Insolvent broker takes deposit question

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BOATKID

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Moving on from Buyer Beware post:-

So the scenario is a broker takes a buyers 10% deposit and the broker goes under without passing on any funds - would the buyer still have a 10% claim to sellers boat ???
 
Depends on the contracts.

Buyer would have no claim to a 10% part-ownership slice of the boat, but IF BROKER IS AGENT OF SELLER buyer would have a claim against seller for either return of deposit or specific performance of the contract. It all depends what contractual and agency relationships were actually entered into by the 3 parties

Alternatively if broker held deposit as STAKEHOLDER, which is a form of trusteeship, then buyer has claim on the deposit moneys held by the broker if they have in fact been put by broker into trust. If they haven't, then buyer is unsecured creditor of broker. This whole question of whether broker actually appropriated buyer's deposit monies into an actual trust was central to the Peters case, so that's where to look for the precedent

All this is English law. Different in other countries. Wildly different in civil law countries
 
Very simple. If it is a client account then the Broker has no access to it, provided it is clear that the money was deposited in the correct account.

The Opal judgement (as I understand it) clarified this point. The Client account is not a collective account where all clients have equal access to the funds. The funds are clearly held for the specific client.

The issue in the Opal case was that some clients' deposits were not paid in correctly to the client account, but into a general account (which was actually in overdraft) and amounts subsequently transferred to the client account.

The failure of Opal came about because the bank refused to transfer money out of the general account (so breaching the overdraft limits). It was not therefore possible to link any funds directly to individual clients. The court ruled that those clients who were not able to demonstrate that their funds were paid into the client account were not entitled to any share of the funds in the account.

The result of this judgement opens up the possibility of fraud committed by those responsible for managing these accounts.

Brokers are now expected to show clearly that deposits are properly paid into and recorded in a client account, which means that there is no risk.
 
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Very simple. If it is a client account then the Broker has no access to it, provided it is clear that the money was deposited in the correct account.

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Whoooah Tranona! First, the broker does have access to the client account generally. He's invariably the only signatory. The issue here (and in Opal Peters) is/was not the broker's access to the money, but rather whether the other creditors of the broker have access to it.

The rest of what you say is broadly correct, but only if you first establish that the broker held the deposit as stakeholder. There are plenty of boat sales contracts where the broker is agent of the seller not a stakeholder, and in that case none of what you write applies.
 
Yes, of course the broker is the signatory, but he cannot pay the funds to himself, but only to the beneficiaries named in the contract. And no, other creditors do not have access. As I think I have explained correctly from my reading of the Opal judgement, the issue was that the funds had not been paid correctly into the client account but into a general account where they were applied to meet other obligations such as reducing the overdraft, paying suppliers, paying wages etc. The court held that because it was not possible to trace some specific deposits to the client account it was not able to say whether part of the funds in the account belonged to individual deposit payers. In other words it was not a collective account for the benefit of all who had paid deposits, but only for those who were able to show that their payment was directly credited to the account.

Admit to a bit of over simplification (I think) because the account held funds for different kinds of transactions such as part payments on new boats as well as deposits on brokerage boats. However, I think the principle remains the same.

On the question of stakeholder/agent I think I am right in saying but have not checked that the YBDSA guidelines advise that he should be the stakeholder.
 
The other thing to remember is that, even if you do have a claim to it, it will possibly take quite a while to get it. The normal tests for a contract aren't so much "am I in the right" as "will I lose out in a given set of circumstances". I still can't get my head round the fact that a broker or dealer would let a sale go rather than have the money owed to the title holder/builder go direct to them and just take a cut.
 
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Yes, of course the broker is the signatory, but he cannot pay the funds to himself, but only to the beneficiaries named in the contract.

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Unless I've missed something that line should read " but he SHOULD NOT pay the funds to himself" which is a big difference from cannot unfortunately.

The other thing is, even if the broker has paid your money into his client account and shown evidence of this, there is still nothing to stop him (or her) transferring to somewhere other than the appropriate recipient as far as I can see.

