If a Broker goes bust and takes the Client account monies with them - who loses out

[ontheplane]

Right - I am writing this in terror at the potential horrors it could stir up but here goes....

I am looking to get a boat at the moment...

Let's take a hypothetical case...

I have the boat sea-trialled, surveyed and everything else.

I have paid my 10% deposit

All is well with everything, and following sea trial, I pay the balance cash, load up the boat onto a trailer and drive off with all my paperwork and so on.

A month later I get a call from the previous owner that goes along the lines of....

"You bought my boat from **** brokers I believe."

"Yes"

"Well they've gone bust and I've not seen a penny of my money - so the boats still mine and I want it back".


Who has legal title to the boat under those circumstances?

And please keep replies SIMPLE for those of us who aren't legally trained!

 

[jhr]

Pretty sure it will be the previous owner.

Slightly different scenario, but when Peters went bust, lots of people were left with a hole in their bank account, and no boat....

 

[gjgm]

My understanding is that as the broker is the seller's agent (might not be the right legal term) when you pay the broker your contract is filled with the seller.
If the seller doesnt get his money, that isnt your problem.
Just to add (from a q I asked last week) when you pay your deposit it is no longer "your" money as it is in limbo, going either to the seller, or back to you if it is agreed not to complete.
Hope to gawd I have this right !
Wasnt the problem with Peters as a DEALER?

 

[DAKA]

Wasnt the problem with Peters as a DEALER?

Not really no.
The main problems and losses were indeed due to their dealer activities however the court case brought to light proof that Yacht Brokers were using the clients money (£.85 m) to offset their massive over draught.

But to the original question the seller would have the main problem as long as the buyer had proof of payment, perhaps it would be a good idea to make the cheque payable to

'anyyacht brokers ltd clients account 00147653'

then there could be little come back on the new owner as long as the Broker had not sold a boat with outstanding Finance and VAT on it.................

edit

Its not got dph drives on it has it ?

 

[ontheplane]

If we get this far, I intend to pay cash, load the boat up and take it there and then.

I will get a receipt, which I will request states that I have paid in full, that I paid cash, and that I have got good title to the goods, and that the boat is VAT paid (apparently there is no original VAT receipt for the craft - but being best part of 15 years old, and having been in UK for a long time, I am reasonably happy the VAT won't be too much of an issue.

I will be getting a hull id no, and asking the importers which dealer sold it originally, and then track them down to see if I can get proof of the original VAT Payment.

If they can't do me a copy, I'll ask for a letter confirming that VAT was paid on the boat when it was sold new here in the UK.

 

[jfm]

Everything depends on the contract but assuming the normal form of contract and English law the boat is yours. You have possesion plus beneficial and legal ownership (as well as mere "legal title", which is the phrase you used, but which doesn't mean what I think you think it means)

As someone said, broker is seller's agent. You paid the agent which means you paid the seller, so far as the law is concerned. you have fulfilled your obligations under the contract and taken physical delivery, and (if you have a BoS) you have in addition take legal title. You are absolutely home and dry

The risk of broker absconding or losing the money rests entirely with seller, not with you. We could go on at great length here about the broker hopefully having put the money in a client account held as trustee and all that mallarkey, but that is all irrelevant to you as buyer. If seller had put the boat into escrow, not the money, as I keep saying, none of this would happen

 

[ontheplane]

So is "Beneficial and Legal ownership" a clause I should be looking for in the final paperwork?

Sounds like it's something I should be insisting on...


Was expecting a load of brokers to be on to this saying that there is no way a broker could take client account monies!

Anyhow, that's pretty much answered my question - as long as it's paid for and I have proof it's paid for, it's mine - if the broker doesn't pay the seller, that's their contractual issue not mine?

 

[Doug_Stormforce]

When you pay your deposit you should insist on a contract. The contract can then state when title is passed on and it would no be unreasonable to pass title on payment in full of agreed price.

 

[jfm]

When you pay your deposit you should insist on a contract. The contract can then state when title is passed on and it would no be unreasonable to pass title on payment in full of agreed price.

