COVID-19 and pure economic loss: Would Hong Kong Courts permit recovery?
Breaching COVID-19 regulations on quarantine and self-isolation can result in criminal penalties. But what about remedies in civil law? Can an individual whose COVID-19 infection is caused by a quarantine breaker bring a claim to recover his loss? What about a business that is forced to shut down for cleaning due to a quarantine breaker? In this article, Christina W. Lee and Jasper Wong explore the potential civil law consequences of breaching quarantine and self-isolation regulations.
It is now recognised that the COVID-19 pandemic is not only a crisis for health, but also a crisis for the economy. The European Commission estimates that the euro area economy will contract by 7.75% in 2020, while the Bureau of Economic Analysis estimated that the US economy decreased at a rate of 4.8% in the first quarter of 2020. According to the Government’s estimates, Hong Kong’s GDP for the first quarter of 2020 fell by 8.9% compared to the first quarter of the previous year.
Legal liabilities that may arise out of careless transmission of COVID-19 has been explored by a number of articles. In this article we explore whether pure economic loss is recoverable in relation to careless transmission of COVID-19.
To establish liability in negligence the claimant has to prove four elements: (1) duty of care, (2) breach of duty, (3) causation and (4) damage. Elements (2)-(4) are largely matters of evidence and depend on the facts of each particular case, but element (1) (duty of care) is mainly a question of law.
In most situations it would be obvious that there is a duty of care: drivers need to drive carefully to avoid hitting pedestrians; employers need to provide a safe system of work to avoid injuries to employees; and medical doctors need to practise their skills competently so as to avoid injuries to their patients. There are other instances where the existence or otherwise of a duty of care requires detailed legal analysis. For example, whether police officers owe a duty of care to avoid injuring members of the public while executing their duties during police operation is a subject that has reached both the House of Lords (Hill v Chief Constable of West Yorkshire  A.C. 53) and the UK Supreme Court (Robinson v Chief Constable of West Yorkshire Police  A.C. 736). In these areas, the debate as to existence or otherwise of a duty of care is critical, since if there is no duty of care, a claim in negligence would not be possible even in principle.
Duty to avoid the transmission of COVID-19
Turning to liability in negligence connected with COVID-19 we start with the duty of care. Is there a duty on a possible COVID-19 carrier to avoid causing harm to others by conduct? This depends on the knowledge of the affected person. Four possibilities come to mind: (1) the person is diagnosed with COVID-19; (2) the person has tested negative for the virus but since has been in close contact with a known infected person and has been placed under quarantine; (3) the person has tested negative upon arrival in Hong Kong but he obliged to be in self-isolation; (4) the person is a silent carrier of the virus.
It is immediately apparent that those in scenario (1) have the requisite knowledge while those in scenario (4) have no knowledge that they are infected. The following discussion revolves around persons in scenarios (2) and (3) above, i.e. persons who are under quarantine or in self-isolation without a confirmed diagnosis of COVID-19. They are however aware of the risk that they may be infected with the virus.
In Hong Kong the Government has actively encouraged the wearing of masks and implemented social distancing restrictions. Since March 2020, visitors to Hong Kong are required to self-isolate at home for 14 days. The community is well aware of the dangers of COVID-19 and the possible steps to take to avoid transmitting or catching the disease. Given the above local circumstances, the courts are unlikely to accept that there is no duty of care for persons in scenarios (2) and (3). If there is no duty, then even a person in scenarios (2) and (3) who carelessly infected others with COVID-19 would be free from liability in negligence because he owes no duty of care to avoid careless transmission in the first place.
A case from the SARS pandemic, Luk Mary v Hong Kong Baptist Hospital  1 HKC 141, may be instructive. In that case a patient who sought treatment for urology problems was exposed to SARS infection at a hospital. He was discharged without being told by the hospital that on the same floor that he stayed there were SARS patients. Subsequently he developed SARS and infected a number of members of his family, including his sister. The sister sued the hospital for negligence while the hospital applied to strike out the sister’s claim asserting that the sister did not stand within sufficient proximity to the hospital for a duty of care to extend to her.
Saunders J, applying the principles in Caparo Industries Ltd. v Dickman & Ors.  2 AC 605 held that local circumstances must be taken into account when considering whether the hospital owes a duty of care to the sister. Since the concept of a family in Hong Kong is wide and may well include a large cohort of family members including siblings it is arguable that the duty of care of the hospital to advise of the presence of SARS infection on the hospital floor could well extend to the sister. In other words, the Court was not persuaded that, however careless a hospital may be in failing to inform a patient of nearby SARS patients, the hospital would be free of liability even if that patient went on to infect members of his family.
It may be that, similar to Luk Mary, the Hong Kong courts will conclude that local circumstances require that a person breaching quarantine or self-isolation measures does owe a duty of care to avoid transmitting the disease to the wider community.
Breach of duty
For scenarios (2) and (3), subject to case-specific variations, the question of breach should be relatively straightforward. A person subject to a quarantine order is mandated to stay in a quarantine centre until his quarantine expires and a person subject to self-isolation is required not to leave his home during the self-isolation period. The Government has imposed tracking measures, such as calling the person regularly to check his location and requesting those subject to quarantine and self-isolation to wear a wristband indicating that they are subject to quarantine or self-isolation. Magistrates have taken a dim view of those who breach quarantine or self-isolation orders and have often handed down sentences of immediate imprisonment even to first offenders who pleaded guilty.
