Opinions and Legal Insights

5 Weaknesses in Malaysia’s Covid-19 Bill for Contract Obligations

Malaysia’s Covid-19 Bill (the full name being the Temporary Measures for Reducing the Impact of Coronavirus Disease 2019 (COVID-19) Bill) was tabled for first reading in the Dewan Rakyat (the lower house) of Parliament on 12 August 2020. I had written about the Covid-19 Bill here. One important measure is to provide relief for inability to perform contractual obligations for the seven categories of contracts. This applies from 18 March 2020 to 31 December 2020. On this aspect, I set out five weaknesses or ambiguities in the Covid-19 Bill.

#1: No cut-off date on the applicable contracts

The Covid-19 Bill does not provide a cut-off date for the applicable contracts where there can now be relief from inability to perform. It would have been consistent to state that the relief only extends to the contracts entered into before 18 March 2020. The movement control restrictions were unexpected. Parties signing the contracts before that period did not realise the repercussions to follow.

The current wording of the Covid-19 Bill (under Part II for the inability to perform) would mean that contracts even entered into since 18 March 2020 until 31 December 2020 can still enjoy relief from the inability to perform. Parties entering into contracts after 18 March 2020 would fully realise the impact of the movement control and the COVID-19 pandemic. So, it does not appear to be fair to allow relief from being unable to perform the contract.

#2: Inability to perform due to Covid-19 measures

The Covid-19 Bill refers to the “inability of any party … to perform any contractual obligation … due to the measures prescribed … under the Prevention and Control of Infectious Diseases Act 1988.”

This may be ambiguous as to whether it can be directly due or indirectly due to those measures taken. It would have been preferable to adopt the language from the Singapore Covid-19 Temporary Measures Act that requires “the inability is to a material extent caused by a COVID-19 event“. This would be fairer. The inability to perform must then be shown to have been caused materially by the Covid-19 measures.

#3: Too wide a suspension of all rights under the contract

The Covid-19 Bill goes on to provide that once party A has the inability to perform, the other contracting party B cannot exercise his rights under the contract.

This appears to be very wide and would suspend all the contractual rights of contracting party B.

It would have been preferable to provide a specific list of what sort of particular rights may be suspended. The Covid-19 Bill is meant to provide temporary measures to reduce the impact. So, it should be targeted categories of temporary suspension only.

The rights to be temporarily suspended could include:

  • commencing or continuing court or arbitration proceedings against party A and A’s guarantor or surety.
  • enforcement of any security over any immovable property.
  • making of an application for judicial management, winding up, bankruptcy, or a scheme of arrangement against party A and A’s guarantor or surety.
  • appointment of receiver or receiver and manager over any property or undertaking of A or A’s guarantor or surety.
  • termination of the contract.
  • execution, distress, or repossession over any assets.

#4: How long is the suspension of contractual rights for?

The next question that follows is how long is the suspension of these contractual rights for? It seems like a long suspension of contractual rights from 18 March 2020 until 31 December 2020. and where the Minister could publish a gazette notice to further extend the operation of that relevant Part.

#5: No quick dispute resolution process

The Covid-19 Bill does provide for an out-of-court resolution process but does not go far enough. There is the detailed clause 9 of the Covid-19 Bill setting out mediation of any disputes arising from the inability to perform. The Minister may determine the mediation process.

The critical problem is that the mediation process is completely voluntary. Both parties have to agree to it. The provision sets out that the dispute “may be settled by way of mediation.” The disputes are likely to end up in court or arbitration.

The Singapore process of resolving such COVID-19 disputes is for determination by assessors. It is to be a quick-and-easy determination, parties generally won’t be legally represented, and the assessors are to make a determination on what is just and equitable in the circumstances of the case. This minimises further legal costs and time for businesses in dispute.

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