In January 2007, Indonesia banned the export of sand to Singapore. This caught the construction industry in Singapore by surprise as all sand used for construction in Singapore came from Indonesia. In Alliance Concrete Singapore Pte Ltd v Sato Kogyo (S) Pte Ltd [2014] 3 SLR 857, the Singapore Court of Appeal found that the sand ban was a supervening event that was not within the reasonable control of the parties, and not foreseen or reasonably foreseeable at the time when contracts to supply ready mixed concrete (which requires sand) were entered into. As the sand ban rendered the contractual obligations radically or fundamentally different from what had been agreed in the contract, the parties were automatically discharged from their contracts when the sand band came into force under the legal doctrine of frustration.

The coronavirus outbreak has led to the lockdown of entire cities, quarantine of individuals and cancellation of flights. Would the outbreak be treated as a frustrating event?

Well-written commercial contracts will usually have a force majeure clause to expressly deal with various possible events affecting the parties' obligation under the contract. In such cases, it is crucial not only to ascertain if a supervening event (such as the coronavirus outbreak) satisfies the definition of force majeure in the contract, but also to ensure that the formal steps to invoke the force majeure clause are satisfied.

In Magenta Resources (S) Pte Ltd v China Resources (S) Pte Ltd [1996] 2 SLR(R) 316, Magenta Resources agreed to supply goods to China Resources of "USSR origin". On 9 December 1991, the USSR ceased to exist as a political entity. Magenta Resources invoked the force majeure clause in its contract with China Resources.

An issue arose whether the force majeure clause was properly invoked by Magenta Resources. This was because the force majeure clause required a certificate to be issued by "the competent government authority at the place where the force majeure occurred". China Resources argued that the certificate obtained by Magenta Resources from the Embassy of the USSR in Singapore was non-compliant. Although the Singapore Court of Appeal agreed that the certificate obtained was not from a competent authority at the place where the force majeure occurred, the court found that it was sufficient compliance with the force majeure clause in the circumstances and it was validly invoked.

Where the contract is silent, the question is whether the supervening event was reasonably foreseeable. If not, whether it renders the contractual obligation so radically or fundamentally different from what has been agreed in the contract. If it does, then contract is frustrated and automatically brought to an end.

The coronavirus outbreak would seem to be an unforeseen and unexpected event at first blush.

In the Hong Kong case of Li Ching Wing v Xuan Yi Xiong [2003] HKDC 54, it was argued that a tenancy agreement was frustrated because the premises were affected by an isolation order by the Department of Health due to the outbreak of Severe Acute Respiratory Syndrome (SARS) and could not be inhabited for 10 days. Even then, the Hong Kong court did not hold definitively that the outbreak of SARS was an unforeseeable event; instead, it held that it might be arguable.

Perhaps the court felt there was no need to come to a definitive view because the tenancy was ultimately held not to be frustrated on grounds of the isolation order. This was because a 10-day period out of a 2-year tenancy of which the tenant could not use the premises did not significantly change the obligations from the parties' reasonable contemplation when they entered into the tenancy.

Since SARS, there have been other epidemics such as avian flu (H5N1 / H7N7 / H7N3), swine flu (H1N1), ebola and zika. Viewed in that light, it may be arguable that an emerging virus outbreak is no longer such an unforeseeable event to have escaped parties' knowledge or contemplation. On the other hand, it might also be argued that the public health response (lockdown of entire cities) to the coronavirus outbreak is unforeseeable.

Many disputes arose from the sand ban and outbreak of SARS in Singapore and Hong Kong respectively. Therefore, it will not be before long that a court will be asked to answer those questions, especially if the coronavirus outbreak drags on.

In the meantime, parties should consider reviewing their contracts for the existence of a force majeure clause and how it may be invoked. If not, to consider what their rights might be under the doctrine of frustration.

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