Most developed countries will have their own laws and penalties in relation to dealing with bribery and corruption.
The UK Bribery Act 2010 (the Act) came into force on the 1st July 2011. With the potential to affect various industry professionals from builders to brokers, the key points to highlight are:
What is bribery?
– Defined as a financial or other advantage offered, promised, or given to another party to induce them to perform a function or activity improperly, or to reward them for doing so. This can include gifts, corporate hospitality and client entertainment.
Who is it applicable to?
– Applies to individuals closely associated with the UK such as ordinary residents,citizens,all businesses operating in the UK for acts contrary to the Act carried out by them or their associated entities (subsidiaries, agents, employees) and all UK registered commercial organisations and partnerships for their actions or the actions of their associated entities.
Where is it applicable?
– The Act applies to activities contrary to the Act carried out anywhere in the world.
What activities are contrary to the Act?
– To make or receive a bribe which applies to both bribery of public officials and to bribery of any other person who is not a public official. For example, paying a harbour official to get a better mooring slot.
– Any type of facilitation payment, which is payment made to a foreign official to influence the timing of a public function. For example, payment to obtain a permit or licence quicker.
On summary conviction, up to 12 months imprisonment and a GBP 5,000 fine. On indictment, unlimited fines and up to ten years in prison. For example, in a recent case, a company was fined GBP 2.2 million for corrupt payments to foreign officials to secure contracts abroad.
A good broker is your best asset. A poor broker waits for their commission to come in. Whether the aim is to build a new superyacht, sell or buy a pre-owned superyacht or secure charters, it is customary in the industry for parties to be introduced by a superyacht broker. However, this is not necessary.
Transparency is a must. Watch out not only for the UK Bribery Act, but also bribery and corruption legislation across many countries.
Who pays the broker?
• The seller in sale and purchase, the builder in new construction, and the owner on charter agreements.
Can the broker negotiate the contract?
• Yes, if acting as an agent and English law applies. The principal would be bound by the terms agreed. If the applicable law is not clear, the rules regarding agency may become a complicated matter. Check the implications with a local lawyer and get the terms of the agreement in writing.
Do I need to pay commission?
• The role and the entitlement of brokers is clear when MYBA forms are used. If these are not used, address the issue and put it in writing otherwise you will be at the mercy of the law applicable to where the relationship was formed. In essence, a broker will be entitled to a commission if they are the effective cause of the sale.
• There is a recent case involving commission payments, either wrongly claimed or wrongly avoided. For example, in a recent case, the broker was denied commission as his involvement was too peripheral to be deemed an effective cause of the eventual sale.
What is a Central Agency Agreement?
• A fixed-term and exclusive relationship with a broker/brokerage house to take care of the marketing of the superyacht, when it comes to sale and chartering.
If contracts are signed, the broker is entitled to commission. Look out for:
• Minimum marketing activity
• Commission after termination
• Applicable law (brokerage agreements governed by the laws of Florida can be tough on a seller)
Disputes can arise for any number of reasons, but the most common causes of superyacht litigation are new build contracts and sale and purchase contracts. Often it will be the case that a superyacht does not comply in all respects with its contractual specification and/or a buyer will be unhappy with some aspect of a superyacht he or she has bought.
How do I know what my rights are?
• The first place to look is the contract itself and how it allocates the risk in the transaction as between the buyer and the builder and/or seller. If there are particular aspects of the superyacht or of the transactional process that are particularly important to a party, then it is important to ensure those aspects are dealt with up front in the contract, rather than trying to retrospectively import terms into a contract.
Where can I sue/be sued?
• This depends largely on what the relevant contract says. If it is considered important for disputes to be dealt with within a particular jurisdiction, then provision should be made for this at the contract stage. Where a contract is silent on jurisdiction, then factors such as the governing law, the place of delivery of the superyacht, and the place where the person to be sued carries on business may become significant. It is best not to leave these matters to chance, and to make express provision in the contract wherever possible.
Court or arbitration?
Arbitration is seen as less formal and less costly to start than court proceedings, which are considerably stricter from a procedural point of view. It is a matter for debate whether it is still true that arbitration is less costly as the matter progresses, but it remains the case that it can be a more flexible method of dispute resolution. Arbitration also has the benefit of being confidential. Although it is more expensive to start proceedings in the English courts, there is a great benefit of having judges dealing with the matter as they are very experienced lawyers with huge expertise in evidence and deciding commercial disputes.
Those unfamiliar with arbitration or the court system can be daunted by the prospect of litigation. However, the vast majority of disputes do not proceed to a full hearing or trial. The aim of litigation is not to drive the parties toward a day in court, but to resolve disputes. Many find litigation to be a useful tool for reaching a commercial solution, and we always advise our clients with their commercial objectives firmly in mind.
Although a contract may be governed by English law, it should not be forgotten where the service is being undertaken.
If a superyacht is being built in Italy, the UK, Germany or Turkey, for example, there are different local laws regarding insolvency, title and security that should be considered.
The Rome II Regulation will apply, and even if a law and jurisdiction clause is inserted, this can be challenged.
If the contract does not include a law and jurisdiction clause, there is a risk the contract will be governed by an unwanted law. Always consider what local laws may apply to your transaction.
Since the UK voted to leave the EU in June 2016, we cannot conceive of circumstances where a Brexit will not happen without there being a major constitutional crisis. The details behind the UK’s exit are very much unknown. Regardless of what negotiations take place, it is clear that UK nationals and UK businesses working in the superyacht space will need to adjust to the new reality.
The only certainty we have is that things will change, so until we know more about what the new normal will look like, it is worth bearing in mind that there will be implications for you to consider, and some questions to be mindful of:
– Will Brexit see the end of the customs union between the UK and the EU?
– What future will the Isle of Man have, where historically it has been part of the fabric of the superyacht space?
– What will happen to the superyachts that are operating under the former Isle of Man lease scheme and the current VAT deferral structure?
– Will the VAT ‘accounted for’ status in the Isle of Man be wiped out after exit from the EU on the deferral superyachts?
– Will tax paid UK flagged super yachts be allowed to rely on their VAT paid status to continue to operate in the EU and will they be allowed to transfer that status on a sale within the EU?
– Will the status of the UK Red Ensign be that of a foreign flag with no right to operate commercially in EU waters? Or will the current system of not enforcing cabotage rights continue, allowing UK, Cayman Islands and other flags to operate commercially. Will Spain treat Gibraltar flagged superyachts differently?
Will UK based owners with Red Ensign flagged super yachts be able to benefit from the temporary importation regime – 18 months free passage in the EU without having to buy into any tax structure or operate commercially?
Will UK super yachts or UK crew based in the EU still be bound by the EU employment law?
What will happen to EU based professionals from the UK: the lawyers,the bankers,the crew,the tax advisers and superyacht brokers? Will they be allowed to stay in the EU and will they be allowed to continue to work in their chosen field?
What will happen to the insurance sector? Will the insurance market be granted the same access to European markets as before and vice versa for the European insurers in the London market? Insurers can currently conduct cross-border business without requiring further authorisation. When the UK exits the EU, UK insurers may be required to establish EU-based branches in order to underwrite business in the respective territories.
Will owner’s supplies for export be delivered to superyachts visiting the UK?
Will the Mutual Assistance Programme, where by individual customs authorities share in formation on tax payers, exclude the UK?
Will UK based professionals become cheaper if their services are exports?
Will UK based superyacht professionals be allowed to work on the ground in EU shipyards without work permits?