Distribution Agreements in Denmark

The main rules on commercial agents are found in The Commercial Agency Act, Act No. 272 of 2 May 1990, Lov om handelsagenter og handelsrejsende, (the “Agency Act”) implementing the EC Council Directive 653/86 (the “Agency Directive”).

In addition, agency agreements will also be governed by certain other legislation and legal principles such as The Contracts Act, principles of un‑codified Danish Contract Law, the Competition Act etc.

Under Danish law, the distinction between a commercial agent, an employee, and e.g. distributor is significant due to differences in legal status, obligations, and rights.

A commercial agent (handelsagent) is a person/business who, as an independent business and on a continuing basis, has undertaken for remuneration, to act on behalf of the principal and for the principal’s account in arranging the sale or purchase of goods (not services!), or in concluding such transactions in the name of the principal, cf Section 2 (1) of the Agency Act. The agent acts independently, and may represent multiple principals unless exclusivity is applicable (see further below).

An employee (ansat) works under the direction and control of an employer and is fully integrated into the organization. The employment relationship is usually governed by the Danish Employment Contracts Act and other labour laws.

A distributor (forhandler) buys goods from a supplier and resells them in their own name and for their own account. Unlike an agent, the distributor does not act on behalf of the supplier, and bears the full commercial risk, including inventory, pricing, and marketing. Danish law does not specifically regulate distribution agreements, so general contract law and principles apply, along with relevant EU competition rules.

Except for the agent being registered for tax purposes, there are no formalities to be observed prior to entering into an agency relationship. Also oral agreements are con­sidered valid and binding upon the parties of an agency relationship. However, both parties may require a written agreement, see Section 3 of the Agency Act.

The Act does not grant commercial agents automatic exclusivity. Exclusivity must generally be explicitly agreed between the agent and the principal, either in the agency agreement or through consistent business practice.

If the contract states that the agent has an exclusive right to a particular territory or group of customers, the principal is not permitted to appoint other agents or to sell directly within that scope. However, in the absence of such an agreement, the agent is considered non-exclusive, and the principal is generally free to engage other agents or make direct sales in the same area or to the same customer group.

Importantly, exclusivity may affect the agent’s right to commission. Under Section 9(3) of the Act, an exclusive agent is thus entitled to commission on all transactions within their territory or customer group — even if they were not directly involved in the sale — unless otherwise agreed. This creates strong commercial incentives to clearly define territorial or customer-based exclusivity in the agency contract.

Danish courts generally uphold exclusivity clauses if they are clearly defined and do not violate EU competition rules.

Under Danish law, non-competition covenants for commercial agents are subject to rather strict conditions, especially after termination of the agency relationship.

During the agency relationship, the agent is already subject to a general duty of loyalty and may not act contrary to the principal’s interests. However, if the contract is silent on the matter, it is generally assumed that the agent may represent other non-competing products. As for competing products, it is generally assumed (but some uncertainty exists) that the agent may not represent such unless accepted by the principal (even if the contract is silent on the matter). These obligations are considered to arise directly from the nature of the agency and do generally not require a written clause.

However, after termination, a non-competition clause (Section 30 of the Agency Act) is only valid if it meets all of the following conditions:

1. Written Agreement: The clause must be in writing and agreed upon before or at the latest upon termination.
2. Scope: It must relate only to the goods and customers that the agent handled during the agency.
3. Time Limit: The clause is valid for a maximum of 2 years from the date of termination.

Danish courts also assess such clauses for reasonableness, and overly broad or restrictive covenants may be held partially or wholly unenforceable.

The applicable law depends on whether the agency agreement is a domestic contract or has an international element.

If both parties are Danish and the agent performs in Denmark, the agreement is considered a domestic contract, and Danish law (i.e the Act) will apply by default (except from any agreed derogation from certain provisions that are not mandatory).

If the agreement has an international element - for example, a foreign principal and a Danish agent -the Rome Convention governs the choice of law (in Denmark, the applicable law to agency agreements is thus governed by the Rome Convention of 1980, not the Rome I Regulation, as Denmark has opted out of parts of EU judicial cooperation in civil and commercial matters).

Under the Rome Convention the parties are free to choose which law applies, cf. Art. 3. In the absence of such a choice, the contract is governed by the law of the country with which it is most closely connected, cf. Art. 4 (1). For agency agreements, this is typically the country where the agent has their habitual residence, meaning Danish law often still applies if the agent operates from Denmark.

It is also noted that Section 1(3) of the Agency Act allows the parties to derogate from the Act, even if Danish law would otherwise apply to the contract/cooperation, provided the agent’s work is performed outside the EU, EFTA, or Nordic countries. However, it is also stipulated that the statutory provisions on termination and indemnity remain mandatory if the agent’s place of work or domicile country has mandatory rules in these areas.

Under Danish law, parties to a commercial agency agreement are free to agree on how disputes are to be resolved. Common mechanisms include jurisdiction/venue clauses, arbitration clauses, and mediation clauses. Each has different legal effects under Danish procedural rules.

Obviously, the parties can generally also agree to jurisdictions/venues, arbitration or mediation outside Denmark.

Jurisdiction/Venue Clauses (Courts)

Parties may agree that disputes will be settled by a specific Danish city court (and sometimes the Maritime and Commercial High Court in certain international agency matters).

