Dalton and Schaeffer as Executors of the Estate of the Late John Herman Schaeffer v Naegeli - [2024] NSWCA 51 - NSWCA 2024 case summary — Zoe

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Dalton and Schaeffer as Executors of the Estate of the Late John Herman Schaeffer v Naegeli

[2024] NSWCA 51

Court of Appeal (NSW)|2024-02-13|Before: Ward P, Stern JA

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At a glance

Source facts

Court

Court of Appeal (NSW)

Decision date

2024-02-13

Before

Ward P, Stern JA

Catchwords

[1999] QSC 2004 Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd (2003) 214 CLR 51
[2003] HCA 18 Australian Securities and Investments Commission v Kobelt (2019) 267 CLR 1
[2019] HCA 18 Bale v Kimberley Developments Pty Ltd [2022] NSWSC 820 Bridgewater v Leahy (1998) 194 CLR 457
[1983] HCA 14 Dearman v Dearman (1908) 7 CLR 549

Source

Original judgment source is linked above.

Catchwords

[1999] QSC 2004 Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd (2003) 214 CLR 51[2003] HCA 18 Australian Securities and Investments Commission v Kobelt (2019) 267 CLR 1[2019] HCA 18 Bale v Kimberley Developments Pty Ltd [2022] NSWSC 820 Bridgewater v Leahy (1998) 194 CLR 457[1983] HCA 14 Dearman v Dearman (1908) 7 CLR 549[1908] HCA 84 Elders Rural Finance Ltd v Smith (1996) 41 NSWLR 296 Fox v Percy (2003) 214 CLR 118[2003] HCA 22 Jenyns v Public Curator (Qld) (1953) 90 CLR 113[1953] HCA 2 Kakavas v Crown Melbourne Ltd (2013) 250 CLR 392[2013] HCA 25 Lee v Lee (2019) 266 CLR 129[2019] HCA 28 Lopwell Pty Ltd v Clarke [2009] NSWCA 165 Louth v Diprose (1992) 175 CLR 621[2016] HCA 28 Starceavich v Swart & Associates Pty Ltd [2006] NSWSC 960 Stubbings v Jams 2 Pty Ltd [2022] HCA 6

Judgment (45 paragraphs)

[1]

[10]

HEADNOTE [This headnote is not to be read as part of the judgment] On 30 December 2018 the respondent, Mr Patrick Naegeli (for and on behalf of the Human Enhancement Project (HEP), an unincorporated association) entered into a Cash Funding Agreement (CFA) with CRB Investment Holdings Pty Limited (CRB). Under the CFA, in exchange for HEP making a loan to CRB of $500,000 within two "banking days" of execution of the CFA, CRB agreed to make twelve monthly "revenue" payments of $500,000 each plus a final, thirteenth, payment of $500,000 (said to represent return of "the principal"). The total amount payable by CRB to HEP over a period of about 16 months, in respect of HEP's $500,000 loan, was thus $6.5 million, equivalent to an interest rate of 1,200% per annum. These terms were proposed by CRB, not Mr Naegeli. Mr John Schaeffer had been present by telephone during meetings between Mr Naegeli and Mr Charles Blinkworth, the managing director of CRB who proposed the CFA to Mr Naegeli. During the first of those meetings, Mr Schaeffer described himself as the honorary chairman of CRB and the primary judge found that, from Mr Naegeli's perspective, Mr Schaeffer had continuing involvement in the transaction and played a role in encouraging Mr Naegeli to commit to a transaction with CRB. There was also evidence that Mr Schaeffer had provided financial support to CRB, including as guarantor under an agreement in April 2018 between CRB and Bloomingville Hong Kong Limited which had some similarities to the CFA. On 31 December 2018, Mr Naegeli transferred $500,000 to CRB. The first revenue payment of $500,000 under the CFA was due on 26 April 2019. Mr Naegeli did not receive payment into the nominated bank account. CRB made no payments in the following months, leading Mr Naegeli to ask for a personal guarantee from each of Mr Blinkworth and Mr Schaeffer. Mr Schaeffer responded that he was happy to provide a guarantee and was so confident in Mr Blinkworth that he would also give Mr Naegeli a guarantee from two of his private companies, but that he believed that the payments would be made by the time Mr Naegeli had prepared the guarantee. Either Mr Blinkworth or Mr Schaeffer requested that Mr Naegeli prepare a deed of guarantee. Mr Naegeli prepared a Deed of Guarantee and Indemnity (Guarantee) which he executed on or about 18 July 2019. Mr Naegeli travelled to Sydney on 26 July 2019 and had been expecting to meet Mr Blinkworth and Mr Schaeffer, but Mr Schaeffer was present only by telephone. Mr Naegeli left the Guarantee with Mr Blinkworth, who told him that he needed time to go over the Guarantee and needed to give Mr Schaeffer an opportunity to do so as well. No payments having been made under the CFA, in around October 2019 Mr Naegeli asked Mr Blinkworth to execute the Guarantee and arrange for its execution by Mr Schaeffer. On around 29 October 2019, the Guarantee was executed by Mr Blinkworth and by Mr Schaeffer on his own behalf, and as director of two companies he owned and controlled, Rasay Pty Limited (Rasay) and The Footage Company Pty Ltd (Footage). As at that date CRB owed HEP a total of $3.5 million under the CFA. Under the Guarantee, the guarantors became immediately liable to pay that $3.5 million, and thereafter they were liable, without demand, to make payment in respect of any default under the CFA and to pay interest at 10% on any unpaid sums due under the Guarantee. Both Mr Blinkworth and Mr Schaeffer died in 2020 in unrelated circumstances. CRB made no payments under the CFA and was wound up on 14 October 2020. Mr Naegeli brought proceedings against Mr Schaeffer's executors, Rasay and Footage seeking to enforce their obligations under the Guarantee. Mr Naegeli sought judgment in the sum of $6.5 million, interest at the prescribed rate under ss 100 and 101 of the Civil Procedure Act 2005 (NSW) and costs. The defendants contended that, in procuring the Guarantee, Mr Naegeli engaged in unconscionable conduct within the meaning of s 12CB of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act) and that the Guarantee should be set aside as an unfair contract under the ASIC Act (having regard to ss 12BF, 12BG and 12BK) and/or as an unjust contract under s 7 of the Contracts Review Act 1980 (NSW). The primary judge dismissed the unconscionability claim and the other ASIC Act claims, upheld the claim under the Contracts Review Act in part, and on that account limited the damages awarded to Mr Naegeli against the executors of Mr Schaeffer (but not against Rasay and Footage) to the sum of $500,000. His Honour awarded interest on the $500,000 sum at the rate of 10% compounded daily from 29 October 2019, on the basis that the Guarantee provided for interest in those terms on unpaid sums. Mr Schaeffer's executors, Rasay and Footage appealed. By cross-appeal, Mr Naegeli contended that the primary judge erred in finding that cl 2.1 of the Guarantee was unjust for the purposes of the Contracts Review Act and in the relief ordered under that Act. By notice of contention on the cross-appeal, the appellants contended that additional factors supported the primary judge's conclusion under the Contracts Review Act. It was common ground between the parties that it was unnecessary for the Court to determine which of s 12CB of the ASIC Act, or s 21 of the Australian Consumer Law, applied in the circumstances. The principal issues in the appeal were: (i) Whether the primary judge erred in finding that Mr Naegeli did not act unconscionably within the meaning of s 12CB of the ASIC Act. (ii) Whether the primary judge erred in not setting the Guarantee aside in whole pursuant to s 7 of the Contracts Review Act. (iii) Whether the primary judge erred in finding that interest should accrue at 10% as this was not pleaded. (iv) Whether the primary judge erred in finding that cl 2.1 of the Guarantee was unjust for the purposes of the Contracts Review Act or, in the alternative, whether the primary judge should have relieved Mr Schaeffer's executors only of obligations under the Guarantee as regards payments accrued as at the date of execution. The Court (Stern JA, Ward P and Griffiths AJA agreeing) held, dismissing the appeal and allowing ground 1 of the cross-appeal: As to issue (i) (1) The primary judge's findings that Mr Schaeffer entered the Guarantee "freely, voluntarily and unhesitatingly": [388], that Mr Schaeffer must have had a general understanding that he was guaranteeing CRB's obligations under the CFA, that Mr Schaeffer must also have understood that payments had not, by then, been made under the CFA: [288], and that Mr Schaeffer understood the nature of the CFA at least in general terms: [332], are amply supported by the evidence. Those findings support the primary judge's finding that Mr Naegeli's conduct was not unconscionable within the meaning of s 12CB of the ASIC Act: [142]. (2) The primary judge erred in finding at [181], that Mr Naegeli was doubting the "creditworthiness", but not the "credibility", of Mr Blinkworth but Mr Naegeli's evidence as to this in cross-examination does not undermine his credit or reliability to any significant extent and such doubts as Mr Naegeli had as to Mr Blinkworth's credibility do not lead to a finding of unconscionability on the facts of this case: [147]-[149]. Lee v Lee (2019) 266 CLR 129; [2019] HCA 28; Fox v Percy (2003) 214 CLR 118; [2003] HCA 22, applied. (3) Conduct may be unconscionable irrespective of whether the victim is vulnerable or under a disadvantage and notwithstanding that the victim was a willing participant: [132]. If special disadvantage is relied upon, it is necessary to show not just that the "weaker" party is suffering from a special disadvantage that seriously affects their capacity to judge or protect their own interests, but also that the "stronger" party knows of the special disadvantage or of facts that would raise that possibility in the mind of any reasonable person and that the "stronger party" unconscientiously took advantage of the opportunity presented by that special disadvantage: [134]-[135]. Australian Securities and Investments Commission v Kobelt (2019) 267 CLR 1; [2019] HCA 18; Stubbings v Jams 2 Pty Ltd [2022] HCA 6; (2022) 399 ALR 409; Australian Securities and Investments Commission v Westpac Banking Corporation [2022] FCA 515; Bale v Kimberley Developments Pty Ltd [2022] NSWSC 820, considered. Bridgewater v Leahy (1998) 194 CLR 457; [1998] HCA 66; Turner v Windever [2003] NSWSC 1147; Turner v Windever [2005] NSWCA 73, referred to. (4) The improvidence of a transaction does not, without more, require a defendant to a claim of unconscionability to prove that the transaction was fair, just and reasonable. No such onus rested on Mr Naegeli in this case: [136]-[139]. No inference should be drawn from the improvidence of the terms of the Guarantee that Mr Schaeffer executed the Guarantee by reason of some special vulnerability or disability, still less that this was something that Mr Naegeli knew or ought to have known: [154]-[166]. Lopwell Pty Ltd v Clarke [2009] NSWCA 165, distinguished. (5) The available evidence going to the financial position of CRB does not support a conclusion of special vulnerability on the part of Mr Schaeffer or of unconscionability on the part of Mr Naegeli: [167]-[174]. (6) There is no basis in the evidence to infer that Mr Schaeffer's trust or confidence in Mr Blinkworth was such that would support a finding of unconscionability on the part of Mr Naegeli. Mr Schaeffer's expressions of trust and confidence in Mr Blinkworth fall far short of establishing that Mr Schaeffer was, in any sense, vulnerable or unable to act in his own interests when executing the Guarantee: [175]-[178]. (7) The primary judge erred, at [401], in drawing the inference that it was unlikely that Mr Schaeffer understood the immediate and significant effect of his execution of the Guarantee: [179]-[191]. Neither the extent of Mr Schaeffer's knowledge of the Guarantee nor Mr Naegeli's conduct as regards the execution of the Guarantee support a conclusion that Mr Naegeli's conduct was unconscionable: [192]-[197]. (8) The fact of there being no consideration moving from Mr Naegeli under the Guarantee does not support a conclusion of unconscionability on the facts of this case. It is a neutral factor: [198]-[199]. (9) To the extent that the appellants contend that there is inconsistency in the conclusions of the primary judge as to unconscionability and under the Contracts Review Act, that contention must be rejected. There is clear authority that whether a contract is "unjust" within the meaning of s 7 of the Contracts Review Act involves a different standard of evaluation to that invoked in deciding whether someone's conduct concerning entering into a contract is unconscionable: [200]-[201]. Brighton v Australia and New Zealand Banking Group Ltd [2011] NSWCA 152, applied. As to issues (ii) and (iv) (per Stern JA, Ward P and Griffiths AJA agreeing) (10) Given that different factual conclusions were reached from those reached by the primary judge, it is necessary to consider the application of the Contracts Review Act afresh. It was implicit in the matters raised on the appeal and cross-appeal that this would be necessary in the event that the various factual challenges advanced succeeded: [211]. (11) It is beyond doubt that the obligations under the Guarantee were both onerous and significant. There are, however, significant factors which weigh against a conclusion that the terms of the Guarantee were unjust in the circumstances relating to it at the time when it was made: [212]-[214]. The Guarantee was not unjust within the meaning of the Contracts Review Act: [215]. West v AGC (Advances) Ltd (1986) 5 NSWLR 610, considered. As to issue (iii) (per Stern JA, Ward P and Griffiths AJA agreeing) (12) Mr Naegeli did not seek interest in the event that he recovered the full amount of $6.5 million he sought under the Guarantee. It was thus unnecessary to determine this ground of appeal: [216]-[217]. (13) In the particular circumstances of this appeal, the appropriate order is that Mr Naegeli should not be paid interest by any of the appellants on the $6.5 million up to the date of the primary judge's orders. After the date of the primary judge's orders, interest should be paid by the second and third appellants under s 101 of the Civil Procedure Act. It is open to this Court to so order to achieve a just outcome in all of the circumstances: [219].

