Pacific First Mortgage Fund claim against: Philip Sullivan, Thomas Swan, Stephen McCormick & the Estate of the late Ian Donaldson


All four former City Pacific Limited directors responsible for loan losses in the Pacific First Mortgage Fund have now been declared bankrupt following Trilogy Funds Management Limited’s successful prosecution of its claim against them. 

In December 2015 Justice Michael Wigney delivered his judgment, (comprising of 248 pages of reasoning), setting out his Honour’s basis for finding against Philip Sullivan and Stephen McCormick for $62,947,486.86 (plus legal costs and post judgment interest) and against Thomas Swan and Ian Donaldson for $10,565,042.52 (plus legal costs and post judgment interest).

The proceedings were defended and then appealed all the way to the High Court.  Trilogy Funds Management Limited, in its capacity as responsible entity for the Pacific First Mortgage Fund, was successful at each and every stage of the litigation, as detailed below.

High Court upholds Trilogy’s claims

On 15 February 2018, the applications seeking special leave to appeal to the High Court lodged on behalf of Messrs Sullivan, Swan and Donaldson were dismissed by the High Court, with costs awarded against them. The High Court determined the applications on the papers without requiring any oral hearing.

The dismissal of the applications marks the end of the road for Messrs Sullivan, Swan and the estate of the late Ian Donaldson in terms of available avenues of appeal.  This means the original orders of Justice Wigney, which were unanimously reaffirmed by three judges in the Full Court of the Federal Court, and now the High Court, have been reaffirmed.

The outstanding judgment debts payable by Messrs Sullivan, Swan and the estate of the late Ian Donaldson, are as follows:

Judgment debtor

Principal judgement debt 

Interest on judgment 
(@ 8 March 2018)

Total

P K Sullivan

$62,947,486.86

$9,677,534.10

$72,625,020.96

T W Swan

$10,565,042.52

$1,624,267.53

$12,189,310.05 

I W Donaldson

$10,565,042.52

$1,624,267.53

$12,189,310.05

S M McCormick

$62,947,486.86

$7,866,715.98
(@19 Oct 2017)

$70,814,202.84

Procedural history to the High Court

Appeal Judgment – Sullivan’s claims unanimously dismissed

On 25 September 2017 the Full Court delivered a judgment, unanimously dismissing the appeal brought by Messrs Sullivan, Swan and Donaldson.  Costs were also ordered in favour of the Fund against each of Mr Sullivan, Mr Swan and the Estate of the late Mr Donaldson (who died in May 2017).

The Full Court was satisfied that the trial judge’s findings, that the appellants contravened the Act, were inevitable.  The Full Court was also satisfied that the appellants should not be exonerated from those contraventions in the circumstances of the case.  The Full Court said there was no procedural unfairness in the conduct of the trial before Justice Wigney in respect of the findings made against Mr Donaldson and Mr Swan.

The Appeal judgment highlights the appellants’ failure to put forward any case that challenged the central findings of negligence and breach of the Corporations Act against them.  The Full Court stated: 

Put simply, the appellants' case theory missed the point of Trilogy's case.  Equally, the complaint that the trial judge failed to engage with that case theory misses the point of his Honour's conclusions.

Read the appeal judgment in full.

Read Maurice Blackburn's media statement.

Mr McCormick did not appeal from the $62,947,486.86 judgment entered against him.

Trial judgment

Trilogy Funds Management Limited’s claim against Messrs Sullivan, McCormick, Donaldson and Swan in the Federal Court was successful.  On Friday, 18 December 2015 Justice Wigney found in Trilogy's favour and delivered his reasons for judgment following a long trial in the first half of 2014. 

In delivering judgment, Justice Wigney stated:

This claim involves 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 [Pacific First Mortgage Fund] and its members were left significantly out of pocket.

Read the judgment in full.

Read Maurice Blackburn's media statement.

On 4 March 2016 Justice Wigney entered judgment against Messrs Sullivan and McCormick for $62,947,486.86 plus costs and against Messrs Swan and Donaldson for $10,565,042.52 plus costs.

Enforcement Action against Mr Swan (a bankrupt)

Mr Swan was made bankrupt on 30 May 2018 by order of the Federal Court of Australia following his failure to comply with a bankruptcy notice issued on 9 March 2018 requiring payment of $12,193,928.65, being the judgment debt plus post-judgment interest.

Mr Gerald Thomas Collins of BDO has been appointed trustee of the bankrupt estate of Thomas William Swan.

Enforcement against Mr McCormick (a bankrupt)

Mr McCormick was made bankrupt on 19 October 2017 by order of the High Court of New Zealand following his failure to comply with a bankruptcy notice seeking an outstanding Judgment debt of $70,814,202, including interest to 19 October 2017

The Official Assignee (NZ), appointed to Mr McCormick’s estate in New Zealand, is taking steps to recover and liquidate assets as part of the administration on behalf of creditors, including the sale of property owned by Mr McCormick on the Gold Coast.

Enforcement Action against Mr Sullivan (a bankrupt)

A bankruptcy notice was issued against Mr Sullivan on 9 March 2018 in the amount of $72,652,538.99, comprising the judgment debt plus post-judgment interest.

On 6 April 2018, Mr Sullivan signed an authority pursuant to section 188 of the Bankruptcy Act 1966 (Cth) appointing John Park and Andrew Weatherley of FTI Consulting as Controlling Trustees.

On 18 August 2018 Mr Sullivan presented a debtor’s petition resulting in him being declared bankrupt.  David Clout and Deborah Talty of David Clout & Associates were appointed as his trustees in bankruptcy. 

Enforcement against estate of the late Ian Donaldson (bankrupt)

A creditor’s petition was lodged with the Federal Court of Australia on 5 June 2018 seeking to bankrupt the estate of the late Ian William Donaldson, which has failed to pay $12,382,520.08, being the judgment debt plus post-judgment interest to 5 June 2018.

The estate of the late Mr Donaldson was made bankrupt on 4 July 2018 by order of the Federal Court of Australia.  The estate will be administered under Part XI of the Bankruptcy Act 1966.

Mr Gerald Thomas Collins of BDO has been appointed trustee of the bankrupt estate of the late Mr Donaldson.

Each of the former directors against whom Trilogy obtained judgment, have now been declared bankrupt within a period of just over four months since the dismissal of their unsuccessful applications for leave to appeal to the High Court.

Further information

For further information, unit holders in the Pacific First Mortgage Fund should direct any enquiries they have to Trilogy Funds Management Ltd  via telephone to Trilogy Investor Relations on 1800 194 500  or email investorrelations@trilogyfunds.com.au.