LST5CCL Company Law: Analyzing Contractual and Tort Liabilities

This case study solution analyzes various legal issues arising from a business scenario involving Julio, Carolyn, Trisha, and Sarah. It examines the partnership structure under the Partnership Act, determining the liabilities of each individual. The analysis covers Julio's negligent misrepresentation leading to financial loss for a client, exploring the firm's and partners' responsibilities under tort law. Additionally, it assesses the contractual obligations arising from a flyer distributed by Carolyn, determining whether it constitutes a binding offer. The solution applies relevant legal principles and case laws to conclude on the liabilities and responsibilities of the partners and the firm.

Running head: LAW OF CONTRACTS AND TORT
Law of Contracts and Tort
Name of the Student
Name of the University
Author Note

1LAW OF CONTRACTS AND TORT
Answer 1:
Issue:
To establish the business structure within which Julio, Carolyn, Trisha and Sarah fall.
Additionally, to establish their status and subsequent liability to each other and the business.
Rule:
When a Business is carried on with the common intention of making profit by two or
more people, the same is incorporated in the nature of partnership as per Section 6 of the
Partnership Act 1963. Receipt of portion of profit alone does not make one a partner in a firm
Section 7 Partnership Act.
Application:
The firm was set up by Julio, Carolyn and Trisha by contributing equal amount of
money towards the business. Each one of them possess a special expertise and area of interest
using which they aim to provide financial services for their client. Sarah joins the trio as a
mentor and invests additional funds of $60,000 in return for 10% of the firm’s gross profits.
The sharing of profits with Sarah is limited to a five-year period.
In the present instance Julio, Carolyn and Trisha started their business in a form that
makes them all partners and jointly and severally liable to each other and the firm – section 9
and 13 Partnership Act. By applying Section 7 of the Act it becomes evident that Sarah does
not become a partner of the firm. Sarah has no liability for the actions of the firm or its
partners.
Julio, Carolyn and Trisha all have the same responsibility and role as the rules for
determining partnership apply to three of them and not Sarah. This relationship implies that
all acts done by any one of them, in the course of business and to further actions of the firm

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making them an agent will invariably bind the other two partners and the firm. Each partner
is at the same time an agent of the firm and the other partners. All partners are liable for acts
authorized by the firm. The partners are jointly liable for debts and obligations of the firm.
On the demise of any of the partners their personal and private property becomes the subject
of such liability. Sarah being just an investor who has contributed $60,000 towards the
business has no real role or responsibility for the firm. Wang v Rong [2015] NSWSC 1419
has established that all partners in a Partnership firm are jointly and severally liable for all the
debts and obligations that arise in the Partnership firm.
Conclusion:
Julio, Carolyn and Trisha are partners of the firm as per the provisions of Partnership
Act. Sarah is an investor and merely sharing the profits does not make her a partner. All the
rights and obligations that apply to partners and a partnership firm apply to Julio, Carolyn and
Trisha however none of them are applicable to Sarah.

3LAW OF CONTRACTS AND TORT
Answer 2:
Issue:
Following Julio’s advice on tax the client, A acts on real estate property, the same
advice being incorrect and not verified leads to an error that costs A $15,000 in tax. Whether
the acts of Julio amount to negligent misrepresentation and the onus of responsibility on Julio
and the firm.
Rule:
Relying on the Hedley Byre & Co. V Heller & Partners case negligent
misrepresentation or negligent misstatement arises when actions or advice of an expert gives
rise to negative results or has a detrimental effect on the client’s finances. Additionally, as per
the Civil Liability Act ordinary laws of negligence govern cases of financial loss that arise as
a result of negligent misrepresentation / negligent misstatement. The Golden Rule of
Negligence as set forth in Sullivan v Moody and other similar cases, assumes that there has
been compliance and fulfilment of all the relevant duties, unless evidence expressly suggests
otherwise.
Section 9 of the partnership Act make all the partners in a firm, agents of one another
and the firm as a whole. All the acts of partners if done in the course of ordinary business and
within the limit of their authority and expertise, binds the firm and all the other partners.
Section 10 prescribes that all acts done on behalf of the firm by individuals who are
authorized to do so in the firm’s name or with the intention of binding the firm subsequently
binds all the partners.
Section 13 makes all partner in a firm jointly liable for all the debts that a firm owes
to its clients and debtors.

