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Swiss francs loan landmark decision

The Cyprus Competition and Consumer Protection Service has ruled that a Swiss francs loan agreement between Alpha Bank Cyprus and two UK residents breaches the unfair terms in consumer contracts law.

Swiss frannc loan agreement

THE COMMERCE ministry’s Competition and Consumer Protection Service has found Alpha Bank in Cyprus culpable of dealing unfairly with two of its clients.

The two persons, both permanent UK residents, took out a loan from Alpha Bank for the purpose of re-financing a previous loan for the purchase of an apartment.

The loan was issued in Swiss francs, but the plaintiffs claim that the conversion to another currency was made unbeknownst to them, based on a power of attorney they had concluded with a Cypriot lawyer.

They moreover claimed that they were not informed of the exchange-rate risks of the loan, nor of the other terms of the loan agreement.

The subsequent strengthening of the Swiss franc led to “a significant increase in the un-matured principal balance,” as a result of which the loan became non-performing.

Specifically, on March 3, 2009 the bank issued the two plaintiffs, plus another person, a housing loan in Swiss francs for CHF 217,000. This was to replace a previous loan of €124,500 taken out for the purchase of an apartment.

The loan agreement in Swiss francs was signed by the plaintiffs’ lawyer, to whom they had ceded power of attorney.

During the commerce ministry’s investigation of the complaint, the bank conceded it did not provide the plaintiffs pre-contractual information that the loan currency would be converted into Swiss francs. The bank’s position was that this was responsibility of the borrowers’ legal representatives.

In its decision, the Competition and Consumer Protection Service found the loan agreement to be in breach of the law on unfair terms in consumer contracts and also in breach of the principle of transparency.

However, the service did not slap Alpha Bank with a fine, nor did it make it explicit that the lender was legally liable.

DISY MP Zacharias Zachariou, who chairs the House Commerce Committee, said the decision was a tool that could be used by the plaintiff in a court.

Zachariou spoke of a “landmark decision” that would have ramifications for all banks engaging in unfair practices.

He said the complaint in question pertains to lack of transparency in a contract, conversion into Swiss francs without informing the borrower, and whether a bank has the right to cancel a contract without notifying the borrower.

In addition, the complaint and the decision raised another question. When a borrower lodges a complaint against the bank, the case is referable only to Cypriot courts. But when a bank has a complaint, it can take legal action against the customer in any court in any country.

Zachariou said parliament “was right all along about the unfair terms of contract against borrowers, and my statement today is intended to make borrowers aware of a decision that relates to a specific bank, all of whose contracts are like that.”

According to the MP, the case in question would end up in court.

“With these kinds of contracts, borrowers are at the mercy of the banks’ appetites,” he said.

Swiss francs loan ruling

CCPS Decision 56/2015 Alpha Bank Cyprus Ltd (Greek)

Readers' comments

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  • Janice says:

    Before anyone picks it up, I understand victims have to file a claim in their home country – before filing in Cyprus – that is if you wish to claim jurisdiction outside Cyprus. I believe it helps legally if Alpha/BOC have a branch in the victim’s home country too. A claim also needs to be made to determine jurisdiction but I am not sure how this fits in. So a lawyer is essential to take this on. (I am not a lawyer or on commission either!!)

    The contracts I was involved with noted that jurisdiction is in Cyprus, although I had not seen or discussed or agreed that before the POA signed. I have seen elsewhere that banks can transfer any judgements they win in Cyprus to any EU country the victim owns assets. (Judgement not jurisdiction!). Well who in their right mind would have agreed anything with a bank in Cyprus if they had known their own homes were to be used as security, and not just the property they bought in Cyprus? Seems to be a serious omission by anyone with a duty of care!

    (Editor’s comment: The ability for banks to transfer any judgements is via a European enforcement order. This is a is a certificate which enables judgements, court settlements and authentic instruments on uncontested claims to be recognised and enforced automatically in another Member State, without any intermediate proceedings.

    Note that these can be used in cases where the debtor did not appear or was not represented at a court hearing regarding that claim after having initially objected to the claim in the course of the court proceedings.)

  • Michael Harakis says:

    I am a lawyer (and I am not looking for this kind of work), but I would like to inform you that any clause that purports to permit a bank to be able to sue in any jurisdiction it chooses, while not affording the same right to the customer is likely to be unlawful under EU law or at least it is capable of challenge.

    There has been fairly recent case law on this in France, among other places, in a case called Mme X v Rothschild, which ruled one sided jurisdiction clauses unlawful. The statement, “But when a bank has a complaint it can take legal action against the customer in any court in any country”, needs to be qualified to the effect that a bank will try to claim that, but is likely to fail if challenged.

    (Editor’s comment: Thanks for your input – I guess it would take quite some time to resolve this jurisdiction issue.)

