LM Investment Management Ltd v Drake

EVIDENCE

1. The evidence before the court in these proceedings was as follows: 1. statement of facts dated 16 August 2023 and the exhibit to that statement; 2. affidavit of Jeremy Neil Glass sworn 14 August 2023 and the exhibit to that affidavit; 3. affidavit of Jeremy Neil Glass sworn 28 September 2023; 4. the controlled money statement of the Executors' solicitors, Glass Godwin, for the Deceased's estate in the period from 2 November 2021 to 19 September 2023; and 5. confidential written advice dated 4 September 2023 of senior counsel for the Executors, Rasay and Footage in support of the application under s 63 of the Trustee Act.
2. At the hearing on 28 September 2023, I made an order that the confidential written advice of senior counsel and the controlled money statement were to be kept confidential and were not to be published. Portions of this judgment have been redacted to respect the confidentiality of the financial position of Rasay and Footage.
3. At the hearing, Mr M Condon SC appeared as counsel for the Executors instructed by Glass Goodwin.

Judgment debt

1. The judgment debt of the Executors as at 29 October 2023 pursuant to orders 2, 3 and 6 of the Orders was $745,871.49. This amount has been calculated as $500,000 plus interest at the rate of 10% per annum, compounding on a daily basis, from 29 October 2019 to 29 October 2023. The judgment debt has continued to accrue interest at that rate since 29 October 2023.
2. As at the present time, the Executors do not know the amount of the costs of Mr Naegeli to be agreed or assessed, 80% of which they have been ordered to pay pursuant to order 8 of the Orders.
3. The Orders provide that Mr Naegeli cannot recover against the Executors, Rasay and Footage any more than $6.5 million in total on account of the judgment.
4. Further: 1. the liability of the Executors is to be reduced by any sum paid by Rasay and Footage; 2. the liability of Rasay and Footage is to be reduced by any sum paid by the Executors; and 3. the payment by each or any of the Executors, Rasay and Footage in respect to interest and costs is to be credited against the liability of the others to pay.

Financial position of the Estate

1. [redacted]
2. [redacted]

Financial position of Rasay

1. [redacted]
2. [redacted]
3. [redacted]
4. [redacted]
5. [redacted]

Financial position of Footage

1. [redacted]
2. [redacted]

Potential costs and effect of the Appeal

1. The Executors, Rasay and Footage estimate that their costs of the Appeal will be between $70,000 and $100,000, based on the Appeal hearing running for one day.
2. [redacted]
3. It is also asserted that success in the Appeal will benefit the Estate, Rasay and Footage in the following manner: 1. in respect of the Estate, it will have more available funds (including from the winding up of Rasay) [redacted]; and 2. [redacted]

