Appeal rejected - City Pacific Mortgage victims vindicated
25 September 2017
Almost two years after a damning judgment against former, City Pacific Ltd CEO, Phil Sullivan and his senior lieutenants who oversaw the failed Gold Coast-based, City Pacific Mortgage Fund, Mr Sullivan’s appeal against the Federal Court decision has been unanimously thrown out.
The original 2015 judgment handed down by Justice Wigney found four former Credit Committee members, Philip Sullivan, Stephen McCormick, Ian Donaldson and Thomas Swan, liable for millions of dollars in losses resulting from the Fund’s disastrous loans to former development tycoon Craig Gore’s group of companies on the ‘Seven Mountains’ properties known as Saddleback, on the Gold Coast hinterland.
In rejecting the appeal, today’s judgment notes the trial Judge formed a very negative view of Mr Sullivan saying…that he was "a most unsatisfactory and unimpressive witness"… His Honour described Mr Sullivan as “trenchant and emphatic and often belligerent”.
During its life the Fund loaned hundreds of millions of dollars of investor money to developers like Mr Gore, primarily for property developments, mostly based on the Gold Coast. Many of the 11,000-odd investors in the Fund are elderly retirees who have been victims of this wrongful conduct the credit committee has been found guilty of, with many investors completely reliant on these investments for their retirement income.
The successful claim alleged that lending decisions approved by Sullivan and his senior credit committee team were not in the best interests of the Fund, failed to follow the Fund’s own lending criteria and were in breach of the Corporations Act and the Fund’s own constitution.
Maurice Blackburn Principal Jason Geisker said the Appeal decision again vindicates the resolute action taken on behalf of investors who wanted to hold Phil Sullivan and others involved in the breaches to account.
“This decision represents an important victory for better corporate governance in Australia. Anyone entrusted with management of pooled schemes for investment is today again reminded of the significant responsibilities they are under to ensure they comply with our Corporations Act requirements,” Mr Geisker said. Australia’s corporate governance laws are there to protect investors from corporate misconduct and conflicts of interest. Investors will always be exposed to the vagaries of the market but they should never have to suffer losses by reason of corporate misconduct.
“Australia has very robust investment and corporate governance laws but they are only ever as good as they are enforced. Today’s decision is a timely reminder of the very serious personal consequences awaiting those who disregard Australia’s corporate laws. (PTO) “Investors wanted a judgment in this case, and they received one that excoriated the behaviour of those in charge in the strongest possible way. They have won this litigation at every step and it’s now time for those responsible to compensate investors.”
Trilogy Funds Management Ltd, which brought the case as the responsible entity of the Pacific First Mortgage Fund, now has the right to $70 million, which it will be seeking to recover from Mr Sullivan and the other unsuccessful defendants.