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

1. [1]

   WARD P: I agree with the orders that Stern JA has proposed and with her Honour’s comprehensive reasons.

2. [2]

   STERN JA: This appeal arises out of a somewhat unconventional arrangement, described as a “loan” of $500,000, and effected by a Cash Funding Agreement (“CFA”), which on 30 December 2018 the respondent, Mr Naegeli (for and on behalf of the Human Enhancement Project (“HEP”), an unincorporated association) entered into with CRB Investment Holdings Pty Limited (“CRB”). The unconventional features of the CFA include that in exchange for HEP making a loan to CRB of $500,000 within two “banking days” of execution of the CFA, it required CRB, starting on the last Friday of April 2019 to make twelve monthly “revenue” payments of $500,000 each plus a final, thirteenth, payment of $500,000 (said to represent return of “the principal”) within five banking days of the last payment. The total amount payable by CRB to HEP over a period of about 16 months, in respect of HEP’s $500,000 loan, was thus $6.5 million. As the primary judge found, this is equivalent to interest at a rate of 1,200% per annum. Whilst those terms appear, on their face, unfavourable to CRB, it was CRB and not Mr Naegeli who proposed those terms.

3. [3]

   On around 29 October 2019, pursuant to a Deed of Guarantee and Indemnity (“Guarantee”), the obligations of CRB under the CFA were guaranteed by Mr Charles Blinkworth, the managing director of CRB who proposed the CFA to Mr Naegeli and with whom Mr Naegeli primarily dealt, and also by Mr John Schaeffer and two companies he owned and controlled, Rasay Pty Limited (“Rasay”) and The Footage Company Pty Ltd (“Footage”). As at that date no payments had been made by CRB, contrary to the terms of the CFA, such that CRB owed HEP a total of $3.5 million under the CFA. Under the Guarantee, the guarantors became immediately liable, without demand, to pay that $3.5 million, and thereafter they were liable to make payment in respect of any ongoing default.

4. [4]

   The Guarantee and the circumstances in which it was executed are at the heart of this appeal.

5. [5]

   CRB made no payments under the CFA and was wound up on 14 October 2020 with no dividend payable to creditors.

6. [6]

   Mr Naegeli brought proceedings against Mr Schaeffer’s executors (Mr Schaeffer died as a result of a road traffic accident on 14 July 2020), Rasay and Footage (together “the appellants”) seeking to enforce their obligations under the Guarantee. Mr Naegeli sought judgment in the sum of $6.5 million, interest at the prescribed rate under s 100 of the Civil Procedure Act 2005 (NSW) and costs. In their defence, Mr Schaeffer’s executors, Rasay and Footage contended that, in procuring the Guarantee, Mr Naegeli engaged in unconscionable conduct within the meaning of s 12CB of the Australian Securities and Investments Commission Act 2001 (Cth) (“ASIC Act”) and that the Guarantee should be set aside as an unfair contract under the ASIC Act (having regard to ss 12BF, 12BG and 12BK) and/or as an unjust contract under s 7 of the Contracts Review Act 1980 (NSW).

7. [7]

   The primary judge dismissed the unconscionability claim and the other ASIC Act claims, upheld the claim under the Contracts Review Act in part, and on that account limited the damages awarded to Mr Naegeli against the executors of Mr Schaeffer (but not against Rasay and Footage) to the sum of $500,000. His Honour awarded interest on the $500,000 sum at the rate of 10% compounded daily from 29 October 2019, on the basis that the Guarantee provided for interest in those terms on unpaid sums: Naegeli v Dalton and Schaeffer as Executors of the Estate of the late John Herman Schaeffer [2023] NSWSC 466.

8. [8]

   Whilst the party to the CFA is HEP, given that HEP is an unincorporated association represented by Mr Naegeli, in this judgment I will refer to Mr Naegeli as encompassing HEP.

9. [9]

   The appellants appeal against the primary judge’s rejection of the unconscionability claim (grounds challenging the primary judge’s finding that the Guarantee was an unfair contract within the meaning of s 12BF of the ASIC Act are not pressed). The appellants contend that the primary judge erred in not setting the Guarantee aside for unconscionability under the ASIC Act or as an unjust contract under s 7 of the Contracts Review Act. The appellants also appeal against the award of interest on the terms set out in the Guarantee. Mr Naegeli cross-appeals against the primary judge’s finding that cl 2.1 of the Guarantee was “unjust” for the purposes of the Contracts Review Act and against his Honour’s decision under that Act to confine liability under the Guarantee to $500,000 plus interest at 10% per annum. By notice of contention on the cross-appeal, the appellants contend that the primary judge’s finding that the Guarantee was unjust should be upheld on further grounds.

10. [10]

    Mr Naegeli initially sought to challenge, by notice of contention, the primary judge’s finding that he was dealing in a financial product and thus that the ASIC Act applied, having regard to the terms of s 12BAB(9) of the ASIC Act. However, given that (without objection by Mr Naegeli) the appellants amended their notice of appeal to rely upon the Competition and Consumer Act 2010 (Cth), Sch 2 – Australian Consumer Law (“Australian Consumer Law”) in the event that the ASIC Act were not to apply, the notice of contention was not pressed. The correctness of the primary judge’s findings as to s 12BAB(9) of the ASIC Act was thus not in issue on the appeal.

11. [11]

    For the reasons set out below, save as regards the primary judge’s orders on interest, the appeal should be dismissed and ground 1 of the amended cross-appeal allowed as set out at [215] below.

Witness evidence before the primary judge

1. [12]

   Two key witnesses, Mr Schaeffer and Mr Blinkworth, died before proceedings were issued. Thus, the only witness who had involvement in the transactions in issue was Mr Naegeli. The other witnesses were Ms Bettina Dalton, Mr Schaeffer’s executor, and Mr Neil Matthews, a solicitor who had given Mr Schaeffer advice about a guarantee of obligations of CRB to a separate company in respect of a transaction unrelated to that between CRB and HEP (the “Mackeen Transaction”, which is discussed further at [29] and [37]-[39] below), and whom Mr Schaeffer saw in relation to the Guarantee some six months after it was executed.

2. [13]

   A number of the conversations with Mr Schaeffer and Mr Blinkworth to which Mr Naegeli deposed had been recorded by Mr Naegeli. Notwithstanding that it was common ground that Mr Naegeli could establish that recording conversations with Mr Schaeffer was reasonably necessary for the protection of his lawful interests for the purpose of the defence in s 7(3)(b)(i) of the Surveillance Devices Act 2007 (NSW), the primary judge issued a certificate under s 128 of the Evidence Act 1995 (NSW). The fact that the conversations were recorded meant that there is no dispute as to the accuracy of much of the detailed account that Mr Naegeli gave of his conversations with Mr Schaeffer and Mr Blinkworth.

3. [14]

   To the extent that Mr Naegeli included evidence of conversations he had had with Mr Blinkworth, Mr Schaeffer and others in his affidavit affirmed on 2 September 2022, much of that evidence was subject to a ruling, described as the “Conversation Ruling”, that it was allowed only as evidence of the fact of the conversation and not as proof of the underlying representations. The same ruling applied to much of the affidavit of Mr Matthews.

Test on appeal

1. [15]

   Notwithstanding the evaluative nature of judgments as to whether conduct is unconscionable within the meaning of s 12CB of the ASIC Act and whether a contract is unjust within the meaning of s 7 of the Contracts Review Act, it is incumbent upon the appellants to demonstrate error in the findings of the primary judge: Minister for Immigration and Border Protection v SZVFW (2018) 264 CLR 541; [2018] HCA 30 at [30] (Gageler J, as his Honour then was) (“SZVFW”). The evaluative nature of the judgment does not diminish the court’s task of “weighing conflicting evidence and drawing its own inferences and conclusions”: Dearman v Dearman (1908) 7 CLR 549 at 564; [1908] HCA 84 (Higgins J), partly quoted in Fox v Percy (2003) 214 CLR 118; [2003] HCA 22 at [25] (Gleeson CJ, Gummow and Kirby JJ) (“Fox v Percy”), cited in SZVFW at [32] (Gageler J).

2. [16]

   Whilst judgments as to whether conduct is unconscionable or a contract is unjust are evaluative, they are not matters of discretion. As Gageler J said in SZVFW, having referred to Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd (2003) 214 CLR 51; [2003] HCA 18, at [46]:

3. [17]

   To similar effect, Edelman J in SZVFW held at [151]:

4. [18]

   As to the limitations of the appellate court, in the context of considering the dismissal by the Full Federal Court of the plaintiff’s challenges in that case to the primary judge’s conclusions drawn from the expert evidence, in Australian Securities and Investments Commission v Kobelt (2019) 267 CLR 1; [2019] HCA 18 at [217] (“ASIC v Kobelt”), Nettle and Gordon JJ said:

5. [19]

   That statement must be understood in context. Their Honours were there considering the limitations on an appellate court as regards the primary judge’s findings relating to the evidence of Dr Martin, an expert social anthropologist retained by ASIC, who gave oral evidence and was cross-examined at trial. As discussed below, the extent of the disadvantage of the appellate court is diminished where, as is largely the case here, the challenges on appeal do not go to underlying facts or the assessment of witness evidence.

6. [20]

   As regards the Contracts Review Act, in Canty v PaperlinX Australia Pty Ltd [2014] NSWCA 309 at [125], Gleeson JA (Barrett and Emmett JJA agreeing) said at [49]:

7. [21]

   Moreover, as held by Bell P (Macfarlan and Payne JJA agreeing) in Magann v The Trustees of the Roman Catholic Church for the Diocese of Parramatta [2020] NSWCA 167 at [59] (“Magann”):

8. [22]

   Consistent with that authority, during argument on appeal, Senior Counsel for both parties accepted that, save as regards the challenge to the primary judge’s finding of fact at [181] (discussed below at [147]-[149]), this Court is in as good a position as the primary judge to determine the issues raised, albeit that, consistent with the authority set out above, respect and weight will be given to the primary judge’s conclusions.

Factual Background

1. [23]

   Having regard to the evaluative character of the challenges made on appeal, it is necessary to consider the factual background in some detail. Save where identified, these matters were not in dispute.

2. [24]

   The matters set out below are primarily based upon the findings of the primary judge and, where indicated, supplemented by the written and oral evidence. There are, however, two caveats to this. First, in some places the primary judge placed reliance upon the truth of words spoken by either Mr Blinkworth or Mr Schaeffer when that evidence was admitted subject to the Conversation Ruling. Second, in at least one instance the judgment of the primary judge includes parts of the evidence which his Honour had earlier rejected. Neither matter has any material impact upon the substance of the primary judge’s findings or his Honour’s evaluative conclusions.

3. [25]

   The key individuals involved in the relevant transactions are Mr Naegeli, Mr Schaeffer and Mr Blinkworth.

4. [26]

   As regards Mr Naegeli, the primary judge found that despite having some commercial experience in a prestige car dealership, he was “a somewhat unworldly and commercially naïve person” who appeared to be “well and truly out of his depth when dealing with CRB” and was “evidently dazzled by Mr Schaeffer’s apparent association with CRB”: [14]. The primary judge found that “if anyone was in Mr Blinkworth’s thrall, it was Mr Naegeli”: [122]. As regards Mr Naegeli’s credibility, the primary judge found that during cross-examination Mr Naegeli “impressed … as an honest witness, doing his best to give the best of his memory concerning events which were clearly very distressing to him”: [15]. His Honour found further that there was “no reason to doubt the accuracy of Mr Naegeli’s account of what happened” and that Mr Naegeli was “a reliable informant”: [40]. There is no challenge to those findings.

5. [27]

   HEP is an unincorporated association whose members are Mr Naegeli and his mother. HEP was established in 2013 as a “humanitarian, philanthropic, non-profit, non-government organisation”: [16]. Mr Naegeli’s evidence was that as his funds were in an account in the name of HEP and that was where payments under the CFA were to go, on 28 December 2018 (shortly before the CFA was executed) Mr Blinkworth suggested that the lender under the CFA should be HEP to meet “Know Your Client” requirements.

