For all but a very small number of people, yacht and ship transactions will be relatively infrequent transactions in their lives.  Their importance, however, cannot be understated.

Whether the transaction is the acquisition of a ship for commercial purposes, or the acquisition, charter or commission of a yacht for leisure purposes, the sums of money involved are often extremely high.  In addition to this, one or more parties, or the flag state or location of the shipyard may be situated in a jurisdiction with less regulatory oversight or one of the less transparent corporate ownership registers.

All of these, taken in the round, can lead to a shortage of trust, or a requirement for an increase in due diligence and assurance when it comes to the transaction.

Issues of Trust

These issues of trust can arise in every stage of a vessel's life cycle, from its initial build and commissioning to sale and purchase or charter operations, through its refits and class and flag surveys, varying parties will be conducting high-stakes, high-value transactions that can benefit from the support of an independent escrow agent.

Owner ↔ Shipyard: Guarantees

In many jurisdictions and with many yards, commissioning Owners will require a refund guarantee in return for stage payments during the build process.  Often, buyers will be asked to put up at least 40% of the cost before the ship or yacht is delivered, with the balance due on completion and delivery.

By contrast, sometimes the shipbuilder will require a guarantee from the purchaser - this might be if the buyer is a special purpose vehicle (SPV) incorporated specifically to finance the ship or yacht (possibly with few other assets, if any) or if the buyer is from a jurisdiction where the enforcement of an arbitration award or court order might be difficult.

Buyer ↔ Seller: Deposits & Closings

During an exchange in ownership, a seller will usually expect the purchaser to pay a deposit to demonstrate their intention to complete on the acquisition and to cover any of the seller's fees in the event that the buyer pulls out.

Similarly, a buyer may require a seller to provide certain post-completion documents, certificates, results from surveys or inspections, releases of security or analogous documents that cannot, for whatever reason, be provided at or before completion, and may wish to withhold a portion of the purchase price against their delivery.

Charterer ↔ Owner: Deposits

Before an owner agrees to take a vessel off the charter market for a particular period, they may insist on the charterer paying a deposit to secure that period, with the balance of the charter payment to be made at or during the time of the charter.  During the course of a charter, the Owner may require a further deposit to protect them in the case of damage caused by the chartering party.

Conversely, a charterer may feel uncomfortable about paying over a deposit to an Owner with an opaque ownership structure, or a poor reputation, or who is incorporated in a jurisdiction where the enforcement of an arbitral award or court order might prove troublesome.

Charterer ↔ Manager/Broker: Deposits & APA's

Where a yacht charter is being facilitated by a broker or manager, the charterer may be requested to provide an Advanced Provisioning Allowance ('APA') to allow the yacht to open an account and purchase food, drink and fuel on the guests' behalf - often calculated as a percentage of the charter fee, this amount is generally held by the yacht manager or broker and accounted for by them during and after the charter.

The charterer, for their part, might be reluctant to pay sums over to a broker who is less-established or who does not have segregation/safeguarding arrangements in place or who is not otherwise authorised to carry out payment services on their behalf.

The Role of the Escrow Agent

Escrow agents help to bridge these trust gaps by offering a reliable, independent, objective third party to handle the exchange of money and documents in accordance with the parties' wishes and the terms of the escrow agreement, without having to rely solely on trust to ensure the security and success of the transaction.

We offer escrow solutions to address all of the above trust issues and would be delighted to provide you with a quote for your specific requirements. You can also check out our detailed service pages listed above.

Benefits of Escrow over Insurance/Bonds

Some of the trust shortfalls outlined above can be addressed through the purchase of a contract of insurance or a bond. These typically involve the payment of a fee (a "premium"), and in the event of default, the beneficiary under the policy must make a claim from the insurer or bondsman for their loss.

This approach comes with four primary drawbacks:

1. The premium is spent—regardless of whether or not a claim is made, the insurer or bondsman charges the premium as consideration for assuming the risk in the transaction;
2. There is a credit risk on the insurer/bondsman/guarantor—even the largest underwriters carry a credit risk; a policy of insurance is only as useful as the financial capacity of the underwriter to satisfy all of the claims they are underwriting at any one time. In circumstances where an insurer faces many simultaneous (or a few ultra-high-value) claims, they may not be able to fulfil their obligations;
3. It takes time to process a claim—even a successful claim can entail months of paperwork and administration before it is paid out;
4. Every policy or bond is written with very specific wording—it might be that, for unexpected reasons, an anticipated claim is not actually covered by a policy or bond (either because it is specifically excluded or because the wording allows it to be excluded for some other reason).

Cash-backed escrow, by contrast, addresses all of these issues. It is generally cheaper to administer than the cost of a premium; in most cases, there is no credit risk because the funds are segregated and safeguarded by the escrow agent; payouts generally happen within a few days; and there will not be any circumstances in which a payout is excluded—the terms of the escrow agreement will make it very clear what circumstances need to exist to trigger a payment, rather than necessarily the reasons behind those circumstances.

Why choose dospay over a bank or trust company for your escrow?

We are an established, independent escrow agent not affiliated to any bank or trust company.  We're based in London, in a time zone conveniently located for transactions taking place anywhere in the world. As a small team, we're easy to get hold of, responsive and dependable.  

While our processes are systems are rigorous, they are also flexible. We make the effort to understand each transaction and its nuances, meaning that we can provide the perfect solution for the parties.

Funds secured at the Bank of England

Through our technology partners, we are able to open custodial/escrow accounts at the Bank of England with the click of a button. Unlike a bank (who accepts your escrow funds as a "deposit", whereupon it becomes part of their balance sheet and can be loaned to others), our accounts are all segregated (kept separately from our own) and safeguarded (not used for any other purpose). This means we are probably the most secure escrow agent in the United Kingdom.

We simply hold the funds liquid and unencumbered at the Bank of England, ready for use in the transaction. Exactly as escrow should be.

No existing or future banking/trust relationship required

Most banks and trust companies see escrow as a slightly painful service they need to offer in order to justify their moniker of being 'full-service' - it's a service that most clients will wish for, but compared to their lending, advisory and trustee fee revenues, few banks consider escrow to be a profitable exercise.

As a consequence, most will ask for at least one of the parties to be (or to become) a client of the bank or trust company going forward - very few will offer it to entirely unrelated parties with whom they have no opportunity to make money in future.

We're different.  We only exist to provide escrow services, and those are frequently once-in-a-lifetime deals - while we are delighted to enjoy repeat custom, we haven't built our business model on it.

Lower fees

We don't carry the overheads of a large bank or trust corporation, or anything like them. As a small team, we've invested heavily in technology to do the heavy lifting and we have no legacy systems that make life difficult for us - it's all cutting-edge, encrypted, bank-level technology, but without the legacy costs.

We are therefore almost always cheaper, often by a considerable margin  (and, if for any reason we're not, we're always happy to have a commercial conversation).

Fast account opening

Our streamlined systems and processes lend themselves to fast account opening.  Often, the detail of escrow arrangements is left until quite late in the transaction - this isn't a problem for us; indeed, we're used to it - it's what we do.

Our accounts can be opened same-day if we have all of the information, and the vast majority are opened within 3-5 business days (most of which time is taken up with us carrying out our mandatory compliance activities).

Flexible terms

Unlike a bank or trust company that is required to operate on standard terms, with 3-5 day turnaround times for their internal legal teams to sign off any deviations, we can work either on our standard conditions or on the basis of a document agreed between the parties, and we're flexible about what that looks like.

Each transaction is different, so we don't try to shoe-horn them into chapters of legalese - the terms of our participation are clear, concise and flexible.