The Yacht Law Podcast

Untangling Pay-First, Pay-If-Paid, & Other Clauses In Yacht Deals

• Michael Moore & Diane Byrne

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One tiny word in a marine contract can decide who gets paid and who gets stranded. We unpack the real meaning of pay-first, pay-if-paid, and pay-when-paid in yacht builds, refits, and charters, and trace how P&I club traditions shaped today’s clauses. From owners to shipyards, subcontractors, brokers, and charterers, we map the entire payment chain so you can see where money stalls, why it stalls, and how to keep your project moving when one party hits a cash wall.

We go deep on insurance structure too: deductibles, primary layers, and the often-invisible reinsurance towers that can trigger pay-as-paid delays. You’ll hear how enforcement differs across jurisdictions—why Florida and England often honor these clauses, why France rejects them, and why a quiet New York governing law provision in a yacht policy can wreck a claim even when a breach didn’t cause the loss. Along the way, we share hard lessons from real cases: unpaid subs, insolvent yards with heavy mortgages, charterers arriving to unseaworthy yachts, and banks blindsided by misdirected funds.

The takeaway is practical and immediate. Read for conditional words like if, when, and as. Verify solvency as liquidity, not just net worth. Demand third-party guarantees from entities with real, provable assets. Check recorded liens on yard property, use escrow that protects deposits, and align broker fee splits with clear payment conditions. Above all, plan for collectability before you sign; a courtroom win without a pocket to recover from is no win at all.

If this helped you spot risks in your own contracts, subscribe, share the show with a fellow owner or broker, and leave a review with the clause you’re most worried about. Your question might shape a future episode.

Have a yacht law question? Email it to info@megayachtnews.com or michael@moore-and-co.com for your chance to have it answered on our podcast. All requests for confidentiality and/or anonymity are respected.

Hiring a lawyer is a big decision. Visit Moore & Company for the legal team's qualifications and experience. And, to learn the latest about superyacht launches, shipyards, designs, and destinations, visit Megayacht News.

Diane M. Byrne:

Welcome everybody. Michael. Here we are at the beginning of 2026 and start of year four of the Yacht Law Podcast.

Michael Moore:

Wow. How about that?

Diane M. Byrne:

You are officially a podcast expert, I would say.

Michael Moore:

A low bar. I appreciate you saying it.

Diane M. Byrne:

And a low bar, but um bum. No plu no uh pun intended, right?

Michael Moore:

Right, right.

Diane M. Byrne:

Well, in all the years we've been doing this, we've focused a lot on issues impacting the ownership experience, both things that are positive for owners and things that could be detrimental. Today we have something that impacts both the owners and those who like to charter. And I'm so glad you brought this issue to my attention because I had never heard of this before. So this provision of pay first in the uh in a marine insurance policy. And from what I was trying to read up so that I could really get up to speed, it sounds pretty prevalent, not just in in yachting, but in maritime across the board.

Michael Moore:

Right.

Diane M. Byrne:

And I get where it comes from, makes a lot of sense. But I think from unpacking some of the details, I can see why the courts are saying that it does or doesn't apply in certain cases, and how that's causing some confusion and some concern on the owner's side and the charterer's side. So choosing this as a topic really is very timely, I would say.

Michael Moore:

