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

1. [1]

   On 30 December 2018, the plaintiff, Mr Patrick Naegeli, “for and on behalf of” the “Human Enhancement Project”, entered into a “Cash Funding Agreement” with CRB Investment Holdings Pty Ltd (now in liquidation) (“CRB”), pursuant to which the Human Enhancement Project, as “Lender”, advanced $500,000 to CRB as “Borrower”.

2. [2]

   The Human Enhancement Project is an unincorporated association. Its members are Mr Naegeli and Mr Naegeli’s mother, Mrs Dita Naegeli.

3. [3]

   It was a term of the Cash Funding Agreement that CRB would make 12 monthly “revenue payments” each of “the total amount of the cash transfer”, that is, of $500,000, commencing in April 2019 plus a final, 13th, payment of “the original amount of the cash transfer”. Thus, the total amount payable by the Borrower, CRB in respect of the $500,000 advance was $6.5 million; a return to the Lender, the Human Enhancement Project, equivalent to interest at the rate of 1,200% per annum.

4. [4]

   I return to the detail of the Cash Funding Agreement below. It is important to note at this stage, however, that these seemingly improvident terms from the point of view of CRB as Borrower were those proposed by CRB itself; not by the Human Enhancement Project. Further, no suggestion was made in the proceedings that the common law against usury applies in New South Wales. The Court may relieve against usurious transactions under other heads of jurisdiction. [1] As I set out at [11] below, particular heads of jurisdiction are sought to be invoked.

5. [5]

   On or about 29 October 2019, the late Mr John Schaeffer and two of his associated companies, Rasay Pty Ltd and The Footage Company Pty Ltd, executed a Deed of Guarantee and Indemnity (“the Guarantee”) in respect of that transaction.

6. [6]

   Also on 29 October 2019, a director of CRB, Mr Charles Blinkworth, executed a guarantee.

7. [7]

   Mr Naegeli had executed the Guarantee several months earlier, on 18 July 2019, purportedly on behalf of the “Beneficiary”, the Human Enhancement Project.

8. [8]

   Mr Blinkworth died on 28 January 2020.

9. [9]

   Mr Schaeffer died, in unrelated circumstances, on 14 July 2020.

10. [10]

    Mr Naegeli brings these proceedings against Mr Schaeffer’s estate, and the two companies (together, “the Defendants”), seeking to recover $6.5 million under the Guarantee.

11. [11]

    The Defendants resist the claim on the bases that:

Decision

1. [12]

   My conclusions are:

Mr Naegeli

1. [13]

   In his affidavit, Mr Naegeli described his background as follows:

2. [14]

   The evidence I recount below suggests that, despite having some commercial experience in a prestige car dealership, Mr Naegeli is a somewhat unworldly and commercially naïve person. He appears to have been well and truly out of his depth when dealing with CRB, and Mr Blinkworth in particular. He was also evidently dazzled by Mr Schaeffer’s apparent association with CRB.

3. [15]

   During his cross-examination Mr Naegeli impressed me as an honest witness, doing his best to give the best of his memory concerning events which were clearly very distressing to him.

The Human Enhancement Project

1. [16]

   The Human Enhancement Project was established by Mr Naegeli and Mrs Naegeli on 19 September 2013 as “a humanitarian, philanthropic, non-profit, non-government organisation”.

2. [17]

   Mr Naegeli deposed:

3. [18]

   In the minutes of 19 September 2013 establishing the Human Enhancement Project, Mr Naegeli was described as the “Development Primary” member and Mrs Naegeli was described as the “Communications Primary” member. Mr Naegeli and Mrs Naegeli resolved to establish a bank account “under an either to sign signatory authority”.

CRB Investment Holdings Pty Ltd

1. [19]

   At the date of execution of the Cash Funding Agreement and the Guarantee, the directors of CRB were Mr Blinkworth, Mr Donald James and Mr William Aloisi.

2. [20]

   The members of CRB were a number of companies, the ultimate ownership of which is not revealed in the evidence.

3. [21]

   Mr Schaeffer was neither a director nor a shareholder of CRB. However, as I discuss below, Mr Schaeffer held himself out as being the “honorary chairman” of CRB. As I also set out below, although there is no evidence to suggest Mr Schaeffer played any day-to-day role in CRB’s business affairs, nor in the creation of the Cash Funding Agreement itself, he had a longstanding business connection with Mr Blinkworth and had many conversations with Mr Naegeli concerning the events leading up to and following the execution of the Cash Funding Agreement, and the Guarantee.

4. [22]

   CRB made no payments under the Cash Funding Agreement. It was wound up on 14 October 2020.

5. [23]

   Mr Blinkworth represented CRB to Mr Naegeli as a company “focused on providing finance for economic development projects and charitable humanitarian works”.

6. [24]

   What activities CRB in fact engaged in was not made clear on the evidence before me.

7. [25]

   I return to the position of CRB below.

Mr Schaeffer’s relationship with Mr Blinkworth

1. [26]

   Ms Bettina Dalton was Mr Schaeffer’s de facto partner at the time of his death. Ms Dalton is one of Mr Schaeffer’s executors and, in that capacity, a defendant to the proceedings.

2. [27]

   Ms Dalton deposed that she commenced a relationship with Mr Schaeffer in 2002 and that, at that time, Mr Schaeffer was the “chairman and major shareholder of Tempo Services, a publicly listed cleaning and security company”. Ms Dalton said that in 1995, Tempo “acquired the company called Group 4 Securitas”, that Mr Blinkworth was then the managing director of Group 4 Securitas and that it was then that Mr Schaeffer met Mr Blinkworth.

3. [28]

   Ms Dalton said that in about 2006 “Tempo was sold to ISS Facility Services Australia” and that Mr Blinkworth was then appointed as “interim CEO of ISS”.

4. [29]

   Ms Dalton said that in about 2006, after Tempo was sold to ISS, Mr Schaeffer said to her words to the effect:

5. [30]

   Ms Dalton said that “sometime later” Mr Schaeffer had told her that he had invested “$2.5 million” into Mr Blinkworth’s security company.

6. [31]

   Ms Dalton said that in about 2016 or early 2017 Mr Schaeffer said to her words to the effect:

7. [32]

   Ms Dalton said that in about 2018 or 2019 Mr Schaeffer said to her, after having finished a telephone call with Mr Blinkworth:

8. [33]

   Ms Dalton said that in early 2018 Mr Schaeffer told her:

9. [34]

   The records produced by the liquidator of CRB show Mr Schaeffer as a creditor in the sum of $676,446.89.

10. [35]

    In or around April 2018 Mr Schaeffer signed a guarantee of CRB’s obligations to a company known as Bloomingville Hong Kong Limited. I will return to this below.

11. [36]

    Thus, Mr Schaeffer had a significant commercial association with Mr Blinkworth prior to the events with which these proceedings are concerned.

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

1. [37]

   I turn now to the events leading up to the execution by Mr Schaeffer of the Guarantee on 29 October 2019. It is necessary to consider these events in some detail.

2. [38]

   The only account given of these events is that of Mr Naegeli.

3. [39]

   As I have said, Mr Schaeffer died on 14 July 2020. The other key participant in the events, Mr Blinkworth, died six months earlier, on 28 January 2020. Neither party called Mr Aloisi or Mr James, each of whom played some role in the relevant events. Neither party contended that any inference should be drawn unfavourably to the other by reason of this.

4. [40]

   I see no reason to doubt the accuracy of Mr Naegeli’s account of what happened. It is true that, in cross-examination, Mr Naegeli occasionally gave answers that went beyond that to which he had deposed. But this was because he was asked questions that evidently prompted a recollection that had not been recorded in his affidavit. I did not find the account given by Mr Naegeli in his affidavit to be improbable. Mr Naegeli’s evidence was often consistent with objectively established matters. I found Mr Naegeli to be a reliable informant.

5. [41]

   In his affidavit, Mr Naegeli deposed many detailed conversations with Mr Blinkworth and Mr Schaeffer.

6. [42]

   At the outset of the hearing, Mr O’Neill, who appeared for Mr Naegeli, informed me that Mr Naegeli had recorded a number of his conversations with Mr Schaeffer.

7. [43]

   On the face of it, this was conduct in breach of subs 7(1) of the Surveillance Devices Act 2007 (NSW), which provides:

8. [44]

   Subsection 7(3) provides, relevantly, that:

9. [45]

   The fact that Mr Naegeli had recorded these conversations came to light by reason of the service by the Defendants of a Notice to Produce seeking production of documents “recording” the communication relating to the Cash Funding Agreement and the Guarantee. Mr O’Neill produced a memory stick containing the relevant audio recordings. There was a short adjournment to enable Mr Condon SC and Mr Price, who appeared for the Defendants, to listen to the recordings.

10. [46]

    There are authorities dealing with the circumstances in which it can be concluded that it is reasonably necessary for the protection of the lawful interests of a party to record a private conversation. [3]

11. [47]

    It appeared to be common ground that it was arguable that Mr Naegeli could establish that his recording of his conversations with Mr Schaeffer was “reasonably necessary for the protection” of his “lawful interests” for the purposes of subs 7(3)(b) of the Surveillance Devices Act.

12. [48]

    Thus, Mr Condon said:

13. [49]

    Nonetheless, I thought the safest way to proceed was to require Mr Naegeli to give evidence about his recording of the conversations but to issue a certificate under s 128 of the Evidence Act 1995 (NSW).

14. [50]

    In cross-examination, and in closing submissions, Mr Condon made no criticism of Mr Naegeli in relation to his recording of his conversations with Mr Schaeffer. The fact that Mr Naegeli had recorded these conversations meant that there was no dispute about the accuracy of the detailed account that Mr Naegeli gave of those conversations. It may also explain why, in cross-examination, Mr Naegeli was not challenged about his recollection of what was said in any of his conversations with Mr Schaeffer.

15. [51]

    Mr Naegeli said that in around 2018 he became aware of “a particular form of investment which is best known as Private Placement Programs” made by “Private Placement Agreements”.

