SINGAPORE — The Government does not take lightly the act of intervening in contracts, but a “legal circuit breaker” is necessary to provide breathing space for individuals or organisations that have not been able to fulfill contractual obligations due to the health crisis, Law and Home Affairs Minister K Shanmugam said on Tuesday (April 7).

In a speech in Parliament setting out the rationale behind some of the measures included in the Covid-19 (Temporary Measures) Bill, Mr Shanmugam noted that if the letter of the law were to be followed down to the “last, precise, minutest contractual obligation”, while the coronavirus was tearing through the world, it would be akin to  “extracting the last pound of flesh, but at the expense of life and spirit of this country”.

“None of us in our lifetime have encountered an economic shock, like this, and the Government has to do everything to intervene to help keep some structure of the economy,” said Mr Shanmugam during a debate on the Bill.

Among other things, the Bill proposes to temporarily make it an offence for an organisation or individual to take legal action against another party who is not fulfilling their contractual obligations, as long as that party gives notice that their inability to fulfil the contract has been due to the pandemic.

The Bill has been fast tracked — it was introduced, debated and passed in a single Parliament sitting. The law is expected to come into force mid-April. It will then be valid for six months, and the Government will have the power to extend it for another six months.

SANCTITY OF CONTRACTS

In his speech, Mr Shanmugam spoke of how the foundation of Singapore is the rule of the law, one of which is the sanctity of contracts.

He added that there is a general assumption that the state will not intervene in such contracts, which is critical for upholding Singapore’s reputation, which has been built upon the rationality of Government policies, sound economic management and a respect for the sanctity of contracts, among other things.

And these factors are key for Singapore’s position as an international commercial centre with a strong foreign direct investment, he noted.

“So you don't lightly intervene,” he said. “Yet, we are now seeking to intervene in private contracts to alter performance obligations.”

Reminding the House how badly the coronavirus has ravaged businesses in Singapore, he warned that if the Government does not intervene, there will be a price to pay.

“If we don't intervene, the consequences would be those in a position of advantage will make some money. But most will suffer bankruptcies, insolvencies and complete destruction of the economic arena,” he said.

“In this situation we cannot say leave it to the market, leave it as a 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.”

‘STAUNCHING THE FLOW OF BLOOD’

Mr Shanmugam said his bill seeks to “staunch the flow of blood” from individuals and businesses affected by the virus.

“It seeks to give much needed liquidity to commercial parties. The immediate impact is a redistribution of monies between the parties to the affected contracts.”

For example, Mr Shanmugam said that tenants who have to pay rent can now keep the cash, while contractors who have to pay damages for not fulfilling their contractual obligations will be relieved from having to pay.

“We seek to give breathing space for these businesses. (Let them) take stock, see what they can do, (and) assess their position (and offer them) cash flow relief in the meantime,” he said.

Mr Shanmugam said the bill gives parties an opportunity to work out a compromise quickly and without costly and long-drawn litigation legal proceedings, which he noted will be a drag on everyone.

“I would call this a legal circuit breaker — a timeout until this virus dies out. And contracts, like life, can return to normal,” he said.

MPS RAISE CONCERNS ABOUT LANDLORD-TENANT ISSUES 
  
During the debate on the Bill, several MPs raised concerns about whether the temporary law will affect smaller landlords who may require rent proceeds to service other obligations, such as mortgage payments. 

Some were also concerned that if tenants do not pay landlords who are real estate investment trusts (Reits) companies, it will in turn affect retail investors .

Mr Shanmugam said the Bill does not alter the payment obligations of the tenants to the landlords. 

“The landlords can show the assessors (who have been appointed to mediate disputes) that the tenant in fact has the financial capacity to pay a part, if not all of the rent,” he added.

He said that if the assessor determines this to be true, the tenant can be directed to pay a stipulated portion either immediately or after the expiry of a prescribed period. 

As for tenants who are unable to pay their rent, Mr Shanmugam pointed to the “realities of the current situation”. “Are there a queue of tenants waiting to come in? Is it not going to affect the bottom line anyway?” he said. 

Mr Shanmugam reminded landlords that they are being helped in a “significant number of ways”, such as through the Jobs Support Scheme that will pay 75 per cent of the wages of every Singaporean worker in employment, up to the first S$4,600 of their monthly salary, for the month of April.

Landlords will also benefit from the credit flow that the Monetary Authority of Singapore is working out with financial institutions.

“I would say to the bigger players: Look, you’re getting the benefits from the Government packages. Play your part and help share some of the pain too. It cannot simply be that you only look in terms of your contractual rights,” he reiterated. 

Some MPs asked if tenants could pay their accrued rent in instalments after the situation blows over. Others questioned if rents can be automatically reduced amid the crisis. 

In response, Mr Shanmugam called for caution, pointing out that there are landlords who are small businesses themselves. 

“If you tell them that the rent is going to be reduced automatically by a certain percentage, will they survive? And is it fair to them?” he said. 

In essence, the new law “will give people time”. “It will also give time for the Government to assess the situation as it proceeds (and) do a deeper economic analysis to see whether any other interventions are justified,” he said.