UK and Dutch Yacht Builders Penalised for Using Illegal Teak

Exotic hardwoods, particularly teak, remain ubiquitous in the fit out of large yachts. However, as recent cases have shown, their use is increasingly scrutinised and the growing body of applicable regulation in the UK and the EU is increasingly likely to be enforced.

2024 has seen separate actions brought by the UK and the Dutch authorities against yacht builders for breaches of the UK Timber Regulation (UKTR)¹ and EU Timber Regulation (EUTR)² respectively.  In both cases the builders were subjected to significant financial penalties as a result of the illegal import of teak into their respective jurisdictions.

EU Regulation

The EU currently regulates the import of forest products, including exotic timber, through the EUTR, which includes a prohibition on the placing on the EU market of illegally harvested timber, i.e. timber harvested in contravention of the applicable legislation in the country of harvest.

However, the EUTR is being replaced by the EU Regulation on Deforestation-free products (EUDR)³, which came into force on 29 June 2023. A transitional period was built in before its implementation to allow ‘operators’ (i.e. those who initially import forest products, including timber, into the EU and place the same on the EU market) and ‘traders’ (i.e. any person in the supply chain other than the ‘operator’ who makes the product available on the market) sufficient time to prepare for the additional administrative and logistical burden. Notably, the definition of ‘traders’ appears to be broad enough to cover parties such as yacht builders who purchase products that an operator has already imported and made available on the EU market. Although the transitional period was set to expire on 30 December 2024 (or 30 June 2025 for SMEs), the European Parliament and Council have provisionally agreed to extend the transitional period by 12 months to 30 December 2025 (or 30 June 2026 for SMEs). Formal approval of this provisional agreement is expected imminently, with the European Parliament set to vote on 17 December⁴. Subject to this uncertainty over timing, it is clear that the use of exotic timber in the construction of yachts in Europe is set to become harder and more expensive.

Article 3, which forms the cornerstone of the EUDR, states that no timber shall be placed on the EU market unless it satisfies the following conditions:

1. it is deforestation-free;
2. it is produced in accordance with the legislation of the country of production; and
3. it is covered by a due diligence statement.

‘Deforestation-free’ timber refers to timber that has been verified as harvested without inducing forest degradation in the respective forest after 31 December 2020. Condition 2 continues the prohibition on illegally harvested timber originally provided for in the EUTR. Under condition 3, operators must submit a due diligence statement containing, among other things, a declaration that i) they exercised due diligence; and ii) they found no or only a negligible risk that Article 3 would be contravened. Shipyards and others procuring exotic timber should demand to see such a declaration before completing any purchase, and we might expect to see language certifying their compliance with these regulations permeating into ship building contracts in years to come.

The EUDR prescribes measures that operators and traders must incorporate within their due diligence procedure, including:

1. collecting information to demonstrate compliance with Article 3, e.g. the geolocation of the plot of land from where the product originated; and
2. carrying out risk assessments to establish the risk of infringing Article 3.

The penalties for infringing the EUDR include fines at a maximum of 4% of the operator’s or trader’s annual EU turnover in the previous year, confiscation of the product and prohibition from placing timber on the EU market.

UKTR

Post Brexit the UK largely preserved the EUTR in UK law through the UKTR.  Like the EUTR, the UKTR prohibits the placing on the UK market of timber harvested in contravention of the applicable legislation in the country of harvest. It also requires operators to undertake due diligence on the timber they source.

To fortify the prohibition, operators must exercise due diligence and create a due diligence system which meets a prescribed minimum standard. Traders must identify i) the operators and traders who supplied them with timber products; and ii) the traders to whom they supplied timber products.

The penalty for contravening the UKTR is a fine or imprisonment or both. As a result of the UK action mentioned above, a luxury yacht builder was fined £240,000 for UKTR infringements⁵.

The UK Government is expected to follow the EU’s lead and introduce further legislation aimed at addressing the continued issue of deforestation by making it harder to import exotic timber and other forest products into the UK market.

Comment

Myanmar has been a major source of teak. However, an EU expert group has determined that due to systemic challenges in Myanmar it is impossible to mitigate the risk of illegal harvesting and the import of teak from Myanmar into the EU or the UK is therefore likely to contravene current and future regimes⁶. UK and EU sanctions on Myanmar further complicate this issue.  Great care should be taken to ensure that teak being used in your project does not originate from Myanmar.

As the recent examples demonstrate, competent authorities across Europe are scrutinising the yacht building industry’s use of exotic timber and are successfully bringing actions against yacht builders for contravening timber regulations. It is essential to understand how the regimes governing the import of timber into the UK and EU impact your business and those of your suppliers. The introduction of EUDR means operators and traders must evaluate whether their due diligence processes sufficiently focus on the risk of deforestation.

Yacht builders using exotic timber should ensure that they carry evidence of compliance with the applicable regulations to avoid the risk of enforcement action by competent authorities.

Research was conducted by Jordan O’Brien, Trainee Solicitor at HFW.

Footnotes

1. Regulations: timber and FLEGT licences – GOV.UK
2. Regulation – 995/2010 – EN – EU Timber Regulation – EUR-Lex
3. Regulation – 2023/1115 – EN – EUR-Lex
4. For more information on the reasons for the delay to implementation, click here to read our recent briefing on the subject.
5. Luxury yacht maker fined after breaching timber laws – GOV.UK
6. EU rules against illegal logging – European Commission