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

JUDGMENT

1. On 30 December 2018, the plaintiff, Mr Patrick Naegeli, "for and on behalf of" the "Human Enhancement Project", entered into a "Cash Funding Agreement" with CRB Investment Holdings Pty Ltd (now in liquidation) ("CRB"), pursuant to which the Human Enhancement Project, as "Lender", advanced $500,000 to CRB as "Borrower".
2. The Human Enhancement Project is an unincorporated association. Its members are Mr Naegeli and Mr Naegeli's mother, Mrs Dita Naegeli.
3. It was a term of the Cash Funding Agreement that CRB would make 12 monthly "revenue payments" each of "the total amount of the cash transfer", that is, of $500,000, commencing in April 2019 plus a final, 13th, payment of "the original amount of the cash transfer". Thus, the total amount payable by the Borrower, CRB in respect of the $500,000 advance was $6.5 million; a return to the Lender, the Human Enhancement Project, equivalent to interest at the rate of 1,200% per annum.
4. I return to the detail of the Cash Funding Agreement below. It is important to note at this stage, however, that these seemingly improvident terms from the point of view of CRB as Borrower were those proposed by CRB itself; not by the Human Enhancement Project. Further, no suggestion was made in the proceedings that the common law against usury applies in New South Wales. The Court may relieve against usurious transactions under other heads of jurisdiction. [1] As I set out at [11] below, particular heads of jurisdiction are sought to be invoked.
5. On or about 29 October 2019, the late Mr John Schaeffer and two of his associated companies, Rasay Pty Ltd and The Footage Company Pty Ltd, executed a Deed of Guarantee and Indemnity ("the Guarantee") in respect of that transaction.
6. Also on 29 October 2019, a director of CRB, Mr Charles Blinkworth, executed a guarantee.
7. Mr Naegeli had executed the Guarantee several months earlier, on 18 July 2019, purportedly on behalf of the "Beneficiary", the Human Enhancement Project.
8. Mr Blinkworth died on 28 January 2020.
9. Mr Schaeffer died, in unrelated circumstances, on 14 July 2020.
10. Mr Naegeli brings these proceedings against Mr Schaeffer's estate, and the two companies (together, "the Defendants"), seeking to recover $6.5 million under the Guarantee.
11. The Defendants resist the claim on the bases that: 1. as the Guarantee was not executed by Mrs Naegeli, and thus not by all members of the Human Enhancement Project, it had "no contractual effect"; and 2. alternatively: 1. by "obtaining" the Guarantee from Mr Schaeffer and his companies, Mr Naegeli engaged in conduct that was unconscionable for the purposes of s 12CB of the Australian Securities and Investments Commission Act 2001 (Cth) ("the ASIC Act"); 2. the operative term of the Guarantee was unfair for the purposes of s 12BF of the ASIC Act; 3. pursuant to s 12GM of the ASIC Act I should refuse to enforce the Guarantee; and 4. the Guarantee was an unjust contract for the purposes of the Contracts Review Act 1980 (NSW) and that I should refuse to enforce it as against Mr Schaeffer's estate. [2]

Decision

1. My conclusions are: 1. the Guarantee does have contractual effect; 2. Mr Naegeli did not engage in unconscionable conduct for the purposes of s 12CB of the ASIC Act; 3. section 12BF of the ASIC Act is not engaged and, in any event, no term of the Guarantee was unfair for the purposes of that section; 4. the Guarantee was, in a particular respect, an unjust contract for the purposes of the Contracts Review Act; and 5. accordingly, the liability of Mr Schaeffer's estate, but not that of the corporate defendants, should be confined to repayment of the $500,000 advanced by the Human Enhancement Project together with interest thereon at the rate specified in the Guarantee.

Mr Naegeli

1. In his affidavit, Mr Naegeli described his background as follows: "I work predominantly as a strategic adviser in the biotech industry, focussing on prodrug discovery and stem cell research, and health food manufacturing, where I am the owner of Switch Superfoods, an Australian-based manufacturer and wholesale distributor of a superfood of the same name, which provides the body with essential vitamins, minerals, micro and macro-nutrients. Since experiencing my own health issues some years back, I developed an interest in regenerative medicine and health. I sold my share in a prestige car dealership and mechanic business and began investing in companies that focus on these areas. I have been seeking ways to make more of a positive impact in the world. In 2018, I had brought together a group of individuals with high net worth who were interested in combining their resources to make investments in philanthropic ventures. I had spent time researching investment opportunities that would help fund positive biotech research, which required a substantial amount of money. This included talking to venture capitalists and other seed capital professionals, both in Australia and overseas."
2. The evidence I recount below suggests that, despite having some commercial experience in a prestige car dealership, Mr Naegeli is a somewhat unworldly and commercially naïve person. He appears to have been well and truly out of his depth when dealing with CRB, and Mr Blinkworth in particular. He was also evidently dazzled by Mr Schaeffer's apparent association with CRB.
3. During his cross-examination Mr Naegeli impressed me as an honest witness, doing his best to give the best of his memory concerning events which were clearly very distressing to him.

The Human Enhancement Project

1. The Human Enhancement Project was established by Mr Naegeli and Mrs Naegeli on 19 September 2013 as "a humanitarian, philanthropic, non-profit, non-government organisation".
2. Mr Naegeli deposed: "The prime intent of [the Human Enhancement Project] is to improve the quality and quantity of life for all humankind through lifestyle, nutrition, exercise, supplementation or implementing scientific breakthroughs. I am the chairperson of the organisation, described as 'Primary Officer'. [The Human Enhancement Project] was set up under the guidance of the Aesuba Group, an umbrella organisation with similar ideals. … [The Human Enhancement Project] is not incorporated. To the extent that it is ever necessary for [the Human Enhancement Project] to conduct any sort of business, I generally sign any documents … under the designation of Primary Officer."
3. In the minutes of 19 September 2013 establishing the Human Enhancement Project, Mr Naegeli was described as the "Development Primary" member and Mrs Naegeli was described as the "Communications Primary" member. Mr Naegeli and Mrs Naegeli resolved to establish a bank account "under an either to sign signatory authority".

CRB Investment Holdings Pty Ltd

1. At the date of execution of the Cash Funding Agreement and the Guarantee, the directors of CRB were Mr Blinkworth, Mr Donald James and Mr William Aloisi.
2. The members of CRB were a number of companies, the ultimate ownership of which is not revealed in the evidence.
3. Mr Schaeffer was neither a director nor a shareholder of CRB. However, as I discuss below, Mr Schaeffer held himself out as being the "honorary chairman" of CRB. As I also set out below, although there is no evidence to suggest Mr Schaeffer played any day-to-day role in CRB's business affairs, nor in the creation of the Cash Funding Agreement itself, he had a longstanding business connection with Mr Blinkworth and had many conversations with Mr Naegeli concerning the events leading up to and following the execution of the Cash Funding Agreement, and the Guarantee.
4. CRB made no payments under the Cash Funding Agreement. It was wound up on 14 October 2020.
5. Mr Blinkworth represented CRB to Mr Naegeli as a company "focused on providing finance for economic development projects and charitable humanitarian works".
6. What activities CRB in fact engaged in was not made clear on the evidence before me.
7. I return to the position of CRB below.

Mr Schaeffer's relationship with Mr Blinkworth

1. Ms Bettina Dalton was Mr Schaeffer's de facto partner at the time of his death. Ms Dalton is one of Mr Schaeffer's executors and, in that capacity, a defendant to the proceedings.
2. Ms Dalton deposed that she commenced a relationship with Mr Schaeffer in 2002 and that, at that time, Mr Schaeffer was the "chairman and major shareholder of Tempo Services, a publicly listed cleaning and security company". Ms Dalton said that in 1995, Tempo "acquired the company called Group 4 Securitas", that Mr Blinkworth was then the managing director of Group 4 Securitas and that it was then that Mr Schaeffer met Mr Blinkworth.
3. Ms Dalton said that in about 2006 "Tempo was sold to ISS Facility Services Australia" and that Mr Blinkworth was then appointed as "interim CEO of ISS".
4. Ms Dalton said that in about 2006, after Tempo was sold to ISS, Mr Schaeffer said to her words to the effect: "Charles [Blinkworth] wants to start his own security company. I can't be involved in it as I have a non-compete clause with ISS. But I will invest money in it and Charles will run the day-to-day operations."
5. Ms Dalton said that "sometime later" Mr Schaeffer had told her that he had invested "$2.5 million" into Mr Blinkworth's security company.
6. Ms Dalton said that in about 2016 or early 2017 Mr Schaeffer said to her words to the effect: "Charles [Blinkworth] has got a big compensation case against ISS. He will pay me back all the money he owes. I am going to pay his legal fees as it happened on my watch. Charles will give me the money back when he gets his settlement."
7. Ms Dalton said that in about 2018 or 2019 Mr Schaeffer said to her, after having finished a telephone call with Mr Blinkworth: "Charles is all distressed. Someone at Westpac has approved a transfer of funds to [two of Mr Blinkworth's business partners] and they have absconded with the money I have invested."
8. Ms Dalton said that in early 2018 Mr Schaeffer told her: "[Mr Blinkworth] has set up this investment company called CRB. I don't totally understand what they are doing but [Mr Blinkworth] reassures me that they are going to make money and he will pay me back. I won't get involved in the day-to-day running of it."
9. The records produced by the liquidator of CRB show Mr Schaeffer as a creditor in the sum of $676,446.89.
10. In or around April 2018 Mr Schaeffer signed a guarantee of CRB's obligations to a company known as Bloomingville Hong Kong Limited. I will return to this below.
11. Thus, Mr Schaeffer had a significant commercial association with Mr Blinkworth prior to the events with which these proceedings are concerned.

The events leading to Mr Schaeffer's execution of the Guarantee

1. I turn now to the events leading up to the execution by Mr Schaeffer of the Guarantee on 29 October 2019. It is necessary to consider these events in some detail.
2. The only account given of these events is that of Mr Naegeli.
3. As I have said, Mr Schaeffer died on 14 July 2020. The other key participant in the events, Mr Blinkworth, died six months earlier, on 28 January 2020. Neither party called Mr Aloisi or Mr James, each of whom played some role in the relevant events. Neither party contended that any inference should be drawn unfavourably to the other by reason of this.
4. I see no reason to doubt the accuracy of Mr Naegeli's account of what happened. It is true that, in cross-examination, Mr Naegeli occasionally gave answers that went beyond that to which he had deposed. But this was because he was asked questions that evidently prompted a recollection that had not been recorded in his affidavit. I did not find the account given by Mr Naegeli in his affidavit to be improbable. Mr Naegeli's evidence was often consistent with objectively established matters. I found Mr Naegeli to be a reliable informant.
5. In his affidavit, Mr Naegeli deposed many detailed conversations with Mr Blinkworth and Mr Schaeffer.
6. At the outset of the hearing, Mr O'Neill, who appeared for Mr Naegeli, informed me that Mr Naegeli had recorded a number of his conversations with Mr Schaeffer.
7. On the face of it, this was conduct in breach of subs 7(1) of the Surveillance Devices Act 2007 (NSW), which provides: "(1) A person must not knowingly install, use or cause to be used or maintain a listening device - (a) to overhear, record, monitor or listen to a private conversation to which the person is not a party, or (b) to record a private conversation to which the person is a party."
8. Subsection 7(3) provides, relevantly, that: "(3) Subsection (1)(b) does not apply to the use of a listening device by a party to a private conversation if - … (b) a principal party to the conversation consents to the listening device being so used and the recording of the conversation - (i) is reasonably necessary for the protection of the lawful interests of that principal party …"
9. The fact that Mr Naegeli had recorded these conversations came to light by reason of the service by the Defendants of a Notice to Produce seeking production of documents "recording" the communication relating to the Cash Funding Agreement and the Guarantee. Mr O'Neill produced a memory stick containing the relevant audio recordings. There was a short adjournment to enable Mr Condon SC and Mr Price, who appeared for the Defendants, to listen to the recordings.
10. There are authorities dealing with the circumstances in which it can be concluded that it is reasonably necessary for the protection of the lawful interests of a party to record a private conversation. [3]
11. It appeared to be common ground that it was arguable that Mr Naegeli could establish that his recording of his conversations with Mr Schaeffer was "reasonably necessary for the protection" of his "lawful interests" for the purposes of subs 7(3)(b) of the Surveillance Devices Act.
12. Thus, Mr Condon said: "Your Honour, if I can assist the Court in this way? Just to assist your Honour on the s 128 point, the Court has a discretion when it comes - I think it's now the Listening Devices Act to admit the evidence even without a s 128 certificate if there was a perception by the person recording that he or she had to protect reasonable interests or reasonable business interests, and on the authorities it is given a fairly wide definition. So your Honour may not have to be too concerned with self-incrimination."
13. Nonetheless, I thought the safest way to proceed was to require Mr Naegeli to give evidence about his recording of the conversations but to issue a certificate under s 128 of the Evidence Act 1995 (NSW).
14. In cross-examination, and in closing submissions, Mr Condon made no criticism of Mr Naegeli in relation to his recording of his conversations with Mr Schaeffer. The fact that Mr Naegeli had recorded these conversations meant that there was no dispute about the accuracy of the detailed account that Mr Naegeli gave of those conversations. It may also explain why, in cross-examination, Mr Naegeli was not challenged about his recollection of what was said in any of his conversations with Mr Schaeffer.
15. Mr Naegeli said that in around 2018 he became aware of "a particular form of investment which is best known as Private Placement Programs" made by "Private Placement Agreements".
16. Mr Naegeli said that in June 2018, while he was overseas, he was "offered the opportunity" to participate in a Private Placement Agreement with an initial investment of $1 million. He said that the Private Placement Agreement provided for a 5% weekly return for 40 weeks with the principal being paid back at completion, providing a $2 million profit "which was suggested to have a risk-free premium". CRB and the Defendants had no involvement in this proposal.
17. Mr Naegeli said that on his return to Australia he presented a copy of this proposed Private Placement Agreement to a business associate, who suggested that he "first meet with the group in Sydney that had ties with" Westpac Banking Corporation and that it "would be much safer to invest with [that group] compared to companies overseas".
18. This is what led to Mr Naegeli's introduction to Mr Blinkworth and Mr Schaeffer.
19. Mr Naegeli met Mr Blinkworth on 3 July 2018 in Mr Blinkworth's offices in the Sydney CBD. Mr Aloisi was present in that office. Mr Schaeffer and Mr James were present "via a telephone link individually for periods during the meeting". Mr Naegeli said the meeting lasted approximately four hours.
20. At the meeting, Mr Naegeli was given five business cards which he photographed.
21. A copy of those business cards follows:
22. As can be seen, four of the business cards were in the same get-up and were entitled "CRB INVESTMENT HOLDINGS PTY LIMITED". The card relating to Mr Schaeffer described him as being the "Honorary Chairman" of CRB. As I have said, Mr Schaeffer was not ever a director of CRB. The email addresses on Mr Schaeffer's business card included director@crbih.com as well as what appeared to be Mr Schaeffer's personal gmail address. There is no evidence that Mr Schaeffer used these email addresses. There is evidence of Mr Blinkworth using the email address directors@crbih.com (with "directors" rather than "director" as the first element of the address) but not director@crbih.com (with "director" singular). The significance of this fact was not explained in the evidence. Mr Naegeli agreed he did not receive any emails from Mr Schaeffer. He said "Mr Schaeffer was not one for sending emails".
23. The fifth business card was for an organisation known as "Bravura Private Wealth", evidently a third party financing intermediary to which I will return.
24. The evidence does not disclose whether during this meeting Mr Schaeffer said anything to associate himself with the business card bearing his name.
25. Ms Dalton gave evidence that the first time she saw the business card was in November or December 2019, after Mr Schaeffer had signed the Guarantee. Ms Dalton said that Mr Schaeffer told her that "this is what Charles [Blinkworth] presented to me today" and "I am not meeting people on behalf of CRB, why would I need them anyway?". The evidence establishes that Mr Schaeffer was, in fact, regularly "meeting people on behalf of CRB".
26. Indeed, the unchallenged evidence before me is that on 3 July 2018, after his "formal introduction with Mr Schaeffer", Mr Schaeffer said to Mr Naegeli: "I am the honorary chairman of CRB. I have been awarded an Order of Australia. You are very fortunate to have a chance to go into business with CRB and if you pass their criteria, I look forward to meeting you and discussing business together. If you are interested in art I can give you a tour of the Art Gallery of NSW where there is a wing named after me. That is how I have made a lot of my money, by entering into cash funding agreements with CRB. These agreements and windfalls give me the confidence to back CRB and hold my position as Honorary Chairman of CRB. There are a lot of benefits with being aligned with CRB." (Emphasis added.)
27. Mr Naegeli said, "nearly every single time it was discussed with the investors to put the money in, it got mentioned" and that "when I had a new group that were going to put in the money, he would mention that".
28. The evidence also shows that the explanation Mr Schaeffer gave to Mr Naegeli as to the nature of his involvement in CRB was different to the explanation that Mr Schaeffer evidently gave to Ms Dalton. As I have set out above, Ms Dalton's explanation was that Mr Schaeffer had invested $2.5 million in the "security company" that Mr Blinkworth had established, that those funds had been lost when Mr Blinkworth's business partners absconded with funds belonging to that company, and that Mr Blinkworth had told Mr Schaeffer that he would "make money" through CRB and "pay [him] back". In contrast to that account, what Mr Schaeffer told Mr Naegeli was that he had made "a lot of [his] money" by "entering into cash funding agreements with CRB" and that this was the reason Mr Schaeffer had the "confidence to back CRB and hold [his] position as honorary chairman". The full nature of Mr Schaeffer's involvement in CRB is not revealed on the evidence although, as I have set out above, the records produced by the liquidator of CRB show that Mr Schaeffer was a creditor in the sum of $676,446.89.
29. At the 3 July 2018 meeting, Mr Blinkworth said: "CRB is a company that has been operational since 2010. I have an extensive business background, including being CEO for Mr Schaeffer's company Tempo for many years. We both departed to focus on humanitarian causes which we do through a form of trading that creates wealth allowing us to fund major projects all around the world. If you look at the back of the CRB business cards you will see a map of the world, with three big letters in the middle 'C R B' and a message 'Creating Resources for a Better world'. … We do this through the use of exclusive qualified traders that carry a licence to purchase or sell bank financial instruments. These instruments are purchased with a high discount on their base value to be resold at a higher price to the secondary market. These instruments are things like stock shares and bonds, and through our network which we established working at and owning one of the largest companies in Australia being ISS Tempo, this gives us the resources to use funds from high wealth individuals, governments, financial institutions, insurance companies, pension funds and private companies to either sell these instruments at a profit or buy for them at a discount. This is all preapproved, we already know what is going to happen in the trade before it happens. The major four banks use this method and the governments do too, however CRB are one of only several private companies worldwide that are involved in this kind of wealth creation for predominantly humanitarian causes. CRB keeps a percentage for facilitating the trades as well as making them. CRB does not advertise and we do not generally speak to individuals, especially in Australia, that are not preapproved."
30. During the meeting Mr James said: "I am one of the qualified traders and I oversee the other traders that CRB has around the world, of which there are only 5 individuals. We create profits using instruments including Standby Letters of Credit (SBLCs), Medium Term Notes (MTNs) and Bank Guarantees, all of which generate funds on a monthly bases [sic] and are generally entered into for 12 months, 3 years, 5 years or 10 years, the latter being more targeted at Government projects involving infrastructure."
31. Later, Mr Blinkworth said: "Others have lost many millions entering into those deals. There are a lot of negatives of entering into a [Private Placement Agreement] overseas such as if it goes wrong, you would have to conduct court proceedings overseas and my experience was that the cost of that will make it unfeasible."
32. Mr Blinkworth offered comments on the proposed Private Placement Agreement to which Mr Naegeli was introduced when he was overseas a short time earlier.
33. Mr Blinkworth said to Mr Naegeli, about that proposed Private Placement Agreement: "If you are going to enter into it, I suggest that you get those parts changed. The minimum investment into a trading program is generally $100M and I can not understand how you were offered a way in for only $1M, unless they are pooling all funds together from many individuals. CRB have been known to pool together funds from companies and high net worth individuals such as Mr Schaeffer, and others that are generally represented by companies."
34. It appears Mr Naegeli felt out of his depth at this meeting. Thus he said: "I listened intently to the overview provided by both Messrs Blinkworth and James of how the trading operates with CRB's investments. Whilst I did follow what they were saying most of the time, I did not (and still do not) fully understand their explanations, however I was embarrassed to say so at the time. I recall feeling a sense of security and prestige because of the calibre of the people involved with CRB."

