DANISH CONTRACT LAW
This brief introduction to the main principles and canons of construction of Danish contract law is intended to provide our international clients with a useful overview when structuring Danish transactions or when reviewing Danish agreements.
As a jurisdiction, Denmark is predominantly a civil law jurisdiction with elements of common law interspersed. It therefore constitutes more of a hybrid with a civil law base and certain common law characteristics. There is no unified civil law code, but a number of specific statutes interwoven with legal principles emanating from custom and case law.
The main governing statute is the consolidated Agreement Act (Aftaleloven). The Agreement Act sets out the general principles of Danish contract law, but it does not regulate their interpretation per se. Other statutes may as lex specialis regulate certain agreements by imposing terms which cannot be abrogated to the detriment of e.g. the a consumer and thus limiting the liberal approach under the Danish contract law in specific areas. A contract therefore prevails over statutory provision unless the statutory provisions are mandatory.
Freedom of Contract
The overriding principle of the Danish law of contract is the freedom of contract. The parties are therefore free to enter into contractual arrangements, to the extent that the arrangements do not contravene specific statutory provisions set out in a number of discrete statutes governing specific topics and areas of law. Danish contract law is therefore very liberal when it comes to commercial contracts between commercial parties. The starting point to review a contract under Danish law, will therefore be to ascertain the original intention of the parties at the time the contract was concluded, i.e. the 'meeting of the wills'.
Autonomy of the Parties
Danish contract law stems from the fundamental autonomy of the contract parties to agree their "own law" in terms of the contractual agreement. This libertarian basis is then tempered by mandatory statutory provisions or legal principles that may set the limits of the parties' very wide autonomy, e.g. the parties cannot lawfully agree to an unlawful act prohibited by statute. The approach is generally described as Nordic legal pragmatism amongst legal scholars and is not unlike the approach of common law courts in terms of interpreting, applying and developing the law of contracts.
Unlike common law, Danish contract law does not recognise the concept of consideration. The contract formation is therefore based on an offer and acceptance principle. The offer is the declaration of the intent by the offeror to be contractually bound by a set of terms and conditions. This becomes binding upon acceptance by the offeree.
There are generally no formal requirements for contract formation and a contract need neither be in written form nor be concluded before a notary. This also applies to subsequent amendments to a contract. For evidentiary purposes, the written form will take precedence absent evidence to the contrary.
The general rule under Danish law states that a 'wet ink' signature is not required for a contract to be valid. Contracts are generally binding if the parties reach an agreement, irrespective of form (§1 of the Agreement Act). Moreover, the Regulation (EU) No. 910/2014 on electronic signatures (eIDAS) applies in all EU member states as a base line. The majority of standard documents can be signed using a simple electronic signatures. This includes:
general commercial agreements, such as credit facilities, notice and acknowledgements, sale and purchase agreements, NDAs, IP agreements, etc.
corporate resolutions, articles of association, share transfers, etc.
real etate agreements, such as sale and purchase agreements, lease agreements (expect certain termination notices), etc.
employment agreements, such as service agreements, employment agreements, termination notices, etc.
Certain documents may however have a statutory prescribed form requirements (lex specialis), incl.:
transfer of real estate and registration of charges in the Land Registry require a qualified electronic signature (NemID) issued to all Danish residents for the use in connection with public digital services by the Agency for Digitisation. Absent a NemID, the signatory must meet certain statutory form requirements in wet ink and witnessing.
certain transfers and charges in the Persons Register require NemID as above.
certain matrimonial and private documents such as last wills and testaments may require a notarisation or two witnesses.
certain negotiable documents, such as debentures, bills of exchange, cheques, etc.
An agreement may require a prescribed form to amend it. As the vast majority of all contracts are form-free, this is unusual but not unheard of. If there is no specific form requirement other than 'in writing', any form of execution can be used. It is advisable to use a form that leaves some form of an audit trail, e.g. digital signatures such as Adobe, DocuSign, Penneo, Moreover, even where the parties may have agreed a prescribed form of amendment, it is generally also within their powers to agree another form (cf. lex posterior principle).
