COVID-19 (Temporary Measures) Bill

Mr Speaker, Sir, I beg to move, "That the Bill be now read a Second time".

As we start, Sir, I will sketch out the backdrop to the Bill, the reasons for state intervention in contracts – private contracts, we are intervening – and then I will deal with Parts 1 to 3 of this Bill.

I will add that this Bill is a little bit of a Noah's Ark, because it started with Parts 1 to 3 and it took about nine days from conception to delivery. But along the way, other Ministries have added various parts to it, so, my colleague, Senior Minister of State Edwin Tong, will deal with parts four and five, which deal with annual general meetings (AGMs) and the ability of Courts to hear matters online, virtually. That is at the request of MOF and the Supreme Court.

Minister Lawrence Wong will speak on property tax, which is in Part 6, and Minister Gan Kim Yong will deal with Part 7. MOH wanted certain orders to prevent further spread of the virus.

Let me now start with the backdrop to this Bill, Sir. I think Members will only be too familiar with the background – both the health situation and the economic situation. This is the most serious crisis this country has faced since Independence. Many around the world are describing this as the most serious crisis since the Second World War.

The human cost – in terms of deaths, infections, you look at Europe. The economic cost all over the world – in terms of jobs; economies, devastated; peoples' lives, ruined; businesses, shuttered; investments, wiped out. And the speed at which all of this has happened, has taken many by surprise.

If you look at Singapore on 18 February, the Deputy Prime Minister presented his Budget speech with a support package of $5.6 billion dollars – very substantive. At that time, there were 800 confirmed cases outside China. By 26 March, the situation had worsened. There was a second package presented by the Deputy Prime Minister – this time, $48 billion. And at that time, there were 410,000 infections and 18,000 deaths.

Eleven days later, the situation had worsened again. Yesterday, 6 April, the Deputy Prime Minister presented the third package to help Singaporeans. We had 1.2 million infections, more than 67,000 people dead. That is almost certainly an understatement of the true figures.

The virus is still tearing through the world. Africa and South Asia, so far, have not been badly hit and we can only hope that it stays that way.

The economic impact has been devastating. On 19 March, the Secretary-General of the United Nations said, a "global recession – perhaps of record dimensions – is a near certainty."

On 19 March, the International Labour Organisation (ILO) made an assessment that global unemployment could increase by 25 million. On 27 March, eight days later, ILO changed its assessment and said unemployment could be far bigger, far deeper, certainly more than 25 million.

Last week, the Director of the International Department of the People's Bank of China said, "The possibility of a 'Great Depression' cannot be ruled out if the epidemic continues to run out of control, and the deterioration of the real economy is compounded by an eruption of financial risks."

The Great Depression – the phrase itself brings to mind one of the most desperate periods that America and the world went through in the 20th century. Most of us know about the Great Depression only through books and economic studies. The era, the mood, that desperation have been vividly captured in literature by people like John Dos Passos, Steinbeck and others. The world has more resources, better understanding, tools, to avoid a similar Great Depression now, but the idea itself and what it can do to many people's lives is quite sobering, and the figures are grim.

In the last two weeks of March, 10 million Americans filed for unemployment benefits. In contrast during the 2008 to 2009 Global Financial Crisis, the global unemployment rose by about 22 million. So, you can see it in context.

The United Nations Conference on Trade and Development (UNCTAD) has said that the downward pressure on foreign direct investment (FDI) could be 30 to 40% this year and next year. Aviation has collapsed and as of 2 April, nearly 4 billion people – half of the world's population – were under some form of movement restriction. I think that does not include Singapore's figures, but that is probably a rounding error.

Other crises have affected economies. Spending goes down, businesses and jobs are affected, but a lot of activity continues. Here, it is a hard stop, immediate, by government orders to most economic activity, even movement of people – overnight as it were. So, the impact is that of economies literally falling off a cliff – in free fall. That is the difference between this slowdown and others.