16. [52]

    Mr Naegeli said that in June 2018, while he was overseas, he was “offered the opportunity” to participate in a Private Placement Agreement with an initial investment of $1 million. He said that the Private Placement Agreement provided for a 5% weekly return for 40 weeks with the principal being paid back at completion, providing a $2 million profit “which was suggested to have a risk-free premium”. CRB and the Defendants had no involvement in this proposal.

17. [53]

    Mr Naegeli said that on his return to Australia he presented a copy of this proposed Private Placement Agreement to a business associate, who suggested that he “first meet with the group in Sydney that had ties with” Westpac Banking Corporation and that it “would be much safer to invest with [that group] compared to companies overseas”.

18. [54]

    This is what led to Mr Naegeli’s introduction to Mr Blinkworth and Mr Schaeffer.

19. [55]

    Mr Naegeli met Mr Blinkworth on 3 July 2018 in Mr Blinkworth’s offices in the Sydney CBD. Mr Aloisi was present in that office. Mr Schaeffer and Mr James were present “via a telephone link individually for periods during the meeting”. Mr Naegeli said the meeting lasted approximately four hours.

20. [56]

    At the meeting, Mr Naegeli was given five business cards which he photographed.

21. [57]

    A copy of those business cards follows:

22. [58]

    As can be seen, four of the business cards were in the same get-up and were entitled “CRB INVESTMENT HOLDINGS PTY LIMITED”. The card relating to Mr Schaeffer described him as being the “Honorary Chairman” of CRB. As I have said, Mr Schaeffer was not ever a director of CRB. The email addresses on Mr Schaeffer’s business card included director@crbih.com as well as what appeared to be Mr Schaeffer’s personal gmail address. There is no evidence that Mr Schaeffer used these email addresses. There is evidence of Mr Blinkworth using the email address directors@crbih.com (with “directors” rather than “director” as the first element of the address) but not director@crbih.com (with “director” singular). The significance of this fact was not explained in the evidence. Mr Naegeli agreed he did not receive any emails from Mr Schaeffer. He said “Mr Schaeffer was not one for sending emails”.

23. [59]

    The fifth business card was for an organisation known as “Bravura Private Wealth”, evidently a third party financing intermediary to which I will return.

24. [60]

    The evidence does not disclose whether during this meeting Mr Schaeffer said anything to associate himself with the business card bearing his name.

25. [61]

    Ms Dalton gave evidence that the first time she saw the business card was in November or December 2019, after Mr Schaeffer had signed the Guarantee. Ms Dalton said that Mr Schaeffer told her that “this is what Charles [Blinkworth] presented to me today” and “I am not meeting people on behalf of CRB, why would I need them anyway?”. The evidence establishes that Mr Schaeffer was, in fact, regularly “meeting people on behalf of CRB”.

26. [62]

    Indeed, the unchallenged evidence before me is that on 3 July 2018, after his “formal introduction with Mr Schaeffer”, Mr Schaeffer said to Mr Naegeli:

27. [63]

    Mr Naegeli said, “nearly every single time it was discussed with the investors to put the money in, it got mentioned” and that “when I had a new group that were going to put in the money, he would mention that”.

28. [64]

    The evidence also shows that the explanation Mr Schaeffer gave to Mr Naegeli as to the nature of his involvement in CRB was different to the explanation that Mr Schaeffer evidently gave to Ms Dalton. As I have set out above, Ms Dalton’s explanation was that Mr Schaeffer had invested $2.5 million in the “security company” that Mr Blinkworth had established, that those funds had been lost when Mr Blinkworth’s business partners absconded with funds belonging to that company, and that Mr Blinkworth had told Mr Schaeffer that he would “make money” through CRB and “pay [him] back”. In contrast to that account, what Mr Schaeffer told Mr Naegeli was that he had made “a lot of [his] money” by “entering into cash funding agreements with CRB” and that this was the reason Mr Schaeffer had the “confidence to back CRB and hold [his] position as honorary chairman”. The full nature of Mr Schaeffer’s involvement in CRB is not revealed on the evidence although, as I have set out above, the records produced by the liquidator of CRB show that Mr Schaeffer was a creditor in the sum of $676,446.89.

29. [65]

    At the 3 July 2018 meeting, Mr Blinkworth said:

30. [66]

    During the meeting Mr James said:

31. [67]

    Later, Mr Blinkworth said:

32. [68]

    Mr Blinkworth offered comments on the proposed Private Placement Agreement to which Mr Naegeli was introduced when he was overseas a short time earlier.

33. [69]

    Mr Blinkworth said to Mr Naegeli, about that proposed Private Placement Agreement:

34. [70]

    It appears Mr Naegeli felt out of his depth at this meeting. Thus he said:

The First Proposal – US$20 million

1. [71]

   During the 3 July 2018 meeting, Mr Blinkworth or Mr James then put a proposal to Mr Naegeli. The parties referred to this as the “First Proposal”.

2. [72]

   Either Mr Blinkworth or Mr James said:

3. [73]

   Mr Naegeli responded by saying that he personally did not have access to $20 million.

4. [74]

   Mr Blinkworth or Mr James replied:

5. [75]

   Immediately after the meeting, Mr Blinkworth sent Mr Naegeli an email with an attachment on CRB letterhead, which stated:

6. [76]

   Despite the reference in this document to CRB operating “inside Westpac Bank”, there is no evidence that CRB in fact had any relationship with Westpac.

7. [77]

   The essential features of the First Proposal as described in the attachment to the email were that for a US$20 million cash injection, investors would receive, beginning on the last Friday of the second month, a payment equal to 20% of the total amount of the transfer for a total of 12 payments over a term of 13 months. That is, for a total investment of US$20 million, investors would receive $48 million in payments plus the return of their $20 million investment: a 340% return. Money was to be transferred into an “institutional treasury services management account” in the name of Bravura Private Wealth Pty Ltd which was described as “the institutional private banking financial firm operating inside Westpac Bank”.

8. [78]

   Although Mr Naegeli said that Mr Schaeffer had been in attendance at this meeting by telephone “for periods during the meeting”, he did not attribute any words to Mr Schaeffer nor suggest that Mr Schaeffer had participated in the explanations given by Mr Blinkworth and Mr James.

9. [79]

   Mr Naegeli said that, after this meeting, he was reluctant to proceed with the Private Placement Agreement to which he had been introduced when overseas and, following a further meeting with Messrs Blinkworth, Aloisi and James on 19 July 2018, decided not to pursue that Private Placement Agreement “but to look further into the investment offered by CRB”.

10. [80]

    A short time later, someone [4] provided Mr Naegeli with a copy of CRB’s “Corporate Profile”.

11. [81]

    The document stated:

12. [82]

    The document then listed the persons involved with CRB, including, in first place, Mr Schaeffer, of whom it stated:

13. [83]

    There is no evidence that Mr Schaeffer had any involvement in the creation of this Corporate Profile.

14. [84]

    Ms Dalton gave evidence that following Mr Blinkworth’s funeral in February 2020, Mr Schaeffer showed her the Corporate Profile and said:

15. [85]

    Despite these expressions of concern, Mr Naegeli’s evidence as to what Mr Schaeffer said at the meeting on 3 July 2018, and on the later occasions to which Mr Naegeli referred, suggest that in fact Mr Schaeffer had been happy to assist in the establishment of CRB’s “credibility”.

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

1. [86]

   Having decided in July 2018 “to look further into the investment offered by CRB”, Mr Naegeli travelled to Hong Kong and Macau in September 2018 to explore the possibility of arranging for investors to participate in the First Proposal.

2. [87]

   Mr Naegeli said:

3. [88]

   Mr Naegeli continued:

4. [89]

   In the meantime, in around October 2018, Mr Naegeli engaged a solicitor, Mr John Gdanski of SLF Lawyers in Melbourne. Mr Naegeli said he retained Mr Gdanski at the “suggestion of the investors”. Those investors asked Mr Naegeli to explain “the opportunity” to an accountant, Mr George Sim.

5. [90]

   On 19 November 2018, Mr Sim wrote to Mr Naegeli:

6. [91]

   Mr Sim’s note appeared to corroborate, in part, the proposal in the First Proposal.

7. [92]

   By 3 December 2018, CRB had prepared a draft “Cash Funding Agreement”, the structure of which was similar to the Cash Funding Agreement ultimately executed on 30 December 2018.

8. [93]

   Mr Naegeli and Mr Gdanski attended a meeting at CRB’s offices on 6 December 2018 where Mr Blinkworth, Mr Aloisi and Mr James were present for CRB.

9. [94]

   Mr Naegeli said “we discussed our concerns with the First Proposal”.

10. [95]

    Early on 8 December 2018, Mr Naegeli wrote to Mr Gdanski. At this point, the proposal still was for an investment into CRB of US$20 million. Mr Naegeli wrote:

11. [96]

    Mr Condon placed some weight on the passage I have emphasised, suggesting that it bespoke Mr Naegeli’s opinion that a guarantee from Mr Blinkworth would be of little value.

12. [97]

    However, when asked about this in cross-examination, Mr Naegeli said he had made the statement “because it’s an agreement between me personally and him, not the group investing. So it’s not valuable to the group investing, it’s only valuable to me”.

13. [98]

    That answer appears to be consistent with the language Mr Naegeli used in his email to Mr Gdanski. I accept it is what Mr Naegeli meant.

14. [99]

    Later on 8 December 2018, Mr Blinkworth wrote to Mr Naegeli:

15. [100]

    Negotiations continued and on 13 December 2018, Mr Aloisi sent Mr Naegeli a further draft of the US$20 million “Cash Funding Agreement”, the parties to which were proposed to be a company called “Pinocchio’s Restaurant Number One Pty Ltd” [5] as “lender” and Bravura Private Wealth Pty Ltd as “borrower”.

16. [101]

    Mr Blinkworth and Mr Aloisi were seeking to place pressure on Mr Naegeli to enter into an agreement along the lines of the draft proposal.

