Easing of Circuit Breaker measures and next steps for the Projects and Construction industry in Singapore
With the outbreak of COVID-19, countries around the world have imposed lockdowns and curfews in one form or another. In Singapore, “Circuit Breaker” restrictions and measures were also imposed in response to the pandemic. To aid businesses, the government enacted the COVID-19 (Temporary Measures) Act 2020 (the “Act”) when the Circuit Breaker measures were put in place in Singapore on 7 April 2020.
In the projects and construction industry, developers and contractors alike have been affected in an unprecedented manner and novel issues have arisen due to the COVID-19 pandemic. With the gradual opening up of businesses as the Circuit Breaker measures are progressively lifted, and as the industry prepares to resume in the coming weeks, this update aims to address some of the common queries and concerns in the industry at this time.
Please note, this update is not intended to be direct legal advice. Formal advice should be sought for any fact-specific situation that you or a relevant party may be facing.
Key questions and immediate concerns
1. Does the Act automatically protect a party (“A”) who is unable to fulfill its obligation in a construction contract or supply contract such that the other party (“B”) therefore cannot make a claim against A?
The short answer is no.
First, A’s inability to perform its contractual obligation has to be due to “a material extent caused by a COVID 19 event” (the “subject inability”).
Secondly, the Act restrains B from taking only certain actions against A (“Restrained Actions”). The Restrained Actions are set out in section 5 of the Act and include the following:
- The commencement or continuation of an action in a court;
- The commencement or continuation of arbitral proceedings;
- The making of an application for judicial management or winding up; and
- The enforcement against A of a judgment of a court, an award made by an arbitral tribunal, or a determination by an adjudicator under the Building and Construction Industry Security of Payment Act (Cap. 30B) (“SOPA”).
The Act does not restrain B from taking other actions such as the commencement or continuation of adjudication under SOPA, albeit it restrains the enforcement of an adjudication determination as stated above.
Thirdly, the Act provides only temporary relief from the Restrained Actions and such temporary relief will end at the earliest of the following events:
- The expiry of the prescribed period, which is currently between 20 April 2020 and 19 October 2020 (“Prescribed Period”);
- The withdrawal by A of A’s notification for relief; or
- On an application by any party, the assessor makes a determination that the case in question is not one to which the Act applies.
Finally, in order to seek such temporary relief under the Act, A has to serve a notification for relief on B.
2. To show A’s subject inability, what does “material extent” mean?
The phrase is not defined under the Act, and ultimately depends on the specific facts of the case. Further, it need not be the sole or only cause for the inability to perform the obligation so long as it is one of the material reasons.
As stated by the Minister for Law in Parliament, the COVID-19 event has to have "meaningfully caused the inability to perform. It need not be the dominant cause but it cannot be a remote insignificant cause either. It can cover situations where there is more than one reason for the inability to perform the obligation as long as COVID-19 is a material reason."
3. Can a developer seek relief under the Act?
While the Act appears to protect parties from upstream obligations, and so appears to apply only to contractors (including sub-contractors), there is nothing in the Act that indicates only contractors can seek relief.
A developer can in theory seek relief under the Act as well, e.g. the developer may claim that it is unable to make payments to its contractors, so long as the developer also meets the requisites under the Act.
4. When does a notification for relief need to be served?
Regulation 9(3) of the COVID-19 (Temporary Measures) (Temporary Relief for Inability to Perform Contracts) Regulations 2020 provides that a notification for relief must be served:
- On the other party or parties to the contract before the end of the Prescribed Period (i.e. before 19 October 2020); and
- If applicable, on the surety or guarantor for the subject obligation and the issuer of a related performance bond (if applicable) - no later than one working day after the date of service of the notification on the person mentioned in sub paragraph (a) above.
5. Must one negotiate first or just serve the notification for relief?
In a joint circular from the Ministry of Law and the Building and Construction Authority on 22 April 2020, the authorities encourage A to negotiate with B to reach a compromise, and if the parties are unable to resolve the matter themselves, A will have to serve a notification for relief.