And ours is a globalised economy and is especially hard-hit, with disruptions to the supply chain, flow of manpower. External trade is three times our internal economy. And, of course, large parts of the internal economy are also being closed down.

And the response to all of this, to such a serious shock, has to try and meet the challenges. So, we first had the three Budgets between 18 February and 6 April, close to $60 billion committed – 12% of our GDP. Wide-ranging measures – job protection, immediate cash to Singaporeans, measures to help stabilise businesses, including Government-supported loans. Second, on the banking and financial side, MAS has worked with the banks and announced a series of voluntary initiatives by the financial institutions – deferment of payments on mortgages; principal and interest, where the borrower wants it, can be deferred; other measures on credit flow to businesses as well.

This Bill is the third part of the response by the Government.

And before I deal with the provisions in the Bill, there is an important point of principle that should be set out and that is this: one of the foundations for our country is rule of law and there are several key aspects to this, including sanctity of contracts. Parties are free to organise themselves, enter into whatever contracts they want as long as they are not illegal. The general assumption is that the state will not intervene in such contracts. The reputation for upholding that is critical for Singapore as an international commercial centre with strong FDI.

So, for our financial, industrial and commercial sectors, the bedrock is really our reputation for rationality in Government policy, in economic management, integrity, absence of corruption, sanctity of contracts, court system and more. They are all threaded together to form what I would call one larger golden thread. You interfere with any of this, you risk unravelling the entire golden thread.

So, you do not lightly intervene. Yet, we are now seeking to intervene in private contracts to alter performance obligations. Why are we are intervening? Should we intervene? I will ask Members for forbearance because I will take some time on this. It is important that we understand the principles so that everyone, including investors, understand when and how we might intervene, both now and in future.

In order to look at the answers on principles of intervention, we can look at some situations when free market economies, which strongly protect the sanctity of contracts, have intervened. I go back to the Great Depression. Laws were passed by various American states: Iowa passed laws in 1933, 27 other states followed suit within the next 18 months.

The laws gave relief to mortgagors – a moratorium on mortgage foreclosures. And were retroactive, like our Bill.

This being America, the laws were challenged and went up to the Supreme Court, ended up in a famous case in 1934, Blaisdell, where the court gave a long judgment. But, if I can summarise into two points: the state has a duty to safeguard vital interests of its people; the state has the power to intervene, to safeguard the economic structure upon which the good of all depends. Strict enforcement of particular economic rights may not be desirable because of the damage that will cause to the whole economy.

Fast forward to the Global Financial Crisis 2008/2009, laws were passed in the US to provide protection to homeowners and renters facing foreclosure. Those laws expanded the mandatory 90-day grace period to holders of all types of home loans.

Third example, after Hurricane Katrina in 2005, Mississippi implemented a moratorium that altered creditors' ability to foreclose in the two-year period after the storm.

These are just some examples, there are many others from other countries. I have deliberately chosen examples from the US because it is often seen as the ultimate capitalist free-market economy, other than possibly Hong Kong.

So, the situation we have today, at this stage, appears to be worse than the Global Financial Crisis. I will summarise the principles in this way. The starting point is sanctity of contract, agreements must be kept: fundamental, basic, underpins our economy, free market. People must be able to make agreements and know that they will be upheld and enforced. That must almost be the unyielding principle and norm.

But freedom of contract is not an absolute. It has never been an absolute. There are two types of interventions. First, the law sets a framework, contracts are only valid if they do not breach that framework. The second, as we are seeking to do now, intervenes after the contracts have been entered into, to alter performance obligations.

For the first type of intervention, there are well-established exceptions in the law – not just in Singapore, but also in the UK, US, Australia, elsewhere for reasons of public policy. You see this in our law – Unfair Contract Terms Act, unlicensed moneylending contracts, other illegal contracts: they are not enforceable. Courts also have the right to invalidate contracts that have been entered into in that way.