The First Proposal - US$20 million

1. During the 3 July 2018 meeting, Mr Blinkworth or Mr James then put a proposal to Mr Naegeli. The parties referred to this as the "First Proposal".
2. Either Mr Blinkworth or Mr James said: "First, you and your associates would transfer $20 million USD into a bank account operated by CRB. On the last Friday on the second month after this transfer is made, a payment equal to 20% of the total amount of the transfer will be paid into an account nominated by you. Every month, payments equal to 20% of the total amount of the transfer will continue to be made to you on the last Friday of each month, for a total of 12 payments over the term of 13 months. At the end of the 13-month period, the original $20 million USD transfer will be released and returned to you, free and clear of any liens or encumbrances."
3. Mr Naegeli responded by saying that he personally did not have access to $20 million.
4. Mr Blinkworth or Mr James replied: "If you can find a group that has a minimum of $20M to transfer to CRB, then in return we will enter into a separate agreement to give you 2.5% return monthly on that $20M. That will generate $500,000 into your business monthly for a period of 12 months, totalling $6M."
5. Immediately after the meeting, Mr Blinkworth sent Mr Naegeli an email with an attachment on CRB letterhead, which stated: "We, CRB, maintain a treasury services management account with our fully licensed institutional private banking and financial services firm operating inside Westpac Bank and receive all cash deposits to this account."
6. Despite the reference in this document to CRB operating "inside Westpac Bank", there is no evidence that CRB in fact had any relationship with Westpac.
7. The essential features of the First Proposal as described in the attachment to the email were that for a US$20 million cash injection, investors would receive, beginning on the last Friday of the second month, a payment equal to 20% of the total amount of the transfer for a total of 12 payments over a term of 13 months. That is, for a total investment of US$20 million, investors would receive $48 million in payments plus the return of their $20 million investment: a 340% return. Money was to be transferred into an "institutional treasury services management account" in the name of Bravura Private Wealth Pty Ltd which was described as "the institutional private banking financial firm operating inside Westpac Bank".
8. Although Mr Naegeli said that Mr Schaeffer had been in attendance at this meeting by telephone "for periods during the meeting", he did not attribute any words to Mr Schaeffer nor suggest that Mr Schaeffer had participated in the explanations given by Mr Blinkworth and Mr James.
9. Mr Naegeli said that, after this meeting, he was reluctant to proceed with the Private Placement Agreement to which he had been introduced when overseas and, following a further meeting with Messrs Blinkworth, Aloisi and James on 19 July 2018, decided not to pursue that Private Placement Agreement "but to look further into the investment offered by CRB".
10. A short time later, someone [4] provided Mr Naegeli with a copy of CRB's "Corporate Profile".
11. The document stated: "CRB Investment Holdings PTY Limited is a seven-year-old Australian company focused on providing financing for economic development projects and charitable humanitarian works. Together, the directors of CRB have over 50 years' experience in the highest levels of finance and international corporate leadership as Chief Executive Officer(s)."
12. The document then listed the persons involved with CRB, including, in first place, Mr Schaeffer, of whom it stated: "Mr. John H. Schaeffer AO (awarded 'Order of Australia'), Honorary Chairman Mr. Schaeffer is [sic] board member of the National Gallery of Australia Foundation, as well as a board member and Life Governor of the Art Gallery of New South Wales. He is a [sic] internationally known collector of 'Pre-Raphaelite' works of art and has a wing of the Art Gallery of NSW for his personal collection (https://www.artgallery.nsw.gov.au/exhibitions/victorian-visions/). He has over 25 years' experience as the Chairman of several multi-national corporations with revenues in the hundreds of millions, to billions of dollars." (Emphasis in original.)
13. There is no evidence that Mr Schaeffer had any involvement in the creation of this Corporate Profile.
14. Ms Dalton gave evidence that following Mr Blinkworth's funeral in February 2020, Mr Schaeffer showed her the Corporate Profile and said: "Wow. I didn't know this was in circulation. They make it sound like I own all of the paintings in that wing [of the Art Gallery of New South Wales]. The reference to 'the hundreds of millions to billions' - That is so false. I don't have billions of dollars. I don't even have hundreds of millions. … They are just using me to establish their credibility. I am worried who will see this."
15. Despite these expressions of concern, Mr Naegeli's evidence as to what Mr Schaeffer said at the meeting on 3 July 2018, and on the later occasions to which Mr Naegeli referred, suggest that in fact Mr Schaeffer had been happy to assist in the establishment of CRB's "credibility".

Contact between Mr Naegeli, Mr Blinkworth and Mr Schaeffer between September and December 2018

1. Having decided in July 2018 "to look further into the investment offered by CRB", Mr Naegeli travelled to Hong Kong and Macau in September 2018 to explore the possibility of arranging for investors to participate in the First Proposal.
2. Mr Naegeli said: "When I returned from overseas in September 2018, I was still unsure what to do. My businesses were unable to grow without a way of getting some funds in and the conversations started to become a bit more frequent with Mr Blinkworth. He started calling me every second day asking if there is anything I needed and also showing an interest in helping my companies obtain funding. I estimate that I spoke to Mr Blinkworth on the phone no less than 30 times between 21 September 2018 and 31 December 2018. I also flew up to Sydney specifically at the request of Mr Blinkworth for the following periods: from 20 November 2018 to 23 November 2018, 5 December 2018 to 14 December 2018 and 27 December 2018 to 31 December 2018. During those periods I spent a lot of time with Mr Blinkworth. On many of these occasions, Mr Schaeffer was dialled in by telephone. I shared with them how much good I will be able to do for the world with an influx of $500,000 per month as suggested by CRB if I could raise $20M to participate in their program. … Prior to 30 December 2018, I had spoken on the telephone with Mr Schaeffer on no less than five occasions and felt honoured to have someone like him take the time to speak with me and show what seemed to be genuine interest in what I was working towards." (Emphasis added.)
3. Mr Naegeli continued: "Up to December 2018, Mr Blinkworth was always present when I spoke with Mr Schaeffer on the telephone, which was mainly on days that I met with Mr Blinkworth in person when I travelled to Sydney. There were also occasions on which Mr Blinkworth called me on the telephone, when he had Mr Schaeffer with him. On a number of those occasions, Mr Schaeffer said words to the following effect: 'Patrick [Naegeli] I'm not just saying this because Charles [Blinkworth] is present, he has spoken to me at length about you and he really likes you as a person and what you are in pursuit of, and I totally trust Charles's judgment. I would really like to hear more and share my experiences with you, I feel this can mutually benefit us, once you enter into the [Cash Funding Agreement] we will become partners, your life will change forever, we will work together and help you on your way.'" (Emphasis added.)
4. In the meantime, in around October 2018, Mr Naegeli engaged a solicitor, Mr John Gdanski of SLF Lawyers in Melbourne. Mr Naegeli said he retained Mr Gdanski at the "suggestion of the investors". Those investors asked Mr Naegeli to explain "the opportunity" to an accountant, Mr George Sim.
5. On 19 November 2018, Mr Sim wrote to Mr Naegeli: "I spoke with Andrew Mortlock this morning and he advised that his friend Barry Corrs is not directly employed by Westpac. He works with them to find clients for their trades. He said that they normally accept a minimum of $20m so what you are being offered is absolutely correct."
6. Mr Sim's note appeared to corroborate, in part, the proposal in the First Proposal.
7. By 3 December 2018, CRB had prepared a draft "Cash Funding Agreement", the structure of which was similar to the Cash Funding Agreement ultimately executed on 30 December 2018.
8. Mr Naegeli and Mr Gdanski attended a meeting at CRB's offices on 6 December 2018 where Mr Blinkworth, Mr Aloisi and Mr James were present for CRB.
9. Mr Naegeli said "we discussed our concerns with the First Proposal".
10. Early on 8 December 2018, Mr Naegeli wrote to Mr Gdanski. At this point, the proposal still was for an investment into CRB of US$20 million. Mr Naegeli wrote: "There are a few other things which I will discuss further when we speak for example not that it'll mean much security wise however, when I had Charles [Blinkworth] on his own, I questioned him saying … if it is a sure thing why doesn't he put up his properties or one of the directors of CRB why doesn't he put up one of the pieces of his artwork to the same value … now without William [Aloisi] knowing I managed to get Charles [Blinkworth] to agree to a personal guarantee however, as mentioned above I don't believe it would be worth much or be exercisable as it would purely be a contract between myself and Charles [Blinkworth] … no registered securities and I know it means nothing however, on a personal level I asked them both individually and both said there is no way they want to bring harm to me from the people I bring for investment, they would rather tell me not to go in if they weren't certain they can provide the revenue payments and the principal." (Emphasis added.)
11. Mr Condon placed some weight on the passage I have emphasised, suggesting that it bespoke Mr Naegeli's opinion that a guarantee from Mr Blinkworth would be of little value.
12. However, when asked about this in cross-examination, Mr Naegeli said he had made the 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".
13. That answer appears to be consistent with the language Mr Naegeli used in his email to Mr Gdanski. I accept it is what Mr Naegeli meant.
14. Later on 8 December 2018, Mr Blinkworth wrote to Mr Naegeli: "The amount is a minimum of $20MM USD, however speaking to Don [James] if you have $17/18/19 MM that will be fine, we will take care of the rest, however you will be paid the 15% return based upon your deposited amount & as will be shown in the [Cash Funding Agreement]. The Bravura Private Wealth Treasury Management Fee of 1% will be deducted from the deposit (whatever the amount deposited the return will be based upon that amount, regardless of fees etc.) As discussed yesterday a segregated account will be set up and you will have login viewing rights under your control with your existing Westpac Customer Identification Number as added security. Patrick what we have done above we do not do for any individual or firm, this is for you alone. I am prepared to have this done ASAP as I know you are staying in Sydney for completion and bankers etc go on holidays, Don [James] is keeping this open."
15. Negotiations continued and on 13 December 2018, Mr Aloisi sent Mr Naegeli a further draft of the US$20 million "Cash Funding Agreement", the parties to which were proposed to be a company called "Pinocchio's Restaurant Number One Pty Ltd" [5] as "lender" and Bravura Private Wealth Pty Ltd as "borrower".
16. Mr Blinkworth and Mr Aloisi were seeking to place pressure on Mr Naegeli to enter into an agreement along the lines of the draft proposal.
17. Thus, either Mr Blinkworth or Mr Aloisi said to Mr Naegeli: "Remember that just for you the [Cash Funding Agreement] is for only $20M USD. Generally, once we issue the [Cash Funding Agreement] it gets executed on the same day followed by the transfer of funds by 'Real Time Gross Settlement' (RTGS). We have spent so much time with you and Mr James is keeping a spot open for you. The deadline would have passed and we will be blacklisted from entering any trade like this if we now don't proceed with the [Cash Funding Agreement]. The least you can do is close the deal."
18. On 13 December 2018, Mr Naegeli sent the draft US$20 million Cash Funding Agreement to Mr Gdanski and sought his advice. He said: "Please go over the agreement, I've done the best I think we can get and what the bank has been able to approve and work with, however I need your eyes."
19. Mr Gdanski then retained Mr Donald Farrands [6] of the Victorian Bar to advise in relation to the proposed agreement.
20. Mr Farrands advised that the proposed "agreement contains significant risks and heavily favours the Borrower and puts the Lender at potential risk". He said: "Under clause 7(d), the deposit of USD 20m is required to enable the borrower to enter into 'revenue producing activities'. The agreement does not state, but it is necessarily implicit, that the deposit is to be made available as collateral or security or bond, or guarantee etc for those revenue producing activities, and therefore is at risk and may be put into the favour of the counterparty to those activities, but without recourse to the counterparty, and without recourse to the Borrower as the Borrower provides no security under the agreement in favour of the Lender other than an indemnity … which may or may not have any value or backing and should therefore be assumed to be of limited value".
21. Mr Farrands' advice was wisely given.
22. A short time later, Mr Naegeli said to Mr Gdanski: "In view of the advice we have received, the Investors are not going to pursue the matter at this time. We will come back and look at it with fresh eyes after the holidays."
23. Thus, nothing came of the First Proposal.
24. There were two later proposals, including that which led to the 30 December 2018 Cash Funding Agreement.
25. As Mr O'Neill pointed out, the essential features of these later proposals were the same as that in the First Proposal, namely an initial upfront cash injection into Bravura Private Wealth's account, followed by a significant payment monthly for 12 months, with a return of capital at the conclusion of the term. What was different in relation to the later proposals was the amount of initial injection of the repayments and the time when repayments would commence.

