Covid -19 (Temporary Measures) Act 2020 Application to Construction & Supply Contracts
Introduction The COVID-19 (Temporary Measures) Act 2020 (“COTMA”) will be in force in the period starting from 20 April 2020 to 19 October 2020 (“the Prescribed Period”).
One of its objectives is to provide businesses and individuals temporary relief from contractual obligations if the inability to perform is due to the Coronavirus Disease 2019 (“COVID-19”) or measures implemented by governments as a result of COVID-19.
In this article we will explain relevance and applicability of COTMA in relation to construction contracts, supply contracts and performance bonds. We will also explain how an aggrieved party may seek relief under COTMA.
The article is presented in FAQ format for ease of reading.
Are construction and supply contracts covered by COTMA? Construction contracts, supply contracts as well as consultancy contracts are covered by COTMA.
For the purposes of this article and for ease of reference, we will refer to such contracts simply as “Construction Contracts”.
Is there a “cut off” date? Yes, there is a “cut-off” date.
COTMA applies only to contracts that are entered into before 25 March 2020.
What are the reliefs provided by COTMA? COTMA temporarily stops the non-defaulting party (“Party A”) from taking any of the following actions (“Prohibited Actions”) against the defaulting party (“Party B”):
a) commencing or continuing actions in Court or in arbitration. b) enforcing security over moveable or immovable property. c) making a winding up application, an application for judicial management or scheme of arrangement. d) making a bankruptcy application. e) appointing a receiver or manager over any property of Party B. f) commencing any execution, distress or other legal process against the property of Party B. g) repossessing goods under hire-purchase if the goods are used for the purposes of trade, business or profession. h) terminating leases due to non-payment of rent. i) exercising the right of re-entry or forfeiture. j) enforcing a Court Judgment, arbitral award or an adjudication determination.
Does COTMA prevent calls on performance bonds? Yes. The following protection is available in relation to performance bonds issued pursuant to Construction Contracts:
a) The beneficiary may not make a call on the bond earlier than seven (7) days before the date of the expiry of the bond. For example, if the bond expires on 30 April 2020, a call on the bond cannot be made before 23 April 2020.
b) The term of the bond may be extended. When one party to the Construction Contract applies to the bond issuer to extend its term, and at the same time serves notice of the application on the other party to the Construction Contract, the term of the bond will be extended to a term that is 7 days after the end of the Prescribed Period or any other period agreed between the parties to the contract and the issuer.
Does COTMA stop liquidated damages from running? Yes. Under the COTMA, the period where Party B is unable to perform its contractual obligations due to the COVID-19 pandemic has to be disregarded for the purposes of calculating liquidated damages.
Does COTMA apply automatically to all defaulting parties? No. It is important to understand that relief under COTMA is not granted as of right by operation of law. Four conditions must be met, namely:
a) A party to a contract is unable to perform a contractual obligation. b) The inability to perform is an obligation arising on or after 1 February 2020. b) The inability to perform “…is to a material extent caused by a COVID-19 event”. c) The person seeking relief has served a notification for relief (“Relief Notice”) on the other parties to the contract.
When must a Relief Notice be served? The Relief Notice must be served during the Prescribed Period (i.e. 20 April 2020 to 19 October 2020).
What is the format for a Relief Notice? The Relief Notice must be in Form 1 as set out on the Ministry of Law's ("Minlaw") website. Click here to access Minlaw's website.
Who must be served with the Relief Notice? The Relief Notice must be served on:
the other party or parties to the contract;
any guarantor or surety for your obligation in the contract;
issuer of a related performance bond (if applicable); and
such other person as may be prescribed.
What is the prescribed mode for service of the Relief Notice? The default method of service of the Relief Notice is service through the electronic system on Minlaw's website. . The Relief Notice may also be served by the following methods:
By way of email to the Recipient(s) last email address;
If the service by email is not feasible, by an internet-based messaging system (e.g. WhatsApp) or the messaging system on the website, blog, or social media or networking website owned or operated by the Recipient(s); or
If service by the above two modes are not feasible, by prepaid registered post.
What happens If Party A disputes Party B’s entitlement to relief under COTMA? A dispute would have arisen between Party A and Party B if Party A does not accept the Party B’s Notice of Relief.
COTMA provides a quick and inexpensive dispute resolution process to resolve such disputes In this process, which we will call the “the Assessment Proceedings”, any party to the Construction Contract can make an application to the Registrar of Assessors for determination of the issue. Upon receiving the application, the Registrar will appoint an assessor to determine the dispute.
The appointed assessor will consider the case and is required to make a determination which achieves a just and equitable outcome. No party may be represented by solicitors in the Assessment Proceedings and each party must bear its own costs.
The assessor’s determination is final, binding, not appealable and may be enforced in Court. A failure to comply with the assessor’s determination is an offence punishable by a fine of up to $1,000.00.
For Construction Contracts, the application for Assessment must be submitted before 19 October 2020.
How does one apply for an assessor’s determination? An application for an Assessment must be submitted using the electronic system on Minlaw's website.
The Assessment Application must be submitted with:
A copy of the Relief Notice;
A copy of the contract or, if there is no written contract, a description of how the contract was made and the relevant terms of the contract; and
Any other supporting documents.
What is the process for obtaining an assessor’s determination? The Registrar of Assessors will serve the Assessment Application on the relevant party (“Respondent”) who will then submit its response. An assessor will be appointed to review the Assessment Application and the Response and to make a determination.
Is the assessor’s determination binding? Yes. An assessor’s determination is binding on all parties to the application and all parties claiming under or through them. There is no appeal from an assessor’s determination.
An assessor’s determination may, with leave of court:
be entered as a court judgment; and
be enforced in the same manner as a judgment or order of court.
Is relief under COTMA permanent? The protection provided by COTMA from the Actions is only temporary in nature. The protection is lifted on the earlier of the following events
a) the expiry of the Prescribed Period b) the withdrawal of the Relief Notice by the defaulting party c) the assessor determines that the defaulting party is not entitled to relief under COTMA Once the relief is removed by these events, the non-defaulting party will be at liberty to take any of the Prohibited Actions against the defaulting party.
Do contact us if you have any queries about COTMA and the scope of its application.