Agreement about moonlighting was declared void by the Danish Supreme Court

A contractor was to renovate an owner’s property. The parties agreed that part of the contract sum should be paid in cash, while the rest should be paid without the authorities’ knowledge, i.e. moonlighting.

When the renovation was finished the parties disagreed on the payment of the remaining contract sum. However, the contractor was declared bankrupt and therefore the estate in bankruptcy filed a claim for payment against the owner.

The owner rejected the claim. During the proceedings he emphasized that the agreement should not be upheld, because a part of the contract sum was to be paid exclusive of VAT for which reason the agreement was contrary to public policy. The estate in bankruptcy denied that moonlighting was agreed.

The District Court sustained the estate in bankruptcy’s claim against the owner because there was no proof that moonlighting was agreed. The owner appealed to the Danish High Court.

Contrary to the District Court, the Danish High Court found it to be proven that the agreement involved moonlighting. Therefore, the Danish High Court found the agreement contrary to public policy. The Danish High Court reversed the District Court’s decision and rejected that the case could be tried before the courts. Subsequently, the estate in bankruptcy brought the case before the Danish Supreme Court.

The Danish Supreme Court: The agreement was void

The Danish Supreme Court found no reason for rejecting the case as it concerned a demand for payment.

Like the Danish High Court, the Danish Supreme Court found it to be proven that an agreement on moonlighting had been agreed and that the agreement was contrary to the public policy. The Danish Supreme Court emphasized that an agreement is contrary to public policy when it offends a third party’s or the society’s interests even though neither of the parties want to set the agreement aside.

Therefore, the Danish Supreme Court found the parties’ agreement void and the estate in bankruptcy had no claim against the owner even though the work was performed.

It was not relevant that the estate in bankruptcy had claimed that the owner’s renovation would be an unjust enrichment if the estate was not paid for the remaining contract sum.

IUNO’s opinion

The decision shows that a contracting party cannot rely on an agreement involving moonlighting. In this case the contractor’s estate in bankruptcy could not claim payment for the remaining contract sum even though the construction works had been completed.

An easy way to avoid discussions about whether moonlighting has been agreed is, of course, to make a clear written agreement and to make sure that payment is exclusively made pursuant to booked invoices.

[Judgment of the Danish Supreme Court, 20 May 2014, case 249/2012]