The Effects of COVID-19 on International Contracts in Singapore

Singapore is a member of the British Commonwealth and a quintessential Common Law jurisdiction to the extent that the very third paragraph of its “Civil Law Act” is entitled “Law and equity to be administered concurrently”

There is no stone-carved definition of Force Majeure, which is usually referred to not as an institution but simply as a clause that allows a party to be excused from performing its obligations (on time), when some unforeseen outside event beyond the parties’ control prevents or delays performance.

The absence of a definition of Force Majeure, albeit vague, renders it necessary that a foce majeure clause be present in contracts, to be invoked.

Therefore, a court in Singapore will not imply the presence and extension of a force mandeure clause, which therefore should be (i) present and (ii) accurately written, i.e. encompass all possible events do so clearly. Additionally, Singaporean courts conduct two separate tests:

1. A commercial impracticability test, aimed at defining in concrete terms in the specific case treated the definition of the disruption caused by the Force Majeure event;
2. A test on the conduct of the party wishing to rely on the force mandeure clause, aimed at ascertaining that such party has done everything in its power to avoid relying on said clause.

Where the Force Majeure clause is missing, the parties may resort to seek the application of the institution of frustration, as per the Frustrated Contracts Act (Chapter 115), (Original Enactment: Ordinance 6 of 1959), 2014. The mentioned Act does not define specific triggering events for frustration, meaning that there is more scope to argue that a certain event causes frustration and therefore a contract should be cancelled. In case of dispute, courts would adopt equitable measures to adjudicate the case.

The legal test of frustration is whether the triggering event was reasonably foreseeable (in which case frustration cannot be easily invoked), and, if not, whether it makes the contractual obligation so fundamentally different from what has been agreed in the contract itself, that it would be unjust to pretend that parties abide by the contract.

It should be noted, however, that Singapore has introduced an ad hoc measure, the COVID-19 (Temporary Measures) Act, in force from 7 April for a period of six to twelve months. Such Act  introduces:

1. Temporary relief from non-performance of contractual obligations under certain contracts, if that inability is materially caused by a COVID -19 event;
2. Temporary changes to bankruptcy and insolvency laws to increase the debt thresholds for winding up and bankruptcy, and give a safety net to allow businesses to continue to trade while technically insolvent.
3. Allow the conduct of certain meetings, such as AGMs, to continue using alternative arrangements other than personal attendance.

As the name suggests, these are temporary measures and, at the end of the pandemic, unless the situation worsens badly, the ordinary insolvency and other rules will apply.

As this article focuses con contractual matters, it is worth examining, albeit briefly, the measures pertaining relief from non-performance of contractual obligations under certain contracts.

Firstly, it should be noted that the relief period is six months from the entry into force of the Act, although this time-frame may be extended to twelve months.

Secondly, the relief applies only to certain contracts entered into before 24 March 2020.

Such contracts are:

• Certain secured-loan facilities granted by a bank or a finance company to small- to medium-sized enterprises;
• Performance bonds or equivalent that are granted pursuant to construction or supply contracts;
• Hire-purchase agreements for commercial vehicles, or plant, machinery or fixed assets located in Singapore;
• Contracts for the provision of goods and services for events (e.g. venue or catering for weddings, business meetings);
• Tourism-related contracts (e.g. cruises, hotel accommodation bookings);
• Construction or supply contracts;
• Leases or licences for non-residential immovable property.

A party to any of the above-listed contracts may be temporarily relieved from some or all its obligations.

The obligations in questions are limited to those to be performed on or after 1 February 2020, not earlier.

Non-performance must be materially caused by either the pandemic or any law made because of it by any national government, not just Singapore’s.

If all the above requisites and condition apply, the party in question must speedily serve notice to all its counterparties, sureties and guarantors.

Upon receiving such notice, the counterparties are prohibited from:

• Commencing or continuing any court or arbitral proceedings against the party or their guarantor or surety;
• Enforcing any security over any immovable property or over any movable property being used for the purpose of trade, business or profession;
• Taking bankruptcy or insolvency action against the party or their guarantor or surety;
• Seeking to repossess goods under a leasing, hire-purchase agreement or retention of title agreement;
• Terminating a lease or licence of immovable property for the non-payment of rent or money:
• Any action to enforce a court judgement, arbitral award or adjudication under the Security of Payment Act.

Specific measures of relief are implemented for each time of scheduled contract and similar provisions are in place, as mentioned, for bankruptcy and insolvency.

Evidently, a counterparty may object to the party’s claim to be temporarily relieved. In such event, the Ministry of Law has been empowered to appoint a panel of independent assessors to determine any such disputes, in order to save time and money on ordinary legal proceedings.

Finally, breaching the prohibitions contained in the Act is a serious offence, which could result in a fine, a criminal conviction and also for the party in breach to lose its substantive right to enforce the contract at all in case of dispute related to the contract.

There is no single way to determine whether Covid-19 per se constitutes an event of Force Majeure.

Various elements must be taken into account, preferably through the aid of a legal expert, such as:

• governing law (Singapore?);
• the presence of a properly drafted clause;
• the foreseeability of the event of Force Majeure, or at lease of a triggering event for frustration (e.g. where the parties working domestically only? could they make contingency plans before or after the outbreak in Singapore? are their businesses present in other (high risk) areas? where they fulfilling their duty of being informed? etc.);
• exceptional measures introduced by the government (e.g. mandatory quarantine affecting people vested with the powers to execute certain contractual obligations) and their relevance (e.g. working from home per se does not prevent the fulfilment of certain obligations), including on third factors which influence the performance of obligations (e.g. if suppliers are themselves affected and, in such case, if alternative suppliers could be used);
• the temporary relief provisions contained in the COVID-19 (Temporary Measures) Act.

It is most likely that a party, under the current circumstances, invokes the application of the reliefs included in the COVID-19 (Temporary Measures) Act. Naturally, a party may also invoke Force Majeure or frustration.

In any of such cases, it is recommendable to follow this course of action:

1. Consider all the relevant facts;
2. Determine whether the case is governed by Singaporean laws;
3. Evaluate if the case falls into the scope of the COVID-19 (Temporary Measures) Act and what are the consequences (e.g. on bankruptcy);
4. Examine the exact wording of the Force Majeure clause, if present, in the relevant contract(s);
5. If no proper clause is present, evaluate if frustration can be invoked.

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