I agree the above scenarios are fraudulent but we can safely say that fraudulent and unethical behaviour occurs at all levels of society and can be associated with what are apparently very respectable organisations and people. In fact one of the main motivations is trying to maintain a position of size and respect.

I still think the wrong question is being asked. It should be "how can I be made whole quickly and without any chance of dispute" rather than "is he allowed or supposed to do this?".
 
In my opinion the way round this is to reduce deposits.

As a seller £50 deposit would be fine, it legally binds the buyer to the deal, if he doesn't proceed with the sale then he can easily be sued for breach of contract which can be useless but most boat buyers have funds readily available to sue for.

As a buyer I am not going to be too concerned with loosing £50 to a bent broker !

Huge 10% deposits serve no purpose other than adding risk to seller and buyer alike.

I paid an agreed 1% deposit on my last boat, I had shown the seller my bank a/c statements as I viewed the boat in order to demonstrate I was not messing him about.

It was very amicable

here's my funds
I want your boat
I will pay 1% deposit which legally binds me to the sale subject to survey.

Why would anyone wanting to sell their boat refuse a sale unless a greedy broker wants some quick cash !
 
Tranona, your analysis of Opal Peters is spot on (within the space available!). I wasn't new law by the way, it was 1000yr old trust law, applied to some awkward facts. I mean, that whole case was merely about establishing facts, not moving the law on.

But you write "he cannot pay the funds to himself". That's not correct. He can, if he is the signatory to the account. It might be a breach of trust or contract on his part, but he can actually do it, and remeber many do it in ignorance of their trustee obligations rather than in deliberate breach/fraud. That's almost exactly what Peters did to the unfortunate losers - there was an agreement to put the deposit money in trust but the putative trustee never did it. Instead they used it to pay overheads and generally co-mingled trust funds with own funds. According to your analysis "they can't do that". But they did! And so in OP's case it depends what has happened, not on what ought to have happened

Agreed re YBDSA etc but nevertheless many contracts don't follow that. I just sold my boat and made sure the contract didn't. OP really must check whether his is an agent or stakeholder case rather than assume, I think.
 
Daka, the payment or non payment of a deposit makes zero difference to the existance of a contract and whether it is "binding". It doesn't "bind you to the contract" etc. Under English law

If you're going to do a £50 deposit it might as well be zero. £50 is nowt.

What you propose (tiny deposit) is perfectly fine if the parties agree. Under otherwise normal market conditions, I wouldn't sell you my boat on that basis (and you wouldn't buy it, which is fine!) /forums/images/graemlins/grin.gif
 
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In my opinion the way round this is to reduce deposits.

As a seller £50 deposit would be fine, it legally binds the buyer to the deal, if he doesn't proceed with the sale then he can easily be sued for breach of contract which can be useless but most boat buyers have funds readily available to sue for.

As a buyer I am not going to be too concerned with loosing £50 to a bent broker !

Huge 10% deposits serve no purpose other than adding risk to seller and buyer alike.

I paid an agreed 1% deposit on my last boat, I had shown the seller my bank a/c statements as I viewed the boat in order to demonstrate I was not messing him about.

It was very amicable

here's my funds
I want your boat
I will pay 1% deposit which legally binds me to the sale subject to survey.

Why would anyone wanting to sell their boat refuse a sale unless a greedy broker wants some quick cash !

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No deposit at all is needed for a contract to be legally binding. Reducing the size of the deposit increases the probability of non-bona fide buyers and the seller's exposure to non-performance.

A substantial deposit indicates that a buyer is 'serious' and will be more likely to complete the purchase. Yes there is some risk for buyer (and possibly for seller) but it's not that hard to mitigate it to an acceptable level or eliminate it altogether.
 
Pity their are two threads running on the same subject. I have just posted on the PBO forum quotes from the ABYA which make it clear that monies in a client account are held in trust and the BRBA who suggest that a solicitor is used to control the account or it is held at a different bank from the business account.