A contract may be concluded tacitly without a formal exchange of offer and acceptance. Danish case law has established that a legal obligation can be derived from the parties' actions. Accordingly, Danish contract law acknowledges the existence of quasi-contractual obligations and implied terms. These may be referred to as the nature of the matter (forholdets natur) and require a broad consideration of the explicit and implicit terms. A Danish court may also apply a principle of fairness and reasonableness in the circumstances to reach an objectively just result. Similarly, courts may use the principle of 'failure of assumptions' (bristende forudsætninger) as an implied term where the non-realisation of an implied term may result in the contract being set aside ex post provided the assumption was material (væsentlig) for the contract formation, that this was or should have been known to the other party and that it is reasonable for the other party to bear the risk that the assumption fails.
Fairness and Reasonableness
The principles of fairness (billighed) and reasonableness (rimelighed) are not explicitly defined but used to describe the approach of the courts in trying to achieve a reasonable and pragmatic solution. Under Danish law the concept of 'fairness and reasonableness' is used in disputes between two parties that have concluded a contract, but without the specific framework in place to resolve an ensuing dispute. 'Fairness and reasonableness' relate to the idea of reciprocity, meaning an expectation of mutual consideration between the parties in a contractual relationship. If the reciprocity does not manifest itself in the contract, then there is a presumption that the contract has been concluded contrary to principles of fairness and reasonableness. Section 36 of the Agreement Act is a manifestation of the principles as it sets the outer limits of the liberal approach to contractual freedom by permitting a contract to be modified or set aside in whole or in part if the courts would consider the enforcement of the terms unreasonable or contrary to the principles of good faith. The principles can be applied by the Danish courts when a reasonableness test is undertaken, e.g. in long-term contracts where a course of events result in an otherwise reasonable and balanced contract leading to adverse results over time.
Standard of Review
A Danish court will generally review a contract as a whole. To interpret the contract, a Danish court would seek to interpret the contract either with a purposive approach, a contextual approach, under the draftsman's rule, or using the least burdensome outcome test. However, no approach is favoured over the other, as a Danish court will favour the holistic approach in determining the will of the parties to the contract. To the extent that the contract is silent on a specific issue, the Danish courts will apply their power to infer gap-filling terms and provisions. The applicable approach will depend on the specific facts of the dispute, which leaves a very wide scope for Danish courts to exercise their discretion.
If a contract is silent on an issue which in the fulness of time becomes relevant, a Danish court may use its gap-filling powers to infer terms on the basis of what the parties would reasonably have agreed, had they considered the issue ab initio. The business efficacy approach is not clearly defined in Danish case law but can be applied by the courts to reach a desired result that would seem fair and reasonable in the circumstances under the holistic approach and with the intention to make a contract work. The implied terms are generally inferred as sparingly as necessary. The courts may firstly regard past practice between the parties and secondly lex mercantoria before making narrow hypothetical assumptions. It is generally regarded as a variation of the 'failure of assumptions' principle, but with a view to infer terms as opposed to void a contract.
Breach of Contract
A breach of contract arises when a party fails to perform its obligations thereunder. The assessment will depend on the interpretation of the contractual obligations as supplemented by the gap-filling powers of the court and industry-specific practice. Upon a breach of contract, the party not in breach is principally entitled to demand specific performance, which means that the party in breach may be ordered to perform its contractual duties.
The Danish rules on anticipatory breach align with the rules under the laws of England & Wales. If the risk of a breach increases after a contract was concluded to a higher degree than the claimant could have foreseen, the claimant may exercise its rights before the due date. The risk may occur, if the counterparty rescinds the contract or refuses to perform its obligations under the contract in accordance with its terms, if it becomes impossible or if the counterparty becomes insolvent or is taken into administration or into a similar insolvency procedure. The principle of anticipatory breach is a general principle of Danish contract law. In addition, the principle is also enshrined in various statutes, e.g. the Insolvency Act (Konkursloven) sections 53-63 and the Purchase Act (Købeloven), sections 39-41. The exercise of any rights pursuant to an anticipatory breach entails a standpoint risk for the claimant. In conjunction with the exercise of any rights by virtue of an anticipatory breach, the claimant is under a corresponding duty to minimise losses.
