Cielo v Farnsworth

Summary of issues

1. In terms of the main issues between the parties there are many agreed facts. In particular the following facts seem not to be in dispute that:

• the plaintiffs are a partnership that operates under the business name of MC Bin Supplies;
• the plaintiffs supply packaging materials to the horticultural industry;
• the plaintiffs have supplied goods on credit to either the defendants or to a company associated with the defendants; and
• during the early years of the aforementioned agreement payment was forthcoming, but during the period pleaded in the statement of claim payment was not made to the plaintiffs.

1. The genuine point of contention between the parties is who was bound by the subject contract, with the plaintiffs pleading that the contract was between them and the defendants as natural persons, and the defendants pleading that the subject contract was between the plaintiffs and a company named Rob Farnsworth Pty Ltd ('the company"). The company is not a party to the proceedings and therefore if the plaintiffs fail to prove their case against the defendants as natural persons they will not be entitled to any form of redress in these proceedings.

Legal Framework

1. When this matter was first mentioned on the morning of the hearing there was discussion as to the authorities that might guide me in deciding this matter. Fortunately, there was no disagreement between the parties, and I am able to summarise the legal principles quite succinctly.
2. As an example of the issues that I might have to deal with I drew the attention of the parties to a case I previously decided that dealt with similar principles - Ashglow Pty Ltd as Trustee for Ashglow Trust v Castano [2008] NSWLC 29 ("Ashglow") and the parties agreed that this case is on point. In that case at [9]-[11] whilst discussing the issue of agency and its application to the formation of contracts, I referred to a passage in the Bowstead and Reynolds text Agency that touched upon the legal principle that an agent may be liable under a contract entered into on behalf of an undisclosed principal. I also referred to the case of Carminco Gold and Resources Ltd v Findlay and Co Stockbrokers (Underwriters) Pty Ltd [2007] FCAFC 194 ("Carminco") as an example of this principle.
3. The issue of undisclosed agency is of particular relevance to this case as the plaintiffs maintain that they were never at any time told that they were entering into a contract with the company as opposed to the defendants as natural persons. The abovementioned cases support the contention that the plaintiffs may potentially recover damages against the defendants, notwithstanding that there is evidence to suggest that the defendants more routinely conducted their business through the company.
4. As to the approach that the court should take in determining who the parties to the subject contract were, it was agreed by the parties that the court should determine this issue on an objective basis independent of the subjective views of the parties - an approach endorsed in Carminco and also in Pethybridge v Stedikas Holdings Pty Ltd [2007] NSWCA 154 (Pethybridge). Additionally, Pethybridge stands as authority that in determining this issue subsequent communications cannot be taken into account when attempting to construct the terms of a contract.
5. When determining the objective intentions of the parties I am taking the perspective of a reasonable person who possesses knowledge of the words and actions of the parties as communicated to each other. The reasonable person also has knowledge of the surrounding circumstances of the formation of the contract and has regard to the subject matter of the contract. This approach also accords with the approach endorsed by Campbell JA in Ryledar Pty Ltd v Euphoric Pty Ltd [2007] NSWCA 65 as referenced by the same judge in Pethybridge at [54].
6. What sometimes gets lost in the submissions of the parties in cases such as these is that the objective intention of the parties is determined by reference to the actual words and actions of the parties as well as the actual surrounding circumstances of the formation of the contract. This renders findings of fact - other than statements of subjective intentions - of particular importance. It is also important not to lose sight of the fact that it is for the plaintiffs to prove on the balance of probabilities the facts upon which they rely and it is not required of the defendants that they prove the company was the party bound by the contract.