Our intervention through this Bill is somewhat different. It alters obligations under contracts which have already been formed. I gave examples from the US to this House. Do we have examples from Singapore? I went back to take a quick look at our laws as to whether we have done something similar. The nearest equivalent I could find is the Frustrated Contracts Act passed on 22 January 1959, which applied retroactively to all contracts if the discharge was on or after 1 January 1959.

I was actually quite surprised that the then government had the time to do this given the general situation – the Malayan Emergency and dealing with, of course, a young and irrepressible Mr Lee in Parliament in Opposition, which was probably enough to keep them occupied.

The principles applicable for such retroactive legislation: one, the vital interests of the people are at stake, a significant part of the economy is at stake. Second, strict enforcement of particular contractual rights could damage the whole economy. Third, the state can intervene to use reasonable means to safeguard the economic structure for common good. And to this end, four, the state can take reasonable steps generally of limited duration.

Turning then to COVID-19, the Government has had to impose border constraints, direct most businesses to shut down, get their people to work from home, and if that is not possible, no work can be done. Imposing a whole variety of restrictions on travel and movement, these were not foreseeable. Their impact on the supply chain – many businesses could not procure the supplies they needed. The impact on flow of manpower – sectors that depended heavily on foreign manpower like construction were seriously affected.

The Singapore Contractor Association Limited (SCAL) said some sites are experiencing up to 40% shortage in workforce. The construction sector has shrank 4.3% in the first quarter of this year and nearly 23% as compared to the previous quarter.

At F&B outlets, footfall has dropped drastically. And according to one survey, nearly 80% will not last longer than six months, if the situation does not improve. We look at the tourism sector. Severe impact as well with hotel occupancy having fallen severely. Singapore Airlines has 96% of the fleet grounded. Taxi drivers, private hire drivers. In February, taxi drivers were reporting a fall in earnings of up to 30%. In March, they were reporting a fall of up to 50% to 60%.

Meanwhile, costs continue to run, rents have to be paid. For F&B outlets run by SMEs, rents could make up nearly 30% of their business cost and wages have to be paid as well. The earlier survey I cited on F&B outlets suggested that 80% were planning to reduce staff to cut costs.

In this situation, we cannot say leave it to the market, leave it to the 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. Every business should plan for some severe shock, but almost none could have prepared for this and if we do not intervene, the consequences would be that those in a position of advantage will make some money but most will suffer bankruptcies, insolvencies and complete destruction of the economic arena.

Lots of grief, lots of good companies and businesses going under. Even for those in a stronger position, many landlords do not really want to see their tenants go bust. If I can quote Andrew Lim, CFO of Capitaland Group, "Tenants and landlords are in a long-term symbiotic relationship. It is in our interest to see our tenants ride through this with us. We are all in this together because everyone in the eco-system has been impacted."

Yesterday's Business Times had a report – “the virus is turning Europe's retail apocalypse into a nightmare for landlords and lenders". The threat of the virus is not just to the retailers and restaurants. The ripple effect is across real estate and banking sectors. Landlords will face shortfalls in income making it harder for property companies to pay interest to avoid breaching loan covenants. And those property companies have duties to their investors which include pension funds. As for banks, they say they are flat-out dealing with calls from existing borrowers asking for waivers.

So, we decided to intervene. It is a major intervention. Three packages by Deputy Prime Minister – you can compare that with the infusion of blood. This Bill seeks to stanch the flow of blood – a reprieve for a certain period, a matter of months. 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.

Tenants who have to pay rentals, now they can keep the cash. Contractors who have to pay damages, will be relieved from having to pay. Some other categories are also covered. We seek to give breathing space for these businesses, to take stock, see what they can do, assess their position – with cash flow relief meanwhile.