[11]

JUDGMENT

WARD P: I agree with the orders that Stern JA has proposed and with her Honour's comprehensive reasons.
STERN JA: This appeal arises out of a somewhat unconventional arrangement, described as a "loan" of $500,000, and effected by a Cash Funding Agreement ("CFA"), which on 30 December 2018 the respondent, Mr Naegeli (for and on behalf of the Human Enhancement Project ("HEP"), an unincorporated association) entered into with CRB Investment Holdings Pty Limited ("CRB"). The unconventional features of the CFA include that in exchange for HEP making a loan to CRB of $500,000 within two "banking days" of execution of the CFA, it required CRB, starting on the last Friday of April 2019 to make twelve monthly "revenue" payments of $500,000 each plus a final, thirteenth, payment of $500,000 (said to represent return of "the principal") within five banking days of the last payment. The total amount payable by CRB to HEP over a period of about 16 months, in respect of HEP's $500,000 loan, was thus $6.5 million. As the primary judge found, this is equivalent to interest at a rate of 1,200% per annum. Whilst those terms appear, on their face, unfavourable to CRB, it was CRB and not Mr Naegeli who proposed those terms.
On around 29 October 2019, pursuant to a Deed of Guarantee and Indemnity ("Guarantee"), the obligations of CRB under the CFA were guaranteed by Mr Charles Blinkworth, the managing director of CRB who proposed the CFA to Mr Naegeli and with whom Mr Naegeli primarily dealt, and also by Mr John Schaeffer and two companies he owned and controlled, Rasay Pty Limited ("Rasay") and The Footage Company Pty Ltd ("Footage"). As at that date no payments had been made by CRB, contrary to the terms of the CFA, such that CRB owed HEP a total of $3.5 million under the CFA. Under the Guarantee, the guarantors became immediately liable, without demand, to pay that $3.5 million, and thereafter they were liable to make payment in respect of any ongoing default.
The Guarantee and the circumstances in which it was executed are at the heart of this appeal.
CRB made no payments under the CFA and was wound up on 14 October 2020 with no dividend payable to creditors.
Mr Naegeli brought proceedings against Mr Schaeffer's executors (Mr Schaeffer died as a result of a road traffic accident on 14 July 2020), Rasay and Footage (together "the appellants") seeking to enforce their obligations under the Guarantee. Mr Naegeli sought judgment in the sum of $6.5 million, interest at the prescribed rate under s 100 of the Civil Procedure Act 2005 (NSW) and costs. In their defence, Mr Schaeffer's executors, Rasay and Footage contended that, in procuring the Guarantee, Mr Naegeli engaged in unconscionable conduct within the meaning of s 12CB of the Australian Securities and Investments Commission Act 2001 (Cth) ("ASIC Act") and that the Guarantee should be set aside as an unfair contract under the ASIC Act (having regard to ss 12BF, 12BG and 12BK) and/or as an unjust contract under s 7 of the Contracts Review Act 1980 (NSW).
The primary judge dismissed the unconscionability claim and the other ASIC Act claims, upheld the claim under the Contracts Review Act in part, and on that account limited the damages awarded to Mr Naegeli against the executors of Mr Schaeffer (but not against Rasay and Footage) to the sum of $500,000. His Honour awarded interest on the $500,000 sum at the rate of 10% compounded daily from 29 October 2019, on the basis that the Guarantee provided for interest in those terms on unpaid sums: Naegeli v Dalton and Schaeffer as Executors of the Estate of the late John Herman Schaeffer [2023] NSWSC 466.
Whilst the party to the CFA is HEP, given that HEP is an unincorporated association represented by Mr Naegeli, in this judgment I will refer to Mr Naegeli as encompassing HEP.
The appellants appeal against the primary judge's rejection of the unconscionability claim (grounds challenging the primary judge's finding that the Guarantee was an unfair contract within the meaning of s 12BF of the ASIC Act are not pressed). The appellants contend that the primary judge erred in not setting the Guarantee aside for unconscionability under the ASIC Act or as an unjust contract under s 7 of the Contracts Review Act. The appellants also appeal against the award of interest on the terms set out in the Guarantee. Mr Naegeli cross-appeals against the primary judge's finding that cl 2.1 of the Guarantee was "unjust" for the purposes of the Contracts Review Act and against his Honour's decision under that Act to confine liability under the Guarantee to $500,000 plus interest at 10% per annum. By notice of contention on the cross-appeal, the appellants contend that the primary judge's finding that the Guarantee was unjust should be upheld on further grounds.
Mr Naegeli initially sought to challenge, by notice of contention, the primary judge's finding that he was dealing in a financial product and thus that the ASIC Act applied, having regard to the terms of s 12BAB(9) of the ASIC Act. However, given that (without objection by Mr Naegeli) the appellants amended their notice of appeal to rely upon the Competition and Consumer Act 2010 (Cth), Sch 2 - Australian Consumer Law ("Australian Consumer Law") in the event that the ASIC Act were not to apply, the notice of contention was not pressed. The correctness of the primary judge's findings as to s 12BAB(9) of the ASIC Act was thus not in issue on the appeal.
For the reasons set out below, save as regards the primary judge's orders on interest, the appeal should be dismissed and ground 1 of the amended cross-appeal allowed as set out at [215] below.

[13]

Test on appeal

Notwithstanding the evaluative nature of judgments as to whether conduct is unconscionable within the meaning of s 12CB of the ASIC Act and whether a contract is unjust within the meaning of s 7 of the Contracts Review Act, it is incumbent upon the appellants to demonstrate error in the findings of the primary judge: Minister for Immigration and Border Protection v SZVFW (2018) 264 CLR 541; [2018] HCA 30 at [30] (Gageler J, as his Honour then was) ("SZVFW"). The evaluative nature of the judgment does not diminish the court's task of "weighing conflicting evidence and drawing its own inferences and conclusions": Dearman v Dearman (1908) 7 CLR 549 at 564; [1908] HCA 84 (Higgins J), partly quoted in Fox v Percy (2003) 214 CLR 118; [2003] HCA 22 at [25] (Gleeson CJ, Gummow and Kirby JJ) ("Fox v Percy"), cited in SZVFW at [32] (Gageler J).
Whilst judgments as to whether conduct is unconscionable or a contract is unjust are evaluative, they are not matters of discretion. As Gageler J said in SZVFW, having referred to Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd (2003) 214 CLR 51; [2003] HCA 18, at [46]: "Like a common law duty of care, a statutory prohibition on conduct that is unconscionable posits a standard of conduct which, on proven facts, a person obliged to meet that standard either has met or has not."
To similar effect, Edelman J in SZVFW held at [151]: "a statutory provision that proscribes "conduct that is unconscionable, within the meaning of the unwritten law", is, like the doctrine of unconscionability in equity upon which it is based, not one that requires judicial restraint, at least to the extent that the evaluative exercise is not affected by the natural limitations of the appellate judge." (Footnotes omitted).
As to the limitations of the appellate court, in the context of considering the dismissal by the Full Federal Court of the plaintiff's challenges in that case to the primary judge's conclusions drawn from the expert evidence, in Australian Securities and Investments Commission v Kobelt (2019) 267 CLR 1; [2019] HCA 18 at [217] ("ASIC v Kobelt"), Nettle and Gordon JJ said: "As was explained in Thorne v Kennedy, where a transaction is sought to be impugned by the operation of vitiating factors such as, relevantly, unconscionable conduct, it is necessary for a primary judge to conduct a close consideration of the facts; and it is equally necessary for an appellate court to assess any challenge to the primary judge's conclusions in light of the advantages enjoyed by that judge. That is because an assessment of whether unconscionable conduct has been established calls for a precise examination of the particular facts, and the exact relations established between the parties. The advantage of a primary judge in seeing the parties and estimating their characters and capacities is "immeasurable"." (Footnotes omitted).
That statement must be understood in context. Their Honours were there considering the limitations on an appellate court as regards the primary judge's findings relating to the evidence of Dr Martin, an expert social anthropologist retained by ASIC, who gave oral evidence and was cross-examined at trial. As discussed below, the extent of the disadvantage of the appellate court is diminished where, as is largely the case here, the challenges on appeal do not go to underlying facts or the assessment of witness evidence.
As regards the Contracts Review Act, in Canty v PaperlinX Australia Pty Ltd [2014] NSWCA 309 at [125], Gleeson JA (Barrett and Emmett JJA agreeing) said at [49]: "… the appellate court, when reviewing a finding that a contract was unjust, is generally taken to be in as good a position as the trial judge to decide on the proper inferences to be drawn from the established facts, although respect and weight will be given to the conclusions reached by the trial judge."
Moreover, as held by Bell P (Macfarlan and Payne JJA agreeing) in Magann v The Trustees of the Roman Catholic Church for the Diocese of Parramatta [2020] NSWCA 167 at [59] ("Magann"): "Although the Court is engaged in a "Warren v Combes" rather than "House v R" level of appellate review, that review falls to be undertaken by reference to the unchallenged factual findings made at first instance. The underlying fact finding process is not repeated unless specific findings of fact are challenged, but the Court may reach its own evaluative determination of the question of unjustness, drawing inferences from unchallenged findings of fact."
Consistent with that authority, during argument on appeal, Senior Counsel for both parties accepted that, save as regards the challenge to the primary judge's finding of fact at [181] (discussed below at [147]-[149]), this Court is in as good a position as the primary judge to determine the issues raised, albeit that, consistent with the authority set out above, respect and weight will be given to the primary judge's conclusions.

[15]

The key individuals and entities

The key individuals involved in the relevant transactions are Mr Naegeli, Mr Schaeffer and Mr Blinkworth.
As regards Mr Naegeli, the primary judge found that despite having some commercial experience in a prestige car dealership, he was "a somewhat unworldly and commercially naïve person" who appeared to be "well and truly out of his depth when dealing with CRB" and was "evidently dazzled by Mr Schaeffer's apparent association with CRB": [14]. The primary judge found that "if anyone was in Mr Blinkworth's thrall, it was Mr Naegeli": [122]. As regards Mr Naegeli's credibility, the primary judge found that during cross-examination Mr Naegeli "impressed … as an honest witness, doing his best to give the best of his memory concerning events which were clearly very distressing to him": [15]. His Honour found further that there was "no reason to doubt the accuracy of Mr Naegeli's account of what happened" and that Mr Naegeli was "a reliable informant": [40]. There is no challenge to those findings.
HEP is an unincorporated association whose members are Mr Naegeli and his mother. HEP was established in 2013 as a "humanitarian, philanthropic, non-profit, non-government organisation": [16]. Mr Naegeli's evidence was that as his funds were in an account in the name of HEP and that was where payments under the CFA were to go, on 28 December 2018 (shortly before the CFA was executed) Mr Blinkworth suggested that the lender under the CFA should be HEP to meet "Know Your Client" requirements.
Before the primary judge it was accepted by Senior Counsel for the appellants that Mr Schaeffer was "a sophisticated businessman" whom the primary judge found appeared to have "acquired great wealth as a result of commercial activities": [337]. Mr Schaeffer was the chairman and major shareholder of Tempo Services, a publicly listed cleaning and security company. Mr Schaeffer was neither a director nor shareholder of CRB and did not play any day-to-day role in CRB's business but had a "longstanding business connection" and "a significant commercial association with Mr Blinkworth prior to the events with which these proceedings are concerned": [21] and [36]. The business relationship between Mr Schaeffer and Mr Blinkworth dated back to 1995, and in around 2006, Mr Schaeffer had invested $2.5 million in a security company started by Mr Blinkworth: [27]-[30].
There is also evidence of Mr Schaeffer having provided ongoing financial support to CRB. In April 2018, he executed a guarantee of CRB's obligations, up to a limit of €630,000, to a company unrelated to Mr Naegeli, Bloomingville Hong Kong Limited (the "Bloomingville Guarantee" and "Bloomingville" respectively). The recitals to the Bloomingville Guarantee (which is in evidence) record that Mr Schaeffer "is interested in the arrangement between [CRB] and Mackeen", being a company located in Doha, Qatar, with whom CRB proposed to enter into a contract.
Further, according to a balance sheet prepared by Mr Ian Niccol, the liquidator of CRB, at some time between 1 July 2019 and 30 June 2020, Mr Schaeffer made a loan to CRB of $676,446.89: [34] and [64]. That is consistent with the statement in Mr Niccol's final report dated 22 June 2022 that Mr Schaeffer provided "significant financial support" to CRB until his death in July 2020. In this regard it should be noted that Mr Niccol reported that the projected creditor claims of CRB included $675,431 in respect of Bloomingville (discussed below) and $676,446.89 in respect of Mr Schaeffer.
The primary judge found that "the conclusion may be open that … Mr Schaeffer had confidence in Mr Blinkworth's commercial acumen" and noted that "Mr Naegeli accepted that it did appear to him that Mr Schaeffer trusted what Mr Blinkworth was saying to him and to Mr Naegeli": [321].
There is relatively little evidence as to the financial resources or background of Mr Blinkworth. Mr Niccol reported that there were assertions and management accounts suggesting that Mr Blinkworth had provided financial support to CRB. Mr Niccol had previously reported on 14 January 2021 that Mr Blinkworth was "a high net worth individual" who "provided ongoing funding to [CRB] and was the driving force behind the operations of the business up until his passing." Mr Niccol said that after Mr Blinkworth's death, CRB "no longer had the required funding or the influence of Mr Blinkworth to continue the business operations". Mr Naegeli's evidence was that Mr Blinkworth had boasted of, and displayed to him, an extravagant lifestyle. Mr Naegeli said he saw Mr Blinkworth driving a Lamborghini, that Mr Blinkworth would spend $500 on lunch and buy a $500 bottle of wine and told Mr Naegeli "[w]hen you are a part of our group this is what becomes the normal thing every day." However, Mr Naegeli also said that at Mr Blinkworth's funeral the photographs suggested a far more modest lifestyle.

[16]

CRB's business activities and financial standing

As to CRB, the true position is somewhat opaque. Both Mr Blinkworth and Mr Donald James (CRB's Director, Project Management) described CRB to Mr Naegeli when he first met them, but Mr Naegeli's evidence as to this is subject to the Conversation Ruling. Thus, whilst it can properly be relied upon to inform a judgment as to what Mr Naegeli understood CRB to do, it cannot be relied upon as evidence of the business or activities of CRB.
There is some description of the business and activities of CRB in Mr Niccol's various reports. According to Mr Niccol's report of 14 January 2021, CRB operated an "international project management business" and traded from 1 July 2017 to 13 October 2020. Mr Niccol explained that, whilst he had been given some documentation relating to CRB, it was likely that "significant documents relating to the Company's history" were not available to him and he was unable to obtain a backup of the email accounts held by Mr Blinkworth or Mr James. In light of that, there must be some doubt as to the extent to which the profit and loss statements and balance sheets for 30 June 2019 and 30 June 2020, which Mr Niccol prepared, represent an accurate picture of CRB at the relevant points in time. By way of example, on 24 May 2019, Mr Blinkworth sent Mr Naegeli a copy of documents which appear to evidence a letter of credit from HSBC in London of US$60 million in favour of CRB at the request of "Great Joint International Enterprises Limited UK". There is no reference to this letter of credit, or to any dealings with that company in Mr Niccol's report. It may be that this is not an authentic document. Alternatively, it may be that this is an example of a document which was not available to Mr Niccol and which may have shed light on what business operations had been conducted by CRB in the period prior to Mr Blinkworth's death. Similarly, on 28 December 2019, Mr Blinkworth sent Mr Naegeli an export permit dated December 2019 for 200 kilograms of raw gold from the Mubende District, Uganda. It may be that this had nothing to do with CRB, but in the light of this evidence and the letter of credit discussed above, the Court cannot wholly ignore the possibility that there was business that CRB, through Mr Blinkworth, was involved in but which was not recorded on the company's accounting records and thus was not available to Mr Niccol.
The primary judge referred to the "parlous" position of CRB showed in the profit and loss accounts and balance sheets prepared by Mr Niccol: [292]. His Honour found at [294], however, that: "… there is no suggestion that Mr Naegeli knew that CRB's position was as is now stated in these profit and loss accounts and balance sheets."
This material is relevant to this appeal in two ways. First, because the appellants contend that CRB's impecuniosity is relevant on the question of unconscionability. Second, because it may be relevant to the possibility that Mr Schaeffer had his own financial and personal reasons to execute the Guarantee notwithstanding its onerous terms.

