With more yacht arrests and sanctions occurring over the course of the weekend, we took a closer look at the legal implications for the arrest or freezing of private vessels, speaking to a number of maritime lawyers to get a more in-depth understanding of current events. All of those we spoke to pressed that these are unprecedented times both in yachting, and on legal terms.
While a number of the sanctioned Russian oligarchs and elites own superyachts, at this time it remains only the 156-metre Dilbar and the 85.5-metre Amore Vero that have been publicly named by any international body. James Jaffa of Jaffa & Co. commented, “While there is a widespread aversion to dealing with Russian individuals, legally you can still engage in commerce with Russians as long as neither they, nor their bank, are named on the sanctions lists.”
This is important because it means that non-sanctioned Russian-owned yachts are still able to pay crew and release funds in order to maintain the operations of the vessel. On the other hand, lawyers speculate that sanctioned yacht owners cannot legally release funds in order to operate their vessels and therefore the yachts will be crippled by the legislation, whether the yachts are named or not.
Read: How might the war in Ukraine impact the superyacht industry?
Benjamin Maltby, Partner of Keystone Law shed some light; “We’re in uncharted legal waters. Yachts are, of course, arrested regularly – but vessels are usually free to go once financial security has been provided. Security is typically in the form of a bank guarantee. The current situation is more like confiscation than detention. The aim is the deprivation of assets rather than the settlement of a debt or other legal claim.”
Jaffa added that under the sanctions it becomes illegal for any company, including a bank, or individual to engage in a financial transaction with a sanctioned individual. “The sanctions have a particularly wide net and even indirect financing of sanctioned individuals can lead to very significant fines and jail time.” This means that while the vessel’s owner is being sanctioned, finances cannot be provided for the vessel, meaning that its operation is essentially impossible.
Read: Seized Russian superyachts: The first two yachts seized in Italy
Many people have asked what will happen to vessels if they are seized or arrested by international governments – do they then become the property of those governments, and who will be responsible for the payment of outstanding debts, including the payment of crew?
Maltby explained, “It is not yet clear how the vessels will be cared for. They won’t become the property of the governments or port state authorities in whose possession they will remain for the time being. Under English law, you owe a duty of care to the owner of goods you have seized. This is known as a bailment, however it seems unlikely that port officials will be arranging for day workers to clean the yachts down on a daily basis and lacking essential maintenance the value of the vessels will begin to depreciate, while debts build.” As Maltby touched on here, it is not only the outstanding debts incurred by yachts since the sanctions were introduced. Vessels such as Dilbar, Amore Vero and Lady M and Lena which are alleged to have been arrested in Liguria over the weekend, are now sitting in marinas and ports incurring fees which may never be paid.
As Jaffa mentioned above, under the sanctions it becomes illegal for people to engage financially with any of the sanctioned individuals. This final point is particularly significant to the yachting industry, and it sheds light on why Dilbar has been named within an official report from the US Department of the Treasury. He added, “Dilbar was apparently seized during a refit at the Lürssen facility in Hamburg, which may have been due to an ongoing transaction (which is no longer permitted) with a vessel owned by a sanctioned individual. It will be interesting to see how the costs incurred during her time at the facility, including those of the crew, will be paid in the foreseeable future.”
Read: Sanctions imposed against Russian-owned superyacht Dilbar
While the registered owners of the vessel remain liable for the costs and retain ownership of the vessels, Maltby added that “the yachts may be sold by the seizing body in due course – by judicial auction or tender – in order to recover the outstanding amounts”. This however should not be expected in the short term. Jaffa added that it is possible for governments to create new legislation that will permit the release of sanctioned assets for the payment of debts, but whether this will be actioned is yet to be seen.
In regard to this, some US politicians have been advocating for the seizure of vessels and the subsequent sale of them to raise aid funds. According to BusinessInsider, the so-called “Yachts for Ukraine” Act has been backed by Democratic Rep. Tom Malinowski of New Jersey and Republican Rep. Joe Wilson of South Carolina. The bill would hold authority for two years after its passage but the passing of such an act is yet to be seen.
While the repercussions for yacht crew and shipyards with outstanding debts is apparent, it is not only sanctioned individuals who are being impacted. Jaffa explained, “An additionally unsettling impact of the international sanctions, and the war as a whole, is that actions are being taken against non-sanctioned Russians.” The momentary Monégasque arrest of Quantum Blue is an example of this. While she is Russian-owned, the owner of the 104-metre superyacht is not among those wealthy elites named within the sanctions lists, but despite that she was still prevented from departing Port Hercule last week, and though the yacht was later permitted to depart, the event in itself has complicated legal implications.