Exactly. In this context, it probably came out of the in the old days, you had what were called PI clubs. And there's several parts of that. One is protection, and that is the defense of lawsuits. The other is the word indemnity, which is the reimbursing of members of the club. In this particular case, they were shipowners. So you had these clubs. You know, you have uh they're very famous clubs, the so-called international group, but almost always historically were based in London, and then other countries joined the party, uh, like the Norwegian club, the Swedish club, the Japanese club. But these were all clubs of shipowners that would generally aggregate into these mutual, well, all in this together, club. In other words, if one member suffered a loss, then the other members would have what were called calls, C-A-L-L-S, and they would be, they would contribute to a common fund and pay the claims. It was a mutual underwriting association. But the cooperative word that gave rise to the subject today was the word indemnity. Somebody looked at that word one day, some lawyer whose clients are looking at a massive contribution need to indemnify someone who suffered a loss, and they said, well, we don't really need to pay because we don't indemnify until the member is out of pocket. This group of members, whether it was the Shipowners Club or the Standard Club or the UK PI Club or one of the big PI clubs out of the U.K., is to be distinguished from the Lloyd's market, which everyone now knows, you know, is that there are only two big, two very big markets in the world that are significant. One is the London market, the other is the American market. And these are markets of underwriters who could join together and say, I'll take a piece of this risk. So if they take a 5% piece and a loss occurs, they'll pay 5%. In the old days, they'd pay for the entire net worth was at risk, the so-called names, names. It was a big deal if you're a name of Lloyd's marketplace, because that meant you were wealthy. And the scary part of it was you put your entire net worth at risk. Change now. They now have limitations on those liabilities. But that's how we get to where we are today. And suddenly it seems like, as in so many things in the world of maritime law, especially, you have this sort of rise of what I call the pay on pay, pay first, pay if paid, pay when paid, pay-to-be paid, and pay as paid, the clauses. Oh yeah. And these words become extremely important when you're getting into contracts. I think your initial point was correct. You talked about all your points are correct, but the one that I want to seize on is the first one. Because it's a chain, you have an owner, and usually you have a second party, it can be a contractor. And then this would be in the context, for example, of a shipyard. So the owner enters into a contract with a contractor, a refit contract, let us say, and then the refit contract goes into a subcontract, that's a subcontractor. And the question is: what is the language in the contracts that tie the shipyard or the refit yard or the refit contractor and the owner together? Now, it normally comes up when something bad happens, and everyone, the lawyers come and they start getting very, very careful to look at this precise language of the contracts that tie together the owner, the contractor, and the subcontractor. And uh if there's language in that contract between the contractor and the subcontractor that says pay if paid, then this contractor in many countries doesn't have to pay the subcontractor until they're paid.

Diane M. Byrne:

Okay.

Michael Moore:

So it's usually an insolvency risk. Somewhere in the chain, someone has become insolvent. Someone's had a so-called reversal of fortune. And um now you have a problem. Now you can see that this is one of those situations where depending on where you are in the chain, you may favor enforcement or you may favor non-enforcement. Okay? So it's important when you going into these contracts, uh, what law or what laws are applied, and and more specifically, I would say, not only to in terms of the law that's applied, but the language in the contracts, that language does mean something. Lawyers, I think these days have gotten to be much more cavalier, let's say, about contracts. I think AI is responsible for a lot of this. They kind of plug in a few Google searches, they use AI mode and they come up with things, and they go, we're good to go. And the answer is no, you're not, because you've got there's words in there like if, words like on, words like when, and words like as. And these are words that mean something. And um it's like uh one very famous Supreme Court justice said uh, I think he concluded in the middle of the word if.

Diane M. Byrne:

Yeah, right.

Michael Moore:

Because the lawyer was uh cut off by one of the justices, and he said, I think you stopped him in the middle of the word if, if I may hear the rest of that sentence, reminded me enlightened. The justices say to the lawyer, Mr. Jones, uh, you've been intoning here for several hours, and we are none the wiser. And uh lawyers say, That may be true, Your Honor, but you're better informed.

Diane M. Byrne:

Oh God.

Michael Moore:

But generally speaking, these things are enforceable in the state of Florida, which is probably the yachting capital of the world in terms of the three big boat shows. Um, but probably and also I would say enforceable in England, which is the epicenter of the kind of equitable law that would require, and that comes out of the fact that most of the group of uh international clubs or big PI clubs are based in London, then English law also says these clauses are enforceable. Okay? Now, France, they do not enforce these clauses. They say they're against public policy. And then in certain states, generally speaking, and we're gonna get to this a little bit later, I think. I think you're gonna ask about New York.

Diane M. Byrne:

Yeah.

