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On 8 May, 2020, the Supreme Court of Cyprus delivered its much-awaited judgement in the context of the appeal 68/19 (Appeal), granting leave for the submission of an application for the issuance of a Certiorari, a prerogative writ.

Factual Background

The respondent to the Appeal is a limited liability company (Company) which granted in favor of the applicant, a local credit institution (Bank), a first priority mortgage over two properties, which at the time were free from any encumbrances. In essence, the Appeal concerned the successful issuance of an injunction by the District Court of Paphos ordering the Director of the Land Registry to accept the retrospective submission of a contract of sale concluded in 1991, following the lapse of the six (6) month period for the submission of a contract of sale in accordance with Article 3(1)(c) of the Sale of Immovable Property (Specific Performance) Law L. 81(I)/2011 (Law), and without firstly taking into consideration the fact that the properties were mortgaged in favor of the Bank in 2007. In addition, the injunction was issued without previously giving the Bank the opportunity to support its allegations, as mentioned below.

On 2018, the Bank proceeded with the initiation of foreclosure proceedings as prescribed in the Transfer and Mortgage of Immovable Property Law of 1965 L.9/1965, as the Company was in default of the loan repayment scheme of the credit facilities granted by the Bank.  Following the initiation of the foreclosure process, the Bank was informed about the existence of the injunction issued in accordance with Article 12 of the Law that permitted the retrospective submission of the contract of sale. 

In view of the existence of the injunction and particularly, the fact that the submission of the contract of sale affected the priority of the Bank’s mortgage, the Bank requested permission from the Supreme Court of Cyprus to apply for a Certiorari, prerogative writ, with the aim to overturn the injunction in place. Ultimately the Bank failed to obtain the permission to apply for a Certiorari as it was held that the First Instance Court acted within its lawful powers and that the proceedings before it, were lawfully conducted. Subsequently, the Bank proceeded to file an appeal against the abovementioned decision of the Supreme Court of Cyprus. The main argument of the Bank in its failed permission request, was that the absence of explicit provisions in Article 12 of the Law pertaining to the service of the application for the retrospective submission of a contract of sale, does not necessarily mean that such applications should not be served to all interested parties in order to enable them to be heard and most certainly, object to the application.

The Court’s analysis

The facts of the present case triggered much discussion amongst the presiding judges of the Supreme Court which led to the judgment not being unanimous.

The justification provided by the minority of judges is based on the fact that the Legislature’s objective, is the protection of the purchaser of property who entered into a contract of sale yet omitted to submit the same in the Land Registry Office within the time limit provided by the Law. In particular, the Court held that the provisions of the Law, did not include the mortgagee or any other person in favor of whom an encumbrance or prohibition was granted. A Court, when examining such application, should not consider the potential consequences that may be incurred to third parties through the issuance of the injunction pursuant to Article 12 of the Law. Consequently, the Judges' minority held that if a mortgagee is considered as an interested party through the application of Article 12 of the Law and to this extent, the application is served to the mortgagee with a registered encumbrance over the property, it would essentially mean that the Court is amending the explicit provisions of Article 12 of the Law, something prohibited by the rules of interpretation.

The minority of the judges further noted that by allowing the retrospective submission of the contract of sale, the purchasers will then have the right to file an application for enclaved purchasers to transfer of the property in the name of the purchaser. Despite this, the mortgagee’s rights would still be safeguarded as the mortgagee has the right under Article 44 KB (3) of the Transfer and Mortgage of Immovable Property Law of 1965 L. 9/1965, to object to the application for enclaved purchasers and the transfer of the property in the name of the purchaser. Taking the abovementioned reasons, the minority of Judges concluded that the First Instance Court approach was correct and consequently would reject the appeal.

The majority of judges, who dismissed the First Instance Court's ruling, argued that Article 12 of the Law relates to immovable property and, as the case law requires in proceedings involving immovable property, all interested parties should be notified of any decisions affecting the property in question. The Court clarified that the First Instance Court had to consider whether the omission to notify the Bank about the application, who was at the time of registration of the mortgage a first-priority encumbrance holder, might render the whole application process invalid. Given that, this injunction was issued without the First Instance Court verifying that the properties are free of any encumbrances, the majority of the judges concluded that the First Instance Court acted outside the ambit of its jurisdiction and violated the Bank’s right to be heard. Therefore, the Supreme Court, set aside the First Instance Court's ruling and granted leave to the Bank to submit an application for the issuance of a Certiorari.

For more information please visit our website microsite on Banking & Finance or contact Ms. Georgia Karamalli at This email address is being protected from spambots. You need JavaScript enabled to view it..

 

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