The Temporary Measures for Reducing the Impact of Coronavirus Disease Act 2019: Is it a Vaccine or a Mere Placebo?
by Chan Kheng Hoe, Head of Construction Law, Chong + Kheng Hoe
The global impact of the Covid-19 pandemic is undeniable. Until today, the world has yet to recover from the pandemic and its effects. Many industries continue to struggle, and the construction industry is not immune from the adverse effects of the pandemic.
In an attempt to reduce the impact of the pandemic, Parliament introduced the Temporary Measures for Reducing the Impact of Coronavirus Disease Act 2019. The Act is supposed to alleviate the immediate pressures on business by, inter alia, excusing inabilities to perform contractual obligations and amending provisions related to limitation periods.
However, it is not words on paper that would ultimately be helpful for businesses. In order for the Act to in fact achieve its objective, it must be efficacious when applied to real-world situations. Towards this end, this article would look at 14 cases where parties have sought to apply the Act and draw from the principles of these cases to consider whether the Act is in fact achieving its objective.
Ang Pi Kui & Anor v Lee Wee Teck & Anor [2021] MLJU 102 HC
The Plaintiffs operated a coffee shop known as Wu Pang Kopitiam. The tenancy ought to have expired on 31 August 2020 (within pandemic period). The contract required the Plaintiffs to give a 3 month notice prior to 31 August 2020 if they wanted to renew the tenancy. As there was no notice given, the landlords (Defendants) considered the period after 31 August 2020 to be a monthly tenancy and terminated the same by letter dated 18 September 2020.
The Plaintiffs sought a declaration from the Johor Bahru High Court to the effect that the Defendants (i.e. the landlords) were not entitled to terminate the tenancy agreement by reason of s 7 of the Act. S 7 says that the “inability of any party…to perform any contractual obligation…due to the measures prescribed, made or taken under the (Act) to control or prevent the spread of COVID-19 shall not give rise to the other party…exercising his…rights under the contract”.
However, the Court found that the tenancy was already terminated as at 31 August 2020 by reason of the Plaintiffs’ failure to issue a notice for renewal. Although the Act which came into force on 23 October 2020 applied retrospectively to 18 March 2020, nevertheless the saving provision in s 10 of the Act states explicitly that “any contract terminated, any deposit or performance bond forfeited, any damages received, any legal proceedings, arbitration or mediation commenced, any judgement or award granted and any execution carried out for the period from 18 March 2020 until the date of publication of this Act (i.e. 23.10.2020) shall be deemed to have been validly terminated, forfeited, received, commenced, granted or carried out”.
Hence, the Act was not helpful to the Plaintiffs by reason of a prior termination of the tenancy.
Observation:
The Dewan Rakyat in fact passed the Act on 25 August 2020. The Senate thereafter passed the Act on 22 September 2020. It was unfortunate that despite the pressing urgency of the pandemic, the Act was subsequently only published on 23 October 2020. The delay of more than seven months from the start of the pandemic to the publication of the Act meant that there was no relief for businesses in respect of any act done during the said seven-month period.
Uni Construction & Realty Sdn Bhd v Tersaim Lall & Ors [2021] MLJU 717 HC which is similar to Uni Construction & Realty Sdn Bhd v Fang Meng Kong & Anor [2021] MLJU 1074 HC
These cases involved suits by purchasers against a developer. The question was whether limitation has set in. The developer asserts that limitation expired on 12.8.2020. This would have affected Tersaim Lall’s claim which was filed on 12.8.2020 but after office hours, thereby arguably filed on 13.8.2020. However, it did not affect Fang Meng Kong’s claim which was filed on 11.8.2020.
The Court held that the developer’s argument with regard to limitation was not sustainable because by virtue of s 12 of the Act, “(any) limitation period specified in section 6 of the Limitation Act 1953 which expires during the period from 18 March 2020 to 31 August 2020 shall be extended to 31 December 2020”.
Observation:
Unlike s 7 of the Act with regard to inability to perform contractual obligations, s 12 is unconditional. There is no need for the person suing to prove that the delay in filing suit was caused by any Covid-19 measures.
Malayan Banking Bhd v All Green Agritech Sdn Bhd & Ors [2021] MLJU 723 HC
Maybank sued for summary judgement due to default in loan payment by the Defendant. The Defendant pleaded the Act to say that the pandemic has affected its ability to pay its loan. However, the Court considered the fact that the Defendant defaulted in its loan on 12.2.2020 (i.e. a month before the start of the pandemic). By reason of the default having occurred prior to the pandemic, the Court proceeded to record summary judgement in the Plaintiff’s favour.
