Paul is the managing director of Dynamight Pty Ltd (‘Dynamight’) which is involved in the manufacture of electric dynamos. Paul, on behalf of Dynamight, has accepted an order for 300 electric dynamos from Motor Solutions Pty Ltd (‘Motor Solutions’).

The order has been delivered to Motor Solutions in the terms agreed. Motor Solutions are however yet to settle the invoice in the sum of $90 000 from Dynamight.

It is well known across the industry that Motor Solutions is in serious financial difficulty. In fact, at the time the order was made, Motor Solutions was generally known as a bad credit risk in the industry. Paul was aware of this too. However, his good friend Bob, is the managing director of Motor Solutions and Paul therefore decided to supply the order nonetheless.

Motor Solutions has now been placed into liquidation and has still not paid the debt owed to Dynamight Pty Ltd.

Required:

What is the relevance of the ‘business judgment rule’ in Paul’s circumstances and in Bob’s circumstances?