6. [28]

   Before the primary judge it was accepted by Senior Counsel for the appellants that Mr Schaeffer was “a sophisticated businessman” whom the primary judge found appeared to have “acquired great wealth as a result of commercial activities”: [337]. Mr Schaeffer was the chairman and major shareholder of Tempo Services, a publicly listed cleaning and security company. Mr Schaeffer was neither a director nor shareholder of CRB and did not play any day-to-day role in CRB’s business but had a “longstanding business connection” and “a significant commercial association with Mr Blinkworth prior to the events with which these proceedings are concerned”: [21] and [36]. The business relationship between Mr Schaeffer and Mr Blinkworth dated back to 1995, and in around 2006, Mr Schaeffer had invested $2.5 million in a security company started by Mr Blinkworth: [27]-[30].

7. [29]

   There is also evidence of Mr Schaeffer having provided ongoing financial support to CRB. In April 2018, he executed a guarantee of CRB’s obligations, up to a limit of €630,000, to a company unrelated to Mr Naegeli, Bloomingville Hong Kong Limited (the “Bloomingville Guarantee” and “Bloomingville” respectively). The recitals to the Bloomingville Guarantee (which is in evidence) record that Mr Schaeffer “is interested in the arrangement between [CRB] and Mackeen”, being a company located in Doha, Qatar, with whom CRB proposed to enter into a contract.

8. [30]

   Further, according to a balance sheet prepared by Mr Ian Niccol, the liquidator of CRB, at some time between 1 July 2019 and 30 June 2020, Mr Schaeffer made a loan to CRB of $676,446.89: [34] and [64]. That is consistent with the statement in Mr Niccol’s final report dated 22 June 2022 that Mr Schaeffer provided “significant financial support” to CRB until his death in July 2020. In this regard it should be noted that Mr Niccol reported that the projected creditor claims of CRB included $675,431 in respect of Bloomingville (discussed below) and $676,446.89 in respect of Mr Schaeffer.

9. [31]

   The primary judge found that “the conclusion may be open that … Mr Schaeffer had confidence in Mr Blinkworth’s commercial acumen” and noted that “Mr Naegeli accepted that it did appear to him that Mr Schaeffer trusted what Mr Blinkworth was saying to him and to Mr Naegeli”: [321].

10. [32]

    There is relatively little evidence as to the financial resources or background of Mr Blinkworth. Mr Niccol reported that there were assertions and management accounts suggesting that Mr Blinkworth had provided financial support to CRB. Mr Niccol had previously reported on 14 January 2021 that Mr Blinkworth was “a high net worth individual” who “provided ongoing funding to [CRB] and was the driving force behind the operations of the business up until his passing.” Mr Niccol said that after Mr Blinkworth’s death, CRB “no longer had the required funding or the influence of Mr Blinkworth to continue the business operations”. Mr Naegeli’s evidence was that Mr Blinkworth had boasted of, and displayed to him, an extravagant lifestyle. Mr Naegeli said he saw Mr Blinkworth driving a Lamborghini, that Mr Blinkworth would spend $500 on lunch and buy a $500 bottle of wine and told Mr Naegeli “[w]hen you are a part of our group this is what becomes the normal thing every day.” However, Mr Naegeli also said that at Mr Blinkworth’s funeral the photographs suggested a far more modest lifestyle.

11. [33]

    As to CRB, the true position is somewhat opaque. Both Mr Blinkworth and Mr Donald James (CRB’s Director, Project Management) described CRB to Mr Naegeli when he first met them, but Mr Naegeli’s evidence as to this is subject to the Conversation Ruling. Thus, whilst it can properly be relied upon to inform a judgment as to what Mr Naegeli understood CRB to do, it cannot be relied upon as evidence of the business or activities of CRB.

12. [34]

    There is some description of the business and activities of CRB in Mr Niccol’s various reports. According to Mr Niccol’s report of 14 January 2021, CRB operated an “international project management business” and traded from 1 July 2017 to 13 October 2020. Mr Niccol explained that, whilst he had been given some documentation relating to CRB, it was likely that “significant documents relating to the Company’s history” were not available to him and he was unable to obtain a backup of the email accounts held by Mr Blinkworth or Mr James. In light of that, there must be some doubt as to the extent to which the profit and loss statements and balance sheets for 30 June 2019 and 30 June 2020, which Mr Niccol prepared, represent an accurate picture of CRB at the relevant points in time. By way of example, on 24 May 2019, Mr Blinkworth sent Mr Naegeli a copy of documents which appear to evidence a letter of credit from HSBC in London of US$60 million in favour of CRB at the request of “Great Joint International Enterprises Limited UK”. There is no reference to this letter of credit, or to any dealings with that company in Mr Niccol’s report. It may be that this is not an authentic document. Alternatively, it may be that this is an example of a document which was not available to Mr Niccol and which may have shed light on what business operations had been conducted by CRB in the period prior to Mr Blinkworth’s death. Similarly, on 28 December 2019, Mr Blinkworth sent Mr Naegeli an export permit dated December 2019 for 200 kilograms of raw gold from the Mubende District, Uganda. It may be that this had nothing to do with CRB, but in the light of this evidence and the letter of credit discussed above, the Court cannot wholly ignore the possibility that there was business that CRB, through Mr Blinkworth, was involved in but which was not recorded on the company’s accounting records and thus was not available to Mr Niccol.

13. [35]

    The primary judge referred to the “parlous” position of CRB showed in the profit and loss accounts and balance sheets prepared by Mr Niccol: [292]. His Honour found at [294], however, that:

14. [36]

    This material is relevant to this appeal in two ways. First, because the appellants contend that CRB’s impecuniosity is relevant on the question of unconscionability. Second, because it may be relevant to the possibility that Mr Schaeffer had his own financial and personal reasons to execute the Guarantee notwithstanding its onerous terms.

15. [37]

    Mr Schaeffer executed the Bloomingville Guarantee on 3 April 2018 after obtaining legal advice from Mr Matthews that he should not do so. The terms of the loan to Bloomingville, as set out in the Bloomingville Guarantee, were that, in return for Bloomingville making an initial payment of €600,000, within 148 days CRB would make interest payments totalling approximately €5 million and repay the €600,000 principal sum, provided that CRB executed a contract with Mackeen. If that contract was not executed, then CRB agreed to pay €630,000 to Bloomingville by 3 May 2018. As the primary judge found, the structure of CRB’s obligations to Bloomingville was similar to those in the CFA: [332].

16. [38]

    Despite Mr Matthews’ advice, Mr Schaeffer wanted to sign the Bloomingville Guarantee, provided that his liability was limited to €630,000: [313]-[314]. Mr Matthews gave Mr Schaeffer the wording that would be required to amend the document to include that limitation. That limitation was included in the Bloomingville Guarantee. Ultimately, as set out below, no payment was made under this arrangement and on 9 June 2020, Bloomingville brought proceedings, including against Mr Schaeffer, under the Bloomingville Guarantee.

17. [39]

    The primary judge found that 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” and also “shows that he was capable of making his own mind up about whether or not to commit to the obligations under the Bloomingville guarantee”: [318].

18. [40]

    Mr Naegeli had been looking for an investment and in that context was put in touch with Mr Blinkworth. He first met Mr Blinkworth on 3 July 2018 in Mr Blinkworth’s office. Mr Schaeffer was present by telephone for some of that meeting: [55]. The unchallenged evidence before the primary judge was that, at that meeting, Mr Schaeffer said to Mr Naegeli:

19. [41]

    Relying in part upon this, the primary judge found that “Mr Schaeffer had been happy to assist in the establishment of CRB’s “credibility””: [85].

20. [42]

    The primary judge found that it appeared that Mr Naegeli “felt out of his depth at this meeting”: [70]. Mr Naegeli’s evidence was that he recalled “feeling a sense of security and prestige because of the calibre of the people involved with CRB”.

21. [43]

    During the 3 July 2018 meeting one of Mr Blinkworth or Mr James proposed that Mr Naegeli invest US$20 million in CRB. That proposal, which involved payments to Mr Naegeli of $500,000 per month plus return of his capital in full if he could raise the US$20 million investment, ultimately did not progress but was the subject of ongoing discussions from July to December 2018.

22. [44]

    Later in July 2018, someone at CRB (Mr Naegeli thought it was probably Mr Blinkworth) gave Mr Naegeli a copy of CRB’s “Corporate Profile”. This included that:

23. [45]

    CRB’s Corporate Profile also said of Mr Schaeffer (although, as identified by the primary judge there was no evidence that Mr Schaeffer had any involvement in the creation of this document: [83]):

24. [46]

    Between September and 31 December 2018, Mr Naegeli met, and had calls, with Mr Blinkworth on numerous occasions. Mr Schaeffer joined in these calls on no less than five occasions: [87]. On a number of occasions Mr Schaeffer said words to the following effect:

25. [47]

    In an email from Mr Naegeli to Mr Gdanski (a solicitor he had engaged) on 8 December 2018, Mr Naegeli said:

26. [48]

    Ultimately, following negative advice from a barrister engaged by Mr Gdanski, highlighting the lack of security for the lender under the CFA, Mr Naegeli did not proceed with the US$20 million proposal.

27. [49]

    There then followed a second proposal in which Mr Naegeli was to procure an investment of US$10 million. As to this, Mr Naegeli’s evidence (to which the Conversation Ruling applied) was that at a meeting on 15 December 2018, Mr Schaeffer said:

28. [50]

    Mr Blinkworth continued to pressure Mr Naegeli to enter the CFA: [116]. Shortly thereafter, on 17 December 2018, Mr Blinkworth said:

29. [51]

    There then followed, on 22 December 2018, a third proposal from Mr Blinkworth for Mr Naegeli to lend only $500,000. Mr Naegeli had previously told Mr Blinkworth that he had personal access to that amount. Mr Blinkworth said this was because Mr Schaeffer had said to him “why don’t you give [Mr Naegeli] a chance”. This evidence was admitted subject to the Conversation Ruling. Mr Blinkworth said he was proposing this “[t]o prevent [Mr Naegeli] from missing out” and asked Mr Naegeli “to promise me you will not tell anyone about” it: [119]. The primary judge, at [120], found that the terms of the conversation on that day suggested:

30. [52]

    As that evidence was subject to the Conversation Ruling this can only be relevant to Mr Naegeli’s understanding or appreciation flowing from the words spoken by Mr Blinkworth.

31. [53]

    When Mr Naegeli responded to the latest offer conveyed by Mr Blinkworth by asking whether he had “[heard] right”, Mr Blinkworth said “[i]f you want, we can treat you like everyone else and only give you 20%”. Mr Naegeli responded:

32. [54]

    The primary judge found that this exchange bespoke “Mr Naegeli’s anxiety to do business with Mr Blinkworth and an apprehension that if he did not do so he might miss a valuable opportunity” and that “if anyone was in Mr Blinkworth’s thrall, it was Mr Naegeli”: [122].

33. [55]

    At a further meeting on 28 December 2018 Mr Naegeli, who said that he was still in shock that he was being given this opportunity, asked several times:

34. [56]

    Mr Blinkworth suggested that Mr Naegeli should use HEP to enter into the CFA: [128]. On 29 December 2018, Mr Blinkworth sent an email to Mr Naegeli attaching a draft of what became the CFA: [134]. On 30 December 2018, both Mr Blinkworth and Mr Naegeli (for and on behalf of HEP) executed the CFA: [135]. Mr Naegeli did not seek independent legal advice prior to entering the agreement: [136]. The primary judge found at [125]:

35. [57]

    On 31 December 2018, Mr Naegeli transferred $500,000 to CRB.

36. [58]

    The primary judge found that “from Mr Naegeli’s point of view, Mr Schaeffer was walking in lockstep with Mr Blinkworth in encouraging Mr Naegeli to invest his funds in CRB”: [322]. Beyond that, however, his Honour found that he could see no basis to conclude that Mr Naegeli was privy to what the relationship was between Mr Blinkworth and Mr Schaeffer: [322]. Further, his Honour found that Mr Schaeffer was “actively involved in courting Mr Naegeli’s investment in CRB”: [325].

37. [59]

    The recitals to the CFA provide:

38. [60]

    Clause 1 of the CFA established a term of 16 months commencing on the date of the “Ledger-to-Ledger transfer” and terminating on the last Friday of the 16th month after the confirmed receipt of the described transfer.

39. [61]

    Subclauses 2(a), (b) and (f) of the CFA are in the following terms:

40. [62]

    Clause 7(d) of the CFA states that “Borrower’s CFA is structured as “loan agreement” for the purpose of compliance with banking and regulatory requirements…”.

