Put Christian Fernandes Rosa and Beatriz Wehby – 07/04/2020
Since the increase in confirmed cases of COVID-19 infection was reported, the Governments of States such as São Paulo, Rio de Janeiro, Rio Grande do Sul and several Municipalities have issued Decrees to establish sanitary quarantine and thus determine the closure of businesses that provide non-essential goods and services. As a result, there has been economic loss for these companies, whose commercial activities have been restricted or hindered by the measures taken by the Government.
From a strictly legal perspective, the discussion thus arises about the possibility of claiming compensation for damages resulting from compliance with the restrictions imposed. Can states and municipalities be held financially liable for this damage?
Initially, the legality or illegality of the act performed must be assessed. This is because, if it were unlawful, contrary to the law or the Constitution, any resulting damage would clearly be compensable. This is a general rule of law: liability for a harmful illegal act constitutes the obligation to compensate the injured party, mitigating the undesirable effects of the unlawful act and thus restoring the assets affected by the improper conduct. However, it seems that acts restricting commercial activities appear to be lawful.
In general, the formal and material requirements for validity and effectiveness are met. To summarize, these decrees are the result of the exercise of powers previously established in the legal system, attributed to Governors and Mayors. They were duly motivated and meet a clear public health need – and, therefore, serve the public interest. The acts were published by official means and are capable of generating binding effects for all their recipients.
Thus, although lawful, in accordance with the Law, these are public acts that generate direct economic losses to a large number of individuals and legal entities in the exercise of their business activities. Would compensation be appropriate?
To address the issue, it is important to refer to paragraph 6 of article 37 of the Constitution of the Republic, which enshrines the objective liability of the State, a regime in which it is not necessary to demonstrate blame (negligence or recklessness) or fraud (intention) so that the public entity is liable for the effects of its conduct. According to the constitutional norm, once the damage is proven, on the one hand, the harmful conduct (active or omissive), on the other, and the causal link between both, the possibility of liability arises. In the present case, the active conduct of the State and Municipal Decrees directly hindered the regular continuity of business and, thus, implied economic loss. The epidemic, a cause of force majeure, justified the restrictive public acts, but it was not this circumstance that directly prevented the operation of the business establishments. The causal link between the damage and the conduct of the public entity seems well preserved.
However, in terms of the Public Administration's liability for lawful acts, not every harmful event gives rise to the duty to make reparations. Not all damage suffered is compensable. Only abnormal and special damages are subject to reparations.
The analysis, therefore, must be carried out in the field of reasonableness and equality. In the dimension of reasonableness, it is necessary to assess whether the damage is a common, expected frustration, inherent to the risks that the entrepreneur understood it was appropriate to take in the search for profit. And that in this sense the public act is a mere circumstance that embodies an event (not only lawful, but) normal, ordinary. In this aspect, unless I am mistaken, the present case manifests an economic burden that is completely unexpected, not trivial, pointing to the satisfaction of this requirement for the obligation to compensate – abnormality of the harmful event.
The cumulative requirement would still have to be overcome, specialty of the damage. And we reiterate that it is well known that the Public Authority established the restrictions with the public interest as its main purpose. However, in order to serve it, for the benefit of the entire community, the fact is that the measure became especially more onerous for some people. And in this sense, based on an analysis based on the principle of equality, it is possible that, in many cases, damage may be configured special, subject to compensation.
It is clear that each case must be specifically assessed to analyze to what extent the act – which, despite benefiting everyone – burdens the individual in a way that is not beneficial to the individual. abnormal and exceptional a specific person or category, outlining grounds for any claim for compensation.
It should be noted that the possibility of this compensation, together with the need to preserve companies and their social value, underpins initiatives that have already been taken by various political entities to reduce taxes on their activities, or postpone their collection, or even make subsidized credit lines available. The importance and legitimacy of these measures is further reinforced by these considerations.
The issue is complex and challenging and will certainly demand efforts from the Courts to preserve subjective, individual rights, while at the same time ensuring the legitimate exercise of public powers that are fundamental to collective life.