17. [102]

    Thus, either Mr Blinkworth or Mr Aloisi said to Mr Naegeli:

18. [103]

    On 13 December 2018, Mr Naegeli sent the draft US$20 million Cash Funding Agreement to Mr Gdanski and sought his advice. He said:

19. [104]

    Mr Gdanski then retained Mr Donald Farrands [6] of the Victorian Bar to advise in relation to the proposed agreement.

20. [105]

    Mr Farrands advised that the proposed “agreement contains significant risks and heavily favours the Borrower and puts the Lender at potential risk”. He said:

21. [106]

    Mr Farrands’ advice was wisely given.

22. [107]

    A short time later, Mr Naegeli said to Mr Gdanski:

23. [108]

    Thus, nothing came of the First Proposal.

24. [109]

    There were two later proposals, including that which led to the 30 December 2018 Cash Funding Agreement.

25. [110]

    As Mr O’Neill pointed out, the essential features of these later proposals were the same as that in the First Proposal, namely an initial upfront cash injection into Bravura Private Wealth’s account, followed by a significant payment monthly for 12 months, with a return of capital at the conclusion of the term. What was different in relation to the later proposals was the amount of initial injection of the repayments and the time when repayments would commence.

The Second Proposal – US$10 million

1. [111]

   Mr Naegeli said that, following his conversation with Mr Gdanski, “I began exploring the possibility of replacing the investors as lender with another entity”.

2. [112]

   That other “entity” was ultimately the Human Enhancement Project: Mr Naegeli and his mother.

3. [113]

   Later on 15 December 2018, Mr Naegeli had this conversation with Mr Blinkworth and Mr Schaeffer:

4. [114]

   On 17 December 2018 Mr Naegeli wrote to Mr Blinkworth:

5. [115]

   Mr Naegeli was “embarrassed” by the advice received from Mr Farrands, which Mr Naegeli seems to have seen as preventing the First Proposal from proceeding.

6. [116]

   Mr Blinkworth replied:

7. [117]

   Mr Blinkworth kept the pressure up. Thus, a short time later he wrote to Mr Naegeli:

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

1. [118]

   On 22 December 2018, Mr Blinkworth wrote to Mr Naegeli:

2. [119]

   Later on 22 December 2018, Mr Naegeli and Mr Blinkworth had this conversation:

3. [120]

   The words I have first emphasised in this conversation suggest a continuing involvement of Mr Schaeffer in the transaction, albeit at some remove, and of a role that he played in encouraging Mr Blinkworth to encourage Mr Naegeli to commit to a transaction with CRB.

4. [121]

   In cross-examination, Mr Naegeli gave this evidence about the second passage I have emphasised in that conversation:

5. [122]

   This evidence is relevant to a submission made by Mr Condon that Mr Naegeli’s principal motivation at this time was to “curry favour” with Mr Blinkworth. It does appear to bespeak Mr Naegeli’s anxiety to do business with Mr Blinkworth and an apprehension that if he did not do so he might miss a valuable opportunity. It is also relevant to Mr Condon’s submission that Mr Schaeffer was in Mr Blinkworth’s “thrall”. I will return to that submission later in the reasons. For present purposes, it is sufficient to note that if anyone was in Mr Blinkworth’s thrall, it was Mr Naegeli.

6. [123]

   On 28 December 2018 Mr Naegeli met Mr Blinkworth and Mr Aloisi at CRB’s offices. Mr James attended the meeting “at times” by telephone.

7. [124]

   Mr Naegeli said that he was “still in shock that I was being given this opportunity” and said that he asked several times:

8. [125]

   I see this evidence from Mr Naegeli as having importance. In opening and closing submissions, much was said on behalf of the Defendants of the “improvident” nature of the transaction represented by the Cash Funding Agreement from the point of view of the Borrower, CRB, and of the extremely high “effective interest rate” represented by the “payment structure” in the agreement. But what must be borne steadily in mind in this case is that these terms were proposed by CRB, the prospective borrower, and not by Mr Naegeli as the prospective lender. In retrospect, it can be seen that a reason why Mr Blinkworth might have proposed such extravagantly generous terms to a lender like Mr Naegeli is an apprehension on his part that the borrowed funds could be put to spectacularly good use or, as is perhaps more likely, that the occasion for honouring the promises implicit in the Cash Funding Agreement “payment structure” would never arise. The true position is unknown. What is important is that the extraordinarily generous “payment structure” was not Mr Naegeli’s idea.

9. [126]

   Mr Blinkworth replied:

10. [127]

    Mr Blinkworth’s reference to what Mr Schaeffer “got me thinking” was evidently a reference to Mr Schaeffer having said to Mr Blinkworth that Mr Blinkworth should give Mr Naegeli “a chance like I did for you back in the Tempo days”. [8]

11. [128]

    Mr Blinkworth then said:

12. [129]

    In his affidavit, Mr Naegeli had not referred to any earlier suggestion that the Human Enhancement Project should be involved in the Cash Funding Agreement, although, as I have said, he did refer to the possibility of using “another entity”. [10] However, in cross-examination he said that “the funds that I had were in Human Enhancements” and that in “the days before we entered the agreement Charles Blinkworth … said to meet the KYC requirements it needs to come from an account that has got the money”.

13. [130]

    The possible involvement of the Human Enhancement Project must have been discussed earlier, as on 26 December 2018 Mr Naegeli and his mother held a meeting of the Human Enhancement Project. The minutes of that meeting record that the objective of the meeting was:

14. [131]

    The minutes record that the “result” of the meeting was:

15. [132]

    The minutes were signed by Mr Naegeli and Mrs Naegeli.

16. [133]

    The matter recorded in the last bullet point is relevant to the question of whether Mr Naegeli had authority from the members of the Human Enhancement Project, that is in effect the authority of his mother, to execute the Guarantee. I return to this below.

17. [134]

    On 29 December 2018, Mr Blinkworth sent Mr Naegeli a draft of what became the Cash Funding Agreement.

18. [135]

    Mr Naegeli executed the Cash Funding Agreement on 30 December 2018.

19. [136]

    He did not seek legal advice prior to signing the document.

The Cash Funding Agreement

1. [137]

   The Cash Funding Agreement was expressed to be between CRB as “Borrower” and the Human Enhancement Project “represented by Mr Patrick Naegeli, Primary Officer” as “Lender”.

2. [138]

   The Cash Funding Agreement recited:

3. [139]

   Subclauses 2(a) and (b) of the Cash Funding Agreement provided:

4. [140]

   The bank account listed in “Annex A” of the Cash Funding Agreement was the account of Bravura Private Wealth Pty Ltd at Westpac Banking Corporation at Parramatta.

5. [141]

   “Annex B” referred to in subcl 2(b) provided:

6. [142]

   The document thus provided for 12 “revenue payments”, each of $500,000, to be paid monthly commencing on Friday 26 April 2019, and thereafter a final payment of “the original amount of the cash transfer” (in effect a return of capital) “at the end of the month after the 12th payment”.

7. [143]

   The terms of the Cash Funding Agreement were, as Mr O’Neill accepted, “generous” to the Lender. Mr Condon submitted that the terms were extremely improvident from the point of view of the Borrower. However, as I have said, these “generous” or “improvident” terms were those proposed by the Borrower and were similar to those which had earlier been proposed in the context of the First Proposal (involving US$20 million) and the Second Proposal (involving US$10 million). I return to this below.

Default

1. [144]

   The first payment of $500,000 under the Cash Funding Agreement was due on 26 April 2019.

2. [145]

   On 28 April 2019 Mr Naegeli wrote to Mr Blinkworth:

3. [146]

   A short time later, Mr Blinkworth asked Mr Naegeli to travel to Sydney. Mr Naegeli met Mr Blinkworth and Mr Aloisi at the CRB offices on 15 May 2019.

4. [147]

   Mr Blinkworth said to Mr Naegeli:

5. [148]

   Mr Naegeli deposed:

6. [149]

   On 24 May 2019, Mr Blinkworth telephoned Mr Naegeli and said:

7. [150]

   Mr Blinkworth then sent Mr Naegeli a number of documents. The first appeared to be a standby letter of credit issued by HSBC Bank PLC at the request of its “client”, Great Joint International Enterprises Limited UK, “for the exclusive benefit of” CRB. The second was a receipt and trace document bearing the same transaction reference number. The third was a SWIFT [11] transaction report bearing the same reference number and naming as “Receiver Institutions” HSBC Bank PLC at Canary Wharf in London and Barclays Bank UK PLC at Notting Hill Gate London. Mr Naegeli was asked no questions about these documents in cross-examination. On their face, they appear to show that CRB had a standing line of credit for US$60 million from an account at HSBC Bank PLC in the United Kingdom for the use of CRB via an account at Barclays Bank UK.

8. [151]

   Mr Naegeli deposed:

9. [152]

   Mr Naegeli was not challenged about this evidence. I accept it.

10. [153]

    Mr Naegeli said that throughout May and June 2019 he continued to have regular telephone calls with Mr Blinkworth and with Mr Schaeffer, “where I would raise my concerns about the lack of security in the [Cash Funding Agreement] and the lack of receipt of payments under it”. Mr Naegeli said he had about six such calls. He was not challenged about this evidence.

11. [154]

    Mr Naegeli said that during each of these calls, either Mr Blinkworth or Mr Schaeffer “or sometimes both of them” said words to the effect:

12. [155]

    The “recent article” was published on the Domain website on 17 May 2019 and was a lengthy profile concerning Mr Schaeffer, headed “How art and trophy home collector John Schaeffer made his mark on Sydney’s prestige property scene”.

13. [156]

    Mr Naegeli gave evidence that during May and June 2019 he had conversations with Mr Schaeffer in which Mr Schaeffer said “I entered these and it’s not public knowledge so you have to remain the same if you want to continue being in this with us”. Mr Naegeli said:

14. [157]

    The passages I have emphasised above show how closely Mr Schaeffer saw himself as being aligned with the interests of CRB.

15. [158]

    On 1 June 2019, Mr Blinkworth sent Mr Naegeli a picture of what Mr Naegeli described as a “basket of gold bars”.