41. [63]

    ANNEX B to the CFA sets out the “Revenue and Payment Structure” as follows:

42. [64]

    As previously identified, the primary judge found that the terms of the CFA were proposed by CRB, not by Mr Naegeli: [333].

43. [65]

    In January 2019, CRB issued proceedings in the Commercial Court of Casablanca against Mackeen in respect of the transaction for which the Bloomingville Guarantee was procured. As explained in submissions before the primary judge, those proceedings sought the return of €850,000 paid to Mackeen and damages. In Mr Niccol’s report of 22 June 2022, he describes this as a potential claim for damages of €150 million. As to the Moroccan proceedings, the primary judge found:

44. [66]

    The primary judge’s finding at [303] is challenged by the appellants on appeal.

45. [67]

    It should be noted that Mr Niccol also reported that on 16 March 2020, judgment in favour of CRB in the sum of €850,000 was obtained in a Moroccan court against Mackeen. Solicitors in Morocco had advised that some €20,000 was required to progress to final judgment but the company could not afford to fund this. Also, the stamping of that judgment had been suspended until the finalisation of a damages claim for €150 million which CRB had brought against Mackeen and which was still pending in the Casablanca Commercial Court. Ultimately, Mr Niccol was unable to find a litigation funder to fund the Moroccan proceedings and neither of those amounts was recovered.

46. [68]

    It should also be noted that, after his investigations, Mr Niccol determined not to issue proceedings for insolvent trading, notwithstanding that CRB may have been insolvent from 28 January 2020. Mr Niccol’s reasoning in this regard included that there may have been an available defence of “reasonable basis to suspect that [CRB] may have been solvent due to the belief held at the time as to the recoverability of the claim against Mackeen.”

47. [69]

    The first payment of $500,000 under the CFA was due on 26 April 2019. Mr Naegeli did not receive payment into the nominated bank account. Mr Naegeli sent an email to Mr Blinkworth on 28 April 2019 in the following terms:

48. [70]

    Mr Blinkworth then asked Mr Naegeli to travel to Sydney so that Mr Blinkworth could explain the reason for the delay on the first payment. Mr Naegeli met with Mr Blinkworth and Mr William Aloisi (another director of CRB) on 15 May 2019. In evidence subject to the Conversation Ruling, Mr Naegeli said that at that meeting Mr Blinkworth showed him many contracts and said:

49. [71]

    On 24 May 2019, Mr Blinkworth called Mr Naegeli and said (again this evidence is subject to the Conversation Ruling):

50. [72]

    Mr Blinkworth sent Mr Naegeli the documents appearing to reflect the US$60 million letter of credit, referred to above at [34]. The primary judge accepted Mr Naegeli’s evidence that these documents gave him encouragement and that he believed that they were legitimate: [151]-[152].

51. [73]

    There was no challenge to Mr Naegeli’s evidence that throughout May and June 2019 he had about six telephone calls where he raised his concerns about the lack of security in the CFA and the lack of payments made under it: [153]. Mr Naegeli’s evidence, subject to the Conversation Ruling, was that during these calls, either Mr Blinkworth or Mr Schaeffer or “sometimes both of them” said words to the effect:

52. [74]

    That article (which was admitted only as evidence of its existence) was a lengthy profile of Mr Schaeffer, headed “How art and trophy home collector John Schaeffer made his mark on Sydney’s prestige property scene.”

53. [75]

    In his oral evidence, Mr Naegeli said that confidentiality was discussed “nearly at every time I met with [Mr Schaeffer and Mr Blinkworth].” Mr Naegeli said that during May and June 2019, Mr Schaeffer said to him “I entered these [CFA’s] and it’s not public knowledge so you have to remain the same if you want to continue being in this with us” and told Mr Naegeli that he had made some of his wealth from the CFAs: [156]. The primary judge found at [157] that these conversations:

54. [76]

    Mr Naegeli also gave evidence (to which the Conversation Ruling applied) that in late May 2019, Mr Blinkworth called him and said:

55. [77]

    In cross-examination Mr Naegeli said that Mr Schaeffer, Mr Blinkworth and Mr Aloisi mentioned in 2019 that gold trading was a potential source of funds for CRB: at [160]. The primary judge observed that it was not suggested to Mr Naegeli that this evidence was untrue: [161].

56. [78]

    Mr Naegeli said that, on many occasions, Mr Blinkworth said to him words to the effect:

57. [79]

    Mr Naegeli said:

58. [80]

    Mr Naegeli asked for a personal guarantee from each of Mr Blinkworth and Mr Schaeffer. Mr Naegeli said (in evidence subject to the Conversation Ruling) that Mr Blinkworth responded that he would enter into a guarantee provided that Mr Naegeli did not put any undue pressure on CRB “in order to give us reasonable time to focus on our trading activities.” Mr Naegeli said (again subject to the Conversation Ruling) that Mr Schaeffer responded:

59. [81]

    Both Mr Blinkworth and Mr Schaeffer provided their personal details for inclusion in the Guarantee and Mr Schaeffer provided Mr Naegeli with details of his private companies to be included as additional guarantors: [169].

60. [82]

    The primary judge rejected the appellants’ contention that this showed that Mr Schaeffer was under Mr Blinkworth’s influence. Rather, his Honour found that “Mr Schaeffer expressed confidence about Mr Blinkworth, which confidence evidently arose from their business relationship to which I have referred”: [168].

61. [83]

    Mr Naegeli’s evidence is that either Mr Blinkworth or Mr Schaeffer, he could not recall which, said that Mr Naegeli should prepare a deed and then travel to Sydney for them to execute it: [169]. Mr Naegeli said:

62. [84]

    The primary judge found that the form of guarantee that Mr Naegeli prepared was “bespoke in nature”: [171].

63. [85]

    Mr Naegeli executed the Guarantee on or about 18 July 2019: [176]. Mr Naegeli then met with Mr Blinkworth in Sydney on 26 July 2019, and had been expecting Mr Schaeffer also to be present. As it turned out, Mr Schaeffer was present only by telephone. Mr Naegeli’s oral evidence was that Mr Blinkworth told him that he needed some time to go over the Guarantee and that he needed to give Mr Schaeffer an opportunity to do so as well. Mr Naegeli understood this to mean that this was to obtain legal advice: [174]. Mr Naegeli said Mr Blinkworth again assured him that CRB was expecting some funds to be deposited into its account “before [Mr Naegeli] left Sydney so that payment could be made to [Mr Naegeli], and we could avoid the need for the [Guarantee] entirely.”

64. [86]

    Whilst Mr Naegeli left Sydney without the Guarantee having been executed, he continued to give Mr Blinkworth and Mr Schaeffer “the benefit of the doubt due to their professional reputations.” He then became frustrated and angry upon learning that Mr Blinkworth had spent in excess of $45,000 on accommodation and flights to Hong Kong while he was still waiting for his revenue payments. He expressed this frustration to Mr Blinkworth and said that he would commence legal proceedings to recover the money he was owed. Mr Naegeli then asked Mr Blinkworth to organise the execution of the Guarantee by himself and Mr Schaeffer and said that he was beginning to doubt Mr Blinkworth’s “credibility” and required a lawyer or Justice of the Peace to witness the execution: [179]. Having heard and considered Mr Naegeli’s oral evidence as to this in cross-examination, the primary judge found that what Mr Naegeli meant was that he was beginning to doubt Mr Blinkworth’s “creditworthiness”: [181]. As set out below, this finding is challenged on appeal. Mr Naegeli’s evidence (subject to the Conversation Ruling) is that at this time, Mr Blinkworth said:

65. [87]

    Mr Schaeffer and Mr Blinkworth executed the Guarantee as a Deed at a café in Bondi in the presence of Dr Raiz, a Justice of the Peace, on 29 October 2019: [186]. There was no challenge to Dr Raiz’s evidence that Mr Schaeffer was present on that day and executed the Guarantee. Mr Schaeffer executed the Guarantee on his own behalf, and on behalf of Rasay and Footage. As at that date, CRB had failed to make seven payments as required under the CFA. Thus, $3.5 million was owing under the CFA: [202].

66. [88]

    The primary judge found that Mr Schaeffer entered the Guarantee “freely, voluntarily and unhesitatingly”: [338]. The appellants do not challenge this finding as such, but contend that the primary judge should also have found that Mr Schaeffer “was under the influence of Mr Blinkworth” when he executed the Guarantee.

67. [89]

    The primary judge found at [288] that having regard to the conversation between Mr Schaeffer and Mr Naegeli in May or June 2019 (set out at [80] above):

68. [90]

    The appellants challenge this finding.

69. [91]

    The primary judge also found that it appeared likely that “Mr Schaeffer understood the nature of the CFA, at least in general terms”: [332].

70. [92]

    There is no evidence of what transpired between Mr Blinkworth and Mr Schaeffer leading up to the signing of the Guarantee, nor as to what opportunity Mr Schaeffer had to consider its terms: [188] and [399]. There was no evidence whether it was explained to Mr Schaeffer that by executing the Guarantee he became immediately liable to pay the then outstanding amount under the CFA of $3.5 million. The primary judge inferred that the effect of execution of the Guarantee was not explained to Mr Schaeffer and that it seemed unlikely that Mr Schaeffer had “any appreciation that this was the effect of his execution of the Guarantee”: [204] and [399]. His Honour held:

71. [93]

    Mr Naegeli challenges the finding that Mr Schaeffer did not understand the immediate effect of executing the Guarantee.

72. [94]

    The primary judge also found that it could not be known whether or not Mr Blinkworth simply sought to have Mr Schaeffer sign the Guarantee without considering its contents or effect and that, by leaving it to Mr Blinkworth to procure Mr Schaeffer’s signature, Mr Naegeli “ran the risk” of this happening: [399].

73. [95]

    Schedule 1 to the Guarantee set out that the Guarantors were Rasay, Footage, Mr Schaeffer and Mr Blinkworth. That page of the Guarantee is initialled by each of Mr Naegeli, Mr Schaeffer and Mr Blinkworth. All other pages of the Guarantee are initialled only by Mr Naegeli and Mr Blinkworth.

74. [96]

    The recitals to the Guarantee provide:

75. [97]

    Clauses 2.1 and 2.2 of the Guarantee, provide:

76. [98]

    “Obligations” are defined in cl 1.1 of the Guarantee as:

77. [99]

    “Finance Document” is defined in cl 1.1 of the Guarantee as “the Facility Agreement” which is, in turn, defined as the CFA.

78. [100]

    Clause 6 of the Guarantee provided for security for “the payment of the Guaranteed Money” and “the due punctual and complete performance of each Guarantor’s obligations and liabilities to the Beneficiary under this deed”. The property charged was “any land owned by that Guarantor, solely, jointly or as trustee of any trust, now or in the future.” “Guaranteed Money” is defined in cl 1.1 as meaning:

79. [101]

    Clause 7.3 of the Guarantee provides each Guarantor agreed to pay “default interest” of 10% per annum on all unpaid sums. “Unpaid Sum” is defined in cl 1.1 of the Guarantee as “any sum due and payable by a Guarantor under this deed but unpaid.”

80. [102]

    Clause 12 of the Guarantee, headed “Acknowledgements”, provides:

81. [103]

    On or around 29 October 2019, after executing the Guarantee, Mr Blinkworth called Mr Naegeli and indicated that the Guarantee was executed. Mr Naegeli’s evidence (subject to the Conversation Ruling) is that Mr Schaeffer, who was also on that call, said:

82. [104]

    The primary judge found, at [207], that this:

83. [105]

    After a number of requests from Mr Naegeli, Mr Blinkworth provided Mr Naegeli with a copy of the executed Guarantee on 25 January 2020. Mr Blinkworth died three days later. It was at Mr Blinkworth’s funeral, on 14 February 2020, that Mr Naegeli met Mr Schaeffer in person for the first time.

84. [106]

    After Mr Blinkworth’s death Mr Naegeli spoke with and met Mr Schaeffer on a number of occasions. At a meeting in Sydney with Mr Schaeffer and Mr Aloisi on 22 June 2020 (which was 13 days after Bloomingville issued proceedings against Mr Schaeffer under the Bloomingville Guarantee), Mr Naegeli showed Mr Schaeffer the executed Guarantee and asked whether Mr Schaeffer remembered it. Mr Naegeli’s evidence is that Mr Schaeffer responded:

85. [107]

    On 23 June 2020 Mr Schaeffer went to see his lawyer, Mr Matthews. Mr Matthews’ evidence is that Mr Schaeffer said that the signature on the Guarantee looked like his own but that he did not sign it. The primary judge found, given that there was no challenge to Dr Raiz’s evidence that Mr Schaeffer signed the Guarantee and that Mr Schaeffer acknowledged that the signature was his during the meeting with Mr Naegeli on 22 June 2020, this appeared to “bespeak an inclination on Mr Schaeffer’s part to give different accounts of the same events to different people”: [223].

