CONTENTS Design and Build Design Intellectual property
Insurance What are the possible risks? What insurances are required?
Are there any insurance clauses that I need to pay particular attention to?
Finance At a glance
Sale and purchase Top tips
55 57 57
17 18 19 20
Points to consider Post-drawdown
Points for sellers to consider Points for buyers to consider
Basics of superyacht sale and purchase
Additional considerations Bribery
59 60 61 63 64 69 70 70 73 73 74 76
Operational Superyacht management
27 28 31 33 34 36 38 41 42 46 46
Our team Clyde & Co head office, London
Art on board
Arms on board
Middle East & Africa
Toys Jet skis Drones
About Clyde & Co Our global reach
Photographer: Andrew Johansson
Since the publication of the third edition of the Guide to Superyacht Law, we have seen significant changes in the interpretation of English law and what various stakeholders in the superyacht industry view as important. This fourth edition of the Guide to Superyacht Law has expanded sections on design and build, insurance and various issues which are at the forefront of people’s minds. Our continuing desire to share our knowledge and expertise with you has inspired the changes you will find in this Guide. Whether you are looking to buy, sell, design, own or crew the superyacht, our Guide to Superyacht Law will help you navigate your way through this increasingly complex area of the law. Written by legal experts with more than 20 years’ experience in the superyacht sector who represent many of the industry’s leading builders, owners and designers and having been involved in the leading cases involving the superyacht industry, our Guide covers almost everything you need to know at any stage in the process – from financing a superyacht and drafting design contracts to safety and operational considerations. Even if it all goes wrong, with one of the world’s largest international dispute teams, Clyde & Co has the expertise to work out the best solution for you, whether that is in London, Paris, Miami, New York, Singapore or any one of the other superyacht hubs where disputes are heard. Our depth of industry knowledge – both commercially and legally – is second to none. The superyacht industry has changed many times since the turn of the 21st century and it continues to evolve. The recent release of the Panama Papers, public opinion and some government moves against tax evasion and avoidance have set the tone for the industry. We recognise that today this industry – perhaps more than any other – has become the focus of policy-makers and politicians to which the industry must respond by being transparent and ruthlessly professional in every aspect of its workings. On top of this, the referendum vote for the UK to exit the EU puts even more pressure on the sector. We have a special Brexit section that asks some pertinent questions for consideration. John Leonida
DESIGN & BUILD
Designing and building a superyacht is a complex process.
DESIGN It is important to understand what rights you have in any designs and to surround yourself with an experienced team to assist with the build process. • What is the owner expecting from the designer? Will the choice of the design have an impact on the superyacht’s performance or compliance with superyacht regulatory obligations? Bring the designer on board early • What are the designer’s obligations? Is he or she only delivering the design, or should the designer also be responsible for ensuring the builder fulfils the design intent? • Does the design contract tie into the build contract? The designer should deliver the design in accordance with the design deliverables schedule of the build contract. Does the design contract clearly specify the designer’s responsibility towards the owner or towards the builder for defects attributable to the original design? • Is the owner/builder protected from negligent design or breaches of intellectual property? Does the designer have professional liability insurance cover in place? It is expensive but designers should have it • Does the design contract protect the designer’s intellectual property? Does the contract provide that any licence of the intellectual property rights granted by the designer are subject to payment of the design fees, and that if the designer is not paid the licence will be immediately withdrawn? A designer should never surrender their design palette or assign or license their intellectual property rights without specialist advice. Owners go to a designer for their style, which is their signature.
