Compensating for closure

In the US, unemployment figures have reached 14.7% as a result of the pandemic. In the UK, unemployment rates are also climbing, although the government’s job-retention and other business support schemes have helped absorb some of the impact. However, on both sides of the Atlantic, the lockdowns have been criticised by some and legal action has been taken or threatened.

This article does not take a position on the lockdowns themselves, though seeks to explain certain legal principles behind the responses of some to the measures taken, while commenting on what may follow.

Taking away business and wages

In the US, a class-action was filed against the governor of Pennsylvania shortly after the lockdown began, alleging that state-imposed closure orders had wrongly taken away business and wages and thereby violated the litigants’ Constitutional rights.

The “takings” clause of the Fifth Amendment to the US Constitution requires that the government’s seizure of private property for public use is compensated for. However, the compensation requirement is not limited to real property. It extends to all manner of tangible and intangible property. Moreover, a seizure of property may even arise where property is not physically taken from its owner.

In United States v. Dickinson, 331 U.S. 745, the US Supreme Court found that property can be taken in the constitutional sense when inroads are made upon an owner’s use of it. Numerous cases have proved this further by challenging regulations that control the use of land. In Lucas v. South Carolina Coastal Council, 505 U.S. 1003, for example, the Court held that a taking arises if a statute regulating the use of land denies an owner all economically beneficial use of it. In Lucas, environmental regulations that prohibited the claimant from developing his coastal property were thereby held a taking for which compensation was due.

One can see, from these cases, how US business owners ordered to close their workplaces to contain the pandemic may frame the state’s actions as unconstitutional. Closure orders that deprive business owners of the economically beneficial use of their land in the absence of provisions that address the financial burden inflicted are seen by some as unlawful takings.

Legal challenges to such closure orders may not be limited to the takings clause, however. Governmental actions are also often challenged for violating due process protections, such as, for example, that “No person shall … be deprived of life, liberty, or property, without due process of law.” Indeed, the US Attorney General has indicated the Justice Department may take legal action against governors whose lockdown measures continue to infringe constitutional rights after the crisis subsides.

Protection of property

While the UK has no written constitution, we are not without rights resembling those above. The acts and decisions of the state are subject to judicial review, for example. Moreover, echoes of the takings clause appear in Article 1 of Protocol 1 of the European Convention on Human Rights (‘the Convention’), which provides for the protection of property in the following terms:

Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law.

The right is a qualified right, rather than absolute, which may be restricted by means of the laws that a State deems necessary “to control the use of property in accordance with the general interest…”

Serious public health issues such as COVID-19 will almost certainly be of general interest, given, for example, the European Court of Human Rights (‘ECtHR’) has previously underlined the importance of preventing animal diseases when assessing this right (see S. A. Bio d’Ardennes v Belgium, no. 44457/1, 12 February 2020). Nonetheless, even where sufficient general interest is found to enable a state’s restrictions on property rights, the courts have established that compensation should be provided in certain circumstances, much as per the US takings clause.

In broad terms, the availability of compensation hinges on whether restrictions amount to a “deprivation”, for which compensation is usually due, or a “control of use”, where compensation is not ordinarily due. In R (on the application of Mott) (Respondent) v Environment Agency (Appellant) [2018] UKSC 10, the UK Supreme Court held that licence terms which severely restricted a landowner’s commercial fishing activities on his riverside property were “excessive and disproportionate” and “closer to deprivation than mere control”. In consequence, the Court found it was wrong not to compensate the landowner when his business was restricted to the extent it was.

The Health Protection (Coronavirus, Restrictions) (England) Regulations 2020 require certain UK business premises to close temporarily or to restrict their operations to control the spread of the virus. In requiring such, the Regulations restrict the ability of some to use their property for commercial gain. If the restrictions were deemed to amount to a deprivation in the Mott sense then compensation may be due.

