The Impact of Emergency Measures and the Responsibility of the State: The Origination of Entrepreneurs’ Entitlement to Damage Compensation

Measures adopted by states to tackle the COVID-19 pandemic have caused significant problems of a varying nature to numerous entrepreneurs. For most of them, the pandemic has meant substantial financial losses. It is precisely these situations in which entrepreneurs should be protected by the legal institution of damage compensation, which should help them overcome the economic recession. However, the relevant legislation reacts quite dynamically in such fast-changing situations and it is sometimes difficult to keep track of everything. When are entrepreneurs entitled to compensation and how do they claim this entitlement?

Another factor that has affected the rules concerning damage compensation for entrepreneurs is the ruling of the Municipal Court in Prague. The ruling primarily states that the Czech Republic was supposed to proceed in accordance with the Crisis Act during the state of emergency. The court also identified the necessary extent to which the state should intervene in fundamental human rights, and it supported the principle of predictability of actions taken by the state (most importantly, it banned the purposeful choice of the competence regulation). In practice, this ruling of the Court, which annuls the contested decisions by the Ministry of Health for their unlawfulness, also means that one of the conditions for claiming damage compensation has been met, which is in line with the Act on the state’s responsibility for an unlawful decision or an incorrect official procedure.

What are the prerequisites for indemnification and the granting of damage compensation in line with the Crisis Act?

  • The entrepreneur was affected by the emergency measures adopted by the state (e.g. the entrepreneur’s establishment was shut down);
  • The entrepreneur suffered verifiable losses;
  • The losses were related to the emergency measures adopted by the state; and
  • Negative conditions were not met, i.e. the losses were not caused by the entrepreneur himself/herself.

In certain cases, an entrepreneur may also be entitled to damage compensation if the state issued an unlawful decision or carried out an incorrect official procedure, causing the entrepreneur to suffer financial losses. In such cases, the entitlement to a claim is conditioned by meeting the following prerequisites:

  • The decision of the state/court/institution was annulled for its unlawfulness;
  • The entrepreneur suffered verifiable damage;
  • The damage was related to the respective unlawful decision;
  • The right to sue exists, i.e. the entrepreneur took part in previous proceedings; and
  • All procedural instruments have been exhausted.

If an entrepreneur decides to claim damage compensation in line with one of the above procedures, they first need to carefully prepare the necessary documentation. Along with the application claiming their entitlement to damage compensation, they also need to prepare documentation proving the damage they suffered, as well as evidence of acting with the aim of eliminating the impact of the crisis, and meeting the “prevention duty” (such as crisis plans, documentation of measures taken to mitigate the impacts, etc.). They also need to prepare documentation proving their lost earnings (such as business plans, cost and revenue records, expert appraisals etc.).

Are you wondering whether your company is entitled to damage compensation? Do you need any help in preparing the necessary documentation, or assistance with the actual claim? Contact the experts from Deloitte Legal, who will be glad to provide a helping hand.

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