CORONAVIRUS: COMPENSATION OF DAMAGES CAUSED BY ANTI-EPIDEMIC MEASURES
In connection with the pandemic of the Covid-19 disease caused by the new type of coronavirus SARS-CoV-2, the Czech authorities have adopted various measures. In many cases, these measures have caused financial damage, especially to those who were forced to shut-down their retail businesses. But it also applies to those who were affected by the prohibitions on crossing the state border, whether individuals who could not travel abroad for holidays or entrepreneurs who have significantly lost their foreign labor force.
Therefore, we deliver you below is a brief summary of the most important legal institutes that may be the way out of this difficult situation.
A. METHOD OF ISSUING EXTRAORDINARY MEASURES
Retail and sale of services in business premises were (with certain exceptions necessary to meet the basic needs of the population) initially banned with effect from March 3, 2020, 6:00 AM to March 24, 2020, 6:00 AM by the Government Resolution adopted as a crisis measure pursuant to Act No. 240/2000 Coll., Crisis Act.
From March 24, 2020, 6:00 AM, extraordinary measures, which have already been issued by the Ministry of Health pursuant to the Act No. 258/2000 Coll., On public health protection, are in effect.
This change has raised many debates among the professionals as to whether this change in the legislative approach is not intended to prevent the right to compensation. While the Crisis Act explicitly sets out the right for compensation, the Public Health Protection Act does not recognize any procedure to compensate persons restricted by this type of measure.
Whether the government has indeed successfully avoided the obligation to compensate for damages incurred after March 24, will undoubtedly be tested in court proceedings where a strong defense of the state budget can be expected from the Ministry of Finance. This, after all, has already been declared by the Ministry of Finance stating that the compensation of damages does not belong even for the initial ten-day period when the ban was governed by the Crisis Act.
B. COMPENSATION OF DAMAGES UNDER THE CRISIS ACT
a. Compensation for restriction of ownership or right to use (Section 35)
The Crisis Act primarily regulates the compensation for restriction of ownership or right to use, for which the affected legal or natural person is entitled to receive monetary compensation. The financial compensation shall be paid by the crisis management authority that has decided on the limitation of the right within 6 months from the termination or cancellation of the crisis situation.
This provision is mainly aimed at buildings that were directly seized for the purpose of coping with the ongoing crisis (e.g. hotels seized for the purpose of setting up a temporary hospital). The wording of this provision could also be applied to the current situation where the users of many non-residential premises are effectively limited in their usual use; however, it will be more apt to use the compensation procedure described below.
In relation to the amount of compensation, the Crisis Act contains the following guideline: “In the event of a restriction on the exercise of the right to property, its owner shall be compensated to the extent of its property rights under the Civil Code”.
b. Compensation of Damages (Section 36)
Furthermore, the Crisis Act obliges the state to compensate damages caused to legal and natural persons in causal connection with adopted crisis measures. This obligation will certainly be a very frequent subject of legal disputes in the near future.
From the point of view of legal theory, this is a typical example of the so-called objective liability – to prove a claim it is sufficient to prove the occurrence of damage and prove that it was caused by a crisis measure (causal link).
The state can only be relieved from its liability only if it proves that the damaged party has caused the damage itself. This limitation partly reflects the so-called prevention obligation, which must be taken into account in this context. According to the Civil Code, everyone is obliged to act in such a way that no damage to another’s property is caused. If, for example, a restaurant owner, knowing that his sales would be dramatically reduced in the upcoming days, ordered fresh ingredients, he could not claim the compensation of their value by the state if they were spoiled.
Regarding the amount of damage, the Civil Code defines the damage as a loss or depreciation of an asset, which has two components – actual damage and lost profit. There is no reason to believe based on the wording of the Crisis Act that the obligation to compensate would apply only to actual damage. In this context, however, the amount of the lost profit will be difficult to prove a causal link. In other words, in the context of an ongoing epidemic, the state is likely to deem a loss of profit, calculated on the basis of the usual profit in previous periods, as speculative (sales could drop in restaurants even in open premises due to people’s simple fear of moving in public).
In the event of a court proceeding, the state will probably intend to reduce the amount of damage by various reliefs provided to the affected individuals in order to diminish the economic impact of emergency measures. However, these reliefs are in most cases linked to economic situations different from the occurrence of damage (e.g. caregiving compensation for parents) or postponing certain obligations (income tax advances, interest-free loans). However, the possibility of a set-off towards the compensation of damages could be envisaged, for example, mainly in the case of compensation of part of the wages of employees.
The Crisis Act also stipulates a special procedure for claiming damages. The claim for compensation of damages must be submitted within 6 months after the affected person became aware of the damage, but no later than 5 years from the date of occurrence of the damage. Although the damage may occur gradually (gradual expiration of goods, gradual impossibility to meet obligations to suppliers or landlords, a gradual increase in lost profits, etc.), it is clear that the claim shall be submitted no later than the first half of September 2020. The claim needs to be submitted to the crisis management authority that issued the crisis measures – i.e. in the first phase to the government, in the second phase to the Ministry of Health (but this formal question will certainly still be the subject of expert debates).
C. SUMMARY AND RECOMMENDATIONS
The current situation is undoubtedly extraordinary even from a legal perspective. The law is not very prepared for the general restrictions of this scope; therefore, it is very difficult to predict the outcome of the current debates and future disputes over the compensation of damages resulting from emergency measures.
Given the still unclear legal situation, we recommend collecting documentary evidence regarding any harm you have suffered in connection with the measures taken by the authorities during the coronavirus crisis. Only well-documented damage is likely to have a chance of reimbursement without the need for judicial enforcement.
The most promising appears to be claims for genuinely quantifiable and provable damage suffered during the initial 10-day period of emergency measures, i.e. during the effective period of the Government Resolution implementing the Crisis Act. For other claims, relatively lengthy court proceedings can be expected, and it is possible that the Supreme or Constitutional Court will take a decisive position.
In this confusing and dynamically evolving environment, we recommend that you seek qualified advice from experts to help you find effective solutions to problems arising from this difficult situation.
For more information on this subject, please feel free to contact:
Mgr. Michal Dobiáš, attorney at law
rutland & partners, advokátní kancelář s.r.o.
tel: +420 226 226 026
email: michal.dobias@rutlands.cz
