This article is produced by CMS Holborn Asia, a Formal Law Alliance between CMS Singapore and Holborn Law LLC.
On 7 April 2020, Parliament passed the COVID-19 (Temporary Measures) Act (“Act”). The omnibus Act provides for, among other things, temporary relief to businesses and individuals who are unable to perform certain contractual obligations due to the COVID-19 pandemic or related domestic or foreign laws.
We had previously considered the general framework and implications of the Act prior to its enactment into law, including the additional reliefs provided for parties to construction contracts or supply contracts in Part 2 of the Act.
On 20 April 2020, Part 2 of the Act and its related regulations in the COVID-19 (Temporary Measures) (Temporary Relief for Inability to Perform Contracts) Regulations 2020 (“Regulations”) came into operation for a prescribed period (“prescribed period”) of 6 months, from 20 April 2020 to 19 October 2020. The Regulations prescribe, among other things, the requirements for a notification for relief and the procedure and practice for proceedings before an assessor.
In this article, we consider the specific effect and operation of Part 2 of the Act on the construction industry.
The Act applies to scheduled contracts that fall within 5 categories of contracts:
- Leases or licences for non-residential immovable property (e.g. lease for factory premises);
- Construction contract or supply contract (e.g. contract for the supply of materials);
- Contracts for the provision of goods and services (e.g. venue, catering) for events (e.g. weddings, business meetings);
- Certain contracts for goods or services for visitors to Singapore, domestic tourists or outbound tourists, or promotion of tourism (e.g. cruises, hotel accommodation bookings); and
- Certain loan facilities granted by a bank or a finance company to SMEs.
During the prescribed period, the temporary reliefs may apply to obligations in scheduled contracts that were entered into or renewed before 25 March 2020, including contracts with the Government. It does not apply to scheduled contracts entered into or renewed (other than automatically) on or after 25 March 2020.
Both “construction contract” and “supply contract” have the meanings given by section 2 of the Building and Construction Industry Security of Payment Act (Cap. 30B) (“SOPA”).
Temporary Reliefs under Part 2 of the Act
Part 2 of the Act provides temporary reliefs to a party to a scheduled contract (called A) who because of a COVID-19 event is unable to perform his contractual obligations, by stopping the other party to the contract (called B) from taking actions in relation to A’s inability to perform.
Entitlement to temporary reliefs
The temporary reliefs do not apply without qualification nor take effect automatically. These reliefs only apply to cases where:
- The party to a scheduled contract (A) is unable to perform an obligation in the contract to be performed on or after 1 February 2020;
- A’s inability to perform the contractual obligation is to a material extent caused by a COVID-19 event (“subject inability”); and
- A has served the required notification for relief on the other party or parties to the contract, any guarantor or surety for A’s obligation in the contract, and such other person as may be prescribed (see below).
In assessing a party’s subject inability, parties should note that a “COVID 19 event” can be either:
- The COVID 19 epidemic or pandemic; or
- The operation of or compliance with any domestic or foreign law, order or direction that is made by reason of or in connection with COVID 19.
Moratorium under Section 5 of the Act
Where A qualifies for the temporary reliefs and has served the required notification for relief, a moratorium applies to stop the other party to the contract (B) from taking certain actions in relation to A’s subject inability. These are set out at section 5(3) of the Act, and include:
- The commencement or continuation of an action in a court or arbitral proceedings under the Arbitration Act (Cap. 10) against A or A’s guarantor or surety.
- The enforcement of security over immovable property, and movable property used for the purpose of a trade, business or profession.
- Making applications in relation to A or A’s guarantor or surety under section 210(1) of the Companies Act (Cap. 50) for a creditors’ meeting to be summoned to approve a compromise or an arrangement, or for a judicial management order.
- Making applications for winding up of A or A’s guarantor or surety, or for bankruptcy against A or A’s guarantor or surety.
- The appointment of a receiver or manager over any property or undertaking of A or A’s guarantor or surety.
- The commencement or levying of execution, distress or other legal process against any property of A or A’s guarantor or surety, except with the leave of the court.
- The repossession of goods under chattels leasing agreement, hire‑purchase agreement or retention of title agreement, being goods used for the purpose of a trade, business or profession.
- The termination of a scheduled contract (being a lease or licence of immovable property) where the subject inability is the non‑payment of rent or other moneys.
- The exercise of a right of re-entry or forfeiture under a scheduled contract (being a lease or licence of immovable property), or the exercise of any other right that has a similar outcome.
- 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.
This temporary moratorium lasts until the expiry of the prescribed period, the withdrawal by A of A’s notification for relief, or an assessor’s determination that section 5 of the Act does not apply to A’s case, whichever earlier.
Other temporary reliefs in Part 2 of the Act include:
- Extension of the period of limitation prescribed by law or contract for the taking of an action in relation to the subject inability.
