Following our previous article (COVID-19 (Temporary Measures) Act 2020: Legal circuit breaker), a number of regulations were introduced on 20 April 2020 which sets out the relevant details and processes for a party which seeks temporary relief for contractual non-performance as well as the dispute resolution mechanism where there is a dispute regarding a party's entitlement to such relief.
The COVID-19 (Temporary Measures) Act 2020 (the "Act") seeks, inter alia, to:
- (provide temporary relief to individuals and businesses which are unable to perform their contractual obligations due to the unprecedented COVID-19 outbreak through a statutory moratorium on the enforcement of rights and obligations relating to certain contracts to be performed on or after 1 February 2020 and for contracts that were entered into before 25 March 2020; and
- provide temporary relief for financially distressed individuals and businesses through increased monetary thresholds for bankruptcy and corporate insolvency as well as a lengthened time period to satisfy a statutory demand from creditors.
To avail itself of the temporary relief measures relating to contractual non-performance, the non-performing party must serve a Notification for Relief (a "Notification") on the other contracting party(ies) and the non-performing party's guarantor or surety in accordance with the requirements under future regulations which the Minister for Law (the "Minister") may make.
The Regulations and Forms
Following the publication of the COVID-19 (Temporary Measures) (Prescribed Period) Order 2020 (the "Order"), the COVID-19 (Temporary Measures) Act 2020 (Commencement) (No. 2) Notification 2020, the COVID-19 (Temporary Measures) Act 2020 (Amendment of Schedule) Order 2020 and the COVID-19 (Temporary Measures) (Temporary Relief for Inability to Perform Contracts) Regulations 2020 (the "Relief Regulations"), this article provides details regarding:
- the period for which the contractual relief provisions in the Act are applicable;
- how to serve a Notification;
- what to do in the event of a dispute regarding the Notification;
- the applicable procedure in relation to legal proceedings subsequent to service of Notification.
The Relief Regulations also provide that all forms to be used for the purposes of the regulations are those set out on the Minister of Law's website at http://www.mlaw.gov.sg/covid19-relief.
1. Applicable Duration of the Act
Under the Order, the "prescribed period" under the Act as well as the provisions relating to temporary relief for inability to perform contracts and temporary relief for financially distressed individuals, firms and businesses will come into operation on 20 April 2020. Since the prescribed period is for 6 months in the first instance, the statutory moratorium will last through to 19 October 2020. However, the Minister has the power to extend such period of relief up to a year.
What this effectively means is that from 20 April 2020 to 19 October 2020 (the "Prescribed Period"), the innocent party to a Scheduled Contract cannot enforce its rights under the relevant contract against the non-performing party. Moreover, during the Prescribed Period, the applicable bankruptcy and corporate insolvency thresholds are S$60,000 and S$100,000 respectively and debtors have 6 months to satisfy a statutory demand.
2. Serving a Notification
Given the wholly unprecedented nature of the COVID-19 pandemic, the Ministry of Law has advised parties to "first discuss, understand each other's positions, and try to reach a compromise".
If this is ineffective and the non-performing party requires relief under the Act, a Notification must be served on (i) the other party(ies) to the contract; (ii) any guarantor or surety for the contractual obligation; and (iii) the issuer of a performance bond or equivalent for the performance of the obligation, where the contract is a construction contract or supply contract (“Issuer of Related Performance Bond”) (collectively the "Relevant Parties").
The Notification is to be in the form of Form 1, which can be obtained from the Ministry of Law's website (https://www.mlaw.gov.sg/files/Form-1.pdf). Alternatively, parties may access and serve an electronic version of Form 1 through SingPass or CorpPass. Part D of the Notification allows a party seeking relief to propose an alternative to complete non-performance for the relevant contract. This is in line with the Ministry of Law's exhortation that the Act imposes a moratorium on legal action in order that parties have time to negotiate and work out their differences. This helps them focus on reviving their business rather than be mired in costly and time-consuming litigation or insolvency proceedings.
