Breach of contract
A breach of contract arises when a party does not perform its obligations as enshrined in the contract. Whether there is a breach of contract depends primarily on an interpretation of the performance of the contract, supplemented by the gap-filling rules in Danish law. Furthermore, industry-specific common practice will also be a significant factor when assessing the breach of a contract.
In Danish contract law, a breach can arise through either late performance, actual defects or legal defects.
In commercial dealings there is, in Danish law, a general principle of 'time is of the essence', which leads to late performance in general being viewed as a material breach with the possibility of the party not in breach to avoid the contract.
A performance suffers from an actual defect if its physical condition, quality or quantity is inconsistent with the demands set forth in the contract and by applying the gap-filling rules in Danish law.
Legal defects concern situations where one of the parties to a contract does not obtain the rights to a service or item, which he or she was entitled to under the agreement, usually because the offeror did not originally have a right to provide the specific service or sell a given item.
The liability with respect to legal defects is, under Danish law, a strict liability on an objective basis.
In cases of breach of contract, a distinction must be drawn between main and ancillary commitments. This is relevant when assessing the possibility of terminating an agreement. If there is a breach of the main obligation of an agreement, the disappointed party will have the possibility of avoiding the contract. However, if there is only breach of an ancillary commitment, this will only warrant an avoidance of the contract if honouring the ancillary commitment was necessary in order to perform the main obligation of the agreement. Breaching an ancillary commitment will otherwise be sanctioned in another way, typically by awarding damages. Whether performance is defective and thus constitutes a breach of contract must be established at the time of the transfer of the risk between the parties.
The burden of proof lies with the creditor, who must prove that:
- the performance is defective; and
- that the defect was present at the time of the transfer of risk between the parties.
Where performance comes in the form of a product, proving that a product was defective will often be accompanied by expert reports from one or more court-appointed experts.
Although Denmark is moving towards a more flexible standard where party-appointed experts play a greater role, the main rule continues to be that the court appointed expert will render the decisive expert evidence for the dispute.
The theoretical starting point when awarding damages is full compensation. However, in awarding damages for breach, especially in respect of indirect losses, Danish courts award smaller sums of reduced damages compared to many other jurisdictions in order to avoid overcompensating the injured party or claimant in a situation where that party does not have the commercial risk related to performance.