Status on the upcoming Executive Order on fines for use of unfair contract terms in standard consumer contracts
In connection with the passing of Act No 2158 of 27 November 2021 on amendment of the Danish Contracts Act, etc, it was decided that the use of clearly unfair terms in standard consumer contracts should no longer only have consequences under civil law. It should also be possible to sanction such use with a penalty.
The clearly unfair standard contract terms were to be defined in an Executive Order, which was sent out for consultation by the Danish Ministry of Justice in May 2024.
The draft includes an extensive list of terms which should be deemed clearly unfair.
Initially, the Executive Order was scheduled to take effect on 1 July 2024. However, following the first consultation process, during which the draft was heavily criticised, a second draft was sent out for consultation, postponing the effective date to 15 September 2024.
The second draft was also criticised, and the Ministry of Justice has now postponed the effective date indefinitely, most likely to allow time to properly consider the numerous responses received during both the first and second consultation process.
Key takeaways from the consultation processes
Several issues were raised by the consultation parties as part of the two consultation processes, especially:
1. Non-compliance with mandatory criteria for including terms in the Executive Order
Many responses noted that several terms in the draft Executive Order do not fully adhere to the criteria for when a term can be included in the Executive Order. Based on the preparatory works to Section 38 f of the Danish Contracts Act, a term should only be included in the Executive Order, if:
- A standard term is clearly unreasonable as determined by case law from Danish courts or the EU Courts or if it conflicts with mandatory consumer protection legislation.
- A standard term must be clearly unreasonable in consumer contracts under all circumstances. For example, a term that is considered reasonable in one type of standard consumer contract, e.g. contracts based on General Conditions for Contracts for Building Works for consumers ("AB Forbruger"), is not clearly unreasonable in all circumstances, and should therefore not be included in the Executive Order.
2. Adherence to industry practices or executive orders can be penalised
Following the first consultation process, an exemption was added to Section 37(1), which prevents fines for terms explicitly allowed "by law". However, this limited exemption does not account for terms that are widely acknowledged industry practices, are part of standard agreements such as AB Forbruger, and are based on regulations that are not "law", e.g. executive orders applicable to the financial sector.
3. Broad and unclear scope
It has been criticised that many of the terms included in the draft are overly broad and vague, leading to uncertainty as to when a term is considered clearly unreasonable.
How to prepare for the new Executive Order
It is important to be aware that the mere inclusion of clearly unfair terms in standard contracts with consumers covered by the Executive Order will be punishable by a penalty, even if the term has not been used actively.
In the second consultation process, the effective date was just over a month following the deadline for submitting consultation responses. If this timeline is not extended when the final version of the Executive Order is ready, this leaves very little time to review and adjust - and potentially notify - the new terms. Regardless of when the Executive Order enters into force, and even if some terms are excluded from the final version, businesses concluding contracts with consumers could therefore benefit from proactively reviewing their standard terms now.
Do you want to know more?
Read the Danish Ministry of Justice's draft Executive Order (in Danish)
If you are unsure as to whether your standard consumer contracts comply with the relevant requirements, please contact Plesner's Marketing Law and Consumer Law team.