[18]

Mr Naegeli enters the CFA

Mr Naegeli had been looking for an investment and in that context was put in touch with Mr Blinkworth. He first met Mr Blinkworth on 3 July 2018 in Mr Blinkworth's office. Mr Schaeffer was present by telephone for some of that meeting: [55]. The unchallenged evidence before the primary judge was that, at that meeting, Mr Schaeffer said to Mr Naegeli: "I am the honorary chairman of CRB. I have been awarded an Order of Australia. You are very fortunate to have a chance to go into business with CRB and if you pass their criteria, I look forward to meeting you and discussing business together. If you are interested in art I can give you a tour of the Art Gallery of NSW where there is a wing named after me. That is how I have made a lot of my money, by entering into cash funding agreements with CRB. These agreements and windfalls give me the confidence to back CRB and hold my position as Honorary Chairman of CRB. There are a lot of benefits with being aligned with CRB." (Emphasis added by primary judge).
Relying in part upon this, the primary judge found that "Mr Schaeffer had been happy to assist in the establishment of CRB's "credibility"": [85].
The primary judge found that it appeared that Mr Naegeli "felt out of his depth at this meeting": [70]. Mr Naegeli's evidence was that he recalled "feeling a sense of security and prestige because of the calibre of the people involved with CRB".
During the 3 July 2018 meeting one of Mr Blinkworth or Mr James proposed that Mr Naegeli invest US$20 million in CRB. That proposal, which involved payments to Mr Naegeli of $500,000 per month plus return of his capital in full if he could raise the US$20 million investment, ultimately did not progress but was the subject of ongoing discussions from July to December 2018.
Later in July 2018, someone at CRB (Mr Naegeli thought it was probably Mr Blinkworth) gave Mr Naegeli a copy of CRB's "Corporate Profile". This included that: "… Together, the directors of CRB have over 50 years' experience in the highest levels of finance and international corporate leadership as Chief Executive Officer(s)."
CRB's Corporate Profile also said of Mr Schaeffer (although, as identified by the primary judge there was no evidence that Mr Schaeffer had any involvement in the creation of this document: [83]): "Mr. John H. Schaeffer AO (awarded 'Order of Australia'), Honorary Chairman Mr. Schaeffer is [sic] board member of the National Gallery of Australia Foundation, as well as a board member and Life Governor of the Art Gallery of New South Wales. He is a [sic] internationally known collector of 'Pre-Raphaelite' works of art and has a wing of the Art Gallery of NSW for his personal collection (https://www.artgallery.nsw.gov.au/exhibitions/victorian-visions/). He has over 25 years' experience as the Chairman of several multi-national corporations with revenues in the hundreds of millions, to billions of dollars."
Between September and 31 December 2018, Mr Naegeli met, and had calls, with Mr Blinkworth on numerous occasions. Mr Schaeffer joined in these calls on no less than five occasions: [87]. On a number of occasions Mr Schaeffer said words to the following effect: "Patrick [Mr Naegeli] I'm not just saying this because Charles [Blinkworth] is present, he has spoken to me at length about you and he really likes you as a person and what you are in pursuit of, and I totally trust Charles's judgment. I would really like to hear more and share my experiences with you, I feel this can mutually benefit us, once you enter into the [Cash Funding Agreement] we will become partners, your life will change forever, we will work together and help you on your way." (Emphasis added by primary judge at [88]).
In an email from Mr Naegeli to Mr Gdanski (a solicitor he had engaged) on 8 December 2018, Mr Naegeli said: "... on a personal level I asked them both individually and both said there is no way they want to bring harm to me from the people I bring for investment, they would rather tell me not to go in if they weren't certain they can provide the revenue payments and the principal."
Ultimately, following negative advice from a barrister engaged by Mr Gdanski, highlighting the lack of security for the lender under the CFA, Mr Naegeli did not proceed with the US$20 million proposal.
There then followed a second proposal in which Mr Naegeli was to procure an investment of US$10 million. As to this, Mr Naegeli's evidence (to which the Conversation Ruling applied) was that at a meeting on 15 December 2018, Mr Schaeffer said: "I have agreed to cover the other half to make up the $20M USD required only you have to act fast."
Mr Blinkworth continued to pressure Mr Naegeli to enter the CFA: [116]. Shortly thereafter, on 17 December 2018, Mr Blinkworth said: "If the Investors or another entity do not enter the CFA, I have another party organised to act as the lender. Because you have been allocated a position in this trade, if you do not proceed, unfortunately you will not be given another opportunity to participate."
There then followed, on 22 December 2018, a third proposal from Mr Blinkworth for Mr Naegeli to lend only $500,000. Mr Naegeli had previously told Mr Blinkworth that he had personal access to that amount. Mr Blinkworth said this was because Mr Schaeffer had said to him "why don't you give [Mr Naegeli] a chance". This evidence was admitted subject to the Conversation Ruling. Mr Blinkworth said he was proposing this "[t]o prevent [Mr Naegeli] from missing out" and asked Mr Naegeli "to promise me you will not tell anyone about" it: [119]. The primary judge, at [120], found that the terms of the conversation on that day suggested: "… a continuing involvement of Mr Schaeffer in the transaction, albeit at some remove, and of a role that he played in encouraging Mr Blinkworth to encourage Mr Naegeli to commit to a transaction with CRB."
As that evidence was subject to the Conversation Ruling this can only be relevant to Mr Naegeli's understanding or appreciation flowing from the words spoken by Mr Blinkworth.
When Mr Naegeli responded to the latest offer conveyed by Mr Blinkworth by asking whether he had "[heard] right", Mr Blinkworth said "[i]f you want, we can treat you like everyone else and only give you 20%". Mr Naegeli responded: "I honestly just don't want to miss out on the opportunity to be in business with you all, I will accept whatever it is you propose."
The primary judge found that this exchange bespoke "Mr Naegeli's anxiety to do business with Mr Blinkworth and an apprehension that if he did not do so he might miss a valuable opportunity" and that "if anyone was in Mr Blinkworth's thrall, it was Mr Naegeli": [122].
At a further meeting on 28 December 2018 Mr Naegeli, who said that he was still in shock that he was being given this opportunity, asked several times: "[W]hy are you offering me returns that are 5 times what we have been discussing over the last few months… Is there a catch… am I being punked…?"
Mr Blinkworth suggested that Mr Naegeli should use HEP to enter into the CFA: [128]. On 29 December 2018, Mr Blinkworth sent an email to Mr Naegeli attaching a draft of what became the CFA: [134]. On 30 December 2018, both Mr Blinkworth and Mr Naegeli (for and on behalf of HEP) executed the CFA: [135]. Mr Naegeli did not seek independent legal advice prior to entering the agreement: [136]. The primary judge found at [125]: "What is important is that the extraordinarily generous "payment structure" was not Mr Naegeli's idea."
On 31 December 2018, Mr Naegeli transferred $500,000 to CRB.
The primary judge found that "from Mr Naegeli's point of view, Mr Schaeffer was walking in lockstep with Mr Blinkworth in encouraging Mr Naegeli to invest his funds in CRB": [322]. Beyond that, however, his Honour found that he could see no basis to conclude that Mr Naegeli was privy to what the relationship was between Mr Blinkworth and Mr Schaeffer: [322]. Further, his Honour found that Mr Schaeffer was "actively involved in courting Mr Naegeli's investment in CRB": [325].

[19]

The terms of the CFA

The recitals to the CFA provide: "A. Borrower is seeking to expand economic development projects and business interests and having the required knowledge, professional and banking contacts and resources, to assist Lender in their stated business objective through the use of what is commonly referred to as Cash Funding Agreement ("CFA") and is desirous for the Lender to forward the agreed cash balance via Internal Bank Ledger-to-Ledger Transfer for the Borrower to utilize as payment and/or collateral against various transactions to be performed under the separate proprietary business strategies; and; B. The Lender represents having the required expertise, authorization, control, knowledge, professional contacts, private funds, or discretionary resources to assist Borrower in achieving the above and below stated business objective. The Lender is committed to transfer to the Borrower's receiving account, as described in ANNEX A, a minimum of $500,000 (Five Hundred Thousand AUD), will be on or before December 31, 2018."
Clause 1 of the CFA established a term of 16 months commencing on the date of the "Ledger-to-Ledger transfer" and terminating on the last Friday of the 16th month after the confirmed receipt of the described transfer.
Subclauses 2(a), (b) and (f) of the CFA are in the following terms: "2. DUTIES OF BORROWER Provided that Lender is not in breach or default of its obligations under this Agreement, Borrower agrees as follows: a) Initial Transactions - Within 10 (ten) banking days following Borrower confirmation of receiving the agreed cash deposit, Borrower shall confirm and acknowledge the initiation of the CFA Transaction(s) and proprietary business and corporate activities required to fulfill obligations and duties under this agreement. Lender understands the requirement that Borrower undertake international travel for direct execution of required banking documents to fulfill obligations and duties under this CFA. b) Guarantee of Monthly Payments - All revenue payments are guaranteed to be paid by CRB, according to the details listed in ANNEX B, through Bravura Private Wealth PTY Limited, from Westpac Bank Australia with the account details listed in ANNEX A. … f) Return of Lender's Loan - Borrower guarantees the CASH DEPOSIT will be returned, clear and unencumbered within 5 (five) banking days after the maturity date of this CFA Agreement [sic] from Bravura Private Wealth institutional account in Westpac Bank - Australia with the account details listed in ANNEX A."
Clause 7(d) of the CFA states that "Borrower's CFA is structured as "loan agreement" for the purpose of compliance with banking and regulatory requirements…".
ANNEX B to the CFA sets out the "Revenue and Payment Structure" as follows: "$500 Thousand AUD will be Transferred to Borrower: A. All transfers will be sent by Ledger-to-Ledger Transfer, to CRB's treasury services management account with Bravura Private Wealth in Westpac Bank - Australia, according to the account details listed in ANNEX A. • All revenue payments are guaranteed to be paid by CRB, through Bravura Private Wealth PTY Limited, from Westpac Bank Australia with the account details listed in ANNEX A. B. Beginning on the last Friday of the [sic] April 2019, THE FIRST PAYMENT equal to 100% of the total amount of the cash transfer will be paid and/or divided as instructed and paid to the designated receiving bank account(s) for Lender as shown in ANNEX A for the Lender and continue on the last Friday of each month for a total of 12 payments. C. At the end of the month after the 12th payment, the original amount of the cash transfer received by the Borrower from the Lender, will be transferred to the Lender, free and clear of any liens or encumbrance. This is the return of the loaned amount of funds."
As previously identified, the primary judge found that the terms of the CFA were proposed by CRB, not by Mr Naegeli: [333].

[20]

The Moroccan proceedings

In January 2019, CRB issued proceedings in the Commercial Court of Casablanca against Mackeen in respect of the transaction for which the Bloomingville Guarantee was procured. As explained in submissions before the primary judge, those proceedings sought the return of €850,000 paid to Mackeen and damages. In Mr Niccol's report of 22 June 2022, he describes this as a potential claim for damages of €150 million. As to the Moroccan proceedings, the primary judge found: "[302] I am not in a position to make any assessment of the likely recoverability of the judgment obtained by CRB against Mackeen Holding or the prospects of CRB's likely success in the Moroccan Court. [303] However, these matters suggest that, despite the state of CRB's profit and loss statements and balance sheets, there may have been some prospect of CRB satisfying its obligations to Mr Naegeli and the Human Enhancement Project under the Cash Funding Agreement. It also appears that Mr Schaeffer knew of these matters and thought that they were "not dead"."
The primary judge's finding at [303] is challenged by the appellants on appeal.
It should be noted that Mr Niccol also reported that on 16 March 2020, judgment in favour of CRB in the sum of €850,000 was obtained in a Moroccan court against Mackeen. Solicitors in Morocco had advised that some €20,000 was required to progress to final judgment but the company could not afford to fund this. Also, the stamping of that judgment had been suspended until the finalisation of a damages claim for €150 million which CRB had brought against Mackeen and which was still pending in the Casablanca Commercial Court. Ultimately, Mr Niccol was unable to find a litigation funder to fund the Moroccan proceedings and neither of those amounts was recovered.
It should also be noted that, after his investigations, Mr Niccol determined not to issue proceedings for insolvent trading, notwithstanding that CRB may have been insolvent from 28 January 2020. Mr Niccol's reasoning in this regard included that there may have been an available defence of "reasonable basis to suspect that [CRB] may have been solvent due to the belief held at the time as to the recoverability of the claim against Mackeen."

