Create a legal 'shield' from Covid-19 events

The Covid-19 pandemic has derailed the entire world. Covid-19 has disrupted supply chains, manpower, businesses and societies to an extent that some experts said have not been seen since World War II. 

Whilst the Malaysian Government has in its ‘Economic Stimulus Packages’ offered some relief to businesses and the rakyat, one aspect that has been overlooked is the provision of a ‘legal shield’ to people and businesses who are unable to fulfill their contractual obligations during the Covid-19 Movement Control Order (MCO) period in the country.

 It is certainly not within the contemplation of most Malaysians to have their lives come to a grinding halt hence it would be utterly unjust to hold them liable for their failure to fulfill their contractual obligations, under the circumstances.

The Government vide Parliament should therefore offer legislative protection from legal consequences arising from inabilities to perform contractual obligations and to allow time to remedy such shortcomings. These 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 and recovery of motor vehicles for hire-purchase loans.

Covid-19 (Temporary Measures) Act, 2020 (Singapore)

On April 7, 2020, the Parliament of the Republic of Singapore passed the Covid-19 (Temporary Measures) Act, 2020 (ACT) which was promptly gazetted on April 9. The purpose of the temporary ACT was to deal with matters relating to the Covid-19 pandemic, allowing for amendments to be made to certain existing laws.

The Covid-19 ACT applies to a party to a scheduled contract that is unable to meet 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. If relief is given under this ACT, it is an offence for any individual or company to take legal action against the non-performing party. The prescribed period of relief is six months.

The ACT has also modified the Bankruptcy Act to increase their monetary limits and the prescribed period for any action has been increased from 21 days to six months and in tandem, their Companies Act and Insolvency, Restructuring and Dissolution Act have 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 their debts.

Proposal for Malaysia

The legislation in Singapore could be localised to suit the Malaysian context. Under the Singapore Act, a panel of assessors decides the relief/s granted under the Act. The decision of such assessor is not appealable. For Malaysia, instead of a panel of assessors, we propose that the Malaysian Courts (of Law) resolve disputes involving Covid-19 cases and to grant relief/s. This could be in the form of a temporary designated High Court, for a prescribed period, to preside over all Covid-19 related cases.

The Covid-19 procedure should be simplified with a checklist of documents to be furnished to the presiding judge. Lawyers appointed to present their client’s case should even limit their professional fees otherwise it will defeat its purpose for speedy relief and not to cause further hardship to parties already suffering from 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 that provide for a ‘force majeure’ event. A ‘force majeure’ clause allows the non-performance of one or more of the contractual obligations due to events beyond the control of both parties such as wars, riots, strikes, civil commotions, natural disasters, epidemics, riots, strikes or government interventions.

But, there is no such clause in numerous contracts such as tenancy agreements, leases, and the statutory Sale & Purchase Agreement regulated under the Housing Development (Control & Licensing) Regulations, 1989.

In the absence of a ‘force majeure’ provision within our scheduled housing agreements, there would be issues that both developer and purchaser would encounter and if unresolved, will lead to unnecessary legal challenges post MCO.

Issues such as the ability of the purchaser to take vacant possession (VP) under the now extended MCO, within the 14 days from the developer’s notice and the commencement of ‘Defects Liability Period’ of 24 months, would not only affect the purchaser but any delay by the developer to complete construction and deliver VP within the agreed completion date would mean the developer has to pay ‘additional’ liquidated ascertained damages (LAD).

To overcome most adverse consequences caused by the Covid-19, we would recommend a form of mandatory ‘force majeure’ relief (temporary) with safeguards to the developer and purchaser that could range from duration of relief to prohibition from penalization (termination/ determination/ forfeiture/levy of penalties etc) due to breach of obligations under a contract.

The goal here is two-fold, firstly, to offer temporary reprieve for contracting parties who are impacted during the MCO period 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 Malaysians to ‘pick up and get back on their feet’.

Hence, 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 appear post MCO, Covid-19 and beyond.

A Covid-19 Act will protect and allow businesses and even investors to continue their activities with confidence. Resources which are much slimmer after Covid-19 should be channeled to the right direction of economic rejuvenation, not litigation.

Datuk Chang Kim Loong is the Hon. Secretary-General of the National House Buyers Association (HBA).
HBA can be contacted at: Email: [email protected]
Website: www.hba.org.my
Tel: +6012 334 5676

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This story first appeared in the EdgeProp.my pullout on April 17, 2020. You can access back issues here.