LEGAL PRINCIPLES

1. The applicable legal principles governing an application for advice such as this one under s 63 of the Trustee Act are outlined below.
2. In considering the general legal principles to an application for judicial advice on whether a trustee is justified in commencing an appeal against a decision of the court, Parker J in Application of Rinehart: 2020/142504 [2020] NSWSC 1624 at [126]-[162] set out a convenient summary of the authorities on the issues to be considered, the relevant excerpts of which are set out below (case names appearing in bold are added): Judicial advice concerning appeals 126 In their initial submissions in support of the application, counsel relied on what Palmer J said in Application of Macedonian Orthodox Church St Petka Inc (No 3) [2006] NSWSC 1247 at [80]: In a judicial advice application in which the trustee asks whether it is justified in prosecuting or defending litigation, all the Court does is to reach a view as to whether the Opinion of Counsel satisfies it that there are sufficient prospects of success to warrant the trustee in proceeding with the litigation. Counsel's Opinion must address the facts necessary to support the legal conclusions reached and must demonstrate that the propositions of law relied upon for those conclusions are properly arguable. Whether, in the light of Counsel's Opinion, there are "sufficient" prospects of success calls for another judgment, founded upon such considerations as: - the nature of the case and the issues raised; - the amounts involved, including likely costs; - whether the likely costs to be incurred by the trustee are proportionate to the issues and the significance of the case; - the consequences of the litigation to the parties concerned; ... 127 This passage was quoted by the High Court in the Macedonian Orthodox Church case at [162]. In his judgment in the earlier judicial advice application, Rein J said (at [33]): As Macedonian makes clear, the Court on an application for judicial advice is expressing only a view as to whether the trustee is justified in bringing or defending an action. It follows that the Court is not called on to express a view as to the ultimate outcome or indeed as to whether any of the allegations which found the claims or the defence will be made out in the proceedings after due consideration of all of the relevant evidence tendered by the parties. 128 Counsel did not in their submissions refer to any authority on judicial advice for appeals. At the hearing on 1 September, I raised with counsel whether the court should take the same approach as Palmer J had described for cases at first instance. In particular, I was interested in whether all I had to consider so far as counsel's opinion was concerned was whether it demonstrated that an appeal was "properly arguable". 129 In their supplementary submissions, counsel for Bianca referred me to three Australian decisions in which judicial advice was sought for the bringing of an appeal. The decisions referred back to the judgment of Hammond J, sitting in the High Court of New Zealand, in Re O'Donoghue [1998] 1 NZLR 116. In that judgment Hammond J stated (at 121-122) that a trustee: [D]oes not have a limitless ability to resort to the law: his function is to assert the interest of the beneficiaries only to a point where there is a judicial ruling on something that is properly required, such as the construction of a fairly debatable point in an instrument, or whether the trustee ought to take a certain course. And, it has been said that a trustee has to have very good grounds before that trustee can justify an appeal, especially if costs were awarded against the estate in the Court below (see for instance Smith v Beal (1894) 25 OR 368). 130 The first Australian decision to which I was referred was Frost and Fallon [2011] NSWSC 591, a decision of Ward J (as the Chief Judge then was). That was an application by the executors of a deceased estate for judicial advice that they would be justified in appealing against a Federal Court judgment at first instance denying them a right of indemnity out of the estate (which was being administered in bankruptcy). 131 Her Honour said at [69]: The question … is whether it is appropriate for the executors to pursue the proposed appeal. That involves an assessment as to whether there is a reasonable basis or reasonable grounds for the appeal and as to whether they would be acting reasonably in so doing having regard to their responsibilities as executors. An indication of the kind of circumstance where an executor (or trustee) would not be justified in commencing or defending proceedings can be seen from the cases in which indemnity for the costs of those proceedings has been denied. 132 At [70] her Honour referred to various cases in which indemnity had been refused. One of those was Re O'Donoghue, which she described as a case in which the trustee had "commenced proceedings without good grounds". 133 At [71] her Honour quoted a passage from the judgment in Re O'Donoghue which included the passage I have set out above. She continued at [72]: Here, it is not for me to express any opinion on the merits of the appeal sought to be propounded by the executors; rather it is necessary to assess whether there are reasonable and arguable grounds for the appeal that has been instituted such that it would be proper and appropriate for the executors to prosecute that appeal. (Indeed, Re O'Donoghue suggests that there should be very good grounds established for the prosecution of an appeal, at least where a costs order has already been made against the estate). 134 Her Honour's decision was that there were "reasonable grounds" for the proposed challenge to the Federal Court judgment (at [76]). She gave the advice sought. 135 I was next referred to another decision of the Chief Judge, given this year in Re Attia [2020] NSWSC 94. That was an application by an administrator ad litem for advice that he would be justified in bringing appeals against three judgments given in different proceedings in this Court. 136 At [92]-[93] her Honour repeated, in substance, what she had said in Frost at [69]-[71], including the quoted passage from Re O'Donoghue. She continued at [94]: Thus the question is whether there are reasonable and arguable grounds for the appeals that have been instituted such that it would be proper and appropriate for Mr Attia in all the circumstances to prosecute the appeals (those circumstances including the likely cost of so doing and the likely consequences if the appeal(s) were to be allowed). 137 Her Honour went on to observe that counsel's opinion on the proposed appeals read more like a submission in support of the appeal than a dispassionate advice on whether to pursue it. She analysed the grounds of appeal and concluded that they lacked sufficient substance to sustain an appeal, or otherwise did not justify an appeal in the estate's interest. The application was refused. 138 The third Australian decision to which I was referred was LM Investment Management Ltd v Drake [2020] QSC 265, a very recent judgment of Callaghan J. The application was for advice authorising an appeal against a judgment of another judge of the Queensland Supreme Court sitting at first instance. It was made by a company receiver rather than a trustee, but it was made in the inherent equitable jurisdiction and his Honour proceeded on the basis that the applicable principles were the same as for trustees. 139 Callaghan J referred to Frost and Attia, referring in particular to the passage from the Chief Judge in Frost at [72], quoted at [133] above, about it being "not for her" to express any opinion on the merits of the appeal: at [32]. He continued (at [33], footnote omitted): I acknowledge, with respect, her Honour's view that it is not for me to express a view as to the merits of any appeal. The identification of reasonable grounds will not do that. And an assessment as to the prospects of success need not do that either - although care must be taken with the way in which that assessment is expressed. As already noted, I am not exercising appellate jurisdiction. It follows that there cannot be an expectation that the issues will be canvassed as exhaustively as will be the case should an appeal be heard. 140 His Honour reviewed the notice of appeal, concluding that the stated grounds were arguable. But this did not necessarily mean that pursuit of the appeal would be "justified" so as to attract favourable judicial advice. This required a conclusion that there were "sufficient" prospects of success. For this purpose his Honour turned to the opinion from counsel provided in support of the application. 141 The opinion in question had been provided by counsel who had unsuccessfully conducted the trial. His Honour considered that this could present a difficulty. He pointed out that there was a natural desire on trial counsel's part to be vindicated on appeal. At [79] he continued: in the context of an application like this, the persuasive value of the opinion cannot rise above its source. And in such an application the Court will necessarily be wary about acting on opinion that can never be certified as completely objective. Since it is the Supreme Court that is being asked to advise that a certain course is "justified", it seems to me reasonable to ask whether that which the applicant has placed before me represents "best practice" in this case. For the purposes of justifying appellate litigation of the kind contemplated, in my view "best practice" involves securing advice that is "independent" in the sense that it comes from someone who has had no previous legal or intellectual investment in the case. It should come from someone whose reasoning can be exposed as the product of dialectic in which competing contentions have been scrutinised, free from any pre-existing impressions or conclusions. 142 In these circumstances, his Honour found it difficult to determine whether there were sufficient prospects of success. It was also unclear from the evidence whether the relevant defendants would be able to satisfy the claim if it succeeded on appeal. In the result, the application was refused, although his Honour noted that this would not prevent a further application being made which filled the gaps in the evidence. … 153 Counsel submitted, based on their analysis of the authorities, that there was no real support for Hammond J's proposition [in Re O'Donoghue] that "very good grounds" were required for an appeal. While the proposition was quoted in the decisions of the Chief Judge and of Callaghan J, it was not apparently the subject of any argument; and in none of the decisions was it actually applied so as to decide the application. Indeed, on counsel's submission, the approach in the Chief Judge's decisions, at least, seemed to accept that the court should not make a judgment on the merits of an appeal any more than it would make a judgment on the merits of a claim at first instance. 154 In the Macedonian Orthodox Church case at [55]-[58] the High Court emphasised that the power in s 63 should not be read down by implications not found in the express language of the Act. All that is required is that there should be a "question respecting the management or administration of the trust property". The statutory criterion is no different for an appeal than it is for first instance proceedings. Clearly there can be no special rule which applies in every case where judicial advice is sought involving an appeal. 155 But it is equally true that no absolute rule exists where advice is sought concerning the bringing of proceedings at first instance. The statement of principle used by Palmer J is widely applied but it represents a practice which the Court usually follows rather than a rule which is to be applied in all circumstances. In Re Rosewood Research Pty Ltd (No 2) [2014] NSWSC 1226 at [17], Darke J described it as a "guideline". Ultimately, the degree of scrutiny which the Court gives the opinion presented by counsel may vary, depending on the circumstances. … 159 In my view the same considerations do not apply where the trustee obtains advice to bring a monetary or proprietary claim against a third party which is unsuccessful and then seeks advice sanctioning an appeal. If the claim succeeds the trust estate will be increased. That is equally true at both stages. Obviously the fact of an adverse judgment at first instance may call for additional care in considering whether the claim is truly maintainable. But in principle the question when considering an appeal is the same as it when considering a claim at first instance: whether there is a sufficient prospect of success to warrant the incurring of costs by the trustee's lawyers and the risk of an adverse costs order if the trustee is unsuccessful. 160 Counsel for Bianca argued that where the trustee has been unsuccessful, the costs order might itself provide an additional financial justification for an appeal. I do not agree with this submission. The decision to authorise proceedings by way of judicial advice must take account of the downside to the trust, including the possibility of an adverse costs order. If the proceedings at first instance have already been authorised by the grant of judicial advice, that was because the risk was considered worth running. The subsequent incurring of costs as a result of an adverse result cannot usually, in my view, be seen as itself being a justification for appeal. 161 Counsel also addressed the observations of Callaghan J about the desirability of obtaining advice on the application from independent counsel not involved in the trial. Counsel submitted that there is no rule that the advice must be independent before an appeal will be sanctioned. Counsel observed that in Frost the opinion was given by trial counsel and this did not prevent judicial advice being given in favour of the proposed appeal. 162 Callaghan J expressly stated ([2020] QSC 265 at [79]) that advice from independent counsel is not a condition of advice being granted. In the present case, it is not necessary to consider the circumstances in which advice will be forthcoming even when "best practice" has not been followed. At the same time the absence of independent advice clearly may be a relevant factor. The Chief Judge's decision in Attia illustrates the type of deficiencies which can emerge and defeat the application when the advice is a work of advocacy rather than dispassionate analysis.
3. In the course of applying these principles in Rinehart, Parker J said at [179] and [196]: 179 I accept that there may be arguable grounds of appeal from the judgment of the Chief Judge. I do not need to decide whether it is necessary to go further and analyse the likelihood of success on those grounds. The problem is whether it is in the interests of the Trust to agitate them in the first place. … 196 The position is comparable with a case where a claim is made against the trust by a third party which succeeds at first instance and advice is sought about an appeal. As I have indicated above, in such a case I do not think that the appellate nature of the proposed proceedings creates any additional barrier. The question is simply whether the proposed argument is tenable and there is sufficient justification, in the interests of the Trust, for pursuing the appeal.
4. There are two further decisions of this court which are relevant to the legal principles that apply in the present case.
5. In Re Bideena Pty Limited (as trustee for the Bideena Pty Limited Superannuation Fund) [2016] NSWSC 735, Sackar J, after referring to the remarks of Palmer J in Re Application of Macedonian Orthodox Community Church St Petka Inc (No 3) [2006] NSWSC 1247 at [80], stated at [43]-[44]: 43 The plurality noted ([162]-[164]) that Palmer J's remarks should not be interpreted as drawing a distinction between mere "sufficiency" and "strength" and emphasised that Palmer J had considered the "merits and strengths of the claim" as a relevant factor. 44 In Re Rosewood Research Pty Ltd (No 2) [2014] NSWSC 1226, Darke J remarked that: [17] There was no hint of disapproval of any aspect of Palmer J's statement, but I do not think that the High Court, by its reference to the passage, was intending to state that in all cases where a trustee seeks advice as to whether it should defend proceedings, it is essential that the opinion of counsel must satisfy the requirements suggested by Palmer J, and the Court reach a view, based upon the considerations identified by Palmer J, that there are sufficient prospects of success to warrant the Trustee proceeding to defend. [18] Undoubtedly, the matters referred to by Palmer J are relevant matters to consider in such a case. Nonetheless, it would be a mistake to read his statement as if it prescribed the manner in which the power to give advice under s 63 of the Trustee Act 1925 (NSW) is to be exercised in all such cases. As was stated in the joint judgment in the Macedonian Church case at [59] (and see also Kiefel J at [196]) the discretion to give advice under s 63 is confined only by the subject matter, scope and purpose of the legislation. It is clear, however, that the interests of the trust estate is always of cardinal significance (see the Macedonian Church case at [104], [105], [107], [125], [196] and [197]).
6. In In the matter of Mudgee Dolomite & Lime Pty Ltd (No. 4) [2021] NSWSC 393, Williams J, in considering an application for orders that certain liquidators would be acting properly and would be justified in defending an appeal, summarised the applicable legal principles as follows: 23 … I am not aware of any case in which a liquidator has applied to a court for an order pursuant to s 90-15 to the effect that they would be justified in prosecuting or defending an appeal from an earlier judgment of the court. There are, however, a small number of cases in which trustees or receivers have sought judicial advice concerning the commencement or continuation of appeal proceedings. In my opinion, those cases provide guidance as to the matters to be considered in determining whether to make the order sought by the Liquidators under s 90-15 concerning the defence of the Appeal in the present case: LM Investment Management Ltd (receiver apptd) in liq) v Drake [2020] QSC 265, especially at [23]-[27], [30]-[33]; Application by Muhammad Elias Attia [2020] NSWSC 94, especially at [18], [91]; Frost and Fallon [2011] NSWSC 591, especially at [69]-[72]. 24 In the present case, it seems to me that the following matters are relevant to that determination: (1) whether there is a reasonably arguable basis on which the Appeal may be defended; (2) the nature and value to MDL of the judgment of Black J if the Appeal is successfully defended; (3) the known means of the Robert Murdoch Interests to satisfy the judgment and orders of Black J if the Appeal is successfully defended; and (4) the potential downside to MDL of defending the Appeal, namely the potential for the assets of MDL available to creditors and contributories in the winding up of MDL to be depleted by the amount of any costs order against MDL if its defence of the Appeal fails. 25 In considering whether there is a reasonably arguable basis on which the Appeal may be defended, I do not express any view about the merits or prospects of the Appeal. I am concerned only with whether there is a reasonably arguable basis upon which to defend the Appeal such that it would be proper and appropriate for the Liquidators to cause MDL to do so.
7. In my view, the principles I should apply in determining the central question under s 63 of the Trustee Act of whether the Executors are justified in bringing and maintaining the Appeal in the present case are those which are derived from Frost, Attia, LM Investment, Rinehart and Mudgee, which can be distilled to the following: 1. Are there reasonable and arguable grounds for the Appeal? 2. In reaching my view in answer to the question in (1) above, I should not express any view on the merits or prospects of success of the Appeal and I must take account of the confidential written advice of senior counsel for the Executors. 3. What is the effect of maintaining and succeeding in the Appeal on the financial position of the Estate compared to the financial position of the Estate if the Appeal is either not pursued or is pursued and lost? 4. Having regard to each of the views I reach in answer to (1) and (3) above, is it in the interests of the Estate for the Appeal to be maintained?

ANALYSIS OF THE FIRST JUDGMENT

1. In determining whether there are reasonable and arguable grounds for the Appeal, it is appropriate for me to set out an analysis of the First Judgment against which the Appeal has been brought. In doing so, it is also necessary for me to consider matters which are relevant to the grounds expressed in the Cross Appeal.
2. I have considered the First Judgment in full, which runs to 414 paragraphs. The analysis below assumes a familiarity with the First Judgment. I have not sought to reproduce the findings and reasoning in the First Judgment beyond what is necessary to determine the present application, but even reduced to those essentials, the analysis below is necessarily lengthy.
3. Unless the context indicates otherwise, the paragraph references below are to specific paragraphs of the First Judgment where the various findings were made by Stevenson J.