Michael Moore:

New York law generally does not, you know, you could go either way. I mean, it just depends on which side of the insolvency you're on. Right. Um, but um you need to look at these contracts. You're that you're dealing with these multimillion dollar contracts, particularly in the vessel construction market, you know, 20, 30, 40 million dollar contracts, you better pay attention because there have been some notable insolvencies in the yacht construction market. These yards really don't have deep pockets. They look good, they have the websites, they take in the contracts, they have all the words on the contract, but at the end of the day, very few people, and I think this is ultimately what we're talking about, very few people check the solvency of the yard they're doing business with. And not to dredge up um old uh stories, but it's completely related to pay on pay, pay-if pay, pay when paid, these kind of concepts. Um, I remember a situation where uh a bunch of subcontractors were unpaid, and there was a contractor, a yacht builder, that couldn't pay the subcontractors. Uh, and all of this was caused by the fact that the owner could not pay the yard. The vessel was the is the biggest vessel that yard had ever built, and on paper, the owner was the cause of the problem because he had lots and lots of assets, but no liquidity, so he couldn't pay his bills. He had land that went on forever, but he didn't have enough cash to pay for his $60 million motor yacht. So we had to work with him and the yard and the subcontractors and the banks for the yard and brought it all together at the same time to try to get him funded. And once he got funded, he could pay the yard, he could pay this, and the yard could pay the subcontractors, and the yard could service their debt, and everybody won. The yard owner got his boat, and a very friendly commercial bank had given him the money to achieve all that. But all of this comes out of the famous pay on pay provisions in the PI insurance market. The um there was a case called the uh Padre Island case, and it was one of the legendary cases on what are called pay on pay. In other words, where do you start uh to uh where the insured, the insured is usually the owner, the insurer, of course, is the insurance company, but there's another level that's called reinsurance. Most people don't don't see this, but it's just not one policy, it's layers. And the first layer is the deductible. That's that's the owner's level. You know, when you sign your insurance policy and you say, well, I'll take uh $250,000 deductible, okay, so that's the first level, the first layer. The next layer may be a million dollars. And so if you have a claim that's uh $500,000, the first $250 comes out of the pocket of the insured. The next $250,000 comes out of the pocket of the insurer. But where does the insurer go from there? Well, it's called reinsurance. That gave rise to what is called pay as paid, meaning that the insurer basically says to the insurred, the owner of the yacht, look at your policy. We don't pay you until the reinsurer pays us. Now, there are not that many reinsurers that go under, but there have been a lot of reinsurers that have trouble paying because they call it laying off the risk. It's not just one reinsurer, it's a bunch of different insurance companies signing off for a percentage of the risk. It adds up to 100%. But if four or five of those reinsurers don't pay, then the insurer is likely to say, Well, we have a pay as paid clause. We can pay you X today, but we can't pay the rest of it until later. So that's that's a reality that it just seems like overnight lawyers discover these things. The Padre Allen case goes back. I'd have to Google it to remember, but I know that I know it was uh a very famous case decades ago, 30, 40 years ago for sure. Yeah. But these things will sleep there and nothing will happen. And then it seems like almost overnight everybody's asserting these provisions. Right. Right. The pay if paid clauses are devastating because that means that you don't get paid. The person downstream doesn't get paid until they're paid.

Diane M. Byrne:

Right. Um I want to actually I sorry to interrupt you, but I want I want to go back to something you said before because I think it's a really important point to underscore the the idea of the the owner, the original person contracting or entity contracting, say with a shipyard in the examples that you gave being insolvent. I think a lot of people assume insolvent means that they're bankrupt. But as you pointed out, they're not necessarily bankrupt. It's just they don't have the liquidity. So that's I think that's a crucial point. And also from the standpoint of how this could impact charterers, just because you can afford a few thousand dollars or perhaps a few million dollars on an extended charter does not mean that you can't afford to buy that boat or that super yacht that you've been vacationing aboard. So that's where that idea of the insolvency comes in with these clauses. I I found that fascinating because whenever I hear that term, immediately my mind goes to bankruptcy. Because that's how it's it seems like 99% of the time it's used in the context of these um these court cases.

