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DENMARK: Danish principal was not obliged to pay goodwill indemnification at termination of agency agreement.

The Danish Supreme Court recently decided to what extent an agent's contractual obligations could be changed due to passivity. (Case n. BS-7909/2020-HJR - Jo & Co BVBA v. DK Company Vejle A/S - The Supreme Court's decision of 28 January 2021)

Jacob Orskov RASMUSSEN - 15.03.21
Country expert

The principal and the agent had agreed to a commercial agency agreement under which the principal could terminate the agreement if the agent took on other brands without the principal's written consent. Despite the principal having accepted that the agent taking on other brands without the principal's consent in the past, the principal could still terminate the agreement when the agent took on new brands again.

DK Company Vejle A/S as the principal and Jo & Co as the agent entered into a commercial agency agreement in 2004.

The agreement contained a clause stipulating that Jo & Co were only entitled to sell or advertise other brands in the clothing and textile industry after receiving written consent from DK Company Vejle A/S. The parties agreed that failure to obtain consent was to constitute a material breach of the agreement which entitled DK Company Vejle A/S to terminate the agreement.

When Jo & Co took on another brand without consent from DK Company Vejle A/S, the latter terminated the agreement. The primary dispute in the case was whether the clause requiring written consent was amended due to the principal's passivity and whether Jo & Co were entitled to compensation and damages for goodwill following the termination, cf. the Danish Commercial Agent Act section 25.

The agreement had been in force for 10 years, and Jo & Co had taken on other brands several times without objection from DK Company Vejle A/S. Additionally, Jo & Co had been recognized by DK Company Vejle A/S as a "multi-brand agent" during negotiations. However, the Danish Supreme Court found that the clause requiring consent to take on new brands had not been changed because of passivity. Consequently, the termination was justified, and Jo & Co did not have a claim on goodwill indemnification following termination.

The question of goodwill indemnification pursuant to the Danish Commercial Agent Act section 25 was assessed with reference to section 27, subsection 1 of the act, which removes the agent's right to indemnification in cases where the principal terminates the agreement due to the agent's material breach. The Supreme Court found that a breach of the clause in question constituted a material breach of Jo & Co's obligations under the agreement.

The agreement highlights the Danish courts' restrictive interpretation of the principles of passivity, and that the parties' written agreement as a predominant general rule must be adhered to.

 

Jacob Orskov Rasmussen, IDI Country Expert for franchising in Denmark

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