To be authorised – or not …

Good governance and due diligence are often viewed as matters solely for the owning entity of a superyacht and its directors. Equally, it is commonly assumed that any con-sequences arising from a failure to exercise proper governance are risks borne only by the owner itself. In reality, that assumption is misplaced. Shipyards, contractors, brokers, managers and suppliers would be well advised to pay close attention to the authority of those who purport to act on behalf of an owner.

The title ‘owner’s representative’ is one frequently encountered in the superyacht industry, whether in relation to a new build, a refit project or the vessel’s day-to-day operation. However, there is an inherent risk that stakeholders make assumptions about what that title means and, more importantly, the authority that accompanies it.

Superyachts are typically owned through a special-purpose vehicle, often forming part of a wider corporate, family office or trust structure and the concept of ‘owner’ is to that entity rather than the ultimate beneficial owner. Beyond the directors of the owning company, there may be multiple individuals involved in decision-making at various stages of the yacht’s lifecycle. These may include family office personnel, the owner’s representative, the captain, yacht managers and project managers. The result is often a complex web of relationships in which authority is not always clearly defined.

Making assumptions as to authority can be risky. A representative who exceeds their authority, or who acts without authority altogether, may unwittingly bind the owner to obligations which the owner would never have agreed to assume. The worst-case scenario is that a shipyard, contractor or supplier who relies upon such instructions may subsequently find itself unable to enforce the resulting contract against the owner.

The term ‘owner’s representative’ is most understood in the context of a build or refit project. They may represent the owner’s interests throughout the design, construction, refit, delivery and often warranty phases of a yacht project. Since 2023, the industry has benefited from the introduction of the Yacht Owner Representative Programme (YORP) developed in conjunction with the Superyacht Builders Association (SYBAss), providing formal training and accreditation for individuals acting in this role.

However, professional qualifications and technical competence are distinct from legal authority. An owner’s representative may be highly experienced and technically proficient, yet have little or no authority to commit the owner contractually. The critical legal question is whether during a build or refit the representative is acting merely as an adviser with obligations to report back to the owner or whether they have authority to affect the legal relations of the principal with third parties. It is unlikely that an owner’s representative will sign a build contract on behalf of an owner. However, they may frequently make decisions during a build or refit which have the effect of being legally binding. One must distinguish between what is a mere advisory role, and an individual who is authorised as an agent of the Owner to enter into binding agreements whether that be, by example in the context of a build or refit, a variation or sign off on a milestone, or procuring the supply of goods and services.

Sarah Allan, Partner, YachtsMarine, Trade & Aviation Dept., 
Penningtons Manches Cooper

Where authority cannot be established, the owner will generally not be bound by the contract. Under the doctrine of breach of warranty of authority, a person who purports to act as agent impliedly warrants that they possess the authority they claim.

English law recognises several forms of authority. The most straightforward is actual authority, where authority is expressly conferred by the owner by way of a formal written appointment or contract setting out the scope of delegated powers and, where appropriate, having a power of attorney in place. Equally, the relevant shipbuilding or refit contract should clearly identify who is authorised to issue instructions and make binding decisions on behalf of the owner.

In practice, however, authority frequently extends beyond what is contained in the written documentation. Authority may also arise by implication through a course of conduct. In Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 549, the court recognised that authority may be inferred where an individual has repeatedly been permitted to act on behalf of a principal in a particular manner. Consequently, where an owner’s representative has routinely approved variations or issued instructions over an extended period, a court may conclude that implied actual authority exists.

A representative may also possess ostensible or apparent authority. In Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480, the Court of Appeal held that a principal may be bound where it represents to a third party that an individual has authority and the third party relies upon that representation. Importantly, the representation may arise through conduct rather than express words. The question is whether the owner’s conduct would reasonably lead a third party to conclude that such authority exists. For instance, the appointment of an owner’s representative in a build contract would suggest that such authority exists.

One can see how misunderstandings might arise, particularly if there is a degree of time pressure on a project to get something done or the work is of a more routine nature. For instance, an owner’s representative might say something which gives the impression that they hold the authority of an agent as opposed to an advisor. Equally you could have the seemingly absurd situation where an ultimate beneficial owner expresses that someone is so authorised, but without having the authority of the directors of the owning entity. Further, a situation could arise where more than one person, as in an owner’s representative and manager, are both authorised and there is a potential for conflicting instructions to be given.

Where authority cannot be established, the owner will generally not be bound by the contract. Under the doctrine of breach of warranty of authority, a person who purports to act as agent impliedly warrants that they possess the authority they claim. In such circumstances, the contractor’s first target may be the owner, relying upon arguments based on actual authority, implied authority, ostensible authority or ratification. If those arguments fail, the contractor may be left to seek recovery from the representative personally on the basis that authority was falsely represented.

From the perspective of shipyards, suppliers and contractors, it is ... dangerous to assume that either a captain, management company or owner’s representative possesses unrestricted authority to enter into contractual arrangements or binding agreements merely because of their title.

Other parties that fall into the decision-making matrix are the yacht captain and manager. A captain is not merely an employee but traditionally occupies a unique position in maritime law as the owner’s agent for the purposes of operating and preserving the vessel. Historically, captains/masters have been recognised as possessing authority to take urgent decisions necessary to protect the vessel, crew, passengers and voyage. A captain will therefore generally possess actual or implied authority to enter into contracts reasonably necessary for navigation, safety and the ordinary operation of the yacht. Absent express authority, the rationale for broad implied authority is significantly reduced when the vessel is in port and the owner, family office or management company is readily available to provide instructions.

By contrast, a yacht management company has no inherent authority simply by virtue of being appointed as manager. Its authority must be established through ordinary principles of agency. The management agreement will usually give the manager actual authority to enter into contracts for crew employment, maintenance, bunkering, insurance, compliance services etc. However, the extent of that authority will depend on the services contracted, which can be limited. Authority can also arise by implication from a course of dealing where the manager has regularly contracted on the owner’s behalf and those contracts have been honoured without objection. In some circumstances, a management company may also acquire ostensible authority where the owner has held it out to suppliers and contractors as the person or entity responsible for the yacht’s affairs.

From the perspective of shipyards, suppliers and contractors, it is therefore dangerous to assume that either a captain, management company or owner’s representative possesses unrestricted authority to enter into contractual arrangements or binding agreements merely because of their title. Equally, even if there is a letter of authority or power or attorney in place it must be checked to ensure that it is widely enough drafted to cover the action and without limits. Family offices or directors will often include time limits on the validity of the power of attorney. Therefore, it should be checked to ensure it has not expired and time limits diarised. Another wrongful assumption is where it is assumed that someone can stand in for an authorised agent when they are away on leave.

In an industry where ownership structures are increasingly complex and decision-making is frequently delegated amongst multiple parties, clear allocation of authority is not merely good governance, it is an essential risk-management tool. Additionally, with the increased use of technology to simplify processes and reduce the paper trail, companies would be well advised to ensure that such proper legal process is not inadvertently overlooked when using such platforms by the mere click of a mouse or Docusign.

In conclusion, owners, shipyards, contractors and suppliers alike should ensure that authority is properly documented and verified before relying upon instructions which may carry significant contractual consequences. There is little downside to double-checking the basis of the authority. 

This article first appeared in The Superyacht Report: Owners Focus. With our open-source policy, it is available to all by following this link, so read and download the latest issue and any of our previous issues in our library.

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