On 12 March 2020, the Czech government declared a state of emergency in connection with the health risks of the coronavirus pandemic. To resolve this crisis Czech authorities adopted a range of measures some of which are having a negative impact on the Czech business sector.
These measures include the limitation of freedom of assembly (including limitations on sporting, cultural, religious and other events), the prohibition of freedom of movement within the country with only specified exemptions, and the limitation of the freedom to conduct a business, specifically in the areas of on-the-spot retail sales and sales of services.
The Czech government has approved the first packages to support businesses in relation to the fallout from coronavirus crisis earlier this week (see our previous law-now here). Meanwhile, some Czech businesses have started to explore whether the state has liability for the damages caused by the measures and whether it is possible to claim compensation.
As it happens, Czech law could allow for a business to make such a claim. Act No. 240/2000 Coll. on crisis management (Crisis Act) contains special provision on the liability for damages caused by certain measures adopted during a state of emergency. Section 36(1) of the Crisis Act states: "The state is obliged to compensate the damage caused to legal and natural persons in casual link with emergency measures and trainings (Section 39(4)) adopted in accordance with this Act."
The law further declares: "The state may be absolved of this liability only it proves that the damage was caused by the injured itself."
The Crisis Act provide for a special liability of the state for damage caused in casual link with the so-called emergency measures regardless of its fault. For the state´s liability to arise, however, the following three conditions must be cumulatively met:
- Implementation of an emergency measure: regarding this, it is necessary to consider whether the specific measure can be regarded as the so-called emergency measure as defined in Section 2(c) of the Crisis Act. According to the act, measures adopted during the state of emergency, which are aimed to resolve the ongoing state, and which interfere with fundamental rights and freedoms, may be materially considered as emergency measures.
- Cause of damage: the damage may be either actual damage (damage constituting a reduction of the existing property of the injured) or loss of profit (damage constituting the lack of enlargement of the existing property of the injured). However, the state is only liable for damage caused by the emergency measures, not for the coronavirus epidemic itself. For the calculation of damages and specifically the loss of profit, the injured party will have to prove the profit they would have reached during the coronavirus pandemic and not during normal times.
- Causal link between the emergency measure and the caused damage: the injured party will have to prove that the emergency measure objectively caused the damage. Proving this condition will be easier in cases where the emergency measure directly prohibited a business from continuing its activities rather than cases where the measure did not have such a direct effect.
If all conditions are cumulatively met, the state will be liable for the damage and will be obliged to provide compensation.
The state, however, may be absolved of its liability in cases where it proves that the injured party was responsible for the damage. In the current situation, this means that all entrepreneurs are required to take all reasonable steps to prevent damage from occurring or to limit damage as much as possible. If they fail to do so, it is possible that the state could absolve itself of liability of such damage or its respective part.
In order to obtain compensation for damage pursuant to the Crisis Act, the claim must be properly made. Pursuant to Section 36(5) of the act, the claim must be made no later than six months from the day that the injured became aware of the damage (the subjective period) and no later than five years after the damage occurred (the objective period).
These periods are independent of each other, but a claim must be made before either period lapses or the right expires. The claim for compensation must be made in writing and with the underlying reasons specified. The claim must be submitted to the relevant authority, which implemented the respective emergency measure.
If a relevant authority fails to provide compensation even though a claim was properly filed, the injured can then bring an action before the court. Such an action can be brought forward within the general three-year subjective period and ten-year objective period. Court proceedings on compensation of damage pursuant to the Crisis Act are not absolved of court fees.
In summary, a legal framework exists whereby affected entrepreneurs can seek compensation for damage caused by the implementation of emergency measures. To obtain this compensation, the entrepreneurs will be required to undertake the difficult job of calculating damage and proving the causal link between this damage and the respective emergency measure during the coronavirus pandemic.
Finally, it should be highlighted that there are legal opinions that a declaration of a state of emergency and individual emergency measures are unlawful and should be invalidated from the beginning. Further, some of the measures were adopted (according to their header) based on a different Act than the Crisis Act and therefore there are legal opinions that such measures shall not be considered as the emergency measures under the Crisis Act.
If the courts will incline to any of these legal opinions, compensation of damage pursuant to the Crisis Act would not be possible. Nevertheless, in such cases, there might be a certain possibility for entrepreneurs to seek at least some compensation pursuant to Act No. 82/1998 Coll., on liability for the damage caused by the exercise of public authority through an unlawful decision or incorrect official procedure.
For more information on your options for seeking liability during the current state of emergency in the Czech Republic, contact your regular CMS advisor or local CMS experts: