The COVID-19 – Singapore Allows Respite for Contractual Non-Performance

09 Apr 2020

On 7 April 2020, the Singapore Parliament passed the Covid-19 (Temporary Measures) Act 2020 (the “Act”). The Act introduces new laws and amends existing laws to address the disruption caused by the COVID-19 pandemic.

In this article, we briefly summarise how the Act will impact parties’ rights and obligations under certain contracts in Singapore. The relevant sections of the Act are Sections 5 to 19 and a copy of the Act can be found here: https://sso.agc.gov.sg/Acts-Supp/14-2020/Published/20200407?DocDate=20200407.

The Act’s purpose

The aim of the Act is to offer parties to specified contracts temporary relief from the consequences of being unable to perform a contractual obligation due to a COVID-19 event, so long as that party notifies its need for relief to the other contractual parties (and, where relevant, other prescribed persons).

In simple terms, if a party to a contract covered by the Act cannot perform that contract due to a COVID-19 event and notifies this fact, then the temporary relief provided by the Act will protect that party from some consequences of that non-performance.

What contracts does this apply to?

The Act only applies to specified types of contract (known as “scheduled contracts”). These include (among others): (i) contracts for specified loan facilities secured by certain property in Singapore; (ii) performance bonds under construction contracts or supply contracts; (iii) hire-purchase or conditional sales agreements for certain assets in Singapore; (iv) contracts relating to events; (v) contracts related to tourism (including contracts for the international carriage of passengers by sea or land); (vi) construction contracts or supply contracts; and (vii) leases or licences of non-residential immovable property.

The Act only applies to scheduled contracts entered into or renewed (other than automatically) before 25 March 2020.

What is the international application?

The Act will generally apply to all contracts governed by Singapore law, regardless of the origin of the parties to the contract or where the contract should be performed.

The COVID-19 events that the Act covers will include the impact of the virus to business operations in Singapore and internationally, as well as the impact of laws made in Singapore and in other countries in connection with COVID-19.

What is the effect?

Where the temporary relief under the Act applies, the other party or parties to the contract cannot take action to enforce the relevant parts of contract against the party seeking relief, or (in the case of leases and licences) terminating that contract.

The Act prohibits the following actions (among others) against the non-performing party: (i) commencing or continuing any litigation or arbitration; (ii) enforcement of most types of security; (iii) commencing certain insolvency procedures; (iv) terminating contracts for leases or licences for immovable property where rent or other money is not paid as well as exercising rights of re-entry or forfeiture; and (v) enforcement of court judgments or arbitral awards.

The cause must be COVID-19 related

The temporary relief offered by the Act only applies where a party cannot perform a contract due to a COVID-19 revent.

In particular, the prohibition on not commencing proceedings is limited to the obligations not performed due to the COVID-19 event. The Act does not cover non-performance for other reasons. For example, if one part of a contract is not performed due to a COVID-19 event and another part of the contract is not performed for another reason, action can still be taken in respect of non-performance for the non-COVID-19 reason.

How long does the relief last?

The prohibitions on taking action for contractual non-performance prescribed by the Act apply until the earliest of the following events: (i) the expiry of the prescribed period (which may be 6 months or more); (ii) where the non-performing party withdraws its notification for relief; or (iii) where an assessor determines that the non-performing party is not entitled to the relief (see below).

 What about limitation periods?

The Act extends limitation periods for commencing actions which are temporarily suspended by the Act.

This means that if the 6-year limitation period for bringing a contractual claim expires during the prescribed period and action cannot be taken prior to the expiry due to the operation of the Act, then that limitation period will be proportionally extended.

Penalties for taking action in breach of the Act

The Act makes it a criminal offence for any person to bring an action in breach of the temporary relief provisions described above. The sanction is a fine of SGD 1,000.00, although those committing an offence will also acquire a criminal record.

For example, a party that files and serves a request for arbitration or writ of summons during the prescribed period, will be committing an offence. Any proceedings so commenced will be automatically stayed.

How are disputes decided?

The Act includes its own dispute resolution procedure, which means that disputes relating to whether a party can benefit from relief under the Act must follow this procedure.

All disputes as to whether the relief under the Act can apply will be made by an “assessor”, being a person appointed to adjudicate the dispute.

The assessor’s determination will be final and may be enforced (where relevant), with leave of the court. There is no right of appeal to an assessor’s determination. However, it appears that the right of judicial review would be available where appropriate.

A failure to comply with an assessor’s determination is a criminal offence, punishable with a fine not exceeding SGD 1,000.00.

Lawyers may not represent parties in proceedings before an assessor, but may assist parties in preparing their submissions and evidence to be presented to the assessor.

What the Act does not cover

With one exception, the Act does not suspend or void contractual penalties for non-performance or delayed performance caused by a COVID-19 event.

For example, if a party to a contract is prevented from performing that contract due to a COVID-19 event and the contract imposes a penalty for that non-performance or delayed performance (such as liquidated damages), then the Act (subject to the below) will not stop that penalty from applying.

Construction and supply contracts[1] are one exception to this rule. The Act will provide that any inability to perform the contract caused by a COVID-19 event occurring between 1 February 2020 and the end of the prescribed period, will not count in the calculation of liquidated damages. Event contracts and tourism related contracts are another exception in respect of deposits. Deposits may not be forfeited due to non-performance of those contracts caused by a COVID-19 event occurring between 1 February 2020 and the end of the prescribed period (if the defaulting party provides notice under the Act).

Similarly, (subject to the exceptions discussed below) the Act does not exonerate parties who are unable to perform contractual obligations from being liable for the non-performance, after the prescribed period has come to an end. The Act only prevents actions being taken by the other innocent parties during the prescribed period. For example, if Party A is unable to perform an obligation due to Party B under a scheduled contract during the prescribed period, causing Party B $100,000 in damages, Party B can still bring an action against Party A for the breach, after the prescribed period.

The exceptions are, again, construction and supply contracts, and event contracts and tourism related contracts.  The Act provides that a party who is unable to supply goods or services (under a construction or supply contract) due to a COVID-19 event occurring between 1 February 2020 and the end of the prescribed period, cannot be held liable for that breach. The Act provides that a party who is able to perform an obligation under a tourism related or event contract due to a COVID-19 event occurring between 1 February 2020, cannot be subject to a cancellation fee.

Who pays for non-performance of a contract?

Subject to the exceptions discussed above, the Act does not void contractual obligations, it merely suspends the enforcement of those obligations temporarily.

This means that parties who have suffered loss or damage due to another party being unable to perform a contractual obligation can still claim damages from the non-performing party. The effect of the Act is to require any such claims to be delayed until after the prescribed period.

Further information

If you require further information about the impact of the Act or other assistance in respect of legal issues arising from the COVID-19 pandemic, please feel free to contact Samuel Sharpe of Sharpe & Jagger LLC (samuel.sharpe@sjlaw.com.sg) https://sjlaw.com.sg/person/samuel-sharpe/.

[1] A contract to supply goods for the purpose of construction work – as defined in section 2 of the Building and Construction Industry Security of Payment Act (CAP 30B).

Sam Sharpe

Samuel Sharpe

Email
(65) 6694 7283

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