Due diligence - how to fulfill it? What are the consequences of failure to comply?
When performing a contract, you must perform your duties with "due diligence" - this is required by law. For people who run a business, the bar is set higher, because they must take into account the professional nature of their business. When due diligence is not carried out, it may result, inter alia, in the need to pay compensation.
Blame for improper performance of the contract
The person who performs the contract must exercise a certain level of diligence. The regulations speak very generally about "due diligence" (Art. 355 § 1, Art. 472 of the Civil Code). Performing the contract without due diligence means guilt in the form of negligence, and this may result in liability for non-performance or improper performance of the contract.
There is no single, universally applicable pattern of "due diligence" - because it cannot be created for all situations. It is about the normal, average care that can be expected.
In order to answer the question whether due diligence has been exercised, objective criteria are taken into account, such as what the obligation consisted of, what was the subject of the contract, what were the circumstances of its performance.
Professional nature of business
Business people are expected to be more professional in the performance of their duties. Due diligence of the debtor in the scope of his economic activity is determined taking into account the professional nature of this activity - it results from Art. 355 § 2 of the Civil Code.
This translates into a higher level of diligence, accuracy, the right to expect that the entrepreneur has expertise in the industry in which he operates. It takes into account the development of science, technology, the content of legal regulations, norms, professional rules (e.g. rules of building practice, medicine). We present this with specific examples in the following.
Judgment of the Court of Appeal in Łódź of October 6, 2016 (file reference number I ACa 246/16)
The diligence required in a given type of relationship will have to be considered in relation to the knowledge, experience and practical skills required of an entrepreneur undertaking a particular activity. The high degree of diligence results directly from the fact that the expectations of the person concluding a contract with him are usually higher than that of the person who does not carry out the activity in question professionally. Thus, the legislator assumes that this person not only has more knowledge and experience than a person who does not conduct such activity, but is more reliable and has a greater ability to predict.
Responsibility for defects resulting from the material provided by the customer
You may be exposed to the accusation of failure to exercise due diligence if the work is made of material entrusted by the client, which material turns out to be unsuitable for the type of work. The contractor should protect himself against such risk. For this purpose, the customer should be informed about the possible consequences of using an unsuitable material and be able to prove it in the event of a dispute.
The company was commissioned to install a cork floor made of the ordering material. The boards were stored improperly (household members walked over them, there were furniture on them). An employee of the company warned the ordering parties about the effects of improper seasoning of the plates, but they ignored his warnings. Before starting the installation of the floor, the employees asked the ordering parties about the thickness of the leveling layer of concrete and for the given value (5 to 6 cm) they performed a test to check the humidity. The test showed that the moisture content of the substrate is acceptable for the floor location.
The varnish did not catch on in dirty places on the boards. After three months, the slabs began to delaminate due to the moisture in the concrete substrate - it turned out that in some places it was not 5 to 6 cm thick, but as much as 9 cm thick and the moisture did not have time to evaporate. The awarding entities demanded compensation from the contractor for improper performance of the contract for the installation of the floor. The case went to court. The court assumed that the contractor was not responsible for defects in the work resulting from the defectiveness of the material provided by the contracting authority (badly stored cork boards), since it informed him of the resulting risk for the achievement of the intended result. Due diligence was also completed in the field of checking the moisture content of the substrate, because he obtained unambiguous information about the thickness of the floor from the ordering parties and performed a correct test for the given thickness. In the opinion of the court, failure to perform further humidity tests was not a failure to exercise due diligence, and consequently there were no grounds for assigning the contractor a culpable failure to perform the obligations arising from the concluded contract (Supreme Court judgment of October 20, 2005, file ref. II CK 134/05).
Increased diligence cannot be required from just one of the parties
In contracts between a consumer as a buyer and a professional entity as a seller, it is justified to adopt an increased standard of diligence in informing the customer about the properties of the goods. In contracts where there are professional entities on both sides, professionally engaged in activities in a specific field, there are no premises for shifting the risk and the burden of incorrect selection of goods (e.g. construction material) to the seller.
