On 7 April 2020, Parliament passed the COVID-19 (Temporary Measures) Bill (the “Bill”) into law. The Bill has been published in the Gazette and can be found here. The Bill is expected to come into operation shortly on a date to be announced in the Gazette.
This “legal circuit breaker” seeks to offer targeted but temporary relief to businesses and individuals who are unable to fulfil their contractual obligations due to the unexpected pressures caused by the COVID-19 pandemic.
This legal update identifies and answers six pressing questions arising from this Bill.
What types of contracts are covered under the Bill?
The Bill covers five broad categories of contracts:
- construction and supply contracts;
- leases or licenses for non-residential immovable property;
- event contracts;
- tourism-related contracts; and
- certain secured loan facilities granted to businesses.
During the second reading of the Bill on 7 April 2020, the Minister for Law K. Shanmugam clarified that the scope of the Bill may extend beyond the five aforementioned categories of contracts. This means the Minister may extend the reach to which relief applies, by an order, should additional targeted relief be required.
What are the relief measures under the Bill?
The Bill prohibits a contracting party from taking action against those unable to fulfil contractual obligations, such as:
- commencing or continuing with Court and insolvency proceedings;
- enforcing an Adjudication Determination pursuant to the Building and Construction Industry Security of Payment Act (Cap. 30B);
- enforcing of security over movable or immovable property that is used for the purposes of business or trade;
- calling on a performance bond; and
- terminating leases or licenses of non-residential premises.
The Minister stressed during the second reading of the Bill that a party seeking temporary relief must demonstrate that the inability to perform contractual obligations was materially caused by a COVID-19 event. This suggests a party cannot obtain temporary relief citing mere inconvenience, or mere hardship which renders the performance of contractual obligations more difficult.
The Bill also does not define what a “material extent” is, although it does require the assessor, a person appointed to decide whether to grant an application for temporary relief, to consider all the circumstances of each application. This is a balanced approach allowing an assessor to exercise his discretion. The Minister cited an example where a “material extent” might refer to a situation where the COVID-19 event may not be the only cause of failure to fulfil contractual obligations, but the COVID-19 event cannot be a remote cause. This means the COVID-19 event must have substantially affected a party’s ability to carry out contractual obligations.
Additionally, the Bill introduces temporary reprieve for individuals and businesses in financial distress, through the following measures:
- for individuals, increasing the monetary threshold for bankruptcy from $15,000 to $60,000; and
- for companies and partnerships, increasing the monetary threshold for winding up proceedings from $10,000 to $100,000.
How does one seek relief under the Bill?
The party (“A”) seeking relief must serve a notice to the other party to the contract, and to any guarantor or surety for A’s obligation under the contract. Details on the form and service of notice are expected to be made known in the coming weeks when the Minister has enacted subsidiary legislation through regulations for the implementation of the Bill in practice.
Who decides whether one may seek relief under the Bill?
Assessors will be appointed by the Minister for Law to resolve disputes on whether the inability to perform contractual obligations was due to the COVID-19 event. Assessors’ decisions will be final and non-appealable.
Is legal representation allowed in applications for assessors’ determination under the Bill?
No party may be represented by lawyers at proceedings before assessors. However, a party can seek legal assistance to prepare the application or advice as to whether it qualifies to make an application in the first place.
When and for how long will the relief measures take effect?
The relief measures will cover relevant contractual obligations that are to be performed on or after 1 February 2020, for contracts that were entered into or renewed before 25 March 2020.
The measures will be in place for six months from the date the Bill comes into operation but such period may be extended at the discretion of the Minister depending on the effectiveness of the circuit breaker measures in place since 7 April 2020.
We are in the midst of a national crisis. No one has been spared. Through the introduction of the Bill, Parliament has taken decisive action to provide temporary relief to financially distressed businesses and individuals.
It is therefore of paramount importance for contracting parties to be aware of their rights under the Bill.
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