By Chang Kim Loong
UNPRECEDENTED times require promulgating legislative intervention objectively to offer a legal shield, “time freeze” and temporary suspension of all contractual covenants so as to avoid legal entanglement.
The Covid-19 pandemic has derailed the entire world. The current word bandied about globally is “unprecedented” when referring to the pandemic. Such a description is fitting as the devastating effects of this pandemic can be seen and felt on a macro and micro scale, without respect for borders, sovereignty, wealth or status.
Covid-19 has disrupted supply chains, manpower, businesses and societies to an extent that has not been seen since World War II.
Provide a legal ‘shield’ for Covid-19 events
Whilst the government has granted financial assistance packages in its economic stimulus packages to contain, sustain, supplement, stabilise, resuscitate and restart businesses in these extraordinary and challenging times, one aspect of relief that has been overlooked is the provision of a legal shield to people and businesses who are unable to fulfil their contractual obligations due to the Movement Control Order (MCO), and to offer legislative protection from legal entanglement so as to allow them to return to normalcy.
Contracts or agreements are part and parcel of our lives. However, the inability to perform or fulfil any contractual obligation during the MCO was certainly not within the contemplation of most Malaysians. It would be utterly unjust to hold them strictly liable for their failure to do so, under the circumstances.
The government through parliament should provide a legal shield to offer legislative protection from legal consequences arising from an individual’s or company’s failure or inability to perform their contractual obligations and to allow additional opportunities or time to remedy or rectify such deficiencies or shortcoming before the other party to a contract proceeds to enforce their legal rights under such a contract.
These rights could range from the right to forfeit a deposit or to impose interest or other forms of monetary penalties or for financial institutions, the right to recall a performance bond under a default, recovery of outstanding loans, foreclosure or auction of properties, recovery of motor vehicles for hire-purchase loans.
Covid-19 (Temporary Measures) Act, 2020 (Singapore)
On April 7, Singapore’s Parliament passed an Act titled: Covid-19 (Temporary Measures) Act, 2020 and it was promptly assented to by the President and gazetted two days later. The purpose of the Act is to provide temporary measure, and deal with other matters relating to the Covid-19 pandemic, and to amend certain existing laws. This Act is temporary in nature and intended to address events related or affected by Covid-19 before certain dates stipulated within the Act.
The Covid-19 Act applies to a party to a scheduled contract that is unable to perform an obligation that is to be performed on or after Feb 1, 2020 or where the inability is materially caused by a Covid-19 event. The Act prohibits the other party from commencing or continuing an action in court, arbitration or enforcement of immovable property.
This suspension from performance and enforcement is temporary in nature where the prescribed period of relief is six months. In addition to a suspension, there is also an extension of limitation for filing of actions.
The Covid-19 Act has also modified the Bankruptcy Act to increase its monetary limits and the prescribed period for any action has been increased from 21 days to six months and in tandem, the Companies Act and Insolvency, Restructuring and Dissolution Act has also been modified with increases to the monetary threshold and extension of time from three weeks to six months before a company is treated as unable to pay its debts.
If relief is given under the Covid-19 Act, it is an offence for any individual or company to take legal action against the non-performing party if that party has given a notice of his inability to fulfil the contract due to Covid-19. There are, however, many other areas covered by the Act that we may not be receptive of.
Formulate protection laws ala Malaysia
The legislation passed in Singapore to protect contracting parties could be localised to suit our Malaysian context. Under the Singapore Act, it is a panel of assessors who will decide on the relief/s granted. The decision of such an assessor is not appealable. On this, we feel that instead of a panel of assessors, it should be the Malaysian Courts (of Law) that should resolve disputes involving Covid-19 cases and to grant whatever relief/s or to decide whether such cases fall within the ambit of a Covid-19 event or performance was materially impacted by Covid-19.
There should be a formation of a temporarily designated High Court, for a prescribed period, to preside over all Covid-19 related cases. After all, our Federal Constitution prohibits exclusion of jurisdiction of the courts. Further, appointment of assessor/s in the Malaysian context may be politically tainted or industry influenced and result in justice denied to the aggrieved party.
The Covid-19 procedure should be simplified with a checklist of documents to be furnished to the presiding judge to evaluate, assess and decide. Lawyers appointed to present and argue their client’s case should even limit their professional fees to not more than RM3,000, otherwise it will defeat its purpose. This is a temporary and speedy relief to facilitate regularisation of performance and is not meant to cause further hardship to a weaker party or parties already suffering from possible financial and emotional distress.
Absence of ‘force majeure’ clause
Most legal experts are trying to determine if Covid-19 falls within the legal concept of “force majeure” and therefore applies to contracts which provide for such an event. A “force majeure” clause is a contractual provision which allows the non-performance of one or more of the contractual obligations by a party or parties due to unforeseen events beyond the control of both parties which prevent the performance of the said contract in events such as war, riot, strike, civil commotion, natural disaster, epidemic, government intervention etc.
But, there are none in numerous contracts namely tenancy agreements, leases, and the statutory Sale & Purchase Agreement regulated under the Housing Development (Control & Licensing) Regulations, 1989. It would be unfair to both the buyers and housing developers to enforce strict terms of the contract or to insist on performance during the MCO and to an extent, post MCO.
In the absence of a “force majeure” provision within our scheduled housing agreements, there arises practical issues which both developer and purchaser would encounter and if unresolved, will lead to unnecessary legal challenges for both parties.
Such issues include the ability of the purchaser to take vacant possession (VP) under the now extended MCO within 14 days from the developer’s notice (otherwise deemed to have taken VP) and the commencement of the Defects Liability Period of 24 months.
The purchaser would be at the losing end in such a scenario. On the other hand, any delay by the developer to complete construction works and deliver VP within the agreed completion date would mean the developer has to pay additional liquidated ascertained damages (LAD). Since construction works are not considered essential services, it is understandable the developer will also likewise suffer financial hardship through the additional delays and payment of LAD.
To overcome most, if not all adverse consequences caused by any Covid-19 impact, we would recommend a form of mandatory “force majeure” relief (temporary) in situations where a party’s ability to perform its contractual obligations is hampered by the MCO and Covid-19.
Under our proposed Covid-19 Act, safeguards to the developer and purchaser can range from duration of relief, prohibition from being penalised (termination/ determination/ forfeiture/ levy of penalties) due to breach of obligations under a contract or failure to perform and/or entitlement.
Let’s exercise restraint and accept adjustment
The goal here is two-fold: firstly, to offer temporary reprieve for contracting parties who are impacted by the MCO and secondly, to provide a platform for continuous economic activity. We anticipate post-MCO and Covid-19, there will be a period of adjustment to a “new normal” environment. A reasonable time is required for the market players to get back on their feet.
With the threat of a global recession, it is important for our country to focus on getting back on the economic bandwagon and enact a temporary legal shield in the form of a Covid-19 Act to protect and allow businesses and even investors to continue their activities with confidence. Resources which are much slimmer after Covid-19 should be channelled in the right direction of economic rejuvenation, not litigation. We believe Malaysia has the resilience to survive the MCO and regain its status as a progressive and dynamic powerhouse.
The proposals must be written in simple language, succinctly to the issues at hand and we suggest that a focus group of legal, economic and financial brains be appointed to explore and study all possible angles of legal entanglements that may arise post MCO and beyond. -- May 12, 2020
Datuk Chang Kim Loong is the honorary secretary-general of the National House Buyers Association (HBA)