16. [159]

    This followed a call from Mr Blinkworth in which he said to Mr Naegeli:

17. [160]

    In cross-examination, Mr Naegeli gave this evidence:

18. [161]

    Although Mr Condon submitted that, in effect, Mr Naegeli had been somewhat credulous in relation to what he was told about CRB being involved in gold trading, he did not suggest to Mr Naegeli that his evidence that each of Mr Schaeffer, Mr Blinkworth and Mr Aloisi had spoken of gold trading as being a potential source of funds for CRB was untrue.

19. [162]

    Mr Naegeli said that on many occasions during May and June 2019, Mr Blinkworth said to him words to the effect:

20. [163]

    Mr Naegeli deposed:

21. [164]

    Mr Naegeli said that he then had a number of conversations with both Mr Blinkworth and Mr Schaeffer in which he said:

22. [165]

    Mr Naegeli said that in these conversations Mr Blinkworth said words to the effect:

23. [166]

    Mr Naegeli deposed that Mr Schaeffer said, on these occasions, words to the effect:

24. [167]

    Mr Naegeli was not challenged about these conversations. Indeed, Mr Condon submitted that the words attributed to Mr Schaeffer show that he was somehow under Mr Blinkworth’s influence; thus in effect accepting that the conversation did take place.

25. [168]

    I am not able to draw an inference from this conversation that Mr Schaeffer was under Mr Blinkworth’s influence. It shows that Mr Schaeffer expressed confidence about Mr Blinkworth, which confidence evidently arose from their business relationship to which I have referred. The companies to which Mr Schaeffer referred were those that, ultimately, executed the Guarantee on 29 October 2019, Rasay Pty Ltd (the owner of the apartment to which Mr Schaeffer referred) and The Footage Company Pty Ltd.

26. [169]

    Mr Naegeli said that either Mr Blinkworth or Mr Schaeffer said “you should prepare the deed and then travel to Sydney for us to execute it” and that each of Mr Blinkworth and Mr Schaeffer gave “their personal details for inclusion in the deed, including the various companies referred to by Mr Schaeffer”.

27. [170]

    Mr Naegeli, who is not a lawyer, then prepared the form of the Guarantee. He deposed:

28. [171]

    Mr Naegeli used a number of other forms of guarantee as a template or precedent. Nonetheless, the form of guarantee that Mr Naegeli created was bespoke in nature. I return to this when considering, below, whether the Guarantee was a “standard form contract” for the purposes of s 12BF of the ASIC Act.

29. [172]

    As requested by Mr Blinkworth or Mr Schaeffer, Mr Naegeli then made arrangements to travel from Melbourne (where he lives) to Sydney.

30. [173]

    Mr Naegeli deposed:

31. [174]

    Mr Naegeli gave this evidence:

32. [175]

    Mr Naegeli said that Mr Blinkworth again assured him that CRB was expecting some funds to be deposited into its account “before I left Sydney so that payment could be made to me, and we could avoid the need for the [Guarantee] entirely”.

33. [176]

    Mr Naegeli executed the Guarantee on or about 18 July 2019.

34. [177]

    Although there is no direct evidence about this, it seems that Mr Naegeli left the form of Guarantee with Mr Blinkworth on the basis that, or on the assumption that Mr Blinkworth would, in due course, execute the Guarantee and arrange for Mr Schaeffer to execute the Guarantee.

35. [178]

    Mr Naegeli deposed:

36. [179]

    Mr Naegeli described the following events thus:

37. [180]

    In relation to the statement that he told Mr Blinkworth he was beginning to doubt “[his] credibility”, Mr Naegeli gave this evidence:

38. [181]

    I was initially troubled by this evidence but, on reflection, have come to the conclusion that I should accept that what Mr Naegeli meant in his affidavit when he said he was beginning to doubt Mr Blinkworth’s “credibility” was that he was beginning to doubt Mr Blinkworth’s creditworthiness. As Mr O’Neill submitted, there was nothing in the manner in which Mr Naegeli gave his evidence to suggest that he was doing otherwise than his best to tell me the truth about what happened. He did not appear to me to be trying to obscure anything. Mr Naegeli was expressing his increased frustration that Mr Blinkworth was not procuring that CRB timeously make the payments called for by the Cash Funding Agreement.

39. [182]

    In relation to his stated requirement to have a lawyer or Justice of the Peace witness the execution by Mr Blinkworth and Mr Schaeffer of the Guarantee, Mr Naegeli gave this evidence:

40. [183]

    Although Mr Naegeli would not accept that he no longer trusted Mr Blinkworth, his insistence that a lawyer or Justice of the Peace witness Mr Blinkworth’s and Mr Schaeffer’s signatures does suggest that, unsurprisingly, he was concerned to ensure there was no argument about their signing and valid execution of the document.

41. [184]

    Mr Schaeffer and Mr Blinkworth executed the Guarantee in the presence of a Justice of the Peace, Dr Danny-Glen Raiz.

42. [185]

    Dr Raiz deposed:

43. [186]

    Dr Raiz provided a little more detail in a statutory declaration that he made on 2 September 2022:

44. [187]

    Dr Raiz made no mention of any hesitation or reluctance on Mr Schaeffer’s part. Mr Schaeffer’s signature appears on the signature page and his initials appear at the foot of the page on which the names of the guarantors are listed.

45. [188]

    There is, however, no evidence of what transpired between Mr Blinkworth and Mr Schaeffer leading up to the execution of the Guarantee. In particular, there is no evidence of when and in what circumstances Mr Schaeffer first saw the form of Guarantee. Assuming that Mr Blinkworth provided Mr Schaeffer with a copy of the Guarantee at some time before Mr Schaeffer executed the document, there is no evidence as to when that occurred or what opportunity Mr Schaeffer had to consider the terms of the Guarantee.

46. [189]

    As I have said, Mr Naegeli had executed the Guarantee several months earlier, on 18 July 2019.

The terms of the Guarantee

1. [190]

   Mr Schaeffer executed the Guarantee on his own behalf and on behalf of Rasay Pty Ltd and The Footage Company Pty Ltd.

2. [191]

   Mr Blinkworth also executed the Guarantee.

3. [192]

   Dr Raiz witnessed each of these signatures.

4. [193]

   Each of Mr Schaeffer, Mr Blinkworth and Dr Raiz initialled the page of the Guarantee in which the four guarantors were listed.

5. [194]

   On the cover of the Guarantee, Mr Naegeli was described as:

6. [195]

   Each of Mr Naegeli, Mr Schaeffer and Mr Blinkworth signed the document as a deed.

7. [196]

   The operative term of the Guarantee was cl 2.1 which provided:

8. [197]

   “Obligations” was defined to mean “all the liabilities and obligations of the Borrower to the Beneficiary under or by reason of any Finance Document”, [12] and the “Finance Document” was defined to mean the Cash Funding Agreement.

9. [198]

   Clause 2.2 of the Guarantee provided:

10. [199]

    Clause 7.3 of the Guarantee provided that each Guarantor would pay “default interest” of 10% per annum on all “Unpaid Sums” and that:

11. [200]

    The Guarantee provided, under the heading “Security”:

12. [201]

    The expression “Guaranteed Money” referred to in subcll 6.1(a) and 6.2(a) was defined as follows:

13. [202]

    On the date that Mr Schaeffer executed the Guarantee, 29 October 2019, CRB had failed to pay seven payments of $500,000 each that were due under the Cash Funding Agreement; those due on the last Friday of each of April, May, June, July, August, September and October 2019: a total of $3.5 million.

14. [203]

    The effect of the provisions in the Guarantee, and in particular of cl 2.2, was that, by executing the Guarantee Mr Schaeffer assumed an obligation to pay that amount “immediately” and “without demand”.

15. [204]

    There is no evidence before me as to whether Mr Schaeffer had any appreciation that this was the effect of his execution of the Guarantee. As I discuss below, it seems unlikely that he did.

Events thereafter

1. [205]

   After Mr Blinkworth and Mr Schaeffer executed the Guarantee, Mr Blinkworth telephoned Mr Naegeli. Mr Schaeffer was present.

2. [206]

   Mr Schaeffer said:

3. [207]

   Mr Schaeffer’s reference to “the Deed” was obviously a reference to the Guarantee that Mr Schaeffer had just executed. His statement that he trusted that Mr Naegeli would not, now that the Guarantee had been executed, commence proceedings against CRB and his statement that “we” have to “remain patient” shows, once again, how closely aligned to CRB and Mr Blinkworth Mr Schaeffer saw himself as being and how far he was prepared to go in promoting CRB’s and Mr Blinkworth’s interests vis-a-vis Mr Naegeli. It shows that Mr Schaeffer saw his execution of the Guarantee as an important step that CRB needed to take to dissuade Mr Naegeli from seeking to enforce his rights, as representative of the Human Enhancement Project, under the Cash Funding Agreement.

4. [208]

   Mr Naegeli deposed:

5. [209]

   Mr Blinkworth finally provided Mr Naegeli with a copy of the Guarantee. Mr Naegeli arranged for a solicitor, Mr Lukasz Wyszynski, to create a “certified copy” of the Guarantee. Mr Wyszynski did this on 25 January 2020.

6. [210]

   As I have said, Mr Blinkworth died on 28 January 2020.

7. [211]

   Mr Naegeli attended Mr Blinkworth’s funeral on 14 February 2020. At the funeral, he met Mr Schaeffer in person for the first time.

8. [212]

   Mr Naegeli said that “the first time I had concerns” about the nature of the Cash Funding Agreement was at Mr Blinkworth’s funeral. Mr Naegeli said that “the photos that were shown at the funeral was nothing like the lifestyle he told me about, and I witnessed”.

9. [213]

   Mr Naegeli gave this evidence:

10. [214]

    A week later, on 20 February 2020, Mr Naegeli met Mr Schaeffer and Mr Aloisi at CRB’s offices in Sydney. Mr Naegeli agreed to send Mr Schaeffer a certified copy of the Guarantee.

