LAW AND ORDER IN INTERNATIONAL WATERS
Claire Griffiths talks to the top legal minds about the need for professional and experienced representation through the complete life cycle of superyacht ownership. Talk to them early, keep them close and listen to their wise words. It will reduce overall project times and stop you wasting an awful lot of money.
Yacht compasses are set for hazy horizons where unknown futures beckon towards tantalising waters. But in order to get there, someone needs to keep a focus on the nitty gritty, the here and now: It’s not so much the compass needle that you need to concentrate on, but the needle in the legal-spiel ‘haystack’. That way you have a better chance of keeping yacht builds, charters and budgets afloat and on the right course. Which is why ONBOARD Magazine sought out the superyachting legal experts to uncover the issues that most need our attention.
Legal firm Preston Turnbull was set up in 2019, a breakaway from an international firm. It focuses on shipping, international trade, marine insurance and commercial litigation. ONBOARD located Preston Turnbull partners Marie Sundell and Tom Kelly for their expert advice. Sundell has particular experience of hull and machinery and yacht claims as well as marine liability, builders’ risks and mortgagees’ interest insurance claims. She frequently advises on points of coverage, the pursuit of subrogated recoveries and insurance policy wording.
Kelly is known as one of the leading litigators in superyacht building disputes, acting regularly for many of the largest shipbuilding companies around the world, from South Korean shipyards to European superyacht builders. Kelly has acted for shipyards in some of the leading High Court decisions, including ‘The Star Polaris’ on shipbuilding warranty claims and ‘Adyard v Serco’ on project delay. He played a key role in the Nobiskrug GmbH v Valla Yachts Ltd [2019] acting for the shipyard in disputes arising out of the construction of the world’s largest sail assisted luxury motor yacht.
The team also sees a lot of issues arising out of the build contracts, from advising on contract negotiation, issues arising during the project up to delivery and warranty claims where defects arise after delivery and need repair.
Kelly explains, “We are a fairly recent and still relatively small firm with around 32 lawyers, but are very focussed on the particular sectors we work in, those being the marine and superyacht sectors. We have a great range of experience that we can employ across these sectors, since while the superyacht market needs particular knowledge and attention on the personal and commercial side, a lot of the legal issues require knowledge of wider shipping and insurance issues. We can therefore deliver more practical experience and advise those who only deal in superyacht work, while also delivering the sector knowledge and experience that is crucial to superyacht contracts and disputes. Our size gives us a lot of flexibility and speed in order to deliver the service that superyacht owners expect across all of their interests.”
Since Marie Sundell joined the practice last year, Preston Turnbull can now not only handle disputes for the yachts themselves, but also provide insurance advice and claims assistance.
Hamburg based Upwind Legal offers specialised legal advice to aircraft, exclusive cars, ship transactions and superyachts. According to Business Support Manager Wiebke-Dorothea Burmester, the most common issues relating to superyachts include; negotiating contracts with shipyards or sellers and buyers, yacht registration and ownership structures, crew contracts, insurance cover and claims handling, damage claim settlement and representation in arbitration.
Upwind’s key strength is its expertise with yachts from 15 to 115m concentrating on yachts 45m plus. Says Burmester, “We accompany the owner from the start of his project, which might be negotiating a purchase contract or the choice of the project manager and shipyard for a new build, until the acceptance or sale of a yacht. But even then our support of the yacht owner does not end, as we are standing by for assistance during the operation of the yacht – for crew claims, charter disputes, damages for example. With our strong network we are able to support the client in all respects of their yacht: where legal advice ends, we have cooperation partners who can assist.”
COMMON FLAWS
The most common problems Preston Turnbull colleagues are asked to deal with involve charter disputes relating to charter complaints and debts over APA (Advanced Provisioning Allowance). Adds Kelly, “We regularly advise on issues arising from damage to yachts in service, including from weather related incidents, groundings, allisions in marinas, fires and latent defects in hull and machinery. Paint claims and the costs associated with such claims remain topical as well as the risks posed by fires.”
In terms of areas frequently overlooked by owners or owner representatives, periods in the shipyard rank high on the list. Owners tend to pay great attention to the spec and design of the yacht, but their interest wanes once the build begins and that’s when issues flair up. Explains Kelly, “They pay less attention to the processes within the yard that will deliver those details and what the yard needs from the owner and representatives in order to deliver the yacht on time and as the owner would like. That includes the need to fix the design early on, how the yard engineers and production stages work, and the impact that changes will have. That is where most of the problems we have seen have arisen.”
Sundell adds, “Another issue is the tension between owners’ representatives wanting cost and invoice control and the build or refit yard needing funding for the work – often to pay subcontractors for interior works (for example). Owners wanting to keep too tight a hand on the reins can often find the project stalling or going off the rails as the yard struggles with subcontractor relationships as a result.”
Burmester at Upwind Legal adds that securities for instalments, sufficient scope of warranties, proper transfer of title documents, seafarers law, necessary registration documents are also frequently overlooked and create problems.
WINDS OF CHANGE
Looking into the future, new regulations coming into the commercial shipping worlds, such as carbon and sulphur emissions will one day be applied to superyachts. Says Kelly, “At present, regulations like the ETS – Emission Trading System which will apply to all ships over 5,000 GT in the EU from 2024 will affect very few yachts, but it is very likely that this will be expanded to smaller vessels in time. The same is true of CII, the Carbon Intensity Indicator which effectively ‘grades’ vessels for their carbon efficiency. These more sustainable legislative regulations will undoubtedly affect the superyacht industry.”
“These will fit with the awareness within the industry of the need for greater energy efficiency, and provide the regulatory drive for that efficiency which a lot of yacht designers and builders are saying is needed. It will of course force owners’ hands into adopting, or possibly refitting to ensure efficiency, although refit could be an expensive task. New owners would probably therefore be better getting ahead of the game, because these environmental issues are likely to play a large role in future decisions of those looking to buy or charter (or even work on board) a yacht.”
As Burmester points out, the superyacht industry is constantly adjusting its sails in line with a changing wind. She says, “Securities granted by shipyards in respect of the instalments are permanently changing.”
“It’s important to know the current status of possible securities when you are negotiating.” She adds, “Currently we note a change regarding the technical requirements of the insurers in respect of private yachts. They are getting much stricter as a result of the increasing number of fire incidents last year.” At least eight motor vessels caught fire during the course of 2022, a figure way up on the previous years as far as we know.
Marine law specialists must have some juicy campfire stories up their sleeves and Kelly is prepared to vaguely outline a few: He’s been involved in resolving problems with demanding (and unreasonable) charterers, or charterers getting their helicopter caught on the ties on deck and crashing, and numerous claims for repairs or improvements to be carried out after delivery.
He also remembers an incident where he extracted a superyacht from first an arrest and then effectively an unlawful detainment in Italy: “That was fairly extraordinary,” he says. “It was also ultimately very counter productive for the yard that took those actions, since when the overall position was considered in London arbitration, it turned the dispute from an argument over some €250,000 of refit work into an Award in favour of our clients for over €1,000,000.”
“I was also involved in long running disputes in getting the SY A delivered, some of which went to the High Court.”
In short spend the time in the initial stages making sure every step of the buying process and ownership journey is nailed shut, but forget the operational, refit time and chartering operations – as we’ve heard from our learned colleagues this is an important area when operating a commercial vessel.
Talk to the lawyers as early as you can no matter the project, keep them close and listen to the experienced advice. But most importantly, keep away from the courts, keep the marine cops at a good distance, follow the build process keenly, don’t let unreasonable charter guests get their way, and go get a good lawyer onside.
