DENMARK: An Introduction to Dispute Resolution

The Kingdom of Denmark comprises Denmark, Greenland, and the Faroe Islands, which generally share a common legal system and culture. The Danish court system consists of (i) 24 district courts, (ii) the Courts of Greenland and the Court of the Faroe Islands, (iii) the Maritime and Commercial High Court, (iv) the Eastern and Western High Courts, and (v) the Supreme Court.

Institutional and ad hoc arbitration are the predominant dispute resolution forums for resolving larger commercial disputes in Denmark. Arbitral proceedings are governed by the Danish Arbitration Act, which is based on the UNCITRAL Model Law from 1985. Denmark is also a contracting state to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (the “New York Convention”). The two major arbitration institutions are the Danish Institute of Arbitration and the Danish Building and Construction Arbitration Board.

2022 in Review 

For the seventh consecutive year, Denmark was ranked first on the the World Justice Project’s Rule of Law Index in 2022. In recent years, however, the court system has been challenged by increased processing time, which is a pressing matter to be dealt with if the ranking is to be maintained. In September 2022, the Ministry of Justice decided to set up a committee, headed by the former President of the Supreme Court, to address the challenges.

We highlight five of 2022’s landmark cases within the areas of professional liability, public law, management liability, criminal law and AML.

Cum-Ex scandal 

In April 2022, the Eastern High Court dismissed a claim of approximately DKK1.2 billion raised by the Danish Tax Agency against a law firm as part of the Cum-Ex scandal. The claim was the largest ever raised in Denmark against a law firm for professional negligence and was based on the assertation that the law firm – through a legal opinion issued to a German bank – had contributed to the bank’s fraud against the Danish Tax Agency. The case is now pending before the Supreme Court and is likely to develop the standard for liability of law firms vis-à-vis third parties in relation to legal opinions.

Mink Commission 

During the COVID-19 pandemic, a mutation was detected within Danish mink, which lead the government to demand the culling of approximately 17 million mink. The government, however, lacked the necessary legal basis to do so. As such, Parliament set up an inquiry commission, the so-called Mink Commission, to investigate the course of events behind the governmental decision. In June 2022, the Mink Commission’s report was published and expressed severe criticism of high-ranking public officials and members of the government. Subsequently, only relatively mild sanctions were issued against high-ranking public officials, and the new government established following the election in November 2022 had the votes to block a court of impeachment against the Prime Minister.

Roskilde Bank 

Following the bankruptcy of the tenth-largest bank in Denmark, Roskilde Bank, during the financial crisis in 2008, Finansiel Stabilitet, the Danish state’s financial unwinding vehicle, brought a claim against the former management for losses suffered by the bank. In December 2022, after the case had been pending in the court system for more than ten years and labelled the largest court case ever in Denmark, the Supreme Court ruled that the former CEO of the bank was liable for losses of approximately DKK230 million based on certain loan commitments. The claims against the board members were dismissed. The judgment marks the end of a largely unsuccessful and extremely costly suite of litigations attempting to make directors liable for bank failures in the aftermath of the financial crisis.

Fishing quota case 

In December 2022, the Western High Court acquitted a group of commercial fishermen in a criminal case known as the “Fishing Quota Case”. The district court had, in the previous instance, found the fishermen guilty and ordered them to pay a total amount of approximately DKK240 million in fines and confiscation for violations of the rules on fishing quotas. The Western High Court found that the rules on fishing quotas at the time of the alleged violations were not subject to criminal punishment. As such, the acquittal adhered to the basic principle of criminal law that punishment requires sufficient and clear legal basis.

Danske Bank 

Also in December 2022, Danske Bank finally settled the criminal charges brought by the US Department of Justice (DoJ), the US SEC and the Danish Special Crime Unit (SCU) following the bank’s failures in relation to suspicious payments funnelled through the bank’s former Estonian branch. The co-ordinated resolutions resulted in a total settlement of approximately DKK15.5 billion, which is a record fine for a Danish entity. The fine was split into approximately USD1.2 billion to the DoJ, approximately USD178 million to the SEC, and approximately DKK4.8 billion to the SCU. Based on the Danish Administration of Justice Act, the terms of the fine were not subject to scrutiny by the courts. As such, the implication for other cases is highly uncertain.

Outlook for 2023 and Beyond 

As we look ahead into 2023, certain trends seem to be emerging throughout the legal landscape.

Following changes in legislation in 2019 and 2020 regarding the calculation principles for fines and the administrative powers to issue fines, one of the major challenges is how the Danish Financial Services Authority (FSA) and the SCU will seek to impose significantly increased fines for AML violations. Several cases are pending before the FSA and the SCU; however, no fines have been settled or issued under the new regime. The cases raise many legal issues and the trend seems to be for financial institutions to take a more aggressive stance against what is perceived as disproportionate and unfounded application of the new legislation.

The focus in recent years on climate and sustainability entails advantages for companies that can formulate effective action on climate. If these companies fail to live up to certain standards, however, they may face various kinds of climate lawsuits, including allegations of greenwashing – ie, where companies market their products or services as sustainable in ways that may be unsupported by data or perceived as misleading or even false. In 2023, the first-ever climate lawsuit in Denmark is likely to be heard by the Western High Court in a case against a large pork producer for marketing pork as “more climate-friendly than you think” and “climate-controlled pork”.

Another trend within the Danish legal landscape has been the increased use of legal investigations in recent years. However, the use of legal investigations in #metoo cases has been met by severe criticism, which has in part prompted a new set of guidelines on legal investigations published in September 2022 by the Council of the Danish Bar and Law Society. The guidelines set out a detailed framework for conducting legal investigations, and it will be interesting to see how the guidelines will be implemented and how best practices will develop.

A final trend is litigation funding. It is well known that litigation can be expensive and, in some cases, the economic risk alone deters parties from initiating legal proceedings. As a result, there has been an increased use of litigation funding on the plaintiff’s side in recent years; however, a new trend has also emerged in the use of so-called defence finance on the defendant’s side. The coming years will reveal whether litigation funding can find the right balance in the Danish legal system.