Michael Moore:

Right. And to your point, um there's a there's a uh charter comes along and puts $500,000 down for a wonderful week of chartering a 50-meter yacht. Unbeknownst to the charterer, the owner has numerous creditors. The owner couldn't fulfill the chart for a variety of reasons. Maybe they loaded the fuel and uh slipped away without paying for the fuel. There's a yacht that I'm aware of, I won't be able to mention the name of it, but it's got uh about 9 million in debts owed to two third parties, uh, over maybe eight different parties owed money. And the problem is that even the brokers in the middle don't necessarily understand the solvency of even the yacht owner. They see this beautiful yacht. It's there, it's you can touch it, you can feel it. But the reality is the owner is completely bankrupt. You might want to ask, for example, just as a matter of course, and maybe I see your insurance. Insurance doesn't cover all risk, but it will cover a lot of maritime risk. Uh and so you might just ask, uh, I mean, mostly insurance mostly is for like negligence, not for contractual claims. Insurance is not going to reimburse uh for not paying for fuel. It's not gonna reimburse for not paying for your your yard bill, or it's not gonna reimburse for your dockage. These are contractual claims that just simply weren't matter. We just went through this with a with a, we're dealing with it right now with the yard in the Netherlands, they're very offended when we ask them to provide a guarantor. I'm telling you from experience, that very rarely does anyone ever check the yard's solvency. They just take it on faith. There's a contract, you're gonna build a boat. But if you were to check the, for example, the property that the yard sits on, the real estate, there's a massive mortgages on that property. These are recorded liens, these are secured liens, these are the people that would be paid first if something goes south. I just testified in a case, I was actually retained to testify in a case where the ship owner had entered into a yard that I'd never heard of, but he thought it was going to be a great deal. You know, he got a great price, but the yard effectively was insolvent and basically admitted insolvency in the middle of the contract. Well, this is when you get out your, you know, your trying towel and sorry, realize you're gonna take a huge economic bath if the shipyard had no real assets. Look at the land beneath the yard itself, it's owned by another party. The shipyard was basically a name only with a bunch of people running around, and when they didn't have any the revenues coming in to pay their bills, a lot of the subcontractors got hurt, and and most importantly, the yacht owner got hurt because he has no way of recovering for his losses. You've always got to look at three things. Okay, I think this is where the podcast might be helpful. You've got to have three things to win a lawsuit. I don't know if you've I've said this on this podcast before. I'm gonna tell you right now. Every lawsuit, you heard it here first. You've got to have liability, you gotta have damages, you've got to have collectability. Those three things. If you don't have collectability, you're wasting your time. In the world we're living in today, you would be well advised to get a third-party guarantee for your contracts. Get somebody with provable assets, provable net worth, provable pockets, deep pockets to guarantee the fulfillment of the contract. Hey, look, if the contract's fulfilled, nobody cares, right? Everybody's totally happy. But if the contract's not fulfilled for any reason, you got to go to your guantor. And that's the person who will make you whole. Um, it's a pretty much a reimbursement situation. And it's really sad. When you go down that pyramid, you got the big shipyard, and as you get further down that pyramid, the people are smaller and smaller. The vendors are more mom and pop. Well, you know, people look at the eye, oh, that's a $50 million motor yard. Well, you know, one million went to gangways, and these people got paid and they fed their families and they went about their business and they came to work the next day to build another passerel. It's not just Oh, this rich person, rich yacht. Oh my God. No, it's not like that. It's everybody working together to build this amazing thing. But you know, what we're talking about is that I guess the underside, no one wants to recognize it. But I think a lot of yards get very upset when we when we did a search on their on their uh uh holdings and told them we need a guarantee or and they were just offended. Oh, you know, we've been in business, blah, blah, blah.

Diane M. Byrne:

Right, right. It's no, is there so what is there a case where is there a situation where, like you mentioned earlier, say somebody charters the yacht and the owner doesn't deliver on the charter because something else is going on? Is there a scenario in which the charterer could seek recourse? Or maybe that doesn't apply. Maybe is there a scenario where something happens during the charter because of the charter party that impacts the yacht operations, maybe even the crew, and therefore the owner tries to seek this pay-on-pay or pay-first recourse.