We seek to be targeted and temporary. I would call this a legal circuit breaker: a timeout until this virus dies out and contracts, like life, can return to normal. If we were to insist on the letter of the law, the last precise minutest contractual obligation, we would like Shylock, be insisting on extracting the last pound of flesh, but at the expense of the life and spirit of this country.

Better a circuit breaker, so the spirit of the law, the essence of contracts which is trust, can live and in time to come, thrive again. And I have no doubt, it will do so.

That is the rationale for our intervention. 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.

Let me now turn to the Bill. What is the time period covered? We do not know how long this situation will last. In the first instance, the Bill will be valid for six months. The Minister will be given power to extend it, up to a year. Thereafter, if we want to extend it, we have to come back to Parliament.

Measures under Part 2 of the Bill, they apply to obligations to be performed on or after 1 February 2020, regardless of when prior to that the contracts were entered into. The reason we have chosen 1 February 2020 is, we believe the effects of COVID-19 began to be felt significantly in Singapore after 1 February 2020. Supply chains connected to events occurring outside Singapore were being disrupted.

At the same time, the measures do not apply to contracts that were entered into on or after 25 March 2020. On 24 March 2020, MOH enhanced the restrictions and promoted safe distancing. So, if parties, with knowledge of those facts, entered into contracts in the last few days, they should not seek help from this Bill.

If a person wants to claim relief, how does he do so? He has got to give notice to the other party. Once a notification has been sent, certain types of actions are prohibited. These include: (a) commencing or continuing a legal action; (b) making an application for winding up, bankruptcy, judicial management order; (c) terminating a lease or licence of immovable property for non-payment of rent – landlords can, however, use the security deposit to offset rental payments due because that does not create additional cash flow obligation on the tenants; (d) enforcement of certain securities over immovable property. It will also be prevented from (e) enforcement of any security over movable property used for the purpose of trade business or profession. You cannot enforce, you cannot repossess goods used for trade business or profession.

Non-compliance is an offence punishable with a fine. Other consequences depending on the nature of the prohibited action that is taken: action may be dismissed, voided, invalidated.

What are the categories of contracts covered? There are five broad categories. The Minister will be empowered to add further categories of contracts. The reason is, as I said, we did this in nine days. We took the contracts that we knew were clearly covered, but we wanted the ability to add in other categories should there be feedback on that. And we did not want to wait for a full assessment, allow perfection to become the opposite of what needs to be done immediately.

The first category covered leases, licences of non-residential property. A tenant who seeks relief must show that he is unable to pay rent during the prescribed period and that the inability to pay is to a material extent caused by a COVID-19 event. If he can show, that then the lease or licence cannot be terminated on the basis that rent has not been paid; and legal proceedings cannot be commenced against tenants on the basis that rent has not been paid.

This is help in real terms because the tenants will get breathing space, to adjust their businesses, survive in the medium term: it is liquidity for them. And these measures, of course, should be seen together with other measures that the Government and the financial industry have announced.

If you take an F&B outlet for example, as I said earlier, if it is an SME, nearly 30% of its business cost goes towards rental. It will have that liquidity now in real terms and if they did not have the cash, at least they do not have to go and look for the money now.

And for those who meet the requirements under the Bill, they can then delay the payment of rent, if they wish, for some months. In addition, of course, you have got the 75% salary support for April and the enhanced Government-supported loans at low interest and the various measures announced by MAS.

These measures do not mean that all tenants do not have to pay rent. Those who have the ability to make rental payments must continue to do so. The Bill seeks to help those who are unable to pay and the measures are only for a period. The landlord’s rights can be exercised after that. For example, if an MNC, or a substantial company applies, it will probably not qualify because it has got to show that it is "unable" to pay, not just that business has suffered.

Let me cite a real life example, to illustrate how this plays out.

