Pacific First Mortgage Fund claim against Minter Ellison Gold Coast

On 2 April 2014 Maurice Blackburn lodged a claim in the Federal Court on behalf of Trilogy Funds Management Limited (Trilogy) as responsible entity for the Pacific First Mortgage Fund (Fund) against law firm Minter Ellison Gold Coast (Minter Ellison). The claim was made in respect of loan losses sustained by the Fund following a co-lending transaction in April 2008 in favour of SP Marina Pty Ltd (SP Marina). That transaction concerned SP Marina’s purchase of Mariner's Cove Marina, located at 60-70 Seaworld Drive, Main Beach Queensland (Mariner's Cove).

Current Status

As a result of the successful mediation on 9 September 2015, Gleeson J directed on 10 September 2015 that the trial dates set for October 2015 be vacated and adjourned the matter for further directions on Thursday, 10 March 2016. 

Background

In April 2008 the Fund’s Credit Committee approved a total loan facility of $39.36m to SP Marina, with $11.76m to be advanced from the Fund and the remaining $27.6m from City Pacific Limited (City Pacific) in its own right or as trustee. The loan approval to SP Marina was granted one month after City Pacific’s Board had suspended unitholder redemptions. SP Marina was a related party to City Pacific. As a part of the transaction, another co-lender agreed to provide $20m in additional loan funds to SP Marina to complete the contract for the purchase of Mariner's Cove. 

At the time of approving and advancing funds to SP Marina, City Pacific on behalf of the Fund engaged Minter Ellison Gold Coast to assist with preparation of loan and mortgage documentation and associated materials and act on the proposed loan transaction. The final loan documentation and associated materials prepared by Minter Ellison had the effect of relegating the Fund’s security to a second ranking position, behind the other co-lender. This subordination meant the Fund did not have a first-ranking security over Mariner's Cove in respect of its advances to SP Marina and the Fund would only be entitled to recovery after the co-lender’s full recovery in the event of any loan default.

Claim

Trilogy's claim on behalf of the Fund alleged that, in entering into the SP Marina co-lending arrangement, City Pacific failed to adhere to the Fund's Product Disclosure Statement (PDS) and was therefore in breach of the Fund's Compliance Plan and Constitution.  Trilogy alleged on behalf of the Fund that, by reason of the breach of the PDS and Constitution, the Fund was in breach of statutory obligations owed under the Corporations Act 2001 (Cth).

Between April and December 2008 the Fund advanced approximately $16.675m to SP Marina in relation to Mariner's Cove. SP Marina defaulted on its obligations under the SP Marina loan facility and the Fund suffered significant losses.

Trilogy contended on behalf of the Fund that by reason of Minter Ellison’s alleged involvement in the contravention of the Corporations Act it ought to compensate the Fund for losses suffered in connection with the SP Marina loan.