Sunseeker Yachts fined for using Myanmar "Blood" Teak: a wake up call for the industry

In a landmark ruling, the British luxury yacht manufacturer Sunseeker International Ltd has been fined £358,759.64 for importing illegal teak from Myanmar, commonly referred to as "blood" teak.

Since Myanmar’s military coup in 2021, the ruling junta has financed its regime through timber exports, including teak, leaving the Myanmar Timber Enterprise facing sanctions from the EU, UK and US and rendering the import of Myanmar teak illegal.

This case marks the first prosecution under the new UK Timber and Timber Products Placing on Market Regulations (UKTR) which replaced the previously applicable EU Timer Regulation (EUTR) on 1 January 2021. It is a warning to the yachting industry to adhere to changes in regulation and to take note of the wider importance of Environmental, Social, and Governance (ESG) considerations.

Sunseeker’s breach

Following the 2018 investigation by the Environmental Investigation Agency (EIA) into Sunseeker’s use of illegitimate Myanmar teak, Bournemouth Crown Court found that the luxury motor yacht company had breached the UKTR.

Sunseeker pleaded guilty to three charges, including failing to exercise due diligence and maintain proper records when placing timber products on the market. Relatedly, in a statement, Sunseeker attributed its “unintended failure” to exercise proper due diligence to the change in legislation from EUTR to the UKTR. Judge Jonathan Fuller KC described the company's actions as a "systemic failure" to comply with regulations, noting that Sunseeker had been warned about the risks of illegal teak in its supply chain by the EIA in 2018.

The Court issued a fine of £240,000, stemming from 11 specific imports of teak from Myanmar, European oak, and wenge from Africa valued collectively at over £60,000. In addition, the Court issued a confiscation order of nearly £67,000 and ordered Sunseeker to pay £51,000 in prosecution costs. Whilst the fine was set at the end of November 2024, the judge’s order is technically still pending until the matter has been re-listed under the slip rule, to resolve an error the judge made when making the confiscation order (the judge ordered it to be 12 months when it should have been three).

The EIA hailed the ruling as a pivotal moment in combating the illegal timber trade. Indeed, Faith Doherty, EIA Forest Campaign Leader, stated that the sentences send a clear message to other luxury yacht manufacturers that using "blood" teak from conflict-torn Myanmar is unacceptable and will have severe consequences.

The picture across the EU

It is not just the UK that is holding yacht manufacturers responsible, with Oceanco settling with the Dutch Public Prosecution Service just days after the Sunseeker judgment. A similar investigation into Oceanco’s supply chain found that it had failed to comply with the EUTR when it used Myanmar blood teak in the construction of Jeff Bezos’ $500m superyacht, Koru.

Whilst the teak for the decking was brought into the EU by a German timber merchant, the teak for the wooden furniture and finishings was purchased from a Turkish company in 2022 and so Oceanco was the first to place the products into the EU market and responsible for conducting the necessary due diligence. The wood failed to meet EUTR requirements after traceability issues and Oceanco was found to be in breach.

Oceanco had already vowed to stop using Myanmar teak in 2019 and expressed deep regret over the lapse, but was ultimately hit with a penalty notice of €150,000 and the associated reputational damage.

It remains to be seen as to whether the German courts will follow suit and issue a fine against the German timber merchants involved in the Oceanco and also the Sunseeker case, as this jurisdiction was involved in both yacht builders’ supply chains.

Lessons for the yachting industry

This case serves as a stark reminder to the yachting industry that businesses must be vigilant in their supply chain practices to avoid contributing to environmental and human rights abuses.

ESG legal and reputational considerations have become increasingly important as businesses face growing scrutiny from regulators, investors, and consumers. Companies must build robust ESG processes into their operations, including thorough due diligence and risk mitigation strategies.

Blind trust in your supply chain will not be enough to protect yacht builders from potential legal consequences and the right questions must be asked at an early stage to mitigate exposure. Through adequate due diligence you can hopefully prevent the use of illegal imports, such as the Myanmar teak, altogether. It is important to be specific in your contracts and ensure you know exactly what you are purchasing and where it came from. However, conducting due diligence and introducing contractual conditions will provide legal protection should your supplier misrepresent the position and you are unwillingly legally exposed.

The Sunseeker and Oceanco cases, which came within days of each other, are a wake-up call for businesses to prioritize ESG compliance and ensure their supply chains are free from illegal and unethical practices. As regulatory frameworks continue to evolve, companies must stay informed and be proactive in their approach to ESG to avoid similar pitfalls and contribute to a more sustainable and ethical global economy.

If you have an enquiry in relation to yachting and aviation disputes, please contact Blue Elliott, Victoria Atkins or your usual contact at the firm on +44 (0)20 3375 7000.

Many thanks to trainee Constance Gillespie for their help in writing this article.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP, December 2024