By Giovanna Cabbia, Consultant Clyde & Co and John Leonida, former Clyde & Co partner and now a Consulting Superyacht Advisor with LP Squared
There is an apocryphal story, or perhaps it is an urban myth, that a British newspaper, maybe it was The Times in 1957, published a headline which read “Heavy Fog in Channel – continent cut off”. The consequences of the fog of Brexit has yet to clear.
When we woke up on 24th June 2016, we knew the UK had decided that its relationship with the EU was about to change. However, it took 4 years for the UK to walk out the door and it did so, arguably, without checking the draws to see if it had left behind a shirt or a pair of old socks. The 1246 page EU-UK Trade and Cooperation Agreement (TCA) is unremarkably silent on so many things and unsurprisingly the powers that be apparently did not give superyachts a second thought and so we will have to apply local laws as we know them to the superyacht industry as it will be affected by Brexit.
We have recently written elsewhere on the general impact of Brexit on the superyacht industry. What we want to do here is pick up on some of those general themes, but where we were asked specific questions, we explore them here, as they apply to superyacht new builds and refits.
Law and Jurisdiction
The first thing to get out of the way, and it is worth repeating here, is the choice of law that governs superyacht contracts. People who want to build new yachts or indeed do anything which requires a contract are still free to do so under English law. The reasons for choosing English law have not changed. English lawyers will tell you that their subject matter expertise and the supposed certainty of legal outcome through precedent will still rank high in clients' reasons to choose English law. It’s an opinion not always universally shared but indulge us for a moment. The choice of English law or an EU member state will be respected both by the English or EU member state courts. What is absolutely certain is that Brexit does not affect choosing arbitration and the enforcement of arbitration awards. However, the December 2020 Agreement is silent on what happens in respect of the enforceability of judgments of the English courts in the EU or the courts of EU member states in the UK. There will be instability in the short term, with aggressive litigators challenging English jurisdiction agreements and some disputes being litigated in two countries at the same time, this state of affairs should not continue for very long. It is possible that the EU will agree to treat the UK like most EFTA states where litigation is concerned, although it has not decided whether it will do that yet. However, that only affects existing contracts. Jurisdiction agreements in new ones, and English judgments resulting from those, are supported by new global rules. The waters on jurisdiction are somewhat murky, though, so before accepting any law and jurisdiction clause you should take specific legal advice on the point, especially if their disputes are not going to be resolved by arbitration.
Working in EU – Owners Reps and others
The first response to our earlier piece was from a seasoned owner’s representative who asked about the community of UK based owner representatives, technical consultants and technical specialists. Now, this is a significant headache except for those UK nationals who have been living in a remaining EU member state and have their residence paperwork sorted. British nationals living in the EU have until 30 June 2021 to apply for their residence document. But what if you are a UK resident? If, for example, you are popping over to the Netherlands, Germany or Italy for a few days? If you are tourist or on permitted business, it’s pretty much as you were, save that you’re limited to staying for 90 days in any 180 day period and permitted business activity has a narrower focus. Attending meetings and conferences is generally permissible. However, each EU member state now has its own rules on how far you can push the boundaries of a business trip. You will need to check locally and that will become clearer as the months progress. You might be providing Owner’s Rep services and often in the 18 months of a build you may be at the yard almost full time. The services are often to a non-EU owner (e.g. a Cayman Islands company) who has no place of business in the EU, but you are not supplying those services to an EU builder. What is your justification for being there? To all intents and purposes, you are working and providing services in the EU. Now, that would be viewed as working in the EU, and you will need legal authority to do so if you are not an EU resident. There may be a temptation for builders to “hire” owners’ reps on behalf of their clients to circumvent the restrictions and make things easier for owners. An immigration officer may not see it that way and may impose sanctions on a builder. Setting up a business in the EU might be easier and legal.
Be mindful that there are certain types of activity that are reserved for EU nationals or residents. Some activities require a clear economic need to be performed by non-EU nationals or residents’ others are banned altogether. Although shipbuilding is not specifically mentioned in the TCA, construction and engineering are and those activities may be seen as similar to ship and superyacht building. It is worth looking at Annex 4 (page 747) of the TCA to see what is allowed for companies and independent professionals supplying services into the EU if they not based there.
If you have any crew that are British nationals, and they want to join the yacht whilst she is under construction it is clear that specific visas will need to be obtained unless the crew are already EU residents. They will be treated the same as any other non-EU build crew. Whereas crew on active service will have to be stamped in and out of the Schengen area when they board and disembark in order to pause the maximum 90 days out of a rolling 180 days, that they are allowed to remain in the EU, that is unlikely to work where, say the Captain, Chief Engineer and Chief Stew are based at the yard in the last year or so of a build. Specific immigration advice must be sought.
The law of unintended consequences? Maybe, but Brexit is not business as usual, but it will mean finding new ways to do business.
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