The period of the COVID-19 pandemic is probably not something most of us want to voluntarily recall. The period was associated, among other things, with a series of government crisis measures that significantly affected the activities of a number of businesses. However, the Supreme Court ("SC") recently issued a decision that sheds a light of hope on these dark times. In fact, the Supreme Court upheld the liability of the state for damages resulting from the adoption of crisis measures, including damages in the form of lost profits.1

In the present proceedings, the applicant (a trading company) sought compensation for damages in the form of lost profits in the amount of approximately CZK 1.1 million resulting from the government's crisis measures prohibiting retail sales and the provision of services at the applicant's premises.

The dispute reached the Supreme Court, which ruled on two legal issues, namely

(i)under what conditions the liability of the State for damage caused by the implementation of a crisis measure under the Crisis Act2 is based; and

(ii)what is the interpretation of the term "implementation of a crisis measure"?

In its decision, the Supreme Court upheld the objective liability (i.e. liability regardless of fault) of the State in connection with damage resulting from the implementation of the emergency measure, regardless of whether the measure was correct or in accordance with the law. Thus, the Supreme Court concluded that the only thing decisive for the establishment of the State's liability is the fulfillment of the following three conditions:

1)the implementation of the crisis measure;

2)the occurrence of damage; and

3)a causal link between the crisis measure and the damage.

In order to potentially succeed in a dispute for compensation for damages, beyond the above conditions, it is first necessary to assess whether the claim for compensation for damages was made within the subjective period of 6 months from the time when the person became aware of the occurrence of the damage and within the objective period of 5 years from the time when the damage occurred.3

The claim is initially filed with the competent crisis management authority, which in this case is the government, or the Office of the Government of the Czech Republic.4 Only then can compensation be sought by a lawsuit in court.

The applicant duly submitted her claim for compensation and her subsequent action reached the Supreme Court, which disagreed with the Court of Appeal's rejection of the limitation of the State's liability. The Court of Appeal held that the State was liable only for damage caused by individually targeted emergency measures. However, according to the CFI, such a conclusion is not supported by the law.

Similarly, the Supreme Court rejected the Court of Appeal's view that the State was not liable for damages because crisis measures were the product of legislative activity. However, the Supreme Court stressed that in exceptional cases the state may be liable for damage caused by legislative activity, for example, in a situation where the state has voluntarily assumed this obligation.

As regards the interpretation of the concept of "implementation of a crisis measure", the Supreme Court stated that the implementation occurs at the moment specified in the individual crisis measures, i.e., the date from which the measure is effective. From that moment, the State is liable for the damage caused by it. Thus, the implementation of a crisis measure does not consist, for example, in its enforcement in the form of the use of force by the police. The fact that the applicant complied with the crisis measure does not therefore mean that it was not implemented against her.

The GC stressed here that the fact that the applicant had submitted herself to the crisis measure could not be attributed to her. According to the Court of Appeal, to take the Court of Appeal's view ad absurdum would mean that a seller who did not comply with the crisis measure and against whom the crisis measure had to be 'carried out' by force, for example by the police, would be entitled to compensation under the Crisis Act, whereas the applicant, who had acted in accordance with the law, would not be. Such a conclusion, according to the CFI, is manifestly incorrect.

With this decision, the Supreme Court sent a signal that it makes sense to claim compensation for damages in connection with crisis measures during a pandemic, and at the same time it significantly strengthened the position of entrepreneurs in a potential dispute.

The problematic points will now be, in particular, proving the occurrence and amount of damage, as well as proving the causal link between the crisis measure and the damage caused. At the same time, the aforementioned deadlines cannot be overlooked in view of the fact that the first crisis measures were already implemented in March 2020.

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1Judgment of the Supreme Court of 31.8.2023, Case No. 30 Cdo 63/2023

2§ 36(1) of Act No 240/2000 Coll., on Crisis Management and on Amendments to Certain Acts (Crisis Act)

3 § 36(5) of the Crisis Act

4NOVÝ, Dalibor. On the reparative role of the state not only under the guise of crisis. Commercial Law Review, 2020, No. 2, pp. 86-93

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