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The article analyses the key benefits of the temporary law passed by Singapore for granting interim reliefs to parties whose contractual obligations are affected by COVID-19 related events.
In this article, I look at the key benefits of the temporary law passed by Singapore for granting interim reliefs to parties whose contractual obligations are affected by COVID-19 related events. I then examine the approach of Indian courts in granting interim reliefs to affected parties and what India can learn from the Singapore model.
Benefits of Singapore COVID-19 (Temporary Measures) Act, 2020
The main objective of this law is to provide temporary relief from the inability to perform contractual obligations to be performed on or after 1 February 2020, under certain contracts, if that inability is materially caused by a COVID -19 event. The relief is currently only available for 7 categories of contracts entered into before 24 March 2020 (if applied).
Broadly, this law does not alter the underlying contractual obligations and only freezes the rights to enforce those obligations, for a period of time. However, one instance of an amendment to the contractual obligation is that the period of delay resulting in ability to perform will not be counted for calculating liquidated damages or assessing damage.
Another interesting feature is that if there is a force majeure clause, such clause will prevail over this law, if the party chooses to invoke the force majeure clause.
Interim reliefs announced by Government of India in response to COVID-19
As a response to containing the spread of COVID-19, on 24 March 2019, Government of India mandated a nationwide lockdown and directed closure of all business, except identified essential services. Some states have allowed additional activities in the second phase of the lockdown, to come into effect from 20 April 2020.
The Government, through one of its initial notifications, dated 19 February 2020, recognised disruption of supply chains due to COVID-19, and problems in performance of contractual obligations. It has provided relief by specifying that COVID-19 will be considered a natural calamity and force majeure clause may be invoked, following due procedure. Additionally, in order to address the business uncertainty created by COVID-19 across almost all sectors, Government has notified several protective measures, through different ministries and departments.
More detailed relief measures have been announced by the Ministry of New & Renewable Energy (MNRE), which has directed all its renewable energy implementing agencies to treat delay on account of disruption of supply chains as force majeure. This can be accessed here. These agencies ‘may’ grant suitable extension of time for projects, based on evidence adduced by the affected party, upon being ‘fully satisfied’ that the party was ‘actually affected’ due to these disruptions.
Similarly, the Ministry of Shipping has informed major ports that the COVID-19 pandemic ‘can be’ considered as a natural calamity that would entitle invocation of ‘force majeure’ provisions in for contractual obligations (order no. PD-13/33/2020-PPP/e-339106 dated 20 March 2020 and letter dated 24 March 2020).
Interim relief measures under Indian laws
Most of the relief measures notified by the Government, apply to contracts where one party is a government body. In such contracts, like contracts with agencies of MNRE, the mandate is from the Government to the government bodies and it is expected that there will be compliance.
However, giving these bodies the authority to decide who is entitled to be given the benefit of ‘extension of time’ or ‘force majeure’, whether the party is ‘actually affected’ by COVID-19 related events, is problematic. It amount to a unilateral amendment of the contract which if it does not result in the ultimate benefit to the counter party, is a decision by a person in its own case and could be challenged for contravention of this principles of natural justice. The Singapore law achieves this objective by way of a law and by having a system of independent assessors who will examine cases of dispute.
The bigger problem is that the counter party may need urgent interim relief such as no coercive action of invoking performance guarantee for delay. This will be needed much before the authority, based on evidence adduced by the affected party, is “fully satisfied” that such party was “actually affected” due to these disruptions.
This will necessarily mean that the affected party will have to go to court to seek an injunctive relief against invocation of the bank guarantee. It will have to convince the court that its performance is really and materially impacted by COVID-19. The court will be called upon to examine whether this is a defence available to an allegation of breach and adjudicate this issue.
This is the stage where India can look at the Singapore model.
The Singapore law stipulates that the affected party must serve a notice for relief on the counterparty. If served with notice for relief, the counterparty is prohibited from taking several steps, for instance, (a) commencing or continuing any court or arbitral proceedings against the party or their guarantor or surety; (b) enforcing any security over any immovable property or over any movable property being used for the purpose of trade, business or profession.
If the counterparty disputes the application of the law to the affected party’s contract, an assessor will determine if the inability to perform contractual obligations was due to COVID-19 related events.
However, once the affected party serves the notice seeking relief on the counterparty, the interim reliefs are in place until either such notice is withdrawn or an assessor determines that the relief under the law is not attracted.
Without the benefit of a law like this, at the stage of granting interim reliefs, the courts will be called upon to adjudicate on the issue of whether the inability to perform constitutes a breach or whether COVID-19 is a defence to the inability to perform. The onus will be on the affected party to prove that its inability to perform is linked to COVID-19 relates events.
The beauty of the Singapore law lies in the fact that the onus of proof is shifted on the counter party and is not on the affected party. If the counter party wants to dispute that the affected party’s performance is not impacted by COVID-19 event, it has to prove that. Until that fact is proved, the affected party will get all the benefits of all the temporary reliefs applicable to its contract, including protection from coercive steps being taken by the counterparty. Singapore has put in place a body of assessors to do this exercise.
In India, this power could be given to the regulatory tribunals to determine if the inability to perform contractual obligations was due to COVID-19 related events. This approach will give the necessary protection to the parties whose performance is affected, without such party having to first prove its inability to perform because of COVID-19 related events.
The author is an Advocate practicing in Delhi.