Malaysia has tabled its Temporary Measures for Reducing the Impact of Coronavirus Disease 2019 (COVID-19) Bill (Covid-19 Bill) in Parliament. The Bill states that it will have retrospective effect from 18 March 2020. This Covid-19 Bill and the eventual Act may alleviate some of the contractual and other issues that arose from the COVID-19 pandemic and Malaysia’s movement control restrictions.
However, with this Bill only being passed sometime in August 2020, is this a case of too little, too late? We will have to see whether Malaysia’s Covid-19 Bill can help businesses and companies.
I touch on five key areas in the Covid-19 Bill.
#1: Inability to Perform Contractual Obligations – Legal Shield
The first relief under the Covid-19 Bill is providing respite for contracting parties who could not perform their contractual obligations from 18 March 2020 and who continue to be unable to perform.
First, under clause 7 of the Covid-19 Bill, this relief applies to a party who could not 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.
Of note, there is no requirement to show that the inability was substantially or materially due to the movement control measures. In Singapore’s Covid-19 Act, there was the requirement that the inability to perform was to a material extent caused by a COVID-19 event.
Second, triggering this relief under clause 7 will prevent the other party to the contract from exercising his or their rights under the contract.
Significantly, this clause 7 does not provide any end date in terms of allowing the other party to eventually exercise their rights. It appears to permanently stop the other party from exercising any of their rights. It seems too open ended.
Further, Singapore’s Covid-19 Act set out the very specific types of actions which were restrained e.g. commencing court action, enforcing security, repossession of goods, or forfeiture. Malaysia’s version is wide in having a blanket reference to preventing the exercising of rights under the contract.
Third, the scheduled categories of contracts for now are seven categories:
- construction work contract or construction consultancy contract and any other contract related to the supply of construction material, equipment or workers.
- performance bond or equivalent granted pursuant to a construction contract or supply contract.
- professional services contract.
- lease or tenancy of non-residential property.
- event contract e.g. for any business meeting, incentive travel, conference, wedding, party or other social gathering or sporting event.
- contract by a tourism enterprise and a contract for promotion of tourism.
- religious pilgrimage-related contract.
Fourth, where there is a dispute on the inability of the party to perform any contractual obligation, this may be settled by way of mediation (see clause 9 of the Covid-19 Bill). This means that it is a voluntary process and does not compel parties to mediate.
This voluntary mediation could be a critical weakness of the dispute resolution process in the Covid-19 Bill. That would mean that there is a high likelihood that there will be more court and arbitration proceedings. Parties will be in dispute whether there was the proper inability to perform as set out in the Covid-19 Bill.
Fifth, the Minister (for this relief, it is the Minister of Law) can amend the scheduled categories of contracts through a gazette notice (see clause 8 of the Covid-19 Bill). The Minister can also issue a gazette notice to extend the period of operation past the 31 December 2020 period (see clause 5(2) of the Covid-19 Bill),
Sixth, there is a saving provision in clause 10 of the Covid-19 Bill. Notwithstanding clause 7 providing relief, any contract terminated, any deposit forfeited, any damages received, any legal proceedings commenced, any judgment or award granted, and any execution carried out since 18 March 2020 shall still be valid. This is also an indication that this Covid-19 Bill does come quite late in the day and where many legal actions have already been taken.
#2: Housing Development Laws
The second significant area in the Covid-19 Bill relates to housing development laws and modifications to the Housing Development (Control and Licensing) Act 1966. The description here affects the statutory form contracts for sale in the forms in Schedules G, H, I and J of the housing development regulations entered into before 18 March 2020.
First, where due to the measures taken under the Prevention and Control Infectious Diseases Act 1988, the purchaser fails to pay any instalment from 18 March 2020 to 31 August 2020, the developer shall not impose any late payment charges (see clause 34 of the Covid-19 Bill).
The purchaser may apply to the Minister for an extension of time to pay and the Minister may extend the time up to 31 December 2020 (see clause 34(2) and (3) of the Covid-19 Bill).
Second, on late delivery of vacant possession and liquidated damages. 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 (see clause 35(1) of the Covid-19 Bill).
