Yacht brokers and my money

[Tranona]

They may well have deposited money into an account they used as a clients account but was in fact not formulated correctly so the administrators got their mits on it.

Pete, please read the judgement then it will clear up your misconceptions. It is not what the account is called that is the issue, it is whether there is evidence that a trust has been created. That is what the administrators were seeking clarification about. There was a balance in the client account but insufficient to meet all the claims. The court decided that those whose money had been deposited in a way that met the test of creation of a trust would have first claim. Those deposits that did not go direct into the account did not meet the test. There was no question of the administrators trying to use the money in the account for any other purpose.

You might also find the Wikepedia description of trust law helpful - particulaly the section on testing whether a trust exists.

 

[BurnitBlue]

Skipper Stu and ColdFusion.
Thank you. My next question was in fact the 10K limit that you both mentioned.

It appears that I did it wrong via ordinary internet bank transfer instead of using the phone. Maybe the money I did transfer did not go into the brokers Client Account at all. All went well as it happened, but I will use the phone next time. Thanks again.

 

[DAKA]

Pete, please read the judgement then it will clear up your misconceptions.

Im not really sure where to get hold of a copy but from here
http://www.bllaw.co.uk/pdf.aspx?page=14348

I first deduce that Barclays Bank did exactly what I have been posting for years...........reduce the value of the trust status by deliberately commingling funds , in this case with an automated transfer in place.
This is exactly what Nat west did to one of my clients account, money went missing and they couldnt explain where it had gone but the Nat west agreed to pay it back in.
I changed banks to one which agreed not to take charges from the clients account, thats more difficult than you think !
I believe that action deleted the trust status of clients funds at that time.
James Roscoe (Bolton) Limited -v- Winder [1915] 1

If I read it right then Barclays took charges directly from the BP opal clients account which was instrumental in destroying a huge amount of Opal petrs otherwise protected clients funds.
High street bank managers do not have the expertise (or time) necessary to set up a safe clients account.

If a Solicitor legs it with a clients cash or goes bust then the Law society compensate the client.

If an Insurance Broker or Investment Broker legs it with the cash or goes bust then the Insurer or the FSA (FSCS) will compensate the client.

If a Yacht Broker legs it with the cash or fails to protect if he goes bust who compensates the client ?

If there isnt a protection scheme in place then we are being stupid to trust large amounts of cash in the current economic climate arnt we ?

I wonder how many solicitors would risk their own cash with a yacht broker without a dedicated clients account in place ?

Its not necessary to use a Yacht broker so why add the unnecessary risk, surely best to miss him out.

 

[PeterGibbs]

Warning - misleading comment

I am afraid it is you that is creating (or trying to create) a myth! Properly set up and run client accounts and escrow accounts have legal status.

See my brief explanation of the Opal Peters judgement above, or better still read the judgement and then you will realise that you have stated is simply untrue.

Your last statement is only true if the solicitor acts illegally. If he acts within the law, there is no dispute!

Above, as on occasions in the past I have noted you assert advice regarding financial transactions that could leave a reader open to substantial loss. I would otherwise have written privately but you seem set in your opinion so I must resort to an open note to warn readers.

"legal status" is meaningless in many cases because - as others have rightly noted - being left with a piece of paper asserting your rights, but also the task of enforcing them against fraudulent or stupid dealers, can put you at a substantial and costly disadvantage. Retaining your money until the transaction is complete in all other respects is the only way to safeguard your interests as a purchaser. "properly set up" has no meaning but Caveat emptor does - a commanding principle -which you seem all to happy to ignore.

Regarding the Peters case, I had contact with one of the clients who lost a good deal of money - reinforcing my view in poignant detail. There is no means whereby a client can be constantly assured that their deposit or stage payment monies held by an agent or supplier are being properly applied and safeguarded up until the transaction is complete. Goodwill and claims to probity are not enough.

So it serves no purspose to urge good people to place trust in legal devices which do not deliver with the certainty you assert.

PWG

 

[Tranona]

Above, as on occasions in the past I have noted you assert advice regarding financial transactions that could leave a reader open to substantial loss. I would otherwise have written privately but you seem set in your opinion so I must resort to an open note to warn readers.

