Finnish contracting practice in a nutshell

The Finnish legal system is part of the Nordic legal family. Hence, business people from Scandinavia will find many things familiar in Finnish contract law. For everybody else, there is a couple of key traits that are good to keep in mind when making contracts in Finland.

Maybe the most prominent trait of Finnish contract law is that it always places fact over form. A Finnish court will never decide a case simply based on the parties using a specific word or phrase in the contract. In fact, Finnish law is distinctly uninterested in terms and wordings. Lawyers like to look at the whole of the contract, what the parties actually intended, but also simply what makes sense.

Accounting for judicial discretion

Judges in Finland (under Finnish contract law) have wide discretion of adjusting contract terms or setting them aside if they find that such clause is inadequate. This is a blessing and a curse. It relieves parties, particularly such that are in a weaker bargaining position, from part of the worries about contract terms: If things get too absurd, one can rely on judicial help. On the other hand, this system makes the outcome of possible disputes far less predictable.

Consequently, the basic drafting paradigm is different in Finland than in many other countries. It is not feasible to determine with any surety how far one can go, for example in terms of reducing the other party’s rights, without the contract terms being set aside by courts.

Instead, it is of particular importance to have the contract reflect as precisely as possible the actual project at hand, and the actual justified interest of each party. It is only against such background that it is possible to make the desired shifts, for example in terms of liability, termination rights, or the like. Only if clauses can be recognized (by a judge) as being firmly rooted in the project’s framework and nature, can one be reasonably confident that the clause will withstand judicial scrutiny.

Form of contracts

Finnish contract law is mostly free of any compulsory form requirements. Contracts can be made in any form that appears convenient for the parties (and satisfies the parties’ need for evidencing existing agreements).

In practice, even business contracts of substantial value are routinely made by e-mail, exchanging scans of the signed documents. An emerging trend is to forego the physical signature altogether and use electronic signatures. For this purpose, third-party signature service providers are commonly used.

When signing electronically, originals are sometimes exchanged after the fact for documentation purposes, but this is not required (and increasingly less common).

Remedies

Contract parties are largely free to agree on the contractual remedies that they want to apply in case of breaches of contract or other disturbances in the contractual performances. As far as they do not agree on anything specific, the normal remedies of Finnish contract law apply. A few key observations on these remedies:

Specific performance can be enforced in court, i.e., the other party can claim actual fulfilment of the contract and is not limited to demanding financial compensation. For example, non-competition commitments can be enforced by court injunction.

In the absence of appropriate limitation clauses, damages for negligent breach of contract generally cover full compensation of all damages that can be shown to have been caused by the breach, including consequential damages such as loss of production.

Termination of the contract is possible in case of material breaches, with the definition of material breach being somewhat ambiguous unless appropriate contract clauses clarify the matter.

Use of standard terms

Another distinctive feature of Finnish contracting practice is the widespread use of standardized contract terms. Such terms are generally drafted by groups of interested parties in the relevant industry, with the purpose of creating a balanced framework that may be applied to most of the relevant contracts.

For construction contracts, it is the YSE 1998 terms that are used in the vast majority of building projects. As Finnish law completely lacks dedicated provisions concerning work or construction contracts, the YSE 1998 terms are sometimes perceived as if they themselves were the law. In any case, the terms are a strong expression of the expectations that Finnish parties have when entering into construction contracts.

The YSE 1998 terms are not directly applicable unless they are explicitly referenced in the contract. However, their wide acceptance gives the terms substantial weight when interpreting unclear contract terms or filling gaps in the contract, even if they are not referenced. It is a good idea to take them into account when drafting the contract.