Yacht Brokers / Dealers and safeguarding clients money- Time for legislation

[jfm]

Daka. You may regard the post that follows as rude. If so, then I regret that it has to appear thay way. Perhaps I have been overly harsh but perhaps not. As far as I am concerned, this is plain speaking and my honest view of what you have written in this thread, and others on the same subject matter.

The same applies to this post I'm writing now

I guarantee to you that jfm believes you are totally wrong. He pretty much said that in post #4. I am also 99.99% sure he simply can't be bothered to keep repeating what he has thoughtfully and painstakingly written in the past to correct the gobbledegook you post, and that's why he has not posted any more since then.

Yes exactly! I very substantially disagree with what Daka writes here but there is so much of it I don't have the time to explain again why - we've done this subject many times before

I am writing this because there may be readers out there who actually believe there is any serious validity to your overall view on this. You do have some valid views on individual pieces but your appreciation of the overall tapestry is hopelessly confused and jumbled and you are seriously badly informed on many important matters of law, contract and banking. So much so that it would be a massive exercise to dissect and properly explain where you are right, partly right, or just completely wrong. There are all sorts of nuances in these matters that you simply don't see ...
WARNING TO OTHERS - this poster may make superficially atractive comments regarding matters that he purports to know about but he really, really doesn't. Treat everything he says with caution.

Hear hear. In the interests of the forum being a good source of info in general, I was thinking of typing along similar lines. But you have nicely done it there and I agree every word of the above

 

[DAKA]

As far as I was aware all the individual points made were accurate.
I am somewhat surprised by the overwhelming objections and HAVE to accept that either I was wrong or the overall context was misleading.

So the best way forward suggestions ?

a) leave it as it is to die but its all still there for search engines

b) I can delete all my posts (possibly the easiest )

c) ask the mods to delete it ( as misleading)

d) other suggestions ?

 

[jfm]

...blindly overwhelming vote that the majority share my view ...
...The 70% of forum members who have voted

Daka, just on this isolated vote of your poll, the fact is your numbers are statistically insignificant. You have no valid basis to say "the majority share my view". You are bandying around this 70% number as if it is meaningful, but it isn't

if you take a £1 out of a trust you can not later replace the £1 as its not the same £1 , the new £1 will not deemed under trust even if in the same account.

That is not at all an accurate or good summary of the principle confirmed by the Court of Appeal in BA Paters. Your statement is basically wrong: the correct position is that if a trustee wrongly takes £1 out of a trust but puts it back (either voluntarily or following legal process), it IS the same £1 when it gets back into the trust. There is some colourful equitable law behind that (and common law, and law of property) but actually you don't need to be a lawyer because it is also kinda common sense and self evident.

The BA Peters case was all about surplus money in a trust fund, ie money in which beneficiaries of the trust had no proprietary claim, and so the money belonged by default to the trustee. In other words, the trustee had OVER credited cash into the trust account! The trust's beneficiaries (yacht brokerage parties) were sitting pretty as all their money was 2x safe in the trust. The legal action was brought by some OTHER (non brokerage) people, who would have been beneficiaries IF their instalment payments for new boats had been put into the trust account. They claimed that because their instalment payments ought to have gone into the trust account, they could claim on the surplus trust cash and thereby queue jump other unsecured creditors of the trustee. The court decided they couldn't, following eminently sensible analysis. That's it basically - the BA Peters case has nothing at all to do with money being wrongly taken out of a trust and put back

 

[DAKA]

the BA Peters case has nothing at all to do with money being wrongly taken out of a trust and put back

It's incredibly unfair to ask me not to continue with this thread (which I have not only agreed to but also deleted 99% of my posts) and then to start arguing further on a subject you know I feel passionate about .


You have slightly misunderstood why I have quoted the BA Peters case.

the sole reason why I quoted the case was during the judges summing up he made mention of the previous practice that was going on (shortly before the company went bust).

Barclays had set up an automatic transfer to sweep the clients account of all funds save £10 000, this was used to credit the £5.5m overdraft.

I quoted this as proof that Banks do set up automatic transfers from clients account.