86. [108]

    On 24 June 2020, Mr Naegeli had three telephone calls with Mr Schaeffer. During the first conversation, Mr Schaeffer said:

87. [109]

    Only the last sentence of this evidence is subject to the Conversation Ruling.

88. [110]

    Mr Naegeli told Mr Schaeffer during this conversation that he had no choice but to commence proceedings.

89. [111]

    Mr Naegeli’s evidence (to which the Conversation Ruling does not apply) is that the second conversation on 24 June 2020 included the following:

90. [112]

    Mr Naegeli’s evidence (to which the Conversation Ruling does apply) is that during the third conversation on 24 June 2020, Mr Schaeffer said:

91. [113]

    On 14 July 2020, Mr Schaeffer died: [232].

92. [114]

    No payments have been made to Mr Naegeli or HEP under the CFA or the Guarantee. A formal proof of debt confirmed that CRB remained indebted to Mr Naegeli in the amount of $6.5 million.

The primary judge’s key findings challenged on appeal

1. [115]

   The primary judge rejected the appellants’ contention that Mr Naegeli engaged in unconscionable conduct within the meaning of s 12CB of the ASIC Act in connection with the supply of a financial service constituted by the issuing of the Guarantee. In this regard, the primary judge relied upon the findings at [288], [292], [294], [303], [320]-[322], [328]-[329], [332]-[333] and [337]-[342].

2. [116]

   Before the primary judge, Ms Dalton, as an individual rather than a corporate defendant to Mr Naegeli’s claim, contended that the terms of the Guarantee were unjust and that for that reason, the Court should refuse to enforce it under s 7 of the Contracts Review Act. It was common ground that the corporate defendants were not entitled to relief under the Contracts Review Act.

3. [117]

   The primary judge found, at [403], that in the circumstances in which Mr Schaeffer executed the Guarantee, the provisions having the effect that Mr Schaeffer became immediately liable to pay $3.5 million (being the sum then outstanding under the CFA) upon execution of the Guarantee were “unjust” within the meaning of s 4 of the Contracts Review Act. In reaching this conclusion, the primary judge relied particularly on his Honours’ findings at [399]-[402] (set out at [92] above).

4. [118]

   The primary judge concluded, at [409], that the appropriate order in the circumstances was 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 [sic] that sum at the rate of 10% per annum.” In a further judgment, Naegeli v Dalton and Schaeffer as Executors of the Estate of the late John Herman Schaeffer (No 2) [2023] NSWSC 626 at [10], the primary judge ordered that, as specified in the Guarantee, interest should accrue “from day to day”, that is, upon daily rests. That conclusion is reflected in Order 6 of the orders made by the primary judge on 16 June 2023:

The grounds of appeal and the cross-appeal

1. [119]

   The appellants advance eight, somewhat overlapping, grounds of appeal and numerous sub-grounds. In essence, the appellants contend that:

   1. (1)

      the primary judge erred in finding that Mr Naegeli did not act unconscionably within the meaning of s 12CB of the ASIC Act or s 21 of the Australian Consumer Law (grounds 1 to 4); and

   2. (2)

      the primary judge erred in finding that interest should accrue in accordance with the terms of the Guarantee, in circumstances where Mr Naegeli had not pleaded any claim for interest calculated in accordance with the Guarantee (the pleaded claim being for interest “at the prescribed rate” under the Civil Procedure Act) (ground 8).

2. [120]

   I propose to deal with the grounds of appeal by reference to these two substantive issues.

3. [121]

   A number of challenges to the primary judge’s factual findings are advanced by both the appellants and Mr Naegeli. The appellants contend that the primary judge erred in finding:

   1. (1)

      at [181], that Mr Naegeli was beginning to doubt Mr Blinkworth’s creditworthiness but not his credibility;

   2. (2)

      at [288], that Mr Schaeffer knew, at the time he signed the Guarantee, that payments due under the CFA had not been made (sub-ground 4(c)); and

   3. (3)

      at [303], that there may have been some prospect of CRB satisfying its obligations to Mr Naegeli and HEP under the CFA.

4. [122]

   The appellants also contend that the primary judge should have found that:

   1. (1)

      having regard to the evidence and the finding of the primary judge, at [321], Mr Naegeli knew that the relationship between Mr Schaeffer and Mr Blinkworth involved Mr Schaeffer implicitly trusting Mr Blinkworth (sub-ground 2(h));

   2. (2)

      having regard to the findings of the primary judge, at [397]-[403], that the Guarantee was an unfair contract and that the appellants were unaware of the financial consequences of their assenting to the Guarantee (sub-ground 3(a));

   3. (3)

      through CRB, Mr Blinkworth was engaged in misconduct (sub-ground 3(b));

   4. (4)

      Mr Schaeffer implicitly trusted and was influenced by Mr Blinkworth such that his ability to look after the appellants’ interests was compromised and he wrongly believed that CRB would make the payments under the CFA (sub-grounds 3(c)-(d));

   5. (5)

      Mr Naegeli was prepared to enter into any arrangement with CRB simply in order to foster his relationship with Mr Blinkworth (sub-ground 3(e));

   6. (6)

      contrary to the primary judge’s finding, at [181], by the time Mr Naegeli asked Mr Blinkworth to procure Mr Schaeffer’s signature to the Guarantee, Mr Naegeli had either ceased to trust Mr Blinkworth or had concluded that CRB could not make payments under the CFA (sub-grounds 3(f)-(g));

   7. (7)

      contrary to the primary judge’s finding, at [303], CRB was insolvent at the time the appellants executed the Guarantee and Mr Naegeli had no confidence in CRB satisfying its liabilities (sub-ground 3(h)); and

   8. (8)

      the appellants executed the Guarantee when Mr Schaeffer was “under the influence of Mr Blinkworth” (sub-ground 4(a)). This is framed in the amended notice of appeal as an allegation of an erroneous finding having been made but is, in substance, a contention that this additional finding should have been made.

5. [123]

   In support of his contentions on the appeal, Mr Naegeli contends that the primary judge erred, at [204] and [401], in finding that it was unlikely that Mr Schaeffer had any appreciation that the effect of his execution of the Guarantee was that he assumed an obligation to pay $3.5 million immediately and without demand. Mr Naegeli contends that that inference was, on balance, not available and that the evidence supports the “clear and proper inference” that at that time, Mr Schaeffer knew there were payments outstanding under the CFA and must have known that the effect of the Guarantee was to guarantee those outstanding payments.

6. [124]

   By amended notice of cross-appeal, Mr Naegeli contends that the primary judge erred, at [403], in finding that cl 2.1 of the Guarantee was unjust for the purposes of the Contracts Review Act. In the alternative, Mr Naegeli contends that if the Guarantee was unjust because Mr Schaeffer may not have read it and realised that it guaranteed existing defaults, the primary judge should only have relieved Mr Schaeffer of his obligations as guarantor as regards payments accrued as at the date of execution of the Guarantee.

7. [125]

   In a notice of contention on the cross-appeal, the appellants seek to support the primary judge’s conclusion that cl 2.1 of the Guarantee was unjust by seeking the following additional findings (without repeating the findings sought as set out at [122(1), (3)-(4), (6)-(8)] above):

   1. (1)

      the provisions of the Guarantee were improvident;

   2. (2)

      the interest rate, of itself, made the Guarantee unfair and Mr Naegeli’s conduct unconscionable;

   3. (3)

      Mr Naegeli knew or ought to have known that Mr Schaeffer had not negotiated the terms of the Guarantee and Mr Naegeli was not prepared to negotiate the terms of the Guarantee; and

   4. (4)

      Mr Naegeli knew that Mr Blinkworth was motivated to procure Mr Schaeffer’s execution of the Guarantee to prevent Mr Naegeli from commencing proceedings against CRB.

8. [126]

   Save as regards the challenge to the primary judge’s finding at [181], no challenges are made on appeal to any findings of credibility or to the primary judge’s acceptance (or rejection) of the evidence of any witness. Rather, save in that one respect, each of the challenges set out above is either to an evaluative conclusion or to an inference to be drawn from the unchallenged witness and documentary evidence.

Unconscionability

1. [127]

   Section 12CB(1) of the ASIC Act relevantly provides:

2. [128]

   As regards unconscionability, there is no dispute that the primary judge correctly directed himself, at [277]-[282], as to the law. The nature of statutory unconscionability is helpfully encapsulated by Kiefel CJ and Bell J in ASIC v Kobelt at [14]:

3. [129]

   The judgment as to whether conduct is unconscionable requires a focus on all the circumstances: ASIC v Kobelt at [8] (Kiefel CJ and Bell J), [83] (Gageler J), [155] (Nettle and Gordon JJ).

4. [130]

   As Gageler J said in ASIC v Kobelt:

5. [131]

   Further, as Gageler J found in ASIC v Kobelt at [101], the judgment required to be made for the purpose of s 12CB of the ASIC Act is not to be arrived at “through a mere balancing of the applicable considerations identified in s 12CC.” Those factors are a “non-exhaustive list … which [assist] in setting a framework for the values that lie behind the notion of conscience identified in s 12CB”: ASIC v Kobelt at [154] (Nettle and Gordon JJ); see also Stubbings v Jams 2 Pty Ltd [2022] HCA 6; (2022) 399 ALR 409 at [57] (Gordon J) (“Stubbings”); see also Gageler J in Paciocco v Australia and New Zealand Banking Group Ltd (2016) 258 CLR 525; [2016] HCA 28 at [189].

6. [132]

   Conduct may be unconscionable irrespective of whether the victim is vulnerable or under a disadvantage: Australian Securities and Investments Commission v Westpac Banking Corporation [2022] FCA 515 at [31] (Beach J); Stubbings at [77] (Gordon J, considering systemic unconscionability), and notwithstanding that the victim was a willing participant, the question being how that willingness was produced: Stubbings at [76] (Gordon J) citing Bridgewater v Leahy (1998) 194 CLR 457; [1998] HCA 66 at [118] (Gaudron, Gummow and Kirby JJ); see also ASIC v Kobelt at [157] (Nettle and Gordon JJ).

7. [133]

   Thus, the court needs to administer the standard of unconscionability in the totality of the circumstances, having regard to the considerations in s 12CC of the ASIC Act “if and to the extent that those considerations are applicable in the circumstances”: ASIC v Kobelt at [87] (Gageler J).

8. [134]

   In Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 at 462; [1983] HCA 14 (Mason J), approved in Kakavas v Crown Melbourne Ltd (2013) 250 CLR 392; [2013] HCA 25 at [6] (French CJ, Hayne, Crennan, Kiefel, Bell, Gageler and Keane JJ), and Stubbings at [45] (Kiefel CJ, Keane and Gleeson JJ), for the purpose of unconscionability at equity:

9. [135]

   In Bale v Kimberley Developments Pty Ltd [2022] NSWSC 820 at [585], Ward P referred, with apparent approval, to the summary of the elements of unconscionable dealing adopted by Austin J in Turner v Windever [2003] NSWSC 1147 at [105] and approved on appeal in Turner v Windever [2005] NSWCA 73 at [2] (Giles JA, Bryson JA agreeing) and [90] (Santow JA). These elements include that it is necessary to show not just that the “weaker” party is suffering from a special disadvantage that seriously affects their capacity to judge or protect their own interests, but also that the “stronger” party knows of the special disadvantage or of facts that would raise that possibility in the mind of any reasonable person. Further, it must be shown that the “stronger party” unconscientiously took advantage of the opportunity presented by that special disadvantage.

10. [136]

    By way of overarching submission, the appellants contend that it was for Mr Naegeli to demonstrate that the transaction was fair, just and reasonable, relying upon the finding of Macfarlan JA (Ipp and Campbell JJA agreeing) in Lopwell Pty Ltd v Clarke [2009] NSWCA 165 at [48] (“Lopwell”) that, on the facts of that case, such an onus lay on the party benefiting from the transaction.

