Boat Buying Questions

[LooseHeadPop]

So we have the RYA consistently saying brokers should use trust accounts, Tranona saying all brokers do so and Lucy52 saying it's unlikely any brokers use them because of the hurdles they would face. Excellent!

 

[Tranona]

Lot of misunderstanding here about the terms being used. There is no such thing as a legal form called either a "client" or "Trust" account. These are just descriptors of what the accounts do.

There is nothing new in this debate, it was done to death on this very forum over 10 years ago. Rather than go over it all again suggest anybody who is interested reads this forums.ybw.com/threads/brokers-client-accounts.299745/ and maybe an earlier thread that covered similar ground but an emphasis on BA Peters arrangements with its bank forums.ybw.com/threads/yacht-brokers-dealers-how-to-safeguard-clients-cash.254190/. If you have the patience you will see similar misunderstandings to some of those evident in this thread.

You will also see (unsurprisingly) that I made many contributions to the threads because at that time I was more involved in legal aspects of the marine industry and followed the Peters Opal case in detail because it was a landmark case which clarified the nature of trusts in relation to yacht brokerage (and also in many other industries). Another major contributor was a forum member IONIC who is a well known broker and later chairman of the ABYA. A third contributor worthy of listening to is jfm who is a contract lawyer. You will see that we are consistent in our understanding of the impact of the case and that the new form of "client" accounts follow the high court judgement findings in relation to what constitutes a trust.

However as John (IONIC) pointed out right at the beginning of the 2012 thread, there is nothing to stop the broker stealing from the account in just the same way as many solicitors have done over the years - just that there is no evidence of any broker doing it. There are all sorts of reasons why solicitors do it but brokers don't (one of which is that many solicitors are in partnerships so partners are liable and they have insurance), but in both cases it would be theft (a criminal offence) and there are laws for dealing with that.

I know that some people have a low opinion of brokers and in many cases it is deserved in relation to levels of service but there is zero evidence of impropriety in relation to financial transactions on brokerage boats. The reason? It is just too high risk and simply not worth it. Even in the Peters case there was no criminal activity and in fact no brokerage client lost anything - the problem was in the new boat dealership side of the business.

Thousands of boats change hands every year using this system in the UK without any problems. This does not mean there are not disputes which have financial implications in a minority of cases but they are to do with the contract NOT with the account where the funds are being held in trust.

 

[Laser310]

Lot of misunderstanding here about the terms being used

Is there such a thing as an escrow account in the UK, and if so, is it different than the other accounts described?

 

[Tranona]

Is there such a thing as an escrow account in the UK, and if so, is it different than the other accounts described?

Take your pick google.com/search?q=escrow+account&rlz=1C1VDKB_en-GBGB1067GB1067&oq=Escrow&gs_lcrp=EgZjaHJvbWUqDQgCEAAYgwEYsQMYgAQyCggAEAAYsQMYgAQyCggBEAAYsQMYgAQyDQgCEAAYgwEYsQMYgAQyBwgDEAAYgAQyDQgEEAAYgwEYsQMYgAQyBwgFEAAYgAQyBwgGEAAYgAQyBwgHEAAYgAQyBwgIEAAYgAQyDQgJEC4YrwEYxwEYgATSAQg3MDM5ajBqN6gCALACAA&sourceid=chrome&ie=UTF-8

Functionally a broker's client account does the same thing by holding the funds from the buyer during the process and when the contract is complete releasing the boat to the buyer and the funds to the seller. The difference is that an Escrow "transaction" involves an individual "trust" account with a third party who holds the funds and releases them in accordance with the contract. The concern with a broker run trust account is that he is not independent, but in my view (and shown in practice) this is not a problem.

Escrow accounts can be set up with banks or lawyers or in the US with companies that do it as a business, Naturally there is a charge whereas exactly the same function is performed by a broker free. The legal status of the funds at any one time is exactly the same.

If I were buying a boat outside the UK Common Law system I would absolutely use an Escrow arrangement because Trust in the legal sense is a Common Law construct and does not exist in the same way in Europe for example. You need to remember that UK law has been around for a very long time and is pretty good at providing a rigorous framework for business.

 

[oldgit]

Interesting and educational set of postings regarding boat sales.

 

[LooseHeadPop]

Lot of misunderstanding here about the terms being used. There is no such thing as a legal form called either a "client" or "Trust" account. These are just descriptors of what the accounts do.

