Introduction
Since the Covid-19 pandemic hit our shores, it has brought about multiple legal issues for individuals and business, ranging from its impact on data privacy issues arising out of surveillance and contract tracing and custody and access issues for divorced couples amidst the movement restrictions, to its impact on contractual obligations.
An oft discussed issue is the applicability of Covid-19 in the frustration of leases. This was considered by the Singapore High Court in the case of Lachman’s Emporium Ptd Ltd v Kang Tien Kuan (trading as Lookers Music Café, a sole proprietorship) [2022] SGHC 19 (“Lachman’s Emporium”).
In Lachman’s Emporium, the defendant had agreed to lease premises from the plaintiff for a fixed period of 2 years from 1 January 2020 to 31 December 2021. The tenancy agreement had provided that the premises were to be used as a “pub/bar/cabaret/night club/discotheque/karaoke lounge” only. The plaintiff claimed for the non-payment of rent for periods between March 2020 to April 2021 and interest, and applied for summary judgment on the basis that the defendant had no defence.
The defendant claims that it has a defence under the doctrine of frustration by reason of the Covid-19 outbreak, claiming that it was impossible for it to have continued with the use of the premises for the intended purpose.
Decision in Lachman’s Emporium
The Singapore High Court stated that the doctrine of frustration discharges parties from the contract by operation of law when, “without the default of either party, a supervening event that occurred after the formation of the contract rendered a contractual obligation radically or fundamentally different from what had been agreed to in the contract”. The supervening event must have “significantly changed the nature of the outstanding contractual rights from what the parties could have reasonably contemplated at the time of its execution, that it would be unjust to hold them to the strict contractual obligations”.
The Singapore High Court held that the defendant had raised a reasonable probability of a bona fide defence. In arriving at this conclusion, the Singapore High Court noted that:
- The Covid-19 outbreak was not an instance of supervening impossibility in performance of a tenancy agreement as it was still possible for the defendant to rent the premises from the plaintiff.
- However, a contract may also be frustrated when the effect of a supervening event thwarts the commonly held purposes by the parties when they entered into the contract. The Covid-19 measures rendered the premises no longer capable for its intended purpose, ie a music lounge. There is a triable issue as to whether using the premises as a music lounge was a commonly held purpose shared by both parties. If so, then the contractual obligations are rendered radically or fundamentally different from what was agreed and the contract is frustrated.
Conclusion
It has been almost 2 years since the World Health Organisation declared the outbreak of Covid-19 as a pandemic on 11 March 2020. This issue has arisen in other jurisdictions around the world. The Hong Kong Court of First Instance dealt with a tenant’s argument that the tenancy agreement was frustrated in the case of The Center (76) Limited v Victory Serviced Office (HK) Limited [2020] HKCFI 2881. In UK, the High Court granted summary judgments to landlords of commercial premises in their claims for payment of rent since the outbreak of the Covid-19 pandemic and imposition of consequent restrictions in March 2020 in the case of Bank of New York Mellon (International) Ltd v Cine-UK Ltd [2021] EWHC 1013.
The impact of the Covid-19 pandemic on contractual obligations is real. The case of Lachman’s Emporium will be one of the first few cases in Singapore in which the Singapore Court will consider the applicability of the Covid-19 pandemic in the doctrine of frustration and should be closely watched.
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Disclaimer: The material in this article is prepared for general information only and is not intended to be a full analysis of the points discussed. This article is also not intended to constitute, and should not be taken as, legal, tax or financial advice by Wee Swee Teow LLP. Any illustrations used in this article may not be applicable or suitable for your specific circumstances or needs and you should seek separate advice for your specific situation. Any reference to any specific local law or practice has been compiled or arrived at from sources believed to be reliable and Wee Swee Teow LLP does not make any representation as to the accuracy, reliability or completeness of such information.
