Tuesday, January 2, 2024

What you should know when entering into a commercial contract with a Danish business partner

There are however, some exceptions to the general rule – depending on the nature of the contractual relationship; some rules cannot be derogated from. 

E.g. employment contracts and consumer contracts have certain mandatory regulation, intended to protect the employee, the consumer, etc. Furthermore, contracts regulating illegal contractual relationships or contractual terms meant to illegally circumvent applicable legislation are deemed “contrary to public policy” and are usually void and unenforceable in Denmark. As an example, an agreement between two suppliers who geographically divide Denmark between them is in direct non-compliance with the Danish Competition Act, and such a provision would be rendered void.

Click here to read more about commercial contracts in Denmark

In this article, we will provide you with a list of basic but important information you should consider when entering in a commercial contract based on Danish law. 

Formation of the contract

• There are no formal requirements in relation to contract formation, i.e. both written and oral agreements are valid. However, for documentation purposes it is highly recommended that the parties materialise their agreement in a written contract. We are sometimes asked whether it is legal to make an audio recording of conversations (oral agreements) under Danish law. Insofar as you are a part of the conversation, it is legal. However, there can be restrictions on how you subsequently use such a recording. 
• Oral offers should usually be accepted immediately by the offeree, in order for them to be binding.
• A contract is deemed to be formed with binding effect for the parties when (i) the offeror has made an offer; (ii) this offer has reached the offeree and has been accepted by the offeree without remarks (the acceptance should mirror the offer). E.g., agreements made in e-mails are valid and binding.
• The offeror can withdraw its offer, before the offeree knows the offer, i.e. the withdrawal of the offer by the offeror has to reach the offeree before or at the same time as the offer.
• In trade situations, we often come across a situation in which two parties have commenced trade, and each have forwarded their standard terms/conditions. When a dispute subsequently occurs, each party tries to enforce their own set of T&C’s, giving place to a so-called “battle of forms” in which the parties want to enforce dissenting terms. Under Danish law, such dissenting terms generally cancel each other out in the contract (“knock-out principle”). In the absence of agreed terms, the Danish standard trade legislation and its principles are applied by a court instead.

Interpretation/Construction of the contract

• From non-Danish jurisdictions, we often see “Entire Agreement” clauses stating that only the text from the actual contract should be considered when resolving disputes. However, note that Danish courts tend to disregard such “Entire Agreement” clauses to a wide extent, and construe the contract from a wider approach; Courts will consider the purpose of the contract, i.e. what was discussed by the parties during contract negotiations, the actual final wording and the contract’s context.
• Ambiguous clauses in contracts between two businesses are construed against the party that drafted the clause in question.
• If one party to the contract is a consumer, ambiguity will be construed in favour of the consumer.
• If the contract does not regulate certain issues, Danish law applies gap-filling rules.  

Breach of contract

• Breach of the contract is understood as non-performance of the contract by one of the contractual parties. 
• Interpretation/Construction of the performance under a contract, supplemented by the gap-filling rules, industry common practices, among other factors, are significant for the assessment of whether the contract has been breached by any of the parties. 
• It is important to distinguish between main and ancillary obligations under the contract, in relation to determine the applicable remedies when one of the parties is in breach of the contract.
• The party claiming breach of contract by the other party has to document the breach as part of the burden of proof.

Limitation periods for claims in case of breach of the contract

• The Danish Time Limitation Act establishes limitation periods for breach of a contract, which functions as gap-filling rules if nothing else is negotiated by the parties. Limitation of liabilities, can equally be negotiated and agreed by the parties involved (e.g. liability limits in relation to indirect losses, maximum amounts payable under a contract). 
• In general, the time limitation period for breach of a contract is 3 years. However, if the debtor has acknowledged the aggravated party/creditor’s claim, or if the claim is unknown to the parties, the time limitation period can be as long as 10 years.
• The claiming party taking legal action against the party in breach can interrupt the limitation periods.

Tort-based claims 

• In addition to contract-based claims, the aggravated party can bring a tort-based action against the other party with the claim of damages, if it argues that the other party has acted in a tortious manner, causing the claimant to suffer a loss. 

Remedies in case of breach of the contract

• The aggravated party is usually entitled to demand specific performance. I.e. to have the breaching party deliver the missing goods or payment. However, if the matter of the contract no longer exists, is impossible to provide, or if the performance was personal, then specific performance will be pointless, the options for remedies will be to either claim for damages or terminate the contract.
• A mere breach of contract is not always sufficient for the party in breach to liable to pay damages to the aggravated party – the party in breach must have acted in a culpable manner, and the loss must be foreseeable. The burden of proof in this case lies on the aggravated party. 
• Damages can be divided into expectation damages and reliance damages. Expectant damages aim to put the aggravated party in the position it would have been in had the contract been duly performed/fulfilled. Reliance damages aim to put the party in the position it would have been had the contract never been entered into. 
• If there has been a breach of the main obligations, the aggravated party will normally be entitled to avoid or terminate the contract. However, if the breach has occurred in relation to ancillary or auxiliary obligations, termination would not be possible, and a claim for damages would be the usual remedy. However, if the breached ancillary obligations is necessary to perform the main obligations of the contract, termination could be possible. 
• Rescission of the contract is a very burdensome remedy for the other party to the contract, therefore it is often considered as a last resort.

Do you want to hear more about commercial contracts? Contact us! Attorney-at-law Nicholas Ørum Keller.