Last Tuesday, 22 September 2020, the Dewan Negara had passed the Temporary Measures For Reducing The Impact Of Coronavirus Disease 2019 (COVID-19) Bill 2020 (“COVID-19 Bill”). This COVID-19 Bill and eventual Act may help Malaysians relieve the many issues and burdens that arose from the COVID-19 pandemic and the MCO restrictions. Whilst the delay in the passing of the COVID-19 Bill has been heavily criticised for being “a little too late”, it is undeniable that for many the passing of this piece of legislation has been heavily anticipated.
In this review, I will be looking at four key areas in the COVID-19 Bill.
- Inability to Perform Contractual Obligations
The COVID-19 Bill addresses the protection afforded to parties due to their inability to perform existing contractual obligations as a result of the ongoing pandemic in Part II. Clause 5 of the Bill provides that this protection is in operation from 18 March 2020 and shall continue to remain in operation until 31 December 2020.
First and foremost, Clause 7 of the COVID-19 Bill provides relief to parties unable to perform any contractual obligation arising from any of the scheduled categories of contracts due to the measures prescribed, made or taken under the Prevention and Control of Infectious Diseases Act 1988 to control or prevent the spread of COVID-19 (ie. The Movement Control Order, etc.).
Furthermore, this relief prevents the other party to the contract from exercising their contractual rights. In essence, it restrains parties from exercising their strict contractual rights against counterparties who are unable to perform their contractual obligations during the specified period.
Before such a relief may be triggered, the contractual obligation(s) in question must arise from one of the scheduled categories of contracts. As of now, seven categories have been set out in the Covid-19 Bill:
- 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.
- Performance bond or equivalent granted pursuant to a construction contract or supply contract.
- Professional services contract.
- Lease or tenancy of non-residential immovable property.
- Event contract for the provision of any venue, accommodation, amenity, transport, entertainment, catering or other goods or services (e.g. for any business meeting, conference, exhibition, concerts, weddings, sporting events, etc.).
- Contract by a tourism enterprise and a contract for promotion of tourism.
- Religious pilgrimage-related contract.
Where required, Clause 8 of the Covid-19 Bill provides that the Minister of Law can amend the scheduled categories of contracts through a gazette notice and may also issue a gazette notice under Clause 5(2) of the Bill to extend the period of operation past the 31 December 2020 period. Where a dispute arises on the inability of the party to perform any contractual obligation, Clause 9 of the Covid-19 Bill provides that the dispute may be settled through voluntary mediation.
A huge criticism of the COVID-19 Bill in this regard is that the relief afforded by Clause 7 appears to be disrupted by the “savings” provision in Clause 10 (ie. a clause in a statute which exempts something from the statute’s operation). Clause 10 provides that any contract terminated, any deposit or performance bond forfeited, any damages received, any legal proceedings commenced and any judgment or awarded granted where execution thereto is carried out for the period from 18 March 2020 until the coming into force of the COVID-19 Bill, shall be deemed to have been validly terminated, forfeited, received, commenced, granted or carried out.
In application, it is likely that this Clause will cause a spate of actions being filed in court by parties seeking to circumvent this law by terminating contracts, forfeiting deposits or commencing legal proceedings before the coming into force of the Act. These actions will therefore not be susceptible to challenge given the meaning and effect of Clause 10.
- Housing Development Laws
The second key area in the Covid-19 Bill is in Part XI which relates to housing development laws and modifications to the Housing Development (Control and Licensing) Act 1966. This affects the statutory form contracts for sale of the housing development regulations entered into before 18 March 2020. The “Minister” referred to in this Part of the COVID-19 Bill is not clarified so a presumption would be that it is the Minister who is in charge of housing.
Firstly, Clause 34 of the COVID-19 Bill provides that from 18 March 2020 to 31 August 2020, developers shall not impose any late payment charges where purchasers fail to pay any instalments due to the measures taken under the Prevention and Control Infectious Diseases Act 1988. The purchaser may, as per clause 34(2) and (3) of the Bill, make an application to the Minister for an extension of time to pay and the Minister may extend the time up to 31 December 2020.