  • JAnice says:

    SJ – As I see it, you are right! Although I do not make any claims to be an expert, my understanding is that if you serve rather than file your writ in Cyprus, you cannot then claim jurisdiction anywhere else. However, some lawyers are strongly recommending you should file (but not serve) a claim at a Cypriot court prior to 31.12.15, which then apparently allows you to make a claim (or a defence) should your jurisdiction claim subsequently be rejected elsewhere. It does pose the question however – what happens if it takes several years to determine jurisdiction, and the limitations law applies? It could mean that if the jurisdiction case is lost, then the bank could make whatever claim it likes, and you are not allowed a defence, as you would be seen to have accepted all the loan t&c’s by not taking the bank to court within the time frame allowed. I could be wrong – I am not a lawyer, but the case is so complex, It would seem unwise to leave it to chance by doing without legal support at this critical stage. The matter is further complicated as the lawyers are not necessarily agreed on the appropriate course of action. What it needs is some EU consumer protection body to rule the CHF contracts to be fundamentally unfair and therefore invalid. When the banks are faced with 50% NPLs, it would seem highly likely to anyone that the banks have got something wrong – rather than the hapless borrower!

    (Editor’s comment: I’ve been in contact with a number of the law firms involved in the CHF fiasco – the majority (by far) are filing in Cyprus. But there is a question about those people who signed contracts, etc. in the UK.)

  • Big C says:

    Interesting article and suggests the lawyer concerned acted not in the best interests of their client. In addition to Alpha Bank, I would suggest the lawyer had a duty of care to inform their client also of the potential risks.

    Did the Competition and Consumer Protection Service discover what benefit the lawyer obtained (if any) from the transaction?

    At the very least the lawyer and the firm they represent should be made public.

    Nigel, are you able to state who the lawyer/firm was?

    Thanks

    (Editor’s comment: I don’t know the name of the lawyer or the names of the plaintiffs – the CCPS ruling doesn’t name them.)

  • sj says:

    @Janice – December 6, 2015 at 9:49 pm

    Can you please help… in my case the sale of the property was made in the UK. I’m in the group that is trying to bring the case to the UK. I’m on the Swiss franc loan as was advised by the bank. From the point of lodging the claim against CHF, I’m lead to believe, that should I lodge in Cyprus, than the court will class this as Cyprus action and the claim in the UK will be invalidated as can’t have a claim in both countries. This is like catch-22!

  • Janice says:

    If you are filing in Cyprus, the cost could be around 1400 euros – that is, using a well-known trustworthy lawyer in Cyprus. However, depending on circumstances, some have argued that under EU law, jurisdiction is not necessarily going to be in Cyprus. If you dispute jurisdiction, then subject to proper legal advice, it may be best to firstly file in the country where the sale was actually made. However, in case this argument is not accepted, I am lead to believe that an application also needs to be lodged in Cyprus before 31.12.15 – or risk losing the right to present a defence of mis-selling if the jurisdiction question is lost.

    Some buyers met individuals at exhibitions in London or Dublin, who some say had ‘colluded’ with banks, developers and lawyers in the sales process. Buyers paid substantial non-refundable deposits that in effect committed them to buy. The agreement to buy and the seller to sell was made outside Cyprus. It could be argued that subsequent signing of documentation in Cyprus by poa’s was merely the formalising of agreements both verbal and written that had already been made outside Cyprus. Hence the question of jurisdiction!

    Many buyers were required to grant a power of attorney to lawyers – some of whom were primarily acting in their own interests or those of the developer/bank. Some poa’s were ‘granted’ by simply emailing documents – and signed at home (outside Cyprus) without witnesses – then emailed back to Cyprus. In my case, contracts were signed prior to me seeing them, and therefore not specifically agreed by me.

    Although I was told the loan was in CHF, there were no repayment illustrations, and of course no explanation of the risks, nor the fact I was gambling on the FX market. Using CHF was a high risk strategy for unsuspecting buyers – and was an accident waiting to happen. Of course if CHF had lost value, the banks would have got away with this bad practice, but using an analogy, that doesn’t mean racing through a village at 150km/hr is OK just because no one was killed. The policy was wrong, whether or not CHF lost or gained value!

  • Nat says:

    Steve R – Just to give you an idea on costs. We issued a claim using a Cypriot law firm against a Cypriot developer and bank and the court fee for filing was 250 euros. This was 2012 rather than 2015 but I doubt the prices have gone up that much!

  • Neil says:

    Steve R – It is most disappointing to read your post concerning the email(s) you are receiving from this “legal group”. For any credible Law firm (in the UK or in Cyprus) to suggest that the court fee alone to file a case in a Cyprus court would be £10,000 is quite honestly absurd. Perhaps you should ask if they (the legal group) have ever filed a claim in a Cyprus court?

