City Pacific First Mortgage Class Action

City Pacific

On 27 April 2012, Maurice Blackburn filed an application and a statement of claim in the Federal Court in Sydney against Philip Sullivan, Stephen McCormick, Ian Donaldson and Thomas Swan, the directors and officers of the former ASX listed City Pacific Ltd (Receivers & Managers Appointed) (In Liquidation).  The claim brought by Trilogy Funds Management Limited as responsible entity for the Pacific First Mortgage Fund (formerly known as the City Pacific First Mortgage Fund) follows significant losses on Fund loans to property developer, Atkinson Gore Agricultural Pty Ltd (Receivers & Managers Appointed) (In Liquidation) permitted during 2006 and 2007.

Trilogy's case alleges that lending decisions made by the defendants, as members of the credit committee of City Pacific, were unreasonable and failed to follow the Fund's lending criteria, compliance plan and constitution.  The claim alleges that the poor lending decisions resulted in an increase in a loan facility to Atkinson Gore Agricultural over its 'Seven Mountains' development in Canungra, Queensland.  Trilogy claims the defendants should pay the Fund compensation for losses sustained by the Fund as a result of these poor lending decisions.

Seven Mountains

The claim alleges the defendants breached their statutory duties under the Corporations Act 2001 when granting certain loan facility increases to Atkinson Gore Agricultural Pty Ltd and approving advances above the facility limit.  These increases were said to be for the purposes of securing a large rural site known as 'Seven Mountains' known by City Pacific as 'Saddleback'.  It is alleged that members of the credit committee unreasonably relied on a March 2006 valuation by PRP Valuers and Consultants Gold Coast Pty Ltd.  These valuations provided two alternative values for the Saddleback land being:

  • $64.1 million, if the land was rezoned from 'rural' use; or
  • $102.4 million, if the land was also included in the 'Urban Footprint' area under the South East Queensland Regional Plan or declared under the State Development and Public Works Organisation Act 1971 a 'State Significance' project.

The claim alleges that, at the time of the loan facility increases, the Saddleback land had not been rezoned from its 'rural' use, nor was it ever declared a 'State Significant' project or included in the 'Urban Footprint'.  Trilogy alleges that it was unreasonable and in breach of the credit committee's obligations and duties under the Corporations Act to rely on such vastly inflated valuations based on unsatisfied assumptions.

By 1 July 2007, the Fund had advanced over $60 million to Atkinson Gore Agricultural in connection with the Saddleback lands, which were ultimately sold in 2012 for $7.627 million.  

Status of the claim 

Trial date allocated 

On 5 September 2013, this matter was set down for a two week trial scheduled to commence on Monday, 10 March 2014 in Sydney. Justice Wigney has been allocated as the docket Judge for this matter and will preside over the trial. 

Claim and Defence

Trilogy lodged its claim against the defendants in the Federal Court of Australia on 27 April 2012.  The defendants have since denied responsibility for any losses to the Fund arising from their approval of the loans the subject of Trilogy's claim. On 27 September the defendants lodged a cross claim alleging entitlements to certain indemnities for legal costs (incurred in relation to the proceeding) arising from a deed of indemnity said to have been granted by City Pacific Ltd.  Trilogy has denied it is bound by that deed.  Trilogy filed its defence to the cross claim on 17 October 2012. 

Mr McCormick lodged his further amended defence on 3 December 2012. On 12 March 2013 Mr McCormick's solicitors ceased to act. Mr McCormick is now unrepresented in this matter and has advised that, at this stage, he intends to take no further part in the proceeding.

On 8 March 2013, following a detailed review of the defendants' evidence, Trilogy filed an amended statement of claim containing further particulars of the Saddleback transaction and the defendants' knowledge of those matters.

On 22 May 2013, Trilogy filed a further amended statement of claim narrowing the scope of its claim. Messrs Sullivan, Swan and Donaldson filed their defence on 24 May 2013.

On 7 February 2014 an amended statement of claim was filed providing for minor changes to paragraphs [126] - [128] and on 10 February 2014 an Amended Defence was filed introducing a new defence as set out in paragraphs [92(c)], [93] and [94]. 

Evidence

The parties have served all of their evidence.  

On 14 May 2013 Trilogy served a copy of the documents it proposes to tender at trial and provided an amended index to those documents on 31 May 2013.  The defendants are to serve any additional documents they propose to tender at the trial by 8 November 2013.

Proposed early hearing of Mr McCormick's cross claim rejected

On 26 February 2013 Justice Emmett dismissed Mr McCormick's application to have his cross claim determined in full prior to the hearing of Trilogy's claim and ordered Mr McCormick pay the costs of that application. 

Proposed cross vesting application dismissed

On 21 May 2013 Justice Griffiths dismissed the respondents' application to have the proceedings cross vested to the Supreme Court of Queensland. 

Future conduct

A pre-trial timetable was put in place by Justice Jacobson at the directions hearing on 5 September 2013, setting out the required pre-trial steps including provision of the final tender bundle of documents for tender at trial and service of written submissions and other final preparations for the trial.

On 31 October 2013 Messrs Sullivan, Swan and Donaldson again changed legal representatives and engaged Bransgroves Lawyers to act.

On 22 November 2013 Bransgroves filed an application to Amend the Defence of Messrs Sullivan, Swan and Donaldson. The application was first heard on 21 November 2013 and adjourned for final hearing on 7 February 2014.

Further affidavit evidence was filed and served on behalf of the respondents on 23 December 2013 and 31 January 2014. Further proposed documents for tender were also served on behalf of the respondents on 23 December 2013.

On 7 February 2014 Justice Wigney made orders, by consent, providing for the filing of amended pleadings and other pre-trial preparations and confirmed the dates for trial as being 10 - 18 March, 15 - 17 April 2014 and 2 & 3 June 2014.

The hearing is scheduled to commence in Sydney before Wigney J on Monday, 10 March 2014

Further investigations

Since replacing City Pacific Ltd as the responsible entity of the Pacific First Mortgage Fund in July 2009, Trilogy has been investigating City Pacific's management of the Pacific First Mortgage Fund.  Trilogy is continuing its investigations to determine the best avenues available to recover funds on behalf of unit holders in the Pacific First Mortgage Fund. 

Towards this end a public examination of Mr Philip Sullivan, former Managing Director and CEO of City Pacific, was conducted on 2 and 3 February 2012. Mr Sullivan was questioned in relation to various loan transactions involving the Fund entered into during 2008 and 2009 and his personal financial position. In the lead up to those examinations Mr Sullivan was also ordered to produce documents relating to his financial position to the Supreme Court of NSW.

Examination hearings have also been conducted in the Supreme Court of NSW on 19, 20 and 21 March 2012. Examinaton hearings involving Mr Ross Griffiths and Mr Mark Sutton of the Commonwealth Bank of Australia were conducted on 19 and 20 March. Mr Allan Titterton from PPB Advisory was also examined on 21 March 2012.

Further examinations of Mr Sullivan, Mr Larry Matthews and Mr Steve McCormick were conducted on 5, 6 and 7 September 2012.  Additional examinations of individuals involved in other co-lending loan transactions the Fund entered into in 2008 were conducted in the Supreme Court of New South Wales on 18 December 2013 and 3 February 2014.

Unit holders in the Pacific First Mortgage Fund should direct any enquiries they have regarding these matters to Balmain NB Corporation Limited as asset manager of the Fund on telephone number 1800 194 500 or email contact@balmaintrilogy.com.au.