The Second Proposal - US$10 million

1. Mr Naegeli said that, following his conversation with Mr Gdanski, "I began exploring the possibility of replacing the investors as lender with another entity".
2. That other "entity" was ultimately the Human Enhancement Project: Mr Naegeli and his mother.
3. Later on 15 December 2018, Mr Naegeli had this conversation with Mr Blinkworth and Mr Schaeffer: "[Mr Blinkworth]: Patrick we understand that you worked very hard to get the funds in while you were in Sydney, and for that reason we have amongst ourselves agreed to still give you personally the $500,000 per month if you secure $10M USD into the trade investment. [Mr Schaeffer]: I have agreed to cover the other half to make up the $20M USD required only you have to act fast. [Mr Blinkworth]: The only condition is that CRB enters the [Cash Funding Agreement] as the borrower and not [Bravura Private Wealth]". (Emphasis added.)
4. On 17 December 2018 Mr Naegeli wrote to Mr Blinkworth: "I'm embarrassed about last week's events and it has taught me a valuable lesson, I'll put forward in all our future business."
5. Mr Naegeli was "embarrassed" by the advice received from Mr Farrands, which Mr Naegeli seems to have seen as preventing the First Proposal from proceeding.
6. Mr Blinkworth replied: "[No problem] Patrick let me know either way. I have given you [an] alternate option to do $10M USD if you want, up to you. Talk later at your convenience. Thank you Charles [Blinkworth]."
7. Mr Blinkworth kept the pressure up. Thus, a short time later he wrote to Mr Naegeli: "If the Investors or another entity do not enter the [Cash Funding Agreement], I have another party organised to act as the lender. Because you have been allocated a position in this trade, if you do not proceed, unfortunately you will not be given another opportunity to participate."

The Third (and final) Proposal - $500,000

1. On 22 December 2018, Mr Blinkworth wrote to Mr Naegeli: "Patrick please call it's important and may just sort all your dreams out."
2. Later on 22 December 2018, Mr Naegeli and Mr Blinkworth had this conversation: "[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 [7] 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. The words I have first emphasised in this conversation suggest a continuing involvement of Mr Schaeffer in the transaction, albeit at some remove, and of a role that he played in encouraging Mr Blinkworth to encourage Mr Naegeli to commit to a transaction with CRB.
4. In cross-examination, Mr Naegeli gave this evidence about the second passage I have emphasised in that conversation: "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. 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 Mr Blinkworth and Mr Aloisi at CRB's offices. Mr James attended the meeting "at times" by telephone.
7. Mr Naegeli said that he was "still in shock that I was being given this opportunity" and said that he asked several times: "[W]hy are you offering me returns that are 5 times what we have been discussing over the last few months … Is there a catch … am I being punked …?"
8. I see this evidence from Mr Naegeli as having importance. In opening and closing submissions, much was said on behalf of the Defendants of the "improvident" nature of the transaction represented by the Cash Funding Agreement from the point of view of the Borrower, CRB, and of the extremely high "effective interest rate" represented by the "payment structure" in the agreement. But what must be borne steadily in mind in this case is that these terms were proposed by CRB, the prospective borrower, and not by Mr Naegeli as the prospective lender. In retrospect, it can be seen that a reason why Mr Blinkworth might have proposed such extravagantly generous terms to a lender like Mr Naegeli is an apprehension on his part that the borrowed funds could be put to spectacularly good use or, as is perhaps more likely, that the occasion for honouring the promises implicit in the Cash Funding Agreement "payment structure" would never arise. The true position is unknown. What is important is that the extraordinarily generous "payment structure" was not Mr Naegeli's idea.
9. Mr Blinkworth replied: "John Schaeffer got me thinking that if I genuinely see that you can help us better the world then I should give you a go, and when I spoke to Mr James about it he said there is more than enough profits coming in from the Sovereign wealth fund transaction with the Malaysian Government that they are easily able to make this arrangement happen. He said they see by doing so they will help me and I will help them because they are very interested in the projects that I have been discussing with them."
10. Mr Blinkworth's reference to what Mr Schaeffer "got me thinking" was evidently a reference to Mr Schaeffer having said to Mr Blinkworth that Mr Blinkworth should give Mr Naegeli "a chance like I did for you back in the Tempo days". [8]
11. Mr Blinkworth then said: "You should use the Human Enhancement Project to enter into the [Cash Funding Agreement]. It is an unincorporated humanitarian, philanthropic, non-profit, non-government organisation which is facilitating the research and development for the advancement of technologies in the sciences and wellbeing. I am aware it does not have an ABN, but nowhere on their KYC [9] form does it ask for one. Also, the fact its banking is done at Westpac that will mean our bankers can approve you within 24hrs rather than the usual 48hrs."
12. In his affidavit, Mr Naegeli had not referred to any earlier suggestion that the Human Enhancement Project should be involved in the Cash Funding Agreement, although, as I have said, he did refer to the possibility of using "another entity". [10] However, in cross-examination he said that "the funds that I had were in Human Enhancements" and that in "the days before we entered the agreement Charles Blinkworth … said to meet the KYC requirements it needs to come from an account that has got the money".
13. The possible involvement of the Human Enhancement Project must have been discussed earlier, as on 26 December 2018 Mr Naegeli and his mother held a meeting of the Human Enhancement Project. The minutes of that meeting record that the objective of the meeting was: "To discuss which officer would be the primary officer in entering into a Cash Funding Agreement in Sydney representing the Human Enhancement Project."
14. The minutes record that the "result" of the meeting was: "• Patrick Naegeli outlined the requirements of the Cash Funding Agreement. • CRB, the company the agreement was to be entered with, had a policy requiring an entity to enter due to their trading and banking policy. • Patrick Naegeli was the only person that dealt with CRB and had the necessary qualifications, experience, and knowledge of the agreement requirements to carry out the role effectively. • After a brief discussion, it was decided that Patrick Naegeli would be the primary officer for the Cash Funding Agreement and would have authority to sign for all members of Human Enhancement Project. • It was noted that anything else required in relation to the agreement until it has been fulfilled will be the responsibility of Patrick Naegeli."
15. The minutes were signed by Mr Naegeli and Mrs Naegeli.
16. The matter recorded in the last bullet point is relevant to the question of whether Mr Naegeli had authority from the members of the Human Enhancement Project, that is in effect the authority of his mother, to execute the Guarantee. I return to this below.
17. On 29 December 2018, Mr Blinkworth sent Mr Naegeli a draft of what became the Cash Funding Agreement.
18. Mr Naegeli executed the Cash Funding Agreement on 30 December 2018.
19. He did not seek legal advice prior to signing the document.

The Cash Funding Agreement

1. The Cash Funding Agreement was expressed to be between CRB as "Borrower" and the Human Enhancement Project "represented by Mr Patrick Naegeli, Primary Officer" as "Lender".
2. The Cash Funding Agreement recited: "A. Borrower is seeking to expand economic development projects and business interests and having the required knowledge, professional and banking contacts and resources, to assist Lender in their stated business objective through the use of what is commonly referred to as Cash Funding Agreement ('CFA') and is desirous for the Lender to forward the agreed cash balance via Internal Bank Ledger-to-Ledger Transfer for the Borrower to utilize as payment and/or collateral against various transactions to be performed under the separate proprietary business strategies; and B. The Lender represents having the required expertise, authorization, control, knowledge, professional contacts, private funds, or discretionary resources to assist Borrower in achieving the above and below stated business objective. The Lender is committed to transfer to the Borrower's receiving account, as described in ANNEX A, a minimum of $500,000 (Five Hundred Thousand AUD), will be on or before December 31, 2018."
3. Subclauses 2(a) and (b) of the Cash Funding Agreement provided: "2. DUTIES OF BORROWER Provided that Lender is not in breach or default of its obligations under this Agreement, Borrower agrees as follows: a) Initial Transactions - Within 10 (ten) banking days following Borrower confirmation of receiving the agreed cash deposit, Borrower shall confirm and acknowledge the initiation of the CFA Transaction(s) and proprietary business and corporate activities required to fulfill obligations and duties under this agreement. Lender understands the requirement that Borrower undertake international travel for direct execution of required banking documents to fulfill obligations and duties under this CFA. b) Guarantee of Monthly Payments - All revenue payments are guaranteed to be paid by CRB, according to the details listed in ANNEX B, through Bravura Private Wealth PTY Limited, from Westpac Bank Australia with the account details listed in ANNEX A." (Emphasis in original.)
4. The bank account listed in "Annex A" of the Cash Funding Agreement was the account of Bravura Private Wealth Pty Ltd at Westpac Banking Corporation at Parramatta.
5. "Annex B" referred to in subcl 2(b) provided: " ANNEX B Revenue and Payment Structure $500 Thousand AUD will be Transferred to Borrower: A. All transfers will be sent by Ledger-to-Ledger Transfer, to CRB's treasury services management account with Bravura Private Wealth in Westpac Bank - Australia, according to the account details listed in ANNEX A. • All revenue payments are guaranteed to be paid by CRB, through Bravura Private Wealth PTY Limited, from Westpac Bank Australia with the account details listed in ANNEX A. B. Beginning on the last Friday of the April 2019, THE FIRST PAYMENT equal to 100% of the total amount of the cash transfer will be paid and/or divided as instructed and paid to the designated receiving bank account(s) for Lender as shown in ANNEX A for the Lender and continue on the last Friday of each month for a total of 12 payments. C. At the end of the month after the 12th payment, the original amount of the cash transfer received by the Borrower from the Lender, will be transferred to The Lender, free and clear of any liens or encumbrance. This is the return of the loaned amount of funds." (Emphasis in original.)
6. The document thus 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".
7. The terms of the Cash Funding Agreement were, as Mr O'Neill accepted, "generous" to the Lender. Mr Condon submitted that the terms were extremely improvident from the point of view of the Borrower. However, as I have said, these "generous" or "improvident" terms were those proposed by the Borrower and were similar to those which had earlier been proposed in the context of the First Proposal (involving US$20 million) and the Second Proposal (involving US$10 million). I return to this below.