[21]

CRB's default under the CFA

The first payment of $500,000 under the CFA was due on 26 April 2019. Mr Naegeli did not receive payment into the nominated bank account. Mr Naegeli sent an email to Mr Blinkworth on 28 April 2019 in the following terms: "… I only just noticed the first revenue payment was due on the 26th April 2019 being the last Friday of April, can you confirm whether or not this was made, I understand with all the public holidays there may have been a delay?"
Mr Blinkworth then asked Mr Naegeli to travel to Sydney so that Mr Blinkworth could explain the reason for the delay on the first payment. Mr Naegeli met with Mr Blinkworth and Mr William Aloisi (another director of CRB) on 15 May 2019. In evidence subject to the Conversation Ruling, Mr Naegeli said that at that meeting Mr Blinkworth showed him many contracts and said: "The reason for needing to see you in person is because everything I am showing you is classified because they are projects being conducted with governments. I have obtained approval to discuss them with you. … … As soon as any of the transactions CRB are working on come in, you will be paid and some extra advance payments too, to make up for the delays. The funds could come any day."
On 24 May 2019, Mr Blinkworth called Mr Naegeli and said (again this evidence is subject to the Conversation Ruling): "There is nothing to be concerned about. I will send you a number of documents which demonstrate that CRB will be obtaining access to 160 million US, 60 million of which is represented by a letter of credit issued by HSBC Bank to Barclays Bank, for the exclusive benefit of CRB as ultimate beneficiary. Once we draw down our fees of US 100 million, we will pay you $3 million in advance to make up for the late payment of the revenue. I should not really be sending you these documents but I will share them with you because I trust you."
Mr Blinkworth sent Mr Naegeli the documents appearing to reflect the US$60 million letter of credit, referred to above at [34]. The primary judge accepted Mr Naegeli's evidence that these documents gave him encouragement and that he believed that they were legitimate: [151]-[152].
There was no challenge to Mr Naegeli's evidence that throughout May and June 2019 he had about six telephone calls where he raised his concerns about the lack of security in the CFA and the lack of payments made under it: [153]. Mr Naegeli's evidence, subject to the Conversation Ruling, was that during these calls, either Mr Blinkworth or Mr Schaeffer or "sometimes both of them" said words to the effect: "There is no need for concern. CRB is involved in many significant projects. You will receive your investment in the 13 months as agreed. We should organise a meeting with you to discuss our possible investment in your other businesses. If anything ever did go wrong we will pay you from our personal funds. There was a recent article about John [Schaeffer] in May which you can find if you do a Google search for 'Domain John Schaeffer'."
That article (which was admitted only as evidence of its existence) was a lengthy profile of Mr Schaeffer, headed "How art and trophy home collector John Schaeffer made his mark on Sydney's prestige property scene."
In his oral evidence, Mr Naegeli said that confidentiality was discussed "nearly at every time I met with [Mr Schaeffer and Mr Blinkworth]." Mr Naegeli said that during May and June 2019, Mr Schaeffer said to him "I entered these [CFA's] and it's not public knowledge so you have to remain the same if you want to continue being in this with us" and told Mr Naegeli that he had made some of his wealth from the CFAs: [156]. The primary judge found at [157] that these conversations: "… show how closely Mr Schaeffer saw himself as being aligned with the interests of CRB."
Mr Naegeli also gave evidence (to which the Conversation Ruling applied) that in late May 2019, Mr Blinkworth called him and said: "CRB is awaiting a shipment of 2000kg [sic] of gold from West Africa. We have a capital partner from Switzerland who will pay tax on it. The first importation will be for US $5.2 million. We will ensure that you get paid $2 million from this."
In cross-examination Mr Naegeli said that Mr Schaeffer, Mr Blinkworth and Mr Aloisi mentioned in 2019 that gold trading was a potential source of funds for CRB: at [160]. The primary judge observed that it was not suggested to Mr Naegeli that this evidence was untrue: [161].
Mr Naegeli said that, on many occasions, Mr Blinkworth said to him words to the effect: "No one would ever be given an opportunity like the one CRB has provided you, involving a small investment with such proportionately large returns."
Mr Naegeli said: "At this point, I felt that Mr Blinkworth had overstepped our professional boundary. I did not mention this to him as I wanted to maintain my professionalism despite my growing concerns about not yet receiving any revenue payments from the investment. I therefore decided that I needed to prepare some sort of security document, such as a Deed of Guarantee and Indemnity (Deed) in order to protect my interests in the investment and to ensure that Mr Blinkworth and Mr Schaeffer would guarantee the repayment of my investment and the returns I was promised." (Emphasis in original).
Mr Naegeli asked for a personal guarantee from each of Mr Blinkworth and Mr Schaeffer. Mr Naegeli said (in evidence subject to the Conversation Ruling) that Mr Blinkworth responded that he would enter into a guarantee provided that Mr Naegeli did not put any undue pressure on CRB "in order to give us reasonable time to focus on our trading activities." Mr Naegeli said (again subject to the Conversation Ruling) that Mr Schaeffer responded: "I am happy to provide a guarantee, but I believe that by the time you have it prepared, the payments will be made, and it will not be necessary to proceed with it. I am so confident in Charles [Blinkworth] that I will put up my apartment in Bondi as security for the guarantee. I will give you a guarantee form [sic] the company which owns it and from another company I own."
Both Mr Blinkworth and Mr Schaeffer provided their personal details for inclusion in the Guarantee and Mr Schaeffer provided Mr Naegeli with details of his private companies to be included as additional guarantors: [169].
The primary judge rejected the appellants' contention that this showed that Mr Schaeffer was under Mr Blinkworth's influence. Rather, his Honour found that "Mr Schaeffer expressed confidence about Mr Blinkworth, which confidence evidently arose from their business relationship to which I have referred": [168].

[22]

Execution of the Guarantee

Mr Naegeli's evidence is that either Mr Blinkworth or Mr Schaeffer, he could not recall which, said that Mr Naegeli should prepare a deed and then travel to Sydney for them to execute it: [169]. Mr Naegeli said: "I then prepared the Deed after reviewing several others that either I have had prepared or which I have signed when conducting business that required such a document. I used my own experience from those arrangements to come up with something I felt protected me and because I am someone that keeps my word, I did as I was asked and did not involve any lawyers."
The primary judge found that the form of guarantee that Mr Naegeli prepared was "bespoke in nature": [171].
Mr Naegeli executed the Guarantee on or about 18 July 2019: [176]. Mr Naegeli then met with Mr Blinkworth in Sydney on 26 July 2019, and had been expecting Mr Schaeffer also to be present. As it turned out, Mr Schaeffer was present only by telephone. Mr Naegeli's oral evidence was that Mr Blinkworth told him that he needed some time to go over the Guarantee and that he needed to give Mr Schaeffer an opportunity to do so as well. Mr Naegeli understood this to mean that this was to obtain legal advice: [174]. Mr Naegeli said Mr Blinkworth again assured him that CRB was expecting some funds to be deposited into its account "before [Mr Naegeli] left Sydney so that payment could be made to [Mr Naegeli], and we could avoid the need for the [Guarantee] entirely."
Whilst Mr Naegeli left Sydney without the Guarantee having been executed, he continued to give Mr Blinkworth and Mr Schaeffer "the benefit of the doubt due to their professional reputations." He then became frustrated and angry upon learning that Mr Blinkworth had spent in excess of $45,000 on accommodation and flights to Hong Kong while he was still waiting for his revenue payments. He expressed this frustration to Mr Blinkworth and said that he would commence legal proceedings to recover the money he was owed. Mr Naegeli then asked Mr Blinkworth to organise the execution of the Guarantee by himself and Mr Schaeffer and said that he was beginning to doubt Mr Blinkworth's "credibility" and required a lawyer or Justice of the Peace to witness the execution: [179]. Having heard and considered Mr Naegeli's oral evidence as to this in cross-examination, the primary judge found that what Mr Naegeli meant was that he was beginning to doubt Mr Blinkworth's "creditworthiness": [181]. As set out below, this finding is challenged on appeal. Mr Naegeli's evidence (subject to the Conversation Ruling) is that at this time, Mr Blinkworth said: "If you do not trust me, it would be best that I just pay you and not include you in any future projects or assist with raising funds for your other business ventures."
Mr Schaeffer and Mr Blinkworth executed the Guarantee as a Deed at a café in Bondi in the presence of Dr Raiz, a Justice of the Peace, on 29 October 2019: [186]. There was no challenge to Dr Raiz's evidence that Mr Schaeffer was present on that day and executed the Guarantee. Mr Schaeffer executed the Guarantee on his own behalf, and on behalf of Rasay and Footage. As at that date, CRB had failed to make seven payments as required under the CFA. Thus, $3.5 million was owing under the CFA: [202].
The primary judge found that Mr Schaeffer entered the Guarantee "freely, voluntarily and unhesitatingly": [338]. The appellants do not challenge this finding as such, but contend that the primary judge should also have found that Mr Schaeffer "was under the influence of Mr Blinkworth" when he executed the Guarantee.
The primary judge found at [288] that having regard to the conversation between Mr Schaeffer and Mr Naegeli in May or June 2019 (set out at [80] above): "… it seems likely that Mr Schaeffer understood, when ultimately asked to execute the Guarantee in October 2019, that the payments had not been made. It also seems likely that Mr Schaeffer then understood that Mr Naegeli continued to be concerned about the prospects of CRB honouring its obligations under the Cash Funding Agreement."
The appellants challenge this finding.
The primary judge also found that it appeared likely that "Mr Schaeffer understood the nature of the CFA, at least in general terms": [332].
There is no evidence of what transpired between Mr Blinkworth and Mr Schaeffer leading up to the signing of the Guarantee, nor as to what opportunity Mr Schaeffer had to consider its terms: [188] and [399]. There was no evidence whether it was explained to Mr Schaeffer that by executing the Guarantee he became immediately liable to pay the then outstanding amount under the CFA of $3.5 million. The primary judge inferred that the effect of execution of the Guarantee was not explained to Mr Schaeffer and that it seemed unlikely that Mr Schaeffer had "any appreciation that this was the effect of his execution of the Guarantee": [204] and [399]. His Honour held: "[400] It seems reasonable to infer that Mr Schaeffer must have had a general understanding that he was guaranteeing CRB's obligations under the Cash Funding Agreement. After all, he had volunteered that "if anything ever did go wrong" he would pay Mr Naegeli from his "personal funds", and, as I have set out above, readily agreed to Mr Naegeli's request that he guarantee CRB's obligations. [401] However, it seems unlikely that Mr Schaeffer would have understood the immediate and significant effect of his execution of the Guarantee. [402] He must, however, have understood that, assuming CRB was unable to do so, he was guaranteeing the return to Mr Naegeli of at least the initial advance of $500,000." (Footnotes omitted).
Mr Naegeli challenges the finding that Mr Schaeffer did not understand the immediate effect of executing the Guarantee.
The primary judge also found that it could not be known whether or not Mr Blinkworth simply sought to have Mr Schaeffer sign the Guarantee without considering its contents or effect and that, by leaving it to Mr Blinkworth to procure Mr Schaeffer's signature, Mr Naegeli "ran the risk" of this happening: [399].

[23]

The terms of the Guarantee

Schedule 1 to the Guarantee set out that the Guarantors were Rasay, Footage, Mr Schaeffer and Mr Blinkworth. That page of the Guarantee is initialled by each of Mr Naegeli, Mr Schaeffer and Mr Blinkworth. All other pages of the Guarantee are initialled only by Mr Naegeli and Mr Blinkworth.
The recitals to the Guarantee provide: "A. At the request of each Guarantor, the Beneficiary has agreed to provide financial accommodation to the Borrower pursuant to the Facility Agreement. B. In consideration of the Beneficiary providing financial accommodation to the Borrower pursuant to the Facility Agreement, each Guarantor enters into this deed and agrees to be bound by the terms of this deed."
Clauses 2.1 and 2.2 of the Guarantee, provide: "2.1 Guarantee Each Guarantor irrevocably and unconditionally guarantees to the Beneficiary the satisfaction and payment in full of the Obligations. 2.2 Satisfaction of Obligations If the Borrower does not pay or satisfy any Obligation in full on the due date, each Guarantor will immediately, without demand by the Beneficiary, satisfy or pay that Obligation in full."
"Obligations" are defined in cl 1.1 of the Guarantee as: "… all the liabilities and obligations of the Borrower to the Beneficiary under or by reason of any Finance Document and includes any liabilities or obligations which: (a) are liquidated or unliquidated; (b) are present, prospective or contingent; (c) are in existence before or come into existence on or after the date of this deed; (d) relate to the payment of money or the performance or omission of any act; (e) sound in damages only; or (f) accrue as a result of any Event of Default, and irrespective of …".
"Finance Document" is defined in cl 1.1 of the Guarantee as "the Facility Agreement" which is, in turn, defined as the CFA.
Clause 6 of the Guarantee provided for security for "the payment of the Guaranteed Money" and "the due punctual and complete performance of each Guarantor's obligations and liabilities to the Beneficiary under this deed". The property charged was "any land owned by that Guarantor, solely, jointly or as trustee of any trust, now or in the future." "Guaranteed Money" is defined in cl 1.1 as meaning: "(a) $6,500,000.00; (b) all money the payment or repayment of which from time to time forms part of the Obligations."
Clause 7.3 of the Guarantee provides each Guarantor agreed to pay "default interest" of 10% per annum on all unpaid sums. "Unpaid Sum" is defined in cl 1.1 of the Guarantee as "any sum due and payable by a Guarantor under this deed but unpaid."
Clause 12 of the Guarantee, headed "Acknowledgements", provides: "Each Guarantor acknowledge that: (a) they have received independent legal advice in relation to entering into this deed and the contents of this deed; (b) they understand the terms and effect of this deed; and (c) they enter into this deed of their own free will and without any compulsion or duress."

