Business Law: Partnership, Contractual Liability, and Negligent Misrepresentation

This article discusses the legal issues of partnership, contractual liability, and negligent misrepresentation in business law. It explains the rules and applications of these legal concepts and provides expert advice. The article also includes case laws and examples to help readers understand the concepts better.

Running Head: BUSINESS LAW
Business Law
Name of the Student:
Name of the University:
Author Note

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Answer 1
Issue
The issue which has been identified in the situation is to provide advice to Julio, Carolyn and
Trisha with respect to the type of business structures which they are using for the purpose of
carrying out their business activity.
The issue is also to identify the status of Julio, Carolyn and Trisha and Sarah in relation to the
business
Rule
In the case of Goudberg v Herniman Associates Pty Ltd [2007] VSCA 12 the court made a ruling
that when two or more people carry out a business activity in common having the purpose of
making profit and the business is of an ongoing nature than such business activity is held to have
been carried out under the business structure of a partnership
Whether a partnership is present or not can also be identified through the application of the
provisions of the Partnership Act 1958. As stated via the section 5 (1) of the PA 1958 a
partnership is defined as a relationship which is present between individuals who carry out a
business having a common intention of profits.
The rules for the determination of a partnership gave been provided through the provisions of
section 6 of the legislation. It has been specifically provided through the provisions of section
6(3)(d) that the advance of money provided via the way of loan to people engaged or are about
to engage in a business activity with respect to an agreement that the lender is entitled to get a
rate of interest which may vary as per the profit or a share of profit does not make such person a

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partner of the business where such contract is signed by the parties involved in the business. In
addition the sharing of profit is a prima faice proof that the persons are the partners of the
business as per section 6(3) unless exceptions provided in section 6(3)(a)- 6(3)(e) are not
applicable
Application
The business they are carrying out is a partnership. This is because as per section 5 (1) of the PA
1958 a partnership is defined as a relationship which is present between individuals who carry
out a business having a common intention of profits. Here also business is carried out in common
for the purpose of making profit
The fact of the scenario stipulates that Julio, Carolyn and Trisha has initiated a business of
providing financial advice for the purpose of earning profit. They also have equal say in the
management of the business and take part in managing the business activity. They also have the
intention of earning profit form the business. Thus their status in the business is that of partners.
This is because as stated by section 6(3) the sharing of profit is a prima faice proof that the
persons are the partners of the business unless exceptions provided in section 6(3)(a)- 6(3)(e) are
not applicable. He no exception is applicable in relation to Julio, Carolyn and Trisha. However
Sarah has provided a loan to the business under an agreement that she will be getting 2% of the
profit. She has no interest in managing the business. Thus it can be stated that she is not a partner
of the business. This is because section 6(3)(d) says that the advance of money provided via the
way of loan to people engaged or are about to engage in a business activity with respect to an
agreement that the lender is entitled to get a rate of interest which may vary as per the profit or a
share of profit does not make such person a partner of the business.

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Conclusions
The business is a partnership and Julio, Carolyn and Trisha are partners but not Sarah
Answer 2
Issue
The issue is to discuss the contractual liability of Julia and his business partners in relation to X
under the provisions of Contract law.
Rule
Damages under the law of contract depend upon the application of various rules.
Damages can be provided under both common law and statute law provisions.
There are a few implied warranties which have been imposed upon those who indulge
into providing services in Australia via the provisions of section 60-63 of the Australian
Consumer Law contained on Schedule 2 of the Australian Competition and Consumer Act 2010
(Cth). Under the provisions of section 60 of the ACL a guarantee is provided in relation to
services provided that such services will be given by observing due care and skill. Under the
section it is stated that a person who supplied in trader or commerce to a consumer services in
Australia there is an implied guarantee that services would be provided with due skill and care.
Sub division B of the ACL section 267 deals with provisions related to actions against
suppliers where consumer guarantees have been breached. Action may be taken by the consumer
under the section in case the consumer has been supplied in the course of trade and commerce
with services and the guarantees which have been provided via Subdivision B of Division 1 of
Part 3-2 have been breached, unless the breach in context is in relation to section 60 of the Act

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and the failure in relation to the duty did not take place merely because of a omission, act, default
or representation of any person who is not the supplier, employee or agent of the supplier or a
reason which is beyond control for humans occurring after services had been supplied. As
provided by Subsection 267(2) in case the breach of the guarantee can be remedied it is to be
considered as not a major failure. The consumer may ask the supplier to fix the failure within a
reasonable time. In case the request is made and the supplier fails to remedy the failure within a
reasonable time, the consumer may get the failure remedied and recover the costs incurred for
remedying the failure or terminate the contract. Under the provisions of section 267(4) it has
been provided that the consumer has the right to take action against the supplier for the purpose
of recovering damages for any damage or loss which has been suffered by the consumer as the
supplier of services have failed to comply with the guarantee in case the supplier can reasonably
foresee that the breach may cause damages to the consumer. This section is applicable in
addition to the provisions of subsection (2) and (3)
A major failure is discussed under section 268 of the ACL. It would be a major failure in
case the consumer would not have wanted the services if he or she was aware about the extent of
the breach.
In the case of Addis v Gramophone [1909] AC 488 it had been stated by the judges that
the purpose of allocating damages is restoring the position of the party in case no contractual
breach took place. In addition in the case of Hadley v Baxendale (1854) 9 Ex Ch 341 the court
stated that damages are based on the fact that they are reasonably foreseeable or not or whether
they had been contemplated at the time of contract formation.
Application