- Prescribed modes of service There are 2 modes by which a Notification may be served: (a) electronic or (b) postal (collectively the "Prescribed Modes of Service"). (i) Electronic service As long as the email addresses of the Relevant Parties are known, the party requiring relief ("A") may serve a Notification electronically through SingPass or CorpPass (the "Electronic System"). If A is unable to send the Notification via the Electronic System, A may send a Notification to the Relevant Parties' last email address using any other means. If neither of the methods above are available and the Relevant Parties (a) either i. have an account for the use of an internet-based messaging service and that service provides a mechanism for the receipt of electronic communications in that account or ii. own or operate an Internet website, blog, or page on any social media or social networking Internet website which provides a mechanism for the receipt of electronic communications on that Internet website, blog or page on that social media or social networking Internet website; and (b) the mechanism mentioned is the means or one of the means by which A corresponds with the Relevant Parties on matters concerning the scheduled contract, A may send a Notification to the Relevant Parties using that mechanism. (ii) Postal service If A is unable to send a Notification by any of the electronic service methods, A may send the Notification to the Relevant Parties' last postal address by prepaid registered post.
- Notification: when service is effective If the Notification was served by sending it to an email address, service takes effect at the time the Notification becomes capable of being retrieved by the recipient. If the Notification was served by sending it to a postal address by prepaid registered post, service takes effect on the second day after the day the document was posted, even if it is returned undelivered. Proving that the envelope containing the Notification was properly addressed to the person, stamped and posted by registered post would suffice as proof of service.
- Time limit for service of Notification The Relief Regulations prescribe that a Notification must be served on the other contracting party(ies) before the end of the Prescribed Period (i.e. 19 October 2020). As for the surety/guarantor or Issuer of a Related Performance Bond, a Notification must be served no later than one working day after the date of service of the Notification on the other contracting party(ies).
3. Dispute regarding Notification
In our previous article, we noted that there will inevitably be disputes regarding the non-performing party's qualification for relief under the Act. In such an instance, the party which disagrees with the Notification may refer the matter for a final and binding determination by an Assessor. The Ministry of Law has, however, stressed that "parties should first discuss, understand each other’s positions, and try to reach a mutual agreement before turning to an Assessor".
The following section provides an overview of the process of an Assessor's determination.
- Step 1: Application for Assessor's determination (i) Timing of Application Any party(ies) to the contract may after service of, or being served, a Notification, apply for an Assessor's determination by submitting an Application for an Assessor's Determination (an "Application") to the Registrar via SingPass or CorpPass. The time limit within which the Application must be made is as follows: - if the contract is an event contract, tourism-related contract, construction contract or supply contract, the Application must be made between 20 April 2020 and 19 December 2020 (being the end of 2 months after the end of the prescribed period); - for all other Scheduled Contracts, the Application must be made between 20 April 2020 and 19 October 2020. (ii) Cost of Application Currently, the Application can be submitted at no cost. (iii) Requirements in Application The Application is in Form 6 and must be accompanied by (i) a copy of Notification and (ii) a copy of the contract or, in the case of an oral contract, a description of how the contract was made and its terms.
- Step 2: Registrar's Review of the Application The Registrar reviews the Application and if satisfied that the Application is in order, the Registrar will send the applicant (i) an acknowledgment of receipt of the Application; and (ii) a Response in Form 8 or link to the Response form that the Respondent must submit to the Registrar.
- Step 3: Service of Documents on Respondent and Relevant Parties (i) Time limit for service The Applicant must within two working days after receiving the aforementioned documents from the Registrar, serve a copy of the Application and documents received from the Registrar (collectively the "Documents") on the Respondent and the Relevant Parties. (ii) Mode of service Service of the Documents may be effected by electronic service or postal service.
- Step 4: Submission of Declaration of Service Within one working day of Service of Documents on Respondent and Relevant Parties, the Applicant must submit to the Registrar a Declaration of Service by SingPass or CorpPass.
- Step 5: Respondent's Submission of Response Within 5 working days of being served the Documents, the Respondent must submit a Response to the Registrar and serve the Response on (i) the Applicant; (ii) the guarantor/surety; and (iii) the Issuer of a Related Performance Bond via SingPass or CorpPass or any of the other Prescribed Modes of Service. Should the Respondent fail to submit a Response, the Registrar may proceed to appoint an Assessor who may make its determination on the Application, and which determination will be binding on all parties to the Application.
- Step 6: Appointment for Hearing If the Registrar is satisfied that Steps 3 – 5 have been duly completed, it will send to the Applicant and Respondent by way of email (i) a notice of the appointment of an Assessor; and (ii) if applicable, a notice of the date and place for the hearing.