That's barking up the right general tree but not legally precise. The word "title" invaribly refers to legal title, which is diffrent from beneficial ownership. Legal title to a part 1 boat, for example, passes by delivery of a BoS, not by something written in a contract (so no, you're not looking for "Beneficial and Legal ownership"in the contract). You therefore need a contract saying that broker will hand over a BoS, already signed by vendor, immediately the funds are cleared (broker acting as escrow agent in holding the BoS, not as agent of vendor). I would also put into the contract that beneficial ownership passes immediately and automatically upon fulfillment by purchaser of his obligations (ie when the money lands in whichever broker's or vendor's account is stipulated in the contract)

Title to a non part 1 boat is much vaguer and will generally pass by physical delivery, although there is much use of BoSs purporting to pass title and so nicely confusing things! You should provide in the contract that (a) equitable title (beneficial ownership) passes immediately and automatically upon fulfillment by purchaser of his obligations (ie when the money lands in whichever broker's or vendor's account is stipulated in the contract) and (b) the boat shall be delivered/keys and docs handed over immediately upon that fulfillment (and a sensible or worried buyer should make sure to take delivery, by going and walking on the boat and writing in its log book that he was on it or peeing in the loo or whatever.

Observer is top man on contract law and might add to the above. All this is English law only. No use if you're buying a boat in France, say

 

[[2574]]

Use a lawyer....

....I will never again rely upon an unregulated brokers client account to deal with a boat purchase of the magnitude of the last transaction which I executed to buy a boat. Whilst it might not have been a lot of money to many hereabouts it was a lot to me. Hence to avoid sleepless nights I shall in future use lawyers who have client accounts which are regulated and backed up by The Law Society, it's the only way in my view.

rob

 

[ontheplane]

Yes, I intend to write it somewhere into the contract that I shall take the boat away with full ownership the second I have paid.

I certainly won't be paying cheque and then waiting for it to clear!

 

[aquapower]

I certainly won't be paying cheque and then waiting for it to clear!

Do you really expect the broker to hand over the boat against an un cleared cheque? How would they explain that to the seller if the cheque doesn't clear and have already handed over the boat?

 

[cdogg]

The last time this subject came up I seem to recall we were advised that the term 'Client Account' (or variations of) meant nothing special to the banks as it was just an account name like any other and afforded no protection against an unscrupulous broker misappropriating the funds.

Someone else might have a link to the last posting on this subject.

 

[Tranona]

The last time this subject came up I seem to recall we were advised that the term 'Client Account' (or variations of) meant nothing special to the banks as it was just an account name like any other and afforded no protection against an unscrupulous broker misappropriating the funds.

Someone else might have a link to the last posting on this subject.

The contract is a different issue from "client account". Suggest you read the explanation on the YDSA website which details how a client account is set up and the steps you you take to ensure that the broker keeps your money in the correct account. You could also if you are really bored do a search on here and find the issue discussed at great length on many occasions.

If you are buying a boat, as JFM says you have very little at risk from the broker taking your money. It is the seller that has the risk (if any). Also useful to buy a little book from the RYA on buying and selling secondhand boats which explains the process in detail and gives you a check list of the steps you should take and the documents you should have to ensure a troubl free transaction.

 

[jonic]

Oh no not another one

Right the issue of ownership has been covered above. If you have paid your money and completed your contractual obligations and have a Bill of Sale and the title documents the boat is yours.

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.

So what is this risk that these threads always blow out of proportion

The broker or the bank employee could steal it or dishonestly use it.

Nowadays since Peters that is very very rare.

If the broker did steal it you would have to sue because there is no government or other body compensation scheme. Because it is very very rare.

In a solicitors account (same account) the solicitor could steal it or dishonestly use it.

If they did you could claim compensation from the scheme.

There is a compensation scheme because it happens quite often.

(No offence to honest solicitors of which there are 1000's and 1000's)

JFM please correct me if any of that is wrong.

 

[jfm]

JFM please correct me if any of that is wrong.

That is basically correct and I agree your general thrust but since you ask:

1. your third sentence is correct provided the contract is written glitch-free. I mean, it is possible to be in possession of legal title to something while another person has an equitable claim on it, and only the contract will remove that claim. I admit I'm being perdantic here and you'd have to be quite hamfisted to get the contract wrong in this respect but I don't like to see "absolute" statements like yours witten on the footing they are intrinsically correct when it actually depends on the circumstances [/pedantry]

2. Your "Its never ... the banks money" is absolutely wrong. It IS the bank's money. The relationship between the trustee (broker) and bank is that of creditor and debtor, not beneficiary and trustee (in each case, respectively)

3. Your "If the broker did steal it you would have to sue ..." is only half the story. You could indeed sue but your primary recourse would be a criminal complaint for theft and a claim to the money on the grounds you own it as victim of the theft. A broker who takes trust moneys should be much more worried about theft (= jail) than being sued (=hide, obfuscate, put assets in wife's name, be awkward, and maybe pay a bit)

 

[gjgm]

2. Your "Its never ... the banks money" is absolutely wrong. It IS the bank's money. The relationship between the trustee (broker) and bank is that of creditor and debtor, not beneficiary and trustee (in each case, respectively)

Let me see if I understand this !
When my current account at LLoyds has £50 in it, the money is in effect "belonging" to LLoyds, and I am a creditor to LLoyds, if they go belly up.
A broker's client account is ringfenced from the broker,and becomes an asset of the bank, but not ringfenced from the bank?
I am a bit confused. A bank can also have a client account, where I thought the idea was to ringfence the funds from the bank's business. Have I got that wrong then, or is this a difference between the broker having a client account, and the bank having a client account?