Two weeks ago, Germany passed emergency legislation to provide relief to individuals and businesses from the economic impact of COVID-19. The German legislation provides that anyone who is affected by COVID-19 does not have to pay rent between 1 April and 30 June, and they cannot be evicted. After the law came into force, several people said they would not be paying rent, including a string of retailers – Adidas and H&M, for example. Adidas was reported to have made a net profit of nearly $2 billion euros last year. It faced massive criticism. German politicians urged that financially sound companies should not take advantage of the situation and that they must show solidarity in a time of crisis. The officials also clarified that the law was not meant to cover entities that were able to make rental payments.

Our Bill is scoped to deal with this. So, relief is only available where there is an inability to pay rent; and that inability to pay rent is, to a material extent, caused by COVID-19.

This intervention is substantial because the total value of rental in our industrial and commercial sectors is estimated in 2018 – when figures are available – to be at about $21 billion. Of that, if you look at the SMEs' rentals, that is about $14 billion – covers both services and manufacturing.

Some REITs, some landlords, but REITs in particular, have written to my Ministry. They are concerned that this is going to affect their returns and that the Bill is heavily weighted in favour of tenants. REIT Association of Singapore or REITAS has issued a public statement today, not a coincidence. They say the transfer of cash flow is a mismatch. Deferring rental obligations transfers cash flow constraints from tenant to landlord. They say significant strain is placed on the REIT’s ability to service its own financial and operational obligations and that the REITs have minimal financial flexibility to absorb cash flow disruption, because of the requirement to pay out 90% of income to qualify for tax exemption.

The first point is that there is a deferral of rental obligations but the rental obligations do not go away. Rent will continue accrue.

Second, the relief only applies to those who are unable to perform due to COVID. They are not going to be able to pay you anyway. Many landlords in Singapore, many others, have suffered cash flow disruptions even without the Bill; and it is not just REITs which face this. Landlords are able to set off the security deposits they have, so, in a sense, for the first couple of months, at least, the landlords also do not have any cash flow constraints because they set off against the deposits they have. During that period, parties are encouraged to work out a compromise. The Assessors will try and find just and equitable outcomes, including, for example, reviewing the moratorium after three months. So, landlords also have to be realistic about the impact COVID-19 has had on the entire economy and cash flow on all sectors. REITs are not the only ones affected and on the tax issues that are raised, REITAS can approach the Government and discuss precisely what the issues are.

The second point that the REITAS statement makes is: the enforced interruption of revenue has the potential to degrade key metrics, in turn impacting on their financial stability. I would say it is the pandemic and not this Bill, that has caused all these interruptions. The Bill gives parties a better opportunity to work out a compromise quickly and without costly long-drawn litigation or legal proceedings, which will be a drag on everyone.

They also make the point that REITs are seen as a source of stable and predictable outcome and many domestic retail investors have come to reply on the regular, stable and predictable distributions that REITs provide. So the inability of REITs to receive up to 100% of their rental income for up to six months will result in lower cash flows to REITs, who will then be compelled to lower the distributions to unitholders.

Let me make a few points. We are not anti-landlord. Landlords and REITs have an important, highly valuable economic function. They make the market more efficient. Our task is to see how to protect as much of the business eco-system as possible – from the banks, to the landlords, to the tenants, to the consumers. Because the welfare of Singaporeans, their jobs, depends on the economy being protected. We cannot give 100% protection. But we have to move quickly to give as much protection as is sensible.

I have sought to explain how we have attempted to protect as much of the eco-system as possible – for individuals: cash, training grants, vouchers and more; for SMEs and tenants: there is rental protection, credit flow, mortgage protection, MAS measures, JSS. The landlords get most of this too. The Government is paying 75% of your employees' salaries in April and a portion of the salaries for the rest of the nine months when JSS applies, and you will also get the benefit of the credit lines and the MAS' initiatives.

The SMEs and individuals are facing a lot of pain. If they are not helped, the entire business eco-system could crash. Morally as well: some of this pain has to be shared. Landlords have benefited tremendously from growth, the Government’s rational policies, good governance, low taxes in Singapore, and fairness and justice requires that they help share some of this pain, rather than leaving it to the smallest and weakest to bear it all.

