Singapore High Court Rules on Lease Disputes Arising from Covid-Related Actions


introduction

In a recent judgment dated September 28, 2021, the High Court ruled on one of the first cases in Singapore involving a commercial lease dispute arising from government actions related to COVID-19. Dathena Science Pte Ltd v Justco (Singapore) Pte Ltd [2021] SGHC 219 is a timely reminder to all that the parties’ contractual rights potentially have statutory and common law constraints, which will be enforced by the courts of Singapore. Dathena Science Pte Ltd (“Dathena”), the plaintiff in this case, had asserted its common law right of termination and an alternative claim under the Frustrated Contracts Act to discharge a signed two-year lease with Justco (Singapore) Pte Ltd (“JustCo”).

Summary of the facts

Dathena is a cybersecurity company specializing in the development of software that provides data security and privacy applications to its customers. On January 16, 2020, Dathena and JustCo (a company that provides workspaces to its clients in offices or commercial buildings that it rents) entered into a membership agreement whereby Dathena agreed to lease 4 units in OCBC Center East (“OCBC Premises”), a prime location in Singapore’s central business district. The lease was to run from May 1, 2020 to April 30, 2022, for a period of two years.

Due to the nature of Dathena’s business, which JustCo was aware of as Dathena had rented office space from the same JustCo representative at the JustCo Bangkok office, JustCo knew that it was of paramount importance to Dathena that the premises of OCBC may respond to Dathena’s information technology (“IT”) and that Dathena may move its servers to the premises prior to the lease start date of May 1, 2020.

Upon signing the membership contract, Dathena paid 186,900 SGD as a refundable security deposit and 99,991.50 SGD as a monthly membership fee for May 2020. Dathena also paid 18,350.50 SGD for its installation. and its separate hosting from IT and servers within the OCBC. Local.

However, the Singapore government implemented circuit breaker measures on April 7, 2020, as part of COVID-19 (Temporary Measures) (Control Orders Regulations 2020). These restrictions disrupted the IT configuration planned for April 2020 and also caused delays in the construction and renovation of the OCBC premises. Although the circuit breaker measures were originally scheduled to end on May 4, 2020, the measures were extended until June 1, 2020 as the pandemic situation remained critical in Singapore.

JustCo informed that she could not prepare the OCBC premises for Dathena in time to move in on May 1, 2020, which was problematic for Dathena as her lease at her previous premises expired on the date it was supposed to. move into the OCBC premises. On May 26, 2020, JustCo said it couldn’t be certain when the OCBC premises would be ready. On May 29, 2020, Dathena issued a termination notice to terminate the membership agreement for one of two reasons: termination or frustration, and requested reimbursement of the security deposit and prepayment of the membership fee. membership (amounting to SGD 286,891.50).

JustCo denied Dathena’s refund request and denied that the Membership Agreement was terminated or frustrated, arguing that Dathena had no contractual right to terminate the Membership Agreement and that Dathena’s inability to start of his lease was entirely due to the mandatory cutout measures imposed. by the Singapore government to deal with the pandemic crisis. JustCo then sought to offer another comparable office space in place of the OCBC premises as a temporary measure, citing its discretion and right to do so under the membership agreement.

Dathena brought an action against JustCo on September 4, 2020 when JustCo refused to reimburse and insisted that Dathena move into the OCBC premises on September 9, 2020 (because he was finally ready). JustCo counterclaimed SGD 2.4 million on the grounds that it was entitled to all of the dues it would have earned under the 2-year lease.

Reasons for decision

The Singapore High Court ruled in favor of Dathena on all points, ruling that:

a. Dathena had the right to give her termination notice even though there was no clause in the membership agreement that allowed Dathena to terminate the agreement. Although the Accession Agreement contained a full agreement clause, it did not have the effect of restricting the application of common law or statutory legislation. The Court concluded that the unilateral termination clause (under which only JustCo had the ability to terminate the membership agreement and require payment of the membership fee for the entire duration of the agreement), between other onerous terms, was unreasonable under the Unfair Contract Terms Act (“UCTA”) and therefore unenforceable. The court accepted Dathena’s position that JustCo breached its obligation to deliver the OCBC premises by May 1, 2020, thus giving rise to Dathena’s right to terminate at common law.

b. While Dathena has the right to waive her termination notice, the Court held that Dathena’s willingness to consider the alternatives offered by JustCo after the issuance of her termination notice and her actions by visiting the premises of the OCBC in September 2020 did not amount to any waiver.

vs. The application of the law on frustrated contracts did not depend on the agreement of the parties, and once an event that arose after the formation of the contract without default of one of the parties makes the contractual obligation radically and fundamentally different of what has been agreed becomes impossible to perform, a contract is frustrated. JustCo’s four-month delay in delivery to the OCBC premises, non-comparable alternatives and additional moving costs were not what the parties had agreed to. The result is that both parties were released from their contract as of right, and Dathena was entitled to reimbursement.

D. JustCo was ordered to return Dathena’s security deposit and down payments, while JustCo’s counterclaim was dismissed.

Conclusion

As many companies re-examine their model or standard contracts in light of the challenges arising from the pandemic, this judgment comes at the right time to stress that parties dealing under Singapore law must keep in mind the potential constraints of the companies. Singapore laws such as UCTA which may apply to render certain unfair terms unenforceable, particularly if a commercial party deals under the terms and conditions of its counterparty. It is also useful to note that even if the parties have not considered the events that have occurred and the consequences which should result from them under a force majeure clause, the doctrine of frustration is nevertheless available in law and in common law. for a party seeking to be discharged from its obligations under a contract. Singapore’s High Court has shown that it is ready to recognize restrictions resulting from the COVID-19 pandemic as an occurring event that authorizes one party to perform the contract in full.


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