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  • Legalink News: Covid-19 Pandemic in Czech Republic

    01. 04. 2020

    1) To what extent is the Covid-19 pandemic considered a “force majeure” excuse in contractual relations;

    According to relevant literature and legislation, provisions governing force majeure (vis major) of the Act No. 89/2012 Coll., the Civil Code (hereinafter referred to as the “Civil Code”) are only applicable “if there is such a substantial change in circumstances that it creates a gross disproportion in the rights and duties of the parties by disadvantaging one of them either by disproportionately increasing the cost of the performance or disproportionately reducing the value of the subject of performance, the affected party has the right to claim the renegotiation of the contract with the other party if it is proved that it could neither have expected nor affected the change, and that the change occurred only after the conclusion of the contract or the party became aware thereof only after the conclusion of the contract. Asserting this right does not entitle the affected party to suspend the performance. (Article 1765 of the Civil Code)

    Substantial change in circumstances could be seen e.g. as any essential political change, limitations or restrictions on economy, legal aspects or even epidemics and quarantines.

    Such substantial change must, however, affect and interfere with rights and obligations of the contractual parties so the argument itself is not sufficient and it must be proven that rights and obligations were not held in balance. Also, substantial change is only relevant if it occurs after the contract was concluded. Substantial change of circumstances is not applicable if the debtor already failed to perform his debt properly and in due time (and therefore being in default) before such change in circumstances occurred.

    A tortfeasor is released from the duty to provide compensation if he proves that he was temporarily or permanently prevented from fulfilling his contractual duty due to an extraordinary, unforeseeable and insurmountable obstacle ( = substantial change) created independently of his will. (Article 2913 of the Civil Code)

    We believe the same could be applied in the international trade as stipulated in the United Nations Convention on Contracts for the International Sale of Goods 2010 (“CISG”): A party is not liable for a failure to perform any of his obligations if he proves that the failure was due to an impediment beyond his control and that he could not reasonably be expected to have taken the impediment into account at the time of the conclusion of the contract or to have avoided or overcome it, or its consequences. (Article 79 of the CISG)

    Based on the above mentioned is safe to say that COVID-19 pandemic is an exceptional and insurmountable obstacle (force majeure) and should be therefore taken into account in contractual relations.

    2) Description of the measures taken to achieve “social distancing” (curfew, lockdown, mandatory shop closures, duration etc.) and how these measures are accepted by the public;

    The Czech Republic declared a state of emergency valid for thirty (30) days as of the 12th of March 2020. In order to prevent the spreading of the virus Covid-19, together with the state of emergency, the Czech government has also adopted certain measures described below:

    - Curfew & Lockdown

    Mandatory lockdown measures apply to all persons currently located in the Czech Republic. The aim is to minimise contact between people unless it is absolutely necessary. The exceptions to the lockdown are due to travels to work; necessary visits to family and close persons, journeys to grocery stores, pharmacies, post offices, funerals and also trips to nature and return to the place of residence. On that note, people are also not allowed to be in public areas in more than two (2) people together (please note such measures do not apply to members of the same household). Two (2) metres distance rule must be followed when in public areas, i.e. shops, streets, or queues. Also, face masks are mandatory when in public areas.

    General ban on entry to the Czech Republic for all foreigners and travel ban (with exceptions) measures have been adopted.

    Schools (primary, secondary and high schools), universities together with leisure and educational centres must also remain closed until further notice.

    - Mandatory shop closures

    All retail stores must be closed with the exception of grocery stores (provided disposable gloves are available for incoming customers), drug stores and pharmacies, pet shops, car repair and storage shops, gas stations, optics, newspaper stands, tobacco shops, flower shops, gardening supplies stores, ticket offices, dry cleaners, delivery services, spa facilities (only if covered by public health insurance), funeral services, telecommunications, haberdashery supplies stores, constructions sites, real estate and tax offices.

