Update Alert: The COVID-19 Act Is Finally Here, But to What End?
We previously issued an alert discussing the potential impact and effectiveness of the Temporary Measures for Reducing the Impact of Coronavirus Disease 2019 (Covid-19) Bill 2020. The long wait is now over and the Temporary Measures for Reducing the Impact of Coronavirus Disease 2019 (Covid-19) Act 2020 (the “Act”) has finally been gazetted and came into effect on 23 October 2020 where Malaysia is now hit with its third (and possibly worst) wave of infections.
Let us recap the main protections offered by the Act and our take on the same.
Starting Point: The Act Offers Protection To Defaulting Parties For Inability to Perform A Contract:
Part II of the Act suspends the rights of contracting parties to enforce their rights against any defaulting parties for their inability to perform any contractual obligations arising from any of the scheduled categories of contracts due to the measures adopted under the Prevention and Control of Infectious Diseases Act 1988. This protection will last till 31 December 2020 where it remains to be seen whether there will be any extensions made to the same by the Minister.
However, the Act Appears to Save Parties who “Survived” the Earlier Movement Control Measures:
As the contents of the Covid-19 Bill have been a matter of public knowledge for a few months now, it would not be unsafe to assume that many commercial parties would have taken steps to enforce their contractual rights against defaulting parties to avoid the implications of the Act since the Movement Control Order (“MCO”) was first announced. Where this is the case, the Act expresses that its implications will not affect contracts already terminated or sued upon before its coming into force. This can only mean that this is an Act for the survivors of commercial contracts who managed to stay afloat till the birth of the Act.
The Act Appears to Extend a Hand to Parties Who (Knowingly) Executed Contracts During the Movement Control Order:
Unlike Part XI of the Act dealing with modifications to the Housing Development (Control and Licensing) Act 1966 where “agreements” have been defined as those executed before 18 March 2020, there does not appear to be similar restrictions to the definition of “contracts” under Part II. This could potentially mean that the protection afforded under Part II of the Act may be extended to commercial parties who were aware of the Covid-19 realities and yet entered into contracts after the MCO of 18 March 2020 provided that their contractual defaults have remained unactioned by their counter-parties prior to the Act coming into force.
Where Is the Line Drawn on “Inability to Perform Contracts”?:
It is interesting to note that the Act does not specify whether the inability to perform contracts must be substantially or materially due to the movement control measures to justify receipt of its protection. The line has not been expressly carved out and it appears that the effect and scope of the Act would (or perhaps should) be tested via dispute resolution mechanisms for there to be certainty and clarity on what may/may not fall foul of its provisions.
To Mediate… or Not to Mediate?:
Where the wording in the Act suggests that mediation of disputes between parties on the Act is voluntary, we anticipate that parties may end up at the Courtroom to obtain a ruling on the interpretation and scope of the Act.
Housing Developers and Purchasers To Seek Protection As Their Timeline Had Lapsed:
Modifications were introduced to the Housing Development (Control and Licensing) Act 1966 which include protections offered to purchasers/developers for late payment charges for instalments within the period from 18 March 2020 to 31 August 2020 where this same period is excluded from the calculation of the time for delivery of vacant possession, the liquidated damages for failure to deliver vacant possession, the defect liability period, and the time for the repair works by the developers. The timeline makes little sense now seeing that August 2020 has come and gone. Now, the Act requires housing developers and purchasers to apply for an extension from the Minister to rely on such reliefs where the Minister appears to be empowered to only grant an extension till 31 December 2020. Also, this protection will not extend to any legal proceedings commenced or any judgment or award obtained relating to the subject matter of such protection under the Act before it's coming into force.
It appears that the Act treats the current predicament faced by many as a “let bygones be bygones” situation where the effects (or effectiveness) of the Act cannot salvage contractual enforcement events which have already been set in motion before the Act came to life.
For those parties aggrieved by the protection afforded under the Act, we recommend seeking legal advice on how your predicament may be resolved or mitigated.