INTELLECTUAL PROPERTY Intellectual property (IP) is concerned with creations, such as inventions, literary and artistic works, designs, and names and symbols used in a commercial context. IP can be legally protected, for example by way of copyright, designs, patents and trade marks. These rights ensure that inventors and designers are recognised for and profit from their work, and are protected against the misuse and/or misappropriation of their works by others. IP includes such rights as: confidential information and trade secrets, copyright, database rights, design rights, domain names, know-how, patents and trade marks. Our intellectual property lawyers have a wealth of experience advising on the full range of intellectual property rights covering the management, protection, exploitation and enforcement of IP, and reputation management and privacy issues in relation to superyachts. Whether you are creating the exterior design of a superyacht or the design of an internal feature of a superyacht, you should consider: • How to protect your IP • How you want to use your IP going forward and the extent to which you want to allow third parties to use it • Whether to license the right to use your IP or to assign the rights in your IP to another party • How you want to restrict the use of your IP - you must be specific or you risk misuse and infringement • Who will own the IP - for example if you are only contributing to one aspect of a design, be clear who will own the design and avoid the pitfalls of joint ownership • What consideration do you want for the use of your IP – is a one-off payment sufficient or do you require payment on an ongoing basis via royalty payments
The following IP rights may apply to various elements you have designed or invented in relation to a superyacht: • Copyright: Copyright is the right to prevent others from copying your work, and is especially important when creating and negotiating superyacht designs. Copyright protects amongst other things artistic and literary works (which includes sketches, design drawings, photographs, images, books, paintings, sculptures, computer programs and databases, sound recordings, films and broadcasts). Copyright will exist in a work if certain conditions are met, including: the work is original, the work has been recorded, and the work qualifies for copyright protection, which depends on the national status of the author, or the country of first publication of the work. Copyright arises automatically in the UK and there is no requirement for registration • Design Rights: Design rights protect the outward appearance of an article resulting from its features, in particular, the shape, lines, contours, texture, colour, materials used and its ornamentation - for example, the shape of a superyacht hull or deck design may qualify for protection. To qualify as a new design, the overall impression of the design must be different from any earlier design. Design rights provide a monopoly right and prevent a third party copying your design for a period of time. Design rights may be registered or unregistered and you can register your design provided it meets the eligibility criteria • Patents: Patents protect inventions and give inventors the exclusive right to use and/or commercially exploit their inventions for up to 20 years. Patents cover both manufactured products and processes and they are available for most industrially applicable processes and devices. For a patent to be granted in respect of an invention, the invention must be new, involve an inventive step, be capable of industrial application and not fall within any of the applicable exclusions, for example scientific methods or software The benefit of a registered design is that the design may enjoy a larger period of protection.
• Trade Marks: Trade marks protect symbols, names and slogans used to identify goods and services such as the name ‘AM37’ and the brand Aston Martin, they can also protect sounds, smells and shapes which could be something like the classic Coca-Cola bottle. Consider the logo used on a superyacht or the logos which may be found on individual parts of a superyacht - they serve to distinguish the goods and/or services of one organisation from another. Not all trade marks are registrable and there are various legal requirements they must satisfy. Once registered, trade marks can be protected indefinitely provided renewal fees are paid every 10 years. Unregistered trade marks arising through use also provide a certain amount of protection We have extensive expertise of the different forms of dispute resolution common to IP disputes and can advise you on the best strategy to adopt should your intellectual property rights be misused or infringed, from negotiating commercial resolutions to the commencement of legal proceedings. If things do go wrong, take prompt action to protect your rights.
Adjacent image copyright Quintessence Yachts - proud manufacturer of the AM37, the first Aston Martin powerboat
BUILD CONTRACT There is no standard ‘form’ superyacht construction contract. Each builder will have their own standard which reflects how they work. A good contract will appear fairly balanced, while a poor contract will limit the buyer’s rights as much as possible. A superyacht construction contract will usually be made up of the main contract, the technical specification, the general arrangement plan, and any other elements such as a construction schedule, the form of delivery documents and a makers list. Never sign a contract without seeking legal advice. There are some basics you should expect to see in a build contract: • Payment terms: Stage payments linked to milestones, on a cost plus basis, monthly stage payments or on a percentage of completion basis. Careful consideration should be given to timings, exact triggers of payments and the value of the superyacht as constructed • Specification: A marine surveyor can help to negotiate this. The specification will include details of the flag and classification notation. When choosing a flag, a number of factors should be considered including tax, intended use (ie chartering or not), flag reputation and the builder’s knowledge/ experience building with such flag Advice should be sought on your choice of class on whether it will add or detract from the value of the superyacht and who will have access to the discussions between the builder and the classification society • Regulations: Language confirming the regulations the superyacht will be built under and, in particular, whether she will be built as a commercial superyacht. If so, will she be, for example, Large Yacht Code (LY3), Passenger Yacht Code (PYC), SOLAS compliant or regulations issued by United States Coast Guard? Consider at this stage whether a helicopter will be used on board the superyacht so that compliance with the relevant regulations can be incorporated into the build contract