[24]

Events after the Guarantee was executed

On or around 29 October 2019, after executing the Guarantee, Mr Blinkworth called Mr Naegeli and indicated that the Guarantee was executed. Mr Naegeli's evidence (subject to the Conversation Ruling) is that Mr Schaeffer, who was also on that call, said: "Now that the Deed has been fully executed by all parties, I trust that you will not commence proceedings against CRB as this would create problems for our projects. Please put your trust in the process. We all have to remain patient as there are many projects which are about to come to fruition, which Charles will discuss with you."
The primary judge found, at [207], that this: "… shows, once again, how closely aligned to CRB and Mr Blinkworth Mr Schaeffer saw himself as being and how far he was prepared to go in promoting CRB's and Mr Blinkworth's interests vis-a-vis Mr Naegeli. It shows that Mr Schaeffer saw his execution of the Guarantee as an important step that CRB needed to take to dissuade Mr Naegeli from seeking to enforce his rights…".
After a number of requests from Mr Naegeli, Mr Blinkworth provided Mr Naegeli with a copy of the executed Guarantee on 25 January 2020. Mr Blinkworth died three days later. It was at Mr Blinkworth's funeral, on 14 February 2020, that Mr Naegeli met Mr Schaeffer in person for the first time.
After Mr Blinkworth's death Mr Naegeli spoke with and met Mr Schaeffer on a number of occasions. At a meeting in Sydney with Mr Schaeffer and Mr Aloisi on 22 June 2020 (which was 13 days after Bloomingville issued proceedings against Mr Schaeffer under the Bloomingville Guarantee), Mr Naegeli showed Mr Schaeffer the executed Guarantee and asked whether Mr Schaeffer remembered it. Mr Naegeli's evidence is that Mr Schaeffer responded: "These are definitely my signatures. I haven't read the fine print so I would like to take them and see my attorney."
On 23 June 2020 Mr Schaeffer went to see his lawyer, Mr Matthews. Mr Matthews' evidence is that Mr Schaeffer said that the signature on the Guarantee looked like his own but that he did not sign it. The primary judge found, given that there was no challenge to Dr Raiz's evidence that Mr Schaeffer signed the Guarantee and that Mr Schaeffer acknowledged that the signature was his during the meeting with Mr Naegeli on 22 June 2020, this appeared to "bespeak an inclination on Mr Schaeffer's part to give different accounts of the same events to different people": [223].
On 24 June 2020, Mr Naegeli had three telephone calls with Mr Schaeffer. During the first conversation, Mr Schaeffer said: "… I have to sadly say that I think I have been misled by Charles Blinkworth. I think he has used me and abused me. But I am not the rich guy I once was. I feel that you've been duped, just like I've been duped. Up until the funeral, I still believed that he [Mr Blinkworth] would turn things around, that was 2020, behind my partners [sic] back, I was borrowing myself blue, borrowed money from friends and of course, being me, they trusted me."
Only the last sentence of this evidence is subject to the Conversation Ruling.
Mr Naegeli told Mr Schaeffer during this conversation that he had no choice but to commence proceedings.
Mr Naegeli's evidence (to which the Conversation Ruling does not apply) is that the second conversation on 24 June 2020 included the following: Mr Schaeffer: "You come across as a sincere guy. … I have been speaking to the Attorney. You mustn't discuss this with anyone, but there is one matter within CRB that is not dead, there may be some funds left. I need to swear you to secrecy about it." Mr Naegeli: "I'm pretty sure it's the same thing that Jim King told me about. I've already mentioned the Moroccan case. There is a way they can go for stupid amounts of money."
Mr Naegeli's evidence (to which the Conversation Ruling does apply) is that during the third conversation on 24 June 2020, Mr Schaeffer said: Mr Schaeffer: " … I know you're bleeding, I'm bleeding with the lawyers charges. I hear there's some money in the Middle East, I know that some money was paid there. And that was money I borrowed, very painfully, and I still have to pay back those borrowings. I don't know if you heard the amount that was borrowed from me but it was something like €630,000." Mr Naegeli: "Yeah, I heard. I also heard you're a guarantor for Bloomingville as well." Mr Schaeffer: "They're somehow supposed to be turning €630,000 into €150 million. It's a mystery to me and makes your deal like a bad deal. Sounds like another Charles Blinkworth deal."
On 14 July 2020, Mr Schaeffer died: [232].
No payments have been made to Mr Naegeli or HEP under the CFA or the Guarantee. A formal proof of debt confirmed that CRB remained indebted to Mr Naegeli in the amount of $6.5 million.

[28]

The appeal

The appellants advance eight, somewhat overlapping, grounds of appeal and numerous sub-grounds. In essence, the appellants contend that: 1. the primary judge erred in finding that Mr Naegeli did not act unconscionably within the meaning of s 12CB of the ASIC Act or s 21 of the Australian Consumer Law (grounds 1 to 4); and 2. the primary judge erred in finding that interest should accrue in accordance with the terms of the Guarantee, in circumstances where Mr Naegeli had not pleaded any claim for interest calculated in accordance with the Guarantee (the pleaded claim being for interest "at the prescribed rate" under the Civil Procedure Act) (ground 8).
I propose to deal with the grounds of appeal by reference to these two substantive issues.
A number of challenges to the primary judge's factual findings are advanced by both the appellants and Mr Naegeli. The appellants contend that the primary judge erred in finding: 1. at [181], that Mr Naegeli was beginning to doubt Mr Blinkworth's creditworthiness but not his credibility; 2. at [288], that Mr Schaeffer knew, at the time he signed the Guarantee, that payments due under the CFA had not been made (sub-ground 4(c)); and 3. at [303], that there may have been some prospect of CRB satisfying its obligations to Mr Naegeli and HEP under the CFA.
The appellants also contend that the primary judge should have found that: 1. having regard to the evidence and the finding of the primary judge, at [321], Mr Naegeli knew that the relationship between Mr Schaeffer and Mr Blinkworth involved Mr Schaeffer implicitly trusting Mr Blinkworth (sub-ground 2(h)); 2. having regard to the findings of the primary judge, at [397]-[403], that the Guarantee was an unfair contract and that the appellants were unaware of the financial consequences of their assenting to the Guarantee (sub-ground 3(a)); 3. through CRB, Mr Blinkworth was engaged in misconduct (sub-ground 3(b)); 4. Mr Schaeffer implicitly trusted and was influenced by Mr Blinkworth such that his ability to look after the appellants' interests was compromised and he wrongly believed that CRB would make the payments under the CFA (sub-grounds 3(c)-(d)); 5. Mr Naegeli was prepared to enter into any arrangement with CRB simply in order to foster his relationship with Mr Blinkworth (sub-ground 3(e)); 6. contrary to the primary judge's finding, at [181], by the time Mr Naegeli asked Mr Blinkworth to procure Mr Schaeffer's signature to the Guarantee, Mr Naegeli had either ceased to trust Mr Blinkworth or had concluded that CRB could not make payments under the CFA (sub-grounds 3(f)-(g)); 7. contrary to the primary judge's finding, at [303], CRB was insolvent at the time the appellants executed the Guarantee and Mr Naegeli had no confidence in CRB satisfying its liabilities (sub-ground 3(h)); and 8. the appellants executed the Guarantee when Mr Schaeffer was "under the influence of Mr Blinkworth" (sub-ground 4(a)). This is framed in the amended notice of appeal as an allegation of an erroneous finding having been made but is, in substance, a contention that this additional finding should have been made.
In support of his contentions on the appeal, Mr Naegeli contends that the primary judge erred, at [204] and [401], in finding that it was unlikely that Mr Schaeffer had any appreciation that the effect of his execution of the Guarantee was that he assumed an obligation to pay $3.5 million immediately and without demand. Mr Naegeli contends that that inference was, on balance, not available and that the evidence supports the "clear and proper inference" that at that time, Mr Schaeffer knew there were payments outstanding under the CFA and must have known that the effect of the Guarantee was to guarantee those outstanding payments.

[31]

Applicable principles

Section 12CB(1) of the ASIC Act relevantly provides: 12CB Unconscionable conduct in connection with financial services (1) A person must not, in trade or commerce, in connection with: (a) the supply or possible supply of financial services to a person; or (b) the acquisition or possible acquisition of financial services from a person; engage in conduct that is, in all the circumstances, unconscionable.
As regards unconscionability, there is no dispute that the primary judge correctly directed himself, at [277]-[282], as to the law. The nature of statutory unconscionability is helpfully encapsulated by Kiefel CJ and Bell J in ASIC v Kobelt at [14]: "The term "unconscionable" is not defined in the ASIC Act and is to be understood as bearing its ordinary meaning. The proscription in s 12CB(1) is of conduct in connection with the supply of financial services that objectively answers the description of being against conscience. The values that inform the standard of conscience fixed by s 12CB(1) include those identified by Allsop CJ in Paciocco v Australia & New Zealand Banking Group Ltd: certainty in commercial transactions, honesty, the absence of trickery or sharp practice, fairness when dealing with customers, the faithful performance of bargains and promises freely made, and: "the protection of those whose vulnerability as to the protection of their own interests places them in a position that calls for a just legal system to respond for their protection, especially from those who would victimise, predate or take advantage"." (Footnotes omitted).
The judgment as to whether conduct is unconscionable requires a focus on all the circumstances: ASIC v Kobelt at [8] (Kiefel CJ and Bell J), [83] (Gageler J), [155] (Nettle and Gordon JJ).
As Gageler J said in ASIC v Kobelt: "[92] … conduct proscribed by the section as unconscionable is conduct that is so far outside societal norms of acceptable commercial behaviour as to warrant condemnation as conduct that is offensive to conscience. … [93] The judgment required of a court exercising jurisdiction in a matter arising under s 12CB is a heavy one. For a court to denounce that conduct as offensive to a conscience informed by a sense of what is right and proper according to values which can be recognised by the court to prevail within contemporary Australian society. …".
Further, as Gageler J found in ASIC v Kobelt at [101], the judgment required to be made for the purpose of s 12CB of the ASIC Act is not to be arrived at "through a mere balancing of the applicable considerations identified in s 12CC." Those factors are a "non-exhaustive list … which [assist] in setting a framework for the values that lie behind the notion of conscience identified in s 12CB": ASIC v Kobelt at [154] (Nettle and Gordon JJ); see also Stubbings v Jams 2 Pty Ltd [2022] HCA 6; (2022) 399 ALR 409 at [57] (Gordon J) ("Stubbings"); see also Gageler J in Paciocco v Australia and New Zealand Banking Group Ltd (2016) 258 CLR 525; [2016] HCA 28 at [189].
Conduct may be unconscionable irrespective of whether the victim is vulnerable or under a disadvantage: Australian Securities and Investments Commission v Westpac Banking Corporation [2022] FCA 515 at [31] (Beach J); Stubbings at [77] (Gordon J, considering systemic unconscionability), and notwithstanding that the victim was a willing participant, the question being how that willingness was produced: Stubbings at [76] (Gordon J) citing Bridgewater v Leahy (1998) 194 CLR 457; [1998] HCA 66 at [118] (Gaudron, Gummow and Kirby JJ); see also ASIC v Kobelt at [157] (Nettle and Gordon JJ).
Thus, the court needs to administer the standard of unconscionability in the totality of the circumstances, having regard to the considerations in s 12CC of the ASIC Act "if and to the extent that those considerations are applicable in the circumstances": ASIC v Kobelt at [87] (Gageler J).
In Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 at 462; [1983] HCA 14 (Mason J), approved in Kakavas v Crown Melbourne Ltd (2013) 250 CLR 392; [2013] HCA 25 at [6] (French CJ, Hayne, Crennan, Kiefel, Bell, Gageler and Keane JJ), and Stubbings at [45] (Kiefel CJ, Keane and Gleeson JJ), for the purpose of unconscionability at equity: "… the disabling condition or circumstance is one which seriously affects the ability of the innocent party to make a judgment as to his [or her] own best interests, when the other party knows or ought to know of the existence of that condition or circumstance and of its effect on the innocent party."
In Bale v Kimberley Developments Pty Ltd [2022] NSWSC 820 at [585], Ward P referred, with apparent approval, to the summary of the elements of unconscionable dealing adopted by Austin J in Turner v Windever [2003] NSWSC 1147 at [105] and approved on appeal in Turner v Windever [2005] NSWCA 73 at [2] (Giles JA, Bryson JA agreeing) and [90] (Santow JA). These elements include that it is necessary to show not just that the "weaker" party is suffering from a special disadvantage that seriously affects their capacity to judge or protect their own interests, but also that the "stronger" party knows of the special disadvantage or of facts that would raise that possibility in the mind of any reasonable person. Further, it must be shown that the "stronger party" unconscientiously took advantage of the opportunity presented by that special disadvantage.

[32]