Findings in relation to the evidence given by Mr Naegeli

1. Central to the determination of the earlier proceedings are several findings in relation to the circumstances surrounding the execution of the Guarantee by the Deceased on 29 October 2019. Due to the deaths of both Mr Blinkworth and the Deceased prior to the hearing of the earlier proceedings, the only evidence relevant to the execution of the Guarantee available to Stevenson J was that contained in the contemporaneous documents and the oral and affidavit evidence of Mr Naegeli.
2. Stevenson J concluded that Mr Naegeli was an honest witness seeking to do his best to give the best of his memory (at [15]), had no reason to doubt the accuracy of Mr Naegeli's account of what happened, and was a reliable informant (at [40]). The fact that Mr Naegeli had made audio recordings of a number of his conversations with the Deceased meant there was no dispute about the accuracy of the detailed account that Mr Naegeli gave of those conversations and may explain why he was not challenged on them (at [50]).
3. Initial Meeting between Messrs Naegeli, Blinkworth, Aloisi, Schaeffer and James
4. Mr Naegeli first met Messrs Blinkworth, Aloisi, Schaeffer (the Deceased) and James on 3 July 2018 during a four-hour meeting in Mr Blinkworth's office in the Sydney CBD (Initial Meeting). Mr Naegeli, Mr Blinkworth and Mr Aloisi were present at the Initial Meeting in person. The Deceased and Mr James were present via telephone link (at [55]).
5. During the Initial Meeting, the Deceased said to Mr Naegeli (at [62]): "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.)
6. During the Initial Meeting, either Mr Blinkworth or Mr James put a proposal to Mr Naegeli (First Proposal). In effect, the terms of the First Proposal were that Mr Naegeli would transfer $20 million USD to CRB and, in return, CRB would make 12 monthly repayments to Mr Naegeli totalling $68 million USD, or a 340% return on Mr Naegeli's investment (at [71]-[77]).
7. Mr Naegeli said that he personally did not have access to $20 million (at [73]). In response, either Mr Blinkworth or Mr James asked Mr Naegeli if he could find a group with a minimum of $20 million to transfer to CRB and in return they would enter a separate agreement to give him a 2.5% return monthly for 12 months, totalling $6 million (at [74]).
8. Although the Deceased was, at times, in attendance via telephone, he did not participate in discussions concerning the First Proposal (at [78]).
9. A short time after the Initial Meeting, Mr Naegeli was provided with a copy of CRB's "Corporate Profile", which listed the Deceased as a person involved with CRB and included a biography of the Deceased, although there was no evidence that the Deceased had any involvement in the creation of the Corporate Profile (at [80]-[83]).
10. Despite evidence that the Deceased disagreed with the substance of the Corporate Profile, the Deceased's actions suggested that he was happy to assist in the establishment of CRB's "credibility" (at [85]).

Contact between Mr Naegeli, Mr Blinkworth and the Deceased between September and December 2018

1. Between 21 September 2018 and 31 December 2018, Mr Blinkworth spoke with Mr Naegeli by telephone on no less than 30 occasions (at [87]). In addition, Mr Naegeli travelled to Sydney at the request of Mr Blinkworth from 20 November 2018 to 23 November 2018, 5 December 2018 to 14 December 2018 and 27 December 2018 to 31 December 2018, at which times, and on no less than five occasions, the Deceased was included in the conversation via telephone and showed a genuine interest in Mr Naegeli (at [87]).
2. During one conversation, the Deceased said that Mr Blinkworth had spoken at length to him about Mr Naegeli and that Mr Blinkworth really liked him as a person and what he was pursuing and he totally trusted Mr Blinkworth's judgment and also said "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) (at [88]).
3. In around October 2018, Mr Naegeli engaged a solicitor, John Gdanski, and an accountant, George Sim (at [89]).
4. By 3 December 2018, CRB had prepared a draft "Cash Funding Agreement" (Draft CFA), using a structure similar to the Cash Funding Agreement ultimately executed (at [92]).
5. On 8 December 2018, Mr Naegeli wrote to Mr Gdanski in relation to the Draft CFA, in which he mentioned that he had managed to get Mr Blinkworth to agree to a personal guarantee but he did not "believe it would be worth much or be exercisable as it would purely be a contract between myself" and Mr Blinkworth (at [95]).
6. Stevenson J accepted Mr Naegeli's evidence in cross examination that he made this statement "because it's an agreement between me personally and him, not the group investing. So it's not valuable to the group investing, it's only valuable to me" (at [97]-[98]).
7. On 13 December 2018, Mr Naegeli provided the Draft CFA to Mr Gdanski for his advice, and Mr Gdanski retained Donald Farrands of the Victorian Bar to advise in relation to the proposed agreement (at [103]-[104]).
8. Mr Farrands advised that the proposed "agreement contains significant risks and heavily favours the Borrower and puts the Lender at potential risk" (at [105]).
9. Accordingly, Mr Naegeli did not enter into the First Proposal on the terms set out in the Draft CFA (at [107]-[108]).
10. On 15 December 2018, Mr Naegeli, Mr Blinkworth and the Deceased discussed the possibility of a second proposal (Second Proposal) (at [113]).
11. On 17 December 2018, Mr Naegeli wrote to Mr Blinkworth expressing that he was embarrassed about the advice received from Mr Farrands, which Mr Naegeli seems to have seen as preventing the First Proposal from proceeding (at [114]-[115]).
12. Ultimately, the parties did not continue with the Second Proposal (at [117]).

Third Proposal and the Execution of the Cash Funding Agreement

1. On 22 December 2018, Mr Blinkworth wrote to Mr Naegeli asking him to call, which "may just sort all your dreams out" (at [118]).
2. Later on 22 December 2018, Mr Naegeli and Mr Blinkworth had the following conversation (together, the Third Proposal) (at [119]): Mr Blinkworth: You kept me up all night. Because of something John Schaeffer said, he said 'Charles you have been speaking a lot about Patrick lately, why don't you give him a chance like I did for you back in the Tempo days…' and it gave me an idea. I was on the phone to Don [James] for a couple of hours discussing it because we came to the realisation that you will unlikely find an Investor in time. To prevent you from missing out I want to offer you something that you need to promise me you will not tell anyone about, since together the past couple months we have planned around you getting $500,000 USD a month, we can't exactly do that but we can if you put in $500,000 AUD we will give you a one hundred percent return per month for 12 months, you have done so much for me and tried so hard, I personally don't want you to miss out and I want you to feel like family and be part of the good CRB can do for the world. Mr Naegeli: How is that even possible, 100% per month, did I hear right? Mr Blinkworth: If you want, we can treat you like everyone else and only give you 20%. Mr Naegeli: 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. Mr Blinkworth: Well that is settled. If you come up to Sydney so we can execute a [Cash Funding Agreement] and you transfer the funds before the end of this year we will happily offer 100% per month, I can see a bright future for you." (Emphasis added)
3. According to Stevenson J, the first set of italicised words in the Third Proposal extracted above suggest a continuing involvement of the Deceased 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 (at [120]).
4. In relation to the second set of italicised words in the Third Proposal extracted above, Stevenson J referred to the following portion of Mr Naegeli's cross examination evidence (at [121]): Q. Going back to late 2018 you said, 'I'll accept whatever it is you propose', you said those words just because you wanted to maintain a relationship with Mr Blinkworth in CRBI, didn't you? A. I don't recall. Q. You say, 'I'll accept whatever it is you propose'? A. I don't recall what I was thinking at that time. Q. You were thinking that whatever deal Mr Blinkworth offered you, you would take it? A. Yeah but I can't go back to that time. Q. Can you think of any other explanation why you said those words to him? A. The only explanation that comes to mind at the moment is knowing that I couldn't get the 10 to $20 million and then being given an opportunity because I was told my name would be black listed and I wouldn't be able to enter any of this in future. So my understanding was putting the 500 then go back to the group with Gdanski and look at doing the 20 million in the new year. Q. As you said earlier in your affidavit you just didn't want to miss out on the opportunity to be in business with him, correct? A. Because I would have been black listed, correct. Q. Did Mr Blinkworth say you would be black listed, is that right? A. Yes. Q. Did he say that in this conversation in December 2018? A. Yes."
5. Stevenson J made the following remarks in relation to this evidence (at [122]): This evidence is relevant to a submission made by Mr Condon that Mr Naegeli's principal motivation at this time was to "curry favour" with Mr Blinkworth. It does appear to bespeak 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. It is also relevant to Mr Condon's submission that Mr Schaeffer was in Mr Blinkworth's "thrall". I will return to that submission later in the reasons. For present purposes, it is sufficient to note that if anyone was in Mr Blinkworth's thrall, it was Mr Naegeli.
6. On 28 December 2018, Mr Naegeli met Messrs Blinkworth and Aloisi at CRB's office and Mr James attended the meeting "at times" by telephone (at [123]).
7. At the meeting, Mr Naegeli asked several times why he was being offered returns 5 times what they had discussed over the last few months and whether there was "a catch" (at [124]).
8. Stevenson J saw this evidence as having importance because of what was said by the Executors of the improvident nature of the transaction represented by the Cash Funding Agreement from the point of view of the borrower CRB and the extremely high effective interest rate represented by the payment structure, finding that what must be borne steadily in mind is that the terms were proposed by CRB, the prospective borrower, and not by Mr Naegeli as the prospective lender, and what was important was that the extraordinarily generous "payment structure" was not Mr Naegeli's idea (at [125]).
9. Mr Blinkworth replied that the Deceased had got him thinking that he should give Mr Naegeli "a go" and that there were enough profits coming from the sovereign wealth fund of the Malaysian government to easily make the arrangement happen (at [126]).
10. On 29 December 2018, Mr Blinkworth sent Mr Naegeli a draft of what became the Cash Funding Agreement (at [134]).
11. On 30 December 2018, Mr Naegeli, without seeking prior legal advice, executed the Cash Funding Agreement (at [135]-[136]).

