Boat Show Season - Florida Yacht Brokers Association, Inc.

By Scott wagner, esq.
attorney at Moore & Company, P.a.
MaritiMe Law
The world is getting smaller. And you are going global in
places like Italy, Germany, Brazil, Singapore, Australia and
China. You’ve been dealing in these countries for almost
20 years. After all, that’s the nature of the yacht brokerage
business. It’s inherently international.
But have you stopped to ask yourself what the ramifications
are for you and your client with regard to the different laws that
apply country to country?
As we progressively move toward
a more international business model,
we rarely take notice of the fact that
each country we step into has a
different set of laws and regulations
with very different remedies, and
consequences than we may be
accustomed to.
Let’s take China as an example.
Doing business there is very
appealing. The lure of labor arbitrage,
quick builds, and cheap prices on
the front end of a transaction can
persuade savvy purchasers to enter
Chinese waters. But the path to happiness on a Chinese deal is
never on the front end; it’s on the back end.
Protecting yourself in any business transaction is important.
However, when the stakes are high and the deal is in a country
like China, it becomes even more important to take proper
precautions.
Notable risks include the use of exotic financing instruments
for the purchase and/or construction of vessels, such Letters of
Credit, which allow a U.S. purchaser to forestall ultimate payment
until the end of the construction period, but also run the risk
of coming due even though your vessel was not constructed.
One way to protect yourself when using a Letter of Credit is to
secure a valid, highly rated, verified Performance Bond to cover
a construction default.
Also consider utilizing deal-specific escrow accounts, as
well as currency hedging. Deals should be done with proper
due diligence and should include a provision for an owner’s
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The Sun Never Sets
august/september 2012 | florida yacht brokers association | www.fyba.org
representative to remain onsite at all times during any build
or construction period. And, while we all know that brokerage
commissions should be received up front, it is imperative for
the health of your long term relationship with the purchaser that
your are not completely absent from the deal moving forward.
So proceed with caution.
Another notable risk is the perceived inability to perform
due diligence on the yard and/or
construction because it is taking
place on Mainland China. To counter
this risk, insist on arranging for your
client and an expert to visit the yard,
inspect its capabilities and verify its
prior work and operations. Finally, be
sure to hire an owner’s representative,
capable of conversing in Mandarin
and English, who can remain onsite
during the build.
Asking tough questions up front
will protect you (and your client) on
the back end. Not only do you want
to protect your commission, your
relationship with your client, and your exposure to possibly
being sued for negligent referral, but you also want to preserve
your reputation.
Another potential risk in dealing with China is that there are limited
remedies should a breach occur. Contract provisions that simply call
for a venue in Florida and for the application of Florida law are simple
but flawed because U.S. judgments cannot be enforced in China.
More intricate structures, sometimes involving arbitration tribunals
and predetermined escrowed funds can be used.
China is a robust economy with tremendous opportunity, but
it must be met with a degree of caution and a legal process to
adequately protect you from the inherent risk of a cross-border
transactions. Knowledge of the laws and regulations in China is
an important part of the due diligence process in any deal.
Scott Wagner is a litigation and trial attorney handling domestic and
international maritime issues at Moore & Company, P.A.