Articles

1. The COVID-19 (Temporary Measures) Act 2020 (the “Covid-19 Act”) was introduced, read and passed in Parliament on 7 April 2020.
2. The Act is intended to provide temporary cash-flow relief to businesses and individuals whose contractual obligations are directly affected by the COVID-19 pandemic such that they are unable to perform their contractual obligations. The Covid-19 Act achieves this by suspending certain legal rights and actions between the contracting parties. The non-performing party must show that the non-performance is materially caused by the COVID-19 pandemic, or compliance with any legal regulation (whether in Singapore or otherwise) made in connection with COVID-19.
3. The measures will, at first instance, be in place for a period not exceeding 6 months from the commencement of the Covid-19 Act (the “Prescribed Period”). This article aims to shed some light on the enforcement of an adjudication determination with the introduction of the Covid-19 Act.
4. One of the features of the Covid-19 Act is to provide a moratorium against enforcement of contractual rights by the non-defaulting (or innocent) party. Subject to section 5(2), section 5(3)(n) of the Covid-19 Act prevents the innocent party (i.e. the claimant) from taking steps during the Prescribed Period to enforce, among others, a determination by an adjudicator under the Building and Construction Industry Security of Payment Act (the “SOP Act”), against the non-performing party (i.e. the respondent).

PART 2

TEMPORARY RELIEF FOR INABILITY TO PERFORM CONTRACTS

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Division 2 – Relief measures

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Temporary relief from actions for inability to perform scheduled contract

5.-(1) This section applies to a case where - 

(a) a party to a scheduled contract (called in this Division A) is unable to perform an obligation in a contract, being an obligation that is to be performed on or after 1 February 2020;

(b) the inability is to a material extent caused by a COVID-19 event (called in thus Division the subject inability); and
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(2) Despite any law or anything in the contract, another party to the contract (called in this Division B) may not take any action described in subsection (3) in relation to the subject inability until after the earliest of the following:

1. 1. 1. 1. the expiry of the prescribed period;
         2. the withdrawal by A of A’s notification for relief;
         3. on an application under section 9(2), the assessor makes a determination that the case in question is not one to which this section applies

(3) The actions mentioned in subsection (2) are –
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(n) the enforcement against A or A’s guarantor or surety of a judgment of a court, an award made by an arbitral tribunal in arbitral proceedings conducted under the Arbitration Act, or a determination by an adjudicator under the Building and Construction Industry Security of Payment Act; and.

[Emphasis added]

5. At first blush, section 5(1) read with 5(3)(n) of the Covid-19 Act seems to grant relief to the respondent from enforcement of an adjudication determination due to an inability to perform an obligation to pay under a contract caused by the COVID-19 pandemic. If this is correct, it would invariably hinder the downstream cash flow which is the life blood of the construction industry. This is of special concern given that sub-contractors/suppliers often do not have much financial resilience, and may rely on the anticipated payments coming in on time in order to meet their own obligations to other parties.
6. If the respondent cannot pay the adjudicated amount to claimant because the respondent has not obtained payment from the principal due to COVID-19, then this is clearly a “pay when paid” situation which is an exception to the ethos of the SOP Act. Section 9(1) of the SOP Act provides that “pay when paid provisions” in a contract are “unenforceable” and have “no effect” in relation to any payment for construction work carried out or undertaken to be carried out, or for goods or services supplied or undertaken to be supplied.
7. While section 5(3)(n) of the Act prohibits the enforcement of an adjudication determination, it does not prohibit the commencement of adjudication proceedings under the SOP Act. In fact, the Supplementary Rules for Electronic Adjudication Lodgement (1st Edition, 15 April 2020) were issued to provide for the electronic lodgement of documents, telegraphic transfer of fees, electronic service of documents and adjudication conferences.
8. That being said, it is important to note that the Covid-19 Act requires a party’s non-performance to have been materially caused by a COVID-19 event. What this means is that not every case of non-performance will be protected by the Covid-19 Act.
9. The non-performing party can apply for relief from enforcement of an adjudication determination on two (2) conditions: (1) must give notification of relief, and (2) the inability to pay the adjudicated amount is indeed a true inability that was materially caused by Covid-19 event.
10. Since “materially” is a question of fact, it is likely that disputes will arise between the contracting parties as to whether or not one party’s inability to pay the adjudicated amount was indeed caused by COVID-19 event. In such event, the party who disputes the notification of relief may refer the matter for determination by an assessor.
11. If the assessor determines that one party’s inability to pay the adjudicated amount has nothing to do with COVID-19 event, then the notification of relief will be dismissed and the claimant can then proceed with the enforcement of an adjudication determination.
12. The determination by the assessor is intended to be a fast and cost-effective process. As such, parties are not allowed to be represented by lawyers and no right of appeal lies against the assessor's decision. Details of the application process have been announced and are available on the Ministry of Law's website.
13. The Covid-19 Act seeks to alleviate the stresses on contractors caused by Covid-19 through the various protections set out in this article. It remains to be seen how the construction industry will perform under this regime. There is a clear policy choice in the restrictions imposed on the ability of successful claimants to enforce adjudication determinations given that it has long been recognised that sub-contractors often face cash flow difficulties. The hope is that the construction industry comes out stronger through the various protections offered under the Covid-19 Act.

Contributed by:

Ho Yong Kin - Construction Advisor, Chan Neo LLP

Disclaimer: The views expressed in this article are the author’s personal views and do not represent the views of Chan Neo LLP.