DENMARK Law and Practice Contributed by: Dan Bjerg Geary, Rasmus Otterstrøm Helleland Boisen and Laura Sloth Olesen, Bech-Bruun
• the Product Liability Act; and • the Interest Act. 1.3 Definition of a Franchise Agreement Under Danish law, there is no statutory definition of “franchising”. However, “franchising” is generally understood as a business model where a franchisor, through a fran - chise agreement, grants a franchisee the right to operate a business using the franchisor’s brand, trade mark and business system. The franchisor is the origi - nal business owner who has developed a successful brand and business system. The franchisee is another business that wants to open and operate one or more stores using the franchisor’s brand and business sys - tem. In Denmark, there is no legal mandatory requirement for franchisors to disclose information before entering into a franchise agreement with a franchisee. However, it is generally recommended that franchisors provide certain disclosures due to the principles of culpa in contrahendo and the obligation of good faith. These principles suggest that it is prudent to share rel - evant information before finalising a franchise agree - ment. 2. Franchise Disclosure 2.1 Mandatory Disclosure The obligation of good faith requires both the fran - chisor and the franchisee to consider each other’s interests and provide necessary information to pre - vent losses. Thus, concealing information or mislead - ing behaviour can be a breach of the principle of good faith. While not legally required, franchisors are encouraged to share key details that could affect the franchisee’s decision-making process. These might include: • information about the expected profitability of the franchise; • any significant legal disputes that could impact the franchisee’s operations; or
• the status of trade mark applications. Such transparency helps build trust and ensures that the franchisee is fully informed about potential risks and opportunities prior to entering into the franchise agreement. 2.2 Consequences of a Failure to Disclose While there are no specific legal disclosure require - ments either before or after signing a franchise agreement, a franchisor’s failure to disclose essential information may lead to certain legal consequences. If the franchisor misrepresents or mis-sells essen - tial information regarding the franchise concept, the franchisee may have the right to nullify the franchise agreement depending on the nature of the misrepre - sentation of information. If the franchisee is misled, they may pursue legal action to seek reimbursement or damages. This might include reimbursement for losses incurred due to the franchisor’s lack of disclosure. Duty of Loyalty If a franchisor fraudulently neglects the duty of loyalty and fails to disclose material commercial information, the franchise agreement could be considered invalid. Additionally, failing to uphold this duty may be seen as a breach of contract, providing the franchisee with grounds to seek remedies. Remedies for Breach of Contract In cases where the franchisor breaches the franchise agreement, the franchisee has the right to claim dam - ages. To do so, several conditions must be met: • the franchisor must be liable (culpa); • the franchisee must have suffered a loss; • the loss must have been foreseeable; and • there must be an adequate causal connection between the breach and the incurred loss. Furthermore, pre-contractual liability requires evi - dence of unfair conduct or violation of pre-contractu - al principles. Damages can be sought for losses and expenses related to the conclusion of the agreement, effectively restoring the non-breaching party to the
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