    Restaurants must remain closed but food trucks and takeouts are still allowed to be open, therefore many restaurants now provide their customers with delivery services or takeaway options in order to keep their business running. Food courts in shopping malls with area of more than 5,000 square metres however can no longer serve food and must remain closed until further notice.

    Taxi services, driving schools, self service dry cleaners, casinos, building materials stores, all sport centres, accommodation services must be closed at all times.

    - Duration:

    The Curfew & Lockdown measures are currently valid until 11th of April 2020; however the duration of the state of emergency may be extended again and so will the duration of the above described measures.

    Certain regions in the Czech Republic are currently testing a system of intelligent quarantine which should help to locate how the virus spreads and some of the measures could then be repealed.

    It is important to say that compared to other countries the general public adopted all the necessary measures very well. It is obvious that people realise the consequences of current situation and take it seriously (i.e. everyone is wearing a face mask, queues in stores follow the distance orders, everyone respects the opening hour for the elderly).

    3) Description and volume of the aid packages made available to employees, small businesses, large corporations;

    Details regarding aid packages for businesses are still being discussed but as of today it is clear who will qualify for compensation. All employers whose economic activity is affected or jeopardised by the spread of the disease (virus) and whose wage costs are not covered by state or national budgets are entitled to a partial or full compensation for wages paid to their employees.

    Last measures taken in this context were as follows:

    The government approved a program called “Antivirus” to protect job positions. According to this program, the state shall compensate for the wages paid by the employers and such compensation should be provided through Labour offices (Job Centres). Such measures should help the employers to manage current economic situation.

    Program “Antivirus” covers a number of situations depending on the type of restriction or obstacles the employer is facing such as quarantine of the employee, inability to assign work due to a mandatory lockdown or mandatory closures, lack of demand on the market due to the lock down, child care.

    The government came up with the plan of compensating 60% to 80% of the wage paid to the employee based on the particular restriction. Such compensation does not only include the actually net salary but also social security fees and contributions to the national health care system.

    Compensation shall be paid after an application for compensation is submitted to the Labour Office. Such application should automatically generate an agreement between the Labour office (Job centre) and the employer which is the essential condition for compensation payment, and such compensation can be claimed for wages paid from the 12th of March.

    Please note that as the situation is still evolving, this is very likely not the definite form of the measures.

    Nevertheless, certain measures will affect the taxpayers in a positive way. Therefore, we find it useful to mention those as well: Taxpayers, who were required to file an income tax return for 2019 originally no later than by the 1st of April, can now do so until the 1st of July 2020, without applying for such extension and without having to prove the reasons related to coronavirus. Same applies to property tax returns which can now be filed by 31st August 2020.

    4) Legislative changes in view of the Covid-19 pandemic (in some countries there are changes to insolvency law, tenancy law, law on consumer contracts and corporate law);

    As of this date no major changes of this kind have yet been adopted. Compare to other countries (i. e. New Zealand) where we can already see the mortgage and rent freeze together with minimum living allowance providing by the government in order to ensure that its citizens will be in safe position as many already lost their jobs, the Czech government is yet to decide on how to address this situations. It is, however, clear, that based on negotiations with the Czech National Bank such measures are likely to be adopted in the future. So far, the Ministry of Finance has presented a proposal to a 6-months moratorium which should freeze mortgages and loans repayments. After the parliament's approval such moratorium shall be binding for all banks and non-banking financial institutions.

    5) Operations of the court systems.

    Court hearings (except few rare cases) are generally being adjourned but there are currently no measures applicable specifically to court operations. Each court has adopted its own system and procedure on how to deal with protection of its employees, people entering the court house and prevention of spread of the virus. Certain courts require specific documentation stating what the purpose of entering the court building is (such as subpoena). Although court hearings are mostly being adjourned, it is necessary to monitor notice board of each court.

    Mgr. Michaela Prodělalová and Mgr. André Vojtek.

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