Default

1. The first payment of $500,000 under the Cash Funding Agreement was due on 26 April 2019.
2. On 28 April 2019 Mr Naegeli wrote to Mr Blinkworth: "I only just noticed the first revenue payment was due on the 26th April 2019, being the last Friday of April, can you confirm whether or not this was made?"
3. A short time later, Mr Blinkworth asked Mr Naegeli to travel to Sydney. Mr Naegeli met Mr Blinkworth and Mr Aloisi at the CRB offices on 15 May 2019.
4. Mr Blinkworth said to Mr Naegeli: "The reason for needing to see you in person is because everything I am showing you is classified because they are projects being conducted with governments. I have obtained approval to discuss them with you."
5. Mr Naegeli deposed: "He showed me many contracts, so many I can't remember them all. They related to many different countries. The contracts that I do recall included a transaction relating to a large humanitarian project that covered reverse osmosis water filtration units at scale, however I don't recall which country this was in. He said words to the effect of: 'Something like this could do the world of good for Australia, with the droughts. CRB will be receiving funds from this within a month, which are covered by a Sovereign Guarantee contract with the Malaysian Prime Minister. This project is taking a little longer, but we're moving ahead and that will sort out your first payment. Please just bear with me. As soon as any of the transactions CRB are working on come in, you will be paid and some extra advance payments too, to make up for the delays. The funds could come any day.'"
6. On 24 May 2019, Mr Blinkworth telephoned Mr Naegeli and said: "There is nothing to be concerned about. I will send you a number of documents which demonstrate that CRB will be obtaining access to 160 million US, 60 million of which is represented by a letter of credit issued by HSBC Bank to Barclays Bank, for the exclusive benefit of CRB as ultimate beneficiary. Once we draw down our fees of US 100 million, we will pay you $3 million in advance to make up for the late payment of the revenue. I should not really be sending you these documents but I will share them with you because I trust you."
7. Mr Blinkworth then sent Mr Naegeli a number of documents. The first appeared to be a standby letter of credit issued by HSBC Bank PLC at the request of its "client", Great Joint International Enterprises Limited UK, "for the exclusive benefit of" CRB. The second was a receipt and trace document bearing the same transaction reference number. The third was a SWIFT [11] transaction report bearing the same reference number and naming as "Receiver Institutions" HSBC Bank PLC at Canary Wharf in London and Barclays Bank UK PLC at Notting Hill Gate London. Mr Naegeli was asked no questions about these documents in cross-examination. On their face, they appear 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.
8. Mr Naegeli deposed: "Whilst I do not profess to understand what all these documents mean, I was encouraged by the reference to US$60m being held for the exclusive use of CRB and by the promise by Mr Blinkworth that I would be paid. I believed that the documents were legitimate."
9. Mr Naegeli was not challenged about this evidence. I accept it.
10. Mr Naegeli said that throughout May and June 2019 he continued to have regular telephone calls with Mr Blinkworth and with Mr Schaeffer, "where I would raise my concerns about the lack of security in the [Cash Funding Agreement] and the lack of receipt of payments under it". Mr Naegeli said he had about six such calls. He was not challenged about this evidence.
11. Mr Naegeli said that during each of these calls, either Mr Blinkworth or Mr Schaeffer "or sometimes both of them" said words to the effect: "There is no need for concern. CRB is involved in many significant projects. You will receive your investment in the 13 months as agreed. We should organise a meeting with you to discuss our possible investment in your other businesses. If anything ever did go wrong we will pay you from our personal funds. There was a recent article about John [Schaeffer] in May which you can find if you do a Google search for 'Domain John Schaeffer'." (Emphasis added.)
12. The "recent article" was published on the Domain website on 17 May 2019 and was a lengthy profile concerning Mr Schaeffer, headed "How art and trophy home collector John Schaeffer made his mark on Sydney's prestige property scene".
13. Mr Naegeli gave evidence that during May and June 2019 he had conversations with Mr Schaeffer in which Mr Schaeffer 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". Mr Naegeli said: "… 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.)
14. The passages I have emphasised above show how closely Mr Schaeffer saw himself as being aligned with the interests of CRB.
15. On 1 June 2019, Mr Blinkworth sent Mr Naegeli a picture of what Mr Naegeli described as a "basket of gold bars".
16. This followed a call from Mr Blinkworth in which he said to Mr Naegeli: "CRB is awaiting a shipment of 200kg of gold from West Africa. We have a capital partner from Switzerland who will pay tax on it. The first importation will be for US $5.2 million. We will ensure that you get paid $2 million from this."
17. In cross-examination, Mr Naegeli gave this evidence: "Q. No-one before from CRB had told you that the company was involved in gold trading, had they? A. No. Sorry, I meant, 'no, that's not correct', so yes, they had. Q. Who told you about the gold trading? A. Modity Trading was always mentioned. Q. Who told you about gold trading in 2019, being its potential source of funds for CRBI? A. It was mentioned by Mr Schaeffer, Mr Blinkworth and Mr Aloisi. Q. Never in any text message or email; correct? Except for that one there? A. There was more than that one. Q. You haven't annexed anything to your affidavit, have you? A. Yes. Q. Apart from a document we have at p 363. A. Correct."
18. Although Mr Condon submitted that, in effect, Mr Naegeli had been somewhat credulous in relation to what he was told about CRB being involved in gold trading, he did not suggest to Mr Naegeli that his evidence that each of Mr Schaeffer, Mr Blinkworth and Mr Aloisi had spoken of gold trading as being a potential source of funds for CRB was untrue.
19. 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."
20. 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."
21. 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]."
22. 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."
23. 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."
24. Mr Naegeli was not challenged about these conversations. Indeed, Mr Condon submitted that the words attributed to Mr Schaeffer show that he was somehow under Mr Blinkworth's influence; thus in effect accepting that the conversation did take place.
25. I am not able to draw an inference from this conversation that Mr Schaeffer was under Mr Blinkworth's influence. It shows that Mr Schaeffer expressed confidence about Mr Blinkworth, which confidence evidently arose from their business relationship to which I have referred. The companies to which Mr Schaeffer referred were those that, ultimately, executed the Guarantee on 29 October 2019, Rasay Pty Ltd (the owner of the apartment to which Mr Schaeffer referred) and The Footage Company Pty Ltd.
26. Mr Naegeli said that either Mr Blinkworth or Mr Schaeffer said "you should prepare the deed and then travel to Sydney for us to execute it" and that each of Mr Blinkworth and Mr Schaeffer gave "their personal details for inclusion in the deed, including the various companies referred to by Mr Schaeffer".
27. Mr Naegeli, who is not a lawyer, then prepared the form of the Guarantee. He deposed: "I then prepared the Deed after reviewing several others that either I have had prepared or which I have signed when conducting business that required such a document. I used my own experience from those arrangements to come up with something I felt protected me and because I am someone that keeps my word, I did as I was asked and did not involve any lawyers."
28. Mr Naegeli used a number of other forms of guarantee as a template or precedent. Nonetheless, the form of guarantee that Mr Naegeli created was bespoke in nature. I return to this when considering, below, whether the Guarantee was a "standard form contract" for the purposes of s 12BF of the ASIC Act.
29. As requested by Mr Blinkworth or Mr Schaeffer, Mr Naegeli then made arrangements to travel from Melbourne (where he lives) to Sydney.
30. Mr Naegeli deposed: "Mr Blinkworth made arrangements to meet Mr Schaeffer at CRB's offices at 2:30pm on 26 July 2019. I was 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 mine to get that opportunity. However, Mr Blinkworth was the only one present which resulted in the Deed not being executed at that time. Mr Schaeffer was present on the telephone and they both said that they would like to go over the Deed and have their lawyers look over it and suggest any necessary changes."
31. Mr Naegeli gave this evidence: "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."
32. Mr Naegeli said that Mr Blinkworth again assured him that CRB was expecting some funds to be deposited into its account "before I left Sydney so that payment could be made to me, and we could avoid the need for the [Guarantee] entirely".
33. Mr Naegeli executed the Guarantee on or about 18 July 2019.
34. Although there is no direct evidence about this, it seems 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 Mr Schaeffer to execute the Guarantee.
35. Mr Naegeli deposed: "I departed Sydney on 1 August 2019 without an executed Deed or any of the payments I was owed under the Second Agreement. I knew at this point I was at the mercy of Mr Blinkworth and Mr Schaeffer but continued to give them the benefit of the doubt due to their professional reputations."
36. Mr Naegeli described the following events thus: "I began feeling frustrated with Mr Blinkworth when I became aware that he had travelled to Hong Kong during September and spent in excess of $45,000 on accommodation and flights alone. I was angry that he was spending money while I was still waiting for the revenue payments on my investment. I expressed this frustration to Mr Blinkworth and advised that I would commence legal proceedings to recover the money I was owed. Mr Blinkworth again assuaged my concerns by promising that if I had not been paid by the time he returned from Hong Kong, he would organise for the Deed to be executed. On 28 October 2019, I received a call from Mr Blinkworth advising me that he was back in Australia and was expecting funds to be paid to CRB shortly which could be used to make my revenue payments. I asked Mr Blinkworth to organise the execution of the Deed by himself and Mr Schaeffer as I still had not received any payments. On 29 October 2019, I called Mr Blinkworth to remind him to organise to have the Deed executed by himself and Mr Schaeffer. We had a conversation in words to the following effect: [Mr Blinkworth]: 'If you do not trust me, it would be best that I just pay you and not include you in any future projects or assist with raising funds for your other business ventures.' [Mr Naegeli]: 'I find that offensive. I am beginning to doubt your credibility and I require a lawyer or Justice of the Peace to witness the execution of the Deed.'"
37. In relation to the statement that he told Mr Blinkworth he was beginning to doubt "[his] credibility", Mr Naegeli gave this evidence: "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."
38. I was initially troubled by this evidence but, on reflection, have come to the conclusion that I should accept 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. As Mr O'Neill submitted, there was nothing in the manner in which Mr Naegeli gave his evidence to suggest that he was doing otherwise than his best to tell me the truth about what happened. He did not appear to me to be trying to obscure anything. Mr Naegeli was expressing his increased frustration that Mr Blinkworth was not procuring that CRB timeously make the payments called for by the Cash Funding Agreement.
39. In relation to his stated requirement to have a lawyer or Justice of the Peace witness the execution by Mr Blinkworth and Mr Schaeffer of the Guarantee, Mr Naegeli gave this evidence: "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."
40. Although Mr Naegeli would not accept that he no longer trusted Mr Blinkworth, his insistence that a lawyer or Justice of the Peace witness Mr Blinkworth's and Mr Schaeffer's signatures does suggest that, unsurprisingly, he was concerned to ensure there was no argument about their signing and valid execution of the document.
41. Mr Schaeffer and Mr Blinkworth executed the Guarantee in the presence of a Justice of the Peace, Dr Danny-Glen Raiz.
42. Dr Raiz deposed: "Prior to being contacted by Mr Blinkworth, I had not met him before. I had not met John Herman Schaeffer either, however, as I share an interest in art, I knew who he was and had seen pictures of him. … From recollection, there was already a signature on the document next to the name 'Patrick Naegeli', together with a witness. I confirm that in my presence, John Herman Schaeffer initialled the Document and signed it in three places on page 26. I thereupon witnessed the Document with my signature and the initials 'JP' and printed my name and qualifications underneath my signature. I also saw Mr Blinkworth initial and sign the Document, which I witnessed in the same fashion."
43. Dr Raiz provided a little more detail in a statutory declaration that he made on 2 September 2022: "I was contacted by Charles Blinkworth to witness documents on the 29th of October 2019. I advised Mr Blinkworth that I was able to perform any duties following my professional obligations as a medical practitioner in the mid to late afternoon. I indicated that I was happy for him and his associate to attend the practice in Bondi Junction. During the discussion Mr Blinkworth indicated that his associate was Mr John Schaeffer, a well known Art dealer and philanthropist and donor, he asked me as a favour to meet with him and Mr John Schaeffer. I met with both Mr Blinkworth and [Mr] Schaeffer at the Sonoma Cafe in Bondi at 178 Campbell Parade Bondi Beach 2026, behind McDonalds, immediately adjacent to my sister's old restaurant location on the promenade. The time was 15:30. Mr Schaeffer and I met with Mr Blinkworth. After confirming their identity as a matter of policy and procedure, following the production of cards and documents verifying identity (licence and passport), a number of documents were signed, including initialling a contract and I witnessed the signatures on behalf of himself and on behalf of his various entities and company as well as witnessing Mr Blinkworth in succession. During the process I was discussing with Mr Schaeffer a number of my associates in the Portrait gallery and the Australian National Gallery in Canberra as well as mutual contacts at major Auction houses. Following witnessing the documents I departed."
44. Dr Raiz made no mention of any hesitation or reluctance on Mr Schaeffer's part. Mr Schaeffer's 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.
45. There is, however, no evidence of what transpired between Mr Blinkworth and Mr Schaeffer leading up to the execution of the Guarantee. In particular, there is no evidence of when and in what circumstances Mr Schaeffer first saw the form of Guarantee. Assuming that Mr Blinkworth provided Mr Schaeffer with a copy of the Guarantee at some time before Mr Schaeffer executed the document, there is no evidence as to when that occurred or what opportunity Mr Schaeffer had to consider the terms of the Guarantee.
46. As I have said, Mr Naegeli had executed the Guarantee several months earlier, on 18 July 2019.

The terms of the Guarantee

1. Mr Schaeffer executed the Guarantee on his own behalf and on behalf of Rasay Pty Ltd and The Footage Company Pty Ltd.
2. Mr Blinkworth also executed the Guarantee.
3. Dr Raiz witnessed each of these signatures.
4. Each of Mr Schaeffer, Mr Blinkworth and Dr Raiz initialled the page of the Guarantee in which the four guarantors were listed.
5. On the cover of the Guarantee, Mr Naegeli was described as: "Patrick Naegeli (Human Enhancement Project) Beneficiary"
6. Each of Mr Naegeli, Mr Schaeffer and Mr Blinkworth signed the document as a deed.
7. The operative term of the Guarantee was cl 2.1 which provided: "Each Guarantor irrevocably and unconditionally guarantees to the Beneficiary the satisfaction and payment in full of the Obligations."
8. "Obligations" was defined to mean "all the liabilities and obligations of the Borrower to the Beneficiary under or by reason of any Finance Document", [12] and the "Finance Document" was defined to mean the Cash Funding Agreement.
9. Clause 2.2 of the Guarantee provided: "2.2 Satisfaction of Obligations If the Borrower does not pay or satisfy any Obligation in full on the due date, each Guarantor will immediately, without demand by the Beneficiary, satisfy or pay that Obligation in full."
10. Clause 7.3 of the Guarantee provided that each Guarantor would pay "default interest" of 10% per annum on all "Unpaid Sums" and that: "Default interest will accrue on all Unpaid Sums from day to day … from the due date up to the date of actual payment, before and (as a separate and independent obligation) after judgment …"
11. The Guarantee provided, under the heading "Security": "6.1 Security over land As security for: (a) the payment of the Guaranteed Money; (b) the due punctual and complete performance of each Guarantor's obligations and liabilities to the Beneficiary under this deed; each Guarantor hereby charge in favour of the Beneficiary any land owned by that Guarantor, solely, jointly or as trustee of any trust, now or in the future. 6.2 Security over PPSA Personal Property The Grantor grants to the Beneficiary a PPSA Security Interest over all PPSA Personal Property to secure: (a) the payment of the Guaranteed Money; (b) the due punctual and complete performance of all of the Grantor's obligations and liabilities to the Beneficiary under this deed."
12. The expression "Guaranteed Money" referred to in subcll 6.1(a) and 6.2(a) was defined as follows: "Guaranteed Money means: (a) $6,500,000.00; (b) all money the payment or repayment of which from time to time forms part of the Obligations."
13. On the date that Mr Schaeffer 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.
14. The effect of the provisions in the Guarantee, and in particular of cl 2.2, was that, by executing the Guarantee Mr Schaeffer assumed an obligation to pay that amount "immediately" and "without demand".
15. There is no evidence before me as to whether Mr Schaeffer had any appreciation that this was the effect of his execution of the Guarantee. As I discuss below, it seems unlikely that he did.