Consideration

By way of overarching submission, the appellants contend that it was for Mr Naegeli to demonstrate that the transaction was fair, just and reasonable, relying upon the finding of Macfarlan JA (Ipp and Campbell JJA agreeing) in Lopwell Pty Ltd v Clarke [2009] NSWCA 165 at [48] ("Lopwell") that, on the facts of that case, such an onus lay on the party benefiting from the transaction.
This contention can be disposed of at the outset. In Lopwell, Macfarlan JA had, at [37], directed himself by reference to the statement of Deane J in Louth v Diprose (1992) 175 CLR 621 at 637; [1992] HCA 61 that: "It has long been established that the jurisdiction of courts of equity to relieve against unconscionable dealing extends generally to circumstances in which (i) a party to a transaction was under a special disability in dealing with the other party to the transaction with the consequence that there was an absence of any reasonable degree of equality between them and (ii) that special disability was sufficiently evident to the other party to make it prima facie unfair or "unconscionable" that that other party procure, accept or retain the benefit of, the disadvantaged party's assent to the impugned transaction in the circumstances in which he or she procured or accepted it. Where such circumstances are shown to have existed, an onus is cast upon the stronger party to show that the transaction was fair, just and reasonable…".
Macfarlan JA's conclusion on the facts in Lopwell must be understood by reference to that authority. So understood, it is abundantly clear that the improvidence of a transaction does not, without more, require a defendant to a claim of unconscionability to prove that the transaction was fair, just and reasonable. That is consistent with the judgment of Ward P in Bale v Kimberley at [589] that: "… what is abundantly clear is that, once the requisite elements of a special disadvantage, knowledge of that special disadvantage and improvidence of the transaction are established, there is at least an evidentiary onus on the stronger party to show that the transaction was fair, just and reasonable or it may readily be concluded that the improvident transaction was procured by the unconscientious taking of advantage of that special disadvantage." (Emphasis added).
Given my findings below, no such onus rested on Mr Naegeli in this case.
It is also convenient at the outset to deal with the appellants' contention that the primary judge should have found that Mr Naegeli was prepared to enter into any arrangement with CRB simply in order to foster his relationship with Mr Blinkworth. There is no evidentiary foundation for such a conclusion. The evidence establishes that Mr Naegeli was seeking investment opportunities for HEP, and that in that context, he was keen to reach agreement with Mr Blinkworth and CRB. Moreover, Mr Naegeli refused the two earlier proposals from CRB.
The appellants' first key contention is that the primary judge erred in characterising Mr Schaeffer's conduct in executing the Guarantee as voluntary and properly informed. The appellants rely in particular upon there being no evidence that Mr Schaeffer knew that CRB was impecunious and no evidence that Mr Schaeffer knew the terms of the CFA. The appellants also contend that it is not determinative of unconscionability that Mr Schaeffer entered the Guarantee voluntarily. Again, that contention can be dealt with briefly.
The primary judge found that Mr Schaeffer entered the Guarantee "freely, voluntarily and unhesitatingly": [388], that Mr Schaeffer must have had a general understanding that he was guaranteeing CRB's obligations under the CFA, that Mr Schaeffer must also have understood that payments had not, by then, been made under the CFA: [288], and that Mr Schaeffer understood the nature of the CFA at least in general terms: [332]. Those findings are amply supported by the evidence which I have summarised above. Moreover, those findings support the primary judge's finding that Mr Naegeli's conduct was not unconscionable within the meaning of s 12CB of the ASIC Act. Further, having regard to those findings, the primary judge did not err in finding that Mr Schaeffer "entered the Guarantee freely, voluntarily and unhesitatingly": [338]. That characterisation of Mr Schaeffer's conduct does not require proof that Mr Schaeffer was aware of CRB's actual financial state at the relevant time (as to which there is scant evidence in any event) nor does it require that Mr Schaeffer had more than a general understanding of the terms of the CFA. Moreover, it is plain from the primary judge's key reasoning as to unconscionability (set out at [115] above) that his Honour did not find that his characterisation of Mr Schaeffer's conduct as voluntary was determinative of the question of unconscionability.
Second, the appellants contend that Mr Schaeffer should have been found to have been suffering from a special vulnerability or disability by reason of his lack of information about both the CFA and the finances of CRB, his trust in Mr Blinkworth and the improvidence of the Guarantee from Mr Schaeffer's perspective. The appellants contend also that Mr Naegeli knew that Mr Schaeffer trusted Mr Blinkworth to the extent that he was potentially vulnerable to Mr Blinkworth and, at the same time, that Mr Naegeli had ceased trusting Mr Blinkworth by the time that the Guarantee was executed. In this regard, the appellants contend that the primary judge's finding at [181], that Mr Naegeli was doubting the "creditworthiness", but not the "credibility", of Mr Blinkworth, was glaringly improbable and should be overturned on appeal.
Third, the appellants contend that the primary judge should have found that Mr Naegeli's conduct was unconscionable having regard to his Honour's conclusion that the Guarantee was unjust for the purposes of the Contracts Review Act, and the findings in support of that conclusion at [399]-[401]. Thus, whilst Senior Counsel for the appellants accepted in oral argument that the test for unconscionability under the ASIC Act was a "harder, more onerous test" in comparison to the threshold under s 7 of the Contracts Review Act, the appellants contend that the primary judge's findings as to whether the contract was unjust supported a conclusion of unconscionability.
Finally, and relatedly, the appellants contend that the terms of the Guarantee are relevant to the question of unconscionability pursuant to s 12CB(4)(c)(i) of the ASIC Act, and that the Guarantee here was objectively unfair as CRB's financial position at the time when the Guarantee was executed was such that Mr Schaeffer would inevitably be called upon to pay the full amount due under the CFA. The appellants contend that this supports a conclusion of special vulnerability or disability and that Mr Naegeli knew or ought to have known of this. The appellants contend that this, together with Mr Schaeffer's limited knowledge, trust in Mr Blinkworth, lack of legal advice, the fact that Mr Naegeli did not pay any consideration for the Guarantee and Mr Naegeli's conduct in leaving it to Mr Blinkworth to arrange for Mr Schaeffer's execution of the Guarantee in circumstances when Mr Naegeli knew that Mr Blinkworth had reason to procure Mr Schaeffer's execution of the Guarantee, lead to the conclusion that Mr Naegeli's conduct was unconscionable within the meaning of s 12CB of the ASIC Act.
It is convenient to deal with the issue of unconscionability by reference to the various factual matters which the appellants rely upon in support of their contentions. As regards each, it is necessary to address both the underlying facts and what Mr Naegeli knew or ought to have known. In the course of this analysis I will address the various challenges to the primary judge's findings, set out at [121]-[122] above.

[34]

Do the terms of the Guarantee themselves suggest unconscionability?

Given that the appellants' submissions rely significantly upon the improvidence of the terms of the Guarantee, it is convenient to deal with this first.
As set out above, the conclusion that conduct is unconscionable within s 12CB of the ASIC Act requires an evaluative judgment having regard to the particular facts, relationships and idiosyncrasies, processes and mental capacities of the vulnerable party: see eg Stubbings at [39] (Kiefel CJ, Keane and Gleeson JJ) citing Jenyns v Public Curator (Qld) (1953) 90 CLR 113 at 118-19; [1953] HCA 2 (Dixon CJ, McTiernan and Kitto JJ). Unless all of the factual context is considered in detail, little is to be gained by seeking to compare and contrast the conduct in this particular case with conduct in issue in other cases.
Thus, contrary to the appellants' submission the finding of Shepherdson J in Asia Pacific International Pty Ltd v Dalrymple [2000] 2 Qd R 229; [1999] QSC 2004 ("Asia Pacific") that there was equitable unconscionability in a lender inserting a term in a loan that interest would be capitalised, and then accrue at 20%, says nothing about whether Mr Naegeli's conduct in this case was unconscionable within the meaning of s 12CB of the ASIC Act. In Asia Pacific, it was found, at [58], that the borrowers were in urgent need of the loan and that advantage had been taken of their "special vulnerability". There is nothing in the evidence here to suggest that Mr Schaeffer was in a position of analogous urgent need such that the terms of the Guarantee, which on their face were seriously disadvantageous to him, were themselves indicative of special disadvantage.
Similarly, the case of Starceavich v Swart & Associates Pty Ltd [2006] NSWSC 960 ("Starceavich"), in which the question was whether there was a serious question to be tried in the context of an application for an interlocutory injunction, does not support a finding that Mr Naegeli's conduct was unconscionable within s 12CB of the ASIC Act. In that context, White J (as his Honour then was) held, at [55], that the terms of the contract suggested that the plaintiff's vulnerability to exploitation was "seriously arguable" as it was "seriously arguable that no-one who was not in desperate need and who understood the terms of the bargain, could rationally have agreed to the terms proffered by the defendant." Whilst White J held that "oppressive and unreasonable terms" may be both evidence of specific vulnerability and unconscionability, whether or not that is so will depend upon the facts of the case.
There is no doubt that the terms of the Guarantee were such that, immediately upon its execution, highly significant and onerous obligations were assumed by Mr Schaeffer. However, having regard to the matters set out below, there is at least a real possibility that Mr Schaeffer formed the judgment that his personal or financial interests were better served by executing the Guarantee rather than running the risk that Mr Naegeli may take steps which could result in CRB being placed into liquidation or lead to negative publicity. In these circumstances, I have concluded that no inference should be drawn from the improvidence of the terms of the Guarantee that Mr Schaeffer executed the Guarantee by reason of some special vulnerability or disability, still less that this was something that Mr Naegeli knew or ought to have known.
First, it is clear that Mr Schaeffer took steps to persuade Mr Naegeli to invest in CRB and devoted time to reassuring Mr Naegeli after he had made his initial investment, including by offering to pay him from their personal funds if things went wrong and offering that his own private companies would act as additional guarantors of the obligations owed to Mr Naegeli. An inference can be drawn from the fact that Mr Schaeffer went to these lengths to secure and maintain Mr Naegeli's investment that Mr Schaeffer had some personal or financial reason for providing this support to CRB. That, in turn, supports a conclusion that for some personal or financial reason, CRB's financial success mattered to Mr Schaeffer.
Second, Recital F to the Bloomingville Guarantee records that Mr Schaeffer was "interested in the arrangement" between CRB and Mackeen. Whilst the nature of that interest cannot be known, that suggests that Mr Schaeffer had something personal or financial to gain from that transaction. Again, that suggests some correspondence of interest, potentially a financial interest, as between Mr Schaeffer and CRB.
Third, the fact that Mr Schaeffer was willing to execute the Bloomingville Guarantee, against legal advice, suggests that he was someone who was willing to undertake significant financial obligations to benefit CRB even when aware of some risk in doing so. As Senior Counsel for the appellants accepted, Mr Schaeffer was thus in a position where he stood to lose money if CRB fell apart.
Fourth, through the Bloomingville Guarantee itself, Mr Schaeffer had a financial interest in CRB making money so that CRB would have the financial resources to pay Bloomingville, thereby obviating the prospect of the Bloomingville Guarantee being called upon.
Fifth, and related to the matters set out above, whilst there is no evidence that Mr Schaeffer knew of the Moroccan proceedings before the Guarantee was executed, there is no evidence to the contrary. Moreover, Mr Schaeffer's involvement in the Mackeen Transaction as guarantor, and the fact that Mr Schaeffer told Mr Naegeli that up until the time of the funeral he believed that Mr Blinkworth would "turn things around" (set out above at [108]), suggest the real possibility that Mr Schaeffer was aware of this litigation (or at least that CRB could meet its obligations if given time) and that he thus stood to gain if CRB remained solvent. The significance of this is simply that it demonstrates why, on the facts of this case, it cannot be assumed that Mr Schaeffer did not have his own financial reasons for executing the Guarantee notwithstanding its onerous terms.
Sixth, and relatedly, Mr Schaeffer's statement as to his belief that Mr Blinkworth would "turn things around", and the fact that Mr Schaeffer was willing to execute a guarantee and to offer a guarantee from his private companies, support a finding that, at the time when he executed the Guarantee, Mr Schaeffer had an ongoing belief that CRB would be able to make the payments due to Mr Naegeli. That in turn supports a conclusion that Mr Schaeffer believed that he had something to gain by executing the Guarantee.
Seventh, Mr Schaeffer loaned a significant amount of money to CRB in the period between 1 July 2019 and 30 June 2020. There is no evidence as to the terms of that loan, but this evidence also supports an inference that throughout that period Mr Schaeffer had confidence that CRB would, in time, be able to repay its debts and that he had something to gain by providing ongoing support to CRB to enable it to do so.
Eighth, during the telephone call which appears to have been made shortly after the Guarantee was executed by Mr Blinkworth and Mr Schaeffer, Mr Schaeffer said to Mr Naegeli that he trusted that Mr Naegeli would not then issue proceedings against CRB. This suggests that Mr Schaeffer was seeking to ensure that this did not happen and that this may have been a motivating factor in Mr Schaeffer's decision to execute the Guarantee. This in turn suggests that Mr Schaeffer may have had something to lose had Mr Naegeli taken that step, which in turn is consistent with him having some personal or financial interest in CRB not being subject to any legal proceedings at that time.
Finally, it is apparent that Mr Schaeffer was anxious to avoid Mr Naegeli publicising the fact of the CFA. Mr Naegeli's evidence was that confidentiality was discussed nearly every time he met with Mr Blinkworth and Mr Schaeffer and that Mr Schaeffer told him that he had to keep the CFA confidential "if you want to continue being in this with us." The aim of maintaining the confidentiality of the CFA and avoiding the publicity that would follow if Mr Naegeli took steps to enforce his entitlements under the CFA, may have provided a further reason for Mr Schaeffer executing the Guarantee.
Turning to the question of what Mr Naegeli knew or ought to have known in this regard, I would reject the appellants' contention that Mr Naegeli knew or ought to have inferred some special disadvantage on the part of Mr Schaeffer from the terms of the Guarantee. Mr Schaeffer's conduct towards Mr Naegeli, including his involvement both before and after Mr Naegeli entered the CFA, was such that Mr Naegeli would have been entitled to infer that Mr Schaeffer either stood to gain from executing the Guarantee or genuinely believed that there would be no call on the Guarantee. For example, Mr Schaeffer told Mr Naegeli that if he entered the CFA they would become "partners", introduced himself as the "honorary Chairman of CRB," and said to Mr Naegeli that he needed to maintain confidentiality if he wanted to continue "being in this with us." Mr Naegeli would have been entitled to infer that when Mr Schaeffer told him that CRB was involved in "many significant projects" and that he would be paid in "13 months", these statements were based upon some knowledge. Moreover, from Mr Naegeli's perspective, Mr Schaeffer had an impressive professional reputation: [178].
Mr Naegeli was also told that Mr Blinkworth needed to go over the Guarantee thoroughly and needed to give Mr Schaeffer an opportunity to do so as well. Mr Naegeli understood this to mean that it was legal advice that was required. That was in July 2019 and the Guarantee was not executed by Mr Schaeffer until late October 2019. Mr Naegeli was entitled to assume that Mr Schaeffer had, in that time, obtained such advice as he thought he needed on the Guarantee. That stands against a conclusion that Mr Naegeli knew or ought to have known that Mr Schaeffer was in a position such that he executed the Guarantee by reason of his inability to look after his best interests.
The terms of the Guarantee are also a relevant matter to consider under s 12CC(1)(b) of the ASIC Act, namely whether, as result of conduct engaged in by the supplier, the service recipient was required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of the supplier. It is apparent that Mr Naegeli had a contractual entitlement to be paid $3.5 million by the time the Guarantee was executed and he had a legitimate financial interest in his contractual entitlement being guaranteed. As against that, the terms of the Guarantee were onerous, in particular to the extent that they required payment by Mr Schaeffer without any demand. Having regard to both of these factors, on balance this consideration tends against a finding of unconscionability but not significantly so.

[35]

Does the financial position of CRB support a finding of unconscionability?

