This article is produced by CMS Holborn Asia, a Formal Law Alliance between CMS Singapore and Holborn Law LLC.
The outbreak and global escalation of the novel coronavirus disease, COVID-19, has caused major disruption to businesses in Asia and across the world. On 1 April 2020, Singapore’s Ministry of Law (“MinLaw”) announced its intention to introduce the COVID-19 (Temporary Measures) Bill (“Bill”) in Parliament the following week.
Expected to come into force in mid-April 2020, the Bill is intended to complement the financial measures worth S$48 billion announced in the Resilience Budget on 26 March 2020. The Bill is aimed at providing temporary and targeted protection to businesses and individuals who are unable to perform certain contractual obligations due to the COVID-19 global pandemic and seeks to provide them with temporary cash-flow relief. The measures under the proposed law will be in place for six months from the time of commencement, with the possibility of extension for an additional six months.
Scope of the Bill
Types of contracts covered
The Bill will apply retroactively to:
- Relevant contractual obligations that are to be performed on or after 1 February 2020; and
- Contracts that were entered into or renewed before 25 March 2020.
The Bill will apply to 5 broad categories of contracts:
- Leases or licences for non-residential immovable property;
- Construction contract or supply contract;
- Contracts for the provision of goods and services for events;
- Certain contracts for goods and services for visitors to Singapore, domestic tourists or outbound tourists, or promotion of tourism; and
- Certain loan facilities granted by a bank or a finance company to SMEs with a turnover less than SGD100 million in the latest financial year.
The Bill will prohibit contracting parties from commencing legal actions against non-performing parties, including:
- Court and insolvency proceedings;
- Enforcement of security over immovable property and movable property that is used for the purposes of business or trade;
- Call on a performance bond provided pursuant to a construction contract; and
- Termination of leases of non-residential premises.
Appointment of Assessors
MinLaw will also appoint assessors to safeguard against unfair outcomes and to provide an affordable, fast and simple framework to resolve disputes between parties regarding the application of the proposed law. The appointed assessors will have the power to determine whether the failure to perform contractual obligations was due to the COVID-19 global pandemic and to provide relief that is just and equitable in each case. Parties cannot be legally represented, and the assessors’ decision will be final and unappealable.
Additional relief will be extended to events and tourism-related agreements. Under the Bill, venue providers such as hotels and restaurants cannot forfeit deposits unless a determination is obtained from an assessor or if the other party cancels the booking entirely.
The proposed law will also provide temporary relief for businesses and individuals in financial distress by increasing the monetary threshold and statutory time limits for bankruptcy and insolvency.
Under the proposed Bill, the individual monetary threshold for bankruptcy will increase from SGD 15,000 to SGD 60,000. The monetary threshold for insolvency for businesses will increase from SGD 10,000 to SGD 100,000.
In addition, directors are temporarily relieved from their obligations to prevent their companies trading while insolvent if debts are incurred in the company’s ordinary course of business. If, however, the debts are incurred fraudulently, directors remain criminally liable.
Construction and Supply Contracts
MinLaw has announced that the Bill will prohibit a contracting party from calling on a performance bond given pursuant to construction and supply contracts falling within the ambit of the Bill. Contractors will also be relieved from liability for non-performance if this was caused to a material extent by COVID-19.
It is clear from the temporary nature of the Bill that contractual parties are intended to and should continue to be mindful of their existing contractual obligations. Amongst other things, contractual parties should continue to comply with contract claim procedures for additional time or costs. By continuing to recognise parties’ contractual obligations, the Bill preserves rights and obligations up and down contractual chains as are common in construction projects, and avoids the possible “ripple effect” of a contractual party’s default being passed on to other upstream or downstream contractual parties.
It remains to be seen how the Bill’s draftsmen will address parties’ rights and obligations under specified statutory regimes if and where these contradict or conflict with the reliefs in the Bill – such as the right to regular progress payments under the Building and Construction Industry Security of Payment Act’s adjudication regime.
Current regulatory guidelines for claims arising out of COVID-19 have sometimes created more confusion than clarity – for instance the Building and Construction Authority’s February guidance that public sector construction project claims for extensions of time should be viewed “sympathetically” raised queries about the interplay with parties’ existing contractual and statutory rights. We expect the Bill to provide much needed clarity to businesses and individuals for their continuing operations in a time of uncertainty.
The Bill represents part of the Singapore government’s holistic efforts in safeguarding the financial and legal interests of individuals and businesses adversely affected by the COVID-19 global pandemic. MinLaw is presently finalising the exact scope of the “temporary relief” under the proposed law. It remains to be seen how the proposed relief under the Bill will interact with the other measures introduced by the government in the Resilience Budget and the Jobs Support Scheme, for instance.
The intended appointment of assessors is a clear signal against opportunistic claims and potential abuses of the reliefs in the Bill. In particular, the determination of construction claims often require measured and nuanced assessment as to the entitlement to and extent of relief. It remains to be seen how these claims will be treated and assessed given that the assessment process appears intended to be fast and on a no-cost and no-appeal basis.
The Bill is an exceptional response to unprecedented circumstances, and we encourage readers to review the framework and language of the Bill when introduced to Parliament. If you wish to discuss the likely effects of this upcoming legislation on your business, please do not hesitate to approach the key contacts listed below.