Rough End Ltd ("Rough End") is a large grower of pineapples.Peter is the managing director of Rough End. Penelope and Patricia are non-executive directors.Penelope was appointed because of her vast experience in the growing, processing and sale of pineapples.

Rough End grows a particular variety of pineapple called theSmooth Cayenne pineapple.It is resistant to pests, grows fast, requires little fertilizer and has a delicious sweet taste that consumers adore. The only downside with this variety is the seedlings are very expensive.

In order to save money, Peter suggests to the board that when the company plants its next crop, it should plant Red Spanish pineapples which are considerably cheaper than Smooth Cayenne pineapples.Unfortunately, and unknown to the directors, the Red Spanish variety has an inferior taste to the Smooth Cayenne and there is no market in Australia for these pineapples - they are unsaleable.

Patricia is concerned about the idea and speaks to Rough End's sales manager Warren. Warren holds himself out as an expert in the cultivation, harvesting and sale of pineapples in Queensland but in reality he has only been with the company for 2 months and before that he was a used car salesman.Warren tells Patricia he has never heard of the Red Spanish variety but says, "if it saves the company some money, it sounds good to me."

Without undertaking any further investigation, the board subsequently passes a unanimous resolution in favour of using the Red Spanish variety.It turns out to be a disaster. The plants are ravished by pests, require a tremendous amount of expensive fertilizer and those that survive cannot be sold.This results in Rough End sustaining enormous losses.

Part A:

Would Rough End have a cause of action against the directors for breaches of their duty of care, skill and diligence?

[9 marks]

Part B:

If the directors were found to be in breach of section 180(1) of the Corporations Act, could they be subject to criminal liability?

[1 mark]

[TOTAL:10MARKS]