    (Editor’s comment: Those with CHF loans will probably know the name of this law firm. A number of their former clients have filed complaints with the Solicitors Regulation Authority (SRA) in the UK.)

  • Steve says:

    @Costas

    Then when the loans were implemented the “borrowers” noticed the debits on their bank statements and on finding out that the loans were in Swiss Francs immediately complained and demanded that the loans be wound up or renegotiated in pounds or euros. Or did they initially settle for the lower interest payments until the Swiss Franc strengthened sometime later? Or did they not read their bank statements?

    Seriously, the problem in so many cases is the signing of a Power or Attorney that did not contain a restricting clause.

    “We do hereby agree to allow ratify and confirm all whatsoever our said attorney shall lawfully do or cause to be done by virtue of this Power of Attorney as if personally done by us, provided that we, the undersigned, have provided written confirmation for each and every specific action undertaken.”

  • Costas a fortune says:

    So from what we are lead to believe, at the very early stages Alpha Bank, Alpha Panareti, local lawyers, and the sales team were all involved in meetings. So everyone knew what was going on and how to go about it. The sales teams came out and lied about what the developments would have (tennis courts, lazy rivers etc). They then ” suggested” independent local lawyers who with a professional duty of care would look after everyone, he in turn said all the contracts were fine and fair (although heavily weighted in favour of the developer and the banks,-illegal), then the lawyers got a local public servant to illegally sign POA whilst not in front of the consumers, then lawyers suddenly stated they were changing currency, then the developer took money whilst not not providing proof of build progress (the banks apparently stated that there ” independent surveyors ” we’re satisfied) although years behind and with some foundations not even laid. The banks and the builders contracts are so one sided it’s laughable and break many EU & banking rules. The list goes on & on & on. The Cyprus authorities need to show some respect to the hand that feeds it and stop this rot that is ruining Cyprus and it’s good name. Through protests in the UK and Internet blogs etc the good name of Cyprus has been tarnished by evil people who continue to harm Cyprus and its economy.

  • Steve R says:

    I got the currency wrong. Here is an extract from the email I received.

    Please note that if you wish to instruct us after the above date, it is likely that you will be required to instruct us on an individual basis. Please note that in such circumstances, the cost would be significant as the Court fee alone is £10,000.

    No wonder they don’t want it to be heard outside of Cyprus.

    (Editor’s comment: In virtually all of the cases I’ve seen, agreements were signed in Cyprus and these cases would be in the jurisdiction of Cyprus.

    As for legal fees, etc – these should be less if you’re part of a group acting collectively.

    I’ve received many emails from people about CHF loans. Some of these were granted loans in Cyprus Pounds that banks converted to CHF without the bank asking if this was OK, telling them what they were doing or explaining the risks. In cases similar to the one above lawyers acting under a Power of Attorney took out loans on their behalf and the borrowers had no information about the loan or the risks. Some people who didn’t need a loan found they lawyer had organised one and the first thing they knew about it was when the bank started pursuing them for payment.

    I believe the figure you were quoted relates to the cost of pursuing a case for mis-selling. The case in the article is different – the bank did not provide the information that the loan currency would be converted into Swiss francs. The cost of pursuing this in court will be much less – particularly as the bank conceded that it decided unilaterally to convert the loan to Swiss Francs, failed to provide the borrowers with details of the loan, etc.)

  • Steve R says:

    Going to the comment about taking Alpha Bank to court only in Cyprus makes sense as far as the bank is concerned. I have just had an email from a group that I signed up to about a year ago. This email stated that time had almost run out to lodge a complaint against the bank as a group. If it went past today 05/12/2015 then the complaint would have to be taken as an individual. To lodge a complaint in a Cyprus court against the bank would cost €10K. The banks know that this is out of the reach of an individual.

  • Gary says:

    It is now time for the Cypriot Parliament to react. It should not be down to individuals now to take the matter to court. There has been mis-selling of Swiss Franc loans over a number of years in Cyprus. Legislation should be brought in confirming compensation is required and the expected level of that compensation. Very much in line with the PPI scandal in the UK. It is the only way this matter can be dealt with and we can all move on. It would be in the best interests of all concerned in Cyprus.

  • Augean Stables says:

    ‘Landmark’ ?

    Whilst this decision is very much to be welcomed as it is the first dealing with swiss francs, in Cyprus and it appears Alpha is now very much trying to defend the indefensible, this body, very much like Trading Standards in the UK, has failed to bare its teeth, and bite the Bank. Does it actually have any ‘teeth’?

    Was the MP involved in the draft legislation ?

    Surely now, Parliament’s legislation will be nailing Alpha and clarifying that Primary residence is not a requirement.

    Will the idiots at Alpha now come to the table with genuine intentions to settle on realistic terms, or does their reputation continue to be dragged through the mud with ongoing litigation continue and its cost consequences ?

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