There is nothing new in this debate, it was done to death on this very forum over 10 years ago. Rather than go over it all again suggest anybody who is interested reads this forums.ybw.com/threads/brokers-client-accounts.299745/ and maybe an earlier thread that covered similar ground but an emphasis on BA Peters arrangements with its bank forums.ybw.com/threads/yacht-brokers-dealers-how-to-safeguard-clients-cash.254190/. If you have the patience you will see similar misunderstandings to some of those evident in this thread.

You will also see (unsurprisingly) that I made many contributions to the threads because at that time I was more involved in legal aspects of the marine industry and followed the Peters Opal case in detail because it was a landmark case which clarified the nature of trusts in relation to yacht brokerage (and also in many other industries). Another major contributor was a forum member IONIC who is a well known broker and later chairman of the ABYA. A third contributor worthy of listening to is jfm who is a contract lawyer. You will see that we are consistent in our understanding of the impact of the case and that the new form of "client" accounts follow the high court judgement findings in relation to what constitutes a trust.

However as John (IONIC) pointed out right at the beginning of the 2012 thread, there is nothing to stop the broker stealing from the account in just the same way as many solicitors have done over the years - just that there is no evidence of any broker doing it. There are all sorts of reasons why solicitors do it but brokers don't (one of which is that many solicitors are in partnerships so partners are liable and they have insurance), but in both cases it would be theft (a criminal offence) and there are laws for dealing with that.

I know that some people have a low opinion of brokers and in many cases it is deserved in relation to levels of service but there is zero evidence of impropriety in relation to financial transactions on brokerage boats. The reason? It is just too high risk and simply not worth it. Even in the Peters case there was no criminal activity and in fact no brokerage client lost anything - the problem was in the new boat dealership side of the business.

Thousands of boats change hands every year using this system in the UK without any problems. This does not mean there are not disputes which have financial implications in a minority of cases but they are to do with the contract NOT with the account where the funds are being held in trust.

Misunderstandings? I'm happy using descriptors, thanks.

The 2012 threads are very long. I'm just looking for a concise, accurate summary of the position.

And my concern is not theft (which you seem to think is the only risk) but financial failure or incompetence.

In one of those old threads, jonic (with a J) said:

I am a broker who has a client account.​

​

It is written in trust with Lloyds Bank. The bold bit is the crucial bit.​

​

Its the same account they give to a solicitor or an accountant.​

​

Its never my money or the banks money.​

​

Its always the clients money.​

​

If I go bust its always the clients money.​

​

Sounds like what I want. Are you saying this situation is now universal? Your closing sentence suggests that. Earlier in this thread you said that the "The High Court case clarified how client accounts should be structured and they are in effect escrow accounts in the way they hold and disburse money held in trust." But in the wake of the case was this recommendation implemented universally? How? Monitored by whom?

If trust accounts were universal, why would the BMF broker I was buying through terminate my purchase when I asked about a trust account? Why does the RYA go out of its way to stress the need to use a trust account?

 

[Jim@sea]

Opal Marine of Chichester went bump in 2014, as did Dickies of Bangor and going back a long time Colin Chapmans (Lotus) Moonraker Boats. I remember with the Colin Chapman episode there was a finished boat waiting to be collected and the liquidator said the boat belonged to them and one night the lock on the gate was cut and the boat was removed by the person who had paid for it.
All these brokerage firms are working out of rented premises, you do need to be very careful.

 

[Tranona]

Misunderstandings? I'm happy using descriptors, thanks.

The 2012 threads are very long. I'm just looking for a concise, accurate summary of the position.

And my concern is not theft (which you seem to think is the only risk) but financial failure or incompetence.

In one of those old threads, jonic (with a J) said:

I am a broker who has a client account.​

​

It is written in trust with Lloyds Bank. The bold bit is the crucial bit.​

​

Its the same account they give to a solicitor or an accountant.​

​

Its never my money or the banks money.​

​

Its always the clients money.​

​

If I go bust its always the clients money.​

​

Sounds like what I want. Are you saying this situation is now universal? Your closing sentence suggests that. Earlier in this thread you said that the "The High Court case clarified how client accounts should be structured and they are in effect escrow accounts in the way they hold and disburse money held in trust." But in the wake of the case was this recommendation implemented universally? How? Monitored by whom?

If trust accounts were universal, why would the BMF broker I was buying through terminate my purchase when I asked about a trust account? Why does the RYA go out of its way to stress the need to use a trust account?

