SPOTLIGHT ON: DENMARK
Compared with other European countries, Denmark has been able to steer fairly steadily through the financial crisis and has been in a position to adopt necessary reforms in a timely manner. The country is still benefiting from a very low interest rate and its currency – Danish kroner – is considered to be strong.
“Conditions for doing business in Denmark are favourable and, overall, the country offers a great deal of flexibility”
Franchising
In Denmark, franchising as an organisational structure is mostly used within the retail sector and restaurant and hotel business. All of these industries have, in recent years, faced difficult market conditions. This has now changed or is changing extremely fast; the country is booming with optimism and the general expectation is that we will see a reasonable annual growth in the economy for the coming years. This especially applies with respect
to consumer optimism and most franchise systems and concepts should be in a position to utilise this opportunity since a large part of the consumption is going to be within the traditional franchise areas of retail and leisure. The average general consumer in Denmark is somewhat price sensitive, yet at the same time willingly to pay a premium for a quality product. Other important sales parameters in Denmark are design of the product, branding, corporate social responsibility, and the products/services being environmentally friendly. From a legal perspective of doing business in Denmark on a franchise basis, there are some important issues to consider in terms of: investigating the market, finding the right franchisees (or master franchisee), structure of the business, drafting of the franchise agreement and ancillary agreements and arrangement around premises and locations. There is, however, no specific or aggregate set of rules regulating franchise systems as such in Denmark. Every aspect of a franchise system and a franchise agreement is regulated through the general rules of law. Denmark is considered to be a civil law country and an overarching principle of Danish contract law is the principle of freedom of contract. This means that, as a general rule, with some important exceptions, the parties to a contract are free to draw up their agreement so that it reflects their particular needs and preferences without limitations.
Over time, a number of restrictions and exceptions to this clear starting point have found their way into Danish law. Today, every agreement entered into must be drafted in light of a number of provisions that cannot be dispensed with by agreement between the parties.
In addition to the principle of freedom of contract, the law also holds a principle of freedom of form. Therefore, the parties to an agreement may decide whether a written or an oral agreement is preferable although understandably, and for practical reasons, written agreements are the norm in complex cooperation such as franchise systems. Furthermore, the parties may decide whether the language of the agreement should be in Danish or not. In other words, even if it is the general impression that foreign franchise operators usually have their contracts translated into Danish, this is not a requirement, but it is recommended that the franchisor choose a language that the franchisee understands. Accordingly, having the master franchise agreement in English should not be cause
for any concern, but it should, however, be adapted to local Danish law. With respect to sub-franchise agreements and single unit agreements, it would be advisable to have the agreements written in Danish, especially if the agreement in question is lengthy or complex. In Denmark there are no legal requirements to disclose information prior to entering into the franchise agreement. It cannot, though, be ruled out that a court’s interpretation of whether the legal standards of the general clause of the Danish Contracts Act will be affected by the fact that the franchisee did or did not have a chance to assess the agreement – perhaps together with its legal advisor – before it was entered into.
As a final point on this issue, the Danish Franchise Association has issued a set of ethical rules comprising provisions on disclosures to franchisees. These ethical rules correspond with the existing Code of Ethics from the European Franchise Federation and as such are of relevance, although such a code of ethics, by its very nature, is not legally binding. It is, however, considered good practice and should as a general rule be adhered to if a franchisor wants to avoid the risk of their franchisees making a claim for misrepresentation or similar. n
ABOUT THE AUTHORS
LASSE AS CHRISTENSEN is a partner with Gorrissen Federspiel, a leading corporate law firm in Denmark, heading the IP and technology group and also working in media, entertainment and telecommunications. He is specialised in advising major Danish and foreign companies on IP law. Furthermore, he has extensive experience with franchise and retail companies and other chain- organised companies.
SØREN HØGH THOMSEN is an associate with Gorrissen Federspiel and works in the IP and technology group. He provides general advice on IP, franchise and other commercial issues, in particular on the drafting and negotiation of commercial contracts and establishing franchise cooperations.
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