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Section 14 specifies that when any wrongful act or omission of a relevant partner
leads to a loss, injury or penalty, the same will be borne by the partnership firm to the same
extent as the relevant partner.
Section 16 makes every partner liable jointly and severally for all acts and wrongs
under Section 14 for which the firm is liable.
In order to establish negligence, the presence of certain criteria must be established.
Existence of a legal duty towards the client a subsequent breach of such legal duty that leads
to a real financial loss. There must exist a direct relation between the breach of duty and loss.
Application:
In the current scenario it can be acknowledged that Julio had a legal duty towards the
client to provide advice after proper research on the latest provisions and mandates. The same
was violated giving rise to a financial loss of $15,000 to A. It is essential for negligent
misrepresentation that A must have acted on the advice of Julio and there should not be a
metaphorical but a real damage that was caused. Being an advice that was not arbitrary but
based on available knowledge of the Australian Tax Office (ATO) it could have been easily
verified and checked. Having failed to fulfil his duty towards the client, A Julio has exposed
himself and the firm for civil action under the tort of negligent misrepresentation.
The common remedy available to the client under such instances is recession. As a
result of which A will be brought back to a position as if he had not acted on Julio’s advice.
In order to ensure this remedy compensation will be paid to A.
By applying Section 9 we identify Julio as an agent of the firm and must check
whether his acts fall within the purview of this section. Julio acted within the parameters of
the authority that he has. His area of expertise being tax and the firm working as a business
that offers financial services his advice to A is within his authority and scope of work. A has

5LAW OF CONTRACTS AND TORT
also acted knowing fully well that Julio had the authority and expertise to give such advice.
Additionally, applying Section 10 as Julio’s advice was on behalf of the firm the same binds
all the other partners, that is Carolyn and Trisha.
Section 13 ensures that the liability of $15,000 that is borne by the firm is also jointly
borne by the partners of the firm. The distribution of this amount or any amount that the court
may impose on the firm will be jointly borne by Julio, Carolyn and Trisha.
Conclusion:
Julio by failing to verify the advice given by him to A has committed negligent
misrepresentation. His acts fulfil all the characteristics that make him liable for the tort of
negligent misrepresentation. Applying the principles of Partnership Act and law of Tort the
acts of Julio have not only exposed him but also the partnership firm for civil action. All the
partners of the firm will be liable to the compensation amount that will be quoted by a court.

6LAW OF CONTRACTS AND TORT
Answer 3:
Issue:
The liability that arises to the firm and Carolyn under contract law as a result of the
flyer that was printed and distributed for advertisement. Whether such an act by Carolyn
binds the firm to B, who acted on advice in the flyer. B acted on the advice Carolyn
incorporated in the flyer. This act subsequently caused B a loss of $25,000 as the information
in the flyer was incorrect.
Rule:
Under the provisions of Contract Law, the terms of the Contract as per the legal
system must be certain, clear and complete. The parties that enter into a contract must be
competent and willing to enter into a legally binding relationship. There exists a difference
between an offer and an invitation to offer. However, in certain limited scenarios an
advertisement can constitute an offer as decided in Carlil V Carbolic Smoke Ball Company.
These must be clearly established by the Courts in lieu of the Advertisement published and
the specific conditions of the case. An advertisement to become an offer must comply with all
the provisions of legal intent, certainty and be subjected to a specific group.
In order to have a valid and binding contract, certain essential elements must be
fulfilled that include offer, acceptance, legal consideration, capacity of parties and intention
to enter into a valid and legally binding agreement. An offer is made with the intention of
entering into a legally binding agreement and when the same is accepted by the offeree it
becomes a binding contract. Such a contract must have a legal and valid consideration and the
parties entering into such an agreement must be competent and do so in good faith.
Application:

7LAW OF CONTRACTS AND TORT
In the iconic case of Carlil Vs Carbolic Smoke Ball Company a newspaper
advertisement was published to compensate an individual who contracts influenza even after
using the Smoke Ball in the prescribed manner. The same advertisement was seen as
constituting an offer made to the public via the newspaper as it satisfied the following
conditions which the present instance fails to fulfil.
1. Certainty of terms on all the provisions of contract including
price(consideration), quantity, quality, description.
2. Communication to a specific group of people
3. The Advertisers intention to enter into a legally binding contract via the
advertisement
The advertisement by Carbolic Smoke Ball Company was only made to individuals
using their smoke balls in the prescribed manner and an amount of £1000 was deposited in
lieu of the advertisement for the compensation amount quoted in the newspaper, showing
their intention to enter into a legally binding contract. This advertisement acted as a unilateral
contract that showed acceptance through purchase and use of the smoke ball.
By using these parameters in the given instance, it can be evaluated that there was no
intention on the part of the firm or Carolyn to enter into a contract that is binding by law. In
addition, by applying the reasonable man approach courts determine how the advertisement
will be perceived by the public at large and if the same appears as an offer to a reasonable
man.
The flyer just being a means of advertisement does not bind the firm into a contract in
this instance. In the way that B acted there was nothing to show that there was any existing
offer that he was accepting. Additionally, the flyer cannot even be considered as an invitation
to offer as it merely acts as a way of increasing awareness about the firm and its work and

