The ombudsman is backing the need for online systems for tax and duty on properties to protect buyers from situations where notaries fail to pass these on to the authorities.

He has recommended that the government addresses the situation immediately by providing “adequate and tangible redress” to complainants.

In a report by his office, following a complaint lodged by notary Joseph Abela, on behalf of his clients against the commissioner of inland revenue, the ombudsman recommended that the related ministries and the office of the state advocate hold talks with the notarial council to introduce legal provisions that offer “more robust protection for the service user”.

The ombudsman said it is “imperative that the government addresses this anomaly without further delay and that a balance is found between its fiscal requirements and the safeguarding of proprietary rights of private citizens”.

In this particular case, companies had paid duty on documents and tax to the notary public upon acquiring properties, only to realise that he had failed to pass the payments on to the commissioner for revenue (CFR) within the obligatory 15 working days.

As a result, the deeds remain unregistered until any duty, tax and penalties were paid, resulting in “hardship”.

The complainants maintained that “the government has promulgated legislation that puts the proprietary rights of third parties at risk… if one of its appointed public officers failed to perform the assigned duties despite having done all that was required of them at law”.

Even if they opted to pay the duty on documents, the sellers had no interest to repay the final withholding tax again.

The “interconnected requirements” of the government departments, in place since 1990, were “unreasonable”, caused harm and could even be considered unconstitutional, Abela, a former president of the notarial council, said in his complaint.

The intervention of the ombudsman was sought so that the “current untenable situation” did not lead to “hardship” due to the notary’s failure.

Abela was asked to refer the matter to the relevant ministries before turning to the ombudsman’s office – the last resort – and to return if he was not satisfied with feedback received.

The case dates back to July 2020, when Abela referred the grievance to the ombudsman again because he did not agree with the stand of the office of the state advocate.

He said the arguments raised by the related ministries were “frivolous, pitiful and demeaning”.

In its report, the ombudsman’s office noted the law did not provide for a waiver in payment of taxes when the notary failed to register the contract and convey the funds to the CFR.

It said the CFR’s standpoint “basically obliges a purchaser who acted in good faith and according to the law to make not only a double payment of the amounts due but also of the capital transfer tax already passed on to the notary by the seller because they had no interest to pay a second time”.

Intervention sought so current untenable situation does not lead to hardship

In his conclusions and recommendations, made two-and-a-half years later, the ombudsman said online systems, whereby tax and duty payments are made directly to the department on the same day as the publication of the contract, should be considered.

He also suggested that the ministries consider the notarial council’s proposal for deeds to be registered through the office of the chief notary to the government and for the latter to reserve the right of action against the defaulting notary.

The ombudsman also urged the justice ministry to discuss the possibility of providing the notarial council with the resources necessary to carry out its functions as the proposed creation of integrated web services and tokenised payments for property transfer and registration has been on the drawing board since 2016.

In 2021, the council said online payment of property taxes and registration fees was the solution to protect clients from the situation whereby notaries, entrusted with their funds, could default.

Back then, the government had said talks were under way to protect notarial clients and that digital solutions were being explored after buyers were left in the lurch.

The justice ministry has said it would be improving the use of digital technology and real-time registration systems.

These avoided having to pass money for property purchases through third parties, including notaries, who would no longer hold funds for clients but would still be responsible for the transactions concluded before them.

Money for property purchases, including deposits, registration fees and taxes due to the inland revenue department, is left in escrow with notaries because it is considered the safest option for many buyers.

While situations of abuse do not arise frequently, with only a handful of cases from among around 500 practising notaries over the years, when it did happen, people saw their money disappear.

Apart from the misuse of deposits on property, defaulting on tax collected from clients was more common and meant contracts could not be registered, leaving clients helpless.

The case of deceased notary Ivan Barbara had led to the question of how to protect clients, some of whom had put their life savings in his hands for the investment of a lifetime.

They had entrusted their notary with the 10 per cent deposit on a promise-of-sale agreement – as is the norm – and had filed an application in court to demand a magisterial inquiry into whether their funds were misappropriated.

His clients have since asked the police to investigate his widow.