All questions

Common substantive issues and remedies

i Time bars as condition precedent to entitlement

Requirements on adherence to formal measures, such as set periods or other types of cut-off clauses similar to those known in the FIDIC suite of contracts, are generally not strictly upheld by Danish courts and tribunals. Thus, otherwise legitimate claims are not necessarily forfeit for non-adherence. However, the parties must not demonstrate complete disregard for agreed formalities, and recent debate and practice may lead to a stricter enforcement or interpretation under Danish construction law.

ii Right to payment for variations and varied scope of work

Neither Danish law nor the AB Standards require a written procedure for variations and, accordingly, the contractor is entitled to payment even if a written procedure has not been followed. However, the party intending to rely on an agreement bears the burden of proving that the agreement was concluded and therefore it is always recommended to make a written agreement. The contractor may also be entitled to payment for varied works without an agreement with the building owner if the varied works were necessary to fulfil the contract and if it was impossible to ask the owner for prior approval of the works. The right to payment is thus reliant on agreement or performance of necessary variations and according to usual requirements for documentation but is not reliant on formalities.

iii Concurrent delay

In Danish law, concurrent delay involves a situation where both parties have caused the delay. Under those circumstances, neither of the parties is considered liable for the delay and the contractor is awarded time, not money. However, insofar as the cause of delay can be 'split' between the contractor and the building owner, each party will be held liable for its 'part' of the delay. This view was confirmed by the arbitral tribunal in TBB: 2018.649. In the case, the contractor argued that the building owner was liable for 13 weeks of delay. However, the tribunal found that the contractor was the sole party responsible for two of the 13 weeks of delay and that the building owner could claim liquidated damages for those two weeks. As to the remaining 11 weeks, the tribunal found that the contractor was concurrently liable for delay for two weeks and the building owner was the sole liable party for the final nine weeks. Therefore, the contractor had the right to extension of time for 11 weeks, but because the contractor was liable concurrently with the building owner for two of the 11 weeks, payment could only be claimed for nine weeks.

iv Suspension and termination

A notice of immediate termination must be given in writing and, in accordance with the AB Standards, the party terminating the contract must call, in writing, for the parties to attend a status meeting. Furthermore, if the building owner fails to pay an amount due by the final payment date, the contractor may stop work after having given written notice of three working days. Unlike the FIDIC rules, the AB Standards do not confer a right to suspension on a building owner, and it cannot be considered a general prerogative of the owner. The owner does have the right to reduce works and compensate the contractor.

v Penalties and liquidated damages

Damages of a punitive character are likely to be set aside by Danish courts. However, liquidated damages are usual and permissible, and they are considered to be agreed damages or in substitution of these. Agreements regarding liquidated damages must be reasonable and sufficiently clear. Liquidated damages may only be claimed if the milestone and the liquidated damages are clearly specified in the contract. Any non-compliance with the relevant milestone must have been recorded on an ongoing basis and, within a reasonable time of becoming aware of the exceeded milestone, the owner must state that liquidated damages will be claimed, and specify the time from which they will be claimed. If the described process has been followed, the courts will rarely alter or dismiss such agreements.

vi Defects correction and liabilities

Under the AB Standards, the contractor has a duty and a right to rectify defects identified at handover and during a five-year period after the handover. Claims for defects must be submitted no later than five years after the handover. Claims are barred thereafter unless the contractor has undertaken an extended warranty, the agreed quality control at handover fails significantly or the contractor has acted with gross negligence.

In accordance with the Limitation Act, claims for defects are time-barred three years after the building owner became aware or should have become aware of the defect. Unless the contractor has acted with gross negligence, the building owner must, regardless of any final deadline set in the AB Standards or the Limitation Act, give notice within a reasonable time of the matters providing the basis for a potential claim having been discovered or that should have been discovered.

vii Bonds and guarantees

According to the AB Standards, both the building owner and the contractor must provide a performance bond guarantee as security for performance of their obligations. The performance bond to be provided by the contractor must correspond to 15 per cent of the contract sum until handover has taken place. After handover, the bond is reduced to 10 per cent regardless of defects. Defects in this respect can be set off against the contractor's final account. One year after handover, the bond is reduced to 2 per cent unless the owner has submitted a prior written notice of defects. Finally, five years after handover, the performance bond ceases, unless a prior written complaint has been submitted. The performance bond from the owner must correspond to three months' average payments and, as a minimum, 10 per cent of the contract sum. In certain instances, the contractor may demand that the bond be increased in correlation to additional works. The party demanding payment under the performance bond must submit the request in writing to the opposing party and the guarantor. The amount claimed must be paid within 10 working days of receipt of the notification unless an objection is filed with the Arbitration Board.

viii Overall caps on liability

Under Danish law, no caps on liability are imposed per se and the parties may freely agree to limit their liability; however, account should be taken of the principle of the threshold of sacrifice (see Section II), although the scope of this principle is limited to extraordinary circumstances. Agreements regarding limits to liability are subject to the general principles of Danish law, prescribing, for example, that burdensome or unusual agreements must be sufficiently highlighted, clear and concise. Furthermore, although any contractual provision can be set aside or altered if deemed unreasonable in accordance with Section 36 of the Contracts Act, limits to liability are, by their nature, more prone to such alterations. In addition, the established consensus in Danish legal literature, as well as in case law, is that, apart from special regimes such as the knock-for-knock clauses known in the offshore sector, limits to liability relating to acts of gross negligence or intent will usually be set aside. Furthermore, certain types of liability are regulated by statutory law; it is, for example, mandatory for an employer to take out occupational injury insurance subject to the Workers' Compensation Act.

ix Development damage

An area of Danish construction law attracting considerable domestic attention and debate is the concept of development damage. It entails the exemption of the contractor's usual liability for damages relating to lack of development of the technology or knowledge available at the time of construction. A contractor must use materials and methods fit for the intended purpose. However, when later developments in technology or knowledge reveal that a previously well-recognised material or method has proved unsuited, the contractor may under certain conditions be exempted from its usual liability. The rule has been developed and defined through court and arbitration tribunal practice and is codified today in the AB Standards.

The materials or method must have been common knowledge when the choice of use was made. A deficiency is not considered a defect when the deficiency is caused by either a practice or material that at the time of construction was considered thoroughly tested through experience, well-proven and in accordance with accepted general professional knowledge – a development damage. The exemption is rare but may prove costly for the owner having to bear an unforeseen and potentially major economic risk. However, as the risk is inherently not foreseeable, it is a risk not easily handled contractually or any other way.