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The fact of the scenario stipulates that Julia had provided an advice to a client X in
relation to tax implications for purchasing a real estate property. There was a mistake made by
him in relation to the advice as the advice was not in observance of a ruling made by the ATO.
As the advice is incorrect X had to pay $15000 extra tax. In the given situation through the
application of the provisions of section of the ACL that a person who supplied in trader or
commerce to a consumer services in Australia there is an implied guarantee that services would
be provided with due skill and care thus Julio also had a duty of due skill and care under this
section towards the services provided to X. In the given situation he has not applied due skill
and care as the advice was not in observance of a ruling made by the ATO. Thus the provisions
under section 60 have been breached. As the provisions have been violated X has the right to
take an action Julio and the business under section 267 and the principles of partnership. Under
the provisions of section 267 it has been stated that in relation to section 60 of the Act and the
failure in relation to the duty did not take place merely because of a omission, act, default or
representation of any person who is not the supplier, employee or agent of the supplier or a
reason which is beyond control for humans occurring after services had been supplied. However
this situation is not applicable on the given facts. Further X under section 267(4) has the right to
take action against the supplier for the purpose of recovering damages for any damage or loss
which has been suffered by the consumer as the supplier of services have failed to comply with
the guarantee in case the supplier can reasonably foresee that the breach may cause damages to
the consumer. This section is applicable in addition to the provisions of subsection (2) and (3).
Thus X can terminate the contract of services and may claim damages for $15000.
Conclusion
X can recover the damages from the business worth $15000

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Answer 3
Issue
The issue in this case is to determine whether Julio and/or his business partners can be held liable
for the losses incurred by Y under the provisions of tort of negligent misrepresentation.
Rule
In case of negligence the general rule states that a person cannot make a claim for a pure
economic loss as stated by the court in the case of Spartan Steel & Alloys Ltd v Martin [1972] 3
WLR 502. Negligence takes place when one party has been harmed against another party. In
case of such harm where there is no contractual relationship a party has to be compensated by the
other party if the three elements of negligence have been satisfied. These three elements are the
elements of a duty of care, the breach of the duty of care and the causation of injury.
In the famous case of Hedley Byrne & Co v Heller [1963] 3 WLR 101 the rule which has been
provided in the case of Spartan Steel & Alloys Ltd v Martin had been superseded by an
exception. In this case it had been provided that a negligent action can be taken against a pure
economic loss as well. This rule will be applicable if there has been a negligence misstatement
made by party. In this case the court had to analyze a question in relation to negligence of a pure
economic loss. Before the decision of the case there was a notion that pure economic losses can
only be claimed under the provisions of contract law. In this case the plaintiff firm was an
advertisement agent. A large order had been put by a customer Easipower Ltd. In order to check
the financial position of the customer the firm approached National Provincial Bank. The bank
stated that the financial position of the customer was good. The customer latter became bankrupt.
The firm made a claim against the bank and was successful. The court held that the bank owed a

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duty of care to the firm which had been breached by them by not providing proper advice to the
firm which made the firm suffer the losses.
The same provisions had been discussed in the Australian case of SHADDOCK V
PARRAMATTA CITY COUNCIL (1981) ALR 385. In this case plaintiff wanted to purchase a
property and in relation to such purchases they wanted an advice from the council. The council
provide them an advice in an impled way that there are no plans for expansions of roads near the
property which was to be purchased. Relying on the advice the property had been purchased by
the plaintiff. The council actually had plans to expand the road near the property. The court held
that that the council was negligent and they had a duty of care towards the plaintiff. The decision
of the court implied that a person will owe a duty of care with respect to an advice or
information in case a profession or business is carried out by such person and the advice has
been provided in the course of such profession or business and is of a nature which requires die
competence and skills such information has been relied by another person.
As per the partnership Acts the partners are the agents of the business and are jointly and
severally liable for the actions of other partners
Application
In the given situation the facts of the scenario stipulates that an advice had been prepared by
Julio for Mr X which has been passed to Mr Y without the permission of Julio by X. Thus as the
advice was not competent Y has also suffered a loss worth $15000 in the same way that of X.
There was no contract between Y and the Julio or the business. In case of negligence the general
rule states that a person cannot make a claim for a pure economic loss as stated by the court in
the case of Spartan Steel & Alloys Ltd v Martin. However as per the case of Hedley Byrne & Co