Burden of Proof
As with common law jurisdictions, the burden of proof lies with the party making a claim which must be able to prove the existence of a basis for the claim. More specifically, it means that the burden of proof for the creation of a right lies with the party relying on the right, whereas the burden of proof for a change and termination of the right lie with the party claiming the change or the termination. This is often referred to as the position risk (standpunktsrisiko) assumed by the party making the particular claim and acting upon it.
The overriding principle of Danish contract law is the freedom of contract. Accordingly, the parties to an agreement are as a general rule free to arrange their affairs and to agree the basis for their agreement. This fundamental freedom is only limited by certain mandatory protections, i.e. lex specialis, ordre public or the constitution, etc. A contract therefore prevails over statutory provision unless the statutory provisions are mandatory. The contract therefore forms the basis for the analysis. In seeking to interpret a contract, the court will seek to ascertain the will of the parties by applying a contextual approach based on the evidence before the court. What was the parties' common intention? This is typically a common sense and pragmatic approach based on the individual circumstances of the matter before the court and less formalistic unless lex specialis applies. The wording will be reviewed on the basis of "the meaning commonly given to terms and expressions in the trade concerned" with due regard to the intention and usage between the parties and market custom, the nature and purpose of the contract and the requirement of good faith and fair dealing. The contra proferentem rule may equally be applied to resolve certain ambiguities, depending on the circumstances. Words are given "the meaning that reasonable persons of the same kind as the parties" would apply. If no proof can be provided, the court may presume what the parties intended on the basis what "two reasonable and upright" parties would agree to. In general, it can be stated that the principles set out in chapter 4 of the Unidroit Principles on interpretation correspond with the practice of Danish courts.
Law on Addenda
The question may arise as to whether addenda form part of the entire agreement or whether there are preceptive form requirements for addenda and subsequent variations to an original contract which would have to be observed. As a general rule, there are no specific formal requirements under Danish law for commercial parties to enter into a commercial agreement. Thus, there are no overriding requirements for a contract to be in written form, to be registered with a competent authority or registrar or to be signed before a notary or other public official. The same applies for addenda. A contract may state that it is to be amended or varied in a certain form or manner. However, even where the parties have agreed a specific form of amendment or variation, it is equally within their powers to subsequently agree another form or to derogate from this by mutual agreement (cf. lex posterior-principle), but of course not unilaterally. Lex specialis may set out other requirements, e.g. for testaments to be witnessed in a certain form or for bills of exchange to follow a prescriptive format. However, these are preceptive form requirements for very specific contracts and are an exception to the general principle of freedom of contract. Moreover, contracts with defects in the prescriptive formats are generally considered to remain enforceable inter partes but may be defective vis-à-vis third parties or pursuant to lex specialis.
Enforcement of Contract Terms
The breach of a contractual obligation is a matter of fact. The contract may specify what events of default apply and in what circumstances an event of default occurs. However, a contract may also be silent on the matter and the underlying law of contract would then apply to deal with the breach. Contractual obligations can be divided into primary obligations (hovedforpligtelse) and accessory obligations (accessorisk forpligtelse). A material breach of a primary obligation would entitle the wronged party to elect to terminate the contract in lieu of other remedies. A breach of an accessory obligation would not. A breach of contract will entitle the wronged party to: (I) claim for specific performance (naturalopfyldelse); or (II) damages based either on (i) reliance interest (negativ kontraktsinteresse), or (ii) expectation interests (positiv opfyldelsesinteresse), but not both. The claimant may therefore on the basis of a valid contract in the event of a breach elect to (I) raise a claim in relation to the performance, i.e. (i) terminate its own performance, (ii) rescind the contract or (iii) affirm the contract and require specific performance; or (II) raise a monetary claim for (i) reduction in price or (ii) damages. The claimant therefore has a choice between two avenues of redress: (I) to rescind the contract; or (II) to affirm the contract and seek specific performance – in both (I) and (II) to seek damages for a loss. A claim can therefore be divided into tiers with a primary claim and a secondary claim, if the primary claim is not granted, and so forth. A payment obligation will ordinarily be considered a primary obligation and a breach must be considered material in the circumstances. A party may therefore at its discretion elect to affirm a contract and seek specific performance as part of its remedies from the court. The counterparty is generally entitled to remedy a breach to the extent that it can be remedied. In certain contracts, remedial obligations may be tempered by a reasonableness view, also referred to as the sacrificial limit (offergrænsen) pursuant to which remedial action may be limited by what is considered commercially reasonable.