The developer may apply to the Minister for an extension of time of this period and the Minister may extend the period up to 31 December 2010 (see clause 35(2) and (3) of the Covid-19 Bill).
Interestingly, there is also one wide provision in clause 35(4) of the Covid-19 Bill. It sets out that if the purchaser is unable to enter into possession of a housing accommodation from the date of service of notice of vacant possession from 18 March 2020 to 31 August 2020, the purchaser shall not be deemed to have taken such vacant possession. This provision is vague. It does not state that the purchaser has to show the inability to take vacant possession is due to COVID-19 or for some other reason.
Third, on the defect liability period. 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 (see clause 36(1) of the Covid-19 Bill).
The purchaser can apply for extension from Minister and the Minister can grant an extension of the period up to 31 December 2020 (see clause 36(2) and (3) of the Covid-19 Bill)
Fourth, the saving provision in clause 37 of the Covid-19 Bill. The Covid-19 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 from 18 March 2020.
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.
One last thing is that it is not clear who is the “Minister” referred to in this Part of the Covid-19 Bill. Presumably, it is to be the Minister who is in charge of housing. But it is not made clear in this Part XI of the Covid-19 Bill.
#3: Limitation Period – Extended to 31 December 2020
The general limitation periods under the different laws will be extended. The limitation period expiring within the period of 18 March to 31 August 2020 will be extended to 31 December 2020.
This will therefore apply to the Limitation Act 1953, the Sabah Limitation Ordinance, the Sarawak Limitation Ordinance, and the Public Authorities Protection Act 1948 (clauses 11 to 18 of the Covid-19 Bill).
#4: Insolvency Act 1967 – Indebtedness up to RM100,000 from RM50,000
This area makes a modification to the personal bankruptcy laws.
First, the minimum threshold for the presentation of the bankruptcy petition is now raised from RM50,000 to RM100,000 (see clause 20 of the Covid-19 Bill).
Second, this modification will take effect from the date of the publication of the Act and until 31 August 2021. The Minister may issue a gazette notice to further extend the operation of this modification (clause 19 of the Covid-19 Bill).
Third, the saving provision under clause 21 of the Covid-19 Bill. Any proceedings, actions or other matters required which are still pending immediately before the date of publication of the Act shall still be dealt with under the unmodified Insolvency Act 1967.
#5: Power of the Chief Justice to Issue Directions and Modify Rules of Court
There are changes to certain provisions of the Courts of Judicature Act 1964 (governing the High Court and the appellate Courts) and the Subordinate Courts Act 1948 (governing the subordinate Courts) (clauses 49 to 56 of the Covid-19 Bill).
First, the Chief Justice will now have the express power to issue any direction relating to the business of the Courts. This is if the Chief Justice is of the opinion that the circumstances warrant and it is necessary in the interest in the dispensation of justice, public safety, public security or generally public health.
Second, the Chief Justice will now have the power to modify any provision of the rules of court or suspend the application of such rules of court as is necessary for doing justice. This is if again the Chief Justice is of the opinion that the circumstances warrant and it is necessary in the interest in the dispensation of justice, public safety, public security or generally public health.
Ordinarily, the modification or amendment of the rules of court requires going through the slow process of getting the approval of the Rules of Committee. The Rules Committee is made up of representatives from the judiciary, the Attorney General, three advocates and the Secretary General of the Ministry of Law.
These new proposed powers of the Chief Justice will allow the Chief Justice to expeditiously make changes and modifications to Court proceedings. For instance, to amend or add to the rules of court to allow for remote or video hearings.
The Covid-19 Bill has been tabled in the Dewan Rakyat, being the lower house of Parliament, in this August sitting. We expect that the Bill will be passed. It will then have to be approved by the Dewan Negara, the upper house of Parliament. That is during the September 2020 sitting. We will then have to gauge how effective the eventual Covid-19 Act will be if it comes into effect in September 2020.
The end of September 2020 will also be a critical period where it seems that the blanket bank loan moratorium period will come to an end. I hope that this Covid-19 Bill has not come too late in the day.