The Cash Funding Agreement

1. The Cash Funding Agreement provided for 12 "revenue payments", each of $500,000, to be paid monthly commencing on Friday, 26 April 2019, and thereafter a final payment of "the original amount of the cash transfer" (in effect a return of capital) "at the end of the month after the 12th payment" (at [142]).
2. Stevenson J found that the terms of the Cash Funding Agreement were generous to the lender but that the generous or improvident terms were those proposed by the borrower and were similar to those that had earlier been proposed in the context of the First Proposal and the Second Proposal (at [143]).

Circumstances following the execution of the Cash Funding Agreement

1. On 26 April 2019, the first interest payment of $500,000 was due to Mr Naegeli (at [144]).
2. On 15 May 2019, Mr Naegeli travelled to Sydney to meet Mr Blinkworth and Mr Aloisi and Mr Naegeli was shown several of what Mr Blinkworth claimed to be classified documents relating to purported projects between CRB and governments which would provide funds to CRB to pay Mr Naegeli (at [146]-[148]).
3. On 24 May 2019, Mr Blinkworth telephoned Mr Naegeli and said he would send him documents that demonstrated that CRB would be obtaining access to US$160 million, US$60 million from a letter of credit issued by HSBC Bank to Barclays Bank, for the exclusive benefit of CRB as ultimate beneficiary, and would pay Mr Naegeli $3 million in advance to make up for the late payment (at [149]).
4. Mr Naegeli was shown several documents which, on their face, appeared to show that CRB had a standing line of credit for US$60 million from an account at HSBC Bank PLC in the United Kingdom for the use of CRB via an account at Barclays Bank UK (at [150]).
5. Stevenson J accepted the following unchallenged evidence given by Mr Naegeli that while he did not understand the documents, he believed that they were legitimate and he was encouraged by the reference to US$60 million being held for the exclusive use of CRB and by the promise by Mr Blinkworth that he would be paid (at [151]-[152]).
6. Throughout May and June 2019, Mr Naegeli said he had approximately six regular telephone conversations with Mr Blinkworth and the Deceased where Mr Naegeli would raise his concerns about a lack of security in the Cash Funding Agreement and the lack of receipt of payments under it (at [153]). During each of these calls, either Mr Blinkworth or the Deceased, or sometimes both, said to Mr Naegeli there was no need for concern, he would receive his investment in 13 months, and "If anything ever did go wrong we will pay you from our personal funds" (at [154]). They also referred to a recent lengthy profile on the Deceased published on the Domain website on 17 May 2019 which described him as an "art and trophy home collector" (at [155]).
7. Mr Naegeli gave evidence that during May and June 2019, he had conversations with the Deceased in which the Deceased said "I entered these and it's not public knowledge so you have to remain the same if you want to continue being in this with us", to which Mr Naegeli responded (at [156]): … Mr Schaeffer said that he had been…involved in these cash funding agreements, he's made some of his wealth from the cash funding agreements. And he said it's a private thing that not many people know about and he doesn't - that's why you can't find it in the paper or you can't find it, and it just talks about his arts. (Emphasis added)
8. Stevenson J found that the emphasised passages above show how closely the Deceased saw himself as being aligned with the interests of CRB (at [157]).

Circumstances surrounding the preparation and execution of the Guarantee by Mr Naegeli

1. Stevenson J extracted several passages from Mr Naegeli's unchallenged evidence concerning the circumstances in which a Deed of Guarantee was proposed, as follows (at [162]-[166]): 162 Mr Naegeli said that on many occasions during May and June 2019, 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." 163 Mr Naegeli deposed: "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 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." 164 Mr Naegeli said that he then had a number of conversations with both Mr Blinkworth and Mr Schaeffer in which he said: "In view of my present concerns about payment and your previous comments that you will pay the sums due personally, I would like to ask you to sign a deed which provides a personal guarantee from each of you to make good on the amounts due from CRB under the [Cash Funding Agreement]." 165 Mr Naegeli said that in these conversations Mr Blinkworth said words to the effect: "I will agree to enter into a deed of guarantee, provided that you do not put any undue pressure on CRB by sending letters of demand for the missed revenue payments, in order to give us reasonable time to focus on our trading activities." 166 Mr Naegeli deposed that Mr Schaeffer said, on these occasions, words to the effect: "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 [from] the company which owns it and from another company I own."
2. Stevenson J found that he was not able to draw an inference from this conversation that the Deceased was under Mr Blinkworth's influence but found that it showed that the Deceased expressed confidence about Mr Blinkworth arising from their business relationship (at [168]). Stevenson J also found that the companies to which the Deceased referred that ultimately executed the Guarantee on 29 October 2019 were Rasay (owner of the Bondi Property) and Footage (at [168]).
3. Mr Naegeli said that either Mr Blinkworth or the Deceased asked him to prepare the deed and travel to Sydney for them to execute it and that each of Mr Blinkworth and the Deceased gave their personal details for inclusion in the deed, including the various companies referred to by the Deceased (at [169]).
4. The Guarantee was prepared by Mr Naegeli, who is not a lawyer, without legal assistance using several other forms of guarantee as a template but the form of guarantee that Mr Naegeli created was bespoke in nature (at [170]-[171]).
5. On 26 July 2019, Mr Naegeli travelled to Sydney and attended CRB's offices for a meeting between Mr Naegeli and Mr Blinkworth in person and the Deceased on the telephone, during which Mr Blinkworth and the Deceased said that "they would like to go over the Deed and have their lawyers look over it and suggest any necessary changes", referring to the Guarantee (at [172]-[173]).
6. Mr Naegeli gave the following evidence in relation to the circumstances of the 26 July 2019 meeting (at [174]): Q. Do you recall meeting Mr Blinkworth on or about 26 July 2019? A. Yes. Q. You say in your affidavit that you were looking forward to meeting Mr Schaeffer in person, because after speaking with him on many occasions and knowing what he had achieved it was going to be an honour of yours to get that opportunity. Now, was there any other persons present, either in person or otherwise at that meeting? A. I don't recall. Q. At the course of that meeting do you recall that you discussed the topic of the deed? A. Yes. Q. What was it that Mr Blinkworth told you that needed to be done with the deed at that time? A. He said words to the effect that he doesn't - I don't believe that we'll need to execute this, however, I need some time to go over it and - and my - and my understanding was that meant legal advice and he had to obtain legal advice to go over the deed. Q. How did you obtain the understanding that it was legal advice that was required? A. He said that because he didn't expect it to be so long that he needed to go over it thoroughly and - and needed to give Mr Schaeffer an opportunity to do so as well.
7. Mr Naegeli executed the Guarantee on about 18 July 2019 (at [176]).
8. Stevenson J, recognising a lack of direct evidence, concluded that Mr Naegeli left the form of Guarantee with Mr Blinkworth on the basis that, or on the assumption that Mr Blinkworth would, in due course, execute the Guarantee and arrange for the Deceased to execute the Guarantee (at [177]).
9. Mr Naegeli then left Sydney on 1 August 2019 without an executed Guarantee or any of the payments owed to him under the Cash Funding Agreement and expressed frustration to Mr Blinkworth, advising that he would commence legal proceedings to recover the money he was owed, and then had exchanges during calls with Mr Blinkworth on 28 and 29 October 2019 concerning the execution of the Guarantee by him and the Deceased which concluded by Mr Naegeli saying "I am beginning to doubt your credibility and I require a lawyer or Justice of the Peace to witness the execution of the Deed" (at [178]-[179]).
10. Stevenson J then set out an excerpt from the cross examination of Mr Naegeli about his statement to Mr Blinkworth that he was "beginning to doubt his credibility" (at [180]): Q. No. You never told Mr Schaeffer at any time before late-October 2019 that you harboured doubts about Mr Blinkworth's credibility, did you? A. I - I didn't harbour doubts, no. Q. I would suggest that you did? A. No, I don't agree with that. HIS HONOUR Q. Well you say in paragraph 116 of your affidavit that on 29 October 19 you said to Mr Blinkworth, 'I'm beginning to doubt your credibility'. [MR] CONDON: Your Honour beat me but-- HIS HONOUR Q. So that's correct, isn't it? A. That's correct. Maybe I'm understanding the question like wrong, because I - I still trusted him, but maybe the credibility to pay the payments. So that's why I wanted to have more reassurance. So that's to me, like, him as a person and - and CRB's ability to pay, I didn't doubt that, but I doubted - I mean, maybe I'm not making sense. Q. What did you understand the word credibility to mean? A. Provide credit, like, to provide the credit at the time that you're supposed to. That's my understanding. [MR] CONDON: Q. What do you mean-- HIS HONOUR Q. Aren't you saying there that you said to Blinkworth you were beginning to doubt that he was a person of credit, that is-- A. No, I - like, credibility, as in ability to provide credit. Q. All right. A. Is there a different definition for credibility? Q. What do you mean by that, to what, pay money when due? A. Yes. Yeah. Q. So you were telling him you were doubting what, that he would procure that the payments due to you would be paid? A. When he said - only because he told me whilst he was in Hong Kong that he would pay at the time or have the deed signed. So I said we'll have the deed signed or I will commence legal proceedings to get the money that way. [MR] CONDON Q. What I want to suggest to you, Mr Naegeli, is that when you said the words 'I'm beginning to doubt your credibility' you were saying to Mr Blinkworth that you're beginning to doubt that you could trust him? A. I don't agree with that.
11. Stevenson J said that although initially troubled by this evidence, his Honour accepted that Mr Naegeli's reference to beginning to doubt Mr Blinkworth's "credibility" was that he was beginning to doubt Mr Blinkworth's creditworthiness (at [181]).
12. Stevenson J said that in relation to Mr Naegeli's stated requirement to have a lawyer or Justice of the Peace witness the execution by Mr Blinkworth and the Deceased of the Guarantee, Mr Naegeli gave this evidence (at [182]): Q. You then say, to read paragraph 116, 'And I require a lawyer or [J]ustice of the [P]eace to witness the execution of the deed'. Do you see those words? A. Yes. Q. Were you saying that to him because you wanted absolute assurance that when he signed the document it would be him and Mr Blinkworth who actually signed it? A. Yes. Him and Mr Blinkworth. Q. Him being Mr Blinkworth? A. Yes. Q. You wanted the assurance that it was actually going to be Mr Blinkworth who signed the document? A. Yes. Q. Doesn't that-- HIS HONOUR Q. So did you think that someone might forge their signatures? A. No, just from past business transactions I have had I know that having a lawyer or JP witness is - gives more weight rather than just a standard person. [MR] CONDON Q. But if you trusted-- HIS HONOUR Q. Or so that the person whose signature on the document-- A. It just come up in - I remember another agreement that I was in and it was supposed to be witnessed by a JP, the way it was worded in the contract, and then it got ruled that it wasn't valid. So that's why this DGI was so extensive and I spent, you know, some time going forward and trying to make it, you know, correct, that I couldn't remember at the time whether or not it had to be. Q. So it wasn't because you were doubting that they would in fact-- A. No. Q. --put their signatures on it. A. No. Q. It was to ensure what, the enforceability of the document? A. Yes. Yes, your Honour. Q. You thought having a JP or a lawyer witness might assist? A. Yes, your Honour. Q. Just so we're - not because you thought someone might fake their signatures? A. No. No. Q. Okay. A. No, your Honour. [MR] CONDON Q. The reason you wanted that assurance, want the witness, was because by that stage you doubted Mr Blinkworth's credibility in the sense of you couldn't trust him? A. I - I still don't agree.
13. Stevenson J held that Mr Naegeli's insistence that a lawyer or Justice of the Peace witness Mr Blinkworth's and the Deceased's signatures does suggest that, unsurprisingly, he was concerned to ensure there was no argument about their signing and valid execution of the Guarantee (at [183]).