Events thereafter

1. After Mr Blinkworth and Mr Schaeffer executed the Guarantee, Mr Blinkworth telephoned Mr Naegeli. Mr Schaeffer was present.
2. Mr Schaeffer said: "Now that the Deed has been fully executed by all parties, I trust that you will not commence proceedings against CRB as this would create problems for our projects. Please put your trust in the process. We all have to remain patient as there are many projects which are about to come to fruition, which Charles [Blinkworth] will discuss with you."
3. Mr Schaeffer's reference to "the Deed" was obviously a reference to the Guarantee that Mr Schaeffer had just executed. His statement that he trusted that Mr Naegeli would not, now that the Guarantee had been executed, commence proceedings against CRB and his statement that "we" have to "remain patient" shows, once again, how closely aligned to CRB and Mr Blinkworth Mr Schaeffer saw himself as being and how far he was prepared to go in promoting CRB's and Mr Blinkworth's interests vis-a-vis Mr Naegeli. It shows that Mr Schaeffer saw his execution of the Guarantee as an important step that CRB needed to take to dissuade Mr Naegeli from seeking to enforce his rights, as representative of the Human Enhancement Project, under the Cash Funding Agreement.
4. Mr Naegeli deposed: "Over the following months, I made numerous requests of Mr Blinkworth to be provided with a fully executed copy of the Deed and Mr Blinkworth always had an excuse as to why he could not provide it to me. He also always preferred meeting in person rather than sending via email or the post, as at times it was frustrating coming up to Sydney like I did many times to see something that I felt could easily have been sent via email. At this point, I was feeling serious doubt about the legitimacy of the investment and the [Cash Funding Agreement]. I began to feel as though Mr Blinkworth was taking advantage of the fact that I looked up to Mr Schaeffer and his status as a self-made art collector, philanthropist and businessman who was awarded an Order of Australia. My fears about the Deed were assuaged by Mr Schaeffer, in putting his name to the Deed, which would ensure that I was repaid if anything went wrong with the investment."
5. Mr Blinkworth finally provided Mr Naegeli with a copy of the Guarantee. Mr Naegeli arranged for a solicitor, Mr Lukasz Wyszynski, to create a "certified copy" of the Guarantee. Mr Wyszynski did this on 25 January 2020.
6. As I have said, Mr Blinkworth died on 28 January 2020.
7. Mr Naegeli attended Mr Blinkworth's funeral on 14 February 2020. At the funeral, he met Mr Schaeffer in person for the first time.
8. Mr Naegeli said that "the first time I had concerns" about the nature of the Cash Funding Agreement was at Mr Blinkworth's funeral. Mr Naegeli said that "the photos that were shown at the funeral was nothing like the lifestyle he told me about, and I witnessed".
9. Mr Naegeli gave this evidence: "Q. You refer to what happened at the funeral and you said to his Honour that the photos that were shown at the funeral is [sic] of Mr Blinkworth was nothing like the lifestyle he told me about. Is this the position, before the funeral Mr Blinkworth had boasted to you about him having an extravagant lifestyle? A. Boasting and showed, yes. Q. What sort of things did he show you about his lifestyle that made you think it was an extravagant lifestyle? A. He drove a Lamborghini, he lived in a penthouse was my understanding. He - when we went to lunch he would spend $500 on lunch and buy a $500 bottle of wine and something that I would never imagined to do and he said, 'When you are a part of our group this is what becomes the normal thing every day'. Q. What was it about the photos you saw at the funeral that gave that impression to lie? A. Just the photos were standard family sort of photos, like, just it had nothing - like there was nothing fancy about it or there was nothing that - yeah, just, it was like I was at somebody else's funeral. HIS HONOUR Q. Are these photos in the funeral brochure? A. The - like - how they have it on the big screen and they sort of just have family photos and photos of Charles and-- Q. Of his life? A. Yeah, of his life, yes and I was like looking at it thinking who is this person, you know? So yeah, so, it was nothing like I ever imagined or, you know, he told me that this daughter was horse riding and, you know, professional horse riding and that was costing them a lot of money and yeah, so it was a different - there were no horses in the photos, that's for sure. Q. No Lamborghinis? A. No Lamborghinis, no. I think there was one of his with his - yeah, I don't know if he hired the car when he come and picked me up in the Lamborghini-- Q. You saw him driving a Lamborghini, did you? A. Yeah."
10. A week later, on 20 February 2020, Mr Naegeli met Mr Schaeffer and Mr Aloisi at CRB's offices in Sydney. Mr Naegeli agreed to send Mr Schaeffer a certified copy of the Guarantee.
11. On his return to Melbourne, Mr Naegeli had a serious accident involving falling down a flight of stairs and did not send Mr Schaeffer the certified copy of the Guarantee immediately.
12. Mr Naegeli said that after meeting Mr Schaeffer on 20 February 2020 he had "numerous telephone calls with him".
13. Ultimately, Mr Naegeli travelled to Sydney to meet Mr Schaeffer on 22 June 2020.
14. During that meeting, Mr Schaeffer said: "You must understand that you are talking to two people who have had to confess to themselves that they have been led astray by Mr Blinkworth in terms of Mr Blinkworth having said things that we found out afterwards were not correct. As a result, we have not spoken for a few months. I have been under a lot of stress and recently had a cancer removed. The doctors told me that this is commonly caused by people being under enormous stress."
15. The "two people" to whom Mr Schaeffer referred were, evidently, himself and Mr Aloisi.
16. Mr Schaeffer also said: "These are definitely my signatures. I haven't read the fine print so I would like to take them to see my attorney."
17. Mr Schaeffer's "attorney" was Mr Neil Matthews. The Defendants called Mr Matthews as a witness.
18. Mr Matthews deposed: "[Mr Schaeffer] came to see me at my office on 23 June 2020. [Mr Schaeffer] showed me a document described as a deed of guarantee and indemnity dated 18 July 2019. [Mr Schaeffer] said to me, words to the effect, 'A few days ago I received a call from a man called Patrick Naegeli who asked to meet with me. It was a very strange meeting. He was quite unpleasant and intimidating. He gave me a copy of this document [the Guarantee]'. [Mr Schaeffer] also said to me words to the effect of: 'This was the first I heard of the whole matter. I didn't sign it … it looks like my signature, but I didn't sign it.' I observed that the [Guarantee] concerned a guarantee purportedly given by [Mr Schaeffer] personally, and on behalf of his two companies, The Footage Company Pty Ltd and Rasay Pty Ltd, for $6,500,000. In discussing the [Guarantee] with [Mr Schaeffer], he said to me words to the effect of: 'I have never seen this document … before Mr Naegeli gave it to me, I honestly know nothing about it.' [Mr Schaeffer] was adamant he hadn't signed the [Guarantee] and appeared distressed, in shock and disbelief, saying several times, 'I can't believe it!' In the course of further discussion about the matter, [Mr Schaeffer] said to me words to the effect of: 'Charles Blinkworth may have other documents with my signature and would therefore be capable of performing a forgery.' He also said to me words to the effect of: 'I don't know the person who claims to have witnessed my signature.' During the meeting [Mr Schaeffer] also said to me words to the effect of: 'You know I would never have signed a document like this without getting legal advice and there's no way I would have bound Rasay and The Footage Company, given what that would mean for the companies if the [G]uarantee was called on."
19. There is no challenge before me that Mr Schaeffer's genuine signature appears on the Guarantee. That conclusion in any event must follow from the unchallenged evidence of Dr Raiz. Nor was there any challenge to Mr Naegeli's evidence that, the day before Mr Schaeffer's visit to Mr Matthews, he had acknowledged that his signature appeared on the Guarantee. Nonetheless, Mr Schaeffer told Mr Matthews that the signature on the Guarantee was not his. As Mr O'Neill submitted, it appears to bespeak an inclination on Mr Schaeffer's part to give different accounts of the same events to different people. [13]
20. On 24 June 2020, the day after Mr Schaeffer saw Mr Matthews, Mr Schaeffer had three telephone conversations with Mr Naegeli.
21. The first conversation lasted over half an hour. During that conversation, this exchange took place: "[Mr Schaeffer]: I'll take you to the Art Gallery of NSW. I can tell you things that no one else can tell you, I can show you things that no one else can show you, if you want a pleasant hour with me and a cup of coffee. I think you've been very decent and it hurts me to see that after all this time, I have to sadly say that I think I have been misled by Charles Blinkworth. I think he has used me and abused me. But I am not the rich guy I once was. I feel that you've been duped, just like I've been duped. Up until the funeral, I still believed that he [Mr Blinkworth] would turn things around, that was 2020, behind my partners back, I was borrowing myself blue, borrowed money from friends and of course, being me, they trusted me. [Mr Naegeli]: I thought to be in your presence, would be a great thing, I don't want to do this, I'm not going to take you up on your offer [to visit the Art Gallery of NSW], I have no choice but to start proceedings. As Charles [Blinkworth] is no longer with us, it has to go to the courts. I don't want it to, but I am having a board meeting tomorrow with my partners. [Mr Schaeffer]: My offer stands. It's not bribery. I'm not your enemy. The enemy is Charles [Blinkworth]. I would ask you to make certain you are very clear of what it is that you accuse me of before you start things."
22. The second conversation also took over half an hour and included the following: "[Mr Schaeffer]: You come across as a sincere guy. Understand that you've been diddled, like I have. I have been speaking to the Attorney. You mustn't discuss this with anyone, but there is one matter within CRB that is not dead, there may be some funds left. I need to swear you to secrecy about it. [Mr Naegeli]: I'm pretty sure it's the same thing that Jim King told me about. [14] I've already mentioned the Moroccan case. [15] There is a way they can go for stupid amounts of money. [Mr Schaeffer]: How credible does that sound to you. Does it sound like another Charles Blinkworth story? [Mr Naegeli]: I was shocked. Jim King actually asked whether I would have anyone that would put up the €2,000,000. [Mr Schaeffer]: He asked me too. [Mr Naegeli]: Don [James] gave his shares [in CRB] away and resigned his directorship. In return, he gets 5% of whatever proceeds come in from this Moroccan deal. [16] My understanding is that they're looking at giving somebody 40% if they fund the Moroccan case. If the case is a winner, they say the damages you would get at the very least is your money back, and that's the worst case scenario. [Mr Schaeffer]: Call me if I can throw any more light on anything. I appreciate you for your honesty and disclosing things. I've done the same with you. I actually don't have a lot of time for Jim [King], I find him to be a bully. [Mr Naegeli]: I don't want to take our issue through the court system, I've got other things with business partners on the go. I will talk to you before I do anything. I'll give you that much before I lodge anything with the courts. I will at least let you know. And I will also let you know how I go with Jim [King]. [Mr Schaeffer]: I'm a victim of Charles Blinkworth and I'm sick and tired of protecting him and covering up for him, because I'm not gonna do it anymore. I'll speak with you again later tomorrow and let you know how I get on." (Emphasis added.)
23. In the passage that I have emphasised in this conversation, Mr Schaeffer referred to "one matter within CRB that is not dead" and said that "there may be some funds left". I return to this below when discussing CRB's financial position, and Mr Schaeffer's knowledge of that financial position.
24. The final conversation took between 5 to 10 minutes and included: "[Mr Schaeffer]: I've appreciated the openness with which you have spoken to me. You need to do what you need to do, but it would be wise for both of us to leave the door open as plain speaking people. We'll call each other back. I know you're bleeding, I'm bleeding with the lawyers' charges. I hear there's some money in the Middle East, I know that some money was paid there. And that was money I borrowed, very painfully, and I still have to pay back those borrowings. I don't know if you heard the amount that was borrowed from me, but it was something like €630,000. [Mr Naegeli]: Yeah, I heard. I also heard you're a guarantor for Bloomingville as well. [Mr Schaeffer]: They're somehow supposed to be turning €630,000 into €150 million. It's a mystery to me and makes your deal [look] like a bad deal. Sounds like another Charles Blinkworth deal." (Emphasis added.)
25. The reference in the passage I have emphasised to there being "some money in the Middle East" and "turning €630,000 into €150 million" are matters I will return to when considering CRB's financial position, and Mr Schaeffer's knowledge of it.
26. Mr Naegeli's reference to "Bloomingville" was a reference to the guarantee executed by Mr Schaeffer in April 2018 of CRB's obligations to that company to which I have referred at [35] above. The evidence does not reveal how Mr Naegeli became aware of this guarantee. I return to the Bloomingville guarantee below.
27. Mr Naegeli had two further conversations with Mr Schaeffer, one on 27 June 2020 and one a short time later. I excluded those conversations from evidence on the basis that they were the subject of without prejudice privilege.
28. Mr Schaeffer died as a result of a traffic accident on 14 July 2020.

Authority

1. The Cash Funding Agreement described the "Lender" as being the Human Enhancement Project. Mr Naegeli executed the Cash Funding Agreement "for and on behalf of the Lender" and as the "Primary Officer" of the Human Enhancement Project.
2. The "Beneficiary" of the Guarantee was described as being "Patrick Naegeli (Human Enhancement Project)". Mr Naegeli alone executed the Guarantee.
3. The Human Enhancement Project is an unincorporated association and is not itself a legal entity separately from its members, Mr Naegeli and his mother, Mrs Naegeli.
4. The Defendants no longer dispute that, by reason of the meeting between Mr Naegeli and his mother evidenced by the 26 December 2018 minutes to which I have referred, [17] Mr Naegeli had authority from his mother to execute the Cash Funding Agreement on their joint behalf.
5. In closing submissions, Mr Condon submitted that the question of whether Mr Naegeli had authority to also execute the Guarantee depended upon the proper construction of the last entry in the minutes on 26 December 2018 which, as I have set out above, provided: "It was noted that anything else required in relation to the agreement until it has been fulfilled will be the responsibility of Patrick Naegeli".
6. Having made that submission, Mr Condon did not seek to develop a submission as to why those words were not adequate to confer the requisite authority on Mr Naegeli.
7. In my opinion, they were.
8. The words used in the minutes bespoke the intention of Mr Naegeli and Mrs Naegeli that Mr Naegeli had the "responsibility", and thus the authority, to do "anything else required" in relation to the Cash Funding Agreement until it had been "fulfilled". In my opinion, those words were ample to confer authority on Mr Naegeli to execute the Guarantee on behalf of the members of the Human Enhancement Project.
9. The Defendants' contention that the Guarantee did not have "contractual effect" fails.

Unconscionability

1. Section 12CB(1) of the ASIC Act provides: "(1) A person must not, in trade or commerce, in connection with: (a) the supply or possible supply of financial services to a person; or (b) the acquisition or possible acquisition of financial services from a person; engage in conduct that is, in all the circumstances, unconscionable."
2. Section 12CB(4) provides: "(4) It is the intention of the Parliament that: (a) this section is not limited by the unwritten law of the States and Territories relating to unconscionable conduct; and (b) this section is capable of applying to a system of conduct or pattern of behaviour, whether or not a particular individual is identified as having been disadvantaged by the conduct or behaviour; and (c) in considering whether conduct to which a contract relates is unconscionable, a court's consideration of the contract may include consideration of: (i) the terms of the contract; and (ii) the manner in which and the extent to which the contract is carried out; and is not limited to consideration of the circumstances relating to formation of the contract."
3. Section 12CC sets out a non-exhaustive list of matters that the Court may take into account in considering whether s 12CB has been contravened.

Is section 12CB of the ASIC Act engaged?