11. [137]

    This contention can be disposed of at the outset. In Lopwell, Macfarlan JA had, at [37], directed himself by reference to the statement of Deane J in Louth v Diprose (1992) 175 CLR 621 at 637; [1992] HCA 61 that:

12. [138]

    Macfarlan JA’s conclusion on the facts in Lopwell must be understood by reference to that authority. So understood, it is abundantly clear that the improvidence of a transaction does not, without more, require a defendant to a claim of unconscionability to prove that the transaction was fair, just and reasonable. That is consistent with the judgment of Ward P in Bale v Kimberley at [589] that:

13. [139]

    Given my findings below, no such onus rested on Mr Naegeli in this case.

14. [140]

    It is also convenient at the outset to deal with the appellants’ contention that the primary judge should have found that Mr Naegeli was prepared to enter into any arrangement with CRB simply in order to foster his relationship with Mr Blinkworth. There is no evidentiary foundation for such a conclusion. The evidence establishes that Mr Naegeli was seeking investment opportunities for HEP, and that in that context, he was keen to reach agreement with Mr Blinkworth and CRB. Moreover, Mr Naegeli refused the two earlier proposals from CRB.

15. [141]

    The appellants’ first key contention is that the primary judge erred in characterising Mr Schaeffer’s conduct in executing the Guarantee as voluntary and properly informed. The appellants rely in particular upon there being no evidence that Mr Schaeffer knew that CRB was impecunious and no evidence that Mr Schaeffer knew the terms of the CFA. The appellants also contend that it is not determinative of unconscionability that Mr Schaeffer entered the Guarantee voluntarily. Again, that contention can be dealt with briefly.

16. [142]

    The primary judge found that Mr Schaeffer entered the Guarantee “freely, voluntarily and unhesitatingly”: [388], that Mr Schaeffer must have had a general understanding that he was guaranteeing CRB’s obligations under the CFA, that Mr Schaeffer must also have understood that payments had not, by then, been made under the CFA: [288], and that Mr Schaeffer understood the nature of the CFA at least in general terms: [332]. Those findings are amply supported by the evidence which I have summarised above. Moreover, those findings support the primary judge’s finding that Mr Naegeli’s conduct was not unconscionable within the meaning of s 12CB of the ASIC Act. Further, having regard to those findings, the primary judge did not err in finding that Mr Schaeffer “entered the Guarantee freely, voluntarily and unhesitatingly”: [338]. That characterisation of Mr Schaeffer’s conduct does not require proof that Mr Schaeffer was aware of CRB’s actual financial state at the relevant time (as to which there is scant evidence in any event) nor does it require that Mr Schaeffer had more than a general understanding of the terms of the CFA. Moreover, it is plain from the primary judge’s key reasoning as to unconscionability (set out at [115] above) that his Honour did not find that his characterisation of Mr Schaeffer’s conduct as voluntary was determinative of the question of unconscionability.

17. [143]

    Second, the appellants contend that Mr Schaeffer should have been found to have been suffering from a special vulnerability or disability by reason of his lack of information about both the CFA and the finances of CRB, his trust in Mr Blinkworth and the improvidence of the Guarantee from Mr Schaeffer’s perspective. The appellants contend also that Mr Naegeli knew that Mr Schaeffer trusted Mr Blinkworth to the extent that he was potentially vulnerable to Mr Blinkworth and, at the same time, that Mr Naegeli had ceased trusting Mr Blinkworth by the time that the Guarantee was executed. In this regard, the appellants contend that the primary judge’s finding at [181], that Mr Naegeli was doubting the “creditworthiness”, but not the “credibility”, of Mr Blinkworth, was glaringly improbable and should be overturned on appeal.

18. [144]

    Third, the appellants contend that the primary judge should have found that Mr Naegeli’s conduct was unconscionable having regard to his Honour’s conclusion that the Guarantee was unjust for the purposes of the Contracts Review Act, and the findings in support of that conclusion at [399]-[401]. Thus, whilst Senior Counsel for the appellants accepted in oral argument that the test for unconscionability under the ASIC Act was a “harder, more onerous test” in comparison to the threshold under s 7 of the Contracts Review Act, the appellants contend that the primary judge’s findings as to whether the contract was unjust supported a conclusion of unconscionability.

19. [145]

    Finally, and relatedly, the appellants contend that the terms of the Guarantee are relevant to the question of unconscionability pursuant to s 12CB(4)(c)(i) of the ASIC Act, and that the Guarantee here was objectively unfair as CRB’s financial position at the time when the Guarantee was executed was such that Mr Schaeffer would inevitably be called upon to pay the full amount due under the CFA. The appellants contend that this supports a conclusion of special vulnerability or disability and that Mr Naegeli knew or ought to have known of this. The appellants contend that this, together with Mr Schaeffer’s limited knowledge, trust in Mr Blinkworth, lack of legal advice, the fact that Mr Naegeli did not pay any consideration for the Guarantee and Mr Naegeli’s conduct in leaving it to Mr Blinkworth to arrange for Mr Schaeffer’s execution of the Guarantee in circumstances when Mr Naegeli knew that Mr Blinkworth had reason to procure Mr Schaeffer’s execution of the Guarantee, lead to the conclusion that Mr Naegeli’s conduct was unconscionable within the meaning of s 12CB of the ASIC Act.

20. [146]

    It is convenient to deal with the issue of unconscionability by reference to the various factual matters which the appellants rely upon in support of their contentions. As regards each, it is necessary to address both the underlying facts and what Mr Naegeli knew or ought to have known. In the course of this analysis I will address the various challenges to the primary judge’s findings, set out at [121]-[122] above.

21. [147]

    It was common ground before this Court that the challenge to the primary judge’s finding at [181] was a finding affected by impressions formed as a result of seeing and hearing Mr Naegeli give evidence. It should thus not be overturned absent a conclusion that it was “glaringly improbable” or “contrary to compelling inferences”: Lee v Lee (2019) 266 CLR 129; [2019] HCA 28 at [56]; Fox v Percy at [28]-[29]. Despite that high threshold, I am satisfied that the primary judge erred in reaching this finding. The inference that should have been drawn from Mr Naegeli’s evidence that he was “beginning to doubt [Mr Blinkworth’s] credibility” is that Mr Naegeli was beginning to have doubts as to whether he should believe what Mr Blinkworth said, but that those doubts did not extend to him losing trust in Mr Blinkworth overall and did not rise to the level that he would accept Mr Blinkworth’s offer to pay him out. However, Mr Naegeli’s evidence as to this in cross-examination does not undermine his credit or reliability to any significant extent (nor was any contention advanced to this effect).

22. [148]

    I have reached this conclusion having regard to the fact that, in his affidavit, Mr Naegeli linked his doubts about Mr Blinkworth’s credibility with his requirement that a lawyer or Justice of the Peace witness the execution of the Guarantee. That strongly suggests that Mr Naegeli’s concern was that Mr Blinkworth may otherwise either not properly execute the Guarantee or seek later to contend that he had not done so. That bespeaks some concern about trust, not the adequacy of Mr Blinkworth’s financial resources. Indeed, Mr Naegeli’s words during that conversation, as recorded in his affidavit, make no sense if his concern was creditworthiness.

23. [149]

    For the reasons set out below, however, such doubts as Mr Naegeli had as to Mr Blinkworth’s credibility do not lead to a finding of unconscionability on the facts of this case.

24. [150]

    Given that the appellants’ submissions rely significantly upon the improvidence of the terms of the Guarantee, it is convenient to deal with this first.

25. [151]

    As set out above, the conclusion that conduct is unconscionable within s 12CB of the ASIC Act requires an evaluative judgment having regard to the particular facts, relationships and idiosyncrasies, processes and mental capacities of the vulnerable party: see eg Stubbings at [39] (Kiefel CJ, Keane and Gleeson JJ) citing Jenyns v Public Curator (Qld) (1953) 90 CLR 113 at 118-19; [1953] HCA 2 (Dixon CJ, McTiernan and Kitto JJ). Unless all of the factual context is considered in detail, little is to be gained by seeking to compare and contrast the conduct in this particular case with conduct in issue in other cases.

26. [152]

    Thus, contrary to the appellants’ submission the finding of Shepherdson J in Asia Pacific International Pty Ltd v Dalrymple [2000] 2 Qd R 229; [1999] QSC 2004 (“Asia Pacific”) that there was equitable unconscionability in a lender inserting a term in a loan that interest would be capitalised, and then accrue at 20%, says nothing about whether Mr Naegeli’s conduct in this case was unconscionable within the meaning of s 12CB of the ASIC Act. In Asia Pacific, it was found, at [58], that the borrowers were in urgent need of the loan and that advantage had been taken of their “special vulnerability”. There is nothing in the evidence here to suggest that Mr Schaeffer was in a position of analogous urgent need such that the terms of the Guarantee, which on their face were seriously disadvantageous to him, were themselves indicative of special disadvantage.

27. [153]

    Similarly, the case of Starceavich v Swart & Associates Pty Ltd [2006] NSWSC 960 (“Starceavich”), in which the question was whether there was a serious question to be tried in the context of an application for an interlocutory injunction, does not support a finding that Mr Naegeli’s conduct was unconscionable within s 12CB of the ASIC Act. In that context, White J (as his Honour then was) held, at [55], that the terms of the contract suggested that the plaintiff’s vulnerability to exploitation was “seriously arguable” as it was “seriously arguable that no-one who was not in desperate need and who understood the terms of the bargain, could rationally have agreed to the terms proffered by the defendant.” Whilst White J held that “oppressive and unreasonable terms” may be both evidence of specific vulnerability and unconscionability, whether or not that is so will depend upon the facts of the case.

28. [154]

    There is no doubt that the terms of the Guarantee were such that, immediately upon its execution, highly significant and onerous obligations were assumed by Mr Schaeffer. However, having regard to the matters set out below, there is at least a real possibility that Mr Schaeffer formed the judgment that his personal or financial interests were better served by executing the Guarantee rather than running the risk that Mr Naegeli may take steps which could result in CRB being placed into liquidation or lead to negative publicity. In these circumstances, I have concluded that no inference should be drawn from the improvidence of the terms of the Guarantee that Mr Schaeffer executed the Guarantee by reason of some special vulnerability or disability, still less that this was something that Mr Naegeli knew or ought to have known.

29. [155]

    First, it is clear that Mr Schaeffer took steps to persuade Mr Naegeli to invest in CRB and devoted time to reassuring Mr Naegeli after he had made his initial investment, including by offering to pay him from their personal funds if things went wrong and offering that his own private companies would act as additional guarantors of the obligations owed to Mr Naegeli. An inference can be drawn from the fact that Mr Schaeffer went to these lengths to secure and maintain Mr Naegeli’s investment that Mr Schaeffer had some personal or financial reason for providing this support to CRB. That, in turn, supports a conclusion that for some personal or financial reason, CRB’s financial success mattered to Mr Schaeffer.

30. [156]

    Second, Recital F to the Bloomingville Guarantee records that Mr Schaeffer was “interested in the arrangement” between CRB and Mackeen. Whilst the nature of that interest cannot be known, that suggests that Mr Schaeffer had something personal or financial to gain from that transaction. Again, that suggests some correspondence of interest, potentially a financial interest, as between Mr Schaeffer and CRB.

31. [157]

    Third, the fact that Mr Schaeffer was willing to execute the Bloomingville Guarantee, against legal advice, suggests that he was someone who was willing to undertake significant financial obligations to benefit CRB even when aware of some risk in doing so. As Senior Counsel for the appellants accepted, Mr Schaeffer was thus in a position where he stood to lose money if CRB fell apart.

32. [158]

    Fourth, through the Bloomingville Guarantee itself, Mr Schaeffer had a financial interest in CRB making money so that CRB would have the financial resources to pay Bloomingville, thereby obviating the prospect of the Bloomingville Guarantee being called upon.

33. [159]

    Fifth, and related to the matters set out above, whilst there is no evidence that Mr Schaeffer knew of the Moroccan proceedings before the Guarantee was executed, there is no evidence to the contrary. Moreover, Mr Schaeffer’s involvement in the Mackeen Transaction as guarantor, and the fact that Mr Schaeffer told Mr Naegeli that up until the time of the funeral he believed that Mr Blinkworth would “turn things around” (set out above at [108]), suggest the real possibility that Mr Schaeffer was aware of this litigation (or at least that CRB could meet its obligations if given time) and that he thus stood to gain if CRB remained solvent. The significance of this is simply that it demonstrates why, on the facts of this case, it cannot be assumed that Mr Schaeffer did not have his own financial reasons for executing the Guarantee notwithstanding its onerous terms.