"legal status" is meaningless in many cases because - as others have rightly noted - being left with a piece of paper asserting your rights, but also the task of enforcing them against fraudulent or stupid dealers, can put you at a substantial and costly disadvantage. Retaining your money until the transaction is complete in all other respects is the only way to safeguard your interests as a purchaser. "properly set up" has no meaning but Caveat emptor does - a commanding principle -which you seem all to happy to ignore.

Regarding the Peters case, I had contact with one of the clients who lost a good deal of money - reinforcing my view in poignant detail. There is no means whereby a client can be constantly assured that their deposit or stage payment monies held by an agent or supplier are being properly applied and safeguarded up until the transaction is complete. Goodwill and claims to probity are not enough.

So it serves no purspose to urge good people to place trust in legal devices which do not deliver with the certainty you assert.

PWG

You are of course entitled to your opinion as to the effectiveness of the legal status of the trusts, but that does not alter the legal status, which you were inferring did not exist - and it does.

Thousands of transactions take place successfully each year using these mechanisms. I would be really interested in a documented case where a broker has "legged it" with moneys from a client account. Having a client account which creates a legal trust is your legal protection against "fraudulent or stupid dealers". Where people have lost money (as in the Opal case) it was BECAUSE a client account was NOT used. And BTW a "dealer" is a completely different legal person from a "broker", which is the subject of this thread.

You have clearly not followed my advice of reading the Opal judgement as you would have discovered that those whose money was properly deposited in the client account, got their protection and their money back, unlike those who were unable to show that a trust had been created.

You do seem to display limited knowledge of the law - for example "trust funds" that you warned against originally are completely irrelevant to the discussion. I cannot understand why you are introducing "Caveat Emptor" as this also has no relevance to this discussion.

It would perhaps be better if you offered advice based on sound evidence rather than vague opinion.

Equally, if you don't like, or don't understand the mechanisms you do not have to use them - however it can make transactions more difficult. The law exists to regulate the relationships between individuals (and in this case property) and has been in use successfully for several hundred years.

BTW I am not misleading anybody. Everything I have said on this subject is supported by case law and consistent with the advice given by responsible bodies such as the BMF, RYA, YDSA.

 

[grumpy_o_g]

Tranona, you keep using client account and trust as if they are the same thing. They aren't. Designating an account as a client account doesn't make it different to any other account. Trust status may have some legal value but, as pointed out and as seen in Opal Peters, that doesn't mean that your money is protected.

The rules and regulations for a Solicitor's client account are VERY precisely laid down, and cover pretty much every likely situation. Solicitors are well versed in how to operate client accounts and, especially in a large practice, any intentional or unintentional misuse of client accounts is very likely to get picked up straight away. There is also a compensation scheme in place in case of fraud, etc. It's a discretionary fund but all Solicitors are required to have a good level of indemnity insurance against civil liability. In addition Solicitors are governed not just by a very strict (though some would say biased) professional body but also by the Solicitor's Act.


If Opal Peters had been a Solicitor's practice then all of the clients who lost money in the " client account" would have been able to sue Peters and get their money back from the indemnity insurance.

As I said before the risk is small but, given the potential impact on someone's life, it may well be worth covering against. The choice is up to the buyer but it is wrong to suggest that a yacht brokers client account is a safe system. It relies on the good faith and competence of the yacht broker in a largely unregulated industry. I appreciate that's hard on the very many good yacht brokers out there but a yacht broker is not a conveyancer any more than an estate agent is. If yacht brokers want to do themselves a favour they should work out a method of transferring title that doesn't require that someone trust a virtual stranger with a large proportion of their life-savings (or life savings plus a quite a bit of money they don't have in some cases).

http://www.lawgazette.co.uk/news/solicitor-jailed-stealing-850000-clients

 

[Ubergeekian]

I think we're agreeing right up till the last line because, as in England, the funds are transferred to the solicitor's client account, not the estate agent's.

I should have said "...effectively to estate agents", which is what I meant.

 

[Tranona]

Tranona, you keep using client account and trust as if they are the same thing. They aren't. Designating an account as a client account doesn't make it different to any other account. Trust status may have some legal value but, as pointed out and as seen in Opal Peters, that doesn't mean that your money is protected.

