By Poly Pantelides
OVER 200 people who filed a class action suit in the UK against Alpha Bank Cyprus and 24 associated property developers for various breaches of contracts are trying to have their contracts nullified.
London-based Maxwell Alves Solicitors filed a collective lawsuit on June 27 at the High Court on behalf of 215 UK residents, claiming that as UK consumers the EU laws protect them on cross-border selling.
Most, but not all, of the claimants entered into contracts with Alpha Banks and various developers between 2006 and early 2008, allegedly encouraged by ads in the UK which presented Cyprus law as being nearly identical to England and Wales law, and also property investment in Cyprus as a straightforward affair.
“People thought they were getting a package deal,” George Kounis, a consultant at Maxwell Alves Solicitors, told the Sunday Mail.
However, the regulatory framework in Cyprus enabled developers to sell property on without needing to immediately hand over title deeds to purchasers.
The banks often held the title deeds as collateral against loans taken out by developers.
Around 30,000 British homeowners in Cyprus are in similar circumstances, but a central feature of the case against Alpha Bank is the link between the lack of title deeds and the Swiss franc mortgages with which the 215 buyers purchased their properties and which they claim were mis-sold by Alpha Bank.
The claimants are not arguing they do not recognise the transactions that took place, they are claiming they were induced to enter transactions through misrepresentation, Kounis said.
The plaintiffs claim they are not bound by any Alpha Bank and/or developer contracts for a number of reasons depending on specific cases, e.g. signing onto loans via unauthorised persons, or misrepresentation or breach of the law, or failure by developers to meet agreed deadlines.
Claims of misrepresentation refer to Alpha Bank and developer representatives downplaying among other things, the risk of Swiss franc mortgages, not pointing out the legal backdrop in relation to title deeds used as collateral against loans, and allowing people to expect more modest interest rate margins.
Most claimants allege Alpha Bank breached the loan contracts in the “manner in which it has charged interest”.
Many plaintiffs took out loans in Swiss francs which fluctuated with the exchange rate but whose interest rates with Alpha Bank later increased.
Part of the claim is that the bank allegedly pushed those loans on the basis the currency was stable, a true statement on the face of it, but misleading because what mattered to the debtors was whether the euro or the British pound (GBP) would remain stable against the Swiss franc, since that was the currency their income/revenues were based on.
Swiss franc loans were sold by Cypriot banks – many in 2007 and early 2008 at the height of the property boom – at a much lower interest rate than those available in pounds sterling, the euro, or the Cyprus pound before the island joined the eurozone in January 2008.
Loans taken out in foreign currency fluctuate with the exchange rate, and the Swiss franc appreciated against other currencies as the credit crisis attracted investors to the Swiss franc – perceived as a safer currency.
In most cases, people did not actually hold the title deeds to the property. So although in other countries, many people could opt to replace their existing loan agreement with a more favourable one, “this option was not available and where it was, it was severely curtailed, due to the lack of individual title deeds for these properties which would give borrowers a negotiable security,” Kounis said.
The Cyprus Central Bank (CBC) issued a circular in October 2006 to all banks in Cyprus following a “large increase in foreign currency lending” warned that “lending in foreign currency exposes borrowers to interest and foreign exchange risks”.
The CBC said that if the exchange rate of the currency strengthened against the Cyprus pound, “the loan repayments of the borrower [would] increase considerably”. The regulator asked banks to advise clients about risks, making explicit the risks and having their customers sign a statement describing those risks and stating they have decided “uninfluenced, to proceed to take the… loan”.
It also advised against lending in foreign currency in cases “where the client’s ability to repay [was] marginal” since exchange rate and/or interest rate changes would make “the settlement of the loan impossible”.
The UK High Court will have to decide whether or not Alpha Bank followed the Central Bank’s instructions or whether – as the claimants are expected to say – ignored it.
“The whole issue with title deeds and Swiss franc mortgages has to be understood in the context of that regulatory framework,” Kounis said.
Given estimated figures of UK residents having over 1.6 billion GBP in loans with Cyprus banks, there should be thousands of holiday home buyers who entered into purchase and loan agreements.
Meanwhile, hundreds of Britons are now facing legal action in Cyprus courts against them by Alpha Bank for failing to keep up with their loan payments. Larnaca lawyer George Coucounis has confirmed he is representing the majority of those people. The Alpha Bank has refused to comment.
A large number of Alpha Bank funded projects across the island, from Paphos to Dheryneia have been named in the Maxwell Alves action. Companies include: Invest in Cyprus, Paschalis Holdings Construction, A.S.P. & K. Paschali Developers, Kassianos Landcase Development, Alpha Panareti, G. & V. Hadjidemosthenous, Aristo Developers, Kalliope Developers, Sol Terra Developers, G. Hassapis Holdings, G. Hassapis & Sons, Andreas Georgiou Property Developers, Demetris Elias & Sons, PMP Adamia Developers, Leptos Estates, Pafilia Property Developers, Yianmarie Properties, Cybarco, Panikkos Livadiotis, Atropos Hotels, Evagoras Properties, Arethousa Developments and Promitheus Investments.