Compensation under the Crisis Act and the Public Health Protection Act

Situation as at 26 March 2020, 20:00 (will be continuously updated)

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What is the claim for damages related to the declared state of emergency and subsequent government measures? In which cases is the state obliged to compensate the damage and what will be the form of such compensation?

In the days following the announcement of the state of emergency, the government began to adopt various restrictive measures. Restrictions on the free movement of persons or prohibitions on retail and sale of services in establishments were introduced by government resolutions pursuant to the Crisis Act (Act No. 240/2000 Coll., as amended). On 23 March 2020, the previous measures were replaced by extraordinary emergency measures of the Ministry of Health issued pursuant to the Public Health Protection Act (Act No. 258/2000 Coll., as amended).

Although there are several substantive changes in the documents (scope of prohibitions on the free movement of persons, a range of exceptions in the case of retail sales and others), the change in the legal framework on which the documents are based and thus the difference in the indemnity regime is material with regard to compensation of damages.

For the "first phase" of the state of emergency – the period from 12 to 23 March – individuals and legal entities who can prove the facts imposed by the law may claim compensation for damage resulting from the emergency measures (details are provided below). However, due to changes in the crisis measures, damages arising in the "second phase", i.e. the period from 24 March, can no longer be claimed in the same way, since the Public Health Protection Act does not regulate compensation. We leave aside whether this change was intended or not. From the perspective of claiming damages, the further development of the situation will be more important. If the government does not offer a solution that reflects fair compensation to the injured parties, the claims of these entities are likely to be dealt with by the courts. Moreover, it cannot be ruled out that the courts may also apply the compensation scheme within the meaning of the Crisis Act to the new measures of the Ministry of Health issued under the Public Health Protection Act.

Q&As:

1. What legislation affects the issue?

Primarily Act No. 240/2000 Coll., on Crisis Management. Pursuant to Section 36 of this Act, the state is obliged to compensate damage caused to companies and individuals incurred in connection with the crisis measures. In matters not directly regulated by this Act, the general regulation of damages in Act No. 89/2012 Coll., Civil Code, should apply.

2. What does the concept of compensation under the Crisis Act contain?

In this case, compensation for damage is understood to mean both the actual damage incurred to the assets (costs incurred in connection with the crisis measures) and lost profits (unrealised sales). Excluded is compensation for non-material harm (compensation for mental hardship, interference with privacy, etc.).

3. How is it different from normal damages?

In this case, the damage is compensated only in money (it is not possible to require restoration, for example).

In this case, the Crisis Act establishes strict liability for damage. In practice, this means that the state is liable for the damage even if it has not caused it. The State may be relieved of its liability if the injured party caused the damage himself. In such a case, the burden of proof lies with the state, which is obliged to prove this fact.

4. Is there any past experience of claiming damages under this Act?

The compensation clause within the meaning of the Crisis Act was applied more broadly following the floods in 2002 and 2007. The experience of this period in relation to compensation is rather case-related and focuses on specific intervention by crisis authorities against the assets of the persons concerned.

5. What are the conditions for claiming these damages?

In order to claim damages under the Crisis Act, the conditions under Section 36 (1) of the Crisis Act must be met. This is the classic concept of damages amended according to the Crisis Act, i.e. that the condition is (i) the existence of a measure taken in the context of a crisis situation, (ii) the occurrence of damage, and (iii) a causal link between them. This means that the crisis measures taken by the government are the cause of the resulting damage (e.g. restrictions on the operation of restaurants, closure of gyms, wellness centres, swimming pools, theatres and sports venues).

6. Where or from whom can I claim damages and within what time?

If you want to claim damages under Section 36 of the Crisis Act, you must submit your claim within six months of the time you became aware of the damage, but no later than five years after the occurrence of the damage (provided you would not be able to know immediately within six months). The claim for compensation is submitted to the competent crisis management authority. In their decision-making activities, the courts concluded that this would be the Ministry of the Interior of the Czech Republic.[1]

7. To what extent can I claim damages?

This question cannot be unequivocally answered, as no area-wide measures have ever been taken in the context of the SARS-CoV-2 pandemic. These measures have a strong impact on almost every firm and individual.

The case law has so far shown that damages were awarded when the crisis authority decided on specific property (e.g. the use of land on which a factory was being built to create a riverbed). Given that the government's decision was made across the board and not in relation to specific individuals, we believe that there is no reason to assume that compensation will be granted across the board to all affected entities, although the law is now in place.

On the other hand, the wording of the law is clear, as are some court decisions. They speak in terms of compensation for damage suffered in connection with the measures taken. It is reasonable to assume that the government is aware of this and we believe that, given the number of victims, either a legislative change or a modification of this provision by the court should be expected.

8. What alternatives do we have?

It is also worth mentioning Section 37 of the Crisis Act, which explicitly refers to the possibility of providing state aid in the form of lump-sum cash benefits or other extraordinary financial assistance. However, this aid only applies to individuals and municipalities and is aimed at situations of financial hardship linked to accidents or the consequences of natural disasters.

In our opinion, it can be inferred that Section 37 is also a guideline to be followed when assessing damages under the Crisis Act. We agree with the view that the Crisis Act provides for compensation of interventions in specific cases and does not deal with damages in the event of a general economic failure.

The government had previously shown interest in addressing the problem of a possible general economic collapse. In this context, up to one trillion crowns have been promised. We wrote about it in detail here: https://www.bdo.cz/en-us/publications/actual-publications/financial-support-of-statement-in-the-consumption-with-corronavir-covid-19