I will now look for the case history regarding the trust where the judge said £1 taken out of a trust and later paid back in will not benefit from the trust status.

Back in a couple of hours when I can find it ................ but I have already deleted my mention to it and accepted that quoting it may have caused out of context confusion ( hence I deleted it once but you want me to justify it )

crazy !

 

[jfm]

It's incredibly unfair to ask me not to continue with this thread ...
crazy !

I'll stand corrected if I've forgotten, but I don't think I've done that!

 

[DAKA]

I'll stand corrected if I've forgotten, but I don't think I've done that!

I thought either Tranona or Observer (or both ) had suggested I let this drop, I was about to release a full broadside volley when you gave me the impression you agreed with them so I dropped it.

I'll be back with the trust case history details so that hopefully you can explain to me why the 'guidance advice ' regarding clients account trusts the ABYB circulate is adequate and why the FCA and legal professionals waste several pages on their detailed regulations.

in the mean time the three of you can decide if you would like my response by pm or posted.

 

[Tranona]

It's incredibly unfair to ask me not to continue with this thread (which I have not only agreed to but also deleted 99% of my posts) and then to start arguing further on a subject you know I feel passionate about .


You have slightly misunderstood why I have quoted the BA Peters case.

the sole reason why I quoted the case was during the judges summing up he made mention of the previous practice that was going on (shortly before the company went bust).

Barclays had set up an automatic transfer to sweep the clients account of all funds save £10 000, this was used to credit the £5.5m overdraft.

I quoted this as proof that Banks do set up automatic transfers from clients account.

I will now look for the case history regarding the trust where the judge said £1 taken out of a trust and later paid back in will not benefit from the trust status.

Back in a couple of hours when I can find it ................ but I have already deleted my mention to it and accepted that quoting it may have caused out of context confusion ( hence I deleted it once but you want me to justify it )

crazy !

It seems that you still do not accept the level of your misunderstanding of the BA Peters case. Just re-read what Observer and jfm are telling you about banks using funds in client trust accounts as security and then you will see why I have been also telling you that you are wrong - from the first time you tried to make it an issue - in the way you interpret the remarks made in court. It has no direct bearing on the central issue to the case.

This is all water under the bridge. I suggest you just drop the subject and not worry about your threads staying on line. As we have seen, anybody who has any understanding of the subject will see through them.

Perhaps a quiet word of thanks to those experts (not me!) who have patiently tried to explain to you where you have gone wrong would be nice.

 

[DAKA]

It seems that you still do not accept the level of your misunderstanding of the BA Peters case. Just re-read what Observer and jfm are telling you about banks using funds in client trust accounts as security and then you will see why I have been also telling you that you are wrong - from the first time you tried to make it an issue - in the way you interpret the remarks made in court. It has no direct bearing on the central issue to the case.

This is all water under the bridge. I suggest you just drop the subject and not worry about your threads staying on line. As we have seen, anybody who has any understanding of the subject will see through them.

Perhaps a quiet word of thanks to those experts (not me!) who have patiently tried to explain to you where you have gone wrong would be nice.

Thank you Tranona.

I think you still misunderstand my reason for quoting the BA Peters case.

The reason why I keep quoting the case is during the summing up it was stated that the clients account had been swept of all funds which was used to credit the £5.5 m overdraft (save £10 000).
I realize that no clients lost out as a result of this action as BA Peters stopped it a month or three before they went bust .

If I understand you correctly now....

you, Observer and jfm realize that I only quoted the case to prove Yacht Brokers have in the past used their clients account to credit their overdraft (by inference possibly still do).
But you are all saying that that practice ( if it does still go on and there is no proof that it does) does not harm the clients account trust in any way.

if thats an accurate summary then I wish someone had summarised it sooner.



Thanks to all professionals for their valued contributions including jfm, observer and resolution.

 

[Observer]

It's incredibly unfair to ask me not to continue with this thread (which I have not only agreed to but also deleted 99% of my posts) and then to start arguing further on a subject you know I feel passionate about .


You have slightly misunderstood why I have quoted the BA Peters case.

the sole reason why I quoted the case was during the judges summing up he made mention of the previous practice that was going on (shortly before the company went bust).