- The stay of certain pending legal proceedings.
- Extension of the specified statutory periods of time in relation to winding up applications, applications for judicial management, and bankruptcy applications.
Additional reliefs for construction contracts or supply contracts
Section 6 of the Act provides additional reliefs for the inability to perform construction contracts or supply contracts.
For a performance bond or equivalent given pursuant to a construction contract or supply contract between A and B, and despite anything in such performance bond or equivalent:
- A can apply to extend the term of the performance bond or equivalent to a date that is 7 days after the end of the prescribed period or such other date as may be agreed between A, B, and the issuer of the performance bond or equivalent. This is provided that A applies for extension of term within the stipulated time, and serves notice of such application on B at the same time.
- B may not make a call on the performance bond or equivalent at any time earlier than 7 days before its date of expiry (being either the date as stated in the performance bond or equivalent, or the date of expiry following any extension of the term of the performance bond or equivalent).
Where A withdraws A’s notification for relief (see below), or an assessor has determined (see below) that section 5 of the Act does not apply to A’s case:
- B is no longer restrained from making a call on the performance bond or equivalent, and
- A may not apply to extend the term of the performance bond or equivalent under the Act.
The Act also provides relief against liability for delay damages in performance of a construction contract or supply contract, provided that A’s subject inability occurs on or after 1 February 2020 but before the expiry of the prescribed period. In such event, the period for which the subject inability subsists up to the expiry of the prescribed period is to be disregarded in determining the period of delay in performance by A, notwithstanding anything in the contract.
Where there is a claim against A for breach of contract in respect of A’s subject inability to supply goods or services in accordance with the terms of a construction contract or supply contract, the Act provides that A can raise as a defence the fact that A’s inability to perform his contractual obligation was to a material extent caused by a COVID-19 event. This is provided that the subject inability occurred on or after 1 February 2020 but before the expiry of the prescribed period. This relief does not affect:
- any contractual right or obligation that accrues or arises before or after the period from the occurrence of the subject inability to the expiry of the prescribed period; or
- any judgment, arbitral award, adjudication determination under SOPA, compromise or settlement given or made before the service of A’s notification for relief.
Consequences of acts in contravention of Part 2 of the Act
Acts in breach of the temporary reliefs in Part 2 of the Act are offences that attract penalties of a fine not exceeding $1,000, and can lead to dismissal of proceedings, or be found void (e.g. calls on performance bonds or equivalents) or invalid (e.g. termination of a lease or license of immovable property for inability to pay rent).
Notification for Relief (“Notification”) and Withdrawal of the Notification
Service of the notification for relief and other notices
A party (A) who intends to seek the reliefs under section 5 or 7 of the Act must serve a notification for relief (“Notification”):
- on the other party or parties to the contract (B) – before the end of the prescribed period;
- on the surety or guarantor for the subject obligation – no later than one working day after the date of service of the Notification on B, and
- the issuer of a related performance bond or equivalent (if applicable) – no later than one working day after the date of service of the Notification on B.
The Notification must be served by the prescribed mode of service in the Regulations (“prescribed mode of service”), either electronically through the Ministry of Law’s electronic system, other prescribed electronic means, or by prepaid registered post.
A may also be required to file a memorandum of notification for relief (Form 2) with a court or arbitral tribunal (together with a copy of the Notification), in relation to pending proceedings or proceedings commenced after service of the Notification against A or A’s guarantor or surety.
The Notification must be in the prescribed form (Form 1), and contain prescribed information and documents relating to:
- A’s name and contact particulars.
- The name and contact particulars of each of the other party or parties to the contract, any guarantor or surety for the subjection obligation, and the issuer of a related performance bond, if applicable.
- Description about the contract in question.
- Information about the subject obligation and a brief explanation of how a COVID -19 event had caused to a material extent the inability to perform the obligation; and
- A declaration by A that all information provided is true and correct.
Withdrawal of Notification
A party who has served a Notification may withdraw such Notification at any time, by serving a notice of withdrawal (Form 3) on the other party or parties to the contract, guarantor or surety for the subject obligation and the issuer of a related performance bond (if applicable), by the prescribed mode of service. Such withdrawal does not prevent that party from serving another Notification.
The withdrawing party may also be required to submit a copy of the notice of withdrawal and other prescribed documents to the Registrar (where an application for an assessor’s determination has been submitted) or to a court or arbitral tribunal (where a copy of the Notification has been lodged with that court or arbitral tribunal).
Application for Assessor’s Determination
The application for an assessor’s determination
Any party to a scheduled contract may apply under section 9(2)(a) of the Act (“applicant") for appointment of an assessor to determine, among other things, whether a case is one to which section 5 of the Act applies. There is no fee for such application.
