Coronavirus and Compensation for Damages

ARROWS has already provided you with information on Coronavirus in the area of labour law in a separate article (link here). We have already written about how the current situation of crisis measures can affect your business contracts (link here) and what to look out for when drawing up new contracts for the duration of these measures (link here) as well.

Currently, even stricter state measures to prevent the spread of the virus have come into effect, which, however, cause considerable complications for entrepreneurs.

Did you know that the state can compensate you for the damages that have been caused by emergency measures in connection with the security situation?

The state, not the crisis management authority itself, is liable for the damages caused to natural and legal persons in causal link with the crisis measure, although in the first step it is necessary to claim the damages by the state first – out of caution we recommend to make the claim by several authorities (the government, the Ministry of the Interior).

In the second step, provided that the concerned authorities do not award the compensation, the claim must be brought through against the state by legal proceedings. In the dispute, the Ministry of the Interior shall act on the behalf of the state.

What is needed to claim damages during crisis measures?

1. Prepare all necessary documentation on the damages
2. Claim the damages within six months after you come to know about such
3. For the damages to be causally linked to the government's ban

What the law says: (1) The state is obliged to compensate for the damages caused to legal and natural persons in causal link to emergency measures and practices (Section 39 (4)) performed under this Act. Such liability may be exempted only if it is established that the injured party has caused the damage itself.

Documentation on damages – checklist of businessman

The Crisis Act foresees that the state may be in such cases obliged to pay primarily the real damages, however it does not exclude loss of profit. Therefore, keep in mind the widest possible range of relevant documentation to substantiate both parts of the compensation for damages. Even simple email may be often helpful.

The key factor is that the entrepreneur claiming compensation is required to prove the causal link between the crisis measure and the occurrence of the damages, namely that it was precisely a measure of the state that specifically led the entrepreneur to suffer losses on his assets. The damages caused by the crisis itself – the epidemic  cannot be compensated, only the damages occurred on the basis of a specific crisis measure.

The real damage will commonly be constituted out of the costs that the entrepreneur has to incur as a result of the crisis measures and for which he would have had no other reason. In particular, we can imagine:

• documents (invoices, receipts, orders and confirmations, etc.) for the costs of disposal of perishable goods which could not be sold as a result of the crisis measures;
• documents on the cost of measures to maintain the quality of goods and materials at the time of operation restriction;
• redundancy paid to employees who had to be laid off as a result of operation restriction based on crisis measures;
• sanctions that you had to pay to your contractual partners as a result of inability to comply with the contract and which could not be avoided – in particular penalties.

Loss of profit will then typically arise because a crisis measure will limit the scope of business to such an extent that it will not be possible to deliver goods or services that the entrepreneur would otherwise cover for profit which he could reasonably count on. It will be appropriate to prepare in particular:

• overviews of orders that you had to cancel as a result of a specific crisis measure;
• overviews of contracts that have been prematurely terminated or have not been fully or partially carried out due to the measures;
• calculation of how much additional revenue you are missing – documents on the trades realized in the past period comparable to the period during which the operation will be limited or stopped on the basis of the state interventions;

At the same time, it is necessary to count on the fact that the state will not be willing to award every compensation. After the crisis the claims will surely be countless and it can be expected that the state will try to contain these compensation claims, the decision-making practice for measures under this crisis is yet to be created.

Form for compensation for crisis measures 2020

The law assumes that the range of facts from which the damage may arise is diverse and not all can be covered in advance. Therefore, there is no official document, template or other form through which the entrepreneur should seek damages from the state.

It is not ruled out that over the time various sample documents will become available, nevertheless all will need to be approached with the utmost caution while taking into account your individual situation.

From our point of view, however, we recommend drafting a claim for damages against the state in the form of a structured submission with a careful portrayal and evidence of the facts that have harmed you on the basis of a specific state order, ideally in the structure:

1. What concrete measures the state has taken
2. What specific cost you were forced to spend / what contract did you lose
3. When did this damage occur and when did you come to know about it?
4. What particular deed or other record relates to this damage
5. Repeat this procedure for each partial damage.

Different types of claims can be expected in individual business sectors. Other damages will incur to mechanical engineering entrepreneurs, other to leasing dealers or hoteliers.

Sample claim for damages

In order to facilitate the situation to (not only) the business community, we have prepared a sample of structured submission through which the claim can be made, to downloaded for free here.

It should be borne in mind that each case will be individual and the circumstances on which the claim will be based in particular situations will vary from case to case.

At ARROWS, we are ready to advise you on the basis of your situation, which documents and information will be specifically needed to assess and quantify your potential claim.

Crisis warning:

Our office recommends primarily solutions from the field of operations, where we can advise you on how to mitigate the damage and adjust some processes so that your company can withstand this difficult situation within this extreme manifestation of business risk.

I would point out in advance on behalf of ARROWS that we will not and do not want to defend purpose claims or instances where someone wants to “scam” the state. Our company, according to our vision, never passes on protecting entrepreneurs in a fair way.

If you need help with your business, we will be happy to assist you with all legal options in the areas of law, taxes, subsidies and insurance.

In justified cases we provide a discount on the services, or we allow the possibility of repayments or deferment of the due date, as for the solution to this unpleasant situation.