1. The question is whether Mr Naegeli engaged in unconscionable conduct for the purposes of s 12CB of the ASIC Act.
2. The conduct proscribed in s 12CB of the ASIC Act must be in connection with "the supply or possible supply of financial services to a person".
3. What must be shown here is that Mr Naegeli supplied financial services to a person and that his allegedly unconscionable conduct was in trade or commerce and in connection with that supply.
4. A suggestion was advanced at one stage on behalf of the Defendants that CRB, as the Borrower, somehow supplied a financial product and thus financial services. That submission was withdrawn by Mr Condon in closing submissions.
5. Subsection 12BAB(1) sets out the circumstances whereby a "person provides a financial service".
6. It is common ground that only subs 12BAB(1)(b) is relevant. That subsection provides: "(1) For the purposes of this Division … a person provides a financial service if they: … (b) deal in a financial product (see subsection (7)) …" (Emphasis in original.)
7. Subsection 12CB(1)(a) speaks of the "supply" or "possible supply" of financial services, whereas subs 12BAB(1) speaks of the provision ("provides") of financial services. However, "supply" is defined in s 12BA to include, when used as a verb, "provide", and to have a corresponding meaning when used as a noun. Parliament thus intended the words to have the same effect.
8. The word "deal" in subs 12BAB(1)(b) is used in the sense of engaging in the activity of "dealing".
9. That is made clear by subs 12BAB(7), to which attention is directed in subs 12BAB(1)(b) itself.
10. Subsection 12BAB(7) provides, relevantly: "(7) For the purposes of this section, the following conduct constitutes dealing in a financial product: (a) applying for or acquiring a financial product; (b) issuing a financial product …" (Emphasis in original.)
11. Subsection 12BAA(7) provides that "the following are financial products for the purposes of this Division", including: 1. a "credit facility"; [18] and 2. "anything declared by the regulations to be a financial product for the purposes of this subsection". [19] (Emphasis in original.)
12. The Australian Securities and Investments Commission Regulations 2001 (Cth) ("the ASIC Regulations"), reg 2B(1), provide that the following are a "credit facility": "… (f) the provision of a mortgage that secures obligations under a credit contract (other than a lien or charge arising by operation of any law or by custom); (g) a guarantee related to a mortgage mentioned in paragraph (f); (h) a guarantee of obligations under a credit contract; …"
13. As I have set out above, by cl 6 of the Guarantee, the Defendants charged any land as they had or might have in the future in favour of the Beneficiary and granted the Beneficiary a PPSA Security Interest over all PPSA Personal Property.
14. It follows from these matters that both the Cash Funding Agreement and the Guarantee were "financial products" for the purposes of subs 12BAA(7) of the ASIC Act.
15. To return to s 12BAB, subs 12BAB(9) then provides: "(9) A person is taken not to deal in a financial product if the person deals in the product on their own behalf, unless: (a) the person is an issuer of financial products; and (b) the dealing is in relation to one or more of those products." (Emphasis in original.)
16. Subsection 12BAB(9) is engaged when a person deals with a financial product "on their own behalf"; that is not on behalf of another. In that circumstance, that person is taken not to deal in the financial product unless the person is an issuer of financial "products" (plural) and the dealing relates to one of those "products".
17. Mr O'Neill submitted that because Mr Naegeli was acting as the representative of the Human Enhancement Project he was, in effect, acting for himself and was thus acting "on [his] own behalf" for the purposes of subs 12BAB(9).
18. I was initially attracted to this submission but, on reflection, I do not think that it is correct.
19. The natural reading of the expression "if the person deals in the product on their own behalf" directs attention to a person who is acting on their own account, rather than in a context that involves a third person. It would include, for example, a person who does no more than apply for a financial product such as a security, [20] or an insurance policy, [21] or a credit facility on their own account. [22] Such a person would, understandably, not be taken as "dealing in" such financial products unless the person was also an "issuer" of such financial products.
20. I was not directed to any authority dealing with the proper construction of subs 12BAB(9). The only authority I have been able to locate in which the subsection has been referred to otherwise than in passing is Postorino v Encryption Technologies Corporation Pty Ltd & Ors. [23] In that case the plaintiff, Ms Postorino, alleged she had been induced by the misleading or deceptive conduct of the second defendant, Mr Pritchard, to purchase from Mr Pritchard shares he owned in the first defendant, ETC. [24] In that context, Lloyd-Jones J held that subs 12BAB(9) was not engaged because "Pritchard sold the shares in ETC to Postorino on his own behalf". [25] His Honour's conclusion is consistent with the construction of s 12BAB(9) that I favour.
21. Mr Naegeli "issued" a financial product constituted by the Guarantee. He composed it and then provided it to Mr Blinkworth for execution by both Mr Blinkworth and Mr Schaeffer. [26]
22. In those circumstances, Mr Naegeli was not dealing with the Guarantee on his own account. [27] He was issuing the Guarantee for the purpose of having Mr Schaeffer execute it. I do not think that in those circumstances it can be said he was dealing with the Guarantee "on [his] own behalf" as there was a dealing with a third party.
23. Accordingly, subs 12BAB(9) is not engaged.
24. It follows that Mr Naegeli: 1. issued a financial product; 2. was thus dealing with that financial product; 3. did so otherwise than on his own behalf; and 4. thus provided a financial service.
25. Thus, subject to the question of whether Mr Naegeli provided that financial service "in trade or commerce", s 12CB of the ASIC Act is engaged.

Conduct in trade or commerce

1. Mr O'Neill submitted that, in procuring the Guarantee, Mr Naegeli was not acting "in trade or commerce" because: 1. the entry by Mr Naegeli into the Cash Funding Agreement "and the subsequent conduct to secure that investment by the Guarantee, were matters undertaken by [Mr Naegeli] in relation to a single investment, and not part of any course of trading or commercial conduct"; and 2. the Human Enhancement Project was not shown to have been established for a business purpose but, rather, "for philanthropic purposes".
2. One difficulty with that submission was that in his List Statement, Mr Naegeli alleged that "at all material times [he] relevantly conducted his business affairs in the name and style of Human Enhancement Project".
3. Further, in his Reply, Mr Naegeli alleged that Mr Schaeffer entered into the Guarantee "for the purpose of a trade, business or profession carried on by him, namely in the course of his role with CRB". [28]
4. Thus, on Mr Naegeli's own case, his dealings with Mr Schaeffer took place in that commercial context.
5. In any event, the question is not whether Mr Naegeli was himself engaged in trade or commerce at the time of his allegedly unconscionable conduct, but whether the impugned conduct in which he engaged was in trade or commerce. It obviously was. All his dealings with Mr Schaeffer were in a commercial and business context.
6. By seeking to have Mr Schaeffer execute the Guarantee, Mr Naegeli was seeking to protect the value of the investment that he, on behalf of the Human Enhancement Project, had made in the Cash Funding Agreement. That investment was motivated by Mr Naegeli's desire to achieve a commercial return even if, ultimately, he planned to use the fruits of that return for philanthropic purposes.
7. That leaves for consideration the vital question: did Mr Naegeli engage in conduct that was, in all the circumstances, unconscionable? I turn now to that question.

Test for unconscionability

1. Under subs 12CB(4)(a) of the ASIC Act, the question of what conduct is unconscionable is not limited by the unwritten law relating to unconscionable conduct.
2. What must be shown is conduct that: 1. "objectively answers the description of being against conscience", where the standard of conscience is informed by such matters as "certainty in commercial transactions, honesty, the absence of trickery or sharp practice, fairness when dealing with customers, the faithful performance of bargains and promises freely made"; [29] 2. "is so far outside societal norms of acceptable commercial behaviour as to warrant condemnation as conduct that is offensive to conscience", [30] the judgment being "a heavy one" and one "informed by a sense of what is right and proper according to values which can be recognised by the court to prevail within contemporary Australian society"; [31] 3. although not limited to conduct held to be "unconscionable" under the general law, must nonetheless be capable of being described as unconscionable; [32] and 4. is capable of being established even where the innocent party is a willing participant, the question then being how that willingness was produced. [33]
3. Factors relevant to whether conduct is unconscionable in this sense include asymmetry of power or information, and the risk and worth of the bargain. [34]
4. It has also been held that: "… it is not necessary to show that a person is under a disadvantage or that any particular person has been disadvantaged by conduct. [35] Statutory unconscionability does not require some form of pre-existing disability, vulnerability or disadvantage of which advantage was taken; there is no need to establish exploitation of disadvantage. In any event, a post is not treated as being in a position of substantial disadvantage merely because there is an inequality of bargaining power. And the mere existence of disparity in bargaining power does not establish that the party which enjoys the superior power acts unconscionably by exercising it". [36]
5. In every case, it is necessary to engage in a careful examination of the facts. [37]
6. Ultimately, the question in this case is whether Mr Naegeli engaged in unconscionable conduct in connection with the execution by Mr Schaeffer of the Guarantee.

What was Mr Naegeli's conduct that was in connection with the supply of financial services?

1. I have held that Mr Naegeli "issued" the Guarantee. [38] He was dealing in a financial product for the purposes of subs 12BAB(7), provided a financial product for the purposes of subs 12BAB(1) and thus supplied a financial service for the purposes of s 12CB of the ASIC Act.
2. The question thus is whether, for the purposes of s 12CB, Mr Naegeli engaged in unconscionable conduct "in connection with" the supply of a financial service constituted by the Guarantee.
3. In closing submissions, Mr Condon and Mr Price referred to a number of circumstances said to show that Mr Schaeffer executed the Guarantee in circumstances that were unconscionable. However, those submissions paid little attention to the actual conduct of Mr Naegeli himself that was said to be unconscionable.
4. Ultimately, Mr Condon's and Mr Price's submission came down to the proposition that Mr Naegeli's unconscionable conduct was requesting that Mr Schaeffer execute the Guarantee, and leaving it to Mr Blinkworth to procure Mr Schaeffer's execution of the Guarantee in circumstances where, it was submitted: 1. 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; 2. whereas Mr Schaeffer did not know these matters.
5. 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.
6. 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, [39] 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.
7. This submission also ignores the wider context in which Mr Schaeffer ultimately executed the Guarantee.

CRB's financial position

1. The liquidator of CRB, Mr Ian Niccol, prepared profit and loss accounts and balance sheets based on information provided to him by CRB's directors.
2. The profit and loss accounts for the years ended 30 June 2019 and 30 June 2020 showed a net loss of $481,132.20 and $865,377.40 respectively. The profit and loss accounts showed that the company had no income in those years, [40] significant legal and professional fees, [41] "consultancy fees", [42] and other expenses including significant interest due to "Bloomingville HK Loan". [43]
3. The balance sheets 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.
4. For the year ended 30 June 2019, long-term liabilities included debt to the Human Enhancement Project of $500,000 and to Bloomingville Hong Kong Ltd of $690,478. The balance sheet for 30 June 2020 showed corresponding liabilities and also the debt to Mr Schaeffer of $676,446.89 to which I have referred. [44]
5. Mr Naegeli knew that CRB had not made the payments called for by the Cash Funding Agreement. He knew that Mr Blinkworth had made repeated assurances that payment would be forthcoming. But there is no suggestion that Mr Naegeli knew that CRB's position was as is now stated in these profit and loss accounts and balance sheets.
6. In the second conversation on 24 June 2020, Mr Schaeffer said to Mr Naegeli: "You mustn't discuss this with anyone, but there is one matter within CRB that is not dead, there may be some funds left. I need to swear you to secrecy about it." [45]
7. As Mr O'Neill submitted, it appears that the matter that was "not dead" was a proposed legal action available to CRB against a company referred to in the evidence as "Mackeen Holding".
8. In his first report to creditors, Mr Niccol referred to "contingent assets" that were "estimated to produce … at least $992,001.30" with an estimated realisable value "to be determined".
9. In his statutory report to creditors dated 14 January 2021 pursuant to s 70-40 of the Insolvency Practice Rules (Corporations) 2016 (Cth), Mr Niccol recorded: "Death of Key Personnel As mentioned above, the death of Mr Charles Blinkworth on 28 January 2020, the managing director of the Company, contributed to the failure of the Company. Mr Blinkworth, a high net worth Individual, provided ongoing funding to the Company and was the driving force behind the operations of the business up until his passing. Following his death, the Company no longer had the required funding or the influence of Mr Blinkworth to continue the business operations, resulting in a significant decline in business operations. Legal Dispute/Creditor Action The Director [Mr Aloisi] advised that one of the main reasons for the failure of the Company is the breach of agreement by Mackeen Holding. The Company initially engaged Mackeen Holding for an investment in commodity transactions totalling €600,000. Due to the failure of Mackeen Holding in completing the investment agreement, the Company initiated court proceedings against Mackeen Holding on 15 January 2019 for the return of funds paid as well as a damages claim. On 16 March 2020, the Company was successful in its legal action against Mackeen Holding and obtained a judgement in favour of the Company in the amount of €850,000 against Mackeen Holding in respect of funds paid. The recoverability is ongoing and undetermined at this stage. The Company also commenced proceedings in respect of a claim against Mackeen Holding for damages in the amount of €150,000,000. However, the Company faced difficulties in obtaining litigation funding to remit the filing fee for the damages claim. This is further outlined in Section 7.4 of this report. The Company's investment in Mackeen Holding was provided to Bloomingville Hong Kong Limited (Bloomingville) in the form of a loan. The Company failed to repay the loan due to the failure of Mackeen Holding to meet its obligations under the agreement, ultimately resulting in the failure of the Company." (Emphasis in original.)
10. In Section 7.4 of his report (referred to in the penultimate paragraph set out above), Mr Niccol said: "7.4 Investments and Investment exchange The Director's ROCAP [46] disclosed the value of the payment to be made to Mackeen Holding to be €600,000 and the ERV [47] to be €850,000. As per the exchange rate on 14 October 2020, the Director's ERV for the contract is at $1,399,100 (1 EURO = 1.6460 AUD). As mentioned in Section 5 above, the Company obtained a judgement against Mackeen Holding in the amount [of] €850,000. However, the stamping of this judgement has been suspended until the finalisation of the damages claim is settled. Since my appointment, I have held various meetings with potential litigation funders with respect to funding the payment of the filing fee for the damages claim commenced in Moroccan Court. Advisors of the Company have also held independent meetings in attempts to procure funding. However, at the date of this report, potential funders were not able to get comfortable with litigation commenced in Moroccan [c]ourts."
11. Thus, it appears from Mr Niccol's report that on 16 March 2020, CRB had obtained judgment against Mackeen Holding for €850,000, and had commenced proceedings, evidently in a court in Morocco, to seek damages of €150,000,000, but that those matters have not been finalised for the want of obtaining an appropriate litigation funder.
12. It appears from Mr Naegeli's conversation with Mr Schaeffer on 24 June 2020 that he had heard something about the "Moroccan case". It appears from that conversation that Mr Schaeffer was also aware of the "Moroccan case". Mr Schaeffer said that "I hear there's some money in the Middle East" and that he knew that "some money was paid there". [48]
13. I am not in a position to make any assessment of the likely recoverability of the judgment obtained by CRB against Mackeen Holding or the prospects of CRB's likely success in the Moroccan Court.
14. However, these matters suggest that, despite the state of CRB's profit and loss statements and balance sheets, there may have been some prospect of CRB satisfying its obligations to Mr Naegeli and the Human Enhancement Project under the Cash Funding Agreement. It also appears that Mr Schaeffer knew of these matters and thought that they were "not dead".
15. Mr Condon and Mr Price submitted that Mr Naegeli bore the onus of demonstrating that CRB's judgment and possible cause of action against Mackeen Holding "had realisable, and thus real, value". I think that submission misses the point, which is that, accepting that the "real value" of CRB's judgment and prospective cause of action has not been established, the circumstances appear to have been known to Mr Schaeffer.

