Yachting contracts look clean and simple on paper. With new-builds and refits, owners hire shipyards, and shipyards hire contractors. With charters, meanwhile, owners hire yachts. What appears to be straightforward is actually knotty in practice, though Money flows down until it doesn’t, which is where clauses like pay-first, pay-if-paid, and pay-when-paid decide who profits and who doesn’t. They’re present in yachting contracts and insurance programs, resulting in a single conditional word capable of stalling payments to shipyards, subcontractors, or even charterers. Understanding them means the difference between a funded fix and a frozen project. We untangle the details in this episode of The Yacht Law Podcast.
Firstly, each of these clauses revolves around solvency. Solvency doesn’t necessarily mean bankruptcy, however. Instead, it’s all about liquidity. An owner may have vast assets, for instance, but lack cash to pay a shipyard. That can stall milestone payments and, ultimately, starve subcontractors. A charterer, meanwhile, might place a six-figure deposit on a dream superyacht vacation without knowing the owner has debts directly related to the yacht. These can result in the charter never happening, or the charter party discovering the yacht is unseaworthy upon arrival. Similarly, damage that occurs during a charter stemming from the charter party’s behavior is fully dependent on liquidity. Affording a charter is one thing; paying millions for damage is quite another.
Marine insurance adds another layer. A yacht policy sits atop a deductible and beneath reinsurance towers. When claims hit, owners pay their deductible, insurers pay their layer, and then the insurer looks to reinsurers. If the policy includes a pay-as-paid clause, the insurer might delay the owner’s recovery until reinsurers remit. Reinsurance usually works, but when it slows, owners feel the squeeze at the worst moment. Meanwhile, pay-if-paid clauses in yard or broker agreements can block downstream payments if someone upstream fails. The result is a cascading insolvency risk. One missed transfer traps cash throughout the chain, leaving work unfinished, suppliers unpaid, and litigation brewing.
Practical protection in yachting contracts starts with words. Crucially, scrutinize clauses that include “if,” “when,” and “as.” Each suggests a condition or sequence that can defer or deny payment. Then follow specific paths depending on whether you’re involved in a new-build, refit, or charter. Too few megayacht owners check the solvency of the shipyards they select. Request third-party guarantees from creditworthy entities for ne- builds and major refits, with verifiable assets and clean financials. For charters, verify the yacht’s and ownership entity’s insurance certificates, inquire about maintenance status, and confirm escrow arrangements that protect deposits until performance is clear.
Jurisdiction matters as much as language. Florida courts often enforce these clauses, no matter how onerous, under freedom of contract. Other states do as well. Overseas, English law tends to honor them, although France considers them contrary to public policy. Back stateside, New York law is a sleeper issue. Generally speaking, some insurance policies quietly select New York governing law because it allows insurers to deny claims for policy breaches without any causal link to the loss. That small sentence can turn a seemingly routine claim into a total loss of coverage. Yacht owners who’ve bought insurance in Florida through marine-insurance brokers are often surprised to learn they accepted New York law because they didn’t examine the fine print.
Finally, whether you’re an owner or a charterer and are weighing a court case over yachting contracts, you need three things. Specifically, liability, damages, and a pocket to recover from are necessary to prevail. Too many litigants win on paper and lose at collection. Map the entire contract chain of pay-first, pay-on-pay, and pay-if-paid so you know who depends on whom. In the yacht world, beauty sells the dream, but language and diligence deliver the result.
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