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Legal updates by LGP Bratislava

Legal updates by LGP Bratislava

In today‘s disruptive and constantly changing business environment, clients expect not only reliable services but also higher efficiency, greater flexibility and, in addition to solutions tailored to their companies, the ability to anticipate new developments. 

The current Covid-19-crisis has tested our readiness and adaptability to help our clients cope with turbulent and unexpected events. The situation is changing rapidly and information on this topic is still evolving, since the spread of the virus around the world has created several ethical, legal and social problems. Here are some examples of areas in which we can help with our legal expertise: 

Companies in adverse economic situations 

The amendment to the so-called act “Lex Corona”, effective from 12.05.2020 was introduced in Slovakia as temporary protection for business entities. Its purpose is to create a time-limited framework with tools to counter the damages that Covid-19 has done to businesses. However, these measures expire on 31.12.2020. After that, the protected business entities will be obliged again to file applications for the declaration of bankruptcy on their assets (in case of their indebtment), interrupted enforcement proceedings will continue against them, and exercising pledges on their assets will become possible again. Unfortunately, the temporary protection did not help many business entities to get out of their adverse economic situation and ultimately has only delayed their problems. We assume that the expiration of temporary protection measures will most likely lead to insolvency in many cases. Currently we already advise our clients how to set up internal corporate, employment and other processes, as well as their external relations towards third parties, by adjustment of existing relationships or reassessment of prospective expansion plans, to avoid adverse economic change. 

Temporary protection of viable business entities is currently being negotiated at the Ministry of Justice of the Slovak Republic. Its purpose should be to create a time-limited framework for protection against creditors equipped with tools to support business entities in difficult financial situations, which should enable them to continue their business and thus prevent loss of jobs and valuable know-how and bring a higher level of satisfaction of creditors‘ claims. Unlike the temporary protection of business entities mentioned before, it should be a permanent institution in Slovak law. We follow the further development very closely in order to support our customers in solving their economic difficulties in the best possible manner. 

Legislative change in public procurement 

Currently, a publicly much-discussed topic is the amendment of the Public Procurement Act. First, the Deputy Prime Minister for Legislation presented his ideas on a public procurement reform, then the Public Procurement Office came up with its own proposal for fundamental changes in this area. The amendment is based on the program statement of the Government of the Slovak Republic and on the National Integrated Reform Plan „Modern and Successful Slovakia“. An important objective of the proposed amendment is to respond to the socio-economic situation caused by the pandemic and the ensuing global economic recession. At the same time, this amendment is intended to fundamentally simplify the public procurement procedure (e.g., increase in the current limits in the case of direct awards or simpler exclusion of dishonest bidders from public contracts). The amendment also reflects the mentioned professionalization of public procurement, which now also legally enables the government to set up a separate central procurement office for strategic purchasing. 

On the other hand, the proposal presented by the Deputy Prime Minister for Legislation does not represent a reform but a revolution which is based on three substantial changes. The first group of amendments concerns the repeal of legal requirements for the award of contracts and certain restrictions that are not covered by the EU‘s public procurement directive, such as the rules for contracts below the threshold or for low value contracts. The second area concerns fundamental restrictions on the Public Procurement Office’s competencies and the transfer of review procedures to specialized administrative courts. The third set concerns amendments of the rules for determining the estimated value of a contract. As our office is very active in this field, we follow the legal innovations concerning public procurement with great interest. For the direct benefit of our clients, we are also actively involved in this legislative process, as evidenced by our participation in a professional debate on the amendment prepared by the Public Procurement Office. 

Damage compensation within the context of the pandemic measures 

In the Slovak Republic it is possible to seek for damage compensation towards the state due to the unlawful decision or wrong official procedure. Rightful reasons to seek for compensation are: 

  • Unlawful act (unlawful decision, or wrong official procedure) 
  • Damage (real damage and loss of profit) 
  • Causal Nexus between the unlawful act and the damage 

The National Council of the Slovak Republic has by the amendment Art. 58 of the Act on protection, support and development of public health, revoked the right for compensation of damage and loss of profit. After a detailed analysis, we conclude that this amendment seems unconstitutional. None of the acts may entirely exclude the right for damage compensation. The exclusion of the right for damage compensation would mean that the National Council of the Slovak Republic could exclude any right provided for in the constitution solely on the discretion of the legislative body. Such interpretation shall be considered constitutionally unacceptable and not only contrary to the text of the general act but contrary to the goal and meaning of the constitution. The exclusion of the right for damage compensation would thus mean the denial of the principle of rule of law. 

In practice, that would then mean that public power bodies may perform measures arbitrarily and without any consequences during the pandemic. The challenged provision therefore means the breach of the obligation of the state to adopt such legal acts which will allow the realization and fulfilment of the general right for compensation of damage caused by unlawful decisions and wrong official procedures of the public bodies. On 23.10.2020, the President of the Slovak Republic filed a relevant complaint with the Constitutional Court of the Slovak Republic about the suspension of the law‘s effectiveness due to the non-conformity of the adopted amendment to the Public Health Protection Act. The Constitutional Court of the Slovak Republic has by the means of the Resolution dated 04.11.2020 accepted the proposal for the further proceeding in the full extent, and at the same time has suspended the effectivity of the challenged provision. 

The Constitutional Court within the extent of preliminary legal assessment has declared that the interpretation of the challenged provision, which revokes the right for compensation of damage and loss of profit due to the performance of measures is in direct contradiction with the constitutional requirement to protect the nature and meaning of the fundamental rights and freedoms when adopting their limitations. This interpretation prima facie appears to be from a constitutional-law point of view unsustainable and providing for not only factual and immediate risk of infringement of fundamental right for damage compensation caused by the unlawful decisions and wrong official procedure in the respective area, but it evokes the assumption of infringement or elimination of a constitutional right.

To date, the Constitutional Court of the Slovak Republic has not yet decided on the issue, at least not by the editorial deadline. It appears that Art. 58 of Slovak Act on Protection of Public Health, which has excluded the right for compensation of damage and loss of profit due to the pandemic measures, will be declared as contrary to the Constitution of the Slovak Republic. 

The damaged entities are therefore at least theoretically able to seek compensation of a potential damage caused by an unlawful decision or a wrong official procedure. 

As the legal framework and the possible consequences of this unique pandemic situation are indeed very interesting, we will closely monitor the development of these new legal provisions. This will enable us to ensure the maximum protection of our clients‘ rights and, if necessary, to demand adequate compensation. 

Authors:

JUDr. MARTIN JACKO, Managing Partner at LANSKY, GANZGER + partner Bratislava
Mgr. MARTIN HOLÝ, Associate at LANSKY, GANZGER + partner Bratislava
JUDr. MÁRIA PORUBSKÁ TÖKÖLYOVÁ, Associate at LANSKY, GANZGER + partner Bratislava

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