• Insurance: Should there be an accident during the build process, make sure you have the details of the builder’s insurance. Elements to consider are insurance levels, coverage of owner-supplied items, and whether the buyer is co-assured etc • Protecting the buyer’s pre-delivery instalments: Progressive title transfer (getting ownership in the superyacht as she is built), bank refund guarantees - either or a combination of both. Where the title is being transferred, check with the relevant jurisdiction what requirements may impact title registration to ensure that this is validly transferred to the buyer. How best to protect your pre-delivery instalments and how effective is that bank refund guarantee? • Protecting the builder’s interests: Does the contract provide any mechanism to guarantee the buyer’s payment obligations during the build process? What if the buyer fails to pay the pre-delivery instalments when they fall due or if the buyer unlawfully terminates the contract or illegitimately refuses to take delivery of the superyacht? Will the builder be able to recover any of its losses from the buyer? In addition, or as an alternative to retaining title and ownership of the superyacht, some builders, upon payment of each pre-delivery instalment, request performance bonds from a buyer guaranteeing the payment obligation of (at least) the next pre-delivery instalment. This gives some comfort to the builder in securing (a minimum) cash flow to continue the build if the buyer steps out of the contract during the construction period when the builder has already invested its funds in the construction Alternatively, where the contract is entered into by a single purpose vehicle company it is not unheard of for the builder to request a personal guarantee from the beneficial owner or a corporate guarantee from a parent company guaranteeing the buyer’s obligation under the contract • Project management: Depending on the complexities of the project, during the build you may have an on-site project manager to supervise the build, or a project manager overseeing the process. The build contract should allow access and office space for the project manager • Performance warranties: Depending on the size, the buyer should at least expect to see speed, range, noise and vibration warranties as a minimum. Paint systemwarranties should also be considered. The liquidated damages and levels set will depend on what features are important to your superyacht. English law changed in late 2015 such that whatever the parties agree to be the commercial level of liquidated damages will be enforceable
• Jurisdiction, forum and technical disputes: You need to know the law that will govern disputes and whether you will go to court or rely on arbitration • Delivery and VAT: Where will delivery take place and what VAT structure should be set up? As you will see within our section on tax, this should not be overlooked or viewed lightly • Post-delivery warranties: What is the period? What will it cover? Is there an extended warranty where an item is fixed during the warranty period? Consideration should be given as to whether the buyer should have limited rights when it comes to latent defects • Termination: If it all goes wrong and the contract is terminated, what happens? If the builder terminates, what are the damages? If the buyer terminates and has the superyacht taken away, you need to make sure that they have access to all the design work, and all the class and flags files to continue the build. At this point, do not forget that during the build, class and flag are contracted to the builder and their files are closed to the buyer • Commission: While not mentioned in the build contract, if the buyer is introduced to the builder by an intermediary, a commission may well be payable by the builder
WARRANTY The financial and market problems over recent years have seen a run of claims in the English courts and London arbitration addressing the nature and extent of the obligations of a builder in terms of after sales service to its buyer. We have seen a rising number of contracts in which buyers have raised numerous and extensive claims that frequently go well beyond what the builder is obliged to perform. There is then a tension between the legal obligations under the contract and the commercial desire of the builder to assist and satisfy its customer. The English courts have indicated, following a particularly interesting case in 2000 (recently reinforced in 2016), that a properly worded warranty clause can represent a complete code that governs what is or is not covered by the builder after delivery. With appropriate wording, the warranty clause replaces any liability on the part of the builder for breach of both express and implied terms of the contract with an obligation solely to repair or replace defective workmanship. Essentially the clause becomes an indemnity under which all other damage or financial losses suffered by the buyer would be excluded and it is for the buyer to establish that it ‘qualifies’ for the assistance of the yard. However, with fairly small changes to the wording of a warranty, or a carelessly drafted clause, this complete code can be disrupted, such that the warranty becomes less effective, and may open up the builder to liability for all of the losses suffered by a buyer in connection with a defect. While much of the attention in concluding a contract will focus on the specification and pricing, we recommend that equal attention is given to what could come after delivery.
SALE & PURCHASE
The sale and purchase of a superyacht can be a highly emotional experience.
The reality is that youmust never underestimate the importance of having a thorough understanding of the legal processes, statutory certificates, transaction documents, tax position and various different forms required for the sale or purchase of a superyacht. TOP TIPS • Surround yourself with people who know what they are doing and have a good track record including: surveyor, lawyer, superyacht manager, broker and VAT adviser/accountant • Make sure your form of agreement, special terms and document list are all in writing can present the Transcript of Registry showing that your superyacht is unencumbered. The process can get more complicated if there are mortgages registered against the superyacht • What is the process? Agreement signed,
conditional upon sea trial and survey. Deposit paid (the standard deposit is 10% of the purchase price but a different sum could be negotiated). Always have the sea trial first and, if you’re happy, move on to the condition survey conducted by a marine surveyor. It is never advisable to do the condition survey before the sea trial, but if you cannot avoid it you must ensure that the MYBA MOA is amended to adequately deal with this. Typically, the MYBA MOA will have an addendum which will deal with all documents that will be delivered by the seller to the buyer and vice versa • Who should the deposit be paid to? It is customary for the seller’s broker or lawyer to hold onto it. However, you can commercially agree for it to be held by the buyer’s broker or lawyer. Any party holding a deposit should be an established company and they are likely to need up-to-date customer information. If you cannot agree on who holds the deposit, you could get a bank to act as the stakeholder
• The most common form of agreement for sale and purchase of second-hand superyachts is the MediterraneanYacht Brokers Association (MYBA) sale and purchase form, known as the MYBAMemorandum of Agreement (MYBAMOA). Any additional terms or amendments of the standard terms should be recorded (eg transfer of any charters currently booked for the season or specific art works to be removed). It is important that any agreements made verbally are recorded in writing.You should consider carefully before signing any personal guarantee which underwrites the obligations of the selling or buying company. This may compromise the ownership structure you have carefully put in place, and it could cause tax problems on the sale • Are there any mortgages, charges or other encumbrances registered against the superyacht (as these will need to be discharged at delivery)? This is a question any prudent buyer should ask and if you are selling, you must ensure that you
POINTS FOR SELLERS TO CONSIDER • With regards to VAT on the purchase price, should delivery be in international waters or within the EU? • Are all of the superyacht’s statutory documents in order? • Is the superyacht financed? If so, consent from the bank to sell is usually required • Who is my broker? Should I enter into a central agency agreement? • Is the buyer known? Who is the ultimate beneficial owner? Do I want a personal/parent company
guarantee, if a single purpose company is the buyer? • What do I need to do if the buyer is changing flags? • What do I need to do if I am selling with charters in place post-closing?