Contrary to the appellants' submission, the available evidence going to the financial position of CRB does not support a conclusion of special vulnerability on the part of Mr Schaeffer or of unconscionability on the part of Mr Naegeli. As is apparent from the analysis set out above at [33]-[36], it is difficult to be confident as to CRB's true financial position. Moreover, having regard to the matters set out above, notwithstanding CRB's financial position, it is apparent that Mr Schaeffer may have had personal or financial reasons for executing the Guarantee.
The profit and loss accounts and balance sheets prepared by Mr Niccol, as the primary judge found at [291]-[292], showed that CRB was in a "parlous" financial position, with no income, significant fees and expenses and negative total equity, including significant loan amounts owing to HEP (curiously only in the sum of $500,000 when under the CFA, at that time, $6.5 million was owing), Bloomingville, and in the 2019-2020 financial year, to Mr Schaeffer. However, as set out above, Mr Niccol's views, conveyed in his various reports, did not identify any possibility of insolvent trading before Mr Blinkworth's death on 28 January 2020. That is some three months after the Guarantee was executed. Even from that date Mr Niccol gives some credence to the possibility that there may have been a reasonable belief that CRB may have been solvent, in light of potential recovery of very significant sums in the Moroccan court. Had those sums been successfully recovered, Mr Niccol said CRB may have been solvent with a net asset position and available funds to meet liabilities. It is also the case, as set out at [34] above, that Mr Niccol clearly did not have full information about CRB's operations prior to Mr Blinkworth's death. In these circumstances, only limited weight can be given to the documents prepared by Mr Niccol as regards CRB's actual financial position.
Whilst Senior Counsel for the appellants submitted that Mr Niccol's views do not "speak to the different question … which is the wherewithal of CRB at the time of the execution of the [Guarantee] to pay the moneys", there is nothing to suggest that the prospect of recovery of significant sums in damages in the Moroccan proceedings increased in the period between 29 October 2019 when the Guarantee was executed and 22 June 2022 when Mr Niccol issued his final report. If anything, given that Mr Niccol identified that one cause of CRB's insolvency was the cessation of funding received from Mr Blinkworth and that his death led to a significant decline in business operations for CRB, it may be that prior to Mr Blinkworth's death it would have been more likely that the Moroccan proceedings would have been able to be funded to continue. Nor is there any evidence to suggest that in other respects the financial position was worse as at 29 October 2019 than was apparent from Mr Niccol's reports.
It follows that I would reject the appellants' challenge to the primary judge's finding at [303] that there may have been some prospect of CRB satisfying its obligations to Mr Naegeli and HEP under the CFA.
Further, as to Mr Naegeli's knowledge, there is nothing in the evidence to suggest that Mr Naegeli was aware of CRB's finances being in a "parlous" state. To the contrary, whilst Mr Naegeli had not been paid, he was being told that CRB had a US$60 million letter of credit and believed those documents were legitimate. It is also of some significance that Mr Naegeli was assured by both Mr Blinkworth and Mr Schaeffer at various times between May and July 2019 that CRB was involved in "many significant projects", was awaiting a shipment of gold from West Africa, and that Mr Blinkworth was expecting funds to be paid to CRB shortly, which could be used to make payments to Mr Naegeli under the CFA. Mr Naegeli understood Mr Blinkworth to have spent some $45,000 on a trip to Hong Kong in September 2019 and was angry that money was being spent on this whilst he was waiting for revenue payments. Having regard to the evidence as a whole, Mr Naegeli's knowledge was not such that he knew or ought to have known that CRB's financial position was such to support an inference that Mr Schaeffer was in a position of special vulnerability.
In light of this I would reject the appellants' contentions at sub-grounds 3(g)-(h) of the amended notice of appeal that Mr Naegeli knew by October 2019 that CRB could not make payments under the CFA or that CRB was insolvent by that time and Mr Naegeli had no confidence in CRB satisfying its liabilities. In addition to the matters set out above, it is of some significance in this regard that on 29 October 2019 Mr Naegeli did not take up Mr Blinkworth's offer to pay him out (set out above at [86]).
I would also reject the contention, at sub-ground 3(b) of the amended notice of appeal, that the primary judge should have found that Mr Blinkworth was engaged in misconduct. This contention is too vague, and there is no evidentiary foundation to reach any clear conclusion as to the rights and wrongs of Mr Blinkworth's conduct.
As to Mr Schaeffer's knowledge of the financial position of CRB at the date that he executed the Guarantee, it follows from the analysis set out above that there is simply insufficient reliable material available to make any finding as to the true state of CRB's finances at that time. That, in turn, precludes any positive finding being made as to whether or not Mr Schaeffer was unaware of the true financial position of CRB at that time. In particular, it is not possible to make a finding as to whether or not Mr Schaeffer's apparent belief up until the time of Mr Blinkworth's funeral that Mr Blinkworth would "turn things around" was based upon a misapprehension as to CRB's true financial position. Moreover, given the discrepancies between what Mr Schaeffer told Mr Matthews about the Guarantee, and the primary judge's findings as to Mr Schaeffer's knowledge and execution of the Guarantee, it is not possible to put any real weight upon Mr Schaeffer's assertions to Mr Naegeli in June 2020 that he had been misled by Mr Blinkworth or as to Mr Schaeffer's lack of knowledge.

[36]

Does Mr Schaeffer's trust in Mr Blinkworth support a finding of unconscionability?

The appellants contend that Mr Schaeffer's trust in Mr Blinkworth was such that Mr Schaeffer was in a position of special vulnerability such that he could not properly look after his own interests. In this regard they rely upon the judgment in Lopwell at [47] (Macfarlan JA, Ipp and Campbell JJA agreeing) where it was held that "total reliance upon an adviser" may support a finding of special vulnerability for the purposes of unconscionability in equity.
This is not such a case. Whilst, as the primary judge found, it is clear that Mr Schaeffer had confidence in Mr Blinkworth's commercial acumen, which evidently arose from their business relationship, there is no evidence to support a conclusion that Mr Schaeffer was significantly reliant upon Mr Blinkworth. Mr Schaeffer's expressions of trust and confidence in Mr Blinkworth, who appears to have been something of a charismatic character, fall far short of establishing that Mr Schaeffer was, in any sense, vulnerable or unable to act in his own interests when executing the Guarantee. This is not a case in which there was any inherent inequality between the position of Mr Schaeffer and Mr Blinkworth. Indeed, the evidence suggests that Mr Schaeffer willingly made representations to Mr Naegeli as to CRB's financial position and the likelihood that Mr Naegeli would receive the money owing to him. Moreover, there is no challenge to the primary judge's finding, at [337], that Mr Schaeffer was a "sophisticated businessman" who had "acquired great wealth as a result of commercial activities." There is no basis in the evidence to infer that Mr Schaeffer's trust or confidence in Mr Blinkworth was such that would support a finding of unconscionability on the part of Mr Naegeli.
Still less does the evidence support a finding that Mr Naegeli's knowledge was such that he knew or ought to have known of such vulnerability on the part of Mr Schaeffer. From what Mr Naegeli was told, Mr Schaeffer was highly respected and knowledgeable, had benefited greatly from CFAs in the past, had influenced Mr Blinkworth to offer favourable terms to Mr Naegeli in the CFA and was aware of the "many significant projects" of CRB which were such as to assuage any concerns Mr Naegeli had.
The relationship between the main protagonists here is a far cry from the position of a trusted adviser as in Lopwell. The trust or confidence that Mr Schaeffer appeared to have in Mr Blinkworth does not support a finding of unconscionability. I would also reject the appellants' challenge to the primary judge's implicit finding, at [323], that Mr Schaeffer was not under Mr Blinkworth's influence. Whilst Mr Schaeffer clearly provided considerable support, financial and otherwise, to CRB, there is no evidence that would support such an inference as contended by the appellants. Moreover, whilst Mr Naegeli should be inferred to have been aware that Mr Schaeffer trusted Mr Blinkworth, contrary to the contention at sub-ground 2(h) of the amended notice of appeal, the evidence does not suggest that Mr Schaeffer was in Mr Blinkworth's "thrall".

[39]

As to the CFA

The primary judge found that Mr Schaeffer understood the nature of the CFA in general terms and there is no challenge to that finding. Whilst the appellants rely upon an email sent by Mr Aloisi to Mr Naegeli (copying Mr Schaeffer), after Mr Blinkworth's death, setting out that neither he nor Mr Schaeffer could find any "original documents", that does not say anything as to what Mr Schaeffer saw or was told of the CFA. Similarly, Mr Schaeffer's statements to Mr Naegeli during their meeting on 22 June 2020 that Mr Schaeffer had been "led astray by Mr Blinkworth" and told things by Mr Blinkworth that were "not correct", statements to which the Conversation Ruling did not apply, cannot, for the reasons set out above, be relied upon. It is apparent that Mr Schaeffer gave different accounts to different people of his involvement in the Guarantee, which cast significant doubt upon the credibility of his assertions as to the extent of his knowledge or involvement in CRB's activities or transactions. Further, that evidence must be viewed having regard to the fact that this meeting occurred shortly after Bloomingville commenced proceedings against Mr Schaeffer under the Bloomingville Guarantee. In those circumstances Mr Schaeffer may have had concerns that he could be vulnerable to being sued by Mr Naegeli also and thus may have had an incentive to be less than fulsome as to his knowledge of Mr Blinkworth's dealings.
It should, moreover, be inferred that Mr Schaeffer was aware of the terms of the arrangement between Bloomingville and CRB, as those terms were embodied in the same document as the Bloomingville Guarantee on which he sought legal advice. Those terms involved a return of €5 million on an initial investment of €600,000. It could be inferred that Mr Schaeffer would also have known that there were significant payment obligations imposed upon CRB under the CFA. Moreover, the fact that Mr Schaeffer limited the extent of his liability under the Bloomingville Guarantee, and had to amend the document to effect this, suggests that he was aware that CRB were, under that arrangement, liable to pay Bloomingville considerably more than the €630,000 he guaranteed.
Mr Naegeli's evidence was also that during telephone calls with Mr Blinkworth and Mr Schaeffer, Mr Blinkworth or Mr Schaeffer or "sometimes both of them" told Mr Naegeli that he would receive his investment in the "13 months as agreed." Whilst Senior Counsel for the appellants submitted that that suggested that Mr Schaeffer believed the money was only due at the end of 13 months, that submission should be rejected. The words used are equally consistent with knowledge that the payments were to be made within a 13 month period, which was in fact the term of the CFA. Further, Mr Schaeffer was clearly aware that there were payments outstanding under the CFA as he told Mr Naegeli that he believed that "the payments will be made" by the time the Guarantee was prepared. That shows that Mr Schaeffer was aware, by the time of execution of the Guarantee, that payments were by then already outstanding.
The inference that should be drawn from this evidence is that Mr Schaeffer was aware that highly significant sums may ultimately be due from CRB under the CFA, that those payments were to be made over a term of around 13 months, and that payments were outstanding as at the date of the execution of the Guarantee. I would reject the contention that any lack of knowledge on the part of Mr Schaeffer of the terms of the CFA supported a conclusion of unconscionability.
It follows that I would reject the appellants' challenge to the primary judge's finding, at [288], that Mr Schaeffer knew, at the time he signed the Guarantee, that payments due under the CFA had not been made.
As to the question of Mr Naegeli's knowledge, over and above the matters referred to above, it is of some significance that he had been told that it was Mr Schaeffer who persuaded Mr Blinkworth to offer him favourable terms in the CFA (and indeed, to give Mr Naegeli a chance to invest in CRB following the lapse of the earlier proposals) and that Mr Schaeffer had told Mr Naegeli that he had himself received "windfalls" from CFAs he had entered into with CRB. Whilst there is no direct evidence regarding Mr Naegeli's belief as to whether Mr Schaeffer knew of the terms of the CFA, it should not be inferred that Mr Naegeli knew or ought to have known that Mr Schaeffer was unaware of the material terms of the CFA.

[40]

As to the terms and effect of the Guarantee

As to Mr Schaeffer's knowledge of the terms of the Guarantee, as the primary judge found, at [399], there is no evidence that the terms and effect of the Guarantee were explained to Mr Schaeffer or that he read the terms of the Guarantee prior to its execution. However, unlike the primary judge, at [400], I would not infer that Mr Schaeffer would not have read and understood the immediate and significant effect of his execution of the Guarantee. On the evidence, it is not possible to reach any clear conclusion as to whether he did, or did not, do so. Having regard to my findings at [155]-[157] and [159]-[163] above, there is also a real possibility that he determined that he would execute the guarantee without giving any careful consideration to its terms and effect because he had already decided that it was in his personal or financial interests to execute a guarantee to avert the risk that Mr Naegeli might otherwise commence proceedings or might otherwise lead to adverse publicity for CRB. His apparent confidence in Mr Blinkworth and CRB may have meant that he simply did not think the Guarantee would ever actually be called upon.
Mr Schaeffer was clearly a commercially experienced and, as the primary judge found, at [337], sophisticated man. He had already signed the Bloomingville Guarantee and should be taken to have been aware of the terms of that arrangement. Mr Schaeffer was thus aware that CRB was promising a very significant return on investment to Bloomingville. On that occasion, Mr Schaeffer was advised by his lawyer that the draft guarantee did not cap his liability, and the document was amended to do so. Mr Schaeffer was also aware that at least the initial proposals involving Mr Naegeli involved a return of many millions of dollars, and that payments were outstanding under Mr Naegeli's arrangement with CRB.
Moreover, after the Guarantee was executed, Mr Schaeffer said to Mr Naegeli that he trusted that Mr Naegeli would not then "commence proceedings against CRB". That indicates that Mr Schaeffer was aware at that time, which is roughly contemporaneous with his signing of the Guarantee, that CRB was already indebted to Mr Naegeli and that the Guarantee went to that indebtedness. It is otherwise unlikely that Mr Schaeffer would have suggested that the Guarantee was a reason for Mr Naegeli not to commence proceedings.
Once all of those matters are taken into account, it is apparent that Mr Schaeffer must have been aware that there were potentially significant sums to be paid to Mr Naegeli under the CFA, that the Guarantee related to that agreement, and that the Guarantee thus involved Mr Schaeffer guaranteeing very significant sums, some of which were already outstanding. In these circumstances, no inference can properly be drawn that Mr Schaeffer did not carefully read the Guarantee and consider its terms before signing it. Moreover, given his sophistication, it should not be inferred that Mr Schaeffer did not understand those terms or that he was undertaking a significant and immediate liability. In this regard, I would place no weight on Mr Schaeffer's assertion to Mr Naegeli on 24 June 2020 that he had not read the "fine print" on the Guarantee that Mr Naegeli gave him at the meeting on 22 June 2020. That statement may have been referring to Mr Schaeffer not having read the Guarantee in the period between 22 and 24 June 2020. Moreover, even if Mr Schaeffer could be taken to be asserting that he had never read the fine print, that assertion could not be relied upon given that, the previous day, he had told Mr Matthews that he knew nothing of the Guarantee before Mr Naegeli gave it to him when it is clear that that was not the case.
Further, the Guarantee is clear in its terms. The "Obligations" guaranteed are clearly identified as all the liabilities and obligations of CRB under or by reason of any Finance Document, and only one Finance Document, the CFA, is identified. It is also clear from cl 2.2 of the Guarantee that the Guarantor is obliged, immediately, and without demand to satisfy or pay any Obligations which CRB does not pay or satisfy on the due date. Whilst the term "Guaranteed Money" has a somewhat obtuse role in the Guarantee, it does clearly signpost the figure of $6.5 million. Moreover, cl 12 of the Guarantee clearly stated that the Guarantors acknowledged that they had been advised and understood the terms and effect of the Guarantee. Mr Schaeffer, with his background and sophistication, should not be presumed to have signed a guarantee including this term when he did not in fact understand its terms.
It follows that I would reject the appellants' contention that Mr Schaeffer should be found to have been unaware of the effect of execution of the Guarantee. I would also accept Mr Naegeli's contention that the primary judge erred, at [401], in drawing the inference that it was unlikely that Mr Schaeffer understood the immediate and significant effect of his execution of the Guarantee.
Turning to what Mr Naegeli knew or ought to have known, there is no basis in the evidence to find that he knew or ought to have known that Mr Schaeffer may have signed the Guarantee without fully appreciating its terms. The available evidence does not support such an inference. I would also reject the appellants' contention that a conclusion of unconscionability is supported by Mr Naegeli's conduct as regards seeking to ensure that both Mr Blinkworth and Mr Schaeffer executed the Guarantee.
From Mr Naegeli's perspective, Mr Schaeffer had offered to pay him from his personal funds if anything went wrong, had said that he was "happy" to give a personal guarantee and had even volunteered that his private companies would also do so. He had given Mr Naegeli the relevant details. There was nothing to suggest to Mr Naegeli that Mr Schaeffer was other than willing to execute the Guarantee or that he had been put under pressure to do so. Moreover, Mr Naegeli would have been entitled to have assumed from Mr Schaeffer's encouragement to him to enter the CFA in the first place, and from Mr Schaeffer's reassurance in the period after he entered the CFA, that both Mr Schaeffer and Mr Blinkworth had some personal or financial interest which was served by Mr Naegeli being patient and not acting on the concerns that he was expressing as regards default under the CFA.
Further, Mr Naegeli had prepared the Guarantee which included cl 12, being an acknowledgement that the Guarantors had received advice and understood the terms of the Guarantee. Mr Naegeli was entitled to assume that the Guarantors would not sign the Guarantee unless this was the case.
As to the circumstances of execution, Mr Naegeli went to Sydney in July 2019 expecting that both Mr Blinkworth and Mr Schaeffer would be present and would execute the Guarantee. He did not plan that Mr Blinkworth would procure Mr Schaeffer's execution of the Guarantee. That circumstance only arose when Mr Schaeffer was present only by telephone at the meeting in July 2019 such that Mr Naegeli could not personally arrange for him to execute the Guarantee.
Whilst Mr Naegeli then had to call Mr Blinkworth on 29 October 2019 to remind him to have both him and Mr Schaeffer execute the Guarantee, there is nothing to suggest that Mr Naegeli put Mr Blinkworth under any urgent time pressure, or that Mr Naegeli was told that Mr Schaeffer had not, by then, seen the Guarantee. Further, whilst Mr Naegeli by then was clearly frustrated by the lack of payment under the CFA and had some doubts about Mr Blinkworth's credibility, Mr Naegeli said that Mr Blinkworth then made him feel "at ease again reassuring me, as he had done in the past." This evidence does not support an inference that Mr Naegeli ought to have been aware of a risk that Mr Schaeffer would execute the Guarantee without satisfying himself that it was appropriate for him to do so.
It follows that neither the extent of Mr Schaeffer's knowledge of the Guarantee nor Mr Naegeli's conduct as regards the execution of the Guarantee support a conclusion that Mr Naegeli's conduct was unconscionable.

