We are fully aware that the word free and law are words rarely used in the same sentence, however it’s nice to be nice.
Cyprus appears to have got herself into a bit of a mess with an estimated 20,000 law suits hanging around in the courts. Making sense of the noise isn’t easy as there are many issues, and the issues have dragged on for many years now. Getting accurate information on the Cypriot law from someone who isn’t lazy, incompetent and/or hopelessly conflicted (or at least intimidated by other peoples’ conflicts and the traditional code of Omerta when it comes to washing the profession’s considerable volume of dirty linen in public) is near impossible from some Cypriot players.
If you happen to be caught up in the mayhem, we have identified a few areas which we suspect may be confusing you…..
If the bank’s claim for repayment of a home loan can be equated with a claim in respect of the ownership of immovable property, then Cyprus has exclusive jurisdiction over the bank’s claim. End of sports.
Whether the bank’s claim can be equated with a claim in respect of immovable property where the property has yet to be completed and the buyer has yet to receive their own title deeds is less clear. It wasn’t until quite recently, but the Cypriot law changed so that the assignment of the contract of sale (the traditional Cypriot security for a home loan before title deeds were issued) could be registered with the Land Registry in Cyprus and therefore (maybe? could be equated with sufficient interest in land to confer exclusive jurisdiction upon Cyprus.
Where Cyprus does not have exclusive jurisdiction by reference to the bank’s claim relating to title to immovable property, there is an argument for exclusive UK jurisdiction as a matter of consumer protection law where goods or services (i.e. not land) are sold
… (This argument was accepted by the English Courts in the original group action against Alpha Panareti and Alpha Bank)
If there is no exclusive jurisdiction, it is a race as to who gets a claim started in which jurisdiction first, subject to any jurisdiction and/or ‘choice of law’ clauses in the parties’ contracts (although this last factor just might be able to be sidestepped where the claim is not directly based on a contract)
Cypriot law was changed in recent years to apply the same limitation period in contract and tort to a counterclaim as it would to a primary claim, whilst clarifying the existence of a longer limitation period for banks to recover unpaid debts under mortgages.
In other words if a bank waited long enough it could bring a claim in time, knowing that any counterclaim based on its own negligence/breach of contract/breach of fiduciary duty stopping short of dishonest misuse of trust property) would be out of time.
What is less clear as a matter of Cypriot law (and it will be important to ask a Cypriot lawyer about this), is whether this extended 12-year period for mortgage claims also includes a restitutionary claim for the repayment of monies advanced under a void loan agreement (e.g. because of a dodgy power of attorney in circumstances where the bank cannot be proved to have known that the power of attorney/certification of the same was fraudulent but executed the loan agreement anyway).
This last point is absolutely crucial. The restitutionary claim is the bank’s side bet against the loan being void. This is a claim that the borrower is unjustly enriched unless they repay the capital sum the bank lent to them — in the clear mutual expectation that it would be repaid — plus reasonable interest over the period between the making of the invalid loan and the time repayment is made.
Why the restitutionary claim (and its limitation period) is so important
To me this claim is the real reason why agreeing to a new mortgage even where the old one was made under a dodgy power of attorney may make sense to many people — the bank was still owed a lot of money in any event, and this provides some cover in relation to interest rates, a timetable for repayment and the use of the (probably unwanted by now) property as (partial) security.
Subject to limitation it can only be defeated if it can be proved that the bank knew the power of attorney was invalid but executed the loan anyway (which will be hard under any circumstances, and in the current climate in Cyprus it may prove impossible to take a judge with you on this), although it might be possible to reduce what has to be paid back by reference to ‘change of position’.
However if the bank relies on the long limitation period for an action on a mortgage to wait until after the time for counterclaims has passed, but the time limit for the bank’s own restitutionary claim is still short — and maybe has passed in the mean time? — Then the proof of the invalidity of the power of attorney might become a full defence instead of a partial one.
Limitation for counterclaims:
As I understand it the limitation period for most/all counterclaims (and probably also many primary claims in contract and/or tort not expressly based on mortgages — sedquaere the Cypriot law about limitation renewing itself where a loss accrues from day to day — does it apply to these claims/counterclaims?), is running out in December 2014 (which if anything would have been a further extension from the position back in mid- 2012 when it was due to expire in December 2013).
We now have further extensions, where will it end, how long is a piece of string?
If the time for counterclaims had passed, borrowers could not, for example, assert by way of partial set-off the bank’s negligence in mis-selling Swiss Franc mortgages.
Moreover by putting forward a substantive Defence or Counterclaim in Cyprus, one accepts the jurisdiction of the Cypriot Court in any event. The one exception to this (which was denied until we were very firm with a Cypriot Lawyer) is that one can challenge jurisdiction and simultaneously enter a substantive Defence including a counterclaim in the event that the jurisdictional challenge fails.
In English law you must flag up your jurisdictional challenge at the same time that you acknowledge service and you must then make a separate application disputing jurisdiction at about the same time as you file a detailed Defence. I do not know the
Cypriot procedure but it probably isn’t radically different.
This limitation period would not however affect Defences which were not Counterclaims (or claims against a third party (like a bent developer/bank/sales agent) for a contribution or indemnity).
Critically I would have thought that the following are not Counterclaims, and would not therefore have a limitation period per se (provided the Defence was filed soon enough after the claim was served):
1. A challenge to the jurisdiction of the Cypriot Court by reference to the consumer protection provisions of the Brussels I Regulation;
2. Challenging the validity of the loan agreement because it was executed using an invalid power of attorney (provided the relevant power of attorney needed, as a matter of Cypriot law, to be certified to be effective — not all powers of attorney do, although I think those authorising the attorney to deal with the Land Registry do have to be certified); and
3. Quaere alleging that an agreement is invalid for fraud (subject to rules of professional conduct governing not pleading fraud without a strong prima facie case), where fraud is alleged defensively to negate a claim and not to claim damages by way of offset;
4. Asserting the defence of ‘change of position’ to a restitutionary claim for the return of monies paid under a void contract (supra), on the basis that the money was received by the borrower in good faith, you don’t have some/all of it any more (having spent it on the specific purpose for which it was agreed), and in the circumstances it would be even more unfair for the buyer to repay than it would be for the bank to go short. (Though how well change of position works in any given case is very fact-sensitive)
You would need to ask your Lawyer to re-research the title deeds question as we haven’t looked at it in ages. Certainly there were changes to the law which meant that buyers could sometimes get title deeds without having to indemnify the rest of the world and hold them harmless against the misdeeds of the developers (including guaranteeing the developers’ prior mortgage on the same land in full – although they may still have to do so pro rata), but we can remember neither the details nor the transitional arrangements.
Moreover questions about title deeds only arise if the property is/soon will be completed and the buyer decides completing is, at least, the lesser of the two evils, in which case you will require a title deed to help you re-sell and/or raise money secured on the property.
We hope this helps.