The Bloomingville Hong Kong Ltd guarantee

1. As I have mentioned, on 3 April 2018, Mr Schaeffer executed a guarantee of CRB's obligations to Bloomingville Hong Kong Ltd. The guarantee was contained in a document called "Loan Agreement" made between CRB as borrower and Bloomingville as lender. It contained references to Mackeen Company.
2. That Loan Agreement recited: "RECITALS A. [Bloomingville] has agreed to make a loan to [CRB] upon and subject to the following covenants, agreements and provisions. B. The function of the loan [Bloomingville] is making to [CRB] is for [CRB] to utilise the entirety of the loan to assist with commencement for a Contract bearing reference number CRB02122018CFA (hereinafter referred to as 'the Contract') with its contractual counter party Mackeen Company (hereinafter referred to as 'Mackeen'). C. It is a term of the Contract that the first payment is to be made by Mackeen to [CRB] within twenty eight (28) days of execution of the Contract. D. Mackeen is located in Doha, Qatar and it is anticipated the loan shall be sent by [Bloomingville] to the account nominated by [CRB] when [Bloomingville] receives notice from [CRB] that the Contract is awaiting execution and that Charles R Blinkworth in his capacity as Managing Director of [CRB] is invited to Qatar to formalise and execute the Contract in person."
3. The recitals continued: "F. The Second Guarantor [Mr Schaeffer] is a prominent Australian businessman and art collector whom is interested in the arrangement between [CRB] and Mackeen and in consideration of both the loan and the additional consideration the Second Guarantor gives the guarantee and indemnity contained in this Deed but despite any clause in this Deed to the contrary limited to the sum of €630,000.00 (Six Hundred and Thirty Thousand Euro)."
4. The structure of the loan from Bloomingville to CRB, as guaranteed by Mr Schaeffer, was that: 1. the principal sum was €600,000; [49] 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".
5. Thus, in return for advancing €600,000, Bloomingville was to be paid by CRB interest payments totalling €5 million, together with the "additional sum" of €30,000.
6. The recitals to the loan agreement suggest that CRB was to advance the €600,000 principal borrowed from Bloomingville to Mackeen Company "to assist with commencement" of the "contract" referred to in the recitals. This appears to relate to the "commodity transactions totalling €600,000" referred to in Mr Niccol's report.
7. The loan terms recorded in this loan agreement were extremely generous to Bloomingville and, although involving different amounts, were similar in structure to those that were proposed to Mr Naegeli as part of the First Proposal and to those that were ultimately recorded in the Cash Funding Agreement; and thus reflected in the Guarantee.
8. Mr Schaeffer sought legal advice from Mr Neil Matthews prior to executing the Bloomingville guarantee. It will be recalled that Mr Schaeffer consulted Mr Matthews about the Guarantee on 23 June 2020.
9. Mr Matthews gave this evidence: "Q. Did you provide Mr Schaeffer advice that he should enter into this deed? A. I in fact advised him not to, but he wanted to sign the document in any event, provided there was a limitation of $630,000 [sic] euro. Q. So does his Honour accept that the substance of that answer, is that he did not follow your advice when he executed that agreement? A. Yes."
10. Mr Matthews said that he advised Mr Schaeffer to ensure that there were provisions included in the guarantee that limited Mr Schaeffer's liability under it to €630,000.
11. Once such provisions were included in the guarantee, Mr Schaeffer executed it in Mr Matthews' presence.
12. Mr Condon and Mr Price submitted: "The fact that Mr Schaeffer entered into the Bloomingville transaction only reinforces the proposition that Mr Schaeffer implicitly trusted Mr Blinkworth. The latter accompanied Mr Schaeffer to see Mr Matthews. In turn, Mr Matthews obtained only a cursory description from Mr Schaeffer of the arrangement: 'he simply explained it was borrowing money to do some sort of deal in the Middle East'. Tellingly, Mr Schaeffer was prepared to accept the risk of being a guarantor provided his liability was limited to [€]630,000. The Court can infer that Mr Schaeffer's trust in Mr Blinkworth was such that he was prepared to execute the guarantee despite Mr Matthews' advice to the contrary; but that, even then, Mr Schaeffer wanted a limit on his potential liability. The contrast with the DGI could not be starker." (Footnotes omitted.)
13. But apart from what can be gleaned from Mr Schaeffer's remarks to Mr Naegeli on 24 June 2020, there is no evidence before me of the circumstances in which Mr Schaeffer agreed to execute the Bloomingville guarantee. All that is revealed in these proceedings is that on that occasion, Mr Schaeffer said, as I have set out above, that: "They're somehow supposed to be turning €630,000 into €150 million. It's a mystery to me and makes your deal [look] like a bad deal. Sounds like another Charles Blinkworth deal." [50]
14. The fact that Mr Schaeffer 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. It 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.
15. But it does not show that Mr Schaeffer was somehow under the influence of Mr Blinkworth.
16. As I have said, Mr Condon submitted that Mr Schaeffer was in the "thrall" of Mr Blinkworth. [51] Mr Condon also submitted that Mr Schaeffer had "complete confidence" and "blind trust" in Mr Blinkworth.
17. This overstates matters, although the conclusion may be open that, as I have said, Mr Schaeffer had confidence in Mr Blinkworth's commercial acumen. And Mr Naegeli accepted that it did appear to him that Mr Schaeffer trusted what Mr Blinkworth was saying to him and to Mr Naegeli.
18. Whatever the truth was about the relationship between Mr Schaeffer and Mr Blinkworth, I see no basis upon which I could conclude that Mr Naegeli was privy to what the relationship was. The evidence shows that, from Mr Naegeli's point of view, Mr Schaeffer was walking in lockstep with Mr Blinkworth in encouraging Mr Naegeli to invest his funds in CRB.
19. As I have said, [52] if anyone was under Mr Blinkworth's influence, it was Mr Naegeli.

Mr Schaeffer's relationship with CRB

1. As the matters I have set out make clear, Mr Schaeffer was no stranger to CRB.
2. Mr Schaeffer had a longstanding business relationship with Mr Blinkworth. He had evidently invested in the "security company" that Mr Blinkworth established in around 2006. He had loaned CRB $676,446.89. He had guaranteed CRB's obligations to Bloomingville. He was, in the circumstances to which I have referred, actively involved in courting Mr Naegeli's investment in CRB.
3. There is, however, and to repeat, no evidence before me of the detail of the relationship between Mr Schaeffer and Mr Blinkworth.
4. There is also no evidence that Mr Naegeli had any detailed knowledge of the relationship between Mr Schaeffer and Mr Blinkworth.

Mr Schaeffer's dealings with Mr Naegeli

1. As I have said, Mr Schaeffer was actively involved in seeking to persuade Mr Naegeli to invest in CRB.
2. Thus, as I have set out, Mr Schaeffer: 1. 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"; [53] 2. participated in at least five telephone calls between Mr Naegeli and Mr Blinkworth between July and December 2018; [54] 3. 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"; [55] 4. on 15 December 2018, offered to "cover the other half" of the then proposed US$20 million investment in CRB; [56] 5. 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"; [57] 6. 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"; [58] and 7. readily agreed to provide the Guarantee sought by Mr Naegeli in the face of Mr Naegeli's stated "present concerns about payment". [59]

The improvident nature of the transaction

1. Mr Condon and Mr Price also emphasised the improvident nature of the Cash Funding Agreement and submitted that: "The [Guarantee] was improvident merely because of (1) Mr Blinkworth's misconduct; (2) Mr Schaeffer's promise to pay a sum which bore no relationship to the amount loaned; and (3) the fact that Mr Schaeffer gained nothing from it."
2. The reference to Mr Blinkworth's "misconduct" was, evidently, a reference to Mr Naegeli's statements that he recalled that Mr Schaeffer made to him, stating words to the effect that Mr Schaeffer had been "led astray by Mr Blinkworth" and of "Mr Blinkworth having said things that we found out afterwards were not correct".
3. 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.
4. Further, as I have emphasised earlier, the allegedly improvident terms of the Cash Funding Agreement were terms proposed by the Borrower, CRB, and not by Mr Naegeli.

A voluntary act by a sophisticated businessman

1. Mr Schaeffer joined Mr Blinkworth in encouraging Mr Naegeli to enter into the Cash Funding Agreement on behalf of the Human Enhancement Project.
2. 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.
3. 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.
4. 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.
5. 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.
6. 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 Mr Schaeffer's execution of the Guarantee

1. As I have said and discuss below in the context of considering the Defendants' case concerning the Contracts Review Act, [60] the effect of cl 2.2 of the Guarantee was that, as soon as Mr Schaeffer executed the document, he became liable without demand to pay Mr Naegeli $3.5 million. It may well be that Mr Schaeffer did not then appreciate that this was so. Indeed, as I discuss below, it appears to me likely he did not. For the reasons I have set out below, my conclusion is that this factor is relevant to the question of whether the Guarantee was an "unjust contract" for the purposes of the Contracts Review Act.
2. However, the conduct of Mr Naegeli relevant to this aspect of the case is no more than that he drafted the Guarantee in terms that had that effect and left it to Mr Blinkworth to procure Mr Schaeffer's execution of the document. I do not see anything that, in all the circumstances I have set out, was unconscionable about that conduct.

Conclusion as to unconscionable conduct

1. 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.
2. 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". [61]

Conclusion as to section 12CB of the ASIC Act

1. The Defendants have not established a defence under s 12CB of the ASIC Act.

Unfair conduct

1. Subsection 12BF(1) of the ASIC Act provides, relevantly: "12BF Unfair terms of consumer contracts and small business contracts (1) A term of a … small business contract is void if: (a) the term is unfair; and (b) the contract is a standard form contract; and (c) the contract is: (i) a financial product; or (ii) a contract for the supply, or possible supply, of services that are financial services." (Emphasis in original.)

Small business contract?

1. In order that s 12BF be enlivened, there must a "small business contract". The Defendants submitted that the Guarantee was a "small business contract".
2. Subsection 12BF(4) of the ASIC Act provides that a contract is a "small business contract" if: "(a) at the time the contract is entered into, at least one party to the contract is a business that employs fewer than 20 persons; and (b) either of the following applies: (i) the upfront price payable under the contract does not exceed $300,000; (ii) the contract has a duration of more than 12 months and the upfront price payable under the contract does not exceed $1,000,000."
3. One of the parties to the Guarantee was The Footage Company Pty Ltd. At the relevant time, that company employed four persons and thus "fewer than 20 persons". Accordingly, the requirements of subs 12BF(4)(a) of the ASIC Act were satisfied.
4. Subsection 12BF(4)(b) directs attention to the "upfront price payable under the contract".
5. The expression "upfront price payable under the contract" is defined in subs 12BI(2), which provides: "The upfront price payable under a contract is the consideration that: (a) is provided, or is to be provided, for the supply under the contract; and (b) is disclosed at or before the time the contract is entered into; but does not include any other consideration that is contingent on the occurrence or non-occurrence of a particular event." (Emphasis in original.)
6. In the usual case of a contract for the supply of goods or services, the "upfront price payable" will be easily identified as being the amount of the consideration to be provided by the recipient of the goods or services for their supply.
7. It is a little more awkward to apply the definition in subs 12BI(2) to a guarantee.
8. The "supply" under a contract of guarantee is the promise to pay the principal debt.
9. The consideration for that promise, to be supplied by the beneficiary of the guarantee, will often be the promise by the lender to pay the principal sum.
10. In this case, when the Guarantee was executed by Mr Schaeffer on 29 October 2019, the principal sum had already been advanced.
11. As the Guarantee was in the form of a deed, no consideration was necessary and apart, perhaps, from an implicit agreement by Mr Naegeli to forbear from taking proceedings against CRB, none was given.
12. The matter is best resolved by concluding that, because the Guarantee was in the form of a deed, Mr Naegeli did not need to provide consideration for the promises contained in the Guarantee and therefore that the "upfront price payable" by him for the "supply" by Mr Schaeffer of the promise under the Guarantee was nil.
13. It therefore did not exceed either $300,000 for the purpose of subs 12BF(4)(b)(i), or $1 million for the purpose of subs 12BF(4)(b)(ii) of the ASIC Act.
14. Either way, the Guarantee can be characterised as a "small business contract" for the purpose of subs 12BF(1) of the ASIC Act.

Standard form contract

1. In order that s 12BF be enlivened, the "small business contract" must be a "standard form contract".
2. As to whether a contract is a "standard form contract", s 12BK provides: "12BK Standard form contracts (1) If a party to a proceeding alleges that a contract is a standard form contract, it is presumed to be a standard form contract unless another party to the proceeding proves otherwise. (2) In determining whether a contract is a standard form contract, a court may take into account such matters as it thinks relevant, but must take into account the following: (a) whether one of the parties has all or most of the bargaining power relating to the transaction; (b) whether the contract was prepared by one party before any discussion relating to the transaction occurred between the parties; (c) whether another party was, in effect, required either to accept or reject the terms of the contract (other than the terms referred to in subsection 12BI(1)) in the form in which they were presented; (d) whether another party was given an effective opportunity to negotiate the terms of the contract that were not the terms referred to in subsection 12BI(1); (e) whether the terms of the contract (other than the terms referred to in subsection 12BI(1)) take into account the specific characteristics of another party or the particular transaction; (f) any other matter prescribed by the regulations." (Emphasis in original.)
3. In their List Response, the Defendants asserted that the Guarantee is a "standard form contract". It follows, by reason of subs 12BK(1), that Mr Naegeli has the onus of proving otherwise.
4. I have set out Mr Naegeli's evidence concerning the steps he took to prepare the form of the Guarantee. To repeat, [62] Mr Naegeli deposed: "I then prepared the Deed after reviewing several others that either I have had prepared or which I have signed when conducting business that required such a document. I used my own experience from those arrangements to come up with something I felt protected me and because I am someone that keeps my word, I did as I was asked and did not involve any lawyers."
5. As I have set out, Mr Naegeli took these steps after: 1. Mr Blinkworth and Mr Schaeffer assured him during May or June 2019 that "if anything ever did go wrong we will pay you from our personal funds"; [63] 2. later in May or June 2019, Mr Naegeli asked Mr Blinkworth and Mr Schaeffer to execute a guarantee "[i]n view of my present concerns about payment and your previous comments that you will pay the sums due personally", following which each of Mr Blinkworth and Mr Schaeffer agreed to do so; [64] 3. Mr Blinkworth or Mr Schaeffer asked Mr Naegeli to prepare a form of guarantee and to travel from Melbourne to Sydney so that they could execute it; [65] and 4. Mr Blinkworth and Mr Schaeffer gave Mr Naegeli their "personal details for inclusion" in the Guarantee. [66]
6. The three guarantees that Mr Naegeli used to create the Guarantee are in evidence. They each appear to have been prepared by a lawyer. As Mr Naegeli set out in the passage to which I have referred, these were guarantees which Mr Naegeli had either himself signed or were prepared for the signature of others.
7. There is no definition in the ASIC Act of a "standard form contract". Rather, subs 12BK(2) specifies five matters that the Court must take into account when considering whether a contract is a "standard form contract". The subsection allows the Court to take into account such other matters as it thinks is relevant.
8. It has been said that the legislature made a deliberate decision not to define the term "standard form contract" so as to prevent companies from structuring their contracts to fall outside any prescriptive definition. [67]
9. It has also been said of the five matters specified in subs 12BK(2): "These elements of potential unfairness, individually or in some combination, point to the concern of the Parliament to regulate 'take it or leave it' consumer contracts." [68]
10. Turning to the matters specified in subs 12BK(2): 1. the evidence does not establish that Mr Naegeli had "all or most of the bargaining power relating to the transaction"; [69] 2. although the Guarantee was prepared by Mr Naegeli in the circumstances to which I have referred, it did not take place "before any discussion relating to the transaction" but, rather, after both Mr Blinkworth and Mr Schaeffer assured Mr Naegeli that they would assume personal responsibility for CRB's debt, both readily agreed to execute a guarantee, and after they invited Mr Naegeli to prepare a form of guarantee for their execution; [70] 3. neither Mr Blinkworth nor Mr Schaeffer were "required either to accept or reject" the terms of the Guarantee in the form presented to them; [71] 4. there is no suggestion here of Mr Schaeffer having to "take it or leave it"; [72] 5. Mr Naegeli complied with Mr Blinkworth's and Mr Schaeffer's request that he prepare a form of guarantee and they both executed it, after some delay, without question; 6. Mr Schaeffer was aware from May or June 2019 that Mr Naegeli wished him to execute a guarantee in relation to CRB's obligation and readily agreed to do so; 7. on 26 July 2019, when Mr Naegeli had travelled to Sydney for the purpose of Mr Blinkworth and Mr Schaeffer executing the Guarantee, Mr Blinkworth said that he needed "some time to go over it" and that he "needed to give Mr Schaeffer an opportunity to do so as well"; [73] 8. accepting that the evidence does not reveal when, prior to the meeting with Dr Raiz, Mr Schaeffer first saw the form of the Guarantee, Mr Naegeli did nothing to impede Mr Schaeffer having an opportunity to negotiate any terms of the Guarantee, and Mr Schaeffer's statement to Mr Naegeli immediately after his execution of the Guarantee, [74] does not suggest that Mr Schaeffer considered he had been deprived of an effective opportunity to negotiate the terms of the Guarantee; [75] and 9. it is not in the nature of guarantees that they "take into account the specific characteristics" of the surety. [76]
11. The form of Guarantee was a one-off or bespoke document prepared by Mr Naegeli, who is not a lawyer, and at the request of the parties who were to execute it.
12. It had none of the characteristics the subject of Parliament's attention as set out in subs 12BK(2) of the ASIC Act and could not otherwise, in my opinion, be characterised as a "standard form contract".
13. For that reason alone, s 12BF of the ASIC Act is not engaged.