8LAW OF CONTRACTS AND TORT
does not invite the audience to make an offer of any kind to the firm. The accounting tips
mentioned by Carolyn in the flyer are merely suggestions, left at the discretion of the reader
to apply. Carolyn or the firm cannot be held accountable for any loss occurred after following
the advice in the flyer. They just owe a duty of care towards their clients and not any other
person who comes across their advice and acts on the same. B is a third party and has no real
point of contact with the firm. As there is no contract between the firm and a third person, in
this instance B. There was no instance of offer and acceptance thus at no point was a contract
ever formed. As Carolyn has no duty towards B, neither does the partnership firm and in turn
Julio and Trisha.
Conclusion:
The flyer being an advertisement does not amount to an offer made by the firm or any
of its partners to the public at large or the individuals who come into contact with the flyers
through mail, email or in local shops. B might have incurred a loss of $25,000 by following
the advice in the flyers but there being no contract between B and the firm, the firm and its
partners have no duty under any contract towards B.

9LAW OF CONTRACTS AND TORT
Answer 4:
Issue:
Julio, Carolyn and Trisha want to alter their current business structure and model to
improve the efficiency of operations while also limiting their individual liability and reducing
business risks. The present business is structured as a partnership where all the partners are
jointly liable for authorized actions of the other partners. Such a structure can be detrimental
to the partners as there is unlimited liability for all the debts of the company that must be
borne by them.
Rules:
The structure of a company is as such that it has perpetual succession, a separate legal
identity, common seal of the company and limited liability. A member in a company does not
act as an agent for the firm or the other members.
In a Partnership the partners come together to forward a common intention and
purpose, the firm itself has no separate legal identity or common seal. A partnership ceases to
exist at the demise of one of its partners.
Limited Partnership is also an available structure where the partners have limited
liability to the amount that is specifically mentioned in the Register. Under no circumstances
does the limited partner’s liability rise above the amount in the Register. The limitation
however is that such a partner cannot participate in the management activities of the business.
Application:
The current structure gives the partners of the firm enormous liability as agent and
principal of the partnership firm and as a result binds the firm and the other partners with the
consequences of their act done in professional capacity. Such responsibility is not only

10LAW OF CONTRACTS AND TORT
financial but extends to legal cases as well. As a partnership unlike a company has no legal
status, the law treats the partnership firm and the partners as one entity. The advantages of a
partnership are primarily restricted to the stage of incorporation, as the cost and formalities of
setting up such a business structure are less.
In a company due to its separate legal identity, the shareholders possess no interest in
any of the company’s assets or any liability towards the company’s debts or obligations.
If the trio decides to incorporate in the structure of a company to reduce their risks
and separate the business identity and liability from theirs they need to consider certain
factors - the people who are to act as directors and shareholders. If they are to be the same
people or the company would invite outside participation.
The factors that they need to consider while making a shift in the structure are –
• Cost of registration
• Renewal costs
• The extent of liability that is desirable
• The tax structures
• Investments needed
• The projected growth prospects of the firm
The structure of a company can further be divided as a One Company Structure and
Two Company Structure. The latter provides greater protection of a company’s assets which
the former fails to do, from third parties who have claims against the company.
However, if Julio, Carolyn and Trisha decide to continue as a Partnership and want to
protect themselves from the liabilities that may arise due to contracts that they enter with the
clients for providing advice and financial services, they can add an exclusionary clause. This

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clause provides a protection to the partners from liabilities that may arise as a consequence of
their business and work.
Conclusion:
There are certain options available to restructure the existing business of Julio,
Carolyn and Trisha, these include incorporating the existing partnership firm as a company or
adding an exclusion clause to all the contracts that they enter with the clients. These would
ensure the liabilities that the partners have are limited and also any risk to the firm as a whole
is minimized. When the partners are protected against any unforeseen losses and liability the
operations and efficiency of the firm also increases.