Articles

Background To The Legislation

On 7 April 2020 the Singapore government passed the COVID-19 (Temporary Measures) Act 2020 (No. 14 of 2020) ("Act") to prevent the spread of the COVID-19 pandemic (with the introduction of crowd control orders), and to address the ensuing largescale disruptions faced by businesses and individuals. On 5 June 2020, the Act was amended to clarify and bolster the protections offered under the Act.¹

Some consider the Act a ground breaking piece of legislation, partly because of the speed in which it was enacted. The bill leading up to the Act was drafted in just 9 days, and was passed on the very same day it was read in Parliament. Singapore's Minister for Law, K Shanmugam, in fact described the Act as a bit of "Noah's Ark",² possibly as a reference to the number of ministries and constituencies that were involved in its drafting. Unfortunately, as will be seen, the speed in which the Act was enacted and the fact several government bodies were involved may somewhat reflected in the Act's drafting, which raises quite a number of unanswered questions.

The Act (as amended on 5 June 2020) is split into seven parts, and deals with a variety of matters including a moratoria in respect of event and tourism contracts, relief for distressed or insolvent businesses, the conduct of court proceedings remotely, the remission of property tax and the issuance of control orders to prevent the spread of COVID-19.

This article will focus on:

• • Part 2 of the Act (and the related regulations), which provides temporary relief to parties unable to perform their contractual obligations due to the COVID-19 pandemic, and specifically its implications on the construction industry. With the recent amendments, the relief has now been extended to parties who are not able to exercise their rights due to COVID-19.
  • The new Part 8 of the Act³ (which has passed but not yet come into operation), which provides relief in relation to contracts which are affected by a delay or breach by a party to a construction (or construction-related) or supply (or supply related) contract.

What Part 2 Of The Legislation Applies To

Part 2 of the Act is targeted, because it applies only to specified "Scheduled Contracts"⁴ which relate to some key economic sectors that the Singapore government has identified as sectors which have been or will be impacted most severely by the COVID-19 pandemic. The types of contracts covered under Part 2 of the Act include:

• • Certain secured loan facilities provided by financial institutions to qualifying enterprises;
  • Construction or supply contracts;
  • Performance bonds or equivalent that are granted pursuant to a construction or supply contract;
  • Contracts relating to the provision of goods and services relating to events or tourism;
  • Certain hire purchase agreements relating to plants, machineries or fixed assets located in Singapore which are used for manufacturing, production or other business purposes, or commercial vehicles;
  • Leases or licenses of non-residential property.

There are a few things to note in relation to the scope of "construction or supply contracts" under the Act:

• • The definition of "construction or supply contracts" under the Act is the same as the definition under Section 2 of the Building and Construction Industry Security of Payment Act (Cap. 30B) ("SOP Act");⁵
  • The Act does not apply to contracts where one party carries out work as an employee for the other party (this is also an exception under SOP Act);⁶
  • Save for the exception above, none of the other exclusions under the SOP Act have been expressly imported into the Act. Interestingly, therefore, until there are further clarifications by the Parliament, the relief afforded under the Act appears to extend to contracts where the work is to be carried out outside Singapore.

Part 2 of the Act will only apply:

• • where the relevant contract was entered into or renewed before 25 March 2020:⁷
    This date was chosen as the Singapore Health Ministry enhanced its restrictions in relation to the COVID-19 pandemic on 24 March 2020. Parties entering into contracts after this date will be regarded as having entered into their contracts with their eyes open to the associated risks.
  • to contractual obligations due to be performed on or after 1 February 2020:⁸
    This is the date on which the Singapore government determined that the impact of COVID-19 started to be significantly felt in Singapore.
  • to contractual rights that were to be exercised on or after 20 June 2020.⁹

What Part 8 Of The Legislation Will Apply To

Part 8 of the Act was passed alongside the rest of the amendments to the Act on 5 June 2020. Part 8 has not come into operation yet as of the date of this article, and will only come into operation on a date that the Minister appoints by notification in the Gazette. When it does come into operation, it will deal with contracts that are not Scheduled Contracts but that are affected by a delay or breach in a construction (or construction-related) or supply (or supply related) contract.

