In many European Union countries, entrepreneurs are counting the losses caused by the coronavirus pandemic, or more precisely the losses caused by the restrictions introduced in their activity by the states in connection with the fight against the pandemic.
The situation particularly affects the retail sector, including small, medium and large enterprises in the shopping centre sector, which generates about 30% of the value of retail trade in Poland and is an important contributor to the budget, employing around 650,000 up to 1 million employees directly and indirectly.
Of course, entrepreneurs, as other citizens understand the situation and reasons for the restrictions introduced, all the more so because the restrictions introduced are those to property rights and civil liberties, and the Constitution of the Republic of Poland makes it possible to measure compensation for material losses only in the case of emergency situations, entrepreneurs are entitled to compensation.
It transpires that claims for damages are more often formulated due to either illegal or discriminatory action of governments, which introduce restrictions without deeper legal reflection, and thus are legally flawed. Such position usually leads to far-reaching deficiency of the introduced legal acts.
Such lawsuits are already filed, for example, in Austria, where one of the restrictions differentiated entrepreneurs according to the trade area (the so-called “zoning ban”) in a discriminatory manner and made it impossible to adjust the trade area to the requirements of the defective law, which is also discussed in more detail below.
In Hungary, one of the potential grounds for claiming compensation may be the recently introduced “extraordinary retail tax”. This tax seems to be levied in Hungary in a similar manner on both retail chains that may continue to operate during coronavirus restrictions and on those which cannot operate for objective reasons. Such a situation is liable to breach both the principle of ‘fair and equal treatment’ and the principle of ‘equal legal protection’ to which traders are entitled.
A lively legal debate is also taking place with our southern neighbours, the Czech Republic. The Municipal Court in Prague has already declared unconstitutional provisions issued without the benefit of the ‘state of emergency’ legislation (referring to a similar institution in Polish law).
In response, the government took action to rectify this irregularity. The court also gave the government a few days’ deadline to implement the prohibition in a manner consistent with the Constitution. Concerns are also being expressed about the (non)constitutionality of the anti-crisis measures implemented by the government. Against this backdrop, corporate lawyers in the Czech Republic may also formulate claims for damages from the state.
Poland. Legal facts.
Similar thoughts and conclusions are formulated in Poland. In a very interesting text, which appeared on April 23rd in Rzeczpospolita, Andrzej Mikosz, the Minister of Treasury in the years 2005-2006, presented the effects of the difference between “epidemic” and “pandemic” in a very neat way. This is not only a terminological issue, but also a legal one which has far-reaching consequences for entrepreneurs and the state.
In his text, Mr Mikosz suggested that only the introduction of a state of emergency in Poland could limit claims (of entrepreneurs) against the State Treasury. The previously existing state of epidemic emergency in Poland, and now the state of epidemics, were introduced in a defective manner.
It is important for potential – related to that state – claims of entrepreneurs where the fact that the regulation of the executive authority, on the basis of which the state of epidemic was introduced in Poland, does not have a presumption of conformity with the Constitution. This means that in a potential trial any judge may consider such a regulation as not binding in the case.
In Poland we have de facto state of coronavirus pandemic, which meets all the conditions to declare a state of emergency in Poland. In any such state, however, in accordance with the provisions of the Constitution as well as the detailed act relating to compensation for property losses resulting from the limitation of freedom and human and civil rights and freedoms in time (Act of 22 November 2002), entrepreneurs are entitled to compensation, which (however) has been limited (appropriately measured) by appropriate regulations due to the existence of the state of emergency.
There is no doubt, however, that also in the current situation (“epidemic state”) we are dealing with restrictions in conducting a business activity which directly affected the interests of entrepreneurs. Furthermore, a number of these may be considered in the context of a restriction of the right of ownership, which is reserved for the Act, and which, as we know, were introduced by an executive act of the Minister of Health, or even the Polish government i.e. with a clear violation to the Constitution.
The “state of epidemic” does not cause the limitation of the liability of the State Treasury for violating citizens’ freedoms and rights, e.g. for property losses resulting from the restriction of the right of ownership. No measure of State Treasury liability will be applied here.
The Constitution provides for a situation in which – in the name of protection of the higher good, the public good – it is possible to limit the freedom and rights of persons and entrepreneurs, while at the same time measuring the responsibility of the Treasury for their property losses. Such a situation only concerns an emergency state, and therefore not a “pandemic state”.