34. [160]

    Sixth, and relatedly, Mr Schaeffer’s statement as to his belief that Mr Blinkworth would “turn things around”, and the fact that Mr Schaeffer was willing to execute a guarantee and to offer a guarantee from his private companies, support a finding that, at the time when he executed the Guarantee, Mr Schaeffer had an ongoing belief that CRB would be able to make the payments due to Mr Naegeli. That in turn supports a conclusion that Mr Schaeffer believed that he had something to gain by executing the Guarantee.

35. [161]

    Seventh, Mr Schaeffer loaned a significant amount of money to CRB in the period between 1 July 2019 and 30 June 2020. There is no evidence as to the terms of that loan, but this evidence also supports an inference that throughout that period Mr Schaeffer had confidence that CRB would, in time, be able to repay its debts and that he had something to gain by providing ongoing support to CRB to enable it to do so.

36. [162]

    Eighth, during the telephone call which appears to have been made shortly after the Guarantee was executed by Mr Blinkworth and Mr Schaeffer, Mr Schaeffer said to Mr Naegeli that he trusted that Mr Naegeli would not then issue proceedings against CRB. This suggests that Mr Schaeffer was seeking to ensure that this did not happen and that this may have been a motivating factor in Mr Schaeffer’s decision to execute the Guarantee. This in turn suggests that Mr Schaeffer may have had something to lose had Mr Naegeli taken that step, which in turn is consistent with him having some personal or financial interest in CRB not being subject to any legal proceedings at that time.

37. [163]

    Finally, it is apparent that Mr Schaeffer was anxious to avoid Mr Naegeli publicising the fact of the CFA. Mr Naegeli’s evidence was that confidentiality was discussed nearly every time he met with Mr Blinkworth and Mr Schaeffer and that Mr Schaeffer told him that he had to keep the CFA confidential “if you want to continue being in this with us.” The aim of maintaining the confidentiality of the CFA and avoiding the publicity that would follow if Mr Naegeli took steps to enforce his entitlements under the CFA, may have provided a further reason for Mr Schaeffer executing the Guarantee.

38. [164]

    Turning to the question of what Mr Naegeli knew or ought to have known in this regard, I would reject the appellants’ contention that Mr Naegeli knew or ought to have inferred some special disadvantage on the part of Mr Schaeffer from the terms of the Guarantee. Mr Schaeffer’s conduct towards Mr Naegeli, including his involvement both before and after Mr Naegeli entered the CFA, was such that Mr Naegeli would have been entitled to infer that Mr Schaeffer either stood to gain from executing the Guarantee or genuinely believed that there would be no call on the Guarantee. For example, Mr Schaeffer told Mr Naegeli that if he entered the CFA they would become “partners”, introduced himself as the “honorary Chairman of CRB,” and said to Mr Naegeli that he needed to maintain confidentiality if he wanted to continue “being in this with us.” Mr Naegeli would have been entitled to infer that when Mr Schaeffer told him that CRB was involved in “many significant projects” and that he would be paid in “13 months”, these statements were based upon some knowledge. Moreover, from Mr Naegeli’s perspective, Mr Schaeffer had an impressive professional reputation: [178].

39. [165]

    Mr Naegeli was also told that Mr Blinkworth needed to go over the Guarantee thoroughly and needed to give Mr Schaeffer an opportunity to do so as well. Mr Naegeli understood this to mean that it was legal advice that was required. That was in July 2019 and the Guarantee was not executed by Mr Schaeffer until late October 2019. Mr Naegeli was entitled to assume that Mr Schaeffer had, in that time, obtained such advice as he thought he needed on the Guarantee. That stands against a conclusion that Mr Naegeli knew or ought to have known that Mr Schaeffer was in a position such that he executed the Guarantee by reason of his inability to look after his best interests.

40. [166]

    The terms of the Guarantee are also a relevant matter to consider under s 12CC(1)(b) of the ASIC Act, namely whether, as result of conduct engaged in by the supplier, the service recipient was required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of the supplier. It is apparent that Mr Naegeli had a contractual entitlement to be paid $3.5 million by the time the Guarantee was executed and he had a legitimate financial interest in his contractual entitlement being guaranteed. As against that, the terms of the Guarantee were onerous, in particular to the extent that they required payment by Mr Schaeffer without any demand. Having regard to both of these factors, on balance this consideration tends against a finding of unconscionability but not significantly so.

41. [167]

    Contrary to the appellants’ submission, the available evidence going to the financial position of CRB does not support a conclusion of special vulnerability on the part of Mr Schaeffer or of unconscionability on the part of Mr Naegeli. As is apparent from the analysis set out above at [33]-[36], it is difficult to be confident as to CRB’s true financial position. Moreover, having regard to the matters set out above, notwithstanding CRB’s financial position, it is apparent that Mr Schaeffer may have had personal or financial reasons for executing the Guarantee.

42. [168]

    The profit and loss accounts and balance sheets prepared by Mr Niccol, as the primary judge found at [291]-[292], showed that CRB was in a “parlous” financial position, with no income, significant fees and expenses and negative total equity, including significant loan amounts owing to HEP (curiously only in the sum of $500,000 when under the CFA, at that time, $6.5 million was owing), Bloomingville, and in the 2019-2020 financial year, to Mr Schaeffer. However, as set out above, Mr Niccol’s views, conveyed in his various reports, did not identify any possibility of insolvent trading before Mr Blinkworth’s death on 28 January 2020. That is some three months after the Guarantee was executed. Even from that date Mr Niccol gives some credence to the possibility that there may have been a reasonable belief that CRB may have been solvent, in light of potential recovery of very significant sums in the Moroccan court. Had those sums been successfully recovered, Mr Niccol said CRB may have been solvent with a net asset position and available funds to meet liabilities. It is also the case, as set out at [34] above, that Mr Niccol clearly did not have full information about CRB’s operations prior to Mr Blinkworth’s death. In these circumstances, only limited weight can be given to the documents prepared by Mr Niccol as regards CRB’s actual financial position.

43. [169]

    Whilst Senior Counsel for the appellants submitted that Mr Niccol’s views do not “speak to the different question … which is the wherewithal of CRB at the time of the execution of the [Guarantee] to pay the moneys”, there is nothing to suggest that the prospect of recovery of significant sums in damages in the Moroccan proceedings increased in the period between 29 October 2019 when the Guarantee was executed and 22 June 2022 when Mr Niccol issued his final report. If anything, given that Mr Niccol identified that one cause of CRB’s insolvency was the cessation of funding received from Mr Blinkworth and that his death led to a significant decline in business operations for CRB, it may be that prior to Mr Blinkworth’s death it would have been more likely that the Moroccan proceedings would have been able to be funded to continue. Nor is there any evidence to suggest that in other respects the financial position was worse as at 29 October 2019 than was apparent from Mr Niccol’s reports.

44. [170]

    It follows that I would reject the appellants’ challenge to the primary judge’s finding at [303] that there may have been some prospect of CRB satisfying its obligations to Mr Naegeli and HEP under the CFA.

45. [171]

    Further, as to Mr Naegeli’s knowledge, there is nothing in the evidence to suggest that Mr Naegeli was aware of CRB’s finances being in a “parlous” state. To the contrary, whilst Mr Naegeli had not been paid, he was being told that CRB had a US$60 million letter of credit and believed those documents were legitimate. It is also of some significance that Mr Naegeli was assured by both Mr Blinkworth and Mr Schaeffer at various times between May and July 2019 that CRB was involved in “many significant projects”, was awaiting a shipment of gold from West Africa, and that Mr Blinkworth was expecting funds to be paid to CRB shortly, which could be used to make payments to Mr Naegeli under the CFA. Mr Naegeli understood Mr Blinkworth to have spent some $45,000 on a trip to Hong Kong in September 2019 and was angry that money was being spent on this whilst he was waiting for revenue payments. Having regard to the evidence as a whole, Mr Naegeli’s knowledge was not such that he knew or ought to have known that CRB’s financial position was such to support an inference that Mr Schaeffer was in a position of special vulnerability.

46. [172]

    In light of this I would reject the appellants’ contentions at sub-grounds 3(g)-(h) of the amended notice of appeal that Mr Naegeli knew by October 2019 that CRB could not make payments under the CFA or that CRB was insolvent by that time and Mr Naegeli had no confidence in CRB satisfying its liabilities. In addition to the matters set out above, it is of some significance in this regard that on 29 October 2019 Mr Naegeli did not take up Mr Blinkworth’s offer to pay him out (set out above at [86]).

47. [173]

    I would also reject the contention, at sub-ground 3(b) of the amended notice of appeal, that the primary judge should have found that Mr Blinkworth was engaged in misconduct. This contention is too vague, and there is no evidentiary foundation to reach any clear conclusion as to the rights and wrongs of Mr Blinkworth’s conduct.

48. [174]

    As to Mr Schaeffer’s knowledge of the financial position of CRB at the date that he executed the Guarantee, it follows from the analysis set out above that there is simply insufficient reliable material available to make any finding as to the true state of CRB’s finances at that time. That, in turn, precludes any positive finding being made as to whether or not Mr Schaeffer was unaware of the true financial position of CRB at that time. In particular, it is not possible to make a finding as to whether or not Mr Schaeffer’s apparent belief up until the time of Mr Blinkworth’s funeral that Mr Blinkworth would “turn things around” was based upon a misapprehension as to CRB’s true financial position. Moreover, given the discrepancies between what Mr Schaeffer told Mr Matthews about the Guarantee, and the primary judge’s findings as to Mr Schaeffer’s knowledge and execution of the Guarantee, it is not possible to put any real weight upon Mr Schaeffer’s assertions to Mr Naegeli in June 2020 that he had been misled by Mr Blinkworth or as to Mr Schaeffer’s lack of knowledge.

49. [175]

    The appellants contend that Mr Schaeffer’s trust in Mr Blinkworth was such that Mr Schaeffer was in a position of special vulnerability such that he could not properly look after his own interests. In this regard they rely upon the judgment in Lopwell at [47] (Macfarlan JA, Ipp and Campbell JJA agreeing) where it was held that “total reliance upon an adviser” may support a finding of special vulnerability for the purposes of unconscionability in equity.

50. [176]

    This is not such a case. Whilst, as the primary judge found, it is clear that Mr Schaeffer had confidence in Mr Blinkworth’s commercial acumen, which evidently arose from their business relationship, there is no evidence to support a conclusion that Mr Schaeffer was significantly reliant upon Mr Blinkworth. Mr Schaeffer’s expressions of trust and confidence in Mr Blinkworth, who appears to have been something of a charismatic character, fall far short of establishing that Mr Schaeffer was, in any sense, vulnerable or unable to act in his own interests when executing the Guarantee. This is not a case in which there was any inherent inequality between the position of Mr Schaeffer and Mr Blinkworth. Indeed, the evidence suggests that Mr Schaeffer willingly made representations to Mr Naegeli as to CRB’s financial position and the likelihood that Mr Naegeli would receive the money owing to him. Moreover, there is no challenge to the primary judge’s finding, at [337], that Mr Schaeffer was a “sophisticated businessman” who had “acquired great wealth as a result of commercial activities.” There is no basis in the evidence to infer that Mr Schaeffer’s trust or confidence in Mr Blinkworth was such that would support a finding of unconscionability on the part of Mr Naegeli.

51. [177]

    Still less does the evidence support a finding that Mr Naegeli’s knowledge was such that he knew or ought to have known of such vulnerability on the part of Mr Schaeffer. From what Mr Naegeli was told, Mr Schaeffer was highly respected and knowledgeable, had benefited greatly from CFAs in the past, had influenced Mr Blinkworth to offer favourable terms to Mr Naegeli in the CFA and was aware of the “many significant projects” of CRB which were such as to assuage any concerns Mr Naegeli had.

52. [178]

    The relationship between the main protagonists here is a far cry from the position of a trusted adviser as in Lopwell. The trust or confidence that Mr Schaeffer appeared to have in Mr Blinkworth does not support a finding of unconscionability. I would also reject the appellants’ challenge to the primary judge’s implicit finding, at [323], that Mr Schaeffer was not under Mr Blinkworth’s influence. Whilst Mr Schaeffer clearly provided considerable support, financial and otherwise, to CRB, there is no evidence that would support such an inference as contended by the appellants. Moreover, whilst Mr Naegeli should be inferred to have been aware that Mr Schaeffer trusted Mr Blinkworth, contrary to the contention at sub-ground 2(h) of the amended notice of appeal, the evidence does not suggest that Mr Schaeffer was in Mr Blinkworth’s “thrall”.