Barclays had set up an automatic transfer to sweep the clients account of all funds save £10 000, this was used to credit the £5.5m overdraft.

I quoted this as proof that Banks do set up automatic transfers from clients account.

I will now look for the case history regarding the trust where the judge said £1 taken out of a trust and later paid back in will not benefit from the trust status.

Back in a couple of hours when I can find it ................ but I have already deleted my mention to it and accepted that quoting it may have caused out of context confusion ( hence I deleted it once but you want me to justify it )

crazy !

I didn't see jfm ask you to delete anything and neither have I. I was quite happy for the thread to stand. Readers can form their own views on contributors' opinions/posts according to how they're presented. That is how it should be. Unless a reader has direct knowledge of a poster's competence on a matter, no-one's contribution is better than another's, except as any reader chooses to value it.

I (and I think jfm) have (or have had) the same concerns about security in relation to buying/selling boats as anyone, including you, but I feel (and suspect jfm does as well) that your analysis of the risks and ideas for mitigating them are simply not thought through correctly from the legal perspective. Much of what you say has a veneer of reasonableness and some parts are correct; there's just so much that isn't and it is very time consuming to try and correct it piece by piece. Not that it hasn't been tried before, at least by jfm. I can't remember when I last got stuck in on this subject, but I probably have had a go at some time in the past. The thing is that no-one wants to keep trying to teach someone who (it seems) doesn't want to learn.

 

[jfm]

I thought either Tranona or Observer (or both ) had suggested I let this drop, I was about to release a full broadside volley when you gave me the impression you agreed with them so I dropped it.

I'll be back with the trust case history details so that hopefully you can explain to me why the 'guidance advice ' regarding clients account trusts the ABYB circulate is adequate and why the FCA and legal professionals waste several pages on their detailed regulations.

in the mean time the three of you can decide if you would like my response by pm or posted.

Regarding your first paragraph, I haven't asked you not to continue. I've merely stated a view that is contrary to yours. All the deleting etc is of your own volition

Regarding your 2nd para, the extrapolation from what I and others have said into "FCA and legal professionals waste several pages" is entirely yours.

As regards third paragraph, I refer you to my first paragraph - I'm disagreeing, and not going to tell you what to do

 

[Observer]

I'll be back with the trust case history details so that hopefully you can explain to me why the 'guidance advice ' regarding clients account trusts the ABYB circulate is adequate and why the FCA and legal professionals waste several pages on their detailed regulations.

The practice of yacht brokers handling the sale/purchase monies via a client account is not a particularly necessary part of the scope of services they provide to clients. It is more a convenience for clients (sellers) and buyers that provides a degree of neutrality. I haven't seen a very recent set of terms that regulates how the funds are managed but the last ones I remember reading were not very specific. Jonic posted earlier about this so if he reads this he may be able to explain a bit more.

In contrast, lawyers often have a necessary professional role in handling third party funds (e.g. completion of property purchases) so it is not surprising that their arrangements for that are more stringent and are covered by compensation schemes run by their professional body. By "FCA" do you mean the Institute of Chartered Accountants? I easn't aware there was such a scheme for accountants but have no real knowledge one way or the other.

 

[jfm]

you are all saying that that practice ...does not harm the clients account trust in any way.

No, none of Observer, Tranona nor I is saying that. If that does in fact happen then the legal consequences are complex and would take several pages to explain.

In VERY brief summary, the beneficiary of the trust (ie the buyer/seller of the brokerage yacht) would have a claim principally in equity (as distinct from common law) against the bank and the broker, and against the broker in contract. Assuming the broker is bust, then the equitable claim against the bank is the main event, and will generally result in the bank returning the money (certainly if they had knowledge, and quite possibly if they were entirely innocent bystanders). You then have complex law on "tracing" if the money is hard to find, but with a solvent bank you likely would not need to go there. The remedy imposed by an English court in equity is to put the injured person back where he was if the misdemeanour had not occurred (as distinct from reimbursing his losses, as common law typically does) which means the bank holding the trust funds has to restore the plundered trust account.

None of that is settled by or learnable from the Peters case, however.

