Double selling fraud: the O’Dwyer judgement

FOR at least five years, the main complaint by Cyprus property buyers, particularly foreigners, has been non-issuance of Title Deeds. Typically, the developer has taken a prior mortgage on the land, which was either unannounced or deliberately hidden but, in any event, not revealed because of non-existent or negligent searches.

Non-discharged mortgages add to developer foot dragging and bureaucratic delays. Some 130,000 properties are still awaiting their Title Deeds, typically 7-15 years or more.

However, some cases have also involved alleged ‘double selling’ fraud whereby the developer sells a property to Party A, fails to lodge the contract with the Land Registry and then sells it again to Party B (possibly for a higher price) but fails to reimburse Party A. There are also alleged variants of this scam.

The most high profile case involves Mr Conor O’Dwyer who bought a property in Frenaros from Karayiannas developers. O’Dwyer brought a number of legal actions against the developers. One action, a private criminal prosecution for fraud under section 303A of the penal code, received judgement on 20th January 2011.

O’Dwyer had reported his allegations to the Police and the Attorney General who declined to act. He then felt obliged to prosecute both the developers and Michelle McDonald, the second buyer who now occupies the property.

This whole saga has received massive coverage in the English media but scant attention in the Greek language media. However, it would be unwise for anyone to ignore the huge negative implications for property buyers and for Cyprus.

Real protection or a mirage?

For many years, the standard claim by the Cyprus government, developers, lawyers and estate agents has been that a buyer of immovable property is absolutely protected once his sales contract is lodged with the Cyprus Land Registry.

This claim, supported by a precedent Supreme Court ruling, has been their main counter to the avalanche of allegations, criticism, anger and demands for justice from property buyers, largely from foreigners and their MEPs.

Indeed, on 22nd July 2009 the Minister of the Interior Mr Neoclis Sylikiotis issued a lengthy official statement about the Title Deeds scandal, noting that “those allegations are entirely unsustainable”.

He further clarified that “the current system and the existing legislation protects buyers and their ownership status”. He went on: “…..the ownership status of a buyer-owner of immovable property in Cyprus is definitely secured and cannot be challenged, as long as the buyer-owner has submitted the buying-contract to the Department of Lands and Surveys”.

Finally, he emphasized that “….there is something that one must not forget. Nobody and no Authority anywhere can ever challenge the property rights or ownership status of buyers of immovable property within the territory which is under the control of the Republic of Cyprus”.

A few days earlier, in a letter to Graham Watson MEP, Mr Sylikiotis had stated: “……buyers of immovable property are protected, once they deposit the Contract of Sale at the appropriate District Office of the Department of Lands and Surveys according to the Sale of Lands (Specific Performance) Law, Cap 232”.

What possibly could be doubted from such emphatic statements from the Minister himself, backed up a Supreme Court ruling? Well, the judge in the private criminal prosecution brought by O’Dwyer clearly thought otherwise.

The judgement

The defendants were found not guilty of ‘double selling’ fraud. Apparently, the judge decided that the prosecution had failed to prove, as required under criminal law, that the defendants had committed fraud ‘beyond all reasonable doubt’.

In my opinion as a non-lawyer, the prosecution would have had to prove a deliberate intention to permanently deprive the rightful owner of his property.

The judge acknowledged that O’Dwyer was the rightful owner and that he had lodged his sales contract at the Land Registry. She further acknowledged that he had made stage payments as per contract and that the developers had not returned his money, despite having re-sold the property to another person. The fact that the developers apparently have never offered or made any reimbursement of his money appears to demonstrate a deliberate intention to permanently deprive him of the property.

Under civil law, res ipsa loquitur (the thing speaks for itself) and ‘on the balance of probabilities’ would apply.

However, this was a criminal case and the judge felt that intent was not proven beyond all reasonable doubt. What other logical reason can be put forward for what they did? It cannot have been just an error or forgetfulness, as the matter was brought swiftly to their attention. By eliminating other potential defences such as insanity and intoxication, that just leaves ‘lack of intent’ and the purposefulness with which they went about it strongly suggests intent. After all these years and no hint of a repayment, the intent also looks pretty permanent! However, just as disturbing, and contrary to the precedent Supreme Court ruling, the judge also stated that lodging of a sales contract at the Land Registry does not automatically confer protection against ‘double selling’: “the fact they (plaintiffs) submitted a sales contract to the Land Registry did not mean they automatically and in perpetuity have become the ‘owners’ (as they mean it) of the residence.”

This judgment thus cancels the standard claim by government, developers, lawyers and agents that buyers are absolutely protected.

An appeal is being lodged with the Supreme Court and so the judge’s reasoning would be examined and evaluated formally when the appeal is heard.

The implications

Nevertheless, regardless of the final verdict on appeal, immense and irreversible damage has already been inflicted internationally by this and other cases on the Cyprus property market and the general reputation of Cyprus.

O’Dwyer alone is engaged in several other cases against his developers. They have already been found guilty of assaulting O’Dwyer in two separate cases and a civil claim for damages against them is still pending.

The Cyprus Property Scandal is not just about Title Deeds but the totality of factors that influence potential new buyers. Many existing foreign buyers report that they now feel terrified and their ‘Cyprus dream’ has been shattered. Potential new buyers simply strike Cyprus off their prospect list when they see earlier buyers being treated so badly.

Cyprus courts have no juries but millions of media and Internet users around the world, including potential new buyers of Cyprus properties, have become the proxy jury in the O’Dwyer cases and all the other horror stories they read or hear about. With yet more TV exposés imminent in the UK, there seems no end in sight to Cyprus’s property market woes.

Decent developers, lawyers and estate agents that I know (yes, they do exist) are exasperated and fearful of the obvious negative long-term impact on an already flat market. No sizeable developer can rely solely on domestic sales but what foreigner will buy here now?

The Cyprus economy also cannot afford to delay any recovery of its property sector. Prior to the downgrading of Cyprus’s financial ratings by Moodys, S&P and Fitch in recent weeks, Moody’s had cited Cyprus’s ailing property sector as a factor “as it remains a risk area with weak demand and unclear growth prospects”.

This deep self-inflicted wound requires urgent, radical treatment – not a sticking plaster, an aspirin and a hope that the patient will simply recover naturally. However, on Cyprus’s past record of inaction on these matters, the prognosis looks decidedly bleak.

©2011 Alan Waring
(This article first appeared in the Financial Mirror)
To read comments on this article from expats in Cyprus see the Cyprus Property News

Dr Alan Waring is an international risk management consultant with extensive experience in Europe, Asia and the Middle East with industrial, commercial and governmental clients. He is a Fellow of the Institute of Risk Management and is a founding member of the IRM Cyprus Regional Group. Contact info@dralanwaring-riskconsultants.com.

Corporate Risk and Governance: An End to Mismanagement, Tunnel Vision and Quackery
Corporate Risk and Governance: An End to Mismanagement, Tunnel Vision and Quackery