11. [215]

    On his return to Melbourne, Mr Naegeli had a serious accident involving falling down a flight of stairs and did not send Mr Schaeffer the certified copy of the Guarantee immediately.

12. [216]

    Mr Naegeli said that after meeting Mr Schaeffer on 20 February 2020 he had “numerous telephone calls with him”.

13. [217]

    Ultimately, Mr Naegeli travelled to Sydney to meet Mr Schaeffer on 22 June 2020.

14. [218]

    During that meeting, Mr Schaeffer said:

15. [219]

    The “two people” to whom Mr Schaeffer referred were, evidently, himself and Mr Aloisi.

16. [220]

    Mr Schaeffer also said:

17. [221]

    Mr Schaeffer’s “attorney” was Mr Neil Matthews. The Defendants called Mr Matthews as a witness.

18. [222]

    Mr Matthews deposed:

19. [223]

    There is no challenge before me that Mr Schaeffer’s genuine signature appears on the Guarantee. That conclusion in any event must follow from the unchallenged evidence of Dr Raiz. Nor was there any challenge to Mr Naegeli’s evidence that, the day before Mr Schaeffer’s visit to Mr Matthews, he had acknowledged that his signature appeared on the Guarantee. Nonetheless, Mr Schaeffer told Mr Matthews that the signature on the Guarantee was not his. As Mr O’Neill submitted, it appears to bespeak an inclination on Mr Schaeffer’s part to give different accounts of the same events to different people. [13]

20. [224]

    On 24 June 2020, the day after Mr Schaeffer saw Mr Matthews, Mr Schaeffer had three telephone conversations with Mr Naegeli.

21. [225]

    The first conversation lasted over half an hour. During that conversation, this exchange took place:

22. [226]

    The second conversation also took over half an hour and included the following:

23. [227]

    In the passage that I have emphasised in this conversation, Mr Schaeffer referred to “one matter within CRB that is not dead” and said that “there may be some funds left”. I return to this below when discussing CRB’s financial position, and Mr Schaeffer’s knowledge of that financial position.

24. [228]

    The final conversation took between 5 to 10 minutes and included:

25. [229]

    The reference in the passage I have emphasised to there being “some money in the Middle East” and “turning €630,000 into €150 million” are matters I will return to when considering CRB’s financial position, and Mr Schaeffer’s knowledge of it.

26. [230]

    Mr Naegeli’s reference to “Bloomingville” was a reference to the guarantee executed by Mr Schaeffer in April 2018 of CRB’s obligations to that company to which I have referred at [35] above. The evidence does not reveal how Mr Naegeli became aware of this guarantee. I return to the Bloomingville guarantee below.

27. [231]

    Mr Naegeli had two further conversations with Mr Schaeffer, one on 27 June 2020 and one a short time later. I excluded those conversations from evidence on the basis that they were the subject of without prejudice privilege.

28. [232]

    Mr Schaeffer died as a result of a traffic accident on 14 July 2020.

Authority

1. [233]

   The Cash Funding Agreement described the “Lender” as being the Human Enhancement Project. Mr Naegeli executed the Cash Funding Agreement “for and on behalf of the Lender” and as the “Primary Officer” of the Human Enhancement Project.

2. [234]

   The “Beneficiary” of the Guarantee was described as being “Patrick Naegeli (Human Enhancement Project)”. Mr Naegeli alone executed the Guarantee.

3. [235]

   The Human Enhancement Project is an unincorporated association and is not itself a legal entity separately from its members, Mr Naegeli and his mother, Mrs Naegeli.

4. [236]

   The Defendants no longer dispute that, by reason of the meeting between Mr Naegeli and his mother evidenced by the 26 December 2018 minutes to which I have referred, [17] Mr Naegeli had authority from his mother to execute the Cash Funding Agreement on their joint behalf.

5. [237]

   In closing submissions, Mr Condon submitted that the question of whether Mr Naegeli had authority to also execute the Guarantee depended upon the proper construction of the last entry in the minutes on 26 December 2018 which, as I have set out above, provided:

6. [238]

   Having made that submission, Mr Condon did not seek to develop a submission as to why those words were not adequate to confer the requisite authority on Mr Naegeli.

7. [239]

   In my opinion, they were.

8. [240]

   The words used in the minutes bespoke the intention of Mr Naegeli and Mrs Naegeli that Mr Naegeli had the “responsibility”, and thus the authority, to do “anything else required” in relation to the Cash Funding Agreement until it had been “fulfilled”. In my opinion, those words were ample to confer authority on Mr Naegeli to execute the Guarantee on behalf of the members of the Human Enhancement Project.

9. [241]

   The Defendants’ contention that the Guarantee did not have “contractual effect” fails.

Unconscionability

1. [242]

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

2. [243]

   Section 12CB(4) provides:

3. [244]

   Section 12CC sets out a non-exhaustive list of matters that the Court may take into account in considering whether s 12CB has been contravened.

Is section 12CB of the ASIC Act engaged?

1. [245]

   The question is whether Mr Naegeli engaged in unconscionable conduct for the purposes of s 12CB of the ASIC Act.

2. [246]

   The conduct proscribed in s 12CB of the ASIC Act must be in connection with “the supply or possible supply of financial services to a person”.

3. [247]

   What must be shown here is that Mr Naegeli supplied financial services to a person and that his allegedly unconscionable conduct was in trade or commerce and in connection with that supply.

4. [248]

   A suggestion was advanced at one stage on behalf of the Defendants that CRB, as the Borrower, somehow supplied a financial product and thus financial services. That submission was withdrawn by Mr Condon in closing submissions.

5. [249]

   Subsection 12BAB(1) sets out the circumstances whereby a “person provides a financial service”.

6. [250]

   It is common ground that only subs 12BAB(1)(b) is relevant. That subsection provides:

7. [251]

   Subsection 12CB(1)(a) speaks of the “supply” or “possible supply” of financial services, whereas subs 12BAB(1) speaks of the provision (“provides”) of financial services. However, “supply” is defined in s 12BA to include, when used as a verb, “provide”, and to have a corresponding meaning when used as a noun. Parliament thus intended the words to have the same effect.

8. [252]

   The word “deal” in subs 12BAB(1)(b) is used in the sense of engaging in the activity of “dealing”.

9. [253]

   That is made clear by subs 12BAB(7), to which attention is directed in subs 12BAB(1)(b) itself.

10. [254]

    Subsection 12BAB(7) provides, relevantly:

11. [255]

    Subsection 12BAA(7) provides that “the following are financial products for the purposes of this Division”, including:

12. [256]

    The Australian Securities and Investments Commission Regulations 2001 (Cth) (“the ASIC Regulations”), reg 2B(1), provide that the following are a “credit facility”:

13. [257]

    As I have set out above, by cl 6 of the Guarantee, the Defendants charged any land as they had or might have in the future in favour of the Beneficiary and granted the Beneficiary a PPSA Security Interest over all PPSA Personal Property.

14. [258]

    It follows from these matters that both the Cash Funding Agreement and the Guarantee were “financial products” for the purposes of subs 12BAA(7) of the ASIC Act.

15. [259]

    To return to s 12BAB, subs 12BAB(9) then provides:

16. [260]

    Subsection 12BAB(9) is engaged when a person deals with a financial product “on their own behalf”; that is not on behalf of another. In that circumstance, that person is taken not to deal in the financial product unless the person is an issuer of financial “products” (plural) and the dealing relates to one of those “products”.

17. [261]

    Mr O’Neill submitted that because Mr Naegeli was acting as the representative of the Human Enhancement Project he was, in effect, acting for himself and was thus acting “on [his] own behalf” for the purposes of subs 12BAB(9).

18. [262]

    I was initially attracted to this submission but, on reflection, I do not think that it is correct.

19. [263]

    The natural reading of the expression “if the person deals in the product on their own behalf” directs attention to a person who is acting on their own account, rather than in a context that involves a third person. It would include, for example, a person who does no more than apply for a financial product such as a security, [20] or an insurance policy, [21] or a credit facility on their own account. [22] Such a person would, understandably, not be taken as “dealing in” such financial products unless the person was also an “issuer” of such financial products.

20. [264]

    I was not directed to any authority dealing with the proper construction of subs 12BAB(9). The only authority I have been able to locate in which the subsection has been referred to otherwise than in passing is Postorino v Encryption Technologies Corporation Pty Ltd & Ors. [23] In that case the plaintiff, Ms Postorino, alleged she had been induced by the misleading or deceptive conduct of the second defendant, Mr Pritchard, to purchase from Mr Pritchard shares he owned in the first defendant, ETC. [24] In that context, Lloyd-Jones J held that subs 12BAB(9) was not engaged because “Pritchard sold the shares in ETC to Postorino on his own behalf”. [25] His Honour’s conclusion is consistent with the construction of s 12BAB(9) that I favour.

21. [265]

    Mr Naegeli “issued” a financial product constituted by the Guarantee. He composed it and then provided it to Mr Blinkworth for execution by both Mr Blinkworth and Mr Schaeffer. [26]

22. [266]

    In those circumstances, Mr Naegeli was not dealing with the Guarantee on his own account. [27] He was issuing the Guarantee for the purpose of having Mr Schaeffer execute it. I do not think that in those circumstances it can be said he was dealing with the Guarantee “on [his] own behalf” as there was a dealing with a third party.

23. [267]

    Accordingly, subs 12BAB(9) is not engaged.

24. [268]

    It follows that Mr Naegeli:

25. [269]

    Thus, subject to the question of whether Mr Naegeli provided that financial service “in trade or commerce”, s 12CB of the ASIC Act is engaged.

Conduct in trade or commerce

1. [270]

   Mr O’Neill submitted that, in procuring the Guarantee, Mr Naegeli was not acting “in trade or commerce” because:

2. [271]

   One difficulty with that submission was that in his List Statement, Mr Naegeli alleged that “at all material times [he] relevantly conducted his business affairs in the name and style of Human Enhancement Project”.

