SARS and the Law

The recent outbreak of Severe Acute Respiratory Syndrome (‘SARS’) has had a profound effect on the way we interact on a personal, commercial and social level. This article examines some of the legal issues that could arise as a result of an outbreak of SARS.

SARS and Employment Related Issues

The employer’s duties and obligations

An employer has a legal obligation both under common law and various statutes¹ to provide for the health and safety of his employees. Under common law, an employer has a duty to take reasonable care to ensure the safety of his employees. In this regard, an employer ought to take all reasonable steps, given the circumstances of the case, to ensure that his employees are not exposed to unnecessary risks.² A duty to take reasonable care to ensure the safety of an employee is also an implied term of a contract of employment.

What constitutes reasonable care to provide for the safety of employees would vary depending on the nature of the employment and the risks involved. In the context of the recent outbreak of SARS, a prudent employer ought to take reasonable steps to safeguard his employees from being exposed, in the course of their employment, to a possible risk of infection. In this regard, an employer should, at the very least, put in place SARS corporate policies and preventive measures that are consistent and commensurate with the various health advisories issued by the relevant government authorities.

These advisory statements are readily available at the website of the Ministry of Health³ and are updated from time to time. The recommendations contained in these updated advisory statements, given their widespread dissemination, may well be taken by the courts as the benchmark of what would constitute reasonable care on the part of employers to protect their employees against a possible risk of infection or exposure to SARS at the workplace.

An employer who fails to put in place the measures recommended in these advisory statements may find themselves liable to an affected employee for damages in negligence, breach of the employment contract and the Workmen’s Compensation Act (Cap 354).

The obligations of an employer would include a duty to take reasonable steps to ensure that:

• the workplace is kept clean and free from SARS infection;
• an employee is not put at risk by another employee who has or is suspected of having SARS; and
• an employee is not put at risk by visitors to the workplace who have or are suspected of having SARS.
  

An employer may also owe a duty to third parties to take reasonable steps to:

• keep his business premises free of SARS infection and to ensure that visitors to his premises are not exposed to a risk of infection; and
• ensure that an employee does not attend at work when there is reasonable suspicion that the employee may be exposed to or infected with SARS and as a result, may infect others.
  

Whether there has been a breach of duty on the part of an employer will depend on whether the employer did not do or did something a reasonable and prudent employer would or would not have done.⁴

The court in determining what a prudent employer would or would not have done, will often balance the gravity of the risks involved and the likelihood of injury to the employee with the costs of taking preventive measures against such injury.⁵ The courts would also take into account prevailing industry practice, which though relevant, may not be conclusive as to the precautions a prudent employer should take.⁶

The employee’s duties and obligations

An employee who is ill with SARS or who suspects that he may be infected with SARS may owe a duty of care to his employer and colleagues to take steps to avoid endangering their health and business. Such steps would include seeking timely medical treatment when ill, avoiding reporting for work if unwell, making truthful declarations as to his state of health and complying with his employer’s corporate policies on SARS.

A failure to take such steps may render the employee liable for the loss and damage that may be occasioned to the employer and other persons as a result of the employee’s failure to take such precautions. Such liability could be founded in both contract and tort with regard to employers and in tort with regard to third parties.

An employee who has been served with a Home Quarantine Order (‘HQO’) and who violates the terms of the HQO, aside from being prosecuted for a criminal offence under the Infectious Diseases Act (Cap 137) and imprisoned for a term of up to six months and/or fined, may also be exposed to a civil claim in damages from persons adversely affected or injured by such conduct.