In relationships between professionals, it is not possible to require increased care from just one entity. It is valid for both parties.
A construction company that was supposed to make skylights in one of the shopping malls found this out and needed a colorless laminate for this. She bought the laminate in a company specialized in its sale. However, when placing an order for a laminate, she only specified the requirements for fire resistance, but did not say where and how it would be installed, and did not indicate any requirements for resistance to UV radiation. The purchased laminate was mounted on the outside of the roof, it quickly discolored and had to be replaced. The company demanded a refund of the price paid for the discolored laminate and the damages - and lost in court.
The court found that an entity professionally and professionally involved in the production of skylights as part of large construction investments is justified in requiring due diligence in the selection of materials used by it, including the requirement of at least general knowledge about the types of materials available on the market and the method of their installation, i.e. the existence of UV-resistant and non-UV-resistant laminates, and the effects of installing such a laminate outdoors. The laminate sample provided by the seller stated "gelcoat - no", which meant that the laminate did not have a layer protecting against UV radiation. If the buyer's representative did not know what this information means, he should ask the seller's representative for an explanation of what he did not do. On the other hand, the seller was not obliged to inquire before selling the laminate whether a professional contractor knows that a laminate without a UV protection layer cannot be installed outside (judgment of the Court of Appeal in Poznań of September 17, 2015, file reference number I ACa 381/15) .
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Due diligence of advocates and legal advisers
It happens that the allegation of failure to exercise due diligence in conducting cases is brought against lawyers and legal advisers by dissatisfied clients. The fact that the outcome of the case does not suit the client, however, does not automatically mean that there has been a failure to exercise due diligence, and thus improper performance of the contract due to the fault of the attorney, for which he is entitled to compensation.
Due diligence is an advocate's professional standard (art. 355 § 2 of the Civil Code), it encompasses his professionalism in matters that he undertakes. Professional diligence of an advocate may be considered not to fall within this standard only if the opinion drawn up by him or the manner of proceeding in the case is obviously inconsistent with the applicable provisions or with the generally accepted views of the doctrine or established jurisprudence known before taking the action - concluded the Court of Appeal in Katowice in the judgment of May 28, 2015, file ref. act V ACa 864/14.
As you know, the law is not clear-cut, there are various possible interpretations. Did the attorney who relies on one of the possible interpretations and loses the case fail to exercise due diligence? According to the Court of Appeal in Kraków (judgment of 11 December 2015, file reference number I ACa 1288/15), such an allegation cannot be made against the attorney. Due diligence is the professional measure of an advocate or legal advisor. When conducting a court case on behalf of a client, there are objective principles of legal knowledge and professional ethics. The professionalism of the attorney requires that when conducting the case, he should use the achievements of the jurisprudence and legal doctrine, but in the light of possible interpretative discrepancies, it does not prove that the advocate is not diligent in choosing one of the adopted directions of interpretation.
Who is to prove due diligence?
There may be a dispute as to why the contract was improperly performed and who is responsible for it. Such cases often end up in court. The customer demanding compensation for the damage then has an easier task - it is enough to prove the fact of improper performance of the contract by the entrepreneur. He does not have to prove that the improper performance of the contract was at fault (i.e. that due diligence was not respected in its performance). The presumption that the non-performance or improper performance of the obligation is a consequence of circumstances for which the debtor is responsible (Art. 471 of the Civil Code) operates here to the benefit of customers.
So how should an entrepreneur defend himself against the accusation that he has improperly performed the contract? It is he who has to prove in court that he has exercised due diligence. Therefore, he has to prove the facts that, although there was a breach of the contract, it was not culpable. In the example given above, it was the company that laid the cork floor that had to prove to the court that it had exercised due diligence and that it was not their fault that the floor had peeled off.