Michael Moore:

I mean, there's a case for every one of those scenarios. I mean, the most egregious thing I've seen lately is when the charterer paid, you know, these people had paid completely up to the point of boarding the yacht and arrived to the yacht and couldn't believe how bad it was. And by the way, this leads to another podcast at some point in the future. At what point are the intermediaries liable for putting out there on the Internet beautiful photographs and beautiful representations of a yacht that is actually in terrible condition? And everyone relies on those brokers in the middle and the representations they make. Charters now paid all their money, all their APA, they are good to go. Family, two little kids show up at the port of embarkation, and the boat's a piece of junk. I mean, ugly, dirty, broken down, you know, wires hanging, scuff marked piece of junk. Um that that charterer now has a claim against the owner, but does he also have a claim for the brokers in the middle? Okay. Now, in many cases, the brokers in the middle are screaming bloody murder and saying we have no ability to go on board all these yachts. We take on good faith and rely on what's represented to us. But at some point, you know, do you have responsibility for charter and charter parties that are not fulfilled? Um the other the other thing you mentioned, it's kind of it's it's kind of hard to it's kind of hard to I have to tell you, it's just hilarious. I it's a case I did not take, but you gotta love the facts. They had this crystal bird hanging from the main salon, and then they had this beautiful artistic plate that was on one of those tri, you know, tripods. So when the weather came up, they took that plate and they put it on the floor, and the silver and the crystal bird broke free of from the ceiling and fell directly on the plate. So both the bird and the plate were shattered. That was just the beginning of the problem on board that boat that my that the charter was being that the owner is upset with the charter. The charter is upset because it was just such a horrible charter, mostly caused by bad weather. But yeah, I mean, every scenario you can imagine, it's all about contractual clauses. It's just like a what do you do? You've got to have a contract, but if you have anybody in that chain that becomes insolvent, you've got a major problem. You're gonna be gone back and apply spec in either your insurance policies or your actual contractual policies. That's bringing that's when you bring in the lawyers with their magnifying glasses and looking at every single word on the page. Right. So, yeah, there's always that chain: owner, charter, listing broker, selling broker, charterer, or it's owner, brokers in the middle, yard. It could be anything in the Yahoo world, it just seems like there's always there's never just a simple contract between a party A and Party B. Yeah. Almost every single one of these relationships involves multiple contracts. The contract between the owner and the first contract with the broker, the owner and the person that comes along who's actually a buyer or a charterer, and then the contracts between between the brokers a lot of times. You know, what do they agree to do? All the sub-brokers, like for example, the the so-called cooperating brokers, are all simply paid from what the listing broker is paid. So many times it's a pay when paid, pay, if paid, pay, on pay type. You know, I can tell you that 90% of those contracts are one piece of paper. One piece of paper. It's a fee-splitting contract. But who takes the loss? Does the listing broker just say, look, the owner that hasn't paid me, I'm not gonna pay you? Okay. Well, that's logic. But if it says pay if paid, that's one thing. If it's paid when paid, that's something else. Um pay first, this may be the one where the seller broker says, Listen, I did my job. You know, we had a case, I swear to you, it's this is true. The banks had trusted the brokers, and the bank took a total loss situation because they had all the money sent to the broker, and the broker was supposed to pay the seller, and the broker got all the money from the buyer, and the broker did pay the seller. Well, the seller was only entitled to a little tiny piece of the money because most of the money was supposed to go to the bank. The bank didn't even notice the loss for two weeks. They called up the seller and said, Whatever happened on your closing? And the guy said, It closed. I'm happy. So you got paid? Yes. I got paid this tiny little bit of equity that I was at found in the boat. And I gave Todd and the boat got soles. He says, We didn't get paid. And he says, Yeah. Wait, what? The banks, we didn't get paid.

Diane M. Byrne:

You're really you're you think they'd be the first to be paid.

