The Danish Ministry of Justice has sent a draft Executive Order on sanctions for the use of clearly unfair terms in standard consumer contracts out for consultation. The Executive Order specifies which standard terms are deemed to be clearly unfair and the use of which should be punished by a penalty.
In connection with the passing of Act No 2158 of 27 November 2021 on amendment of the Danish Contracts Act, etc, it was laid down 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 has now been sent out for consultation by the Danish Ministry of Justice.
"Standard terms" refer to not individually negotiated terms, that is, the term has been drafted in advance and the consumer has not been able to influence the substance of the term, in particular in the context of a standard contract.
The draft report includes a long list of terms which should be deemed to be clearly unfair, including:
- standard terms that are contrary to mandatory legislation which is to protect the consumer
- standard terms that are contrary to public law, and which materially prejudice the consumer's statutory rights
- standard terms excluding or materially limiting the consumer's rights in case of breach by the trader
- standard terms providing that the trader may draw amounts directly on the consumer's payment cards in case of the consumer's breach of the contract
- standard terms precluding or materially limiting the trader's liability for damages towards the consumer, including terms
- limiting the trader's duty to mitigate damages
- stipulating an upper limit for the trader's liability for damages
- precluding that the trader may become liable for indirect losses
- limiting the trader's liability for damages to situations where the trader has acted intentionally or grossly negligent, and
- precluding or materially limiting the trader's liability
for damages for a third party's actions or omissions, if the
trader would be liable for such damages under the general rules of
Danish law
- standard terms providing that the trader may unilaterally decide whether the parties have fully or partially performed their obligations under the contract
- standard terms providing that the trader is entitled to amend the contract materially to the detriment of the consumer without the consumer's active consent, and the conditions for this have not been met
- standard terms providing that notifications published on the trader or a third party's website must be deemed to have been received by the consumer
- standard terms providing that the consumer has accepted one or several terms which the consumer has not examined or did not have any real opportunity to examine prior to the conclusion of the contract
- standard terms providing that the trader can unilaterally decide how the contract or one or several terms should be interpreted
- standard terms providing that the consumer may not disclose anything about the contractual relationship (non-disclosure clauses)
- standard terms providing that any disputes arising from the contractual relationship must or can only be settled by arbitration
- standard terms providing where proceedings arising from the contractual relationships should be instituted
EU case law and relevant directives have already established extensively which standard terms should be deemed to be unfair. The Executive Order contemplates that they should all be deemed to be "clearly unfair" and that use of them will be liable to punishment in future.
Assessment of penalties
The amount of the penalty is determined under the general rules of the Danish Criminal code and will be subject to the seriousness of the breach and the intended or obtained profits from the breach.
If the clearly unfair term is detrimental to collective interests of consumers in at least two EU member states in addition to Denmark, the penalty may amount to up to 4% of the trader's annual turnover in the relevant member states.
Entry into force
The Executive Order is expected to enter into force on 1 July 2024.
The Executive Order will apply to consumer contracts entered into after the date of the entry into force.
Consequently, businesses concluding contracts with consumers should review their standard terms no later than 1 July 2024 to ensure that they do not include such terms.
Read the Danish Ministry of Justice's draft Executive Order (in Danish)
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.