• What are the closing mechanics and how are funds released? Will it be through SWIFT or by waiting for funds to hit the account or conditional SWIFT (pre-placing funds but not received until the Protocol of Delivery and Acceptance is signed)?
POINTS FOR BUYERS TO CONSIDER • Is the superyacht VAT paid? Or is VAT accounted for? Has VAT been claimed back? • What will be my owning structure, and do I need a VAT structure set up? • Will this be a pleasure superyacht and registered private, or do I want to charter the superyacht? • Do I want to keep the same flag? Will the current flag affect the use of the superyacht? What is involved in changing flags? Will the new flag accept this kind of superyacht onto its register as a private or commercial superyacht? • Where do I feel comfortable with the deposit being held? • Are there any special conditions, or items I want left on the superyacht (ie transfer of upcoming charters or specific items fixed prior to closing)? • Do I want to keep the current crew? • Do I want a personal guarantee from the ultimate beneficial owner or a parent guarantee of the selling company? • Have all the vested interests in the deal been declared?
BASICS OF SUPERYACHT SALE AND PURCHASE
Agree rectification or price reduction or reject yacht
Accept following rectification or price reduction for the yacht
If you are an EU resident or you choose to operate your superyacht commercially in the EU, or any combination of the two, you have to account for VAT.
Q&As If you are building a superyacht in the EU, be aware of not becoming involved in a
tax-avoidance artificial exporting structure. Can I avoid VAT on buying my superyacht?
• If you are an EU resident, you may be able to recover any VAT you are charged if you are legitimately operating the superyacht commercially in the EU, or you may be able to participate in a legitimate leasing structure Cyprus and Malta run broadly similar leasing schemes which can dramatically reduce the effective rate of VAT on the assumption that superyachts do not spend all their time inside the EU However, both the German and UK tax authorities have openly criticised these schemes and so they are a potential risk for owners living there Is the VAT status on my superyacht preserved for life? • No. If at some point in the future it becomes clear that you are not pursuing legitimate commercial business or you are only chartering the superyacht infrequently, you may be asked to de-register as a commercial superyacht. At this point you would become liable for VAT on the hull unless you permanently export the superyacht or become eligible for VAT relief as a non-resident. Also, an EU tax paid superyacht sold outside the EU will lose its VAT paid status if brought back into the EU by a new owner. The only certainty in tax and superyachts is that there is no certainty
Can I charter my superyacht if I am in the EU under the Temporary Importation Regime (TIR)? • No. The TIR is a relief, that lasts for 18 months and is renewable, from import VAT based on you neither chartering or offering to charter, selling or offering to sell your superyacht within the EU. TIR is only available to a non-EU flagged superyacht, owned by non-EU residents You should not allow EU residents to use the superyacht if you are not on board. If you breach any of these conditions, the relief is removed and VAT on the importation of the superyacht is immediately chargeable, together with possible penalties and interest calculated from the date of the original importation. TIR for helicopters on board a • Occasionally this is possible, but only if you pay an arm’s length commercial charter rate. However, if you are the only or principal charterer, the superyacht is not commercial. As an aside, chartering through a series of dummy companies does not count as arm’s length chartering or pursuing commercial business. The tax authorities do not always respect the sanctity of the corporate veil. They look at who directly or indirectly owns the company and draw their own conclusions Does the flag have anything to do with tax? • The flag only has an impact on tax if you are applying for TIR where you have to have a non-EU flag. Usually, tax is determined by how the superyacht is used as opposed to the superyacht’s flag. However, anecdotal evidence suggests that non-EU flags are having a tough time operating legally in some parts of Spain and Greece superyacht is only six months. Can I charter the superyacht to myself?