 

[DAKA]

This is getting bizarre, three posters jfm, tranona, observer all appear in unison that they all feel the overall message in the thread is confusing and dont want anyone to read it and think it is factual.

The only sensible action was to delete the offending posts that you all thought were misleading.

seems a waste of everyone's time now.

The summary as it stands


If I understand correctly ....

Tranona, Observer and jfm realize that I only quoted the case to prove Yacht Brokers have in the past used their clients account to credit their overdraft (by inference possibly still do).
But you are all saying that that practice ( if it does still go on and there is no proof that it does) does not harm the clients account trust in any way.

end of thread surely ?

(well at least the clients account bit, still sort of leaves the original issue unanswered , but please lets not go there again)

http://www.westernmorningnews.co.uk...ailed-luxury/story-20086237-detail/story.html

 

[jfm]

By "FCA" do you mean

Financial Conduct Authority, I think. The new/rebadged version of FSA

 

[DAKA]

No, none of Observer, Tranona nor I is saying that. If that does in fact happen then the legal consequences are complex and would take several pages to explain.

xxxxxxxxxxxxxxxx
None of that is settled by or learnable from the Peters case, however.

Posts are crossing now, please ignore my last one above (frankly I thought I had agreed for the forum to ignore the whole lot )

The Peters case summing up confirmed that Barclays had indeed swept the clients account of all funds and used it to credit the £5.5m over draft. (save £10 000)

I quoted two further examples where bank managers in the past had tried to set up automatic transfers from clients account trusts to either Business accounts or to offset mortgages .

In my opinion the trust is damaged and unsafe.

this is a crazy thread.

I am more than happy to walk away from it however

I am obviously not going to ignore you if you ask questions as that would be rude of me.

 

[Observer]

The trouble is that nearly everything you say or write is ncomplete or garbled. For example:

I quoted two further examples where bank managers in the past had tried to set up automatic transfers from clients account trusts to either Business accounts or to offset mortgages.

I've agreed that shouln't have happened but we don't know exactly the whole story. It is commonplace for lawyers etc. to take the interest benefit of client account monies (whether it should happen or not is another question). A financially savvy client will insist on receiving that benefit and, if he does, the solicitor has no grounds to resist. How that interest benefit is realised may vary from one bank to another. A client account may be non-interest bearing or have very low interest rates. Administratively, it may be that a parallel deposit account, also a client account, is set up and the 'current' client account balance cleared to it every night and returned the next day. Or it may be an account that can be brought into an offset group (for interest purposes only) so that the account holder only pays interest on the net borrowing. As long as the bank does not have access to the account balance itself to offest against other loan/overdrawn accounts, then that is not breaking the trust. As a matter of system integrity, this could be difficult because (it seems to me) it will leave the bank with balances 'belonging' to that customer on which it is not earning interest. However, it is possible. Or maybe the client account is swept to an 'own funds' account that the bank recognises internally as being unavailable for usual banking offset. I don't know enough about the inner workings of all banks to say what can be done.

 

[DAKA]

The trouble is that nearly everything you say or write is ncomplete or garbled. For example:



I've agreed that shouln't have happened but we don't know exactly the whole story. It is commonplace for lawyers etc. to take the interest benefit of client account monies (whether it should happen or not is another question). A financially savvy client will insist on receiving that benefit and, if he does, the solicitor has no grounds to resist. How that interest benefit is realised may vary from one bank to another. A client account may be non-interest bearing or have very low interest rates. Administratively, it may be that a parallel deposit account, also a client account, is set up and the 'current' client account balance cleared to it every night and returned the next day. Or it may be an account that can be brought into an offset group (for interest purposes only) so that the account holder only pays interest on the net borrowing. As long as the bank does not have access to the account balance itself to offest against other loan/overdrawn accounts, then that is not breaking the trust. As a matter of system integrity, this could be difficult because (it seems to me) it will leave the bank with balances 'belonging' to that customer on which it is not earning interest. However, it is possible. Or maybe the client account is swept to an 'own funds' account that the bank recognises internally as being unavailable for usual banking offset. I don't know enough about the inner workings of all banks to say what can be done.