53. [179]

    I have already dealt with the issue of Mr Schaeffer’s knowledge of the financial position of CRB.

54. [180]

    The primary judge found that Mr Schaeffer understood the nature of the CFA in general terms and there is no challenge to that finding. Whilst the appellants rely upon an email sent by Mr Aloisi to Mr Naegeli (copying Mr Schaeffer), after Mr Blinkworth’s death, setting out that neither he nor Mr Schaeffer could find any “original documents”, that does not say anything as to what Mr Schaeffer saw or was told of the CFA. Similarly, Mr Schaeffer’s statements to Mr Naegeli during their meeting on 22 June 2020 that Mr Schaeffer had been “led astray by Mr Blinkworth” and told things by Mr Blinkworth that were “not correct”, statements to which the Conversation Ruling did not apply, cannot, for the reasons set out above, be relied upon. It is apparent that Mr Schaeffer gave different accounts to different people of his involvement in the Guarantee, which cast significant doubt upon the credibility of his assertions as to the extent of his knowledge or involvement in CRB’s activities or transactions. Further, that evidence must be viewed having regard to the fact that this meeting occurred shortly after Bloomingville commenced proceedings against Mr Schaeffer under the Bloomingville Guarantee. In those circumstances Mr Schaeffer may have had concerns that he could be vulnerable to being sued by Mr Naegeli also and thus may have had an incentive to be less than fulsome as to his knowledge of Mr Blinkworth’s dealings.

55. [181]

    It should, moreover, be inferred that Mr Schaeffer was aware of the terms of the arrangement between Bloomingville and CRB, as those terms were embodied in the same document as the Bloomingville Guarantee on which he sought legal advice. Those terms involved a return of €5 million on an initial investment of €600,000. It could be inferred that Mr Schaeffer would also have known that there were significant payment obligations imposed upon CRB under the CFA. Moreover, the fact that Mr Schaeffer limited the extent of his liability under the Bloomingville Guarantee, and had to amend the document to effect this, suggests that he was aware that CRB were, under that arrangement, liable to pay Bloomingville considerably more than the €630,000 he guaranteed.

56. [182]

    Mr Naegeli’s evidence was also that during telephone calls with Mr Blinkworth and Mr Schaeffer, Mr Blinkworth or Mr Schaeffer or “sometimes both of them” told Mr Naegeli that he would receive his investment in the “13 months as agreed.” Whilst Senior Counsel for the appellants submitted that that suggested that Mr Schaeffer believed the money was only due at the end of 13 months, that submission should be rejected. The words used are equally consistent with knowledge that the payments were to be made within a 13 month period, which was in fact the term of the CFA. Further, Mr Schaeffer was clearly aware that there were payments outstanding under the CFA as he told Mr Naegeli that he believed that “the payments will be made” by the time the Guarantee was prepared. That shows that Mr Schaeffer was aware, by the time of execution of the Guarantee, that payments were by then already outstanding.

57. [183]

    The inference that should be drawn from this evidence is that Mr Schaeffer was aware that highly significant sums may ultimately be due from CRB under the CFA, that those payments were to be made over a term of around 13 months, and that payments were outstanding as at the date of the execution of the Guarantee. I would reject the contention that any lack of knowledge on the part of Mr Schaeffer of the terms of the CFA supported a conclusion of unconscionability.

58. [184]

    It follows that I would reject the appellants’ challenge to the primary judge’s finding, at [288], that Mr Schaeffer knew, at the time he signed the Guarantee, that payments due under the CFA had not been made.

59. [185]

    As to the question of Mr Naegeli’s knowledge, over and above the matters referred to above, it is of some significance that he had been told that it was Mr Schaeffer who persuaded Mr Blinkworth to offer him favourable terms in the CFA (and indeed, to give Mr Naegeli a chance to invest in CRB following the lapse of the earlier proposals) and that Mr Schaeffer had told Mr Naegeli that he had himself received “windfalls” from CFAs he had entered into with CRB. Whilst there is no direct evidence regarding Mr Naegeli’s belief as to whether Mr Schaeffer knew of the terms of the CFA, it should not be inferred that Mr Naegeli knew or ought to have known that Mr Schaeffer was unaware of the material terms of the CFA.

60. [186]

    As to Mr Schaeffer’s knowledge of the terms of the Guarantee, as the primary judge found, at [399], there is no evidence that the terms and effect of the Guarantee were explained to Mr Schaeffer or that he read the terms of the Guarantee prior to its execution. However, unlike the primary judge, at [400], I would not infer that Mr Schaeffer would not have read and understood the immediate and significant effect of his execution of the Guarantee. On the evidence, it is not possible to reach any clear conclusion as to whether he did, or did not, do so. Having regard to my findings at [155]-[157] and [159]-[163] above, there is also a real possibility that he determined that he would execute the guarantee without giving any careful consideration to its terms and effect because he had already decided that it was in his personal or financial interests to execute a guarantee to avert the risk that Mr Naegeli might otherwise commence proceedings or might otherwise lead to adverse publicity for CRB. His apparent confidence in Mr Blinkworth and CRB may have meant that he simply did not think the Guarantee would ever actually be called upon.

61. [187]

    Mr Schaeffer was clearly a commercially experienced and, as the primary judge found, at [337], sophisticated man. He had already signed the Bloomingville Guarantee and should be taken to have been aware of the terms of that arrangement. Mr Schaeffer was thus aware that CRB was promising a very significant return on investment to Bloomingville. On that occasion, Mr Schaeffer was advised by his lawyer that the draft guarantee did not cap his liability, and the document was amended to do so. Mr Schaeffer was also aware that at least the initial proposals involving Mr Naegeli involved a return of many millions of dollars, and that payments were outstanding under Mr Naegeli’s arrangement with CRB.

62. [188]

    Moreover, after the Guarantee was executed, Mr Schaeffer said to Mr Naegeli that he trusted that Mr Naegeli would not then “commence proceedings against CRB”. That indicates that Mr Schaeffer was aware at that time, which is roughly contemporaneous with his signing of the Guarantee, that CRB was already indebted to Mr Naegeli and that the Guarantee went to that indebtedness. It is otherwise unlikely that Mr Schaeffer would have suggested that the Guarantee was a reason for Mr Naegeli not to commence proceedings.

63. [189]

    Once all of those matters are taken into account, it is apparent that Mr Schaeffer must have been aware that there were potentially significant sums to be paid to Mr Naegeli under the CFA, that the Guarantee related to that agreement, and that the Guarantee thus involved Mr Schaeffer guaranteeing very significant sums, some of which were already outstanding. In these circumstances, no inference can properly be drawn that Mr Schaeffer did not carefully read the Guarantee and consider its terms before signing it. Moreover, given his sophistication, it should not be inferred that Mr Schaeffer did not understand those terms or that he was undertaking a significant and immediate liability. In this regard, I would place no weight on Mr Schaeffer’s assertion to Mr Naegeli on 24 June 2020 that he had not read the “fine print” on the Guarantee that Mr Naegeli gave him at the meeting on 22 June 2020. That statement may have been referring to Mr Schaeffer not having read the Guarantee in the period between 22 and 24 June 2020. Moreover, even if Mr Schaeffer could be taken to be asserting that he had never read the fine print, that assertion could not be relied upon given that, the previous day, he had told Mr Matthews that he knew nothing of the Guarantee before Mr Naegeli gave it to him when it is clear that that was not the case.

64. [190]

    Further, the Guarantee is clear in its terms. The “Obligations” guaranteed are clearly identified as all the liabilities and obligations of CRB under or by reason of any Finance Document, and only one Finance Document, the CFA, is identified. It is also clear from cl 2.2 of the Guarantee that the Guarantor is obliged, immediately, and without demand to satisfy or pay any Obligations which CRB does not pay or satisfy on the due date. Whilst the term “Guaranteed Money” has a somewhat obtuse role in the Guarantee, it does clearly signpost the figure of $6.5 million. Moreover, cl 12 of the Guarantee clearly stated that the Guarantors acknowledged that they had been advised and understood the terms and effect of the Guarantee. Mr Schaeffer, with his background and sophistication, should not be presumed to have signed a guarantee including this term when he did not in fact understand its terms.

65. [191]

    It follows that I would reject the appellants’ contention that Mr Schaeffer should be found to have been unaware of the effect of execution of the Guarantee. I would also accept Mr Naegeli’s contention that the primary judge erred, at [401], in drawing the inference that it was unlikely that Mr Schaeffer understood the immediate and significant effect of his execution of the Guarantee.

66. [192]

    Turning to what Mr Naegeli knew or ought to have known, there is no basis in the evidence to find that he knew or ought to have known that Mr Schaeffer may have signed the Guarantee without fully appreciating its terms. The available evidence does not support such an inference. I would also reject the appellants’ contention that a conclusion of unconscionability is supported by Mr Naegeli’s conduct as regards seeking to ensure that both Mr Blinkworth and Mr Schaeffer executed the Guarantee.

67. [193]

    From Mr Naegeli’s perspective, Mr Schaeffer had offered to pay him from his personal funds if anything went wrong, had said that he was “happy” to give a personal guarantee and had even volunteered that his private companies would also do so. He had given Mr Naegeli the relevant details. There was nothing to suggest to Mr Naegeli that Mr Schaeffer was other than willing to execute the Guarantee or that he had been put under pressure to do so. Moreover, Mr Naegeli would have been entitled to have assumed from Mr Schaeffer’s encouragement to him to enter the CFA in the first place, and from Mr Schaeffer’s reassurance in the period after he entered the CFA, that both Mr Schaeffer and Mr Blinkworth had some personal or financial interest which was served by Mr Naegeli being patient and not acting on the concerns that he was expressing as regards default under the CFA.

68. [194]

    Further, Mr Naegeli had prepared the Guarantee which included cl 12, being an acknowledgement that the Guarantors had received advice and understood the terms of the Guarantee. Mr Naegeli was entitled to assume that the Guarantors would not sign the Guarantee unless this was the case.

69. [195]

    As to the circumstances of execution, Mr Naegeli went to Sydney in July 2019 expecting that both Mr Blinkworth and Mr Schaeffer would be present and would execute the Guarantee. He did not plan that Mr Blinkworth would procure Mr Schaeffer’s execution of the Guarantee. That circumstance only arose when Mr Schaeffer was present only by telephone at the meeting in July 2019 such that Mr Naegeli could not personally arrange for him to execute the Guarantee.

70. [196]

    Whilst Mr Naegeli then had to call Mr Blinkworth on 29 October 2019 to remind him to have both him and Mr Schaeffer execute the Guarantee, there is nothing to suggest that Mr Naegeli put Mr Blinkworth under any urgent time pressure, or that Mr Naegeli was told that Mr Schaeffer had not, by then, seen the Guarantee. Further, whilst Mr Naegeli by then was clearly frustrated by the lack of payment under the CFA and had some doubts about Mr Blinkworth’s credibility, Mr Naegeli said that Mr Blinkworth then made him feel “at ease again reassuring me, as he had done in the past.” This evidence does not support an inference that Mr Naegeli ought to have been aware of a risk that Mr Schaeffer would execute the Guarantee without satisfying himself that it was appropriate for him to do so.

71. [197]

    It follows that neither the extent of Mr Schaeffer’s knowledge of the Guarantee nor Mr Naegeli’s conduct as regards the execution of the Guarantee support a conclusion that Mr Naegeli’s conduct was unconscionable.

72. [198]

    The appellants contend that a conclusion of unconscionability is supported by the fact that Mr Naegeli did not provide any consideration under the Guarantee. That contention should be rejected. Mr Naegeli was told by Mr Blinkworth, during one or more conversation with both Mr Blinkworth and Mr Schaeffer, that Mr Blinkworth would enter into a guarantee provided that Mr Naegeli did not put any undue pressure on CRB “in order to give us reasonable time to focus on our trading activities.” During the same conversation Mr Schaeffer also offered to provide a guarantee. Mr Naegeli was, in that context (and having regard to the background that I have summarised above) entitled to believe that both Mr Blinkworth and Mr Schaeffer considered that they had something to gain by providing a guarantee.

