The COVID-19 pandemic has had exceptional and unanticipated economic and social impact on Singapore. For instance, it has resulted in huge supply chain disruptions and manpower shortages, which have led to many individuals and businesses being unable to fulfil their contractual obligations. As it would be unfair to hold such individuals and businesses strictly liable for their failure to do so, the COVID-19 (Temporary Measures) Act was passed by Parliament on 7 April 2020 (the “Act”) to offer breathing space for affected individuals and businesses.
The measures provided under Parts 2 (Temporary Relief for Inability to Perform Contracts) and 3 (Temporary Relief for Financially Distressed Individuals, Firms & Other Businesses) of the Act will, at first instance, be in place for a period of up to 6 months from its commencement. These measures cover relevant contractual obligations that are to be performed on or after 1 February 2020, for contracts that were entered into or renewed before 25 March 2020.
Temporary Relief from Legal Action
Under the Act, parties to contracts will not be allowed to take certain legal actions against other contracting parties who fail to perform their contractual obligations due to COVID-19. However, this does not mean that the contractual obligations in question are removed – they will be put on hold until the end of the temporary relief period.
The Act covers the following broad categories of contracts:
- Leases or licences for non-residential immovable property;
- Construction contracts or construction supply contracts;
- Performance bonds that are granted pursuant to a construction contract or construction supply contract;
- Certain hire-purchase agreements or conditional sales agreements;
- Contracts for the provision of goods and services for events;
- Certain contracts for the international carriage of passengers by sea or land, the provision of goods or services for visitors to Singapore, domestic tourists or outbound tourists, or the promotion of tourism; and
- Certain loan facilities granted by a bank or a finance company.
Additionally, contracting parties will not be allowed to enforce security over property that is used for business or trade purposes. The Act also provides for a number of specific situations. For instance, termination of leases of non-residential premises for the non-payment of rent or other moneys will not be permitted. For construction contracts, contracting parties will not be allowed to call on a performance bond that was given pursuant to the construction contract at any time earlier than 7 days before the date of expiry of the performance bond. Further, deposits paid pursuant to events and tourism-related contracts cannot be automatically forfeited.
To obtain relief granted under the Act, an affected individual or business can simply serve a notification of relief to the other contracting party. The other contracting party will then be unable to carry out the prohibited actions listed above. If the other contracting party chooses to carry out any of the prohibited actions, they will be guilty of an offence.
Any dispute between contracting parties will be resolved by a body of assessors appointed by the Minister for Law. The assessors will decide whether the inability to perform the contractual obligations in question was due to COVID-19, and will have the powers to grant relief that is just and equitable in the circumstances. Referring a dispute to an assessor will be at no cost to the contracting parties. The assessors’ decisions are final and not appealable, and parties will not be allowed to be represented by lawyers.
Measures Relating to Bankruptcy & Insolvency
The monetary thresholds for bankruptcy and insolvency will also be raised, offering temporary relief to individuals and businesses in financial distress. For individuals, the monetary threshold for bankruptcy will be raised from $15,000 to $60,000; for companies and partnerships, from $10,000 to $100,000. Moreover, the statutory period to respond to demands from creditors will be extended.
Directors will also be temporarily relieved from their obligations to prevent their companies from trading while being insolvent, as long as the debts are incurred in the company’s ordinary course of business. However, they will still be criminally liable if the debts are incurred fraudulently.
Situations Not Covered under the new Act
If the new Act does not apply to your situation, you may still be able to resist enforcement of contractual terms if there is a force majeure clause in your contract, or at general law under the doctrine of frustration, or possibly on a public policy argument.
Force Majeure Clause
A force majeure clause contractually allocates risks between parties when an extraordinary event or circumstance beyond a party’s control prevents the party from fulfilling their contractual obligations.
If a contract contains a force majeure clause, parties should consider whether the COVID-19 outbreak falls within the protection offered by the said clause.
The precise construction of the clause is paramount as it would define the precise scope and ambit of the clause itself. The court is, in accordance with the principle of freedom of contract, to give full effect to the intention of the parties in so far as such a clause is concerned.
Doctrine of Frustration
The doctrine of frustration discharges both parties from their contract automatically by operation of law when, without default of either party, a supervening event that has occurred after the formation of the contract (such as the COVID-19 situation) renders a contractual obligation radically or fundamentally different from what has been agreed in the contract.
The underlying idea is that no party should be held liable for not being able to perform a contractual obligation which is radically different owing to an event which is not its fault and which originated wholly from an external source which was never in the contemplation of the parties.
While freedom of contract is the norm, the Singapore courts are, on rare occasions, prepared to override the contractual rights of the parties concerned if to do so would give effect to the greater public good.
It is arguable that as a matter of public policy, parties should not be allowed to take advantage of an unprecedented situation (i.e. the COVID-19 situation) to gain a windfall. One example of this is the use of the Price Control Act to prevent profiteering by inflating the selling price of face masks.
It may be possible to extrapolate this to protection for all parties who are unable to complete their obligations under their contracts due to measures put in place by the Singapore government, such as safe distancing or telecommuting (i.e. work from home) requirements due to the pandemic.
Another way the public policy argument can be phrased is that the Government ought to act consistently – where the Executive branch of Government implements safety measures to protect society, the Judicial branch will act consistently with that objective by not allowing parties to make use of the safety measures to gain an unfair advantage or windfall.