The evidence

1. After initial discussion as to what evidence was admissible, the evidence in chief of the parties was reduced to two affidavits - one from the first plaintiff Marco Cielo and one from the second defendant Robert Farnsworth. After some rulings on evidence those affidavits were tendered and respectively formed Exhibits 1 and 2. There was then cross-examination of Mr Cielo by Mr Farnsworth and cross-examination of Mr Farnsworth by Mr Wolff.
2. By way of observation, this case is a prime example of some of the practical difficulties that can arise when long term commercial contracts are entered into orally. In the strictest sense there was no consensus as to when the commercial relationship commenced, but it was not in dispute that it must have been at some time at or before July 2008. This meant that as the time of the hearing the parties were trying to recall events that occurred more than eight years before.
3. I was left with the impression that the formation of the contract was a relatively mundane task, especially from the perspective of Mr Cielo, which meant that aspects of the lead-up to the formation of the contract did not especially stand out in his mind. It was also apparent before my rulings on the evidence that both parties had initially come to court expecting to rely on evidence of conduct after the formation of the contract to bolster their respective positions, which of course was impermissible. This had an obvious impact on the evidence of both parties - the contents of their affidavits were reduced to a handful of paragraphs - but there is little that could be done to remedy that impact.
4. In terms of the plaintiffs' evidence as to the formation of the contract, it was dealt with at paragraph 3 of Mr Cielo's affidavit. To quote that paragraph: On a date I cannot recall but in or prior to 2009 Robert Farnsworth attended at my business premises at 8 Kingfisher Road, Gol Gol in the state of New South Wales. Whilst I cannot recall all or the specific details of the conversation I had with Robert Farnsworth at the time I do recall Robert Farnsworth telling me that he owned farms at Trentham Cliffs and Paringi and that he wanted to start doing business with me. [Emphasis added]
5. The relevance of the emphasised portion of the quotation is that on the evidence of Mr Cielo, Mr Farnsworth represented that it was he - as opposed to a company - that was entering into a contract with the plaintiffs. There is no other reasonable interpretation of the use of the word 'he' as a personal pronoun. The face-to-face nature of the discussion is also consistent with such an interpretation, in contrast to (say) a contract entered into following communications on the letterhead of a company. Therefore, if I accept that version of events on the balance of probabilities the only objectively possible conclusion would be that the contract had been entered into with Mr Farnsworth as an individual and not with any company that he was associated with.
6. Under cross-examination it was put to Mr Cielo that the meeting between he and Mr Farnsworth occurred specifically in 2008 at the latter's property as opposed to the premises of the former. Mr Cielo seemed to deny that the meeting took place in 2008, but my interpretation of his language and demeanour was that this was not a strong denial. He was much more certain that the agreement was reached at his premises rather than those of the company. He seemed more certain of this because he was able to recall a completely different conversation that had occurred between him and Mr Farnsworth at the company's premises. This of course could have been the meeting referred to in Mr Farnsworth's evidence and may have been symptomatic of Mr Cielo believing that contract was finalised only upon the first order being made.
7. The most relevant piece of cross-examination was when it was put to Mr Cielo that during the conversation that confirmed the contract Mr Farnsworth had stressed that he was acting on behalf of the company and that the resultant contract would be between the plaintiffs and the company. In answer to that proposition Mr Cielo stated that there had "never, ever" been any mention of a company being a party to the contract. He was absolutely adamant on that point.
8. The issue of the date upon which the agreement was finalised was also dealt with in re-examination, whereby Mr Cielo was referred to the invoices that had been tendered as part of Mr Farnsworth's affidavit. This confirmed that the first invoice was dated 11 July 2008, meaning that the Mr Cielo was wrong in his evidence that the contract was not created in 2008. It also lends weight to Mr Farnsworth's evidence that the first order under the contract was placed on or about 11 July 2008.
9. In terms of the defendants' evidence as to the formation of the contract it was dealt with at paragraph 6 where he stated "That at all material times Rob Farnsworth Pty Ltd was clearly identified as the Principle [sic]…" [emphasis added].
10. Of course, 'at all material times' is a somewhat general term, but it was clear from Mr Farnsworth's cross-examination of Mr Cielo - as well as subsequent evidence - that one of the material times was during the conversations that gave rise to the formation of the contract. This would therefore encompass the discussions referred to in paragraph 9 of his affidavit that: I first met Marco Cielo at some time in 2008 when he approached me at my home property Lot 4 Sturt Highway Trentham Cliffs NSW after delivering some Bulk [sic] bins ordered by us from Lindsey Rural. Marco Cielo offered the services of MC Bin and presented his case as a provider of packaging materials. He stated that he had commercial arrangements with a number of packaging suppliers and would be able to supply most of our requirements at competitive prices, on credit and with a more flexible delivery program [sic].
11. Another issue of relevance was raised at paragraph 10 of Mr Farnsworth's affidavit when he stated that it was either during this conversation or at the time the first order was placed that he provided Mr Cielo with the corporate details of Rob Farnsworth Pty Ltd. If those details were provided at the same time as the conversation said to have occurred at paragraph 9, that bolsters the defendants' position that at all relevant times the agreement was between the plaintiffs and the company. If the details were provided at the time of the first order, then that may be of less relevance given that the order may very well have been placed after the parties and other terms of the agreement had been defined.
12. The relevance of this evidence is that according to Mr Farnsworth, he said to Mr Cielo that it was the company - as opposed to him as an individual - that was entering into a contract with the plaintiffs. Therefore, on that version of events the only objectively possible conclusion would be that the contract had been entered into with the company and not Mr Farnsworth as an individual.
13. Under cross-examination of Mr Farnsworth it was highlighted that the Corporate Details sheet annexed as Def 1 to Exhibit 2 could not have been an accurate description of the details as they were in July 2007, because they referred to a business name that had not been registered until 2 October 2008. Mr Farnsworth conceded this point, but went on to insist both in cross-examination and during re-examination that the sheet handed over at the time would have contained the correct corporate details. He also went on to say that he had a specific independent memory of handing over the relevant sheet at either the first meeting between him and Mr Cielo or providing it at the time of the first order.
14. Of particular relevance is that Mr Farnsworth never conceded that he had held himself out as an individual who was entering into the subject contract. He maintained at all times that he negotiated the contract with the plaintiffs as a representative of the company and made it clear that the contract would be between the plaintiffs and the company. He was adamant that this was the case.
15. There are also some other aspects of the evidence that I should now deal with. Having considered Mr Farnsworth's evidence that the corporate details were handed to Mr Cielo at either the first meeting or at the time of finalising the first order, I am unable to determine which the case is as each seems as likely to have occurred as the other. Also, whilst time was devoted to exploring the issue of whether the corporate details of the company were on display in the office and packing sheds of the company the issue seems to be an irrelevant one as insufficient evidence was led as to whether those details would have been actually seen by a reasonable person at the time of the formation of the contract. No specific reference was made in the evidence to the discussion being conducted in an office or a packing shed at a premises owned by the company. In fact, I am unable to resolve the issue where the contract was entered into because each side presented a case that was equally compelling.

