Fresh from attending 2018’s Monaco Yacht Show, the senior and founding partner of Bargate Murray discusses the issues facing the yachting industry.
Bargate Murray is an award winning boutique law firm specialising in superyacht, aviation, maritime and commercial law. As well as his work with superyachts and aviation, Quentin advises on all aspects of the acquisition and disposal of luxury assets, including ownership structures and taxation. Another key area of focus for the firm is dispute resolution, including litigation, arbitration and mediation.
Quentin is a member of the Maritime Authority of the Cayman Islands Shipowners’ Advisory Counsel (Yachts) (CISAC-YC), a supporting member of the London Maritime Arbitrators Association (LMAA), a member of the Nautical Institute (NI), a member of the Institute of Directors (IOD), a member of the Baltic Exchange and a Freeman of the City of London.
Fresh from attending 2018’s Monaco Yacht Show - an extraordinary showcase of one-off superyachts and new launches unveiled in a worldwide debut for all those involved in the industry - Quentin discussed some of the issues facing the yachting industry with the Luxury Law Alliance.
How did this year’s Monaco Yacht Show go?
Quentin Bargate: It was really good - perhaps the best for some years, not just in terms of market activity, but also because we met a lot of great people. My personal highlight was the dinner that we hosted for industry leaders, which was a great success. During the show, we also had the opportunity to hold meetings on board several of the yachts on show and I was honoured to be invited to speak at the PG Legal breakfast event.
What was the focus of your presentation at the PG Legal breakfast?
QB: I spoke on the issue of publicly searchable beneficial ownership registers and, more specifically, the concern regarding reforms coming into effect in the British Overseas Territories, such as the Cayman Islands. I have no problem with mandatory beneficial ownership registers, provided access to them is sensibly limited to the authorities who need to review them.
The issue of publicly searchable beneficial ownership registers is not specifically targeted at the yacht owning community, but the effects are felt here more keenly than in other areas, as it is standard practice that the majority of yachts are owned by special purpose vehicles (SPVs). The registers contain information about who owns or controls these SPVs and; therefore who ultimately controls and benefits from an asset. These registers of beneficial ownership play a key role in the ongoing debate about transparency of ownership.
Should anyone, not just the authorities, have free and unrestricted access to that information? Common sense tells you they should not. In the EU, members have until January 2020 to make public the data on the beneficial owners of legal entities such as companies - I think that is wholly wrong.
Why are these registers of concern?
QB: I spoke about the issue of these registers to the Cayman Islands government and they share the idea with us that they are not necessary. No one has any issue with the existence of registers that can be searched by the proper authorities, such as the police or the tax authorities; however the concern arises when these registers are publicly accessible by anyone. It is plainly contrary to the intent of the GDPR regulations, designed to protect personal data better. GDPR was intended to make personal data more secure and more private, including giving people the right to be forgotten. The registers are completely at odds with this objective. Worse, in my view, it may increase kidnap risk and actively encourages prurient journalism.
Privacy is important to us all and there is no sensible reason why the wealthy and successful members of society should be treated as exceptions. Everyone has a right to privacy, but now it is simply not being afforded to those who most need it and those who have the most to lose. Yacht owners are good examples of people who have every right to expect that their privacy will be respected.
What are other pressing issues you see for the industry generally?
QB: From early next year, the Red Ensign Yacht Code (REG-YC) officially comes into effect, although yachts are already being constructed in accordance with its standards (I have a client currently doing so, for example). REG-YC combines and develops the benefits of the old Large Yacht Code and the Passenger Yacht Code in one source code. It is estimated that as many as 80% of large yachts are flagged in the British Overseas Territories, known as the Red Ensign Group, in particular the Cayman Islands, Gibraltar and the Isle of Man, mainly due to prestige, tradition, history, and international recognition of their high standards.
Other big topics are centered on using yachts commercially, the use of the YETs scheme, the status of the French Commercial Exemption, the ENIM regulation in France, the EU Commission’s attack on the Maltese Leasing Scheme and the development of new structures, new ownership regimes, security and confidentiality.
Have there been any noticeable changes in the sector this year?
QB: We are heading back in the direction of the pre-2008 market. However, there are now more yachts for sale and prices are still a little depressed. I therefore don’t see the market returning to pre-2008 levels of activity just yet. With regard to new yachts, the number of new deliveries has not increased exponentially, rather the number has actually stabilised to the level of one or two years ago. As the industry gets more mature, we see a new breed of yacht owner emerging, and we have to cater to their needs. Thus, we have seen more explorer yachts and interesting new designs. It’s a great time to be a designer!
These new entrants to the yachting scene perhaps don't fully understand all the ways in which they can use yachts. There are more Silicon Valley billionaires being created every week and they don’t want to limit themselves to just the traditional Mediterranean cruising grounds. They want to find new ways to use their yachts, not just to bob about in the ocean. They want to use them to do exciting things, to commission innovative designs and to discover new places.
What is the narrative you would like to get out there for those not in the sector?
QB: I would like to reboot everyone’s perception of yacht ownership and yacht owners. There is a very positive story to be told; a story of the Cayman Islands, not as a money-launderer’s playground, but as a highly regulated and admired jurisdiction of which we can all be proud. Once we get that positive message out to a wider audience, including the benefits felt by the local people in the overseas territories, then perhaps there will be fewer calls for unnecessarily invasive regulatory interference, including the imposition of publically searchable beneficial ownership registers.
There’s a better story in yachting and it’s not being told; that there are great yacht owners who are good for both countries and economies. The yachting community includes repair facilities, hotels, restaurants, all the other UHNW accoutrements, submarines, marinas - various diverse interests that generate income for the economy. If you spoke to the Cayman Island authorities about the industry, they would not talk about dodgy dealing, but would say how great the yachting sector is. With a population of about 60,000, many are employed in services focused on supporting and working with yacht owners and the companies required for that purpose.
Have things become more regulated recently?
QB: Yachts are becoming more like aircraft - they are highly regulated and some of the weaker players are already being shaken out.
A good example of how times are changing is the appreciation of the importance of fiscal compliance. When I first began my serious involvement with superyachts, around the turn of the Millennium, very few people paid much attention to VAT, but that has now changed. The Maritime Labour Convention 2006 (“MLC”) now ensures that those employed on commercial yachts are treated fairly (and many private yachts are run to the same standards). My firm has been an industry leader in helping in the development of MLC compliant Seafarer Employment Agreements, much to the benefit of the industry and all those who work within it.
One area that is not so regulated is yacht brokering. It is an issue for debate whether tighter regulation of brokers is justified or even possible. I work with a lot of brokers, and the best are truly excellent - the issue is how far we need to go to sort the wheat from the chaff!
Are there environmental factors the yachting world has to consider?
QB: Environmental damage is a risk we have to guard against, and this is a hot topic at the moment. MARPOL is the main convention providing the regulatory framework for the protection of the marine environment.
I would like to congratulate the International Seakeepers Society for their excellent work in helping protect the world’s oceans. SeaKeepers’ staff works closely with yacht owners and crew to coordinate research and outreach activities that reflect the yacht owner’s ocean-related interests.
Environmentally friendly hybrid propulsion systems are increasingly popular. They operate by creating choice in power generation, automatically switching between electric batteries and diesel engines, optimising the yacht’s energy distribution and therefore keeping emissions and fuel consumption as low as possible. As yachts get bigger and explore even remoter areas of the world, we have to make sure that the owners pay care not to adversely affect the natural environment. We all have a responsibility to promote greener technologies.