Execution of the Guarantee by Mr Blinkworth and the Deceased

1. On 29 October 2019, Mr Blinkworth on his own behalf and the Deceased on his own behalf and on behalf of Rasay and Footage, executed the Guarantee each in the presence of a Justice of the Peace as a witness, Dr Danny-Glen Raiz (at [184] and [190]-[195]).
2. Dr Raiz deposed to having been contacted by Mr Blinkworth, meeting with Mr Blinkworth and the Deceased (neither of whom he had met before), confirming their identify, and witnessing the execution of the Guarantee by Mr Blinkworth and the Deceased respectively (at [185]-[186]).
3. Stevenson J concluded that Dr Raiz made no mention of any hesitation or reluctance on the Deceased's part and found that his signature appears on the signature page and his initials appear at the foot of the page on which the names of the guarantors are listed on the Guarantee (at [187]). Stevenson J noted there was no evidence of what transpired between Mr Blinkworth and the Deceased leading up to the execution of the Guarantee, when and in what circumstances the Deceased first saw the form of Guarantee, when he was provided with a copy of the Guarantee and what opportunity Mr Schaeffer had to consider the terms of the Guarantee (at [188]).
4. Stevenson J found that on the date that the Deceased executed the Guarantee, 29 October 2019, CRB had failed to pay seven payments of $500,000 each that were due under the Cash Funding Agreement; those due on the last Friday of each of April, May, June, July, August, September and October 2019: a total of $3.5 million (at [202]). Stevenson J said that the effect of the provisions in the Guarantee, and in particular of cl 2.2, was that, by executing the Guarantee the Deceased assumed an obligation to pay that amount "immediately" and "without demand", and there was no evidence as to whether the Deceased had any appreciation that this was the effect of his execution of the Guarantee, it being unlikely that he did (at [203]-[204]).

Events after the execution of the Guarantee by all parties

1. The events following the execution of the Guarantee by Mr Blinkworth and Mr Schaeffer were outlined by Stevenson J, involving conversations between Mr Naegeli, Mr Blinkworth and the Deceased in which the Deceased said that now that the Guarantee was executed, he trusted that Mr Naegeli would not commence proceedings against CRB and that they all had to remain patient (at [205]-[207]). Stevenson J also referred to Mr Naegeli's various requests of Mr Blinkworth to obtain the signed Guarantee, which he ultimately received and arranged to be certified on 25 January 2020 (at [208]-[209]).
2. Mr Blinkworth then died on 28 January 2020 and when Mr Naegeli attended the funeral on 14 February 2020, he had concerns about the Cash Funding Agreement because nothing at the funeral demonstrated the lavish lifestyle of Mr Blinkworth (at [210]-[213]).
3. After that time, Mr Naegeli met and spoke by telephone to the Deceased in February 2020 and June 2020 and provided him with a certified copy of the Guarantee, on which the Deceased obtained the advice of Neil Matthews (at [214]-[231]).
4. On 14 July 2020, the Deceased died in a traffic accident (at [232]).

Unconscionability

1. Stevenson J found that s 12CB of the ASIC Act (prohibiting unconscionable conduct in trade or commerce in connection with the supply of financial services to a person) was engaged because Mr Naegeli issued a financial product, was dealing with that financial product, did so otherwise than on his own behalf and provided a financial service in trade or commerce (at [242]-[275]). This left for consideration the vital question of whether Mr Naegeli engaged in conduct that was, in all the circumstances, unconscionable (at [276]).
2. The Executors submitted that Mr Naegeli had engaged in unconscionable conduct in requesting that the Deceased execute the Guarantee, and leaving it to procure the Deceased's execution of the Guarantee in circumstances where, it was submitted that Mr Naegeli knew or believed that CRB would not and could not make any payment under the Cash Funding Agreement and thus that the Guarantee was bound to be called on whereas the Deceased did not know these matters (at [286]).
3. Stevenson J dealt with that submission in the following terms ([287]-[289]): 287 But this submission assumes that when Mr Schaeffer executed the Guarantee, he believed that CRB was capable of meeting its obligations under the Cash Funding Agreement and that, more generally, Mr Schaeffer was less well-informed than was Mr Naegeli as to CRB's financial position and its capacity to meet its obligations under the Cash Funding Agreement. 288 Mr Schaeffer executed the Guarantee on 29 October 2019, three months after agreeing to do so, without any further direct communication from Mr Naegeli who, ultimately, asked Mr Blinkworth to arrange for Mr Schaeffer to execute the Guarantee. There is no evidence as to what communications took place between Mr Schaeffer and Mr Blinkworth at that time, or as to what Mr Schaeffer then knew. But if, as Mr Schaeffer said to Mr Naegeli in May or June 2019 when Mr Naegeli proposed a guarantee, he believed that "by the time you have it prepared, the payments will be made; and it will not be necessary to proceed with" the Guarantee, 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. 289 This submission also ignores the wider context in which Mr Schaeffer ultimately executed the Guarantee.

CRB's financial position

1. The reality of the financial position of CRB at the relevant time was described by Stevenson J from profit and loss accounts for the years ended 30 June 2019 and 30 June 2020 which showed a net loss of $481,132.20 and $865,377.40 respectively and balance sheets which showed a similarly parlous position with negative total equity of some $481,000 for the year ended 30 June 2019 and $1.346 million for the year ended 30 June 2020, including a debt to the Deceased of $676,446.89 (at [290]-[293]).
2. Stevenson J determined that while Mr Naegeli knew that CRB had not made the payments under the Cash Funding Agreement, he was unaware of these financial circumstances of CRB (at [294]).

Bloomingville Hong Kong Ltd guarantee

1. The circumstances of the Deceased executing a guarantee of CRB's obligations to Bloomingville Hong Kong Ltd on 3 April 2018 were the subject of particular analysis by Stevenson J, the structure recited as follows (at [308]): 1. the principal sum was €600,000; 2. a "first interest payment" of €1.4 million, to be paid "no later than 28 days from the date of the Contract"; 3. a "second interest payment" of €1.8 million, to be paid 90 days after the first interest payment; 4. a "third and final interest payment" of €1.8 million, to be paid 30 days after the second interest payment; 5. an "additional sum" of €30,000, to be paid "within 24 hours" in particular circumstances; and 6. an "additional consideration" of A$1, to be paid by Bloomingville to Mr Schaeffer "as valuable consideration".
2. In return for advancing €600,000, Bloomingville was to be paid interest payments totalling €5 million by CRB, together with the "additional sum" of €30,000 (at [309]).
3. Stevenson J concluded that the loan terms recorded in the loan agreement were extremely generous to Bloomingville and were similar in structure to those that were proposed by Mr Naegeli as part of the First Proposal and those ultimately recorded in the Cash Funding Agreement and thus reflected in the Guarantee (at [311]).
4. The Deceased sought legal advice from Neil Matthews prior to executing the Bloomingville guarantee, who advised him not to sign it but against this advice the Deceased did execute it (at [312]-[313]).
5. Stevenson J determined that the fact that the Deceased was prepared to execute the Bloomingville guarantee in the face of Mr Matthews' advice may show that he then had confidence in Mr Blinkworth's commercial activities and also shows that he was capable of making his own mind up about whether or not to commit to the obligations under the Bloomingville guarantee (at [318]).

