The Use of Class Actions in Denmark - 2022

Denmark introduced legislation on collective redress as early as 2008, but since that time the Danish courts have only adjudicated a fairly small number of collective redress suits. 

While Denmark’s legislative regime for collective redress is well developed, it appears that a range of policy matters, from “floodgate” arguments concerned about the ease of bringing large claims against potentially innocent companies, to general opposition to third-party funding, have meant that collective redress cases have historically remained small in number in Denmark. 

However, there are some discernible features and trends emerging in respect of such cases in Denmark. For a start, there are some Denmark-specific form and procedural requirements which may historically have meant that cases were harder to bring in Denmark and that the cases there generally involved securities litigation matters. However, this is now broadening in scope, with numerous cases being brought in a range of different areas. 

Form Requirements

Mandatory criteria to bring a claim as a collective action

One of the reasons there have only been a few collective redress suits in Denmark could be the extensive inclusion criteria that need to be met in order to bring a collective action suit. First, as with any other claim before the courts, the claim must be legitimate and suitable for trial, it must be current, and the plaintiff must have a specific interest in pursuing the case. Specifically in relation to collective actions, the claims aggregated in the action must meet additional requirements: 

• they must have a certain degree of similarity, although they do not need to be identical; 
• the legal venue of all the claims must be Denmark; 
• the court has to agree that collective action is the most suitable way to address the claims, in preference to any other form of court action; 
• all the members of the class action must be identified so that they can be appropriately informed about the case; and
• a representative for the group must be selected to act as a party in the case.

It is thought that the requirement that a collective redress suit needs to be the most suitable way to address the claims is likely the most difficult requirement to fulfil and one with which many potential claims struggle. The court will assess this and will only issue a group certificate if no other option for addressing the claim is better suited. 

One example of this is the High Court case UfR.2016.104Ø, in which an association of loss-making former employees of Roskilde Bank could not bring a class action for damages. The case was found not to meet the conditions required by the Danish Administration of Justice Act (“the Justice Act”) because the claims were not sufficiently uniform for a class action to be the appropriate process. It was emphasised that determination of the claims, based on the allegations and pleas stated in the application, would involve individual assessment of each claimant's circumstances. Consequently, the case was dismissed as not appropriate for collective redress.

Procedural Mechanisms

Opting in

As a starting point, all collective redress suits are “opt in”, which means that those who wish to take part in the group action must opt in before a certain deadline decided by the court. The court can make it a condition for opting in that the group members provide security for legal costs. 

This requirement for security for legal costs from parties to a collective redress action may, arguably, be another reason for historically low numbers of claims in Denmark. The Danish Supreme Court lowered the security for legal costs in its decision in UfR.2012.2938H and mentioned that this amount must be determined at the court’s discretion, taking into account the value of the case, as well as the scope and nature of the case, and the work associated with it.

Group representatives

Danish legislation (Section 254 c, Section 1, No 3 of the Justice Act) also allows “opt-out” collective redress suits, but only if a public authority appointed by law acts as the group representative. Currently, only the Consumer Ombudsman has been appointed under legislation to act as a public group representative in opt-out suits. 

Usually, group representatives are ad hoc legal entities with the sole purpose of pursuing a particular collective claim. 

The above mechanism may also therefore be considered a procedural hurdle for some of those bringing claims. This can be seen in the High Court decision UfR2018.3361Ø in which the association “Class Action against AP Livsforsikringsselskab” filed a class action against the insurer AP Livsforsikringsselskab. The High Court dismissed the class action and emphasised that because the group included both active members and pensioners, it was not sufficiently uniform, and the same factual circumstances did not exist for the individual members. 

Securities Cases Increasing

Collective redress claims have increased recently, in particular, with respect to securities claims. In fact, some of the largest securities claims in the last ten years have been collective redress claims.

The well-known case of Danske Bank is one such example of this phenomenon. There were several collective redress suits in this case; among them was a case in which 300 investors sued the bank because their shares lost value. This loss of value was due to the bank’s money-laundering practices.

In the OW Bunker case from the Danish High Court, UfR2019.962Ø, a number of small investors formed an association in order to sue the former executive board for misrepresentation and non-disclosure in a prospectus published prior to the listing of OW Bunker. The class action was accepted, as the High Court deemed it was the best way to deal with the claims. The company went into bankruptcy less than a year after the listing.

Another example of this phenomenon is the collective redress suit against the healthcare company Novo Nordisk, where a number of shareholders filed the collective redress suit claiming that Novo Nordisk had made a misleading statement and did not make appropriate disclosures regarding its sales of insulin products in the US. The suit was settled in the beginning of 2022, and the settlement contained no admission of liability, wrongdoing or responsibility by Novo Nordisk.

Broadening of Scope of Collective Actions

Although historically many collective redress suits in Denmark have been limited to securities cases, such as the one above, it now seems that collective redress rules are beginning to have a wider use. 

In the Danish town court of Hillerød, in spring 2021, a group of Tesla car owners brought a suit against Tesla alleging that an update of the software in the cars meant that the car batteries took longer to charge and this generally decreased the functionality of the cars. 

Another collective redress suit in progress concerns an energy company that spent DKK165 million on developing the production of geothermal heat, despite being warned that there was only 10% chance of success and despite spending more on the project than the company was authorised to. The company’s customers ended up paying the difference and therefore sued the company. 