Observation:
Whilst undeniably the Defendant in this case had defaulted one month prior to the pandemic, nevertheless the pandemic would not have been helpful in enabling the Defendant to recover in its business. However, the Court took a strict view of the dates and did not allow the Defendant to rely on the Act to defer its obligations.
Pilecon Engineering Bhd & Ors v Malaysian Trustees Bhd & Ors [2021] MLJU 1167 HC
Similar to the All Green Agritech case, the Court did not allow the Plaintiffs to rely on the Act because the Plaintiffs had previously breached their payment obligations on multiple occasions prior to the pandemic.
Armada Petroleum Sdn Bhd v Alam Maritim (M) Sdn Bhd [2021] MLJU 1515 HC
This case involved a sub-contractor suing for payment. The invoices were issued from December 2019 to July 2020. However, 1 invoice was not paid in full and another invoice was not paid at all. The outstanding sum was slightly in excess of RM1 million.
An unpaid invoice circa June and July 2020 would clearly fall within the pandemic period. The Defendant accordingly pleaded the Act as a defence, in order to defer its payment obligation. For all intents and purposes, the defence seems to fall squarely within the express words of the Act.
Notwithstanding the aforesaid, the Court was not persuaded by the defence. In the words of the learned Judge, the Act could only apply towards “the future inability of the parties to fulfil the obligations under a contract” and “does not cover the obligations already performed by one party”. Since the Plaintiff has already fulfilled its obligations to carry out work undwr the contract, then the Defendant is obliged to pay. “The financial crunch because of the pandemic cannot be an excuse not to pay. It is to be noted that the financial crunch would have affected both the Plaintiff and the Defendant. The Plaintiff alone cannot be penalised as they have already performed their obligations under the contract”.
Observation:
This is a very good decision for contractors. The learned judge made it clear that employers cannot resort to the Act as a means of avoiding payment for works done. Conversely, the interpretation by the learned judge would also apply against main contractors when facing claims by sub-contractors. In other words, payment obligations for works done must still be observed. The Act, as construed by the learned judge in this case, would not be helpful to defer such payment obligations.
Jason Yap Wei Kian v PNSB ACMAR Sdn Bhd [2021] MLJU 1648 HC
This case involved a claim by a purchaser for delay damages due to the developer’s failure to deliver vacant possession on time. Vacant possession in this case was supposed to have been delivered on 26 November 2018 but was instead delivered on 18 July 2020. S 35(1) of the Act provides that the period from 18 March 2020 until 31 August 2020 ought to be excluded from the calculation of any liquidated damages.
However, as the purchaser sued on 26 August 2020, which is prior to the publication of the Act, the Court held that the saving provision under s 37 of the Act applies. Hence, the purchaser is entitled to his full claim for delay damages.
Observation:
This case again shows how the delay in publication of the Act had limited its application.
FEC Cables (M) Sdn Bhd v Permodalan Nasional Bhd [2021] MLJU 1737 HC
Defendant sought to rely on the Act to excuse its breach of a lease agreement. The Court disagreed because the lease agreement was terminated prior to 18 March 2020. However, in coming to its decision, the Court opined that any party who wishes to rely on the Act must “show that the breach or termination…is due to steps taken to overcome the pandemic”.
Observation:
The Court made it clear that it is not enough for the breach or termination to occur during the subsistence of the pandemic. There must also be clear causation to show that the pandemic control efforts was an effective cause leading to the breach or termination.
Union Pile (Penang) Sdn Bhd v Core Rising (Penang) Sdn Bhd [2021] MLJU 1760 HC
The Defendant relied on the Act to excuse its failure to pay rental. However, the failure to pay rental commenced since April 2019 which was pre-pandemic. Therefore, the Court rejected the defence.
Observation:
The pandemic dates would be construed strictly.
Ravichanthiran a/l Ganesan (menjalankan amalan guaman di Tetuan G Ravi) v Lee Kok San [2021] MLJU 1876 HC
The Defendant refused to pay a judgement sum because he was of the view that the learned Sessions Court Judge had erred. However, when there was an attempt to recover the judgement sum from him, he then relied on the Act to excuse his non-payment.