Findings in relation to the Deceased - relationship with CRB and dealings with Mr Naegeli

1. The Executors submitted to Stevenson J that the Deceased was in the "thrall" of Mr Blinkworth, and that the Deceased had "complete confidence" and "blind trust" in Mr Blinkworth (at [320]).
2. Due to the deaths of both the Deceased and Mr Blinkworth, the only evidence in relation to the history of the relationship between the Deceased and Mr Blinkworth prior to the introduction of Mr Naegeli was that of Bettina Dalton (who is one of the Executors and was the Deceased's de facto partner at the time of his death), and the contemporaneous documents.
3. Stevenson J concluded that the Deceased had a significant commercial relationship with Mr Blinkworth prior to the events which gave rise to the earlier proceedings (at [26]-[36]).
4. Stevenson J determined in relation to the Executors' submission that the Deceased was in the "thrall" of Mr Blinkworth that it overstated matters but the conclusion was open that the Deceased had confidence in Mr Blinkworth's commercial acumen and Mr Naegeli accepted that the Deceased trusted what Mr Blinkworth was saying to him and to Mr Naegeli (at [321]).
5. Stevenson J considered that there was no basis to conclude that Mr Naegeli was privy to what the relationship was between Mr Blinkworth and the Deceased and that from Mr Naegeli's point of view, the Deceased "was walking in lockstep with Mr Blinkworth in encouraging Mr Naegeli to invest his funds in CRB" (at [322]).
6. Stevenson J concluded that "if anyone was under Mr Blinkworth's influence, it was Mr Naegeli" (at [323]).
7. Having concluded that the Deceased had a significant commercial association with Mr Blinkworth prior to the events with which these proceedings are concerned (at [36]), Stevenson J made further findings about them having a longstanding business relationship and there being no evidence that Mr Naegeli had any detailed knowledge of the relationship between the Deceased and Mr Blinkworth (at [324]-[327]).
8. Stevenson J determined that the Deceased was actively involved in seeking to persuade Mr Naegeli to invest in CRB (at [328]).
9. Stevenson J summarised the relationship between the Deceased and Mr Naegeli on the following terms (references omitted): 329 Thus, as I have set out, Mr Schaeffer: (a) participated in the 3 July 2018 meeting, held himself out as being the "honorary chairman of CRB", said he had made "a lot of my money by entering into cash funding agreements with CRB" and said that there were "a lot of benefits with being aligned with CRB"; (b) participated in at least five telephone calls between Mr Naegeli and Mr Blinkworth between July and December 2018; (c) on a number of occasions encouraged Mr Naegeli to enter into the Cash Funding Agreement so that "we will become partners" and that "we will work together and help you on your way"; (d) on 15 December 2018, offered to "cover the other half" of the then proposed US$20 million investment in CRB; (e) in May or June 2019, repeated that he had "made some of his wealth from the cash funding agreements" and that "it's not public knowledge so you have to remain the same if you want to continue being in this with us"; (f) also in May or June 2019, joined with Mr Blinkworth in assuring Mr Naegeli that "if anything ever did go wrong we will pay you from our personal funds"; and (g) readily agreed to provide the Guarantee sought by Mr Naegeli in the face of Mr Naegeli's stated "present concerns about payment".

Improvident nature of the transaction

1. The Executors submitted that the Guarantee was improvident because of Mr Blinkworth's alleged misconduct, the Deceased's promise to pay a sum which bore no relationship to the amount loaned, and the Deceased gained nothing from it (at [330]).
2. Stevenson J, in relation to statements made by Mr Naegeli to the effect that the Deceased had been "led astray by Mr Blinkworth" and that Mr Blinkworth had "said things that we found out afterwards were not correct", held (at [332]): But the evidence does not reveal how Mr Schaeffer was "led astray" or what it was that Mr Blinkworth said to him that was "not correct". In particular, there is no evidence that Mr Blinkworth misrepresented the nature of the Cash Funding Agreement to Mr Schaeffer. It appears to me likely that Mr Schaeffer understood the nature of the Cash Funding Agreement, at least in general terms. He repeatedly told Mr Naegeli that he had entered into cash funding agreements himself. And he had agreed to guarantee CRB's obligations to Bloomingville, the structure of which obligations was similar to those in the Cash Funding Agreement; and took that step after receiving advice from Mr Matthews that he ought not enter that transaction.
3. As far as the allegedly improvident terms of the Cash Funding Agreement were concerned, Stevenson J emphasised that the terms were proposed by the borrower, CRB, and not Mr Naegeli (at [333]).

Voluntary act of a sophisticated businessman

1. Stevenson J summarised the following facts as relevant to a determination that the Deceased's decision to execute the Guarantee was a voluntary act by a sophisticated businessman (at [334]-[339]): 334 Mr Schaeffer joined Mr Blinkworth in encouraging Mr Naegeli to enter into the Cash Funding Agreement on behalf of the Human Enhancement Project. 335 Mr Schaeffer joined Mr Blinkworth in assuring Mr Naegeli that if CRB did not honour its obligations under the Cash Funding Agreement, he would do so from his personal funds. 336 When Mr Naegeli expressed his concerns about CRB's failure to make payment under the Cash Funding Agreement, Mr Schaeffer readily agreed to provide a guarantee, not only on his own behalf, but also on behalf of his associated companies, including the company that owned the apartment in which he lived. 337 Mr Condon accepted in argument that Mr Schaeffer was a sophisticated businessman. It appears that he had acquired great wealth as a result of commercial activities. 338 Although I accept that this factor alone is not decisive on the question of whether Mr Naegeli's conduct was unconscionable, Mr Schaeffer entered the Guarantee freely, voluntarily and unhesitatingly. 339 Mr O'Neill put the matter this way: "Here, the [Guarantee] was placed in front of Mr Schaeffer. He executed it. He spoke English. He was a businessman of some significant success. That success included in cleaning, property and art. He understood the arrangement and what he was doing. He was at no disadvantage, particularly not to the plaintiff. He thought the [G]uarantee would ultimately be unnecessary. True he had remorse about it later, anyone who has made a bad deal, even a speculative one, does. But that is not the test. There is nothing that [Mr Naegeli] did that would cause the Court to adjudge him unconscionable."

The immediate effect of the Deceased's execution of the Guarantee

1. Stevenson J concluded that the effect of cl 2.2 of the Guarantee was that as soon as the Deceased executed it, he became liable without demand to pay $3.5 million to Mr Naegeli and it appears that the Deceased did not then appreciate that this was the case (at [340]).
2. Stevenson J further determined that the conduct of Mr Naegeli relevant to this aspect of the case was no more than he drafted the Guarantee in terms that had that effect and left it to Mr Blinkworth to procure the Deceased's execution of it, which Stevenson J did not see anything that in all the circumstances was unconscionable about that conduct (at [341]).

Conclusion on unconscionable conduct

1. Stevenson J then concluded in relation to whether Mr Naegeli had engaged in any unconscionable conduct (at [342]-[343]): 342 I see the position as being substantially as was put by Mr O'Neill as set out at [339] above, save that I doubt that Mr Schaeffer appreciated the immediate and significant effect of his execution of the Guarantee. Execution of the Guarantee imposed a substantial obligation on Mr Schaeffer, the precise effect of which may not have been that apparent to him. Nonetheless, he executed the Guarantee voluntarily and indeed, as I have set out, had offered to assume personal responsibility for the amount owing by CRB under the Cash Funding Agreement, prior to Mr Naegeli's request that he and Mr Blinkworth execute the Guarantee. 343 Overall, my conclusion is nothing that Mr Naegeli did was "outside societal norms of acceptable commercial behaviour", nor conduct that warrants condemnation as being "offensive to conscience".

Unfair conduct

1. Section 12BF(1) of the ASIC Act provides that a term of a small business contract is void if the term is unfair, the contract is a standard form contract and the contract is a financial product or a contract for the supply of services that are financial services.
2. Stevenson J concluded that the Guarantee was a "small business contract" as defined in s 12BF(4) of the ASIC Act because one of the parties to it was Footage which employed 4 persons and therefore fewer than 20 persons and the upfront price payable under the Guarantee was nil and therefore did not exceed $300,000 or $1 million (at [346]-[359]).
3. Stevenson J held that the Guarantee could not be characterised as a "standard form contract" considering the factors in s 12BK of the ASIC Act (for which Mr Naegeli had the onus of proving otherwise) and that the Guarantee was a one-off or bespoke document prepared by Mr Naegeli, who is not a lawyer, at the request of the parties who were to execute it (at [360]-[371]).
4. For this reason, Stevenson J found that s 12BF of the ASIC Act was not engaged (at [372]).

Was a term of the Guarantee unfair?

1. Section 12BG(1) of the ASIC Act provides that a term of a contract referred to in s 12BF(1) is unfair if it would cause a significant imbalance in the parties' rights and obligations arising under the contract, it is not reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term and it would cause detriment (whether financial or otherwise) to a party if it were to be applied or relied on.
2. Stevenson J determined that because Mr Naegeli had advanced $500,000 on behalf of the Human Enhancement Project referred to in the Cash Funding Agreement and CRB had failed to make any of the payments under the Cash Funding Agreement, obtaining the Guarantee was reasonably necessary to protect his legitimate interests and those of the Human Enhancement Project, and therefore s 12BG was not engaged (at [373]-[381]).

Contracts Review Act

1. Section 7 of the CR Act provides: (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, …
2. "Unjust" is defined in s 4 of the CR Act to include "unconscionable, harsh or oppressive".
3. It was common ground before Stevenson J that as corporate defendants, Rasay and Footage were not entitled to relief under the CR Act due to the operation of s 6(2) of the CR Act (at [384]).
4. Stevenson J found the Guarantee to be unfair within the meaning of the CR Act, in accordance with the following reasoning (at [397]-[403]): 397 Although I have determined that Mr Naegeli did not engage in unconscionable conduct for the purposes of s 12CB of the ASIC Act, and that the operative term of the Guarantee was not relevantly "unfair" for the purposes of s 12BF of the ASIC Act, the effect of Mr Schaeffer's execution of the Guarantee was, as I have set out, that he became immediately liable to pay Mr Naegeli $3.5 million. 398 To repeat, by way of cl 2.1 of the Guarantee, Mr Schaeffer irrevocably and unconditionally guaranteed payment of the "Obligations" under the Cash Funding Agreement, and cl 2.2 provided that if CRB did not satisfy or pay "any Obligation" in full and on the due date, then Mr Schaeffer would "immediately, without demand" satisfy or pay the Obligation. On the date that Mr Schaeffer executed the Guarantee, 29 October 2019, CRB had failed to pay seven payments each of $500,000; a total of $3.5 million. By executing the Guarantee, Mr Schaeffer became immediately liable to pay that amount. 399 There is no evidence that this was explained to Mr Schaeffer. The inference that I would draw is that it was not. There was also no evidence of what opportunity Mr Schaeffer had to consider the terms of the Guarantee and the effect of his execution of it. Indeed, there is no evidence that Mr Schaeffer had any time to read and consider the Guarantee prior to its execution. As Mr Naegeli left it to Mr Blinkworth to procure Mr Schaeffer's signature, Mr Naegeli ran the risk that Mr Blinkworth would simply seek to have Mr Schaeffer sign the document without considering its contents or effect. Whether this is what in fact happened cannot be known. 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. 403 It does appear to me that, in the circumstances in which Mr Schaeffer executed the Guarantee, the provisions in the Guarantee having this effect were unjust.
5. Based on this conclusion, Stevenson J considered it would not be just to relieve the Deceased and the Estate from all obligation under the Guarantee and at the very least the Deceased should be held to his agreement to guarantee the payment to Mr Naegeli of the principal amount of $500,000 (at [405]). An order to that effect with interest accruing at the rate of 10% per annum from day-to-day was then made (at [409]-[410]).