3. [272]

   Further, in his Reply, Mr Naegeli alleged that Mr Schaeffer entered into the Guarantee “for the purpose of a trade, business or profession carried on by him, namely in the course of his role with CRB”. [28]

4. [273]

   Thus, on Mr Naegeli’s own case, his dealings with Mr Schaeffer took place in that commercial context.

5. [274]

   In any event, the question is not whether Mr Naegeli was himself engaged in trade or commerce at the time of his allegedly unconscionable conduct, but whether the impugned conduct in which he engaged was in trade or commerce. It obviously was. All his dealings with Mr Schaeffer were in a commercial and business context.

6. [275]

   By seeking to have Mr Schaeffer execute the Guarantee, Mr Naegeli was seeking to protect the value of the investment that he, on behalf of the Human Enhancement Project, had made in the Cash Funding Agreement. That investment was motivated by Mr Naegeli’s desire to achieve a commercial return even if, ultimately, he planned to use the fruits of that return for philanthropic purposes.

7. [276]

   That leaves for consideration the vital question: did Mr Naegeli engage in conduct that was, in all the circumstances, unconscionable? I turn now to that question.

Test for unconscionability

1. [277]

   Under subs 12CB(4)(a) of the ASIC Act, the question of what conduct is unconscionable is not limited by the unwritten law relating to unconscionable conduct.

2. [278]

   What must be shown is conduct that:

3. [279]

   Factors relevant to whether conduct is unconscionable in this sense include asymmetry of power or information, and the risk and worth of the bargain. [34]

4. [280]

   It has also been held that:

5. [281]

   In every case, it is necessary to engage in a careful examination of the facts. [37]

6. [282]

   Ultimately, the question in this case is whether Mr Naegeli engaged in unconscionable conduct in connection with the execution by Mr Schaeffer of the Guarantee.

7. [283]

   I have held that Mr Naegeli “issued” the Guarantee. [38] He was dealing in a financial product for the purposes of subs 12BAB(7), provided a financial product for the purposes of subs 12BAB(1) and thus supplied a financial service for the purposes of s 12CB of the ASIC Act.

8. [284]

   The question thus is whether, for the purposes of s 12CB, Mr Naegeli engaged in unconscionable conduct “in connection with” the supply of a financial service constituted by the Guarantee.

9. [285]

   In closing submissions, Mr Condon and Mr Price referred to a number of circumstances said to show that Mr Schaeffer executed the Guarantee in circumstances that were unconscionable. However, those submissions paid little attention to the actual conduct of Mr Naegeli himself that was said to be unconscionable.

10. [286]

    Ultimately, Mr Condon’s and Mr Price’s submission came down to the proposition that Mr Naegeli’s unconscionable conduct was requesting that Mr Schaeffer execute the Guarantee, and leaving it to Mr Blinkworth to procure Mr Schaeffer’s execution of the Guarantee in circumstances where, it was submitted:

11. [287]

    But this submission assumes that when Mr Schaeffer executed the Guarantee, he believed that CRB was capable of meeting its obligations under the Cash Funding Agreement and that, more generally, Mr Schaeffer was less well-informed than was Mr Naegeli as to CRB’s financial position and its capacity to meet its obligations under the Cash Funding Agreement.

12. [288]

    Mr Schaeffer executed the Guarantee on 29 October 2019, three months after agreeing to do so, without any further direct communication from Mr Naegeli who, ultimately, asked Mr Blinkworth to arrange for Mr Schaeffer to execute the Guarantee. There is no evidence as to what communications took place between Mr Schaeffer and Mr Blinkworth at that time, or as to what Mr Schaeffer then knew. But if, as Mr Schaeffer said to Mr Naegeli in May or June 2019 when Mr Naegeli proposed a guarantee, he believed that “by the time you have it prepared, the payments will be made; and it will not be necessary to proceed with” the Guarantee, [39] it seems likely that Mr Schaeffer understood, when ultimately asked to execute the Guarantee in October 2019, that the payments had not been made. It also seems likely that Mr Schaeffer then understood that Mr Naegeli continued to be concerned about the prospects of CRB honouring its obligations under the Cash Funding Agreement.

13. [289]

    This submission also ignores the wider context in which Mr Schaeffer ultimately executed the Guarantee.

14. [290]

    The liquidator of CRB, Mr Ian Niccol, prepared profit and loss accounts and balance sheets based on information provided to him by CRB’s directors.

15. [291]

    The profit and loss accounts for the years ended 30 June 2019 and 30 June 2020 showed a net loss of $481,132.20 and $865,377.40 respectively. The profit and loss accounts showed that the company had no income in those years, [40] significant legal and professional fees, [41] “consultancy fees”, [42] and other expenses including significant interest due to “Bloomingville HK Loan”. [43]

16. [292]

    The balance sheets showed a similarly parlous position with negative total equity of some $481,000 for the year ended 30 June 2019 and $1.346 million for the year ended 30 June 2020.

17. [293]

    For the year ended 30 June 2019, long-term liabilities included debt to the Human Enhancement Project of $500,000 and to Bloomingville Hong Kong Ltd of $690,478. The balance sheet for 30 June 2020 showed corresponding liabilities and also the debt to Mr Schaeffer of $676,446.89 to which I have referred. [44]

18. [294]

    Mr Naegeli knew that CRB had not made the payments called for by the Cash Funding Agreement. He knew that Mr Blinkworth had made repeated assurances that payment would be forthcoming. But there is no suggestion that Mr Naegeli knew that CRB’s position was as is now stated in these profit and loss accounts and balance sheets.

19. [295]

    In the second conversation on 24 June 2020, Mr Schaeffer said to Mr Naegeli:

20. [296]

    As Mr O’Neill submitted, it appears that the matter that was “not dead” was a proposed legal action available to CRB against a company referred to in the evidence as “Mackeen Holding”.

21. [297]

    In his first report to creditors, Mr Niccol referred to “contingent assets” that were “estimated to produce … at least $992,001.30” with an estimated realisable value “to be determined”.

22. [298]

    In his statutory report to creditors dated 14 January 2021 pursuant to s 70-40 of the Insolvency Practice Rules (Corporations) 2016 (Cth), Mr Niccol recorded:

23. [299]

    In Section 7.4 of his report (referred to in the penultimate paragraph set out above), Mr Niccol said:

24. [300]

    Thus, it appears from Mr Niccol’s report that on 16 March 2020, CRB had obtained judgment against Mackeen Holding for €850,000, and had commenced proceedings, evidently in a court in Morocco, to seek damages of €150,000,000, but that those matters have not been finalised for the want of obtaining an appropriate litigation funder.

25. [301]

    It appears from Mr Naegeli’s conversation with Mr Schaeffer on 24 June 2020 that he had heard something about the “Moroccan case”. It appears from that conversation that Mr Schaeffer was also aware of the “Moroccan case”. Mr Schaeffer said that “I hear there’s some money in the Middle East” and that he knew that “some money was paid there”. [48]

26. [302]

    I am not in a position to make any assessment of the likely recoverability of the judgment obtained by CRB against Mackeen Holding or the prospects of CRB’s likely success in the Moroccan Court.

27. [303]

    However, these matters suggest that, despite the state of CRB’s profit and loss statements and balance sheets, there may have been some prospect of CRB satisfying its obligations to Mr Naegeli and the Human Enhancement Project under the Cash Funding Agreement. It also appears that Mr Schaeffer knew of these matters and thought that they were “not dead”.

28. [304]

    Mr Condon and Mr Price submitted that Mr Naegeli bore the onus of demonstrating that CRB’s judgment and possible cause of action against Mackeen Holding “had realisable, and thus real, value”. I think that submission misses the point, which is that, accepting that the “real value” of CRB’s judgment and prospective cause of action has not been established, the circumstances appear to have been known to Mr Schaeffer.

29. [305]

    As I have mentioned, on 3 April 2018, Mr Schaeffer executed a guarantee of CRB’s obligations to Bloomingville Hong Kong Ltd. The guarantee was contained in a document called “Loan Agreement” made between CRB as borrower and Bloomingville as lender. It contained references to Mackeen Company.

30. [306]

    That Loan Agreement recited:

31. [307]

    The recitals continued:

32. [308]

    The structure of the loan from Bloomingville to CRB, as guaranteed by Mr Schaeffer, was that:

33. [309]

    Thus, in return for advancing €600,000, Bloomingville was to be paid by CRB interest payments totalling €5 million, together with the “additional sum” of €30,000.

34. [310]

    The recitals to the loan agreement suggest that CRB was to advance the €600,000 principal borrowed from Bloomingville to Mackeen Company “to assist with commencement” of the “contract” referred to in the recitals. This appears to relate to the “commodity transactions totalling €600,000” referred to in Mr Niccol’s report.

35. [311]

    The loan terms recorded in this loan agreement were extremely generous to Bloomingville and, although involving different amounts, were similar in structure to those that were proposed to Mr Naegeli as part of the First Proposal and to those that were ultimately recorded in the Cash Funding Agreement; and thus reflected in the Guarantee.

36. [312]

    Mr Schaeffer sought legal advice from Mr Neil Matthews prior to executing the Bloomingville guarantee. It will be recalled that Mr Schaeffer consulted Mr Matthews about the Guarantee on 23 June 2020.

37. [313]

    Mr Matthews gave this evidence:

38. [314]

    Mr Matthews said that he advised Mr Schaeffer to ensure that there were provisions included in the guarantee that limited Mr Schaeffer’s liability under it to €630,000.

39. [315]

    Once such provisions were included in the guarantee, Mr Schaeffer executed it in Mr Matthews’ presence.

40. [316]

    Mr Condon and Mr Price submitted:

41. [317]

    But apart from what can be gleaned from Mr Schaeffer’s remarks to Mr Naegeli on 24 June 2020, there is no evidence before me of the circumstances in which Mr Schaeffer agreed to execute the Bloomingville guarantee. All that is revealed in these proceedings is that on that occasion, Mr Schaeffer said, as I have set out above, that:

42. [318]

    The fact that Mr Schaeffer was prepared to execute the Bloomingville guarantee in the face of Mr Matthews’ advice may show that he then had confidence in Mr Blinkworth’s commercial activities. It also shows that he was capable of making his own mind up about whether or not to commit to the obligations under the Bloomingville guarantee.