No, have never said they are "the same thing". The key issue is whether a "trust" is created. This needs 3 things

Intention - which is satisfied by the money being paid into a separate account that is ringfenced from the rest of the business. This is what distinguishes those funds from, for example partpayments made to the company account where the payer becomes a creditor of the company

Subject matter - in this case a specific sum of money that can be traced as going into the account

Object - a purpose for the trust, in this case part payment for another asset.

If you read the judgement about the competing claims on the funds in the account, those that were not clearly identified (by having been paid into a general account and then transferred with others at a later date) failed the second test and therefore a trust had not been created.

So, demonstrating that you money is held "in trust" gives it an entirely different legal status as you are always the beneficial owner and the trustee can only do things with it within the terms of the trust. So, with a Broker, he can use the money from a deposit for disbursements - for example paying liftout fees on behalf of the buyer and pay the consideration for the boat to the seller less any fees agreed by his brokerage agreemment.

Just to clarify, a client account operated by a "dealer" that is somebody who buys and sells boats operates in exactly the same way as far as the trust aspect is concerned, but the object of the trust is different as the dealer is acting on his own account in respect of the transaction for the boat, rather than as an agent for the owner as in a brokerage transaction.

 

[DAKA]

BTW I am not misleading anybody. Everything I have said on this subject is supported by case law and consistent with the advice given by responsible bodies such as the BMF, RYA, YDSA.

We all realise you are not deliberately attempting to mislead anyone, your grasp of the law is technically correct however the reality of what actually occurs is what the forum readers should be concerned with.

Please stop clouding the issue with Brokers/dealers as there arent any dedicated yacht Brokers so funds will always be mixed.

Now the reality.....

Mr S deposits £250 000 into a so called clients account

Barclays see an overdraft situation getting out of hand and notice £750 000 of cleared funds just sitting there so encourage Management to reduce their overdraft by running in tandem an automated transfer to and from the clients account to balance the overdraft.

Very clever, management see a saving in overdraft fees and Barclays wipe out the excessive overdraft issue.

The money is now free to be invested anywhere and could well end up invested in a new Brothel in Bangkok or a crack factory in Mexico.

The BMF, RYA, YDSA are turning a blind eye to the 'tandem overdraft account' situation leaving so called clients accounts near worthless as the judge quoted in the opalpeters case

James Roscoe (Bolton) Limited -v- Winder [1915] 1

Marine Brokers and dealers need regulated ring fenced clients accounts if they are to continue to accept funds from their Marks.

In the real world it is incredibly difficult to arrange a correctly formatted clients account with a high street bank, the Banks are insistent that they have the right to use the funds to offset charges and balances of other accounts.

 

[Tranona]

We all realise you are not deliberately attempting to mislead anyone, your grasp of the law is technically correct however the reality of what actually occurs is what the forum readers should be concerned with.

Please stop clouding the issue with Brokers/dealers as there arent any dedicated yacht Brokers so funds will always be mixed.

Now the reality.....

That is simply not true. There are individuals and corporate bodies that act as both dealers (trading on their own account) and some who do only one thing. The important point is that in the event of a dispute (and indeed before that) you know in which capacity they are operating as that determines the area of law that governs certain aspects of the transaction.

I am still waiting for your "reality" - where are the cases of brokers "legging it" with funds from client accounts? We know that people have lost money from making deposits on new boats - but this has been because it was not in a client account and they became unsecured creditors of a failed business. The Opal case was a mixture, but it was not relevant for the dispute which was about the strength of different claims on the funds in the client account. It was clearly very unusual as it went to the appeal court for judgement - which gave good guidance as to how such disputes could be avoided in the future.

The "reality" is that thousands of successful transactions take place each year using these mechanisms without any dispute. Does not suggest a deficiency in the mechanism.

 

[DAKA]

The "reality"

You asked me to read the opalpeters case.

Barclays Bank had an automated transfer in place which utilized clients funds for running the business.

Once a clients funds have left the clients bank account they are no longer protected even if they are later paid back in.

