Association.

The IYBA’s efforts to modernise standard sales, listing and other contracts have put pressure on the MYBA to update its sales contract, which it has done. The IYBA’s new Time Charter Agreement has just been released and reflects the user-friendly organisation and phraseology that define the IYBA’s approach to legal documents. These agreements, developed and updated periodically by committees of experienced yacht brokers and lawyers, comprehensively address most issues encountered in yacht transactions, attempting to balance the rights of buyers, sellers, charters and brokers in a manner consistent with historic conventions.

Regulations 

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. As the value of yachts has increased, so has potential liability when accidents or problems arise. This means that insurance issues and coverage-related disputes remain important and complex. And, of course, the insurance market has continued to tighten up, given loss experience in the last decade.

The Role of Advisers 

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 advisers familiar with a particular industry are invaluable. Qualified yacht lawyers 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 also on the myriad certificates and approvals yachts require in order to navigate. They are also invaluable with respect to the assembly of the professional team that 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 these 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, “yacht law” is the epitome of complexity with respect to legal issues and an incredible diversity of fact patterns, set against an almost impossibly complex regulatory backdrop, given the number of jurisdictions regulating these mobile mansions and multinational businesses otherwise known as “yachts”.