Court rules investors in City Pacific to recover $65 million
18 December 2015
Investors in the Pacific First Mortgage Fund, as it is now known, will be encouraged after a Federal Court judgment, handed down today, found the former City Pacific Limited CEO, Phil Sullivan and former City Pacific lending manager, Steve McCormick liable for over $37.2 million in damages plus interest, which will likely take the total judgment to over $65 million.
The judgment handed down in Sydney by Justice Wigney found former Credit Committee members, Philip Sullivan, Stephen McCormick, Ian Donaldson and Thomas Swan, all liable for various significant losses sustained by the Fund due to Corporations Law breaches.
The Fund loaned millions of dollars for property developments, mostly based on the Gold Coast. Many of the 11,000-odd unit holders in the Fund are elderly investors who have seen the value of their units fall substantially since they initially purchased units. Many were reliant on the investments for their retirement income.
The claim alleged that lending decisions made by the defendants were not in the best interests of the Fund and failed to follow the Fund’s own lending criteria in breach of the Corporations Act and the Fund’s own constitution. Damages were sought for losses arising from the Fund’s loan to Atkinson Gore Agricultural relating to its ‘Seven Mountains’ development in Canungra in Queensland.
Maurice Blackburn Principal Jason Geisker said the case, which had been on foot since 2012, vindicates the action taken on behalf of affected investors.
“Fundamental to the fair and proper operation of any managed investment scheme is that those charged with management responsibilities always act in members’ best interests and not contrary to a scheme’s own rules and the law” Mr Geisker said.
“As there are often large sums placed under management in such schemes, investors can easily suffer significant unforeseen losses when the rules are broken. This judgment sends a strong message to those who fail to meet their legal duties in their management of registered investment schemes – the rules must not be broken.”
Mr Geisker said the trial had exposed some alarming behaviour from the former City Pacific directors, with today’s judgment being a damning assessment of the conduct of Mr Sullivan. Paragraph  of Justice Wigney’s judgment reads: Ultimately, it is not possible to conclude otherwise than that Mr Sullivan was not an honest or reliable witness in relation to the key factual issues concerning the conduct of the AGA facility during 2006 and 2007. Much of his evidence was self-serving and sought to deny or deflect responsibility onto others for his manifest failings in relation to the conduct of the AGA facility. He was a man prepared to lie about his knowledge of and involvement in key events so as to extricate himself from blame or responsibility.