There aremany areas to deal with when operating a superyacht, some with increasedmedia attention.
SUPERYACHT MANAGEMENT Providing services ranging frompurely commercial andmarketing services to full commercial, administrative and technical services such as: crewing, arranging superyacht and crew insurance, general administration, accounts, technical and ISM/ ISPS services. Superyacht managers can be reassuring to have as an asset for the operation of the superyacht and thus vitally important. Do I need, or should I have a superyacht manager? • Yes, an ISM-certified superyacht manager for commercially registered/operated superyachts over 500 GRT • A superyacht manager is not strictly needed for privately registered/operated superyachts. On a smaller day boat, a captain can normally suffice. However, on the bigger tonnage, engaging a superyacht manager is recommended, for example, if the superyacht has a large crew employed or if the superyacht is to undergo works How do I choose one? • Are they reputable? Is he or she appropriate for the services needed and superyacht size, intended use and area of operation? Seek references from industry experts and your friends • What is market standard? Ensure you know what the manager is providing for their fee. Is the manager prepared to provide a manager’s undertaking on standard market terms to bankers, if you are borrowing funds to buy the superyacht?
What should I expect from the management agreement? • An adapted version of the standard BIMCO Shipman 2009 is a good place to start • Do they have professional indemnity insurance in place? It is advisable to have it and for superyacht owners to request it • Limitation of liability – get the relevant clauses or disclaimers carefully reviewed to ensure the manager’s liability is not limited beyond what is standard or reasonable • Terms of the contract and termination provisions – ensure you are not locked into a contract for longer than you aim to be • Governing law and dispute resolution are also important. Advice from a local lawyer is advisable CREWING MATTERS The crew is part of a global workforce increasingly deployed andmanaged through a network that links owners, managers and labour-supply agencies. It is important to ensure compliance, as the crew is central to the successful operation of the superyacht. What protection is there for the crew? • The employment contract will set out the crewmembers’ contractual rights. Further mandatory employment rights, for example protection against dismissal, may also be afforded to them • There is no model contract, however, certain flags require contracts to be approved by their relevant authorities. For example, UK flagged superyachts require contracts to be approved by the MCA What jurisdiction will govern a dispute? • The express election of jurisdiction and choice of law in the contract is one factor. However, either party may be able to challenge this on a number of grounds, such as where the crewmember carried out his or her duties, and where the owner is based
What is the Maritime Labour Convention (MLC)? The MLC provides a globally applicable standard for: • Minimum requirements to work on a superyacht • Conditions of employment • Accommodation, recreational facilities, food and catering • Health protection, medical care, welfare and social security protection • Compliance and enforcement The aim of the MLC is to set a standard for seafarers’ working conditions regardless of which flag they sail under. The MLC came into force on 20 August 2013. Who will be covered by the MLC? • The MLC applies to all superyachts ordinarily engaged in commercial activities, but only superyachts over 500 GRT can get certified. This makes it difficult for sub-500 GRT superyachts to prove complete compliance. It covers all crew who are employed or engaged or work in any capacity on board. It is important to note that on employment matters, the MLC will apply to existing superyachts and that superyacht owners will need to comply with the MLC requirements Can the owner avoid liability by registering a superyacht with a flag state that has not approved the MLC? • No, all superyachts will be subject to inspection in the ports of any country that has approved the MLC. Even purported flag exemptions fromMLC may not protect an owner from crew action or Port State Control
What paperwork is required? • Following an inspection, a certificate will be issued by the flag state certifying that the working and living conditions of crew satisfy the mandatory requirements • A declaration, as approved by the flag state, which states the national requirements for the working and living conditions for crew and sets out the measures adopted to ensure compliance You must carry on board the following: Maritime Labour Certificate, Declaration of Maritime Compliance, two copies of the most recent inspection, medical certificates for crew, employment contracts, records of hours of work and rest, complaints procedure. Is MLC really important? • Yes, penalties and corrective measures for breaches or obstructions will be imposed • The superyacht could be detained in port until breaches are rectified • Non-compliance of some parts of the MLC can lead to criminal sanctions on the captain and owner (for example breaches of hours of work and rest obligations) Is there anything new with the MLC? • As the MLC is known as a ‘living’ document, we can expect developments and amendments as issues arise and levels of compliance evolve • Since its implementation, the MLC has been amended to add a mandatory requirement that shipowners have financial security to cover abandonment of crew, as well as death or long-term disability of crew due to occupational injury and hazard, taking effect from 2017 • More recently, amendments have been agreed to give a greater emphasis on inspections to the health and safety risks of bullying and harassment of crew which will come into force in April 2018
ART ON BOARD For some superyacht owners, housing their art collection on board is a necessity. It represents the style and tone that they wish to impart upon the superyacht. In doing so, there are a number of factors to consider to ensure art on board the superyacht is properly owned and well-maintained. • Ownership : It is necessary to consider who owns the art work on board the superyacht to ensure they are aware of any tax, customs or insurance implications. Will the ultimate beneficial owner of the superyacht own the art work? Or will it be the superyacht owning company or a different company altogether? • Security : A robust security/alarm system on board the superyacht to prevent theft is essential. The captain should also keep an inventory of all artwork on board with appropriate documentation. It is also worth educating the crew about appropriate methods of care for different art pieces to ensure they are not inadvertently damaged • Insurance : You may need to have separate specialist cover for high-value items. This will require you to declare to your insurer the art on board the superyacht and its estimated value • Tax : If the art is not physically part of the superyacht, it may have its own tax treatment separate from the superyacht, which may not be consistent with the superyacht’s status If your art is covered by your standard insurance policy it is worth checking what limitations apply to its cover. For example, geographical limitations may apply.