Although the authorities encourage parties to negotiate first so that matters remain amicable, it is not mandatory or a prerequisite for issuance of the notification for relief. As a matter of legal right and for the purposes of seeking relief under the Act therefore, A should serve a notification for relief sooner rather than later.
That said however, commercial reality sometimes dictates that to maintain a harmonious relationship in the project with the developer, parties should negotiate for an extension of time first. Further, it is not uncommon for developers / consultants to suggest that the issue of delay be dealt with at the end of the project.
However, such suggestions cannot be accepted and negotiations should not be unduly protracted. A should still claim the reliefs under the Act as soon as possible. Bearing in mind also that the notification for relief must be served before the end of the Prescribed Period (i.e. before 19 October 2020).
6. What happens after a notification for relief is served?
Once a notification for relief is served, the Act has retroactive effect and applies to contractual obligations that are to be performed on or after 1 February 2020 in contracts that were entered into or renewed before 25 March 2020.
If the notification for relief is disputed, either party can submit the dispute to a panel of assessors for determination. Such assessors have the power to grant relief to achieve a just and equitable outcome in the circumstances of the case. There is no application fee and no costs orders will be made by the assessors.
The assessors’ determination is binding and there is no appeal available.
However, if a party was absent from the hearing fixed by the assessor and the assessor dismissed or determined the application in the party’s absences, and the party has good reasons for being absent, that party can make an application to set aside the assessor’s decision.
7. In addition to the Restrained Actions, section 6 of the Act provides additional relief for construction contracts and supply contracts, e.g. in relation to calls on performance bonds (section 6(2)) and calculating liquidated damages (section 6(5)). Section 9(1) of the Act only states that if A intends to seek relief under section 5 or section 7 (section 7 pertains to event contracts and tourism-related contracts), A must serve a notification for relief. Does this mean that A does not need to serve a notification for relief if A wants additional relief under section 6?
Despite the wording of section 9(1) of the Act, section 6(2) read together with section 6(4) indicate that A should serve a notification for relief in order to restrain B’s call on a performance bond. Section 6(4) of the Act specifically provides section 6(2) does not apply “after A has withdrawn A’s notification for relief”.
Section 6(1) of the Act also states that section 6 “applies to a case mentioned in section 5 where the scheduled contract is a construction contract or supply contract and (to avoid doubt) does not limit the operation of that section.”
As a matter of prudence, A should serve a notification for relief if A wants additional relief under section 6. This is the recommended procedure based on the FAQs from the Ministry of Law .
8. Section 6(5) of the Act provides that "for the purposes of calculating the liquidated damages payable under the contract or assessing other damages in respect of the subject inability … any period for which the subject inability subsists and falling within that period is to be disregarded in determining the period of delay in performance by A" Is section 6(5) therefore law to provide contractors an extension of time?
Section 6(5) simply prevents liquidated damages or other damages from being imposed on a contractor due to its subject inability. It does not carry with it other rights that may be attached to an extension of time that is granted. For example, with an extension of time, a contractor may be able to claim loss and expense under the its contract.
As such, if A’s contract allows A to seek an extension of time due to COVID-19 and the events arising therefrom, e.g. because it is a pandemic or a force majeure event, A should still seek an extension of time in accordance with its contract.
9. Does section 6(5) of the Act mean that liquidated damages or other damages will not be imposed throughout the Prescribed Period, which is currently between 20 April 2020 and 19 October 2020?
No, it does not.
It is to be reiterated that the relief is granted has to be due to A’s subject inability, i.e. inability due to a material extent caused by a COVID 19 event.
At present, the bulk of construction projects has been put to a halt because of the circuit-breaker measures imposed by the government. If, for example, contractors can re-commence work in the ordinary course of business earlier, e.g. in July 2020, but fail to do so, then they will not be able to claim that the developers cannot impose liquidated damages because they are restrained from continuing the works.
The developers may also then have the opportunity to argue that their contractors’ delay in works stems from reasons not due to any COVID-19 event.
We hope this update has assisted in shedding some light on the more frequent queries or concerns you may have. As we go through these unusual times together, stay safe, keep healthy and be kind!
If you have any further queries, please feel free to contact Kevin Kwek, Henry Heng, Glenn Cheng and Gina Tan at your convenience.