Was a term of the Guarantee unfair?

1. As to whether a term of a contract is unfair, subs 12BG(1) provides: "(1) A term of a contract referred to in subsection 12BF(1) is unfair if: (a) it would cause a significant imbalance in the parties' rights and obligations arising under the contract; and (b) it is not reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term; and (c) it would cause detriment (whether financial or otherwise) to a party if it were to be applied or relied on." (Emphasis in original.)
2. Section 12BG appears to create a code, for the purposes of the ASIC Act, as to when a term of a contract is "unfair".
3. In any event, no submission was made to me on this topic otherwise than by reference to s 12BG.
4. Debate before me focused on subs 12BG(1)(b) and on the question of whether or not the Guarantee was "reasonably necessary in order to protect the legitimate interests" of Mr Naegeli.
5. Mr Condon and Mr Price submitted that the Guarantee improved Mr Naegeli's position in that he not only obtained the benefit of, relevantly, Mr Schaeffer's personal covenant to pay the amounts referred to in the Cash Funding Agreement, but also obtained the security interest referred to in cl 6.2 of the Guarantee. [77] Thus it was submitted that the Guarantee did not simply protect Mr Naegeli's interests but rather it substantially improved them.
6. However, it does not follow from the fact that execution of the Guarantee placed Mr Naegeli in a position of an advantage compared to the circumstances he would have been in had the Guarantee not been executed, that execution was not reasonably necessary to protect his legitimate interests.
7. Mr Naegeli, on behalf of the Human Enhancement Project, had advanced the $500,000 referred to in the Cash Funding Agreement. CRB had failed to make any of the payments called for by the Cash Funding Agreement. Obtaining the Guarantee was, in my opinion, reasonably necessary to protect his legitimate interests and those of the Human Enhancement Project.
8. In any event, even if it was the case that, by reason of Mr Naegeli conferring a security interest over Mr Schaeffer's property, the Guarantee went further than was reasonably necessary to protect Mr Naegeli's legitimate interests, the obvious remedy would be to order that the Guarantee not be enforceable to the extent of that security. No such suggestion was made on behalf of the Defendants. That may well have been because, in these proceedings, Mr Naegeli does not seek to enforce those aspects of the Guarantee.

Conclusion as to section 12BF of the ASIC Act

1. The Defendants have not established a defence under s 12BF of the ASIC Act.

Contracts Review Act

1. Section 7 of the Contracts Review Act provides, relevantly: "(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. The expression "unjust" is defined in s 4 of that Act to include "unconscionable, harsh or oppressive".
3. It is common ground that the two corporate defendants, Rasay Pty Ltd and The Footage Company Pty Ltd, are not entitled to relief under this Act. [78]
4. The Guarantee provided that it was governed by the law applying in Victoria. However, by reason of s 17(3) of the Contracts Review Act, the proper law of the Guarantee is to be determined as would be, but for such provision. It is common ground that as the transaction had its closest and most real connection in New South Wales, the proper law of the contract would, but for the choice of law clause, have been that of New South Wales.
5. Mr O'Neill submitted that Mr Schaeffer was not entitled to relief under the Contracts Review Act because he entered the Guarantee "in the course of or for the purposes of a … business … carried out" by him and thus was not entitled to relief by reason of subs 6(2) of the Act.
6. The position was recently summarised by Fagan J in ATL (Australia) Pty Ltd v Cui [79] as follows: "It is established that where a business is conducted by a corporate entity, a shareholder or other person interested in the affairs of the corporation is not to be regarded as carrying on the business, and is not therefore to be denied reliance upon the Contracts Review Act by force of s 6(2) …" [80]
7. In Superannuation & Corporate Services Pty Ltd v Turner, [81] Gleeson JA [82] stated: "The question raised by s 6(2) is not whether the contract was for business purposes. The question is whether the person was carrying on or proposed to carry on a trade, business or profession in the course of or for the purpose of which it could properly be said that the contract was entered into …" [83]
8. As I have set out above, although Mr Schaeffer was not, formally, a director of CRB, he held himself out as being its honorary chairman and, in his dealings with Mr Naegeli, closely aligned himself with CRB's interests and actively participated in persuading Mr Naegeli to advance funds to CRB.
9. In closing submissions, Mr O'Neill submitted that, in effect, Mr Schaeffer was acting as a "promoter" of CRB.
10. That may be so, but the authorities make it clear that a person who is actually a director of a company is not taken to have entered into a guarantee of the company's indebtedness "in the course of or for the purposes of" a business carried on by the guarantor him or herself.
11. As actively involved in CRB's affairs as Mr Schaeffer was, his position can be no worse than an actual director of CRB. I do not think it can be said that he entered into the Guarantee in the course of or for the purposes of a business that he was himself conducting.
12. The question, then, is whether there is a provision in the Guarantee that was "unjust" in the circumstances existing when Mr Schaeffer executed the Guarantee on 29 October 2019.
13. Subsection 9(2) of the Contracts Review Act sets out a number of matters to which the Court must have regard when considering this question.
14. Mr Condon and Mr Price did not make any submissions directed to these matters but, rather, put the matter this way: "[Mr Naegeli] was seeking to recover an investment that was offering him a return of 1,200% in circumstances where he had no understanding as to how the return was to be generated. At the time [Mr Naegeli] sought the guarantee, he knew that CRB was already in breach of its obligations under the [Cash Funding Agreement] and he did not consider that CRB was going to comply with its obligations. A reasonable person in [Mr Naegeli's] position would not have believed Mr Blinkworth's assurances that CRB pay the money. In those circumstances, [Mr Naegeli] was an unsecured creditor of the company without assets. [Mr Naegeli] was therefore seeking to improve his position by obtaining security for the monies owed to him by CRB. Further, a reasonable person in the position of [Mr Naegeli] would have known that the only realistic prospect of obtaining the monies owed by CRB was to call on the guarantee."
15. Thus, Mr Condon and Mr Price in effect repeated the substance of the submissions made in support of their contention that Mr Naegeli had engaged in unconscionable conduct.
16. 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. [84]
17. 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.
18. 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.
19. 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", [85] and, as I have set out above, readily agreed to Mr Naegeli's request that he guarantee CRB's obligations.
20. However, it seems unlikely that Mr Schaeffer would have understood the immediate and significant effect of his execution of the Guarantee.
21. 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.
22. 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.
23. The question then is what should be done "for the purpose of avoiding as far as practicable an unjust consequence or result" for the purposes of s 7 of the Contracts Review Act.
24. It would not be just to relieve Mr Schaeffer, and now his estate, from all obligation under the Guarantee. At the very least, Mr Schaeffer should be held to his agreement to guarantee the payment to Mr Naegeli of the principal amount of $500,000.
25. Although, as Mr Condon and Mr Price pointed out, Mr Naegeli has not adduced evidence of any detriment suffered by the Human Enhancement Project beyond not having had the benefit of that sum since December 2018, the fact is that Mr Naegeli, thus in effect the enterprise he conducts with Mrs Naegeli under the name of the Human Enhancement Project, has not had the benefit of the $500,000 for over four years and now has no prospect of recovering it from CRB.
26. In that regard Mr Condon and Mr Price suggested that, were interest to be awarded in favour of Mr Naegeli to compensate for the loss of use of the funds since December 2018, the interest rate prescribed for pre-judgment awards would be appropriate. Since December 2018, that interest rate has ranged between 5.5% and the current rate of 7.1%. However, as I have set out above, the Guarantee provided for interest to accrue on the amount due under the Guarantee at the rate of 10%.
27. It is necessary for me to form an evaluative judgment, not susceptible to precise logical or arithmetical analysis, as to what steps are necessary to deal with such injustice as was manifest in the circumstances in which Mr Schaeffer executed the Guarantee.
28. My conclusion is that I should make an order to the effect that the liability of Mr Schaeffer's estate under the Guarantee be confined to repaying the principal of $500,000 with interest to accrue of that sum at the rate of 10% per annum.
29. I have mentioned that the Guarantee provided that interest would accrue "from day to day … from the due date up to the date of actual payment". [86] I will invite submissions as to the implications of this provision so far as concerns the interest to be awarded here.

Conclusion as to the Contracts Review Act

1. Mr Schaeffer's estate is entitled to relief to the effect set out in [409].
2. The corporate defendants are not entitled to relief under the Contracts Review Act. [87]

Conclusion

1. The result is that Mr Naegeli's claim against Mr Schaeffer's estate succeeds to the extent of $500,000 plus interest and against Rasay Pty Ltd and The Footage Company Pty Ltd for the amount claimed, $6.5 million, plus interest.
2. The parties should confer and agree on the orders necessary to give effect to these reasons and as to the further steps that need to be taken to finalise the proceedings.

Endnotes

1. See Starceavich v Swart & Associates Pty Ltd [2006] NSWSC 960 at [54] (White J as his Honour then was).
2. The Defendants accept that Rasay Pty Ltd and The Footage Company Pty Ltd are not entitled to the benefit of the Contracts Review Act.
3. Usefully summarised in Rathswohl v Court [2020] NSWSC 1490 at [35] (Rees J).
4. Mr Naegeli thought it was most likely Mr Blinkworth.
5. This company appears to have been one associated with Mr Naegeli's "investors"; the matter was not explored in the evidence.
6. Now Farrands KC.
7. Mr Naegeli said that he had "previously told Mr Blinkworth that [he] had personal access to $500,000 AUD".
8. See [119] above.
9. Evidently, "Know Your Client".
10. See [111] above.
11. Society for Worldwide Interbank Financial Telecommunications.
12. "Borrower" was defined to mean CRB.
13. As I have set out, Mr Schaeffer also seemed inclined to understate to Ms Dalton his involvement with Mr Blinkworth's activities; see [61] above.
14. Mr King was not otherwise identified in the evidence.
15. In his affidavit, Mr Naegeli had made no earlier mention of "the Moroccan case". I return to it below when discussing CRB's financial position.
16. In his affidavit, Mr Naegeli had made no earlier reference to Mr James having given Mr Naegeli his shares in CRB or resigning as a director of CRB, or any arrangements concerning Mr James receiving a percentage of the proceeds from "this Moroccan deal". Mr Naegeli was not asked about these matters in cross-examination.
17. See [131] above.
18. Subsection 12BAA(7)(k).
19. Subsection 12BAA(7)(m).
20. A "security" is a financial product: subs 12BAA(7)(a).
21. A "contract for insurance" is a financial product, subject to two exceptions: subs 12BAA(7)(d).
22. A "credit facility" is also a financial product: subs 12BAA(7)(k) and see [256] above.
23. [2015] FCCA 1634.
24. Ibid at [29]-[34] (Lloyd-Jones J).
25. Ibid at [78].
26. It is less clear whether Mr Naegeli also "issued" the Cash Funding Agreement. That document was prepared by CRB and presented to Mr Naegeli for signature. It is not necessary to determine this question.
27. Nor, if it be relevant, the Cash Funding Agreement.
28. A matter relevant to Mr Naegeli's contentions concerning subs 6(1) of the Contracts Review Act, to which I return below.
29. Australian Securities and Investments Commission v Kobelt (2019) 267 CLR 1; [2019] HCA 18 at [14] (Kiefel CJ and Bell J).
30. Ibid at [92] (Gageler J).
31. Ibid at [93].
32. Ibid at [119] (Keane J).
33. Ibid at [157] (Nettle and Gordon JJ).
34. Australian Securities and Investments Commission v Westpac Banking Corporation (Omnibus) [2022] FCA 515 at [26] (Beach J).
35. See ASIC Act, subs 12CB(4)(b) and Competition and Consumer Act 2010 (Cth), Sch 2 - Australian Consumer Law, subs 21(4)(b).
36. ASIC v Westpac (supra) at [31] (Beach J).
37. An obvious point and one emphasised for example in Good Living Company Pty Ltd as trustee for the Warren Duncan Trust No 3 v Kingsmede Pty Ltd (2021) 284 FCR 424; [2021] FCAFC 33 at [2] (Allsop CJ) and [26] (Jagot J).
38. See [265] above.
39. See [166] above.
40. Recorded as -$0.01 and $0.01 in FY19 and FY20 respectively.
41. $83,173.92 in FY19 and $41,531.76 in FY20.
42. $199,136.36 in FY19 and $350,309.09 in FY20.
43. $128,600.88 in FY19 and $150,471.26 in FY20.
44. See [34] and [64] above.
45. See [226] above.
46. Report on Company Activities and Property.
47. Presumably, Estimated Realisable Value.
48. See [228] above.
49. The same figure as is referred to in Mr Niccol's report to creditors.
50. See [228] above.
51. See [122] above.
52. Also at [122] above.
53. See [62] above.
54. See [87] above.
55. See [88] above.
56. See [113] above.
57. See [156] above.
58. See [154] above.
59. See [164] above.
60. See [382]-[412] below.
61. See [278(b)] above.
62. See [170] above.
63. See [154] above.
64. See [164] above.
65. See [169] above.
66. See [169] above.
67. A Beattey and A Smith, Annotated National Credit Code (6th edition, 2019, LexisNexis) at [7.3].
68. Australian Competition and Consumer Commission v CLA Trading Pty Ltd [2016] FCA 377 at [51] (Gilmour J).
69. See subs 12BK(2)(a).
70. See subs 12BK(2)(b).
71. See subs 12BK(2)(c).
72. See [368] above.
73. See [174] above.
74. See [206] above.
75. See subs 12BK(2)(d).
76. See subs 12BK(2)(e).
77. See [200] above.
78. See subs 6(2) of the Contracts Review Act.
79. [2023] NSWSC 336.
80. Ibid at [55], citing Toscano v Holland Securities Pty Ltd (1985) 1 NSWLR 145; Brighton v Australia and New Zealand Banking Group Ltd [2011] NSWCA 152 and Quikfund (Australia) Pty Ltd v Airmark Consolidators Pty Ltd (2014) 222 FCR 13; [2014] FCAFC 70.
81. [2020] NSWCA 246.
82. With whom Basten and Leeming JJA agreed.
83. Ibid at [139], citing Toscano v Holland Securities Pty Ltd (supra) at 148-149 (McLelland J) and Ford by his Tutor Beatrice Ann Watkinson v Perpetual Trustees Victoria Limited (2009) 75 NSWLR 42; [2009] NSWCA 186 at [95] (Allsop P, as his Honour then was).
84. See [203] above.
85. See [154] above.
86. See [199] above.
87. See [384] above. 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: 04 May 2023