INTRODUCTION
On 22 December 2021, the Minister in the Prime Minister’s Department (Parliament and Law) Datuk Seri Dr Wan Junaidi Tuanku Jaafar has informed that Part II (Inability to Perform Contractual Obligations) of the Temporary Measures to Reduce the Impact of Coronavirus Disease 2019 Act (Covid-19) (“the Act”) which will end on 31 December 2021 has been extended 22 October 2022. In addition, pursuant to the Temporary Measures for Reducing the Impact of Coronavirus Disease 2019 (Covid-19) (Extension of Operation) (No.3) Order 2021, Part XIV and XV of the Act were also extended to 22 October 2022 which modify the Land Public Transport Act 2010 and Commercial Vehicles Licensing Board Act 1987.
The Act has come into force on 23 October 2020 following the outbreak of Covid-19 in Malaysia. Due to the impact and aftermath of Covid-19 pandemic, many companies and businesses were affected and obligations under contracts were unable to be fulfilled. As Section 1(2) of the Act provides that the Act shall only continue to remain in operation for a period of 2 years from the date of publication, the Act shall no longer be effective on 23 October 2022 subject to extension made by the Prime Minister under Section 1(3) of the Act. As the provisions of the Act continues to be in force, it is important for business owners who are affected by the pandemic to be aware of the Act to enforce their rights and seek for available remedies.
1. Contractual Rights & Obligations
According to Section 7 of the Act, it states that:
“The inability of any party or parties to perform any contractual obligation arising from any of the categories of contracts specified in the Schedule to this Part 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 shall not give rise to the other party or parties exercising his or their rights under the contract.”
Based on the above, it is clear that if a party is unable to perform its obligation under the contract, and the type of contract are specified under Section 7 Schedule of the Act, the aggrieved party will not be allowed to enforce its rights for damages or any other rights under the contract during the period that the provision is effective.
According to the Schedule, the followings are the list of categories of contracts that are applicable under Section 7 of the Act.
a) 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;
b) Performance bond or equivalent that is granted pursuant to a construction contract or supply contract;
c) Professional services contract;
d) Lease or tenancy of non-residential immovable property;
e) 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;
f) Contract by a tourism enterprise as defined under the tourism Industry Act 1992 and a contract for the promotion of tourism in Malaysia; and
g) Religious pilgrimage-related contract.
Referring to the above Schedule, if a business owner enters into a contract listed under the Schedule, business owners who defaulted in the contract may rely on Section 7 of the Act to prevent any claims from the breach of contractual obligations, or mediate under Section 9 of the Act.
2. Application of Section 7 of the Act
Section 7 of the Covid-19 Act can be separated into 3 limbs which are:
a) inability to perform a contractual obligation
Under this limb, the defaulting party must provide evidence of its inability to perform the contractual obligation instead of a mere refusal. As the standard of proof in civil courts only require proof on the balance of probabilities, defaulting party is likely to satisfy this requirement by providing documentary evidence supporting its inability to perform the contractual obligation according to the contract.
b) the contractual obligation that the defaulting party is unable to fulfill is listed under the Schedule of Section 7 of the Covid-19 Act
As previously mentioned above, this requirement is fulfilled if the contract that the defaulting party has entered into falls under the list of categories of contract under the Schedule. The list of categories that has been provided under the Act has considered all kinds of service contract including professional services, constructions, supplies, as well as tourisms.
In a construction industry under the first two categories in the Schedule of Section 7, it should be noted that “construction work” is widely defined and unclear on whether it only refers to the actual process of construction (which is to build something from scratch), or any other areas of the construction works. This is different from the other provision in the Act such as under sixth category of the Schedule under Section 7 which clearly stated that contract by a tourism enterprise which as defined under the Tourism Industry Act 1992. The construction work on the other hand can be found under the Construction Industry Payment and Adjudication Act 2012 (CIPAA) which includes repair and maintenance work.
c) the inability to perform must be due to the measures prescribed, made or taken under the Covid-19 Act
Under the third limb, business owners are required to prove that the inability to perform is due to the measures that falls under the Covid-19 Act. As an example, reference can be made to modifications to the Housing Development (Control and Licensing) Act 1966 (HDA) under Section 35 of the Act which provides that agreement that has been entered into between a purchaser and the developer shall be excluded from the calculation of the time for the delivery of vacant possession of a housing accommodation and the liquidated damages for the failure of the delivery of vacant possession by the developer. Therefore, developer who are affected by the Covid-19 and are unable to fulfill its obligation to deliver the vacant possession according the contract may rely on Section 35 of the HDA.