The flying of a flag is a symbol of a superyacht’s nationality.
FLAG Surprisingly, there is no legal requirement to fly a flag, but if you do not have a flag, Port State Control will probably stop you from sailing. Choosing a flag relies on what regulatory regime you want to operate your superyacht under. Within the superyacht sector: • The British Red Ensign is the overwhelming flag of choice in all its variations, including the UK, Isle of Man, Gibraltar and the Cayman Islands - following the conclusion of the Brexit process this may change • In the USA, the Marshall Islands have a sizeable footprint, but for superyacht registration, they do not yet have a large presence in Europe • In recent years, the Maltese Flag has also become very popular with an attractive leasing scheme for pleasure superyachts • In Asia, Hong Kong is viewed as a popular registry for superyachts Owners should be aware that where superyachts are being chartered in European waters the interpretation by the Commission of EU Council Regulations mean non-EU flags may have issues with Port State authorities, although there is no evidence of active enforcement by Port State control against non-EU flags. With Brexit, this will mean the UK flag will no longer be an EU flag. Points to remember • A buyer will be denied access to flag’s records to check whether its building is being built to the letter of the law, unless you agree this with the builder during the contract negotiations • The documentary requirements when registering a superyacht will vary with flag, length and tonnage of the superyacht. All registries will require proof of ownership prior to first registration (ie a bill of sale or builder’s certificate), a certificate of survey, a tonnage certificate and, if registered elsewhere, the previous registry’s deletion certificate. If a superyacht has had a break in its registration history, you will have to fill in the gaps in a way acceptable to the registry
ARMS ON BOARD Whether or not a superyacht can legally carry weapons depends on the type of superyacht, the laws of the Port State you are visiting and the flag state that the superyacht is flagged with. In international waters, the laws of the flag state apply. Superyachts requiring protection of armed security guards generally engage private security firms to provide such services. Armed guards are usually only on board the superyacht while it is in a high risk area. Use of force and rules for the use of force • Currently, no international conventions or regulations state what force and measures can be used lawfully to defend against a pirate attack. As a result, in international waters, the laws governing the use of force will be those of the flag state of the superyacht, which must be complied with by the captain, crew and security personnel at all times. It is advisable that the flag state is consulted at an early stage in the owner’s consideration of the decision to place armed guards on the superyacht to ensure that any statutory requirements are met • On board the superyacht, the security teammust be bound by clear Rules for the Use of Force (RUF), which should clearly set out the protocols and measures to be taken in the event of an attack by pirates. These should provide a detailed, graduated response plan to pirate attacks as part of the security team’s operational procedures, with the aim of preventing boarding using the minimal force necessary to do so In particular, the IMO guidance for the RUF states that firearms should not be used against persons “except in self-defence or defence of others against the imminent threat of death or serious injury, or to prevent the perpetration of a particularly serious crime involving grave threat to life”.
Chain of command and authorisation to use force • Requirements state that the captain of the superyacht has the overriding authority and responsibility to make decisions with respect to the safety and security of the superyacht. However, there are questions as to how the captain’s overall responsibility for security issues interplays with the need for a professionally trained security team to take quick and immediate decisions in the heat of an attack • It has been widely argued that security personnel have an inherent right to use force in instances where it is necessary in their self-defence, and that the members of the security team should have a discretion under the RUF to use force without the captain’s consent in these circumstances Weapons licences • Making sure that all relevant licences are in place for carrying weaponry and ammunition on board during a voyage is a potential legal minefield, given that the laws of a number of legal jurisdictions may be involved. Laws and regulations governing weapons licences are frequently extremely complex, and potentially licences may be required frommultiple government agencies • There are potentially extremely serious civil and criminal sanctions, if there are breaches of weapons licensing laws • Given that there are significant international concerns about the proliferation of arms, with fears that weapons could end up being used in crime, terrorism, or in civil war, security companies, as well as shipowners must be extremely careful. Appropriate legal advice needs to be sought to ensure that both the security personnel carrying weapons, and the company owning the weapons acquire all the necessary licences and consents. In particular, it should be noted that some jurisdictions, such as Egypt, have banned the presence of weapons and armed security teams on board when transiting its territorial waters Be mindful of any unplanned changes to your route, which may bring the superyacht into the territory in which the existing weapons licences are inadequate.