Part 8 of the Act will only apply to contracts that:¹⁰

• • are not Scheduled Contracts but that are affected by a delay or breach in a construction (or construction-related) or supply (or supply related) contract.¹¹
    These include, for example:
    • a contract entered into by a developer to fit out an office, but who is unable to deliver the fitted-out premises on time because of restrictions on construction activities;
    • to a tenant who enters into a tenancy agreement which provides for a three month rent free period for the purposes of renovation and fitting out works, but due to restrictions on construction work due to Covid-19, effectively loses the benefit of the rent free period entirely;
    • a company that enters into a contract to rent scaffolding material but that is prevented from returning the scaffolding material on time due to Covid-19 restrictions, thereby incurring additional rental fees.
  • are in force during the prescribed period.¹² The prescribed period is currently from 20 April 2020 up to and including 19 October 2020, but is subject to extension (as explained in the following section).
  • are affected by a breach or delay in a construction (or construction-related) or supply (or supply related) contract made on or after 1 February 2020.¹³

Parties to contracts that fall under Part 8 will be allowed to apply to an assessor who will be able to make a determination, if it is just and equitable in the circumstances of the case, to either:¹⁴

• • adjust the manner in which the prescribed obligations are to be performed; or
  • vary, release or discharge a prescribed term in a contract

The precise scope of the contracts, the obligations to be covered and the kind of adjustments an assessor can make are expected be set out in more clarity in future regulations.¹⁵

The Prescribed Period

The measures under Part 2 will be, at this juncture, in place for a period of six months from 20 April 2020 up to and including 19 October 2020 (also known as the 'prescribed period' under the Act).¹⁶

The prescribed period may be extended by the Minister for Law, for or by a period determined by the Minister, and the period may be extended or shortened more than once.¹⁷

Substantive Requirements For Relief

Relief under both Parts 2 and 8 of the Act are tied with what the Act defines as a "COVID-19 Event". Specifically, the relief is only available in a case where:¹⁸

• • In relation to Part 2 of the Act:
    • a party to a Scheduled Contract is (or will be ¹⁹) unable to perform an obligation in the contract, being an obligation that is to be preformed on or after 1 February 2020; or
    • a party to a Scheduled Contract is (or will be) unable to exercise a right in the contract on or after 20 June 2020 ²⁰ ; and
    • that party's inability to perform an obligation or exercise a right is to a material extent caused by a "COVID-19 Event".²¹
  • In relation to Part 8 of the Act:
    • a party to a contract that is not a Scheduled Contract is affected by a delay or breach in a construction (or construction-related) or supply (or supply related) contract which occurs on or after 1 February 2020; and
    • that delay or breach is to a material extent caused by a "COVID-19 Event".²²

A "COVID-19 Event" is not limited to a situation where the inability to perform was caused directly by COVID-19; it also includes a situation where a party is unable to perform because of the operation of any laws, orders, or directions that is made in connection with COVID-19 (whether by the Singapore government or the government of another country).²³

The Act does not define what "caused by material extent" means, but it is sensible to assume that the applicant for relief must be able to demonstrate (if challenged) that the "COVID-19 Event" has meaningfully caused the inability to perform i.e. it cannot be remote or insignificant. An interesting issue arises as to whether the Act covers a situation where the inability to perform was caused by more than one reason, but only one of which includes a "COVID-19 Event". In this regard, Minister for Law has noted during his clarifications on the Bill that the Act extends to a situation where the "COVID-19 Event" is not the sole or dominant cause of a party's inability to perform.

Examples of situations that will fall within the substantive requirements of the Act include:

• • Example 1: Party B engages Party A to construct a building to be completed by 31 March 2020. Party A places orders for construction materials from several overseas factories and, subsequently, these factories suspend operations in early February 2020 due to the COVID-19 pandemic. This results in Party A being unable to complete the construction of the building by 31 March 2020.²⁴
  • Example 2: Party B engages Party A to install fittings in Party B's building by 10 March 2020. Most of Party A's employees travelled to Country X in early February 2020. On 15 February 2020, Country X closed its borders to curb the spread of the COVID-19 pandemic which results in Party A's employees being unable to return to Singapore. As a result Party A does not have sufficient employees to complete the work by 10 March 2020.²⁵

Under both examples above, Party A will be entitled to the reliefs under the Act provided that it serves a notification for relief in accordance with the Act.

Contributed by:

Toh Chen Han - Partner, Pinsent Masons MPillay
Tan Hai Song - Senior Associate, Pinsent Masons MPillay
Rakesh Nelson - Associate, Pinsent Masons MPillay