Causation and damage
There will be situations under scenarios (2) and (3) where causation and damage are not difficult to establish as a matter of evidence. If a customer at a restaurant has caught COVID-19, and it was afterwards discovered that a carrier had visited that restaurant in breach of a quarantine or self-isolation order, it would not be easy for the carrier to resist the inference that he was very likely the source of the COVID-19 transmission.
Pure economic loss and duty of care
However a situation that is conceptually less forward would be where, instead of actually infecting anyone, a suspected COVID-19 carrier caused a business to shut down and incur losses. An example that comes to mind is the case of a quarantine breaker who eats in a restaurant before he is caught. Let us assume that in this instance the business has to be shut down and the premises thoroughly cleaned and disinfected. There is no physical damage to the premises except that the business operator is out of pocket for the expenses incurred and the profits lost. Cleaning costs are likely to be dwarfed by the very significant lost income and rent paid that stem from the amount of time during which the premises cannot be used. Does the COVID-19 carrier owe a duty of care not only to not infect others with the disease, but also not to cause shut down of business as illustrated above?
In this kind of situation the local courts are likely to refer to first principles in adjudicating whether there is a duty of care. This involves a policy decision on whether it is “fair, just and reasonable” to impose such a duty: Luen Hing Fat Coating & Finishing Factory Ltd v Waan Chuen Ming (2011) 14 HKCFAR 14, adopting and applying Caparo Industries. In conducting this exercise the Court will refer to any relevant case law: the decision of what is “fair, just and reasonable” will be made in the context of the relevant legal principles and the decided cases.
At first sight, the lost income and rent paid seem to fall under the category of “pure economic loss”, a phrase made famous by the English Court of Appeal decision of Spartan Steel & Alloys Ltd v Martin & Co (Contractors) Ltd  QB 27, where such losses were held to be irrecoverable due to remoteness from physical damage.
In Spartan Steel the defendant’s employees, who were doing road works, carelessly damaged an electric cable connected to the plaintiff’s factory which worked round the clock to smelt metal and convert it into ingots. Due to the power cut the melt stopped and the ingots derived from that melt were of a different quality. The physical damage to the melt was assessed at £368. Further, had the melt been properly completed, the plaintiff would have made a profit of £400. Additionally during the 14 ½ hours when the power was cut, the plaintiff lost a profit of £1,767 which it would have made had the factory continued working normally during the period.
The English Court of Appeal by a 2:1 majority held that the loss of £368 and £400 were recoverable but not the £1,767 loss. The damage to the ingot is physical damage that is recoverable, and the £400 loss is considered to be directly consequential upon the physical damage. However, the £1,767 lost profit due to the shutdown was considered unrecoverable “pure economic loss”. Lord Denning MR (in the majority) listed six policy reasons for this conclusion. Amongst others, he observed that there is no liability for pure economic loss if the statutory body providing the electricity caused the accidental failure; it would be anomalous to impose a duty on a contractor working on the roads but not on the provider of electricity. He also observed that the extent of claims for lost profits would be very uncertain given that the defendants could not have known how much profit the factory would have made during the “down time” caused by the power cut. He held, as a matter of policy, that when economic loss stands alone, independent of any physical damage, it is not recoverable. In other words, he held that however careless the workers on roads may be, their duty of care extends only to not causing physical damage to others. Workers on roads are under no duty to ensure that those who are affected by the electricity cut caused by the accident do not suffer from economic loss due to business shutdown.
Certain factors in Spartan Steel seem to support the proposition that although the quarantine or self-isolation order breaker owes a duty not to infect the business operator, pure economic loss due to COVID-19 pollution is not recoverable. Similar to unpredictable power fluctuations, the spread of COVID-19 is also often highly unpredictable. Furthermore the extent of lost profits due to the forced close down of a business is very uncertain: the shop’s business is likely to have gone down in any event due to changed customer habits in the COVID-19 pandemic.
However, other considerations might well point to a different conclusion. Breach of a quarantine or self-isolation order, as we have seen, is a serious crime that has been punished by immediate imprisonment. The extent of economic loss is arguably not uncertain: given Hong Kong’s high land price, rent thrown away would often be a substantial and easily ascertainable part of the business operation costs, and the standard quarantine period of two weeks seems to offer an intuitive benchmark as to the maximum period for which lost rent can be claimed. These factors, placed in the mix of what is “fair, just and reasonable”, may lead the courts to distinguish the case of potential COVID-19 pollution from the case of accidentally cut electricity supply.
There is as yet no decided case in Hong Kong where a claim for pure economic loss in this context has been brought. Whether an exception will be made in this jurisdiction to allow recovery in these extraordinary times remains to be seen.
This article was first published in the October 2020 issue of Hong Kong Lawyer.
Christina W. Lee
Christina read law as an external student at the University of London. After sitting the Bar Finals examination of England and Wales, she was called to the English Bar and the Hong Kong Bar in 1988. Over the years, she has established a solid practice specialising in personal injuries, medical negligence and insurance-related matters. Before joining the Bar, Christina was a simultaneous interpreter with the Hong Kong Government. She held the position of Chief Interpreter (Simultaneous Interpretation) when she left the civil service in 1988.
Jasper was called to the Bar in 2019. He studied at Peterhouse, Cambridge University, where he graduated with a Double First in Law, and served as Judicial Assistant at the Court of Final Appeal from 2017 to 2018. Jasper is developing a broad civil practice, with a special interest in companies and insolvency law.
Disclaimer: This article does not constitute legal advice and seeks to set out the general principles of the law. Detailed advice should therefore be sought from a legal professional relating to the individual merits and facts of a particular case. The photographs which appear in this article is included for decorative purposes only and should not be taken as a depiction of any matter to which the case is related.