This is a real case of clients money funding the Brokers business because the courts decided against the wishes and intentions of opalPeters that the clients money should have been protected by the clients trust account but wasnt .

I have been posting for years about the theoretical dangers and it wasnt until you forced me to read the opalpeters judgement that I realized it has actually happened.
Its all here

http://redirectingat.com/?id=635X49...com/forums/newreply.php?do=newreply&p=2699532



If a solicitor or an Insurance Broker used clients funds to run his business he would be acting illegally but a Yacht Broker is at liberty to 'Borrow' from the clients account as Opalpeters appear to have been encouraged to do by Barclangers Bank.

I cant understand why we are at such variance if we have both read the details of opalpeters.

It is a very serious concern that if such a previously respected business such as opalpeters can unwittingly fail to protect their clients funds in buoyant times then how can we trust other brokers now in these trying times ?

The various marine trade associations are letting the public down and need to address this issue.

 

[DAKA]

Copy paste here for anyone who cant be bothered to read the judgement.


BAP had an overdraft facility provided by Barclays Bank (the Bank) of £5.5
million. There was also a current account and a client account. BAP normally
paid deposits and part payments on direct sales into the current account but
its policy was to pay deposits received on brokerage contracts into the client
account. Until early June 2007, the client account was 'swept' every week,
with an automated transfer of all funds in that account in excess of £10,000 to
the current account. BAP's overdraft position was worked out by reference to
the net amount due after allowing for the credit on the client account.
Accordingly, deposits paid into the client account did not necessarily remain
in that account.
The last automated transfer from the client account to the office account took
place on 5 June 2007. According to the evidence of one of the directors of
BAP, the policy from that date was to pay all deposits, whether for direct or
brokerage sales, into the client account, in view of BAP's uncertain financial
position.

 

[ColdFusion]

Interesting, and quite worrying too for anyone contemplating handing over a substantial sum to a yacht broker. If there is no compensation scheme in place for moneys held in brokers client accounts then the industry needs a kick up the backside. Purchasers should not have to take ANY risk with their money during the buying process. The present situation means they are doing just that. What an appalling situation.

 

[Tranona]

That is true, but that was not the issue on the case. That might explain (in part) why there were insufficient funds in the account to meet the claims. The case was about which claims had priority.

My reading is that the claims where a trust had been created by the funds going directly into the account had priority over funds that were paid into the general account. I seem to remember the phrase " ceased to exist" to describe the funds that went into the general account - meaning that they did not meet the requirement of being clearly identifiable in the client account.

Irrespective of whether the funds are there or not, you still need a means of determining the legal status of the funds. If they are "in trust" then they belong to the person who placed them in the trust.

I have deliberately avoided getting into a discussion on the mechanisms for managing the trust as that was not the issue. It also moves to another level of complexity which I do not pretend to understand in sufficient detail to comment.

ps Thanks for posting the link to the report of the case - it is some time since I read it in its entirety and pleased that my memory is not at fault in respect of the issues.

 

[DAKA]

My reading is that the claims where a trust had been created by the funds going directly into the account had priority over funds that were paid into the general account.

I am amazed , by jaw dropping statement, all funds (less £10k) were paid into the overdrawn business account so do you mean paid in the first time or repaid in each week thereafter ...........

Barclays helped BAP 'borrow' cash from the clients account to run their business.

Case history dictates that once £1 is taken out the trust it cant be put back in.

Barclays automatically empted the clients account once a week for BAP to 'Borrow'.(less £10k)

Once cash was 'Borrowed' wouldnt you expect Barclays should have known that BAP wasnt allowed to pay it back in ?

As I have said before many well known high street banks are not capable of setting up and looking after 'clients accounts'.

Its a shame these short comings that clearly put clients funds at serious risk arent recognised by marine organisations.

I am surprised that you feel it is acceptable for someone to pay into a yacht brokers clients account say £250 000 and that Barclays, Nat west, HSBC then encourage an automatic 'borrowing' on that account to the effect there is £10 000 or less actually safeguarded.
Dont loose sight of the fact that BAP attempted to safeguard their clients funds in the clients account but Barclays removed it .


edit

I give up , we best agree to disagree on this one
I thankyou for helping me with my understanding although in this particular case I was probably best left in ignorance as I am now even more concerned about Yacht brokers handling someone else's cash than I was before.