- Step 7: Hearing and Determination by Assessor (i) Conduct of Hearing A Hearing will generally be conducted by exchange of email. However, the Assessor may, if he/she is of the opinion that the interest of justice would be better served, direct that (a) the hearing be conducted online via Webex; or (b) parties to attend before the Assessor at the State Courts Towers or other venue as advised by the Registrar. For online or physical hearings, the Assessor may permit a party to be accompanied by an interpreter at the party's own costs. Parties should note that they cannot be represented by a lawyer at proceedings before an Assessor. Moreover, the Assessor may dispense with a Hearing and make a Determination solely by reference to the forms and documents submitted by the parties if he/she is of the opinion that those are sufficient for him/her to make a Determination. (ii) Assessor's Determination Where a party to the Determination is absent, the Assessor may (a) decline to make a Determination and dismiss the Application (a "Dismissal"); or (b) hear and make a Determination on the Application. A Dismissal or Determination which is made in the absence of a party may on the absentee party's application be set aside by the Assessor or another Assessor if he/she is satisfied that that party had a good reason for being absent from the Hearing and that it is just in the circumstances to set aside the Dismissal or Determination. Where more than one Assessor has been appointed, the Determination will be made unanimously. Finally, the Relief Regulations also provides that an assessor may make further determinations in respect of every category of Scheduled Contract, in order to achieve an outcome that is just and equitable in the circumstances of a case, save for the following: (a) a performance bond or equivalent that is granted pursuant to a construction contract or supply contract; (b) a construction contract or supply contract.
- Step 8: Applicant and Respondent informed of Assessor's Determination After the Assessor has made a Determination, the Registrar will inform the Applicant, Respondent and all other Relevant Parties who were served the Application. As mentioned in our previous article, the Assessor's Determination is final and binding and there is no right of appeal against it.
- Other relevant provisions in the Relief Regulations (i) Extension of time The Applicant or Respondent may submit a request to the Registrar or Assessor (if already appointed) by email for an extension of the period within which they are required to serve or submit any form or document. (ii) Amendment of Application or Response An Application or Response may be amended at any time before the Assessor's Determination is made by submitting a request to the Registrar by email. (iii) Withdrawal of Notification As with service of Notification, a Notice of Withdrawal may be served through SingPass or CorpPass on the other contracting party(ies). A Notice of Withdrawal must also be served on the surety/guarantor or Issuer of a Related Performance Bond no later than one working day after the date of service of the Notice of Withdrawal on the other contracting party(ies). The Relief Regulations also expressly provides that A is not not prevented by the withdrawal of A’s notification for relief from serving another notification for relief. (iv) Withdrawal of Application An Applicant may, prior to the Assessor's Determination, submit a request to the Registrar by email to withdraw the Application. (v) Correction of Error in Assessor's Determination A clerical mistake or error arising from an accidental slip or omission in the Determination may be corrected on the Assessor's own motion or on the application of a party to the Determination. This process is not to be used as a backdoor method to appeal or otherwise challenge the Determination on its merits. An application by a party to the Determination may be made via SingPass or CorpPass. (vi) Application to Set Aside a Dismissal or Determination Where a party is absent from the Hearing and a Dismissal or Determination has been made, the absentee party may apply via SingPass or CorpPass to set aside either the Dismissal or Determination. If the other party wishes to oppose the setting aside application, he must within the a period directed by the Registrar, submit to the Registrar and serve on the other party a Reply in Form 10 via SingPass or CorpPass or any of the other Prescribed Modes of Service. The Assessor may set aside the Dismissal or Determination on such terms as he/she considers just and may proceed to hear the case and make a fresh determination thereon.
4. Applicable procedure in relation to ongoing legal proceedings
As highlighted in our previous article, the Act prohibits the commencement of, inter alia, court or domestic arbitration proceedings against a non-performing party under a Scheduled Contract until the earliest of (a) expiry of the Prescribed Period; (b) withdrawal of Notification or (c) Assessor's Determination that the case is not one which qualifies for relief under the Act.
Where there are existing court or domestic arbitration proceedings against the non-performing party or its guarantor/surety at the time the Notification is served; or where such proceedings are commenced after service of the Notification, the Applicant may file with the court or submit to the tribunal before which proceedings are pending, a Memorandum of Notification for Relief (Form 2) in order to obtain a stay or dismissal of these ongoing proceedings.
Moreover, where a Memorandum of Notification for Relief has been lodged with the court or an arbitral tribunal, the Applicant has a duty to update the court or tribunal of the Application and any Determination in a timely manner. In this regard, a Notification of Status of Application for Determination (Form 7) must be submitted to the court or tribunal within 2 working days of any of the two events below:
- service of the Application has been completed;
- proceedings before the Assessor have concluded, i.e., Assessor gave a Determination; Assessor dismissed the Application; or Application was withdrawn.