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v Heller a negligent action can be taken against a pure economic loss as well. This rule will be
applicable if there has been a negligence misstatement made by party. in addition it has been
provided in SHADDOCK V PARRAMATTA CITY COUNCIL that a person will owe a duty of
care with respect to an advice or information in case a profession or business is carried out by
such person and the advice has been provided in the course of such profession or business and is
of a nature which requires die competence and skills such information has been relied by another
person. Thus even if there was no contract between Y and the Julio or the business, Y can have a
valid claim against the Business. for the purpose of making the claim Y has to provide that there
was a negligent misstatement which has been provided by Julio on which he relied to purchase
the property. However in this case no advice had been provided by Julio to Y directly. The
advice had been passed by Mr X that too without the permission of Julio or the business he
works for. In the given situation as there is no advice Y cannot make a claim with respect to Tort
of negligent misrepresentation against Julio or the business. Mr Julio was not aware that the
advice could foreseeably harm Y and thus they do not have any duty of care against Y and no
claim can be made.
Conclusion
As there is no advice Y cannot make a claim with respect to Tort of negligent misrepresentation
against Julio or the business. Mr Julio was not aware that the advice could foreseeably harm Y
and thus they do not have any duty of care against Y and no claim can be made.
Answer 4
In this section of the papers and wife is provided to Julio, Carolyn and Trisha so that they are
able to manage the business with in a better manner. The first advice in relation to what changes

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can be made in the way in which they provide you can advice to their clients. When they are
providing written advice to the clients there are significant chances that the client can make a
claim against them is case of any loss or damages which have been sustained by them because of
that advice. In order to address the situation the business can incorporate and exclusion clause
into the contract. An exclusion Clause is a clause which is incorporated for the purpose of
limiting liability which may arise out of breach of contract (Davidson, Forsythe and Knowles
2015). Thus Julio, Carolyn and Trisha can have a exclusion Clause in the written contract to limit
the liability of damages to a certain extent.
The second advice would be provided to Julio, Carolyn and Trisha with respect to how does can
make their responsibilities in relation to the business clear. This problem can be addressed if they
have a written agreement which would govern the functioning of the business. The written
agreement would clearly set out responsibilities which each of the business partners have in
relation to the business.
The third advice which would be provided student would be in relation to the change in the
business structure. It has been analysed in the first question that Julio, Carolyn and Trisha are
carrying out the business in form of a partnership business structure. There are certain features of
partnership business structure which makes the functioning of the business significantly risky.
One of these features is that the partners in a partnership business are jointly and severally liable
for any actions or omissions which other partners of the business have got into (Beatty,
Samuelson and Abril 2018). This means that any negligent actions of the partners of the business
make the other partners also liable to such action. This also means that any contract which the
partners have entered into on behalf of the business is binding on the business. Therefore
partners can be held liable for any wrongful act which has been done by the other partner.

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Another risky feature of partnership business is that it has unlimited liability. This signifies that
they can be liable personally and their personal assets can be attached for business debts.
However these which can be avoided if Julio, Carolyn and Trisha carry out the business activities
in form of a company form of business structure. This is because the company form of business
structure as limited liability. The liability of the members of the company and not extended to
their personal assets. The liability can only be extended to the amount of investment or share
owned by the members in the company (Kubasek et al. 2015). Therefore in the given situation if
Julio, Carolyn and Trisha choose to select business structure of a company they would be able to
significantly minimise the risk and would not be liable for actions which have been committed
by other partners. Julio, Carolyn and Trisha can utilise these advices to minimize their business
risks.

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References
Addis v Gramophone [1909] AC 488
Australian Consumer Law contained on Schedule 2 of the Australian Competition and Consumer
Act 2010 (Cth).
Beatty, J.F., Samuelson, S.S. and Abril, P.S., 2018. Business law and the legal environment.
Cengage Learning.
Davidson, D.V., Forsythe, L.M. and Knowles, B.E., 2015. Business law: Principles and cases in
the legal environment. Wolters Kluwer Law & Business.
Goudberg v Herniman Associates Pty Ltd [2007] VSCA 12
Hadley v Baxendale (1854) 9 Ex Ch 341
Hedley Byrne & Co v Heller [1963] 3 WLR 101
Kubasek, N., Browne, M.N., Dhooge, L.J., Herron, D.J., Williamson, C. and Barkacs, L.L.,
2015. Dynamic business law. McGraw-Hill Education.
SHADDOCK V PARRAMATTA CITY COUNCIL (1981) ALR 385
Spartan Steel & Alloys Ltd v Martin [1972] 3 WLR 502

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The Partnership Act 1958