Michael Moore:

Who's gonna get who's gonna take the loss there? Is what it comes down to. Who's gonna take the loss? Right. I've I've had a I've had a case. I remember a certain federal judge looking at a situation, and the bank was 100% sure they were gonna get paid. They had a powerful, powerful document called a first preferred ship mortgage, which almost always gets paid. Except in this particular case, the what had happened was the fraudster had sold the same boat twice. And the federal judge says, Well, what did you do to protect your interest? The boat was in in Savannah. It was always there. You're in Atlanta. It's not that much of a stretch that once in a while you might want to go down and check out your collateral. But what happened was this bad guy sold the same boat to this man who took his life savings to buy this boat, checked the boat out, it was been registered completely, clean and clean as a whistle. Man paid his full life savings to the seller and went down to the crib and is now living on his boat when he gets served with a subpoena. The bank in Atlanta wanted to get paid. And the federal judge says, no, I'm not gonna, I'm not gonna force him to give up his home and this boat, because you sat on your hands and he dusted off something called the equitable subordination doctrine, and the bank ended up taking the loss, and the man in the boat down the Creedman lived happily or after on his boat, and the guy that was the fraudster in uh Savannah, I think he went to jail, but that doesn't help anybody get paid.

Diane M. Byrne:

No, doesn't that's for sure.

Michael Moore:

That's my story.

Diane M. Byrne:

So then all this brings up another question. You mentioned Florida enforces these clauses, England does, etc.

Michael Moore:

Exactly.

Diane M. Byrne:

Lawyers and France doesn't, right. Now, lawyers, as lawyers are wont to do, and I would argue should do, lawyers like to go forum shopping to find the most uh you know amenable, agreeable, however you want to phrase it, court. So and as you said earlier too, New York state law is very specific and very strict on insurance clauses. So form shopping is one thing, but then when you come up against New York state law, does it really matter whether you know Judge Michael Jones over here or Amy Smith over there is more sympathetic to you when you're faced with the New York State clause?

Michael Moore:

If you had the time to fall down uh 10 recently issued insurance policies in Florida to yacht owners based in Florida bought their insurance through a marine insurance broker based in Florida, and they have a New York State law clause. If anything on that boat is said to be a breach of the policy, the insurred, which is a yacht owner, will not be paid. Because New York law provides that there does not have to be a causation between what caused the loss and your and the owner's breach of any provision of the policy. It's a to me it's it's terrible. It's not it but the United States Supreme Court has ruled that it's enforceable. Basically, the United States Supreme Court says that's freedom of contract. You could have looked at the contract at the beginning, you could have struck through that clause, or you could have found another insurance policy, not so easily done, by the way, but it is enforceable. Now, in that particular case, Florida says, yeah, you can enforce that. Florida is that kind of place. You have freedom of contract. Freedom is a right-to-work state, it's a lot of freedoms. But that that applies to the freedom to put a very egregious clause in your insurance policy. I mean, if there was one takeaway, I would I'm just telling you, I would urge everybody who has a contract of insurance to simply search it to see if there's a New York State law clause. And if there is, I would say try your dead level best to find a different policy that does not have a New York State law clause because it's a killer.

Diane M. Byrne:

Yeah. Yeah. It's all part of the the due diligence of reading that super fine print, especially in this context of the pay first, pay-on-pay, et cetera, but also pay attention to the jurisdiction. I think that's the best advice anybody could get.

Michael Moore:

I think the law is uh um not it's not as easy as Googling and doing an AI search. It's very, very misleading in terms of people that do these searches and they get an answer. And as far as it goes, it's probably all right, but it's a lot of times it just doesn't go far enough.

Diane M. Byrne:

So Yep. Yep. Devil is in the details. Well, Michael, this has been incredibly educational. I'm really glad you suggested this as a topic because I've learned a ton. I've been writing some notes as usual while we've been speaking. I think we're gonna get some good feedback on this. Everybody, if you have a question or a topic that you would like us to address on an upcoming episode, we would love it if you would reach out to us. Our contact information is in the show notes. Michael, as always, thanks for your insight. And uh, I'll give you the last word.

Michael Moore:

Always a pleasure. See you on the next uh podcast.

Diane M. Byrne:

See you the next time. Bye, everybody.

Michael Moore:

Bye, everyone.

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Diane M. Byrne

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Michael Moore

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