Yes, it is universal and has always been so even pre the BA Peters case. As I have said many times what the case did was result in a clarification of what constitutes a trust for funds that are held in an account that also holds funds belonging to others. It was not clear before and there was sufficient legal disagreement for it to go to the high court for a ruling. The revisions to the structure of client accounts that John describes was done specifically to ensure that they comply with the ruling. Yes, I would say it is universal - there is zero benefit for the broker to do otherwise, not least because the banks would not allow it. It really is a non issue.

Your fears about financial failure of the broker are well founded in the sense that any business can go bust BUT the funds in the client account are not part of the business and creditors have no call on them. That is the whole point - the money is always legally yours. Brokers fall into 2 broad camps. The first in terms of numbers are sole traders like John or operate through small private limited companies and the second are larger companies, some of which are in turn owned by large conglomerates (Clipper Marine and Boatfolk are examples). The second type like BA Peters was often operate a range of businesses including dealing on their own account with used boats or selling new boats. It is this part of their activities where the risk lies because in general they do not use trust accounts for holding client's money.

A personal example of the impact of those different kind of activity. In 2015 I bought a new Bavaria built to my spec from Clipper Marine. I paid the deposit in May to secure the build slot in July, and a second payment when the build started and a final payment which included transfer of title for my old boat when the boat was complete and ready for shipment. All the money I paid up to the final payment went into Clipper's business account so if they had gone bust I would have been an unsecured creditor. The contract was over £100k so the "stage" payments were large sums. Why did I take this risk? - because Clipper is owned by a large conglomerate and I did due diligence and determined they were financially sound. Move on 6 years to when I sold the boat. I used the the broker who previously worked for Clipper and sold me the boat. He is a sole trader and uses a client account so the risk of either the buyer or me becoming an unsecured creditor of him as an individual is zero. When he worked for Clipper he was an employee and administered their client account within the rules set by the company so had no personal responsibility, but as a sole trader now he is personally responsible for managing the account properly.

If you have read through the original thread you will see how these two distinct business structures - broker and dealer created the chaos of mixing funds related to the 2 different activities - not with criminal intent but through ignorance. Not helped by the questionable actions of the bank trying to protect its interest when the company was failing. However this is a world away from the simple process of buying a used boat through a broker.

I have no idea why the broker in your case " terminated" your purchase as you do not explain what happened but I doubt it has anything to do with your simple question about whether they operate a proper trust account for the funds. If they are members they will.

 

[Tranona]

Opal Marine of Chichester went bump in 2014, as did Dickies of Bangor and going back a long time Colin Chapmans (Lotus) Moonraker Boats. I remember with the Colin Chapman episode there was a finished boat waiting to be collected and the liquidator said the boat belonged to them and one night the lock on the gate was cut and the boat was removed by the person who had paid for it.
All these brokerage firms are working out of rented premises, you do need to be very careful.

Please do not post nonsense like this. None of this is relevant to the subject of this thread.

 

[ashtead]

A simple solution if worried is to ask the broker to produce a letter from its bank confirming status of account - you might not get one but this is what insurance brokers do and Barclays for example are well used to producing such a letter in insurance broking. Clearly in insurance you have far better protection though for a few hundred premium than for many thousand in a boat acquisition but that because insurance brokers are regulated unlike yacht brokers hence rules apply to holding funds in ring fenced accounts.

 

[LooseHeadPop]

A simple solution if worried is to ask the broker to produce a letter from its bank confirming status of account - you might not get one but this is what insurance brokers do and Barclays for example are well used to producing such a letter in insurance broking. Clearly in insurance you have far better protection though for a few hundred premium than for many thousand in a boat acquisition but that because insurance brokers are regulated unlike yacht brokers hence rules apply to holding funds in ring fenced accounts.

It was exactly that request to the broker that seems to have triggered termination of the purchase process

 

[ashtead]

Indeed if that’s the case clearly the broker had another purchaser who no doubt also had a related sale he was interested in handling - fairly common with estate agents so why expect any better conduct from yacht brokers

 

[Tranona]

It was exactly that request to the broker that seems to have triggered termination of the purchase process

I still find it difficult to accept this as the direct cause of the broker not accepting your offer. Was he an individual broker or an employee of a large firm? I should have mentioned a third category of broker that is a franchisee of a national brand such as Boatshed where the local office is is run by a sole trader or an individual operating through a private limited company.

 

[Jim@sea]

Please do not post nonsense like this. None of this is relevant to the subject of this thread.

Sorry.