Agreements on jurisdiction/venue are generally enforceable under Danish law and respected by Danish courts unless they are ambiguous, unfair, or conflict with mandatory procedural rules. In the absence of such a clause, the default venue is typically the defendant’s domicile or the place of contractual performance.

Arbitration Clauses

Arbitration is a common alternative to court proceedings in Danish commercial contracts. If the parties include an arbitration clause, Danish courts will decline jurisdiction if a party protests to the court’s jurisdiction.

Denmark is a party to the New York Convention (1958), so arbitral awards issued in Denmark or abroad are widely enforceable.

Arbitration proceedings seated in Denmark are often conducted under the rules of the Danish Institute of Arbitration, which offers a structured framework for resolving commercial disputes privately and efficiently.

Mediation Clauses

Parties may also agree to attempt mediation before initiating litigation or arbitration. Mediation in Denmark is voluntary, confidential, and non-binding unless a settlement is reached. It can be facilitated through private mediators or court-referred programs.

Under Danish law, the rules on termination of commercial agency agreements are governed by the Agency Act, specifically Sections 22–24.

Fixed-Term Agreements

An agency agreement concluded for a fixed term ends automatically at the agreed expiry date. If the parties continue their business relationship without formal renewal, the agreement is likely deemed to continue for an indefinite period and becomes subject to the ordinary termination rules, cf. below.

Termination for convenience

An agency agreement entered into for an indefinite period may be terminated for convenience by either party with notice. The statutory minimum notice period increases with the length of the agency relationship, as follows:

• 1 month’s notice during the first year, 2 months’ notice during the second year and so forth for subsequent years up to 6 months after the fifth year (and onwards).

The notice must end at the end of a calendar month (unless otherwise explicitly agreed).

The parties may agree on longer notice periods, but not shorter than the statutory minimum. The notice periods must be the same for both parties, except that a longer period may be agreed for the principal.

Termination for Cause

An agency agreement may be terminated without notice in case of material breach by the other party. The breach must be serious enough that the terminating party cannot reasonably be expected to continue the relationship.

It is recommended, but not a legal requirement, that termination is always done in writing.

Under Section 24 of the Danish Commercial Agency Act, either the principal or the agent may terminate the agency agreement with immediate effect if the other party commits a material breach of the contract. This is commonly referred to as “just cause” or “væsentlig misligholdelse” in Danish legal terminology. Whether a breach qualifies as “just cause” depends on the specific circumstances, assessed case-by-case by Danish courts.

Examples from Danish jurisprudence and practice include:

• Dishonesty or fraud: If the agent engages in misrepresentation, falsifies records, or withholds commissionable transactions, this typically constitutes just cause for termination by the principal.
• Competition with the principal: If the agent sells competing products in breach of an applicable exclusivity or loyalty obligation, this may justify immediate termination.
• Persistent non-performance: Failure to meet agreed sales requirements, serious neglect of duties, or repeated failure to report to the principal, despite warnings, may be considered a serious breach.
• Non-payment of commission: If the principal systematically fails to pay commission owed under the agreement, the agent may have just cause to terminate (though prior warning letters are recommended).
• Loss of necessary license or qualification: If the agent is legally or practically unable to carry out the agreed work (e.g., due to loss of license), the principal may invoke just cause.

Danish courts interpret "just cause" narrowly, particularly when used to deny the agent their statutory indemnity or compensation rights under Sections 25–27. Therefore, clear documentation and prior warnings are important.

The general approach under Danish law is that the parties to a(n exclusive) distribution agreement exchange contributions of “equal value”, i.e. the supplier offers to the distributor the right to purchase and distribute the goods (on an exclusive basis) and the right for the distributor to calculate his own profit and resell the goods on the relevant market. Consequently, because of this approach, there are normally no further claims that can be raised by either party after termination for convenience that was made with an agreed or, in the absence of an agreement, a “reasonable” or an “appropriate” notice.

Danish courts have thus been extremely reluctant to grant goodwill compensation to distributors upon termination. In the last approx. 20 years there are only very few examples from case law where the distributor has been granted goodwill compensation. When presented with such claims, the courts have generally stated that “as matters stand, no such extraordinary circumstances that could have motivated and justified a goodwill compensation are present”, for which reason no goodwill compensation has been granted.

In the few cases where a distributor has been awarded goodwill compensation one or more of the following conditions have been met: 1) the distributor could not freely fix his own resale prices, 2) the distributor could not decide freely on his marketing activities, 3) the distributor has not been duly compensated for his efforts and/or investments (this is likely very closely connected to points 1 and 2), 4) the distributor was terminated without agreed/reasonable notice, and/or 5) the supplier could benefit from the customer base established by the distributor.

In conclusion, goodwill compensation has been given – and can be expected - only in exceptional circumstances, if at all.

Under Danish tax law, a commercial agent may, under certain conditions, create a permanent establishment (PE) (fast driftssted) for a foreign principal. The rules are aligned with the OECD Model Tax Convention, which Denmark applies through its domestic law and tax treaties.

Thus, a commercial agent will not normally constitute a PE if they are independent (as defined under tax law) and act in the ordinary course of their business. Independence is assessed based on economic and legal autonomy, number of principals represented, and exposure to business risk etc.