Cecil Wright fight puts commission on trial
Making waves this week is the story of brokerage Cecil Wright suing Revolut founder Nik Storonsky for €17.5m in lost commission. It highlights the precarious nature of the brokerage dynamic and heralds what could be a telling moment for the industry.
Long story short, Cecil Wright says it is owed commission on the sale of a 102m in-build Lürssen project (now Nixie) for work done for Storonsky before he bought it directly from Patrick Dovigi, a Canadian waste management mogul. Cecil Wright claims it sourced the opportunity, viewed the yacht with Storonsky and elicited an offer to the then Brazilian owner.
That owner, known to be Daniel Vorcaro, was then arrested for fraud and Dovigi, who had initially commissioned the yacht, reacquired the vessel. Cecil Wright alerted Storonsky to the change of ownership and then discovered the deal for about €350m had allegedly been done “behind its back”. This is Cecil Wright’s version in the London High Court filings, seen by Superyacht Investor.
“Having spent more than three decades in yacht brokerage, I have never previously had cause to do this. The fact that I am doing so now reflects the strength of my conviction,” the brokerage’s founder Chris Cecil-Wright told us on Tuesday.
Storonsky’s team says it has done nothing wrong.
“The judge will form their own opinion of whether the broker played a sufficiently central part in the process to warrant being paid. There will be a lengthy disclosure exercise with a heavy focus on all communications, including telephone calls, WhatsApp messages and emails,” James Jaffa, founder of law firm Jaffa & Co tells us.
He adds: “There is often a degree of pragmatism in litigation, alongside established law. It is not always ‘all or nothing’ and litigants often secure a partial success.”
‘Culmination of decades’
A case known as Berezovsky v Edmiston & Co. Ltd (2010–2011) is almost the only similar high-profile court case. Then, the brokerage house’s actions were ultimately deemed the “effective cause” of the sale of the yacht Darius, winning a 3% commission, reduced to 2.5% (€6m) on appeal.
“You have to leave the big headline-grabbing number aside and look at the underlying legal position,” adds Jaffa. “It’s not about €17.5m – if it was only €150,000 it wouldn’t make the news, but it would be just as important because there is so little case law on the topic.”
Without delving any further into the Cecil Wright vs Storonsky scrap, it highlights the fragile existence of brokers who get paid only once the deal is in the can, and only then if honour is upheld.
Will Christie, founder of Christie Yachts illustrates the situation on fees in general with an example where he helped find a client an off-market yacht and then purchase her with a “firm, but ambitious limit” on price. Christie got to work, leveraged his network and made a deal happen, only to find the client trying to renegotiate his fee because he’d only done about “two weeks’ work”.
“I told him it’s the culmination of 25 years’ work that I’ve managed to find this yacht and negotiate the deal you wanted,” Christie tells us.
He adds: “A lot of people don’t appreciate what brokers do and they try to cut us out or renegotiate terms last minute, even when it was clear from the outset and we have achieved exactly what the client wanted.
“Our advice is not one week’s or one month’s work; it’s the culmination of decades of experience, knowledge and relationships. And you often need those relationships to make those tricky off-market deals happen because they’re very challenging to piece together.”
‘Save you more than their fee’
Brokers are habitually “working for cost”, incurring significant expenses along the way as they visit clients, view yachts and invest their time in the search, says Christie.
He offers another example where a client he had been working with for two years on a potential new build project pulled the plug after buying the “dream house” in Hawaii instead.
“I’d spent one and a half days a week for two years on it and was wearing over £75,000 in travel expenses and I had to write those off,” he says. “We do a lot of work totally on risk. People see the success stories – it’s a bit like gamblers; you only ever hear about the wins – but there are loads of losses, so when we make a deal happen, we need to be paid.”
He adds: “A good broker will save you way more than their fee in value added with spec upgrades and negotiation. You’ll get a much better boat and a much better experience at the end of it.”
Jaffa explains that whenever his firm does a deal without good, experienced brokers involved, which is “rare”, the risk of a negative experience increases significantly.
“I have always believed brokers form a very vital part of the whole process and should be paid for it,” he says. “Everybody hears about the big commissions, but they don’t always see the work and the finesse that makes a deal happen. I am not pandering to the brokerage community; I genuinely believe it.”
‘My word is my bond’
Christie concedes that “not all brokers are equal” with perhaps 10% giving the sector a bad name. But he says experienced brokers often develop a “sixth sense” about clients who might be “allergic to this concept of fees”.
“You are relying on the honour of clients a lot of the time in our business,” he says. “About 90% of clients totally get it, they appreciate that without us they won’t be presented with the opportunities, they understand that we add huge value to the process and at the end of it we’re going to get paid and they’re fine with that.”
Christie argues that asking a client to sign a contract at the start of a relationship is “a bit inelegant”.
“I don’t want them to feel like I’m trying to handcuff them to me,” he says. “I like to do business with handshakes, my word is my bond stuff. I don’t know whether that’s becoming less the way people do things. It’s sad if that is the case. I don’t want to make people sign agreements for everything I do – maybe I’m a bit too old school and naïve. But then maybe we should. We’ve looked at it before, but it’s never really worked.”
Buyer’s mandate
Jaffa believes it is time to explore a buyer’s mandate similar to those common in business aviation transactions. “With jet sales, it is common for a buyer to specify their appointed broker with a written mandate,” he says. “This creates a degree of certainty and goes a long way to avoiding disputes about who is owed commission when a sale completes.”
His idea is to remove any ambiguity, particularly for transactions which fall outside the traditional central agency agreement. Shipyards could also produce a mandate to firm up which broker is due commission. If it became the norm, it would reduce the discomfort for brokers not keen on asking for a contract because the seller wouldn’t deal with you without a mandate, he explains.
“It stops a buyer speaking to five different brokers about the same boat and it will just help clarify who represents who and who is entitled to get paid,” he says. “It’s normal in aviation, it’s not happening in yachts.”
Cecil Wright and Storonsky will have their days in court and the keen-eyed will be looking at far more than headline numbers.
“It will be a really interesting judgement for the industry,” says Jaffa.
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