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Coronavirus: Singapore proposes temporary contractual relief

Out-Law News | 03 Apr 2020 | 11:46 am | 2 min. read

Contracting parties unable to fulfil their obligations as a result of the coronavirus pandemic will be protected against some types of legal action under emergency legislation proposed by the government of Singapore.

The Covid-19 (Temporary Measures) Bill (55-page / 535KB PDF) will be debated by the Singapore parliament next week. It would, if passed in its current form, cover contractual obligations to be performed on or after 1 February 2020 for contracts entered into or renewed before 25 March 2020, for an initial period of six months from the entry into force of the legislation. The Bill contains provisions allowing the government to extend the measures for a further six months if required.

Construction disputes expert Hai Song Tan of Pinsent Masons, the law firm behind Out-Law, said: "Contractors will certainly be glad to hear of this upcoming Bill, but there are probably good reasons to temper that optimism until further details are available".

Song Tan Hai

Hai Song Tan

Senior Associate

It will be especially interesting to see how the assessors will determine if the inability to perform contractual obligations was due to Covid-19, particularly for delay-related matters.

"The temporary nature of the measures also certainly leaves open the question of how the parties are to deal with the aftermath once the measures are lifted," he said.

The provisions in the new Bill apply to five broad categories of contracts: construction contracts and supply contracts; leases or licences for non-residential immovable property; contracts for the provision of goods and services for events; certain loan facilities granted to smaller businesses with annual revenues of no more than S$100 million (US$70m) by banks and finance companies; and certain contracts for goods or services provided to domestic and international tourists.

Contracting parties would be prevented from issuing court or insolvency proceedings, enforcing security over immovable property or movable property used for business purposes, terminating leases or calling on performance bonds under construction contracts against a non-performing party while the measures are in force. Providers of goods and services relating to tourism or events would also be prevented from hanging onto deposits in relation to cancelled contracts, unless "just and equitable" for them to do so.

Contractors under construction and supply contracts would be relieved from liability for non-performance deemed to be "caused to a material extent" by Covid-19, including liability for liquidated damages, delays and non-supply of goods. A body of assessors, to be appointed by the Minister for Law, will be responsible for resolving any disputes arising from the application of the new law, including on matters of causation, and granting relief that is "just and equitable" in the circumstances. The assessors' decisions will be final and not appealable, and parties will not be allowed to be represented by lawyers.

Hai Song Tan said: "It will be especially interesting to see how the assessors will determine if the inability to perform contractual obligations was due to Covid-19, particularly for delay-related matters".

The Bill would also temporarily increase the monetary thresholds for corporate insolvency, from S$10,000 to S$100,000, and for individual bankruptcy, from S$15,000 to S$60,000; as well as increasing the statutory period to respond to demands from creditors. Company directors would be temporarily relieved from their obligations to prevent their companies trading while insolvent where debts are incurred in the company's ordinary course of business, but would remain criminally liable if the debts are incurred fraudulently.

In a statement, Singapore's Ministry of Law said that the measures included in the Bill "seek to provide temporary cash flow relief for ... businesses and individuals who may otherwise have to pay damages or risk having their deposits or assets forfeited".

"The Covid-19 pandemic, and associated public health measures imposed by governments around the world, has had unprecedented and unforeseeable social and economic impact," it said.

"There are supply chain disruptions and manpower shortages, among other consequences. In many cases, this has undermined the ability of individuals and businesses to fulfil contractual obligations. It would be unfair to hold them strictly liable for their failure to do so," it said.