Applicants are required to do the following in making applications:
- For applications in relation to scheduled construction contracts, supply contracts, event contracts or tourism‑related contracts, these must be made in the period from the commencement of the prescribed period and ending 2 months after the end of the prescribed period.
- For applications in relation to all other scheduled contracts (e.g. performance bonds granted pursuant to a construction contract or supply contract), these must be made during the prescribed period.
- The application must be in the prescribed form (Form 6), and accompanied by a copy of the Notification and a copy of the scheduled contract. Where the scheduled contract is not in writing, the application is to provide a description of how the contract was made and its terms.
- The applicant must submit the application using the prescribed electronic system, except where the Registrar or assessor permits otherwise in such other way as he or she may direct.
- The applicant must serve the copy of the application and other prescribed documents on every party to the contract, any guarantor or surety for the subject obligation, and the issuer of a related performance bond (if applicable), within the prescribed time and by specified modes of service.
- The applicant must submit to the Registrar a declaration of service (Form 4) within the prescribed time, and may be required to file or submit a notification to a court or arbitral tribunal (where there are pending proceedings before that court or arbitral tribunal and a copy of the Notification had been lodged with the same) in the prescribed form and time.
Response to an application for an assessor’s determination
The respondent may submit to the Registrar a response to the application (Form 8). This response must be submitted no later than 5 working days after the respondent is served with a copy of the application (and other prescribed documents), and the respondent must serve a copy of the response on the applicant, every other party to the contract, any guarantor or surety for the subject obligation, and the issuer of a related performance bond (if applicable) by the prescribed mode of service.
Both applicant and respondent may apply to amend the application or response, respectively, at any stage before an assessor’s determination, such amendment being subject to the Registrar’s or assessor’s decision.
Notice of appointment of assessor and the hearing
Where an application has been validly filed and served, the Registrar will send a notice of the appointment of an assessor, and if applicable, a notice of the date and place for the hearing, to both the applicant and respondent.
The hearing and the assessor’s determination
An assessor must act independently, impartially and in a timely manner in carrying out his or her duties or exercising his or her powers under the Regulations.
When hearing an application for a determination where the case in question is one to which section 5 applies, the assessor must make a positive or negative determination. He or she may take into account the ability and financial capacity of the party concerned to perform the obligation that is the subject of the application, and other prescribed factors; and must seek to achieve an outcome that is just and equitable in the circumstances of the case. This means that 2 otherwise similar applications brought by 2 applicants of different financial standing will be treated differently.
Where the assessor determines that the case is one to which section 5 applies, the assessor may make further determinations in order to achieve an outcome that is just and equitable in the circumstances of the case, including (but not limited to) requiring a party to the contract to do anything or pay any sum of money to discharge any obligation under the contract, and requiring a party to return repossessed goods or give possession of immovable property.
However, the assessor may not make such further determinations in respect of a construction contract or supply contract, or a performance bond or equivalent that is granted pursuant to a construction contract or supply contract.
The hearing of the application is generally to be held by exchange of email. However, the assessor may direct the hearing to be held via video conferencing, teleconferencing, other electronic means, or to have the parties attend before the assessor. The assessor may also dispense with a hearing and make a determination solely by reference to the forms and documents submitted by the parties.
The assessor may also issue directions as are necessary or expedient for the conduct of the hearing. Where a party is absent from the hearing, the assessor may decline to make a determination and dismiss the application, or hear and make a determination on the application.
No party may be represented by an advocate and solicitor at proceedings before an assessor, and each party must bear their own costs for proceedings before an assessor.
Setting aside a dismissal or determination
A party who was absent from the hearing may apply to set aside the assessor’s dismissal or determination of the application made in his or her absence. The assessor or another assessor may set aside such dismissal or determination provided that there was a good reason for the party’s absence from the hearing and that it is just in the circumstances to set aside that dismissal or determination.
Where the assessor sets aside the dismissal or determination of application, he or she may proceed to hear and make a fresh determination on that application.
Finality and enforcement of assessors’ determinations
An assessor’s determination is final and binding on all the parties to the application and all parties claiming under or through them. There is no appeal from an assessor’s determination.
Persons who without reasonable excuse fail to comply with an assessor’s further determination shall be guilty of an offence and liable on conviction to a fine not exceeding $1,000.
With leave of court, the assessor’s further determination may be enforced in the same manner as a judgment or an order of the court to the same effect, and judgment may be entered in the terms of the assessor’s determination.
The scheme of Part 2 of the Act provides a wide range of temporary reliefs to parties materially affected by the COVID-19 pandemic. However, it is important to note that these temporary reliefs do not apply automatically or without qualification, and parties who wish to seek relief or to challenge another party’s entitlement to relief will need to grasp the scope and procedural requirements of the Act. If you wish to discuss issues relevant to your business, please do not hesitate to approach the key contacts listed for this article.