Parliament: New law does not breach 'fundamental sanctity of contracts', says Shanmugam

The proposed law provides temporary protection for those unable to fulfil their contractual obligations due to the Covid-19 outbreak. ST PHOTO: TIMOTHY DAVID

SINGAPORE - The proposed law to provide temporary protection for those unable to fulfil their contractual obligations due to the Covid-19 outbreak does not change the fundamental sanctity of contracts made in Singapore, Law Minister K. Shanmugam told the House on Tuesday (Apr 7).

He stressed that the Government's intervention to change the obligations for contracts made are targeted and temporary, meant to provide relief without too much alteration to contractual rights.

"This is a legal circuit breaker - a time out - until this virus dies out and contracts, like life, can return to normal," he said.

In his speech on the Covid-19 (Temporary Measures) Bill, Mr Shanmugam said the government did not make such a move lightly, and he took pains to lay out the principles that were taken into consideration for this Bill and that would guide any such intervention in the future.

He described the sanctity of contracts as an "unyielding principle and norm", although he said freedom of contracts is not absolute.

He noted that governments already set legal frameworks for laws that invalidate any contract that breaches those rules.

And for the current legislation, when the government needs to intervene in contracts already formed, it does so only under a strict set of principles, including situations when the strict enforcement of particular contractual rights could damage the whole economy.

"In this situation, we cannot say leave it to the market, leave it to the contractual situation," he said.

"It would be neither fair, nor just - the bottom of the market has literally fallen off, and the normal assumptions of business are gone."

The Covid-19 (Temporary Measures) Bill, among others, seeks to prevent landlords from terminating commercial leases due to non-payment of rent if this is due to the virus, and protect consumers from having their deposits for a wedding or business event forfeited because of postponement.

He gave various examples of how even the US, which is often seen as "the ultimate capitalist, free market economy" has also passed similar laws.

During the Great Depression, Iowa and 27 other states passed laws that gave relief to mortgages and a moratorium on mortgage foreclosures.

While the laws were challenged in court, they were ultimately upheld by the US Supreme Court, which argued that the State has the power to intervene so as to safeguard the economic structure upon which all Americans ultimately depend on.

During the global financial crisis in 2008 and 2009, the US again passed laws to protect home owners and renters facing foreclosure, he noted.

There is also precedent for this in Singapore law, noted Mr Shanmugam, as the Republic passed the Frustrated Contracts Act in 1959.

This law allows for a contract to be deemed "frustrated" if the failure to perform its obligations was the the result of events beyond the control of the contracting parties and which could not have been reasonably foreseen.

This is why the Government has decided to intervene, even though Singapore's reputation for upholding the sanctity of contracts has been critical to its success as an international commercial centre, said Mr Shanmugam.

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

"(There will be) lots of grief, lots of good companies and businesses going under."

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