Cannot Perform a Contract Because of Covid-19? Here’s What You Need to Know.

With our anti-Covid-19 measures now at their strictest ever, businesses and individuals alike are starting to feel the ensuing financial and economic strains. Apart from providing direct financial aid by drawing on state reserves, the Singapore Government has also passed laws temporarily relieving businesses and individuals from having to fulfill certain contractual obligations.

Here’s a quick lowdown on what you really need to know about these new laws.

So, the new laws apply to all contracts?

No; only to specified types of contracts. Generally, these are contracts for events, tourism-related activities, bank loans, construction, supply of goods, hire-purchases, and non-residential leases. The laws also apply only to contracts signed (or renewed) before 25 March 2020. Additionally, if you’re looking to temporarily avoid performing an obligation under these contracts, the obligation must be one that is due to be performed on or after 1 February 2020.

I need relief from a contract! What must I do?

You must first be able to prove or show that you are unable (not unwilling) to perform certain obligations under the contract because of the Covid-19 situation. If you’re the party seeking relief (let’s call this the requesting party), you must send a written notice to the other party (let’s call this the receiving party). This notice must state that you are intending to exercise your right to temporary relief under the new laws, and should ideally contain a brief explanation as to how Covid-19 is causing you to be unable to hold up your end of the bargain.

How does this all help me, exactly?

If you’re the requesting party who has sent a notice to the receiving party, the receiving party will be prevented from taking any action that compels you to perform your obligations under the contract. These actions include suing you, terminating the contract, calling on a security against you, applying to make you a bankrupt, etc. In other words, you’re temporarily protected from not being able to hold up your end of the bargain.

Here’s an example. Sam runs a renovation business. He signs a contract with a boutique hotel on 30 March 2020, under which Sam will renovate the hotel lobby. The contract states that the works must be completed by 1 May 2020. Sam is now unable to perform any works because his business is not considered an essential service. Sam notifies the hotel of his intention to seek relief under the new laws. The hotel cannot take legal action against Sam for Sam’s inability to complete the renovation by 1 May 2020 (which, in ordinary circumstances, would amount to a breach of the contract).

The new laws also provide additional protection for contracts relating to events and tourism activities. Say, for example, that you hired an event planner to throw a lavish birthday bash for your child on 11 April 2020. Because of social distancing, you’re now no longer able to have that party. Under the new laws, the event planner is not permitted to forfeit any deposit you may have paid him. If a deposit has already been forfeited, it must be restored. If the contract between you and the event planner stipulates that you must pay a fee if you cancel the event, the laws also provide you with relief from having to pay that fee.

Contracts for construction and the supply of goods also enjoy additional protection under the new laws. A party to such contracts may not call on a performance bond more than seven days before the expiry date of the bond.

What happens if I send a notice for relief, but the receiving party refuses to comply?

Report the receiving party to the authorities. If he is unreasonably refusing to grant you the relief you’re entitled to under the new laws, he is guilty of a criminal offence, and can be fined up to S$1,000 if convicted.

The relief is temporary, right? How long does it last for?

For now, the government has prescribed a relief period of six months. Which means that you’re excused from performing your contractual obligations until 7 October 2020. As a requesting party, you may also withdraw your notice to the requesting party before this six-month period ends whenever you are ready and able to perform the contract.

I’m a receiving party, and I don’t think the requesting party has a legitimate ground for relief. Help!

Let’s say, for example, that you’re a café owner who has contracted with a supplier to sell and deliver 6,000 plastic containers to you on 13 April 2020. The supplier now sends you a relief notice stating that he is unable to deliver them because of Covid-19. But you subsequently find out from your friend, a fellow F&B operator, that the same supplier will deliver 8,000 containers to your friend in the coming week (even though your friend signed a contract with the supplier later than you did). You’re convinced that the supplier sent you the relief notice despite being fully able to perform its contract with you.

In a situation like this, you can apply to the Ministry of Law to appoint an assessor who will hear the dispute and determine whether the relief was legitimately sought. The ministry will provide further details on the application procedure from mid-April. In coming to a decision, the assessor may consider the ability and financial capability of a requesting party, among other relevant factors. No lawyers are allowed; parties must participate in the assessment process themselves. Also, an assessor’s decision is final and cannot be appealed. If the assessor finds that a requesting party continue performing the contract, he must do so. If the assessor determines otherwise, the receiving party must allow the temporary relief. If a party breaches an assessor’s orders, he can be convicted of a criminal offence that attracts a maximum fine of S$1,000.

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