73. [199]

    In any event, the fact of there being no consideration moving from Mr Naegeli does not, in my judgment, support a conclusion of unconscionability on the facts of this case. It is a neutral factor.

74. [200]

    To the extent that the appellants contend that there is inconsistency in the conclusions of the primary judge as to unconscionability and under the Contracts Review Act, that contention must be rejected. As Senior Counsel for the appellants accepted, there is clear authority that: “[w]hether a contract is “unjust” within the meaning of s 7 of the Contracts Review Act involves a different standard of evaluation to that invoked in deciding whether someone’s conduct concerning entering into a contract is unconscionable within the meaning of s 51AC TPA or s 13CC ASIC Act”: Brighton v Australia and New Zealand Banking Group Ltd [2011] NSWCA 152 at [165] and [169] (Campbell JA, Giles and Hodgson JJA agreeing). In that case Campbell JA concluded that the contract was not unjust in reliance upon the same factors as had led his Honour to conclude that statutory unconscionability had not been made out: at [170]. Similarly, in a case such as that now before the Court, the same facts will inform both evaluative judgments.

75. [201]

    In any event, this contention was pressed only to the extent that it was contended that the primary judge’s findings at [399]-[401] supported a finding of unconscionability. I have already rejected that contention.

Contracts Review Act

1. [202]

   As set out above, on the cross-appeal, Mr Naegeli contends that the primary judge erred in finding that cl 2.1 of the Guarantee was unjust. In this regard, he contends that the primary judge’s finding at [401] was erroneous. As set out above at [191], I agree that the primary judge erred in the inference that his Honour drew at [401]. Mr Naegeli also contends on the cross-appeal that if the primary judge is found not to have erred in his Honour’s findings as to what Mr Schaeffer understood, the primary judge ought to have found that the Guarantee was unenforceable only as regards the payments that had already become due by the time that the Guarantee was executed. He contends that that would have been the appropriate order given that the injustice, as found by the primary judge, related to the immediate effect of the Guarantee as regards liability in respect of outstanding payments as at the date of execution.

2. [203]

   The appellants contend that, in order to remedy the relevant injustice found by the primary judge, his Honour ought to have set aside the Guarantee in full and also contend that the primary judge’s findings can be supported by further grounds set out in their notice of contention on the cross-appeal. In this regard, the appellants contend that there was clear injustice to Mr Schaeffer and that setting aside the Guarantee would not cause any disadvantage to Mr Naegeli who had entered the CFA without seeking a guarantee and who provided no consideration for the Guarantee. Further, the appellants contend that “the expectation that [Mr Naegeli] was trying, ultimately, to protect was a benefit of a contract which he had entered into out of an anxiety to retain a relationship with Mr Blinkworth.” The appellants also contend, by way of notice of contention, that a number of additional factors supported the primary judge’s conclusion that the terms of the Guarantee were unjust. The appellants contend that, having regard to the extent of Mr Schaeffer’s liability under the Guarantee, it was incumbent upon Mr Naegeli to ensure that Mr Schaeffer appreciated the extent of that burden: Elders Rural Finance Ltd v Smith (1996) 41 NSWLR 296 at 298-9. It should be noted, however, that in that case Mahoney P at 298-9 observed that the capacity of the plaintiffs to appreciate the risks under the contract and whether they should be accepted “was limited”, and there was a positive finding that one party to the contract did not understand the risks of the contract or the real implications of it in circumstances in which there was a risk under the contract that “the plaintiffs might well be financially destroyed.” It was therefore a very different factual scenario from that which is before this Court.

3. [204]

   Further, the appellants contend that the following circumstances made the Guarantee unjust: the immediate obligation to pay $3.5 million, the (claimed) impecuniosity of CRB, the effective interest rate under the CFA and the (claimed) unconscionability of Mr Naegeli in seeking to procure the Guarantee, the (claimed) inevitability that Mr Schaeffer would have to pay $6.5 million plus interest, the fact that Mr Naegeli gave no consideration under the Guarantee, the fact that (it is claimed) Mr Schaeffer was unaware of the risks he was guaranteeing and falsely believed that CRB would be able to repay Mr Naegeli, that (it is claimed) no explanation about the nature and extent of the risk was given to Mr Schaeffer, that (it is claimed) Mr Naegeli believed CRB was unable to pay its obligations under the CFA and had ceased to trust Mr Blinkworth, the (claimed) inability of Mr Schaeffer to look after his own interests, the fact that Mr Naegeli left it to Mr Blinkworth to arrange Mr Schaeffer’s execution of the Guarantee in circumstances where (it is claimed) Mr Naegeli knew that Mr Schaeffer was entirely trusting of Mr Blinkworth but Mr Naegeli did not trust Mr Blinkworth, (claimed) misconduct by Mr Blinkworth and that Mr Blinkworth had reason to procure Mr Schaeffer’s execution of the Guarantee.

4. [205]

   The issue thus arises whether the primary judge’s conclusion at [403], that the provisions in the Guarantee having the effect that, upon execution, Mr Schaeffer immediately became liable to pay $3.5 million to Mr Naegeli, were unjust, was in error and whether the primary judge either went too far in the relief that his Honour ordered or should instead have gone further.

5. [206]

   Section 7(1) of the Contracts Review Act relevantly provides:

6. [207]

   “Unjust” is defined in s 4(1) of the Contracts Review Act:

7. [208]

   Section 9(1) of the Contracts Review Act provides:

8. [209]

   Without limiting the generality of s 9(1), s 9(2) of the Contracts Review Act then sets out a list of matters to which the Court shall have regard to the extent that they are relevant to the circumstances. Of particular relevance here are:

9. [210]

   In West v AGC (Advances) Ltd (1986) 5 NSWLR 610 at 611 Kirby P (as his Honour then was, Hope and McHugh JJA agreeing) described the Contracts Review Act as being “beneficial legislation” to be “interpreted liberally”. McHugh JA (Hope JA agreeing, Kirby P not deciding) held that under s 7(1) of the Contracts Review Act, a contract may be unjust in the circumstances in which it was made because of the way in which it operates in relation to the claimant or because of the way in which it was made or both. McHugh JA (Hope JA agreeing, Kirby P not deciding) went on to describe the scope of the Contracts Review Act as broad and enabling the court to consider whether “the contract or one of its provisions is the product of unfair conduct on its part whether in the terms which it has imposed or in the means it has employed to make the contract.”

10. [211]

    Given that, as set out above, I have reached different factual conclusions from those reached by the primary judge, it is necessary to consider the application of the Contracts Review Act afresh. That is necessarily a fact specific exercise. It was implicit in the matters raised on the appeal and cross-appeal that this would be necessary in the event that the various factual challenges advanced succeeded.

11. [212]

    Applying the principles set out above to the particular circumstances of this case, it is beyond doubt that the obligations under the Guarantee were both onerous and significant. Under the Guarantee, Mr Schaeffer became immediately liable, without demand, to pay $3.5 million to Mr Naegeli and interest was payable on such sum at the rate of 10%. Moreover, Mr Schaeffer’s liability under the Guarantee, and the sum upon which interest was payable at 10%, increased by $500,000 up until the thirteenth month after the CFA was executed, at which point the initial capital sum of $500,000 became repayable to Mr Naegeli. That was so irrespective of the fact that Mr Naegeli may make no demand upon Mr Schaeffer whatsoever. Coupled with that is the absence of any evidence from which it could positively be inferred that Mr Schaeffer actually understood the terms and effect of the Guarantee, and was actually aware of the extent and timing of CRB’s obligations to Mr Naegeli under the CFA, and of the extent of CRB’s indebtedness to Mr Naegeli as at 29 October 2020.

12. [213]

    There are, however, significant factors (including those upon which I have relied in reaching my findings as to unconscionability) which weigh against a conclusion that the terms of the Guarantee were unjust in the circumstances relating to it at the time when it was made within the meaning of the Contracts Review Act. The following matters are of particular significance. Having regard to the background I have summarised above, there was clearly no inequality of bargaining power. Mr Schaeffer was a sophisticated and experienced commercial operator. There is no suggestion that he would not have been able to seek further time to consider, in detail, the terms of the Guarantee (if he had not already done so – as to which, as set out above, it is not possible to make a finding). Nor is there any suggestion that Mr Schaeffer would not have been able to negotiate changes to the Guarantee if he had sought to do so. Mr Schaeffer appears not to have had legal advice in respect of the Guarantee, but there is nothing to suggest that he would not have had the opportunity to obtain legal advice, if he had sought to do so, and he signed the Guarantee which included an acknowledgement that he had obtained legal advice and also understood its terms and effect (see [102] above). Having regard to my analysis of the issue of unconscionability, set out above, it is apparent that the evidence does not support a conclusion that Mr Schaeffer was not able to protect his interests, or was not able to understand the terms and effect of the Guarantee. Nor, as set out above, should it be inferred that he did not read and understand either the terms or the effect of the Guarantee, the terms of the CFA, or the extent of CRB’s indebtedness to Mr Naegeli under the CFA as at 29 October 2019.

13. [214]

    Moreover, the commercial context for the Guarantee is that Mr Schaeffer agreed to provide a guarantee, having previously offered to pay Mr Naegeli out of his personal funds if things went wrong with the CFA. Mr Schaeffer volunteered that his private companies would also be guarantors. Mr Schaeffer also appears to have had a commercial or personal interest in CRB’s financial success, and thus in Mr Naegeli not commencing proceedings against CRB, as is apparent from my analysis of the evidence at [155]-[157], [159]-[163] as set out at [186] above, even if he did not read the terms of the Guarantee there is at least a real possibility that this was because he had already decided that it was in his personal or financial interests to execute the Guarantee irrespective of its terms and thought that the Guarantee would not be called upon in any event. It is not possible to reach positive findings as to these matters but these real possibilities tend against a conclusion that there was any injustice to Mr Schaeffer in being bound to the onerous terms of the Guarantee.

14. [215]

    Having regard to these matters, I am not persuaded that cl 2.1 of the Guarantee (or indeed the terms more generally) are unjust within the meaning of the Contracts Review Act. It follows that ground 1 of the amended cross-appeal should be allowed and ground 2 does not arise.

Interest

1. [216]

   Ground 8 of the amended notice of appeal relates to the primary judge’s awarding of interest at the rate of 10% per annum, being the rate prescribed under the Guarantee. Senior Counsel for Mr Naegeli made it clear during the hearing of the appeal that Mr Naegeli did not seek interest in the event that he recovered the full amount of $6.5 million he sought under the Guarantee, as that sum “included a very healthy compensation for being kept out of money which was inherent in the commercial deal.” He later submitted that “[i]f we are getting what we were promised, it would be inconsistent of us to also get interest.”

2. [217]

   It is thus unnecessary to determine ground 8 of the amended notice of appeal.

3. [218]

   Interest was awarded against each of the second and third defendants at trial and there is no appeal against those orders.

4. [219]

   However, interest under s 100 of the Civil Procedure Act is, of course, in the discretion of the court. In the particular circumstances of this appeal, where Mr Naegeli will as a consequence of this Court’s orders receive, against all three of the defendants to his claim, what is on any view an exceptionally generous return of $6.5 million upon his initial investment of $500,000, in my judgment the appropriate order is that Mr Naegeli should not be paid interest by any of the appellants on the $6.5 million up to the date of the primary judge’s orders. After 16 June 2023, being the date of the primary judge’s orders, interest should be paid by the second and third appellants under s 101 of the Civil Procedure Act. Whilst this involves a variation to the orders made by the primary judge on 16 June 2023 as against the second and third appellants, in circumstances in which the appellants appealed “from the whole of the decision below”, it is open to this Court to take this step in order to achieve what it considers to be a just outcome in all of the circumstances.

Conclusion

1. [220]

   Neither party made any submissions as to the costs of the appeal. In these circumstances, there is no reason why the appellants should not pay Mr Naegeli’s costs of the appeal.

2. [221]

   For the reasons set out above, the orders that I propose are:

   1. (1)

      The appeal is dismissed.

   2. (2)

      Ground 1 of the cross-appeal is allowed and it is unnecessary to determine ground 2.

   3. (3)

      The orders made by the primary judge on 16 June 2023 are set aside and in lieu thereof it is ordered:

   4. (4)

      The appellants to pay the respondent’s costs of the appeal.

3. [222]

   GRIFFITHS AJA: I agree with Stern JA.