Bank 1
Explained this to me

Offered to set up an automatic transfer from the clients account straight into the firms Business account.
save £1000.

As soon as a clients cheque was paid into the account it was (at close of business) transferred to the business account .
As soon as a cheque was drawn from the clients account ( £1000 balance) a transfer from the business account would be triggered.
As it happens in this case it was agreed not to transfer into the working business account but to set up a separate business account that the holder chose not to ever use.

The clients account bank statements showed

++++++++++++++++++++++++++++++++
clients account



paid in £30 000
auto transfer out £29 000
balance £1 000
paid in £20 000
auto transfer out £20 000
balance £1000
cheque paid out £30 000
balance -£29 000
auto transfer from business account £30 000
balance £1000
++++++++++++++++++++++++++++++++++++

I first posted about the possibility this was endangering Yacht Brokers trusts years ago.
I was told it was nonsense.

When BA Peters case notes were published the judge stated about ( I hardly dare type this again)

Barclays swept BA Peters clients account of all funds less £10 000 to credit the £5.5 m over draft.

I used the judges summary as evidence that my concerns regarding client account trusts were being put at risk.

I cant understand why we are going over this ground again , its the same as I posted the first time and complaints came in so I deleted it.

Bank 3

Area manager of a very well known high street bank offered to offset a Brokers mortgage if he moved the clients account to his bank.
I do not have the full details exactly how that was going to operate.


And again I state


If jfm, Tranona and Observer agree that a clients account trust is not damaged by example BANK 1, 2, and 3 as above then my post can be totally disregarded, I thought we had agreed to that hours ago.



++++++++++++++ prior to jfm explaining to me that this wasnt a problem I had previously thought that taking £1 out of a trust destroyed the trust protection, even if £1 was paid back in it wasnt the same £1+++++++++
Tranona had previously spent hours telling me it wasnt a problem .

I am happy to walk away from this thread and trust all is now explained.

For the record my personal view remains that Clients accounts should not have automatic direct transfers to any other business/mortgage account or to offset overdrafts, but that is my personal view and I do not wish to force it upon the rest of the forum.

I am absolutely confident the forum readers will be happy to accept jfm, tranona and your assurance that its a safe practice, they are not likely to trust me more are they so its nearly a happy ending .

 

[davidej]

Why on earth do I continue read this --- it is boring me to near insensiibility?

 

[DAKA]

It wasnt even supposed to be a clients account thread either.
It was about being able to tell a good honest Yacht Broker from one like this

http://www.westernmorningnews.co.uk...ailed-luxury/story-20086237-detail/story.html

 

[Observer]

That's not the whole story, just your side of it.

I think jfm has given you the answer already to your principal point (to the extent it is possible to be sure about it): client funds withdrawn from a client account in breach of trust can be replaced if that is the trustee's intention. The replacement funds will be protected in the same way as the original funds.

It is possible to make the following general statements about client accounts:

- a properly operated client account is effective to protect client monies against the claims of creditors generally
- the protection is weakened if the account is not operated conscientously. That is a matter for the trustee (not the bank)
- sweeping client account funds to an 'own funds' account in order to reduce borrowing costs is undesirable because it may (not necessarily will) put the client funds at risk. This question was not tested in the BA Peters case because the practice ceased before the administration occurred
- sweeping client account funds to an overdrawn account is particularly likely to prejudice the trust status bacuse the trust funds cease to exist (although a specific transfer back to the client account, instigated by the trustee [edit]not the bank][/edit], would still recover the position)

None of the above requires further law or regulation, just conscientious discharge of the trustee's responsibilities. If buyers or sellers wish to make use of broker's client accounts (the alternative being to use a solicitor, which is safer but more expensive), the practical steps that they can take are:

- positively verify with the bank that the client account is a client account
- only pay money into the client account (direct transfer)
- insist on being provided with unambiguous rules about how the client account is operated

That's not enough to guarantee security because the trustee may still misappropriate. It may be possible to "trace" misappropriated trust funds and recover them but that is difficult and ultimately uncertain. If that risk remains a concern, use a solicitor and pay a bit more.