Once the appropriate standard has been established, the violation is again proven if the plaintiff proves that the defendant`s conduct fell below or did not meet the relevant standard of due diligence. [35] In business, “due diligence refers to the attention and prudence of managers in the exercise of their decision-making and oversight functions.” [40] The commercial judgment rule assumes that directors (and officers) perform their duties in good faith, after sufficient investigation and for acceptable reasons. If this presumption is not overcome, the courts refrain from challenging well-intentioned business decisions, even if they are failures. This is a risk that shareholders take when making a business investment. [40] However, it is possible that the respondent took all feasible precautions and went beyond what would have been done by a reasonable person, but the applicant was injured. If this is the case, the duty of care has not been breached by law and the plaintiff cannot recover negligently. [36] [37] This is the main difference between negligence and strict liability; According to this theory, if the defendant`s conduct is associated with strict liability, the plaintiff can recover regardless of the precautions he has taken. There should be provisions limiting the transfer of the administrative agent`s share in the management agreement so that the lender can retain control and who operates the property. Each new Director General should be required to conclude a due diligence certificate under the same conditions as the Withdrawal Agreement.

Similarly, the management contract should not be amended without the consent of the creditor. Building on the work of scholars such as Fowler V. Harper, Fleming James Jr., and William Prosser in California, we have developed a complex balancing test that consists of several factors that must be carefully weighed against each other to determine whether there is due diligence in a negligence claim. In CNM Estates (Tolworth Tower) Ltd v. VeCREF I Sarl and Others [2020] EWHC 1605 (Comm), a June 2020 decision, the applicant (CNM) had provided a guarantee through a high-rise building as collateral for certain senior development financing (with CNM as borrower) and mezzanine (with CNM Estates (Tolworth Tower MB) Limited (CNM MB) as borrower). When CNM MB did not make a payment on the mezzanine, a default event was triggered in both facilities. The security guard duly appointed receivers who arranged for the sale of the building. CNM then brought an action (inter alia) against the lender and the insolvency administrators, alleging, inter alia, that the insolvency practitioners had negligently breached their reasonable duty to exercise reasonable diligence and skill in order to obtain the best price that could reasonably be obtained for the secured asset. At the hearing on the preliminary issues, the insolvency administrators denied the breach, arguing that claims against them were excluded by the exclusion of liability clauses of the bond and inter-creditor agreement. The court (foxton J) ruled in favour of the insolvency administrators and held that the Intercreditor contract excludes their liability unless there is gross negligence or intent.

These decisions, while different in substance of their analysis, should be beneficial to lenders. They point out that the scope of lenders` rights to enforce collateral in English is generally free and depends heavily on the terms of the contract or loan agreement. Morley pragmatically cautions against the role of the general duty of good faith in this context, which in practice would in any case be difficult to apply to lenders` obligations under loan agreements. CNM Estates points out that while a general obligation may be implied by law, the parties may agree to exclude it by including sufficiently clear language. These two decisions are useful reminders of the need to formulate clauses in financial agreements with surgical clarity and precision. Clause 19.1 of the obligation does not exclude the statutory duty of due diligence of insolvency administrators, although this obligation could theoretically be excluded by an exclusion clause. Foxton J. applied three relevant principles to the interpretation of exclusion clauses and concluded that the wording of clause 19.1 was too broad to exclude liability for acts committed in breach of the duty of fairness (as would have been the case with an alleged exclusion of negligence): section 19.1 was intended only to exclude liability for “any act authorized under this document”. In the context of the Covid-19 pandemic and the global economic downturn, borrowers and lenders are asking us if lenders have due diligence when it comes to execution. Two recent cases before the English courts have once again drawn attention to the obligations of lenders in the exercise of enforcement powers. .