3. Amendment to the Act
On 14 January 2022, the Temporary Measures for Reducing the Impact of Coronavirus Disease 2019 (COVID-19) (Amendment) Act 2022 (“the Amendment”) has comes into operation.
Some of the amendments that business owners need to consider are :-
a) Part XIA – Housing Development Matters
Under the Amendment, Section 38A and 38F have been inserted into the Act which provides that ‘agreement’ under Part XIA would refer to contract for the sale and purchase of a housing accommodation in the form prescribed in Schedule G, H, I or J of the Housing Development (Control and Licensing) Regulations 1989 and the term ‘first agreement’ would refers to the first agreement entered into between a purchaser and developer for a housing accommodation in relation to a housing development under one housing developer’s licence, one advertisement and sale permit.
The impact of the insertion is that the term ‘agreement’ and ‘first agreement’ may not allow purchasers or vendors under a sub-sale agreement to rely on Part XIA for breach of contract as it has specifically provided that only the agreement between a developer and purchaser under the form prescribed applies.
In addition to that, Section 38B(1) of the Amendment also prohibits developer from imposing late payment charges against a purchaser who fails to pay any instalments under the first agreement from 1 January 2021 until 31 December 2021 provided that the first agreement is entered into before 31 May 2021.
In terms of delivery of vacant possession by developer to a purchaser, Section 38C(1) has provided that a developer may apply to the Minister of Housing and Local Government to exclude the period of 1 January 2021 to 31 December 2021 from the calculation of the time for delivery of vacant possession if it is satisfied that the developer failure was due to the measures prescribed, made or taken under the Act. As provided under Section 38C(5), the period that has been approved under Section 38C(2) will not be taken into account in assessing the liquidated damages payable to the purchaser.
In terms of a defect liability period, both the developer and purchaser need to be aware of Section 38E which states that from 1 June 2021 to 31 October 2021, the calculation of the defect liability period after the purchaser takes vacant possession, the defect liability period after the completion of common facilities and the time for the developer to repair and make good any defects and other faults in a housing accommodation and common facilities will be excluded.
Based on the above, developers and purchasers need to be aware of the amendment so as to ensure that the calculation of liquidated damages for the above situation is accurate and did not include the period that has been excluded under the amendment.
b) Part XII – Industrial Relation Matters
Under the Amendment, Section 40A and 40B were introduced under the Part XII. The Industrial Relations Matter is intended to provide exclusion of period from the calculation of period under the Industrial Relations Act 1967 (“the IRA”) for according recognition or notifying the trade union of workmen concerned in writing the grounds for not according recognition within 21 days under Section 9(3) of the IRA, the making of a report in writing to the Director General for Industrial Relations within 14 or 21 days under Section 9(4) of the IRA and the filing of representation within 60 days under Section 20(1A) of the IRA. Under the Amendment, Section 40A of the IRA has exclude the period from 1 June 2021 to 31 December 2021 from the calculation of the period under the IRA for according recognition or notifying the trade union of workmen concern in writing the grounds for not according recognition under Section 9(3) of the IRA, the making of a report in writing to the Director General for Industrial Relations under Section 9(4) of the IRA and the filing of representation under subsection 20(1A) of the IRA.
Section 40B which has been deemed to come into operation on 10 June 2020 excluded the period which any employer, trade union of employers, trade union of workmen or workman who is subjected to enhanced movement control order from the calculation of the period under the IR Act for according recognition or notifying the trade union of workmen concerned in writing the grounds for not according recognition under Section 9(3) of the IRA, the making of a report in writing to the Director General for Industrial Relations under Section 9(4) of the IRA and the filing of representation under Section 20(1A) of the IRA.
CONCLUSION
In conclusion, business owners who are affected by the post Covid-19 pandemic are now able to rely once again on Section 7 of the Act up until 22 October 2022. In addition to that, the amendment to the Act has addressed some of the issues that arose from the implementation of the Act on 2020. In fact, due to the Act, on 1 September 2021, amendment has been made to the existing Insolvency Act 1967 which has increase the amount required for a bankruptcy petition under Section 5(1)(a) of the Insolvency Act 1967 from RM50,000.00 to RM100,000.00. This has prevented the increase of bankrupt in the country as well as providing more opportunity for affected debtors due to the pandemic to recover from the business losses and opportunity.