Enforcement of Positive Obligatons in Contracts
If a claimant elects to affirm the contract, it can require the other party to perform as required under the contract (naturalopfyldelse) on the basis of the principle pacta sunt servanda. The court would then seek to enforce. If the context prevents a specific performance, e.g. impossibilium nulla obligatio est, the claim may be converted to a monetary claim, e.g. if services have been purchased, the court bailiff cannot enforce the service provider's or employee's personal performance of the service.
Rights to Inspect and Audit Documentation
The main principle of freedom of contract permits the parties to a contract to specifically agree to a right to inspect and audit documents and data. In addition, the right of one party to demand scrutiny of documents and data from the other is specifically enshrined a number of statutes covering discrete areas of law. Examples include by analogy, the Companies Act (Selskabsloven) sections 150-152 which permit a shareholder to require audit of the company's books and records and to appoint independent special auditors by resolution or by court order if a simple majority resolution fails but one quarter of the share capital approves. The special auditor may require the information considered relevant for the audit from the management of the company and, if the company forms part of a group, from the members of the group. Similarly, the Commercial Agents Act (Handelsagentloven) section 15 permits a commercial agent to require all information in the possession of the principal to be made available for independent scrutiny in order to audit and verify commission due to the agent. If the principal refuses to provide the information or if there is reasonable doubt as to the veracity of the information, the agent may demand access to the records or demand access to be granted to an auditor to audit the principal's books and records. The duty cannot be contractually abrogated to the detriment of the agent. The exception to the rule in the Commercial Agents Act pertains only to information from which the principal would be exempt from providing as a witness in a court of law due to self-incrimination. A duty to provide information or to grant access to books and records for audit can therefore be implied in Danish contract law and is a matter that can validly be agreed between parties.
Adjustment of Contractual Debts
The primary source of legal obligations between parties is their contractual agreement. An agreement may by way of example set out a mechanism of overpayment by way of the provisional prepayments and a repayment based on a subsequent adjustment within specified time periods. This creates a primary and direct obligation on the party receiving the overpayment to adjust and repay in accordance with the framework and provisions of the contract entered into and as intended by the parties. The principle of overpayment and repayment is therefore established and accepted by the parties to the agreement. By analogy, the principle of condictio indebiti states that if a party has overpaid erroneously, there is a claim for restitution of the overpaid amount from the other party. While the principle is not enshrined in statutory law, it is equally applied in Danish case law. It is based on the principle that if a party has been unjustly enriched, then the other party has a correlating claim for restitution (Berigelsesgrundsætningen). The claim for restitution is not a claim for damages. A claim for damages focuses on the claimant's loss and requires culpa. The enrichment is not relevant. A claim for unjust enrichment focuses on the enrichment and does not necessitate culpa. In the majority decision in the Danish Supreme Court case U 2000.656 (H) (3-2) a composer had been commissioned by the Danish Royal Theatre to compose the music for a ballet. It was contractually agreed that the composer would receive an advance down-payment and a royalty percentage of the proceeds from the performances. The performances were cancelled and therefore no royalty proceeds would be calculated. The composer sued the theatre to demand that the original agreement be supplemented by the court due to the ballet not being performed in order to adjust his compensation. The Supreme Court awarded the composer an additional compensation in lieu of the missing performances even though the theatre argued that the royalty compensation should be zero. The Supreme Court majority reasoned that it should be implicitly known to the theatre that this was an integral part of the overall compensation agreement and awarded a compensation determined by the court in the absence of actual theatre performances. The minority dissented that the additional royalty compensation would be due by reference to the original contract.