Travel

Whilst the Ministry of Health encourages employers to consider postponing all non-essential travel by employees to SARS affected countries, the general rule under common law is that an employee can only lawfully refuse to comply with a travel directive from his employer where to do so would result in the employee being exposed to immediate threatening danger by violence or disease to his person.⁷

The Privy Council in the case of Bouzourou and the Ottoman Bank held that ‘there must be an immediately threatening danger by violence or disease to the person of the servant before an order to remain in the zone of danger can be held to be unlawful’. Their Lordships approved the dicta of Rolfe B in the case of Turner v Mason where it was held that ‘it is an unlawful order to direct a servant to continue where she is in danger of violence to her person, or of infectious disease.’⁸

Accordingly, unless the employee has been instructed by his employer to travel to a place where it can be reasonably argued that there exists an immediate danger of disease to the employee, a refusal by the employee to so travel may amount to a breach of his employment contract.

It should, however, be noted that in the event an employee contracts SARS as a result of travel to SARS affected countries in the course of his employment, the employer may be exposed to a claim from the employee for the injury and damage suffered. Under common law, the employer is under a duty to ensure that the workplace is safe even where the employee is sent to work at some place over which the employer has no control.⁹

In cases where the employer requires an employee to travel to SARS affected countries, the employer should appraise the employee of the precautions that should be undertaken by the employee to protect himself against exposure to and an infection of SARS. Failure to do so may render the employer liable in negligence. Should the employee fail to observe such safety precautions, the employer may be able to contend that the injury suffered by such an employee as a result of an infection of SARS arose from the negligence of the employee and not the employer.

It is doubtful whether the defence of volenti non fit injuria would be available to an employer whose employee contracts SARS in the course of his employment. Such a defence is not often successful in practice and is usually only upheld where the employee knows of an exceptional danger and voluntarily, in the fullest sense of the word, and not as a result of some compulsion to do so by virtue of his employment, agrees to undertake the risks involved.¹⁰

Home quarantine orders and leave

An employer should also be mindful of the following in relation to hospitalisation benefits, paid and unpaid leave:

• Where an employee has been served with a HQO, the period of absence from work should be treated as paid hospitalisation leave under the employee’s employment contract or as per the provisions of the Employment Act.¹¹
• Where the employee’s hospitalisation leave under his employment contract or the Employment Act is insufficient to cover the quarantine period, the employer should consider whether the balance quarantine period should be treated as paid medical or hospitalisation leave, as part of the employee’s annual leave, or adopt some other arrangement with the consent of the employee.
  

SARS and the Impact on Commercial Transactions

As a result of the recent outbreak of SARS, contracting parties may have sought to cancel or suspend the performance of their contractual obligations. Such attempts would raise a number of legal issues, including whether the outbreak of SARS:

• constitutes an event that frustrates the contract and accordingly discharges parties from further performing their contractual obligations; and
• could be raised as a defence to any claim for delay in the performance of a party’s contractual obligations.
  
  
  

SARS and frustration of contracts

The test as to what constitutes a frustrating event, was stated by Lord Simon in National Carriers Ltd v Panalpina (Northern) Ltd¹² as follows:

Frustration of a contract takes place when there supervenes an event (without default of either party and for which the contract makes no sufficient provision) which so significantly changes the nature (not merely the expense or onerousness) of the outstanding contractual rights and/or obligations from what the parties could reasonably have contemplated at the time of its execution that it would be unjust to hold them to the literal sense of its stipulations in the new circumstances; in such case the law declares both parties to be discharged from further performance.¹³

Contracts are deemed in law to have been discharged only if the supervening event that has occurred radically or fundamentally alters the outstanding rights and/or obligations of parties from what was originally contemplated. In determining whether the outstanding rights and/or obligations have been radically or fundamentally altered from what was originally within parties’ contemplation, the House of Lords in Davies Contractors Ltd v Fareham UDC¹⁴ held that the following approach should be adopted:

• the terms of the contract should be read in the light of the nature of the contract and the relevant surrounding circumstances when the contract was made;
• from such a construction, the court should reach a view as to the scope of the original obligations of parties, ie what parties are obliged to do to fulfil the literal terms of the contract before the occurrence of the supervening event;
• the court, in coming to such a view, should do so by estimating what parties would have expended or incurred in time, labour, money and materials had the supervening event not occurred;
• the court should then examine the situation after the occurrence of the supervening event to ascertain what would be the new obligations of parties if the original terms of the contract were enforced in the new circumstances; and
• the court should then compare the original obligations of the parties with the new obligations to decide whether the new obligations are radically or fundamentally different.
  