Therefore, in the current state of the “epidemic”, covering – in accordance with the content of the Regulation of the Council of Ministers – the entire territory of the Republic of Poland, there are no legal grounds to avoid or measure compensation for entrepreneurs who have suffered or will suffer a property loss resulting from the “mandatory” (and introduced in violation of the law) of the Regulation restrictions on rights and freedoms.
Thus, in each case in which it will be possible to demonstrate an adequate causal link between the loss and the limitations introduced by the “state of the epidemic”, there will be grounds for claiming compensation from the Treasury.
The legal basis for such claims may be the attribution of liability for damages to the Treasury on the basis of Article 417 § 1 of the Civil Code, which provides for such liability for damage caused as a result of illegal activity in the exercise of public authority.
Consequences for business
These legal “tricks” serve, in the current situation, entrepreneurs who have specific claims to the State Treasury for compensation caused by legally defective restrictions on their business activity.
Particularly affected industries, such as hotels, services or retail, can claim compensation from the State, regardless of any state action on the anti-crisis measures and support (so called anti-crisis shield) already introduced. It is of course not excluded that the court will take into account the aid received from the state when deciding on compensation. However, in no case can this aid exclude the liability of the State Treasury for illegal activities which lead to a reduction of entrepreneurs’ rights.
The discussion is particularly heated at the moment in the retail sector, which, as a result of restrictions and closures of shopping centres, does not operate for more than a month (or operates in a very limited way). Experts and analysts talk about the “earthquake” in this industry. The losses generated relate not only to lost profit from sales, but also to personnel maintenance costs, costs of renting premises or other fixed costs associated with the business (and currently not carried out).
In the current situation, there are no obstacles for an entrepreneur which operate in this industry to summarise its losses, calculate the costs and, with the help of lawyers, formulate a claim against the State Treasury.
With the state failing to utilise the facility to measure liability, resulting from the Constitution of the Republic of Poland and reserved for state of emergency (and not epidemics state), may result in the calculated and raised claims being – sooner or later – adjudged.
Of course, each lawsuit filed is also (often) several years in a court battle. Today, all companies are fighting for survival. Those that will survive will be able to claim not only support but also compensation during the period until the statute of limitations for their claims. Creditors, and especially managers of those who do not survive, will even have to raise such claims to avoid their responsibility, often personal responsibility.
Case study: Austria
Similar opportunities are available to retail businesses in Austria and, as shown by the practice of the Austrian retailer, are already being used. There, among others, the general order of the Minister of Health, which only allowed shops with an area of 400 m2 or less to be open as of 14 April (the so-called ‘zoning ban’), is contested. According to my colleague, Ivo Deskovic from TaylorWessing’s Vienna office , the larger entrepreneurs, including those who had more than 400 m2 of sales space, but who declared their willingness to reduce it to the allowed 400 m2, were omitted.
Furthermore, Austrian lawyers dispute the same order in so far as it allowed grocery shops to be opened after 16 March and non-food products to be sold there as well, whereas non-food shops had to remain closed. The unfortunate order on the Austrian entrepreneur is therefore being criticised in a two-stage procedure, the first one being referred to the Austrian Constitutional Court, in which they challenge the general order of the Minister for Health. In the second stage, they will submit an action for compensation by the State for losses.
Austrian lawyers speak of a breach of the principle of equal treatment, of the right to conduct business and also facility of the right to unencumbered property. The provision of law, which came into force on 16 March, stating that the compensation scheme provided for in the Austrian Epidemics Act of 1950 would not apply to the coronavirus crisis, is also questioned.
Cost of Errors
As you can see, entrepreneurs have a weapon to fight for compensation, and the mistakes of those in power and legally flawed restrictions on doing business are a European ‘epidemic’.
Each state of emergency, natural disaster, pandemic or epidemic is an emergency, unexpected state and it is difficult to talk about the possibility to prepare for such state by Mr. Kowalski (or Hans Meier in Austria) or by the entrepreneur. Therefore, the system of each state under the rule of law provides for such situation both the possibility of limiting the rights and freedoms of a human being and a citizen (entrepreneur), as well as appropriate – related – compensation, whichmay be measured by appropriate laws and this is also the case in Poland, but only in the case of emergency state situations. If this state is not introduced, which can at least be qualified as an omission of state authorities, and rights and freedoms are nevertheless restricted, then compensation is all the more justified.
For no one is able to adequately prepare for such a situation, and this state, acting both in the sphere of its dominium as well as imperium, has or should have adequate means to combat the effects of such a state in various areas of social and economic life.
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