MIGRANTS Superyacht owners and operators need to be aware and prepare for migrants at sea. Obligations to rescue refugees and immigrants at sea The captain of a superyacht has a legal obligation to give assistance to those in distress at sea irrespective of the nationality or status of those in need, or the circumstances they are found in. The obligation goes further to say that you must, with speed attempt to rescue the distressed person/s providing you can do so without serious damage to the superyacht, the crew or any passengers or absent of “special circumstances”. The level of assistance will initially depend on the situation. If there is nobody in the water, then it may be reasonable to wait alongside until the coastguard arrives and provide food and water. However, if someone is in the water or the vessel is at risk of sinking, life rafts or launching tenders must be deployed and access to your superyacht needs to be allowed. Contracting states are obliged to provide assistance to captains and release them from their obligations with minimum further deviation from their journey. A captain cannot allow its superyacht to be used as floating accommodation and must disembark migrants at a place of safety. How this would work in practice When assistance is requested to the rescue of people in distress at sea, the captain of the superyacht should: • Identify the superyacht’s equipment and life-saving appliances that may be appropriate for the rescue operation • Determine if any special arrangements, additional equipment or assistance may be required for the rescue operation • Implement any plans and procedures to safeguard the safety and security of the crew and the superyacht • Inform the superyacht’s owner/operator and agent at the next intended port of call of the rescue operation
• Provide the Rescue Coordination Centre responsible for the search-and-rescue region with the following specific information, if possible: –– Details of the assisting superyacht, position of the superyacht, maximum speed, and next intended port of call; current safety and security status, and endurance with additional people on board –– Details of the rescued people, including: total number; name, gender, and age; apparent health and –– The captain’s preferred arrangement and location for disembarking or transferring the rescued persons, mindful that rescued persons should not be disembarked or transferred to a place where their life or safety would be at risk –– Any help needed by the assisting superyacht due to limitations and characteristics of the superyacht’s equipment, available manpower, stocks of supplies for example, and –– Any special factors such as safety of navigation, prevailing weather conditions, time-sensitive cargo Where is it appropriate to disembark those rescued? While the obligation of seafarers to rescue those in peril is clear in legal documents, what happens next is murkier. The Convention on Search and Rescue specifies that a rescue is not complete until the rescued person is delivered to a place of safety. That could be the nearest suitable port, the next regular port of call, the superyacht’s home port, a port in the rescued person’s own country or one of many other possibilities. A refugee or asylum seeker, however must not, under international law, be forcibly returned to a country where his or her life or freedomwould be endangered, or, by extension, to a country where he or she would not be protected against such return. Care should be taken when disembarking refugees, asylum-seekers and those indicating they fear persecution or ill-treatment in a particular territory to ensure that the requirements of the 1951 Refugee Convention are met. medical condition (including any special medical needs) –– Actions completed or intended to be taken by the captain
HELICOPTERS The use of helicopters on superyachts is becoming a commonmeans of allowing guests to join the superyacht at their convenience. Access to a helicopter is also invaluable in an emergency and it is therefore important to consider at an early stage in the design process, whether a helideck should be incorporated on the superyacht. With regard to commercial superyachts, ‘touch and go’ helidecks also have to fully comply with legislation. Touch and go helidecks which do not comply are illegal. Howmuch space will I need for a helideck? • The helicopter landing area should be designed for the largest helicopter which it is intended to use. It should be large enough to contain a circle of diameter ‘D’ equal to the largest dimension of the helicopter when the rotors are turning. The ‘D’ circle should be totally unobstructed • This does not have to mean that the entire deck will be devoted to the helideck as the out-board edges of the landing area may be engineered to retract or fold to a closed position when the landing area is not in use, providing the overall safe landing area Does the helideck need to comply with any regulations? • Commercial superyachts seeking compliance with Large Yacht Code (LY3) or Passenger Yacht Code (PYC) require a Helicopter Landing Area Certificate (HLAC) to be issued by an aviation inspection body recognised by the relevant flag • While a pleasure superyacht does not need to comply with the aforementioned codes, many owners will build their helideck so that it does comply to maximise the superyacht’s resale value. Particularly important, should a future owner wish to register the superyacht as a commercial superyacht or the owner wants to charter their superyacht
