Need for temporary relief amid Covid-19 despite sanctity of contracts: Shanmugam

EVEN as a new Bill seeks to provide temporary relief from some legal obligations in light of the coronavirus outbreak, the principle of the sanctity of contracts is still important, said Minister for Law and for Home Affairs K Shanmugam in the second reading debate of the Covid-19 (Temporary Measures) Bill on Tuesday.

He also stressed that the Bill provides relief only where the inability to discharge obligations is, to a material extent, caused by Covid-19.

One of the foundations of Singapore is the rule of law - including the sanctity of contracts - which is key for the country as an international commercial centre, he said.

Yet the state is now seeking to intervene, in these exceptional circumstances.

Mr Shanmugam noted that the closest equivalent in the Republic's history was the Frustrated Contracts Act in 1959, applied retroactively amid the Malayan Emergency.

Even as today's coronavirus outbreak exacts a heavy economic toll, "costs continue to run", he noted.

In such a situation, things cannot simply be left to the market or the contractual situation: "It will be neither fair nor just. The bottom of the market has literally fallen off and the normal assumptions of business are gone. Every business should plan for some severe shock, but almost none could have prepared for this."

The new Bill thus aims to give businesses a reprieve for a few months, in what Mr Shanmugam dubbed a "legal circuit breaker".

As previously reported, the Bill applies to certain categories of contracts, for obligations to be performed on or after Feb 1, 2020, and contracts entered into before March 25, 2020. It provides relief for six months in the first instance, with the possibility of being extended for a further six months.

Under the Bill, a contracting party wishing to claim relief must give notice to the other party, who is then prohibited from certain types of actions including commencing or continuing legal action, eviction due to non-payment of rent, or repossession of goods used for business.

Mr Shanmugam stressed that the relief will apply where Covid-19 has had a material impact.

The measures do not mean that all tenants do not have to pay rent, for example. "Those who have the ability to make rental payments must continue to do so," he said. Landlords can also exercise their rights after the prescribed period is over.

Furthermore, "there are always two sides to every story", he added. For event and tourism-related contracts, for instance, firms might have already incurred expenses or provided services before the event takes place.

For events that cannot proceed due to Covid-19, the Bill will ensure that deposits are not automatically forfeited. But it does not mandate that deposits be refunded immediately, stressed Mr Shanmugam: "If we ask all companies to immediately refund, there could also be serious trouble."

Rather, there are possible solutions such as postponing the event with the deposit held back, or cancelling the event with the deposit fully or partly repaid.

Ultimately, the hope is that contracting parties can come to fair agreements. In the case of disputes, assessors appointed by the Ministry of Law will make a determination.

Apart from leases and licences for non-residential property, and event- or tourism-related contracts, the Bill also covers construction-related contracts; hire-purchase or conditional sales agreements; and certain types of loan facilities granted to small and medium enterprises, defined as those where turnover of the group to which they belong does not exceed S$100 million in the latest financial year.

The Bill also provides an additional safety net for individuals and businesses, by making temporary modifications to bankruptcy and insolvency laws.

A new section was further added to the Bill to provide a legal basis for the enforcement of enhanced safe distancing measures from April 7 to May 4, such as closure of premises and restrictions on gatherings.

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