Case highlights dangers of umbrella agreements for security of payment regimes in Australia
Out-Law Guide | 25 Nov 2020 | 11:03 am | 9 min. read
Singapore has introduced a variety of legal reliefs and mechanisms to support businesses in the construction and other sectors as they manage the impact of the Covid-19 pandemic.
The Covid-19 (Temporary Measures) Act (the Act) was enacted in April 2020, and covers a multitude of temporary measures dealing with Covid-19. Of particular relevance to construction contractors and employers is part 2 of the Act, which relates to temporary relief for a party's inability to perform contracts, including construction and supply contracts.
The Act has been followed by a number of complementary measures. Recent measures include part 8 of the Act, which provides relief in relation to additional plant and material rentals due to Covid-19 related delay with effect from 30 September 2020. Parts 8A and 8B of the Act are expected to come into effect in late November 2020 and will introduce a 'universal' time extension and cost sharing scheme applicable to both public and private sector projects.
In order for relief to be granted under the Act:
"To a material extent" means that the impact of the Covid-19 event needs to be meaningful, although it need not be the sole cause.
The Act adopts section 2 of the Building and Construction Industry Security of Payment Act (Cap 30B) (SOPA) for its definitions of "construction contract" and "supply contract". Broadly, construction contracts are agreements under which one undertakes to perform construction work for and/or supply services to others; and supply contracts are agreements under which one undertakes to supply goods for the purposes of construction work carried out by another with no requirement to assemble, construct or install the goods on site.
Notably, the Act does not adopt section 4 of SOPA, which excludes certain categories of contract including where the contract deals with construction work carried out outside of Singapore. This means that the Act appears to apply to a wider range of contracts than SOPA.
A wide range of reliefs are available under section 5 of the Act to a party who qualifies for relief (a 'notifier'). These include:
Additionally, under section 6 of the Act:
These reliefs cease to apply on the expiry of the 'prescribed period' of the measures (currently, 31 March 2021 in respect of construction or supply contracts); the withdrawal of the notification for relief; or a determination by an assessor under section 9 of the Act that the Act does not apply to the case in question. The limitation period for the taking of any action affected by the Act is also extended by the period of the relief.
The Act does not affect court or arbitration proceedings relating to matters other than an inability to perform due to a Covid-19 event. Ongoing court or arbitration proceedings are stayed only on the lodging of a copy of a notification for relief with the relevant court or arbitral tribunal.
Any breach of sections 5 or 6 will constitute an offence punishable by a fine of up to S$1,000 (US$745) in the absence of a reasonable excuse. Acts in contravention of sections 5 or 6 are void, save for the enforcement of any security against a bona fide purchaser for value without notice of the notification for relief.
To safeguard against unfair outcomes, contracting parties can apply to a government-appointed registrar for the appointment of an assessor to resolve disputes over the application of the Act. Section 12 sets out the requirements for such applications, which must be in the form and manner specified by regulations and accompanied by a prescribed fee.
An application for assessor's determination must be served on the protected parties and such other persons and within such times prescribed by the regulations. If satisfied that the application is compliant, the registrar will proceed with the appointment and notify the parties.
The assessor will decide whether the relevant contract is covered by the Act; and whether the party's inability to perform contractual obligations was materially caused by a Covid-19 event. The assessor may consider the ability and financial capacity of the relief-seeking party as part of its determinations.
Where an assessor has determined that the contract is covered by the Act and that the party's inability to perform its contractual obligation was caused by a Covid-19 event to a material extent, the assessor may make further determinations to achieve a just and equitable outcome in the circumstances. Determinations or further determinations may, with leave of the court, be enforced like court judgments or orders.
Further determinations that may be made by an assessor under Part 2 include:
Assessor proceedings are intended to be time and cost efficient, and the Act expressly provides that each party should bear its own costs for the proceedings and may not be represented by a lawyer. Assessor determinations bind all parties to the application and all parties claiming under or through them, and cannot be appealed. Failure to comply with an assessor's determination without reasonable excuse is an offence punishable by a fine of up to S$1,000.
Part 8 of the Act provides relief in respect of the increased cost of renting construction plant or material ('construction goods') due to delays or breaches in the construction or supply contracts for which the construction goods were intended. Applications must be made before 31 May 2021. They must comply with certain procedures and requirements, including the requirement that any relief application be made before the commencement of any court, arbitration or SOPA statutory adjudication proceedings.
In order to apply for relief:
Service of a relief application triggers a temporary moratorium on certain enforcement actions in respect of the rental contract which lasts until the application is withdrawn or rejected or an assessor issues a part 8 determination. The moratorium precludes commencement of court, arbitration or SOPA adjudication proceedings against the applicant in relation to its obligations to return the construction goods by a contractually specified date or pay rental for the goods.
If satisfied that the case is one to which part 8 applies, the assessor will determine a just and equitable solution. For example, the assessor may adjust the contractually stipulated return date for the rented goods, or the rate of rent.
SOPA adjudicators have the same powers to adjust contractual terms as part 8 assessors. A contractor will therefore not be prejudiced simply because an adjudication application has been made against them before they are able to apply for relief under part 8.
The Covid-19 (Temporary Measures) Amendment No. 3) Bill was passed on 3 November 2020, introducing additional relief measures targeted at ensuring that no single stakeholder bears an undue share of the burden imposed by Covid-19. They include:
The amendments are expected to kick in at the end of November 2020. Further details of the relief measures, and the requisite changes in subsidiary legislation, will be announced shortly.
A universal EoT of 122 days will be provided in respect of construction contracts in both the public and private sectors for delays over the period between 7 April 2020 and 6 August 2020, subject to certain exemptions.
A contract will qualify for the EoT relief (a 'qualifying contract') if it:
The EoT of 122 days coincides with the 'circuit breaker' period between 7 April and 1 June 2020, when almost all construction works came to a halt; and the two months of further delay post-circuit breaker when health authorities were clearing workers' dormitories of Covid-19.
The EoT will not apply for construction works where work was carried out between 20 April and 30 June 2020, or where court or arbitral proceedings have been commenced before 2 November 2020 in relation to a failure to comply with the contract's stipulated completion date. The rationale for this exclusion has not been made clear by the government, but may possibly be intended to account for the small percentage of critical infrastructure projects which were allowed to continue during the circuit breaker period and which therefore may not warrant an extension of time.
When it applies, the EoT is automatic, meaning that no application is required for this relief. The completion date for a qualifying contract will simply be extended by 122 days, less any extension of time granted or agreed between the parties in respect of delays between 7 April and 6 August 2020 to prevent double recovery.
Under this new relief measure, contracting parties will be required to co-share 50% of non-manpower related additional costs arising from Covid-19 related delays. Such costs are limited to:
Collectively, these are referred to as 'qualifying costs'.
The costs relief is subject to a monthly cap of 0.2% of the contract sum, and a total cap of 1.8% of the contract sum.
The co-sharing will cover qualifying costs incurred in the period between 7 April and 31 March 2021 ('qualifying period').
This relief measure is applicable only to qualifying contracts as defined above, and only where the inability complete by the contractual completion date is materially caused by a Covid-19 event; and results in qualifying costs being incurred in the qualifying period.
The relief does not apply to:
Claims for part 8B relief are to be sought through the contractually specified payment claim processes and, in the event of disputes, through claims and adjudication under SOPA.
03 Apr 2020
Case highlights dangers of umbrella agreements for security of payment regimes in Australia