Karina and Jay wanted to establish a bakery business called Exquisite Buns. Karina was a trained baker, while Jay had $45,000 that he invested in the business. Karina also provided a commercial oven worth $5,000, which helped reduce their set-up costs. Due to renovation costs, they had to borrow $50,000 from Lilly, a very experienced businesswoman. Lilly agreed to help manage the business but stated that once she had been repaid in full by sharing the profits equally, she would leave Karina and Jay to run the business by themselves.

At first, business thrives due to Lillys expert guidance. Then Karina orders very expensive baking trays and a commercial refrigerator from Dougs Kitchen Supplies Pty Ltd. These new trays and refrigerator cost a total of $10,000. Unbeknownst to Lilly and Jay, she owns 1% of the issued share capital of the company. She did not consult the others about the purchase and bought those trays and refrigerator on credit with finance provided by the company at a rate of interest five times the normal rate. Karina also received from the company 5% commission on the contract. When Lilly and Jay found out, they were furious.

Is the relationship between Lilly, Jay and Karina a partnership? Explain the reasoning behind your answer.

Explain who, if anyone, is liable for the purchase of the trays and refrigerator. What duties have been breached?