The COVID-19 Act’s contractual relief provisions have been further extended from 30 June 2021 to 31 December 2021 (see PU(A) 287/2021). The COVID-19 Act’s full name is the Temporary Measures for Reducing the Impact of Coronavirus Disease 2019 (COVID-19) Act 2020. As explained below, we may see very little practical application of the contractual relief provisions.
Earlier, I had written about how the Covid-19 Act’s contractual relief had been extended up to 30 June 2021.
The key provision is section 7 of the COVID-19 Act:
Inability to perform contractual obligation
7. 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 [Act 342] 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.
There are two key issues arising from this extension of contractual relief.
Issue 1: Does Not Assist the Past
First, the contractual relief will not be able to assist the parties that were most caught by surprise by the COVID-19 outbreak and the implementation of movement controls. Those were the parties most in need of relief.
Malaysia first went into strict movement control on 18 March 2020. The COVID-19 Act only came into force on 23 October 2020. By then, parties would have sued each other or terminated their contracts.
An example of such a case is Ang Pi Kui & Anor v Lee Wee Teck & Anor [2021] MLJU 102 (grounds of judgment dated 3 February 2021).
In August 2020, the Defendants-landlord issued a letter stating its intention not to extend the tenancy to the Plaintiffs. The landlord asked for vacant possession to be delivered on 31 August 2020.
The landlord issued letters in August and September 2020 confirming the termination of the tenancy.
The Plaintiffs subsequently filed an action seeking a declaration that the Defendants were not entitled to terminate the tenancy agreement.
Among the Plaintiffs’ arguments, the Plaintiffs relied on section 7 of the Covid-19 Act. That the inability to perform contractual obligations shall not give rise to the other party exercising its rights under the contract. The Plaintiffs argued that this contractual relief applied from 18 March 2020 until 31 December 2020.
The Court made short shrift of the argument. Whether the termination of the tenancy occurred in August or September 2020, the contractual relief in section 7 would in any event not assist the Plaintiffs. This is due to section 10 of the Covid-19 Act stating that any contract terminated between the period of 18 March 2020 until 23 October 2020 shall be deemed to have been validly terminated.
The full section 10 of the Covid-19 Act states:
10. Notwithstanding section 7, any contract terminated, any deposit or performance bond forfeited, any damages received, any legal proceedings, arbitration or mediation commenced, any judgment or award granted and any execution carried out for the period from 18 March 2020 until the date of publication of this Act shall be deemed to have been validly terminated, forfeited, received, commenced, granted or carried out.
This case captures what would have occurred for a large number of terminated contracts and other disputes occurring from 18 March 2020 onwards. Parties would have terminated their contracts, parties would have already litigated or parties would have been forced to move on.
Issue 2: Wide Impact on Current and Future Contracts
Second, the next issue is the possible unjustified impact on freedom of contract.
The COVID-19 Act’s contractual relief applies regardless of whether the contracts were entered into pre-18 March 2020 or have been entered into even right now.
Contracting parties have long been forced to accept this environment of movement controls and COVID-19 measures. In this environment, it is for the parties to best negotiate and accept the terms of their contracts. The COVID-19 Act’s continued blanket application to even contracts entered into in July 2021 to December 2021 appears to go against the freedom of contract.
You can read my past articles expanding on these issues: