Note on Parts II and III of the Malaysian Covid-19 Act
The Temporary Measures for Reducing the Impact of Coronavirus Disease 2019 (Covid-19) Act 2020 (Act 829) was gazetted on 23rd October 2020. The Act aims to provide “temporary measures” to reduce the impact of the Covid-19 pandemic. The “temporary measures” refer to certain legal exemptions and temporary modifications of several Acts of Parliament, including the Limitation Act 1953 and the Insolvency Act 1967 to reduce the impact of the pandemic. This Note highlights Parts II and III of Act 829, which are entitled ‘Inability to Perform Contractual Obligation’ and ‘Modifications to the Limitation Act 1953’. The Act in its entirety may be downloaded here.
Contractual Rights
Part II of the Act (sections 5 to 10) operates retrospectively from 18th March 2020 to 31st December 2020. However, the Minister of Law may extend the duration by gazette.
Innocent parties prevented from exercising rights under the contract if breach is due to Covid-19
Section 7 of the Act provides that parties who are unable to perform their contractual obligations (i.e. who are in breach of the contract) due to the Movement Control Order (“MCO”) “shall not give rise to the other party or parties exercising their rights under the contract”. What this essentially means is that an innocent party to a contract cannot respond to a breach of contract that is due to the MCO and other preventive actions due to Covid-19 by, for example, forfeiting the deposit or terminating the contract. This only applies to certain categories of contracts specified in the Schedule of Part II listed below.
Categories of Contracts Affected
The categories of contracts referred to in the Schedule to Section 7 are:
1. Construction work contract or construction consultancy contract and any other contract related to the supply of construction material, equipment or workers in connection with a construction contract;
2. Performance bond or equivalent that is granted pursuant to a construction contract or supply contract;
3. Professional services contract;
4. Lease or tenancy of non-residential immovable property;
5. Event contract for the provision of any venue, accommodation, amenity, transport, entertainment, catering or other goods or services including, for any business meeting, incentive travel, conference, exhibition, sales event, concert, show, wedding, party or other social gathering or sporting event, for the participants, attendees, guests, patrons or spectators of such gathering or event;
6. Contract by a tourism enterprise as defined under the Tourism Industry Act 1992 [Act 482] and a contract for the promotion of tourism in Malaysia; and
7. Religious pilgrimage-related contract.
It should be noted that the “lease or tenancy” in item 4 of the Schedule does not include leases and tenancies for residential properties. In other words, landlords of residential properties such as houses and apartment units may still exercise their rights in the tenancy/lease agreements, such as to evict the tenant or forfeit the deposit.
Mediation
Meanwhile, section 9 provides for parties involved in a contractual dispute (for categories of contracts under the Schedule) to go for mediation. The avenue for mediation under this section is not mandatory. A mediation is a process/proceeding whereby parties in dispute enter into a process of discussion and negotiation facilitated by a mediator. The mediator, usually someone trained in law or an expert in the particular area of the contract (e.g. construction), acts as the “bridge” between the parties and attempt to assist parties in resolving the dispute amicably. If parties agree to resolve the dispute in the mediation, a settlement agreement is usually entered. It is noteworthy that the mediation process itself (unlike the judgment of the courts) is not legally binding, the settlement agreement is binding and enforceable like any other contracts.
Saving Provision
Section 10 is what is called a “saving provision”. It provides that contracts terminated, deposits or performance bonds forfeited, and legal actions (court and arbitration) that took place between 18thMarch 2020 until the publication of this Act (23rd October 2020) shall be deemed to have been validly carried out, and are not affected by section 7. Thus, if a contract has already been terminated by the innocent party as a result of a Covid-19 related breach, the defaulting party cannot use section 7 to invalidate the termination.
Potential Issues
The potential problem that may arise from section 7 is whether the default or breach of the contract during the applicable period was actually caused by MCO or the Covid-19 pandemic. This section may be abused, in that the party in breach may use the MCO or Covid-19 (even if these are not the real reasons for the breach) as an excuse to prevent the innocent party from exercising its rights under the contract.
The other problem that section 7 poses is what a party’s “rights under the contract” mean. Section 10 (see below) seems to suggest that the rights precluded under this section include a right to initiate claims in courts and arbitration. But does “rights under the contract” include rights given by statutes (such as to claim under statutory adjudication under the Construction Industry Payment and Adjudication Act (“CIPAA”)) or common law rights that are not stipulated in the contract?
Limitation Act 1953
Like Part II of the Act, Part III (sections 11 and 12) also operates retrospectively from 18th March 2020 to 31st December 2020. It is relatively straightforward in that it extends the 6-year statutory limitation period to commence legal actions to 31st December 2020 – if the 6-year period expired between 18th March to 31st August 2020. This is a welcomed respite for those who had trouble in initiating lawsuits during the lockdown of the MCO.
Conclusion
It is hope that the Government will come out with clarification or amendments to the Act to address the issues it poses, some of which have been discussed above. All in all, the Act has/will indeed lighten the legal challenges faced by some quarters due to the unprecedented MCO lockdown and crisis caused by the Covid-19 pandemic.
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The views in this note is meant to be a general discussion, and shall not be treated as advice. © 2020 All Rights Reserved.
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