 

[PaulGooch]

My understanding is as follows, happy to be corrected.

When my current account at LLoyds has £50 in it, the money is in effect "belonging" to LLoyds, and I am a creditor to LLoyds, if they go belly up.

Correct.

A broker's client account is ringfenced from the broker,and becomes an asset of the bank, but not ringfenced from the bank?

Nope, a proper client account is "in trust", so you're safe.

I am a bit confused. A bank can also have a client account, where I thought the idea was to ringfence the funds from the bank's business. Have I got that wrong then, or is this a difference between the broker having a client account, and the bank having a client account?

A properly set up client account is safe, doesn't matter whos it is.

 

[DAKA]

3. Your "If the broker did steal it you would have to sue ..." is only half the story. You could indeed sue but your primary recourse would be a criminal complaint for theft and a claim to the money on the grounds you own it as victim of the theft. A broker who takes trust moneys should be much more worried about theft (= jail) than being sued (=hide, obfuscate, put assets in wife's name, be awkward, and maybe pay a bit)

Most of what you say there agreed is technically correct however the reality of the situation will almost certainly be very different.

Suing a Broker who has legged it with the cash is a waste of time as he will have spent it well before you get to court, all you will do is drag out the trauma and add significant expense.

I dont think you will ever see a Yacht Broker convicted of theft after steeling clients funds. (unless there is a change in the law.)

a) All the Yacht Broker has to say is that at the time he took the money he intended to pay it back.

b) Seeing as a Yacht Brokers Clients account is not a legal requirement then it is very difficult
i) to convict him for not putting the money into a clients account.
ii) if he does put the money into an account with the phrase 'client account' in it the chances are there will be an error in the trust wording (if there is any) , accounting system to enable all the funds to be identified or the Bank may well have set up a tandem account which significantly weakens or destroys any protection the so called clients account affords.

That is not to say a regulated clients account doesnt afford very good protection, its just that at the moment the Yacht Brokers dont have regulated clients accounts.

Hence the reason why I keep harping on about the need to legislation.


Some on this forum keep telling us how good some Brokers are but always fail to make the important distinction between Yacht Brokers being members of various Yacht Broker associations complying vigorously with their association guidance and the Yacht Brokers who are not members of any association/have been kicked out/members but in name only/members who are currently being reprimanded by the association etc


Seeing as it is not illegal for a Yacht Broker to borrow the clients account you will not be able to submit any evidence of wrong doing however the BA Peters court case found stated that BA Peters (who were members of the ABYA I think ? ) actually only kept £10 000 in their clients account.

Once a week Barclays Bank swept the account (save £10 000) and used the balance to offset against the over draught.

No one has been convicted of 'borrowing' ( about £.84 m).


We can find evidence of other Brokers steeling from clients accounts where it is illegal due to legislation being passed, such as Insurance Brokers and solicitors (who unlike Yacht Brokers both have compensation schemes in place)

I recall one case where the guy admitted to taking about £250 000 however it was thought to be more like £600 000.

He spent it in Spain.
came back skint.
Got 40 hours community service

I worked it out to be about £15 000 an hour he was paid for walking round the park with a bin bag pretending to help the community..........great deterrent !

On a positive note I doubt he will ever be able to practice as an Insurance Broker , but there is nothing to stop him becoming a Yacht Broker

 

[jonic]

That is basically correct and I agree your general thrust but since you ask:
2. Your "Its never ... the banks money" is absolutely wrong. It IS the bank's money. The relationship between the trustee (broker) and bank is that of creditor and debtor, not beneficiary and trustee (in each case, respectively)

Yes point taken, I should have qualified that better.

I mean it is never the banks money in the sense that the bank cannot use it to offset any other loans or overdrafts the broker may or may not have.

as in..


b) you are not entitled to combine this account with
any other account or to exercise any right of set-off or
counterclaim against money in this account in respect
of any sum owed to you on any other account of ours;