Apologies to scuttlebutts for the intrusion, I am sure raggie salesmen are all far more reputable than the stinkers that went bust

 

[Tranona]

Oh dear, Pete - I have made no comment at all about the relationship between Opal and its bankers. Firstly because it is not relevant to the issue we are discussing here. (Please read the "Issues" section of the report) and secondly I am not qualified to judge whether that is right or wrong.

The key statement about the client account is ".. the credit balance in the client account at all material times exceeded the amounts held in respect of brokerage sale and direct customers". In other words, where money was held in trust (by virtue of it being paid correctly into the client account) it was always there. What was not there was money that had been paid into the (overdrawn) current account.

Not a lot of point continuing with this as the facts about ther ownership of money in the trust is very clear. Your point about the way the bank treated the balances in the account may be an issue, but not in this context.

 

[DAKA]

I have made no comment at all about the relationship between Opal and its bankers. Firstly because it is not relevant to the issue we are discussing here.

I thought we were talking about the security of cash in the hands of a yacht broker.

(Please read the "Issues" section of the report)

You mean this bit

the claim to beneficial ownership of money in a bank account
requires the continued existence of the money either as a separate fund,
or as part of a mixed fund, or as latent in property acquired by means of
such a fund. Where money is paid into a bank account, which then
becomes overdrawn, the fund ceases to exist. Equitable tracing therefore
cannot be pursued through an overdrawn account, and the beneficiary
cannot claim a proprietary interest in other assets belonging to the trustee
in priority to other unsecured creditors on the ground that his assets had
been misappropriated in breach of trust: see Bishopgate Investment
Limited -v- Homan [1995] Ch.211 per Dillon L.J. 216d-f and 218e – 220-h
4. tracing is only possible to the extent that the balance ultimately standing
to the credit of the trustee in the bank account does not exceed the
lowest balance of the account during the period since the money was paid
into the account: James Roscoe (Bolton) Limited -v- Winder [1915] 1


Didnt the clients account reduce to £10 k each week when Barclays automatically took the cash out.

Is anyone still reading happy with the idea that they can pay a Yacht broker £100 000 on Monday and by Monday night the Broker has used £90 000 to reduce his overdraft.
Is it just me that sees this as a potential issue ?

Assuming it is just me that doesnt 'get it' we may as well let it drop.

Cheers
Pete

 

[Lucky Duck]

Is anyone still reading happy with the idea that they can pay a Yacht broker £100 000 on Monday and by Monday night the Broker has used £90 000 to reduce his overdraft.
Is it just me that sees this as a potential issue ?

Assuming it is just me that doesnt 'get it' we may as well let it drop.

Cheers
Pete

I find it rather worrying that even if purchaser has ensured that the money has gone to the 'client' account, having 'learnt the lesson' of the BA Peters debacle, then he or she is at risk of the money being used for the day to day running of the buisness rather than being ringfenced for the purchase.

However my understanding is that the broker is the agent of the seller therefore if the money disappears then it may well be the seller who minus a boat and without the proceeds of the sale. Maybe somebody can confirm this?

 

[dt4134]

I would be really interested in a documented case where a broker has "legged it" with moneys from a client account.

I've heard of one case where this is supposed to have happened. The company was both a dealer & broker and definitely went belly up. However, my only information on the broker legging with the cash it is hearsay so I won't mention the name here. I will however PM it to you in case you feel inclined to dig.

 

[DAKA]

my understanding is that the broker is the agent of the seller therefore if the money disappears then it may well be the seller who minus a boat and without the proceeds of the sale. Maybe somebody can confirm this?

I am sure there will be plenty prepared to answer that you understanding is technically correct however lets analyse that more realistic situation....


A yacht broker has just sold you a boat but he has lost the cash.....

Do we expect the seller will just let us take the boat ?

The seller is immediately going to claim he asked the Broker to find him a buyer and the broker didnt have the authority to accept any payment on the sellers behalf.

I doubt this is going to run as the technical legal experts would like you to believe but we best wait to see what they say.