43. [319]

    But it does not show that Mr Schaeffer was somehow under the influence of Mr Blinkworth.

44. [320]

    As I have said, Mr Condon submitted that Mr Schaeffer was in the “thrall” of Mr Blinkworth. [51] Mr Condon also submitted that Mr Schaeffer had “complete confidence” and “blind trust” in Mr Blinkworth.

45. [321]

    This overstates matters, although the conclusion may be open that, as I have said, Mr Schaeffer had confidence in Mr Blinkworth’s commercial acumen. And Mr Naegeli accepted that it did appear to him that Mr Schaeffer trusted what Mr Blinkworth was saying to him and to Mr Naegeli.

46. [322]

    Whatever the truth was about the relationship between Mr Schaeffer and Mr Blinkworth, I see no basis upon which I could conclude that Mr Naegeli was privy to what the relationship was. The evidence shows that, from Mr Naegeli’s point of view, Mr Schaeffer was walking in lockstep with Mr Blinkworth in encouraging Mr Naegeli to invest his funds in CRB.

47. [323]

    As I have said, [52] if anyone was under Mr Blinkworth’s influence, it was Mr Naegeli.

48. [324]

    As the matters I have set out make clear, Mr Schaeffer was no stranger to CRB.

49. [325]

    Mr Schaeffer had a longstanding business relationship with Mr Blinkworth. He had evidently invested in the “security company” that Mr Blinkworth established in around 2006. He had loaned CRB $676,446.89. He had guaranteed CRB’s obligations to Bloomingville. He was, in the circumstances to which I have referred, actively involved in courting Mr Naegeli’s investment in CRB.

50. [326]

    There is, however, and to repeat, no evidence before me of the detail of the relationship between Mr Schaeffer and Mr Blinkworth.

51. [327]

    There is also no evidence that Mr Naegeli had any detailed knowledge of the relationship between Mr Schaeffer and Mr Blinkworth.

52. [328]

    As I have said, Mr Schaeffer was actively involved in seeking to persuade Mr Naegeli to invest in CRB.

53. [329]

    Thus, as I have set out, Mr Schaeffer:

54. [330]

    Mr Condon and Mr Price also emphasised the improvident nature of the Cash Funding Agreement and submitted that:

55. [331]

    The reference to Mr Blinkworth’s “misconduct” was, evidently, a reference to Mr Naegeli’s statements that he recalled that Mr Schaeffer made to him, stating words to the effect that Mr Schaeffer had been “led astray by Mr Blinkworth” and of “Mr Blinkworth having said things that we found out afterwards were not correct”.

56. [332]

    But the evidence does not reveal how Mr Schaeffer was “led astray” or what it was that Mr Blinkworth said to him that was “not correct”. In particular, there is no evidence that Mr Blinkworth misrepresented the nature of the Cash Funding Agreement to Mr Schaeffer. It appears to me likely that Mr Schaeffer understood the nature of the Cash Funding Agreement, at least in general terms. He repeatedly told Mr Naegeli that he had entered into cash funding agreements himself. And he had agreed to guarantee CRB’s obligations to Bloomingville, the structure of which obligations was similar to those in the Cash Funding Agreement; and took that step after receiving advice from Mr Matthews that he ought not enter that transaction.

57. [333]

    Further, as I have emphasised earlier, the allegedly improvident terms of the Cash Funding Agreement were terms proposed by the Borrower, CRB, and not by Mr Naegeli.

58. [334]

    Mr Schaeffer joined Mr Blinkworth in encouraging Mr Naegeli to enter into the Cash Funding Agreement on behalf of the Human Enhancement Project.

59. [335]

    Mr Schaeffer joined Mr Blinkworth in assuring Mr Naegeli that if CRB did not honour its obligations under the Cash Funding Agreement, he would do so from his personal funds.

60. [336]

    When Mr Naegeli expressed his concerns about CRB’s failure to make payment under the Cash Funding Agreement, Mr Schaeffer readily agreed to provide a guarantee, not only on his own behalf, but also on behalf of his associated companies, including the company that owned the apartment in which he lived.

61. [337]

    Mr Condon accepted in argument that Mr Schaeffer was a sophisticated businessman. It appears that he had acquired great wealth as a result of commercial activities.

62. [338]

    Although I accept that this factor alone is not decisive on the question of whether Mr Naegeli’s conduct was unconscionable, Mr Schaeffer entered the Guarantee freely, voluntarily and unhesitatingly.

63. [339]

    Mr O’Neill put the matter this way:

64. [340]

    As I have said and discuss below in the context of considering the Defendants’ case concerning the Contracts Review Act, [60] the effect of cl 2.2 of the Guarantee was that, as soon as Mr Schaeffer executed the document, he became liable without demand to pay Mr Naegeli $3.5 million. It may well be that Mr Schaeffer did not then appreciate that this was so. Indeed, as I discuss below, it appears to me likely he did not. For the reasons I have set out below, my conclusion is that this factor is relevant to the question of whether the Guarantee was an “unjust contract” for the purposes of the Contracts Review Act.

65. [341]

    However, the conduct of Mr Naegeli relevant to this aspect of the case is no more than that he drafted the Guarantee in terms that had that effect and left it to Mr Blinkworth to procure Mr Schaeffer’s execution of the document. I do not see anything that, in all the circumstances I have set out, was unconscionable about that conduct.

66. [342]

    I see the position as being substantially as was put by Mr O’Neill as set out at [339] above, save that I doubt that Mr Schaeffer appreciated the immediate and significant effect of his execution of the Guarantee. Execution of the Guarantee imposed a substantial obligation on Mr Schaeffer, the precise effect of which may not have been that apparent to him. Nonetheless, he executed the Guarantee voluntarily and indeed, as I have set out, had offered to assume personal responsibility for the amount owing by CRB under the Cash Funding Agreement, prior to Mr Naegeli’s request that he and Mr Blinkworth execute the Guarantee.

67. [343]

    Overall, my conclusion is nothing that Mr Naegeli did was “outside societal norms of acceptable commercial behaviour”, nor conduct that warrants condemnation as being “offensive to conscience”. [61]

68. [344]

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

Unfair conduct

1. [345]

   Subsection 12BF(1) of the ASIC Act provides, relevantly:

2. [346]

   In order that s 12BF be enlivened, there must a “small business contract”. The Defendants submitted that the Guarantee was a “small business contract”.

3. [347]

   Subsection 12BF(4) of the ASIC Act provides that a contract is a “small business contract” if:

4. [348]

   One of the parties to the Guarantee was The Footage Company Pty Ltd. At the relevant time, that company employed four persons and thus “fewer than 20 persons”. Accordingly, the requirements of subs 12BF(4)(a) of the ASIC Act were satisfied.

5. [349]

   Subsection 12BF(4)(b) directs attention to the “upfront price payable under the contract”.

6. [350]

   The expression “upfront price payable under the contract” is defined in subs 12BI(2), which provides:

7. [351]

   In the usual case of a contract for the supply of goods or services, the “upfront price payable” will be easily identified as being the amount of the consideration to be provided by the recipient of the goods or services for their supply.

8. [352]

   It is a little more awkward to apply the definition in subs 12BI(2) to a guarantee.

9. [353]

   The “supply” under a contract of guarantee is the promise to pay the principal debt.

10. [354]

    The consideration for that promise, to be supplied by the beneficiary of the guarantee, will often be the promise by the lender to pay the principal sum.

11. [355]

    In this case, when the Guarantee was executed by Mr Schaeffer on 29 October 2019, the principal sum had already been advanced.

12. [356]

    As the Guarantee was in the form of a deed, no consideration was necessary and apart, perhaps, from an implicit agreement by Mr Naegeli to forbear from taking proceedings against CRB, none was given.

13. [357]

    The matter is best resolved by concluding that, because the Guarantee was in the form of a deed, Mr Naegeli did not need to provide consideration for the promises contained in the Guarantee and therefore that the “upfront price payable” by him for the “supply” by Mr Schaeffer of the promise under the Guarantee was nil.

14. [358]

    It therefore did not exceed either $300,000 for the purpose of subs 12BF(4)(b)(i), or $1 million for the purpose of subs 12BF(4)(b)(ii) of the ASIC Act.

15. [359]

    Either way, the Guarantee can be characterised as a “small business contract” for the purpose of subs 12BF(1) of the ASIC Act.

16. [360]

    In order that s 12BF be enlivened, the “small business contract” must be a “standard form contract”.

17. [361]

    As to whether a contract is a “standard form contract”, s 12BK provides:

18. [362]

    In their List Response, the Defendants asserted that the Guarantee is a “standard form contract”. It follows, by reason of subs 12BK(1), that Mr Naegeli has the onus of proving otherwise.

19. [363]

    I have set out Mr Naegeli’s evidence concerning the steps he took to prepare the form of the Guarantee. To repeat, [62] Mr Naegeli deposed:

20. [364]

    As I have set out, Mr Naegeli took these steps after:

21. [365]

    The three guarantees that Mr Naegeli used to create the Guarantee are in evidence. They each appear to have been prepared by a lawyer. As Mr Naegeli set out in the passage to which I have referred, these were guarantees which Mr Naegeli had either himself signed or were prepared for the signature of others.

22. [366]

    There is no definition in the ASIC Act of a “standard form contract”. Rather, subs 12BK(2) specifies five matters that the Court must take into account when considering whether a contract is a “standard form contract”. The subsection allows the Court to take into account such other matters as it thinks is relevant.

23. [367]

    It has been said that the legislature made a deliberate decision not to define the term “standard form contract” so as to prevent companies from structuring their contracts to fall outside any prescriptive definition. [67]

24. [368]

    It has also been said of the five matters specified in subs 12BK(2):

25. [369]

    Turning to the matters specified in subs 12BK(2):

26. [370]

    The form of Guarantee was a one-off or bespoke document prepared by Mr Naegeli, who is not a lawyer, and at the request of the parties who were to execute it.

