The COVID-19 pandemic continues to spread around the world disrupting large parts of the global economy and forcing some countries to completely shut down all but the essential services. In light of recent restrictions on Singapore, Arcadis has been working with clients to examine the impact of the outbreak on Singapore’s construction industry and provide advice when dealing with contract extensions.
Force Majeure & Extension of Time
In terms of Extension of Time (EOT), a Contractor may be entitled to an EOT on account of COVID-19 if ‘epidemic’ or ‘pandemic’ is included in the definition of force majeure. ‘Force majeure’ is not defined in the main Singaporean standard construction contracts, or in most of Arcadis’ Client’s Particular Conditions, to include epidemic or pandemic or more broadly the outbreak of dangerous infectious diseases. In these cases, where COVID-19 is not an event of force majeure, there is no right to an EOT contractually.
Whilst there may be no legal right to EOT, it may still be beneficial for developers to give an ex gratia allowance of time, subject to mitigation measures, notification, substantiation and reasonable steps to mitigate this delay.
Even where time is granted on an ex gratia basis, there should be no basis for the Contractor to recover loss and expenses or additional preliminaries under the Contract or at law, as delays have arisen from external factors and are not attributable to any fault of either party.
In other countries, this might differ. In China, force majeure is recognized under China’s contract laws and where a contract could not be performed because of force majeure, liability for breach shall be excused. Force majeure is defined (as a matter of law) as circumstances that are unforeseeable, unavoidable and insurmountable.
COVID-19 (Temporary Measures) Bill
As of 1 April 2020, it has been announced that The Ministry of Law (“MinLaw”) intends to introduce the COVID-19 (Temporary Measures) Bill in Parliament next week. The Bill seeks to offer temporary relief to businesses and individuals who are unable to fulfil their contractual obligations because of the impact of COVID-19. Details will be set out in the Act but it is currently reported that construction companies that cannot fulfil their contracts would also not be liable for liquidated damages, if the inability and delay was caused “to a material extent” by COVID-19.
The measures will be in place for a prescribed period, which will be six months from the commencement of the Act at first instance. Subsequently, it may be extended, for up to a year from the commencement of the Act.
What about frustration?
Unlike force majeure, frustration is a defence that can be raised in law even if the contract makes no reference to it, or epidemics or pandemics.
Frustration "occurs wherever the law recognises that without default of either party a contractual obligation has become incapable of being performed because the circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract”. ( AC 696 at 729). In Davis v Fareham, Contractors entered a contract to build 78 houses for a fixed price. There were unanticipated shortages of labor and materials resulting in considerable delay, but the House of Lords held that the facts were not sufficient to invoke the doctrine of frustration and the contractors had to bear the loss themselves.
In terms of consequences, if frustration is successfully argued in Court, both parties are automatically discharged from any further obligation. However, it is rare that after a contract has been lawfully entered into and is in the course of operation there may arise some intervening event or change of circumstance of so fundamental a nature as to determine the contract prematurely by the operation of the doctrine of frustration.
There are several cases litigated in the Singapore Courts that would be useful in illustrating the Court’s approach to force majeure and frustration. Arcadis will also be monitoring new developments with regards to the COVID-19 (Temporary Measures) Bill to be introduced in Parliament next week. Therefore, if you require further advice, we would be happy to discuss the specific facts and circumstances of your project and these cases with you and your lawyers further.
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