The collective redress suit against the Danish Ministry of Taxation and the Danish Broadcasting Corporation (DR) is also an example of this trend. In this suit, a group of licence fee payers claimed repayment of licence VAT which – allegedly – had been collected illegally. The collective redress suit, which is an opt-in suit, has been allowed to go forward, and the group has been provided free legal aid from the Danish government.

Further contributing to the wider use of the collective redress rules is that more law firms have begun to consider collective redress suits as a business area with potential.

The Impact of the EU-Wide Collective Redress Rules 

The new EU Directive 2020/1828 (“the Directive”) on representative actions for the protection of the collective interests of consumers, which will regulate collective redress uniformly across all the EU member states, is to be implemented into Danish law by December 2022. 

The adoption of the Directive is likely to be of very little consequence for Denmark on the legislative front, however, since the proposed legislation is very similar to the current Danish legislation on collective redress. 

Specifically, Danish legislators expect to implement the Directive in such a way that the existing Danish legal system on collective redress is maintained. The areas of the Directive that are not already regulated in Danish law will be implemented and introduced in a new Danish Act to ensure the minimum level of compliance.

Denmark’s response to the Directive 

The Danish government has publicly expressed that it is pleased with the following aspects of the Directive, which generally align with the pre-existing Danish position regarding collective actions. 

Group representative criteria and selection

Denmark’s existing legislation already allows the Danish Consumer Ombudsman to act as a representative on behalf of a group of consumers in a collective redress suit. The Directive provides that each member state can still decide which private organisations and public authorities can represent the relevant claimants in a class action and preserves the existing opt-in model.

Member states’ ability to interpret the Directive

In general, the Danish government is also pleased with the wide margin member states have been given to interpret the Directive and prescribe the specified criteria with regard to which organisations can be appointed, what measures the state should provide to ensure consumers’ access to the courts, etc, as this allows the government to maintain as much of the current legislation regarding collective action as possible. 

Conversely, the Danish government has commented negatively about the following aspects of the EU system. 

Accessibility to collective redress mechanisms

One of the Danish government’s primary concerns is that the Directive will expand consumers’ access to collective redress to such an extent that companies will be in danger of being potentially dragged into a large number of unnecessary and possibly unfair lawsuits, thereby diminishing these companies’ legal rights. This reservation about the new legislation is shared by a number of organisations, most notably, the Confederation of Danish Industry and the Danish Chamber of Commerce. Overall, the Directive has not drawn much attention in legal circles and no attention at all from the general public in Denmark. However, it is still possible that the adoption of the Directive might increase general public awareness of the existence of collective action mechanisms, thereby increasing the number of such lawsuits in general. 

Third-party funding

The above concern with the accessibility of the collective redress mechanism mostly relates to the current discussion in Denmark regarding whether third-party funding of collective redress claims should be allowed as it is today. The arguments for and against third-party funding are basically the same:

• it increases non-professionals’ access to the courts; but
• at the same time, it may expose companies to potentially unnecessary and unfair lawsuits, thereby incurring unjust costs for the companies.

The Supreme Court accepted third-party funding in 2017, when OW Bunker’s bankrupt estate entered into an agreement with a third-party funder. The Supreme Court found that third-party funding is not in conflict with Danish legal procedure. Since then, third-party funding has been used in bankruptcy cases and in large damages suits. It has especially been used by shareholders and other investors to bring security claim suits against large companies and executive boards that have experienced a sudden drop in the value of their shares, such as OW Bunker, the Danske Bank, the pharmaceutical company, Novo Nordisk, and, most recently, the wind turbine-producer Vestas. 

The general perception among legal professionals in Denmark is that third-party funding is on the rise and the Danish legal community cannot agree on whether the introduction of third-party funding is beneficial. While many mention the merit of making it easier to bring a case before the courts if one would not normally have the economic means to pursue a claim, most also note the disadvantages, such as the funder’s control of the case and potential conflict-of-interest issues.

Many believe that the increased use of third-party funding will lead to increased commercialisation of lawsuits and speculative lawsuits. The business sector has responded negatively to the notion of third-party funding. The chairman of the board of wind turbine-producer Vestas stated to the press, when the shareholders withdrew the suit against Vestas’ management, that he was of the opinion that the raison d'etre of third-party funding was simply to put undue pressure on the defendants and force a settlement. In addition, Tomas Krüger Andersen, the Deputy CEO and Head of Legal in ATP, has stated to the press that the use of third-party funding is an unfortunate development in the direction of American conditions, seeing that an operator with nothing to lose offers to conduct a lawsuit without considering the legal aspects of the lawsuit.

The Future

The future of collective redress actions in Denmark will be interesting to watch in the coming years, for legal commentators and the public alike. 

The current trend of increased use of the pre-existing local mechanism could indicate the potential enthusiastic uptake of the EU-wide mechanism, which may, in turn, increase publicity and therefore the popularity of the general mechanism. However, given the similarity of the new EU and existing Danish mechanisms for collective redress, it is not anticipated that there will be any extreme developments in this regard. The procedural hurdles that exist in bringing such claims in Denmark are likely to remain, and this may therefore act in the future to keep the number of claims relatively low. 

The outcome of the ongoing public debates about ease of access to these collective action mechanisms as well as third-party funding will undoubtedly have an impact on the future legal landscape and climate in Denmark for bringing this type of claim. 

In the meantime, the development of the overall trend for increased claims is worthy of continued interest, both in traditional securities matters, but also further afield.