Pacific First Mortgage Fund claim against Philip Sullivan, Thomas Swan, Stephen McCormick & Ian Donaldson

Final Judgment

Justice Wigney delivered the Federal Court’s final decision and reasons for judgment on Friday, 18 December 2015. Trilogy Funds Management Limited’s claim was upheld. 

The judgment observes that this is a tale of a rapacious Gold Coast property developer with grandiose plans, a compliant and obliging valuer who lacked independence, and a responsible entity of a managed investment scheme [City Pacific Limited] the officers of which appeared unable or unwilling to say “no” to the developer, or to otherwise exercise appropriate care and diligence to ensure compliance with the scheme’s mandated policies and procedures. In the end, the developer failed and the security property was found to be worth many millions of dollars less than both its supposed valuation and the outstanding loan. The scheme and its members were left significantly out of pocket. 

Read the judgment.

Read Maurice Blackburn's media statement.

Initial Hearing: 10-19 March 2014

The trial commenced in the Federal Court on Monday, 10 March 2014.  A number of unitholders attended at court in Sydney to observe the proceedings.

The Initial Hearing was conducted over eight days (10-19 March 2014).  All of the defendants and Trilogy's expert valuer, Mr Eden, were cross examined during the Initial Hearing.  Trilogy's other witnesses, Mr Fazzolari, Mr Whittingham (receiver and manager of AGA), Mr Kennedy and Mr Carson were not required for cross-examination at the Initial Hearing.

Subsequent Hearings: 15-17 April and 2-3 June 2014

The Subsequent Hearing commenced before Justice Wigney on 15 April 2014 and was initially scheduled for three days on 15-17 April 2014 but subsequently extended to add further hearing dates on 2-3 June 2014.  The court considered evidence in relation to the new defence issues during the Subsequent Hearing. 

Significantly, on 17 April 2014, Justice Wigney ruled that the defendants' expert report and supplementary expert report of Mr Robinson were inadmissible and rejected all of this evidence.  On 2 June 2014 Messrs Sullivan, Swan and Donaldson filed a Further Amended Defence, making minor amendments to the terms of their defence. The cross-examination of one of Trilogy's witnesses, Mr Marcus Fazzolari, was conducted over three days, commencing on 17 April 2014 and continued on 2-3 June 2014.

Closing Submissions: 16, 17 & 18 July 2014

The trial concluded on 18 July 2014, following three days of oral closing submissions made by counsel for the parties and by Mr McCormick.  Written closing submissions and written submissions in reply, were served in the lead up to the final hearing.

Claim Background

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) (City Pacific).  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 during 2006 and 2007 to Atkinson Gore Agricultural Pty Ltd (Receivers & Managers Appointed) (In Liquidation) (AGA).

Trilogy's case alleges that lending decisions made by the defendants, as members of the Fund’s Credit Committee, were unreasonable and failed to follow the Fund's lending criteria, compliance plan, PDS and constitution.  Trilogy claims the defendants should pay the Fund compensation for losses sustained by the Fund as a result of these poor lending decisions.


Trilogy alleges the defendants breached their statutory duties under the Corporations Act 2001 in granting certain increases in the AGA loan facility in 2006 and by permitting advances above the increased AGA loan facility limit in late 2006 and early 2007.  The AGA loan facility had been specifically identified by SV Partners, in their September 2005 report, as being ‘outside of all current policy areas’ and was recommended to be repaid or refinanced by 31 December 2005 if the Saddleback land was not rezoned and valued by a new valuer based on permitted uses.  No new valuer was ever engaged to value the Saddleback land in the relevant period. 

In response to the SV Partners report in early February 2006 City Pacific made misleading representations to ASIC to the effect that it had complied with the recommendations made in the SV Partners report in respect of the AGA loan facility when it had not.  The claim alleges that the defendants, as members of the credit committee, thereafter unreasonably relied on a 2006 valuation prepared by PRP Valuers and Consultants Gold Coast Pty Ltd (PRP) dated 20 March 2006.  PRP had been used continuously by City Pacific in respect of the AGA loan facility both prior to the SV Partners report and afterwards.  The March 2006 PRP valuation provided two alternative values for the Saddleback land based on assumptions being:

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

At all times, including the time of the AGA loan facility increases and advances, the Saddleback lands were zoned 'rural'.  They have never been rezoned.  The Saddleback lands have never been included in the 'Urban Footprint' under the SEQ Regional Plan.  They have never been subject of any declaration of 'Significant Project' pursuant to the State Development and Public Works Organisation Act 1971.  

The claim alleges that in 2006 the defendants wrongfully approved an increase AGA loan facility to $44.87m, well above the existing (October 2005) AGA facility limit of $17.89m.  None of the advances to AGA in excess of the (October 2005) AGA facility limit were used by AGA to acquire any additional lands at Saddleback.  

By 1 July 2007, the Fund had advanced over $60 million to AGA in connection with the Saddleback lands, which were ultimately sold in 2012 for $7.627 million.  Trilogy alleges that it was 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 and to allow advances to be made to AGA above the approved AGA facility limit.

Further information

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