[43]

Contracts Review Act

As set out above, on the cross-appeal, Mr Naegeli contends that the primary judge erred in finding that cl 2.1 of the Guarantee was unjust. In this regard, he contends that the primary judge's finding at [401] was erroneous. As set out above at [191], I agree that the primary judge erred in the inference that his Honour drew at [401]. Mr Naegeli also contends on the cross-appeal that if the primary judge is found not to have erred in his Honour's findings as to what Mr Schaeffer understood, the primary judge ought to have found that the Guarantee was unenforceable only as regards the payments that had already become due by the time that the Guarantee was executed. He contends that that would have been the appropriate order given that the injustice, as found by the primary judge, related to the immediate effect of the Guarantee as regards liability in respect of outstanding payments as at the date of execution.
The appellants contend that, in order to remedy the relevant injustice found by the primary judge, his Honour ought to have set aside the Guarantee in full and also contend that the primary judge's findings can be supported by further grounds set out in their notice of contention on the cross-appeal. In this regard, the appellants contend that there was clear injustice to Mr Schaeffer and that setting aside the Guarantee would not cause any disadvantage to Mr Naegeli who had entered the CFA without seeking a guarantee and who provided no consideration for the Guarantee. Further, the appellants contend that "the expectation that [Mr Naegeli] was trying, ultimately, to protect was a benefit of a contract which he had entered into out of an anxiety to retain a relationship with Mr Blinkworth." The appellants also contend, by way of notice of contention, that a number of additional factors supported the primary judge's conclusion that the terms of the Guarantee were unjust. The appellants contend that, having regard to the extent of Mr Schaeffer's liability under the Guarantee, it was incumbent upon Mr Naegeli to ensure that Mr Schaeffer appreciated the extent of that burden: Elders Rural Finance Ltd v Smith (1996) 41 NSWLR 296 at 298-9. It should be noted, however, that in that case Mahoney P at 298-9 observed that the capacity of the plaintiffs to appreciate the risks under the contract and whether they should be accepted "was limited", and there was a positive finding that one party to the contract did not understand the risks of the contract or the real implications of it in circumstances in which there was a risk under the contract that "the plaintiffs might well be financially destroyed." It was therefore a very different factual scenario from that which is before this Court.
Further, the appellants contend that the following circumstances made the Guarantee unjust: the immediate obligation to pay $3.5 million, the (claimed) impecuniosity of CRB, the effective interest rate under the CFA and the (claimed) unconscionability of Mr Naegeli in seeking to procure the Guarantee, the (claimed) inevitability that Mr Schaeffer would have to pay $6.5 million plus interest, the fact that Mr Naegeli gave no consideration under the Guarantee, the fact that (it is claimed) Mr Schaeffer was unaware of the risks he was guaranteeing and falsely believed that CRB would be able to repay Mr Naegeli, that (it is claimed) no explanation about the nature and extent of the risk was given to Mr Schaeffer, that (it is claimed) Mr Naegeli believed CRB was unable to pay its obligations under the CFA and had ceased to trust Mr Blinkworth, the (claimed) inability of Mr Schaeffer to look after his own interests, the fact that Mr Naegeli left it to Mr Blinkworth to arrange Mr Schaeffer's execution of the Guarantee in circumstances where (it is claimed) Mr Naegeli knew that Mr Schaeffer was entirely trusting of Mr Blinkworth but Mr Naegeli did not trust Mr Blinkworth, (claimed) misconduct by Mr Blinkworth and that Mr Blinkworth had reason to procure Mr Schaeffer's execution of the Guarantee.
The issue thus arises whether the primary judge's conclusion at [403], that the provisions in the Guarantee having the effect that, upon execution, Mr Schaeffer immediately became liable to pay $3.5 million to Mr Naegeli, were unjust, was in error and whether the primary judge either went too far in the relief that his Honour ordered or should instead have gone further.
Section 7(1) of the Contracts Review Act relevantly provides: 7 Principal relief (1) Where the Court finds a contract or a provision of a contract to have been unjust in the circumstances relating to the contract at the time it was made, the Court may, if it considers it just to do so, and for the purpose of avoiding as far as practicable an unjust consequence or result, do any one or more of the following - (a) it may decide to refuse to enforce any or all of the provisions of the contract, (b) it may make an order declaring the contract void, in whole or in part, (c) it may make an order varying, in whole or in part, any provision of the contract, (d) it may, in relation to a land instrument, make an order for or with respect to requiring the execution of an instrument that - (i) varies, or has the effect of varying, the provisions of the land instrument, or (ii) terminates or otherwise affects, or has the effect of terminating or otherwise affecting, the operation or effect of the land instrument.
"Unjust" is defined in s 4(1) of the Contracts Review Act: unjust includes unconscionable, harsh or oppressive, and injustice shall be construed in a corresponding manner.
Section 9(1) of the Contracts Review Act provides: 9 Matters to be considered by Court (1) In determining whether a contract or a provision of a contract is unjust in the circumstances relating to the contract at the time it was made, the Court shall have regard to the public interest and to all the circumstances of the case, including such consequences or results as those arising in the event of - (a) compliance with any or all of the provisions of the contract, or (b) non-compliance with, or contravention of, any or all of the provisions of the contract.
Without limiting the generality of s 9(1), s 9(2) of the Contracts Review Act then sets out a list of matters to which the Court shall have regard to the extent that they are relevant to the circumstances. Of particular relevance here are: (a) whether or not there was any material inequality in bargaining power between the parties to the contract, (b) whether or not prior to or at the time the contract was made its provisions were the subject of negotiation, (c) whether or not it was reasonably practicable for the party seeking relief under this Act to negotiate for the alteration of or to reject any of the provisions of the contract, (d) whether or not any provisions of the contract impose conditions which are unreasonably difficult to comply with or not reasonably necessary for the protection of the legitimate interests of any party to the contract, (e) whether or not: (i) any party to the contract (other than a corporation) was not reasonably able to protect his or her interests, or (ii) any person who represented any of the parties to the contract was not reasonably able to protect the interests of any party whom he or she represented, because of his or her age or the state of his or her physical or mental capacity, (f) the relative economic circumstances, educational background and literacy of - (i) the parties to the contract (other than a corporation), and (ii) any person who represented any of the parties to the contract, … (h) whether or not and when independent legal or other expert advice was obtained by the party seeking relief under this Act, (i) the extent (if any) to which the provisions of the contract and their legal and practical effect were accurately explained by any person to the party seeking relief under this Act, and whether or not that party understood the provisions and their effect, … (l) the commercial or other setting, purpose and effect of the contract.
In West v AGC (Advances) Ltd (1986) 5 NSWLR 610 at 611 Kirby P (as his Honour then was, Hope and McHugh JJA agreeing) described the Contracts Review Act as being "beneficial legislation" to be "interpreted liberally". McHugh JA (Hope JA agreeing, Kirby P not deciding) held that under s 7(1) of the Contracts Review Act, a contract may be unjust in the circumstances in which it was made because of the way in which it operates in relation to the claimant or because of the way in which it was made or both. McHugh JA (Hope JA agreeing, Kirby P not deciding) went on to describe the scope of the Contracts Review Act as broad and enabling the court to consider whether "the contract or one of its provisions is the product of unfair conduct on its part whether in the terms which it has imposed or in the means it has employed to make the contract."
Given that, as set out above, I have reached different factual conclusions from those reached by the primary judge, it is necessary to consider the application of the Contracts Review Act afresh. That is necessarily a fact specific exercise. It was implicit in the matters raised on the appeal and cross-appeal that this would be necessary in the event that the various factual challenges advanced succeeded.
Applying the principles set out above to the particular circumstances of this case, it is beyond doubt that the obligations under the Guarantee were both onerous and significant. Under the Guarantee, Mr Schaeffer became immediately liable, without demand, to pay $3.5 million to Mr Naegeli and interest was payable on such sum at the rate of 10%. Moreover, Mr Schaeffer's liability under the Guarantee, and the sum upon which interest was payable at 10%, increased by $500,000 up until the thirteenth month after the CFA was executed, at which point the initial capital sum of $500,000 became repayable to Mr Naegeli. That was so irrespective of the fact that Mr Naegeli may make no demand upon Mr Schaeffer whatsoever. Coupled with that is the absence of any evidence from which it could positively be inferred that Mr Schaeffer actually understood the terms and effect of the Guarantee, and was actually aware of the extent and timing of CRB's obligations to Mr Naegeli under the CFA, and of the extent of CRB's indebtedness to Mr Naegeli as at 29 October 2020.
There are, however, significant factors (including those upon which I have relied in reaching my findings as to unconscionability) which weigh against a conclusion that the terms of the Guarantee were unjust in the circumstances relating to it at the time when it was made within the meaning of the Contracts Review Act. The following matters are of particular significance. Having regard to the background I have summarised above, there was clearly no inequality of bargaining power. Mr Schaeffer was a sophisticated and experienced commercial operator. There is no suggestion that he would not have been able to seek further time to consider, in detail, the terms of the Guarantee (if he had not already done so - as to which, as set out above, it is not possible to make a finding). Nor is there any suggestion that Mr Schaeffer would not have been able to negotiate changes to the Guarantee if he had sought to do so. Mr Schaeffer appears not to have had legal advice in respect of the Guarantee, but there is nothing to suggest that he would not have had the opportunity to obtain legal advice, if he had sought to do so, and he signed the Guarantee which included an acknowledgement that he had obtained legal advice and also understood its terms and effect (see [102] above). Having regard to my analysis of the issue of unconscionability, set out above, it is apparent that the evidence does not support a conclusion that Mr Schaeffer was not able to protect his interests, or was not able to understand the terms and effect of the Guarantee. Nor, as set out above, should it be inferred that he did not read and understand either the terms or the effect of the Guarantee, the terms of the CFA, or the extent of CRB's indebtedness to Mr Naegeli under the CFA as at 29 October 2019.
Moreover, the commercial context for the Guarantee is that Mr Schaeffer agreed to provide a guarantee, having previously offered to pay Mr Naegeli out of his personal funds if things went wrong with the CFA. Mr Schaeffer volunteered that his private companies would also be guarantors. Mr Schaeffer also appears to have had a commercial or personal interest in CRB's financial success, and thus in Mr Naegeli not commencing proceedings against CRB, as is apparent from my analysis of the evidence at [155]-[157], [159]-[163] as set out at [186] above, even if he did not read the terms of the Guarantee there is at least a real possibility that this was because he had already decided that it was in his personal or financial interests to execute the Guarantee irrespective of its terms and thought that the Guarantee would not be called upon in any event. It is not possible to reach positive findings as to these matters but these real possibilities tend against a conclusion that there was any injustice to Mr Schaeffer in being bound to the onerous terms of the Guarantee.
Having regard to these matters, I am not persuaded that cl 2.1 of the Guarantee (or indeed the terms more generally) are unjust within the meaning of the Contracts Review Act. It follows that ground 1 of the amended cross-appeal should be allowed and ground 2 does not arise.

Dalton and Schaeffer as Executors of the Estate of the Late John Herman Schaeffer v Naegeli

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