The test for frustration is an objective one and does not involve a subjective inquiry into the actual or presumed intentions of the parties.¹⁵ If on an objective analysis, the obligations of parties are so radically altered that they would in effect be performing a contract that is fundamentally different in a commercial sense from that originally contemplated, the contract would in law be deemed to be frustrated and parties discharged from any further performance.¹⁶

Under the Frustrated Contracts Act, monies paid under a contract that is frustrated are generally recoverable. Monies that fall due for payment after the time of discharge of the contract cease to be payable. A party may also, if the court deems it just, retain or recover the whole or part of sums paid or payable under the frustrated contract to take into account any actual expenses incurred or benefit conferred to the other party prior to the time of discharge.¹⁷

The recent outbreak of SARS would certainly have had considerable impact on commercial transactions between parties. Some of the consequences of the recent outbreak include the closure of a wholesale market by government order, the imposition of home quarantine orders on individuals, the cancellation and/or postponement of events and even the prohibition by foreign governments on the importation of goods and products from SARS affected countries. It remains to be seen whether these occurrences can be relied on by parties to a contract as constituting a supervening event that has frustrated the contract.

Each case will have to be considered on its individual facts and analysed using the methodology adopted by the House of Lords in Davies Contractors Ltd v Fareham. Given the narrow scope of the doctrine of frustration, it is unlikely that a large number of contracts would in law be deemed to have been frustrated by supervening events arising out of the recent outbreak of SARS.

Given that a further outbreak of SARS can now be said to be an event within the reasonable contemplation of the reasonable man, it is unclear whether any future outbreak and the consequences arising therefrom can be relied on as an event that frustrates a contract. There are possibly, two conflicting views on this issue. One view is that the doctrine of frustration should generally be excluded where the supervening event should have been within the parties’ contemplation.¹⁸

The alternative view is that as long as the obligations of parties have been rendered radically or fundamentally different by the supervening event, the contract would be deemed to be frustrated regardless of whether parties contemplated or should have contemplated the supervening event.¹⁹

As the law is not settled on this issue, parties would be well advised to ensure that any contracts they enter into that might potentially be adversely affected by a future outbreak of SARS, expressly provides for parties’ rights and remedies in the event of such an occurrence. It should also be noted that where parties have expressly made provision for a supervening event, the doctrine of frustration, as a general rule, will not apply.²⁰

SARS and delay in the performance of contracts

Unexpected delay in the performance of contractual obligations arising through no default of parties may frustrate a contract if it results in a radical alteration of the obligations of parties from what was originally contemplated.²¹

If the supervening event results only in temporary delay, parties are unlikely to be able to show that their contractual obligations have been so radically altered that the contract should be deemed discharged for frustration.

Given that the recent outbreak of SARS was of temporary duration in most affected countries, it is unlikely that a party to a contract would be able to show that there has been unexpected delay to the extent required to invoke the doctrine of frustration. Accordingly, unless there are express provisions in a contract (eg a Force Majeure clause) which provides for the suspension of or delay in the performance of the contract on the occurrence of a supervening event (such as an outbreak of disease or the consequences flowing therefrom) a party is likely to be held liable for any loss arising from a delay in the performance of his contractual obligations.

Conclusion

The full legal impact and implications of the recent outbreak of SARS will likely only be felt in the months ahead when affected parties seek redress in court for losses arising out of or in relation to the outbreak and the consequences flowing therefrom. To avoid any uncertainty, parties should, as a matter of prudence, provide in any future contracts, clauses that expressly set out their rights, obligations and remedies in the event their ability to perform the contract is adversely impacted by the consequences flowing from an outbreak of SARS.

Samuel Chacko
Colin Ng & Partners
E-mail: schacko@cnplaw.com

Endnotes