Following these gudelines it is clear that monies in the client account do not belong to the broker should he become insolvent, but does not remove that small chance of fraud while the broker remains a signatory to the account.
 
I would love to be in a position to be able to buy your boat but unfortunately it is highly unlikely and in any event I guess you are equally unlikely to be in a position where by you have to sell so this is purely hypothetical ........

If I had funds available and showed you evidence of such , I pay for survey, lift out, scrub and fuel for sea trial

I sign an rya agreement or similar but exchange 10% deposit for 1% deposit.

What is the pitfall to the seller ?

Thankfully my seller agreed and all was fine.


The small deposit is really just as a way to prove contract is in force ie/ there is proof both parties were in agreement and had signed agreement.

What is the difference between £50, £1000 and £75000 apart from the added risk of broker legging it ?
 
This is fine if both parties agree to a different level of deposit or no deposit at all - they are adults who can make their own decisions. However, I think it unwise for a seller to expose himself to the risks. The "10% deposit" practice is there because it works, but is not mandatory.

Your last statement is just plain wrong as you will appreciate if you read the other posts on the subject. The broker gains no benefit from the deposit. He does not have legal access to the money. It is there to provide substance to the intentions of the buyer and security to the seller.
 
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The small deposit is really just as a way to prove contract is in force ie/ there is proof both parties were in agreement and had signed agreement.

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A deposit (or lack of one) - more precisely a part-payment - is simply not needed to prove the contract is in force. A small deposit (as jfm has said) is pointless. A substantial deposit (a) shows the buyer has serious intent and (b) (subject to the contract terms) provides a pot of money from which the seller could recover a loss in the event of non-performance (note that a deposit does not simply 'belong' to the seller if the sale does not go through, unless the contract terms so provide).
 
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The broker gains no benefit from the deposit. He does not have legal access to the money. It is there to provide substance to the intentions of the buyer and security to the seller.

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You have to be careful with the second sentence above. The broker almost certainly does have "legal access" to the money. He controls the account in which iti is deposited. However, he does not have legal or beneficial owenrship of it. That fact may not help very much if the money is misappropriated from a client account and mingled with the broker's own funds, or sent somewhere it can't be traced.
 
The risk of a small deposit or no deposit is that you miss other buyers in the time between accepting the offer and the buyer pulling out. You can keep this risk small by insisting that the survey is done promptly.
 
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Your last statement is just plain wrong as you will appreciate if you read the other posts on the subject. The broker gains no benefit from the deposit. He does not have legal access to the money. .

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As it happens I maintain a regulated clients account which is written under statutory trust.

The whole system is based on the integrity of the account holder, there is nothing to stop me issuing a cheque to myself and legging it to the sun.*

It happens on a regular basis.

* it is illegal and I would have to pay it back and loose my business but there are so many Yacht Brokers on their uppers at present they might not have so much to loose !

The last case I remember someone that legged it with an estimated £450 000 was eventually caught 2 years later and given 40 hours community service.
With a deterrent like that no one in their right minds would hand over anything more than a token gesture deposit to a broker !
 
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quotes from the ABYA which make it clear that monies in a client account are held in trust

[/ QUOTE ]We're at crossed purposes a bit. I'm answering boatkid by saying he must look at his actual case to see the trust/agency/contract relationships. You are commenting on a "perfect world" where people do indeed create and adhere to trustee obligations etc. I fear your perfect world is quite different from what actually happens. Peters Opal didn't operate in your perfect world and I bet lots of other brokers dont currently either. No-one regulates them, no law requires them to operate in your world. They have a long leash to do as they wish and their mis-use of trust funds (often innocent, through ignorance not fraud) will only come to light in insolvency. A la Peters Opal. And of course boatkid is actually asking about an insolvent case.

As for the quote above, ABYA can say what the hell they like but it doesn't make em right. The question of whether such a trust actually exists and whether monies are held in it depends on the actual facts, not on anything rose-spectacled ABYA say or think :-).
 
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