Many businesses affected by the Regulations will be receiving state support, such as grants, business rates relief and payroll support under the job-retention scheme. This may satisfy the compensation requirement. However, some businesses, including sole traders who have less than one year’s trading history, are excluded from such schemes, yet will be sustaining significant losses. This begs the question of whether their Article 1 Protocol 1 rights have been infringed in a manner “closer to deprivation than mere control” and without adequate compensation.

For those facing such hardship, the jurisprudence of Strasbourg may not present much comfort. Matters such as J. A. Pye (Oxford) Ltd and J. A. Pye (Oxford) Land Ltd v UK (2008) 46 EHRR 45 show how far the definition of “control of use” can be stretched. In Pye, the applicant’s land rights had been entirely extinguished by the statutory rules applicable to adverse possession, yet the provisions were considered merely a control of use and compensation was not awarded.

Seeking a remedy in the UK

As Convention rights have been incorporated into UK law by means of the Human Rights Act 1998, parties can challenge the government and public bodies in domestic courts for acts they consider incompatible with certain Convention rights, including Article 1 of Protocol 1. Indeed, claimants must exhaust domestic remedies before seeking a ruling from the ECtHR.

However, given the present circumstances and the actual terms of the Regulations, it seems unlikely that the operating restrictions imposed would be deemed a deprivation for compensation to be generally due. The Regulations are only intended to be temporary in nature. Regulation 12 provides that the Regulations will expire after six months. Moreover, Regulation 3 requires the Secretary of State to review the controls at least every 21¹ days. In consequence, they seem more likely to be viewed by the courts as a control of use, at least at the present time.

Questions of equality may arise, given that the impact of the Regulations on property rights and the degree of economic support provided differs by type of establishment and legal personality. However, equal treatment guarantees under Article 14 of the Convention seem unlikely to have much muster here. The case law of the ECtHR suggests that prohibited differential treatment arises where based on an identifiable, objective or personal characteristic, or “status”, by which persons or groups of persons are distinguishable from one another (Molla Sali v. Greece [GC] [2018] ECHR 1048). It may be difficult to establish sufficient synergies in the characteristics of those businesses that receive support and those businesses that do not to distinguish them, thereby permitting identification of “persons in an analogous or relevantly similar situation” and thus a prohibited difference in treatment under Article 14. That said, we may yet find that the Regulations have had a disproportionately prejudicial effect on a subgroup of people that are more readily defined by one or more the characteristics enumerated in Article 14.

‘Property’ is itself a characteristic enumerated within Article 14, and in Chassagnou and Others v. France [GC], nos. 25088/94, 28331/95 and 28443/95, 29 April 1999 the ECtHR found that the distinction drawn between small and large landowners (and their differential treatment on that basis) had no pertinent justification. This may provide some scope for unequal treatment arguments to be made.

The ECtHR has also previously held that controls over the use of property should not impose an “individual” and excessive burden, for example in Sporrong and Lönnroth v Sweden [1983] 5 EHRR 35. This could potentially provide those businesses not receiving economic support with further arguments on which to mount a claim, on the basis that they bear an individual and excessive burden. However, in Sporrong, the long period of time during which the applicants’ property rights were interfered with by the state (upward of ten years) was a factor in the Court’s ruling. The intention that the Coronavirus Regulations are only short-term measures is likely to position them closer to mere control than deprivation at present, in a reversal of the situation in Mott.

Ultimately, the court will look at whether a fair balance has been struck between the applicant’s right to their property and the general interest pursued by a state’s restriction on that right. Given its highly infectious nature and the health risks COVID-19 presents, the courts may very well take the view that the controls are neither excessive nor disproportionate in the circumstances for any compensation to be due—even where businesses are ineligible for government support schemes.

Conclusion

As we have heard repeatedly in past weeks, these are unprecedented times. Governments in the UK and elsewhere are responding to the pandemic in a variety of ways, imposing restrictions on businesses and individuals while extending economic support to many in ways never previously attempted. Quite how the courts will view the impact of these measures on the rights of individuals and businesses in due course remains to be seen.

¹ Since 1 June 2020, every 28 days.