If a tenant applies under the Bill, and if the landlord and tenant cannot agree, they go to the Assessors. The Assessors will see the previous year’s tax returns, the accounts; they may ask for additional information and then will determine if a tenant is unable to pay.

Generally, if a tenant is a small business and accounts show that it has been impacted by COVID-19, Assessors will likely accept that the tenant was unable to pay. The Assessors could say: suspend rental payments for three months. Thereafter, if problems continue, come back to us.

The appeals from REITs say that they cannot evict tenants, it will affect our returns, there will be other tenants who can make up the tenancies. Sir, most of the landlords and REITs we have spoken with, accept the need for the Bill. If I may say so, when the whole house, meaning the whole economy, is under threat, we should try not to focus too much on our own individual rooms. We all need to pitch in to save the economy as a whole.

I would suggest that there are broader concerns beyond the rates of return. Everyone has to take a collective approach. Is it really going to be possible for you to get the previous rates of return for the next six months? Is it possible to have business as usual in the next few months? Not possible. And if it is truly the case that the landlords can find other tenants and if the current tenant is taking advantage of the situation, let us know – that will be part of the assessment.

Sir, I would suggest that we do not take the approach of circling the wagons, to focus only on our specific interests. The landlords would benefit quite a lot, from the three packages that the Deputy Prime Minister has announced.

SMEs accounted for 72% of employment in Singapore. Let us remember that.

We will make sure the Assessors are able to take all the facts into account, when deciding what is just and equitable.

The second category of contracts that are covered will be construction-related contracts. The built-environment sector has felt the impact of COVID-19 and continues to feel this impact on several fronts. First, supply disruption – construction materials. It started with building materials and equipment coming into Singapore from China. More recently, disruption of precast and prefabricated, prefinished, volumetric construction materials, other types of materials coming into Singapore from Malaysia. They have all been disrupted.

Second, manpower shortage: I talked about it. I talked about SCAL saying sites are experiencing up to 40% shortage in workforce and drop in progress payments. Progress payments have dropped anywhere between 5% and 20%, and it will probably get worse.

Travel restrictions are likely to continue worldwide; the situation may worsen. Many construction firms will likely face financial difficulties.

The measures in this Bill will help the construction sector in the following ways.

First, if a contractor is not able to perform due to a COVID-19 event between 1 February 2020 and the end of the prescribed period, that period should be disregarded in determining what is the period of delay in performance.

Second, the Bill provides for a defence to any claim for breach of contract. The defence will apply if the inability occurred on or after 1 February 2020, and before the end of the prescribed period, which we will have to determine, depending on how the situation evolves.

This is a substantial intervention.

The total value of construction contracts awarded last year in Singapore amounted to $33 billion. That is the size of the industry as a whole.

The third category is event and tourism-related contracts. For example, contracts to hold wedding banquets, business meetings, conferences. They include catering, provision of other goods or services for such events and certain contracts for accommodation, entertainment, tourism.

If the event was scheduled to be held on or after 1 February 2020 and could not proceed due to a COVID-19 event, any deposits forfeited must be restored as if they had not been forfeited. This is provided the party seeking relief has served a notification for relief on the other party. Deposits that have not yet been forfeited must also not be forfeited. The same applies to tourism-related contracts. Non-compliance will be an offence.

While many hotels and venue providers have been understanding and offered to hold on to deposits, there have been some which have simply forfeited the deposit; insisted on the event being held.

One example is a letter we received from a man who had made a booking with an event space provider. He had arranged for his daughter’s 21st birthday celebration to be held on 4 April. Booking had been done sometime in early March and more than 10 guests had been invited. The man approached the event space provider to seek a refund or postponement until after the COVID-19 related measures.

Order. Minister Shanmugam, just take pause on the party. Leader.