GROUNDS OF APPEAL AND CROSS APPEAL

1. The grounds of the Appeal on which the Executors, Rasay and Footage rely are as follows (using the shorthand expressions in this judgment and containing my annotations in italics): 1. Stevenson J erred in concluding that Mr Naegeli did not act unconscionably within the meaning of s 12CB of the ASIC Act; 2. Stevenson J ought to have concluded that Mr Naegeli acted unconscionably within the meaning of s 12CB of the ASIC Act because: 1. on Stevenson J's own findings, the provisions of the Guarantee were improvident as the Deceased, Rasay and Footage gained no benefit and it was inevitable that Mr Naegeli would enforce the Guarantee having regard to CRB's existing defaults and insolvency; 2. the effective interest rate charged by Mr Naegeli of 1,200% per annum is manifestly unconscionable; 3. Mr Naegeli's conduct in procuring guarantees of repayment of monies calculated in accordance with that interest rate was unconscionable; 4. the execution of the Guarantee by the Deceased, Rasay and Footage in those circumstances was itself evidence of their vulnerability; 5. Mr Naegeli did not discharge the onus of proving that the transaction was fair, just and reasonable; 6. Mr Naegeli knew or ought to have known that the Deceased had not negotiated the terms of the Guarantee; 7. Mr Naegeli also knew that Mr Blinkworth was motivated to procure the execution of the Guarantee to prevent Mr Naegeli from commencing proceedings against CRB; 8. having regard to the First Judgment findings at [321] (Mr Naegeli knew that the Deceased trusted what Mr Blinkworth said to him and Mr Naegeli) and the evidence otherwise before the court, contrary to the First Judgment findings at [323] and [326] (if anyone was under Mr Blinkworth's influence it was Mr Naegeli and there was no evidence of the detail of the relationship between the Deceased and Mr Blinkworth) Mr Naegeli did know the relationship between the Deceased and Mr Blinkworth involved the Deceased implicitly trusting Mr Blinkworth; and 9. Mr Naegeli nonetheless left it to Mr Blinkworth to procure the Deceased's execution of the Guarantee. 1. Stevenson J should have concluded, for the purposes of assessing whether Mr Naegeli's conduct was unconscionable, that: 1. having regard to the First Judgment findings at [397]-[403] the Guarantee was an unfair contract and the Deceased, Rasay and Footage were unaware of the financial consequences of their assenting to it, having regard to CRB's existing defaults under the Cash Funding Agreement; 2. Mr Blinkworth was, through CRB, engaged in misconduct, constituted by encouraging investment without CRB having any ability to repay those investments; 3. the Deceased implicitly trusted Mr Blinkworth, and was influenced by him to such a degree that his ability to look after his interests and those of Rasay and Footage was compromised; 4. by reason of that trust, the Deceased wrongly believed that CRB would make the payments under the Cash Funding Agreement; 5. Mr Naegeli's economic interest was significantly motivated by his desire to cultivate relations with Mr Blinkworth and he was prepared to enter into any arrangement with CRB simply in order to foster that relationship; 6. contrary to the First Judgment finding at [181] (what Mr Naegeli meant when he said he was beginning to doubt Mr Blinkworth's credibility was that he was beginning to doubt Mr Blinkworth's creditworthiness) Stevenson J ought to have concluded that, by the time Mr Naegeli caused Mr Blinkworth to procure the execution of the Guarantee, Mr Naegeli had ceased to trust Mr Blinkworth; 7. the alternative, at that time, Mr Naegeli had formed the view that CRB's financial position was such that it could not make the repayments due under the Cash Funding Agreement (having regard to the evidence reproduced at First Judgment at [180]); and 8. contrary to the First Judgment finding at [303] that: 1. CRB was insolvent at the time the Deceased, Rasay and Footage executed the Guarantee; and 2. by reference to the evidence reproduced at First Judgment [226] Mr Naegeli in fact had no confidence in CRB satisfying its liabilities by enforcing the judgment it had obtained in the Moroccan court. 1. Stevenson J erred in concluding: 1. at First Judgment [334]-[339] and [342], that the Deceased, Rasay and Footage entered into the Guarantee freely, voluntarily and unhesitatingly, without also finding that they executed it when the Deceased was under the influence of Mr Blinkworth; 2. at First Judgment [340]-[341], that Mr Naegeli did not act unconscionably, despite his drafting and procuring the execution of the Guarantee which guaranteed the repayment of monies payable under the Cash Funding Agreement, which in turn was an improvident transaction; and 3. at First Judgment [288], that the Deceased, Rasay and Footage knew, at the time they signed the Guarantee, that payments due under the Cash Funding Agreement had not been made. 1. Stevenson J erred in concluding that the Guarantee was not a standard form contract within the meaning of s 12BK of the ASIC Act where: 1. Mr Naegeli had most of the bargaining power relating to the transaction, having regard to his threat to sue CRB; 2. that threat effectively limited the prospects of the Deceased, Rasay and Footage being able to negotiate the terms of the Guarantee; 3. there was no evidence that the Deceased, Rasay and Footage were in fact given the opportunity to consider the terms of the Guarantee; and 4. the terms of the Guarantee did not take into account the specific circumstances of the Deceased, Rasay and Footage. 1. Stevenson J erred in concluding that the terms of the Guarantee were not unfair within the meaning of s 12BG of the ASIC Act, in circumstances where those terms were not necessary to protect Mr Naegeli's legitimate interests, who had only executed the Guarantee to foster an ongoing relationship with Mr Blinkworth and CRB. 2. Contrary to the First Judgment finding at [408]-[409], Stevenson J ought to have concluded, having regard to the circumstances of the execution of the Guarantee, that it should be set aside in whole pursuant to s 7 of the CR Act. 3. In circumstances where Mr Naegeli had not pleaded any claim for interest calculated in accordance with the Guarantee, Stevenson J erred in concluding that interest should accrue in accordance with the terms of the Guarantee.
2. The single ground of the Cross Appeal on which Mr Naegeli relies is that Stevenson J "erred in finding that clause 2.1 of the Guarantee was, in the circumstances as properly established by the evidence and any available inference, unjust for the purposes of the Contracts Review Act 1980: Judgment [403]".

SUBMISSIONS

1. At the hearing before me, the Executors advanced several grounds in support of their application for advice as to whether they would be justified to maintain the Appeal. I was also provided with the confidential written advice of senior counsel for the Executors.

Grounds 1 - 4: unconscionable conduct

1. Grounds 1 to 4 of the Appeal challenge the basis for the conclusion reached by Stevenson J that Mr Naegeli did not act unconscionably within the meaning of s 12CB of the ASIC Act.
2. Ground 1 is a generalised challenge to this conclusion of Stevenson J.
3. Ground 2 focuses on the terms of the Guarantee being improvident, the inevitability that Mr Naegeli would enforce the Guarantee, the high interest rate of 1,200% per annum, the lack of negotiation of the Guarantee by the Deceased, the known relationship of the Deceased trusting Mr Blinkworth and that Mr Naegeli left it to Mr Blinkworth to procure the execution of the Guarantee by the Deceased, Rasay and Footage.
4. Ground 3 is directed at the Guarantee being an unfair contract, the lack of awareness of CRB's existing defaults, Mr Blinkworth's misconduct, the Deceased's trust in Mr Blinkworth, Mr Naegeli's motivations to cultivate Mr Blinkworth, Mr Naegeli's lack of trust in Mr Blinkworth, Mr Naegeli's knowledge that CRB could not make payments under the Cash Funding Agreement and CRB's insolvency.
5. Ground 4 challenges the findings that the Deceased entered the Guarantee freely, voluntarily and unhesitatingly when the Deceased was under the influence of Mr Blinkworth, that Mr Naegeli did not act unconscionably when he drafted and procured the execution of the Guarantee of an improvident transaction and that the Deceased knew at the time he signed the Guarantee that payments due under the Cash Funding Agreement had not been made.
6. Central to the arguments advanced by the Executors on these grounds was that Stevenson J misconstrued the relationship between the Deceased and Mr Blinkworth and, in fact, the Deceased did not have a close understanding of the financial affairs of CRB and had acted in blind trust in respect of Mr Blinkworth. The improvident nature of the transaction also forms an essential part of the argument.
7. The argument is that the blind trust of the Deceased in Mr Blinkworth, in circumstances where Mr Naegeli provided the Guarantee to Mr Blinkworth to procure the Deceased's execution when the consequences or immediate effect of the Guarantee had not been explained to him ought to have rendered the terms of the Guarantee unconscionable or caused the onus to fall to Mr Naegeli to satisfy the court that the transaction was fair, just and reasonable.
8. The Executors also propose to challenge the finding by Stevenson J at [181] of the First Judgment that "what Mr Naegeli meant in his affidavit when he said he was beginning to doubt Mr Blinkworth's 'credibility' was that he was beginning to doubt Mr Blinkworth's creditworthiness". The Executors say this will have implications for the decision by Mr Naegeli to entrust Mr Blinkworth with the task of procuring the execution of the Guarantee by the Deceased.