Secondly, Clause 35(1) of the bill provides that the period from 18 March 2020 to 31 August 2020 shall be excluded from the calculation of time for delivery of vacant possession and for liquidated damages for late delivery of vacant possession. Clause 35(2) and (3) of the Bill allows the developer to apply for an extension of time from the Minister and the period may be extended up to 31 December 2020.
However, there exists a wide provision in clause 35(4) of the COVID-19 Bill. It states that between 18 March 2020 to 31 August 2020, where the purchaser is unable to enter into possession of a housing accommodation from the date of service of notice of vacant possession, the purchaser shall not be deemed to have taken such vacant possession. This provision is a particularly vague one as it does not state that the purchaser has to show the inability to take vacant possession was caused by COVID-19.
Thirdly, Clause 36(1) of the COVID-19 Bill sets out that the period from 18 March 2020 to 31 August 2020 shall be excluded for calculation of the defect liability period and the time for the developer to carry out repair works. The purchaser, under Clause 36(2) and (3) of the bill, is allowed to apply for an extension of time from Minister and period may be extended up to 31 December 2020.
Fourthly, Clause 37 of the COVID-19 Bill provides for a saving provision. It states that from 18 March 2020, the Bill shall not affect legal proceedings already commenced, or any judgment or award obtained, relating to recovery of late payment charges payable by purchaser or liquidated damages payable by the developer or any other sum. Any such late payment charges or liquidated damages that has been paid shall be deemed to have been validly paid and shall not be refunded.
- Extension of Limitation Periods
Limitation Periods provide for a time limit in which an action must be brought within. For example, Section 6 of the Limitation Act 1953 provides that actions in contract and tort will have to be brought within 6 years from the date on which the cause of action accrued.
Parts III to VI of The COVID 19-Bill will be extending the general limitation periods under different laws. As per Clauses 11 to 18 of the Bill, this will apply to the following:
- Limitation Act 1953
- Sabah Limitation Ordinance
- Sarawak Limitation Ordinance
- Public Authorities Protection Act 1948
Limitation periods expiring within the period of 18 March to 31 August 2020 will be extended to 31 December 2020.
- Personal Bankruptcy
Part VII of The COVID-19 Bill modifies multiple laws on personal bankruptcy. Again, the “Minister” referred to in this Part of the COVID-19 Bill is not clarified so a presumption would be that it is the Minister of law.
First, Clause 19 of the COVID-19 Bill provides that this modification will take effect from the date of the publication of the Act until 31 August 2021. A gazette notice may be issued by the Minister to further extend the operation of this modification.
Further to this, Clause 20 of the COVID-19 Bill provides that in order for a creditor to present a bankruptcy petition against a debtor under the 1967 Act, the debt owing by the debtor must be at least RM 100,000. This is in line with proposed amendments to the 1967 Act to increase the minimum debt threshold for bankruptcy from RM 50,000 to RM 100,000.
Finally, Clause 21 of the COVID-19 Bill provides for a saving provision where any pending proceedings, actions and/or other matters before the date of publication of the Act shall still be dealt with under the unmodified Insolvency Act 1967.
- Conclusion
Since the bill has finally been passed in the Dewan Negara , we will soon be able to gauge how effective the eventual COVID-19 Act will be once it comes into effect, with many hoping that it has not come too late in the day. But then again, as the popular saying goes, “Better late than never!”
For more information and legal assistance on takeovers, mergers and acquisition, please do not hesitate to contact your respective lawyers or partners at the firm. Otherwise, give us a call at +603-2092 4822 or email us at ridza@ridzalaw.com.my
Mohamed Ridza & Co
Kuala Lumpur Office
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Kuala Lumpur
Malaysia
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ridza@ridzalaw.com.my
