End of the road for failed City Pacific mortgage tycoons

15 February 2018
The High Court of Australia has today put an end to claims by former City Pacific Ltd CEO, Phil Sullivan, and his senior lieutenants that they should be excused from repaying tens of millions of dollars lost by the failed Gold Coast-based City Pacific First Mortgage Fund, as a result of their governance contraventions and mismanagement.

In rejecting Mr Sullivan’s last ditch application, the High Court has now removed any doubt as to the comprehensive success of legal action conducted by Maurice Blackburn Lawyers.

The Court’s decision not to hear any further appeal is further confirmation that lending approvals granted by Mr Sullivan and his senior credit committee team, to companies associated with failed Gold Coast property developer, Craig Gore, 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.  

The High Court’s decision comes just over two years after a damning trial judgment delivered by Justice Michael Wigney, who found that Mr Sullivan, and other former City Pacific directors, Tom Swan, Stephen McCormick and Ian Donaldson, were personally responsible for improperly approving tens of millions in loan advances on behalf of the Fund. 

As a part of the original Judgment in 2015, Justice Wigney concluded, “the very seriousness of Mr Sullivan’s contravening conduct and the extent to which it departed from the standards expected and required of a chief executive officer of a responsible entity of a very large managed investment scheme amounts to moral turpitude and therefore a failure to act honestly for the purposes of …the Corporations Act”.

Today’s confirmation comes less than a year after an appeal against Justice Wigney’s original decision was also unanimously dismissed by three Justices of the Full Federal Court, including Chief Justice James Allsop.

During its life the City Pacific First Mortgage Fund, a managed investment scheme, loaned hundreds of millions of dollars of investor money to developers, primarily for large scale commercial and residential 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. Many investors were completely reliant on their investments in the Fund for their retirement income.

Maurice Blackburn Principal Jason Geisker said that it was one of the most remarkable cases of corporate misconduct he had ever been involved in.

“The trial Judge found, Mr Sullivan’s contraventions of the Corporations Act were serious, flagrant and resulted in serious and significant consequences to the Fund and its members,” Mr Geisker said.

“The Judge noted that Mr Sullivan has shown no contrition whatsoever and instead has strenuously contested these proceedings at every stage, even going so far as to give untruthful evidence to exonerate himself.  Given these findings, it is pleasing to know that the Courts have vindicated the claims brought on behalf of the Fund at every stage of this litigation. 

“Not only does this final determination vindicate all efforts of the Fund and its members to obtain justice – it also represents another small but important victory towards better corporate governance compliance in Australia. 

“Investors will always be exposed to the vagaries of the market but they should never be exposed to losses simply because of corporate misconduct. That is why our corporate governance laws exist - to guard against misconduct and to make effective remedies available for victims of wrongdoing.”

Trilogy Funds Management Ltd, which brought the case in its capacity as the responsible entity of the Pacific First Mortgage Fund, now has the right to payment of $72.3 million, which it will be seeking to recover from Mr Sullivan and other former City Pacific directors.  Mr McCormick, who did not appeal the original decision, has since been made bankrupt.

Brief timeline of the Sullivan saga since the original trial concluded in July 2014:

December 2015:

  • Original judgment by Justice Wigney, found four former City Pacific Limited directors, 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. The trial Judge formed a very negative view of Mr Sullivan saying…that he was "a most unsatisfactory and unimpressive witness"… His Honour also described Mr Sullivan as “trenchant and emphatic and often belligerent”.

September 2017:

  • Appeal by Sullivan, Swan and Donaldson unanimously rejected by three Justices of the Federal Court of Australia.

February 2018:

  • The High Court rejects application for special leave to appeal, with costs against Sullivan, Swan and Donaldson.