Ground 5: standard form contract

1. The Executors assert that Stevenson J fell into error by concluding that the Guarantee was not a standard form contract within the meaning of s 12BK of the ASIC Act because Mr Naegeli had the bargaining power due to his threat to sue CRB, the threat limited the prospects of negotiation of the Guarantee by the Deceased, there was no evidence that there was an opportunity to consider the terms of the Guarantee by the Deceased and the terms of the Guarantee did not take into account their specific circumstances.
2. The exposition of this ground canvasses much of what is to be covered by the argument in support of the unconscionable conduct grounds.

Ground 6: unfair contract

1. The Executors point to error by Stevenson J in concluding that the terms of the Guarantee were not unfair within the meaning of s 12BG of the ASIC Act on the basis that those terms were not necessary to protect Mr Naegeli's legitimate interests because he only executed the Cash Funding Agreement to foster an ongoing relationship with Mr Blinkworth. This ground appears to be relatively confined in its presentation.

Ground 7: setting aside the Guarantee in the whole under the CR Act

1. The Executors contend that Stevenson J ought to have concluded from the circumstances of the execution of the Guarantee that it should be set aside in whole pursuant to s 7 of the CR Act. This ground again focuses on the circumstances which led up to the execution of the Guarantee which are also to be the subject of consideration in the challenge posed by grounds 1 - 4 of the Appeal.

Ground 8: interest under the terms of the Guarantee

1. The Executors argue that because Mr Naegeli had not pleaded any claim for interest to be calculated in accordance with the Guarantee, Stevenson J erred in concluding that interest should accrue on that basis. This ground of the Appeal appears to be one which will be resolved on matters of procedural fairness.

Are there reasonable and arguable grounds for the Appeal?

1. I consider that the grounds in the Appeal are all reasonable and arguable.
2. In reaching this view, I have taken account of the confidential written advice of senior counsel for the Executors.
3. As the advice of senior counsel placed before me is confidential, it is not appropriate for me to canvass specifically the issues that are raised within it.
4. In the finest traditions of the Bar, Mr Condon SC candidly drew my attention to the fact that he appeared at the trial of the earlier proceedings before Stevenson J, is briefed in the Appeal and had also provided the confidential advice that was before me on this application. With the same degree of candour, he also drew my attention to relevant passages from Attia at [95]-[96] and LM Investment at [75]-[80] (respectively quoted in Rinehart at [137] and [138]-[142]). In light of these matters, it is appropriate that I say something about the advice that was before me and the part that it has played in my determination of this application.
5. I agree with the following observations made by Callaghan J in LM Investment at [79]-[82] (part of which are quoted in the extract of Rinehart above, but worth repeating), which are based on the notion that counsel who has acted at a trial cannot be considered completely independent when providing an opinion on which the court can act in an application for judicial advice in respect of an appeal (footnotes omitted): 79 However, in the context of an application like this, the persuasive value of the opinion cannot rise above its source. And in such an application the Court will necessarily be wary about acting on opinion that can never be certified as completely objective. Since it is the Supreme Court that is being asked to advise that a certain course is "justified", it seems to me reasonable to ask whether that which the applicant has placed before me represents "best practice" in this case. For the purposes of justifying appellate litigation of the kind contemplated, in my view "best practice" involves securing advice that is "independent" in the sense that it comes from someone who has had no previous legal or intellectual investment in the case. It should come from someone whose reasoning can be exposed as the product of dialectic in which competing contentions have been scrutinised, free from any pre-existing impressions or conclusions. 80 My conclusion as to the requirements of "best practice" in this case is informed by the view that: "The procedural objectives of speed and efficiency served by judicial advice proceedings cannot, in many cases, be achieved unless the Court is presented with the assistance of a memorandum of opinion by an independently-minded lawyer who, out of court, has studied the problem to be solved, examined the factual context critically, analysed competing contentions in a comprehensive legal context, and worked out a solution that commends itself to his or her professional judgement, a judgment upon which the Court can responsibly be invited to rely." 81 The function performed by this notional lawyer is different from the one performed by counsel whose study, examination, analysis and conclusions have been worked out not just in the advices written, but also in court. Without an independent opinion, it seems to me that there is in this case a gap in the materials that would be required to persuade me as to sufficiency of prospects - and that gap will not be filled even by the admission of exhibits 1 and 2. 82 I should not be taken as holding that an independent opinion will be necessary in every application of this nature. There will be some in which it is open to draw a conclusion as to sufficiency of prospects without the assurance of such an advice. A decision made contrary to settled authority might be an obvious example. And there is no one way in which such an opinion must be expressed - an overt assertion as to prospects would no doubt be helpful, but will not always be possible. But it will always be necessary to remember the terms on which the advice is sought and the type of "reliance" that is being invited. The question in this case is whether one judge of this Court can certify that Mr Whyte is "justified" in appealing the judgment of another.
6. I agree with Parker J's comments on these passages in Rinehart at [162] which conclude that "advice from independent counsel is not a condition of advice being granted" and the further observation from Parker J that "the absence of independent advice clearly may be a relevant factor" and "Attia illustrates the type of deficiencies which can emerge and defeat the application when the advice is a work of advocacy rather than dispassionate analysis".
7. Adopting this approach, while I have treated the confidential advice of senior counsel in the present case with caution, in my opinion, it is the considered work of a very experienced counsel who has finely balanced the multitude of factors relevant to whether the Appeal should be pursued or not. It does not purport to be, nor does it read like, a submission or a work of advocacy (unlike the advice before Ward CJ in Eq, as her Honour, the President, then was, in Attia based on her Honour's comments at [95]-[96]).
8. For that reason, I consider that I have been assisted by the confidential advice in determining the application before me.
9. I have not formed and do not express any opinion on the merits or prospects of success of the Appeal. A consideration of the merits of the Appeal would require much more in depth deliberation of matters that will be the subject of full argument at the hearing of the Appeal.
10. But it is clear from the construction and form of the grounds of the Appeal that they have been carefully drafted to target particular aspects of the reasoning in the First Judgment, as outlined by the arguments presented by the Executors that I have summarised above.
11. The application became more complicated, but in another sense more straightforward, because Mr Naegeli filed the Cross Appeal. In assessing whether it is in the interests of the Estate to maintain the Appeal I have proceeded on the basis that the Cross Appeal will continue to hearing and determination regardless of whether the Appeal does so.
12. The ground in the Cross Appeal alleges that Stevenson J erred at [403] in finding that the Guarantee was unjust for the purposes of the CR Act.
13. Stevenson J's determination at [403] was informed by the reasoning that: 1. It was unlikely that the Deceased would have understood the immediate and significant effect of his execution of the Guarantee (at [401]); and 2. The Deceased 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 (at [402]).
14. Again, I have not assessed the merits or prospects of success of the ground of the Cross Appeal. But it is clear that consideration of it will involve many of the findings which are the subject of challenge by the Executors in the Appeal in relation to unconscionable conduct as outlined by the Executors in the hearing before me that I have summarised above.
15. In light of the Cross Appeal, the argument about those findings will occur regardless of whether the Appeal is maintained.

What is the effect of maintaining and succeeding in the Appeal on the financial position of the Estate compared to the financial position of the Estate if the Appeal is either not pursued or is pursued and lost?

1. [redacted]
2. [redacted]
3. [redacted]
4. [redacted]
5. It is estimated that the costs to be incurred by the Executors, Rasay and Footage in the Appeal will be between $75,000 and $100,000.
6. In any event, the incremental costs that will be incurred by the Estate in maintaining the Appeal will be modest due to the significant overlap between several grounds of the Appeal and the ground of the Cross Appeal. In my opinion, resisting the Cross Appeal will require the Executors to engage solicitors and counsel to prepare and appear at the hearing of the Cross Appeal in almost exactly the same way as prosecuting the Appeal will require because the hearing of the Appeal and the Cross Appeal will canvass many of the same field of facts and contentions to resolve each of them.
7. [redacted]
8. In my opinion, the payment of costs of the Appeal in the order of $75,000 to $100,000 from the Estate by the Executors (including the costs of Rasay and Footage) would be a reasonable and appropriate step to take in an attempt to achieve success in the Appeal and the Cross Appeal and therefore the outcome of enabling distributions to be made from the Estate to the beneficiaries under the will of the Deceased.

Is it in the interests of the Estate for the Appeal to be maintained?

1. Taking into account the conclusions I have expressed above that there are reasonable and arguable grounds in the Appeal and that it is reasonable and appropriate for the Executors to maintain the Appeal and pay the costs of the Appeal from the Estate, I consider that it is in the interests of the Estate for the Appeal to be maintained and for the costs of the Appeal to be paid from Estate.

CONCLUSION

1. For the reasons expressed above, I make the following orders: 1. Order pursuant to s 63 of the Trustee Act 1925 (NSW) that the plaintiffs in their capacity as executors of the estate of the late John Herman Schaeffer (Estate) are justified in maintaining the appeal against the judgment and orders of Stevenson J in Naegeli v Dalton and Schaeffer as Executors of the Estate of the late John Herman Schaeffer [2023] NSWSC 466 and Naegeli v Dalton and Schaeffer as Executors of the Estate of the late John Herman Schaeffer (No 2) [2023] NSWSC 626 (Appeal). 2. Order pursuant to s 63 of the Trustee Act 1925 (NSW) that the plaintiffs in their capacity as executors of the Estate are justified in paying the entire costs of the Appeal, including the costs of the other appellants, Rasay Pty Limited and The Footage Company Pty Limited, from the Estate. 3. Order that the plaintiffs' costs of the proceedings be paid out of the Estate on an indemnity basis.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 14 November 2023