State compensation of damage caused by pandemic
From a legal perspective, the state’s response to the coronavirus pandemic can be described in several significant milestones: (1) declaration of state of emergency by government; (2) adoption of emergency measures by government; and (3) replacement of governmental emergency measures with extraordinary measures by Ministry of Health. But more importantly, may businesses ask the state for compensation of damage incurred in connection with the above measures?
According to the strict interpretation of the Constitutional Act on the Safety of the Czech Republic, Government Resolution on Declaring the State of Emergency of 12 March 2020 should have specified what rights guaranteed by the Charter of Fundamental Rights and Freedoms are being restricted, and to what extent, and what duties are being imposed, and to what extent. But the resolution does not make this specification; these essentials were only included in subsequent government resolutions on emergency measures adopted later on the same date. Among other things, these successive measures simultaneously restrict the freedoms guaranteed by the Constitution, i.e. the freedom of movement, the freedom to conduct a business, and the freedom to peacefully assemble. Consequently, the lawfulness of the state of emergency’s declaration and of subsequent measures may appear controversial, to say the least. Effective from 24 March 2020, the governmental emergency measures were replaced with the Ministry of Health’s extraordinary measures issued pursuant to the Act on Protection of Public Health. Although this change may seem small and unimportant, it affects potential damage compensation claims in a substantial manner.
Damage as a result of the governmental emergency measures is compensated by the state
Pursuant to Section 36 of the Crisis Act, the state is liable for and must compensate any damage incurred by individuals or legal entities in a causal relationship with the emergency measures. The state may be relieved of this obligation only if the injured caused the damage themselves. Damage is understood to be both the actual damage and the loss of earnings. The injured may claim both types of damage while quantifying both and simultaneously proving that the damage was incurred as a result of the emergency measures. The loss of earnings is relatively hard to prove and quantify even under standard conditions, much more under the current ones. It will probably not be feasible to use standard operation in comparable periods as an argument, since consumer behaviour during pandemics is different. However, the question remains whether Section 36 of the Crisis Act targets situations such as this one and whether compensation of damage may be claimed under the current conditions.
Importantly, the Ministry of Health published its extraordinary measures pursuant to the Act on the Protection of Public Health, which lacks a provision similar to Section 36 of the Crisis Act. The issue of the state’s liability for damage incurred in connected with the Ministry of Health’s measures will then be much more complicated.
How to proceed?
Businesses planning to claim damages from the state should immediately start to carefully document all losses and damage to secure the maximum compensation possible, despite all the current uncertainty. Currently, it is not even clear what body will decide on these claims. To be procedurally prudent, it is advisable to assert claims with several bodies at the same time, substantiating them with any relevant legislation. In any case, should a government/state body dismiss a raised claim, it should be possible to subsequently seek justice before a court.
It is now subject to judicial review whether the state of emergency was declared correctly from a formal perspective. Should this review be positive, then claims shall be asserted pursuant to the above-mentioned Crisis Act at least with respect to the first twelve days of the state of emergency. If the review is negative, it should nonetheless be possible to claim damages from the state pursuant to the Act on liability for damage caused in the exercise of a public authority by a decision or an incorrect official procedure. The injured would have to claim and prove that damage was caused by unlawful governmental emergency measures and unlawful extraordinary measures by the Ministry of Health.
The deadlines within which relevant claims must be asserted vary in the individual regulations. The shortest deadline is six months and starts to run from the moment the injured ascertained that damage had been incurred. The state’s approach to such liability for damage is uncertain, and it is impossible estimate whether claims asserted will be acknowledged. The only certainty is that the economic impact of the pandemic will be extensive and a vast number of claims can be expected whose legitimacy will only be resolved before the courts. We are closely monitoring the situation and we will keep you informed about any new developments in this respect.
In the meantime, to mitigate the current impacts of the pandemic, we recommend using the COVID II Loan Programme offered by the Czech-Moravian Guarantee and Development Bank (ČMZRB) in cooperation with the Ministry of Industry and Trade and the governmental Antivirus Programme setting the criteria for providing the compensation of wage expenses to employers.