It’s all a matter of class

A yacht broker and manager acted for a client who wanted to purchase a yacht for family use but which he would also be able to charter out commercially.

The client became interested in a yacht that was registered solely for private use. It was appreciated that the yacht would need to obtain commercial registration status and that work would have to be undertaken to bring the yacht into compliance with requirements for commercial registration.

The broker arranged pre-purchase surveys to be carried out and obtained advice in relation to the flagging and commercial compliance. Although the survey and advice was obtained from third parties the broker provided a summary and added their own comments. The advice included a change of registry but the yacht would remain with the same classification society.

The yacht was purchased and a management contract was agreed covering the management and supervision of the conversion.

The works on the yacht proved more substantial than expected. Class disagreed with Flag about what was required. In addition there were works that had not been identified in the pre-purchase surveys. As a result, time and the costs increased. The yacht management agreement was terminated and the owner, subsequently, commenced an arbitration. They claimed US$ 6.7 million.

The claims submissions contained two areas of complaint - one in relation to the activity as a yacht broker and one as a yacht manager.

The broking complaint alleged negligence in respect of investigations into obtaining commercial registration with the ship registry and the consequential class society requirements. The owner alleged that, as a result of being misled, they paid too much for the yacht and wasted money on the conversion works. A difficulty faced by the broker was that they had not checked the position with the Classification Society before the yacht had been purchased.

The yacht management complaint alleged that the costs of the refit vastly exceeded the originalbudgetandthattheoverruninthe refit works led to a substantial loss of charter income over the summer season. The amount claimed from this complaint was US$ 2.6m. The yacht management contract contained a limitofUS$1.4m.Themainconcernwasthat there was a real prospect that the tribunal would feel that there had been a lack of planning when managing the refit.

The parties held a mediation in July 2018 and although a settlement was not reached on the day the parties continued negotiations and the claims were settled for a total of US$2.25m.