Once my helideck is certified, can I land any helicopter on my superyacht? • No. The HLAC will indicate the maximum size of helicopter in terms of ‘D’ value and the maximum take-off weight of the heaviest helicopter in terms of ‘T’ value for the helideck. You will not be able to land anything larger or heavier Does the captain and crew need additional training? • In accordance with LY3 or PYC, the person in charge of each helicopter landing area operations team should be in possession of an Offshore Petroleum Industry Training Organisation (OPITO) and an Approved Helicopter Landing Officer (HLO) certificate. All other crew assigned duties within the helicopter landing area should be in possession of an OPITO Approved Offshore Emergency Helideck TeamMember certificate. All crew should undergo familiarisation training regarding helicopter operations Do I need any specialist fire-fighting equipment? • Regardless of whether the helicopter is stored on deck, the helideck structure should be adequate to protect the superyacht from fire hazards associated with helicopter operations. Fire-fighting equipment should be provided in close proximity to the helideck (near the access point for the helideck) and crew should also be trained in fire-fighting techniques Helicopters and temporary impact relief • Do not assume that a superyacht’s 18 month relief extends to helicopters kept on board in the EU. The relief for helicopters is only six months
Inflatable water parks, yoga platforms, stand-up-paddleboards, submarines, flyboards, jet skis and electric surfboards are just a few of themyriad toys available on board a superyacht.
Using toys can potentially be dangerous and care should be taken to ensure that those using them are suitably trained/qualified (if applicable), the manufacturer’s instructions are followed and correct insurance is in place. In some jurisdictions, the use of particular toys, typically jet skis, is governed by laws and regulations. JET SKIS Jet skis are increasingly popular on superyachts. Care should be taken to abide by the relevant rules and regulations relating to the use of jet skis. Many jurisdictions limit when, where and how jet skis can be used. In Italy, Croatia, and the Canary Islands, for example, jet skis cannot be used by those under 18 years old and certain distances between the jet ski and the shore or other superyachts must be maintained. In Malta, Spain, and Italy, it is compulsory for jet ski drivers to hold a licence when operating jet skis in their territorial waters. Although formal, it is important that superyacht owners protect themselves from claims by having indemnities in place for guests to sign prior to using jet skis and other leisure accessories. This includes for the currently popular water jet flyboards, which have particular health and safety risks, whether or not the superyacht is to be chartered or used privately.
DRONES The use of drones on and around superyachts has increased dramatically in recent years. The location of the superyacht as to whether it is in international waters or territorial waters as well as the flag of the superyacht determines the laws and regulations a drone operator should comply with. Are there rules that apply to using a drone on a superyacht? • Yes, within the EU, EU Regulation 216/2008 applies to drones with a maximum take-off weight of more than 150kg, lighter drones of less than 150kg are governed by the national aviation authorities of each member state • The Air Navigation Order 2009 is the principle piece of legislation regarding drone use in the UK. It applies to superyachts in UK international waters and to British Red Ensign flagged superyachts in international waters • Since 29 August 2016, new Federal Aviation Administration (the FAA) rules came into force for drone users in the US or on US flagged superyachts in international waters. If the drone is used for commercial purposes, it must be registered with the FAA and the pilot must pass an aeronautical knowledge test at an FAA approved centre. Recreational drones weighing between 0.25kg and 25kg must also be registered and labelled with the registration number
Can I fly a drone over nearby superyachts or in a marina? • Not unless you have permission from the relevant authorities. The law prohibits flying small unmanned surveillance aircraft (ie a drone fitted with a camera or other data collecting technology) within 50 metres of any superyacht, vehicle, structure or person not under the control of the person in charge of the aircraft, unless the Civil Aviation Authority has granted approval for such activity • If your superyacht is flagged under the British Red Ensign, you may fly a drone to capture photos and video footage over your own superyacht and the surrounding area as long as you comply with the restrictions above. In the territorial waters of other jurisdictions, the laws of those jurisdictions must be followed • The FAA rules prohibit recreational drone users from flying drones over any persons not directly participating in the operation of the drone. This rule applies to drones used for commercial purposes • In the first instance, report the incident to the relevant authorities. If the drone operator has not complied with the relevant rules and regulations regarding drone use the authorities will address this • It may be possible to sue the drone operator for trespass or nuisance depending on the level of intrusion, however, the law is still developing in this area Don’t attempt to disable the drone or interfere with any equipment on the drone, such as cameras or recording devices, as doing so is likely to amount to criminal damage. but may be waived by the FAA in certain circumstances How can I stop a drone flying over my superyacht?
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