Analysis of the evidence

1. As I remarked during the course of submissions I do not see this case as being one where one party has been seeking to mislead the court on any aspect of the evidence. However, this is a case where the positions of the parties are diametrically opposed and where each party has given consistent evidence that supports their respective position. This is therefore a case where I have to give proper consideration to the fact that the plaintiffs bear the burden of proof and they must prove their case on the balance of probabilities.
2. In considering this, it stands out there is nothing fundamentally irrational about the evidence of either witness. It would not be unusual for a contract of this kind to be entered into with an individual such as Mr Farnsworth, or impossible that Mr Farnsworth whilst intending to act on behalf of the company had inadvertently failed to mention that he is doing so. Likewise, there is nothing fundamentally irrational with Mr Farnsworth's evidence that the company was the main means by which the relevant farming operations were run and that he would thus have at all times represented himself as acting on behalf of the company. At least as at the time of the formation of the contract there was no apparent advantage to Mr Farnsworth being the party personally liable; to the contrary, it may be more likely to have been to his disadvantage. Therefore neither case can be discounted on the basis that it seems to be lacking in rationality or common sense.
3. This means I must query whether the cogency and consistency of the plaintiffs' position is sufficient to prove their case on the balance of probabilities when I have regard to the apparent cogency and consistency of Mr Farnsworth's evidence. This is a case of oath against oath and also one where the parties are recounting discussions and events that took place over eight years ago. With that in mind, with the greatest respect to Mr Cielo, I must find that Mr Farnsworth has given evidence that is more compelling and has reached a level where it casts sufficient doubt on the evidence of Mr Cielo that I must find for the defendants.
4. When I compare the versions of each witness it stands out that Mr Cielo by his own admission cannot recall the specific details of the conversation he had with Mr Farnsworth. He was also incorrect in his evidence under cross-examination that the contract was not entered into in 2007. By contrast, Mr Farnsworth has been able to recall the date of the discussions with great detail. He was able to recall how he came to know Mr Cielo, in that they met after Mr Cielo delivered some bulk bins to the company. He was also able to recall that it was Mr Cielo who approached Mr Farnsworth to discuss the provision of packaging materials and how Mr Cielo made his case for the contract by reference to competitive prices, the provision of credit and flexible delivery arrangements. This level of detail helps to flesh out Mr Farnsworth's evidence and lends it extra weight.
5. Also, whilst it is only a relatively minor issue - and having regard to the caution that must be exercised when considering this type of evidence - I was impressed by Mr Farnsworth's demeanour when giving evidence. He was able to answer questions clearly and concisely and I was left with the impression that he was an experienced and intelligent business man with good powers of recall. This is not to cast aspersions on Mr Cielo, but Mr Farnsworth's demeanour lent further weight to his evidence.
6. I therefore find that Mr Cielo's evidence has not convinced me on the balance of probabilities that his account is in fact what occurred. Instead I comfortably prefer the version of events described in the evidence of Mr Farnsworth. Applying that evidence to the objective test, and referring back to my analysis in paragraph 23 above, I find that the only reasonable interpretation of the communications between the parties is that the contract was entered into between the plaintiffs and the company as opposed to the defendants as individual natural persons.

Orders

1. I make the following orders: 1. Verdict for the defendants; 2. Absent of any application seeking to the contrary, and noting that the defendants were self-represented, I order that each party is to pay their own costs; and 3. Any application as to costs must be made in writing to the Registrar of Wentworth Local Court within 28 days. The application is then to be listed before me at the next sittings of the Court. Magistrate G Dunlevy Wentworth Local Court 5 August 2016

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