Damages require a basis for liability. Not every breach results in damages. The basis for liability is either (i) fault-based liability (culpa) on the defendant side, (ii) breach of warranties, (iii) breach of statutory provisions. The principle of culpa in contractu applies for fault-based liability within the framework of a contract. This is the ordinary starting point for damages under Danish law. The basis of the damages, provided the contract is upheld, is that the claimant should be made whole again as if the contract had been performed in accordance with its provisions. The calculation of damages may include deductions for the claimant's own fault in terms of acceptance of certain risks, failure to mitigate losses, or any unforeseen enrichment. A payment claim requires due and timely payment with accrued interest from the due date in accordance with the Interest Act (Renteloven).
Interest on Damages and Debt Claims
The Interest Act (Renteloven) is the main statute that regulates interest on debt claims and damages in conjunction with the Administration of Justice Act (Retsplejeloven). The Interest Act does not regulate the underlying currency, but the interest applied thereto. The Interest Act applies the interest as set out in the EU Late Payment Directive (2011/7/EU) and section 5 sets out default interest as an annual interest rate based on the reference rate plus eight per cent, i.e. official lending rate of the National Bank of Denmark which is regulated twice annually on 1 January and 1 July respectively. Pursuant to section 6 of the Interest Act, if the creditor is entitled to a higher interest on another basis than set out in the act, the creditor remains entitled thereto.
After a contract has been concluded, the parties have a mutual duty of care referred to as a loyalty obligation (loyalitetsforpligtelse) within the nomenclature of Danish contract law. This is essentially a 'good faith and fair dealing' provision. The duty of care requires the parties act in good faith with due consideration of the interests of the other, even if these interests are not expressly stated in the contract per se. This is akin to the provisions set out in the Principles of European Contract Law article 1.202 requiring that the parties "co-operate in order to give full effect to the contract" and "act with good faith and fair dealing". The duty of care can be asymmetrical based on the parties' respective roles and obligations under the contract and their circumstances. The principle may be used by a Danish court to imply terms or obligations into a contractual arrangement by virtue of its gap-filling powers. It is generally accepted, that the duty of care can manifest itself in a duty to inform a contracting party of circumstances which could result in losses or disappointments.
Choice of Law and Jurisdiction
The rules governing the choice of law in contractual disputes are set out in the Rome Convention. Due to certain national opt-outs from the legal cooperation within the EU, Denmark is not a party to the Rome I Regulation. Therefore, the governing law of a contract would be deemed the jurisdiction that is most closely connected with the contract pursuant to article 4(1) of the Rome Convention. The presumption is, that the law governing the contract would be the law of the place in which the contract is performed (cf. Article 4(2)) or that of the counterparty's domicile.
Choice of venue agreements entered into by parties domiciled outside Denmark with the intention of submitting a dispute to a specific or non-specific Danish court are regulated by the Hague Choice of Court Convention Article 3 and Brussels I Regulation Article 25. The Hague convention entered into force in Denmark on 1 September 2018.
As a general rule, the principle of freedom of contract permits commercial parties to agree inter partes to a choice of law and jurisdiction for the elements of the contract which are within their ambit. This is in accordance with the Rome Convention. Denmark is not a party to the Rome I Regulation due to national opt-outs and therefore the Rome Convention applies and has been incorporated into national law. Certain exceptions apply in specific circumstances to protect a party, e.g. consumers or the provision of the Commercial Agents Act which states in sections 22 and 25-27 that a choice of law cannot be applies to the detriment of the commercial agent. Absent an express choice, the Rome Convention will determine the applicable law and jurisdiction.
FURTHER INFORMATION AND EXPERTISE
English version of the Danish Contract Act No 193 of 2 March 2016 (the Agreement Act) translated using automated translation software by DeepL. Please note that the automated translation has not been edited and only the original Danish version of the act applies while the English version is for ease of reference only.
For further information on Danish contract law, please consult our publications and news or contact Michael Carsted Rosenberg or Dr. Andreas Tamasauskas at Carsted Rosenberg.
5 April 2020
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