27. [371]

    It had none of the characteristics the subject of Parliament’s attention as set out in subs 12BK(2) of the ASIC Act and could not otherwise, in my opinion, be characterised as a “standard form contract”.

28. [372]

    For that reason alone, s 12BF of the ASIC Act is not engaged.

29. [373]

    As to whether a term of a contract is unfair, subs 12BG(1) provides:

30. [374]

    Section 12BG appears to create a code, for the purposes of the ASIC Act, as to when a term of a contract is “unfair”.

31. [375]

    In any event, no submission was made to me on this topic otherwise than by reference to s 12BG.

32. [376]

    Debate before me focused on subs 12BG(1)(b) and on the question of whether or not the Guarantee was “reasonably necessary in order to protect the legitimate interests” of Mr Naegeli.

33. [377]

    Mr Condon and Mr Price submitted that the Guarantee improved Mr Naegeli’s position in that he not only obtained the benefit of, relevantly, Mr Schaeffer’s personal covenant to pay the amounts referred to in the Cash Funding Agreement, but also obtained the security interest referred to in cl 6.2 of the Guarantee. [77] Thus it was submitted that the Guarantee did not simply protect Mr Naegeli’s interests but rather it substantially improved them.

34. [378]

    However, it does not follow from the fact that execution of the Guarantee placed Mr Naegeli in a position of an advantage compared to the circumstances he would have been in had the Guarantee not been executed, that execution was not reasonably necessary to protect his legitimate interests.

35. [379]

    Mr Naegeli, on behalf of the Human Enhancement Project, had advanced the $500,000 referred to in the Cash Funding Agreement. CRB had failed to make any of the payments called for by the Cash Funding Agreement. Obtaining the Guarantee was, in my opinion, reasonably necessary to protect his legitimate interests and those of the Human Enhancement Project.

36. [380]

    In any event, even if it was the case that, by reason of Mr Naegeli conferring a security interest over Mr Schaeffer’s property, the Guarantee went further than was reasonably necessary to protect Mr Naegeli’s legitimate interests, the obvious remedy would be to order that the Guarantee not be enforceable to the extent of that security. No such suggestion was made on behalf of the Defendants. That may well have been because, in these proceedings, Mr Naegeli does not seek to enforce those aspects of the Guarantee.

37. [381]

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

Contracts Review Act

1. [382]

   Section 7 of the Contracts Review Act provides, relevantly:

2. [383]

   The expression “unjust” is defined in s 4 of that Act to include “unconscionable, harsh or oppressive”.

3. [384]

   It is common ground that the two corporate defendants, Rasay Pty Ltd and The Footage Company Pty Ltd, are not entitled to relief under this Act. [78]

4. [385]

   The Guarantee provided that it was governed by the law applying in Victoria. However, by reason of s 17(3) of the Contracts Review Act, the proper law of the Guarantee is to be determined as would be, but for such provision. It is common ground that as the transaction had its closest and most real connection in New South Wales, the proper law of the contract would, but for the choice of law clause, have been that of New South Wales.

5. [386]

   Mr O’Neill submitted that Mr Schaeffer was not entitled to relief under the Contracts Review Act because he entered the Guarantee “in the course of or for the purposes of a … business … carried out” by him and thus was not entitled to relief by reason of subs 6(2) of the Act.

6. [387]

   The position was recently summarised by Fagan J in ATL (Australia) Pty Ltd v Cui [79] as follows:

7. [388]

   In Superannuation & Corporate Services Pty Ltd v Turner, [81] Gleeson JA [82] stated:

8. [389]

   As I have set out above, although Mr Schaeffer was not, formally, a director of CRB, he held himself out as being its honorary chairman and, in his dealings with Mr Naegeli, closely aligned himself with CRB’s interests and actively participated in persuading Mr Naegeli to advance funds to CRB.

9. [390]

   In closing submissions, Mr O’Neill submitted that, in effect, Mr Schaeffer was acting as a “promoter” of CRB.

10. [391]

    That may be so, but the authorities make it clear that a person who is actually a director of a company is not taken to have entered into a guarantee of the company’s indebtedness “in the course of or for the purposes of” a business carried on by the guarantor him or herself.

11. [392]

    As actively involved in CRB’s affairs as Mr Schaeffer was, his position can be no worse than an actual director of CRB. I do not think it can be said that he entered into the Guarantee in the course of or for the purposes of a business that he was himself conducting.

12. [393]

    The question, then, is whether there is a provision in the Guarantee that was “unjust” in the circumstances existing when Mr Schaeffer executed the Guarantee on 29 October 2019.

13. [394]

    Subsection 9(2) of the Contracts Review Act sets out a number of matters to which the Court must have regard when considering this question.

14. [395]

    Mr Condon and Mr Price did not make any submissions directed to these matters but, rather, put the matter this way:

15. [396]

    Thus, Mr Condon and Mr Price in effect repeated the substance of the submissions made in support of their contention that Mr Naegeli had engaged in unconscionable conduct.

16. [397]

    Although I have determined that Mr Naegeli did not engage in unconscionable conduct for the purposes of s 12CB of the ASIC Act, and that the operative term of the Guarantee was not relevantly “unfair” for the purposes of s 12BF of the ASIC Act, the effect of Mr Schaeffer’s execution of the Guarantee was, as I have set out, that he became immediately liable to pay Mr Naegeli $3.5 million. [84]

17. [398]

    To repeat, by way of cl 2.1 of the Guarantee, Mr Schaeffer irrevocably and unconditionally guaranteed payment of the “Obligations” under the Cash Funding Agreement, and cl 2.2 provided that if CRB did not satisfy or pay “any Obligation” in full and on the due date, then Mr Schaeffer would “immediately, without demand” satisfy or pay the Obligation. On the date that Mr Schaeffer executed the Guarantee, 29 October 2019, CRB had failed to pay seven payments each of $500,000; a total of $3.5 million. By executing the Guarantee, Mr Schaeffer became immediately liable to pay that amount.

18. [399]

    There is no evidence that this was explained to Mr Schaeffer. The inference that I would draw is that it was not. There was also no evidence of what opportunity Mr Schaeffer had to consider the terms of the Guarantee and the effect of his execution of it. Indeed, there is no evidence that Mr Schaeffer had any time to read and consider the Guarantee prior to its execution. As Mr Naegeli left it to Mr Blinkworth to procure Mr Schaeffer’s signature, Mr Naegeli ran the risk that Mr Blinkworth would simply seek to have Mr Schaeffer sign the document without considering its contents or effect. Whether this is what in fact happened cannot be known.

19. [400]

    It seems reasonable to infer that Mr Schaeffer must have had a general understanding that he was guaranteeing CRB’s obligations under the Cash Funding Agreement. After all, he had volunteered that “if anything ever did go wrong” he would pay Mr Naegeli from his “personal funds”, [85] and, as I have set out above, readily agreed to Mr Naegeli’s request that he guarantee CRB’s obligations.

20. [401]

    However, it seems unlikely that Mr Schaeffer would have understood the immediate and significant effect of his execution of the Guarantee.

21. [402]

    He must, however, have understood that, assuming CRB was unable to do so, he was guaranteeing the return to Mr Naegeli of at least the initial advance of $500,000.

22. [403]

    It does appear to me that, in the circumstances in which Mr Schaeffer executed the Guarantee, the provisions in the Guarantee having this effect were unjust.

23. [404]

    The question then is what should be done “for the purpose of avoiding as far as practicable an unjust consequence or result” for the purposes of s 7 of the Contracts Review Act.

24. [405]

    It would not be just to relieve Mr Schaeffer, and now his estate, from all obligation under the Guarantee. At the very least, Mr Schaeffer should be held to his agreement to guarantee the payment to Mr Naegeli of the principal amount of $500,000.

25. [406]

    Although, as Mr Condon and Mr Price pointed out, Mr Naegeli has not adduced evidence of any detriment suffered by the Human Enhancement Project beyond not having had the benefit of that sum since December 2018, the fact is that Mr Naegeli, thus in effect the enterprise he conducts with Mrs Naegeli under the name of the Human Enhancement Project, has not had the benefit of the $500,000 for over four years and now has no prospect of recovering it from CRB.

26. [407]

    In that regard Mr Condon and Mr Price suggested that, were interest to be awarded in favour of Mr Naegeli to compensate for the loss of use of the funds since December 2018, the interest rate prescribed for pre-judgment awards would be appropriate. Since December 2018, that interest rate has ranged between 5.5% and the current rate of 7.1%. However, as I have set out above, the Guarantee provided for interest to accrue on the amount due under the Guarantee at the rate of 10%.

27. [408]

    It is necessary for me to form an evaluative judgment, not susceptible to precise logical or arithmetical analysis, as to what steps are necessary to deal with such injustice as was manifest in the circumstances in which Mr Schaeffer executed the Guarantee.

28. [409]

    My conclusion is that I should make an order to the effect that the liability of Mr Schaeffer’s estate under the Guarantee be confined to repaying the principal of $500,000 with interest to accrue of that sum at the rate of 10% per annum.

29. [410]

    I have mentioned that the Guarantee provided that interest would accrue “from day to day … from the due date up to the date of actual payment”. [86] I will invite submissions as to the implications of this provision so far as concerns the interest to be awarded here.

30. [411]

    Mr Schaeffer’s estate is entitled to relief to the effect set out in [409].

31. [412]

    The corporate defendants are not entitled to relief under the Contracts Review Act. [87]

Conclusion

1. [413]

   The result is that Mr Naegeli’s claim against Mr Schaeffer’s estate succeeds to the extent of $500,000 plus interest and against Rasay Pty Ltd and The Footage Company Pty Ltd for the amount claimed, $6.5 million, plus interest.

2. [414]

   The parties should confer and agree on the orders necessary to give effect to these reasons and as to the further steps that need to be taken to finalise the proceedings.