The Court would not accept such an excuse. The Court made it clear that in order to qualify for the protection of the Act, the party seeking to be excused from performing his contractual obligation bears the burden to prove two elements, namely: a. that there was factual inability to perform the contract; and b. that such inability arose due to the Covid-19 measures.
The Court further held that the use of the word “inability” in s 7 of the Act indicated a higher threshold than mere breach. A breach may refer to a refusal of a party to perform his obligation, whereas an inability only arises if the party was clearly unable to perform.
Observation:
It would appear that the Court has adopted a strict approach and would require clear proof before allowing any party to escape its contractual obligation relying on s 7 of the Act.
Gogung Fusion Restaurant (KLCC) Sdn Bhd & Ors v Suria KLCC Sdn Bhd [2021] MLJU 2345 HC
The Appellants sought to rely on the Act to excuse its non-payment under the Lease Agreement, which was rejected by the Court by reason of the Respondent having commenced suit prior to the publication of the Act. However, a second point made by the Appellants was that disputes arising during the pandemic period ought to be referred to mediation as envisaged by the Act.
The Court however upheld the principle that mediation is a voluntary measure. Since there was no agreement between parties to mediate, therefore there can be no compulsory reference to mediation.
Observation:
The introduction of the Covid-19 mediation initiative has helped increase the awareness of mediation. However, parties are sometimes unaware that mediation is strictly voluntary, which means that a party cannot be compelled to mediate (as opposed to, say, adjudication which is statutory by nature). The voluntary aspect of mediation is both its strength in ensuring parties who mediate are at least sincere in undertaking the same, as well as its weakness because parties can simply refuse.
It would be interesting to observe future developments in mediation in Malaysia. For example, there are measures in place in Hong Kong to penalise a party with high costs if he refuses to mediate. Whether such measures would eventually find its way to Malaysia is anyone’s guess for now.
SN Akmida Holdings Sdn Bhd v Kerajaan Malaysia [2021] MLJU 2449 HC
This case raises an interesting point, whereby the Government argued that the Act does not apply to its own contracts. The context was that the contract was seeking to restrain the Government from calling on its performance bond. Whilst there are laws in place to prevent a Court from issuing an injunction against the Government, the more interesting aspect of the case in relation to the Act is the argument that the Act does not apply to the Government. The basis of the Government’s argument was two-fold:
- Firstly, unlike other statutes like the Construction Industry Payment and Adjudication Act 2012 which expressly provides that it applies to Government contracts, the Act simply does not.
- Secondly, by reason of s 63 of the Interpretation Acts of 1948 and 1967, “(no) written law shall in any manner whatsoever affect the rights of the Yang di-Pertuan Agong or the Government unless it is expressly provided or it appears by necessary implication that the Yang di-Pertuan Agog or the Government, as the case may be, is to be bound thereby”.
The Court was persuaded that by reason of the absence of any reference to the Government, therefore the Act ought not apply to Governmental contracts.
Observation:
Clearly the term “construction contract” was sufficiently wide to include Government construction contracts. The Court could well have circumvented s 63 of the Interpretation Acts of 1948 and 1967 simply by stating that the Government would be bound by necessary implication. Furthermore, in entering into a construction contract, the Government is not in fact
exercising any executive powers. There surely must be a distinction drawn between occasions when the Government is exercising its powers, as opposed to occasions when the Government is entering into a business transaction. After all, the Government of Malaysia is an active participant in the construction industry, being the employer for substantial contracts.
Additionally, this decision puts the main contractor in a disadvantageous position because whilst the main contractor cannot rely on the Act vis-à-vis the Government as its employer, there is nothing stopping its own subcontractors from relying on the Act vis-à-vis itself.
Is the Act a vaccine or a placebo?
From the above discussion of the various cases that has come before the Courts, the following principles can be drawn:
- a. The Court will be strict in construing the time-frame of the pandemic. Any pre-pandemic breach would effectively render the Act to be inapplicable.
- b. The Court will be strict in construing the dates of the saving provisions. Any action taken during the pandemic period but prior to the publication of the Act will not attract the application of the Act.
- c. The Court will be strict in determining whether a party’s inability to perform its contractual obligation is in fact due to the Covid-19 measures or otherwise.
- d. The Court will not entertain any attempt to resort to the Act to avoid payments when the works have already been carried out because the excuse under s 7 of the Act must be reciprocal.
- e. The Court will not apply the Act against the Government.
- f. The Court will not compel parties to mediate.
Sure, the existence of the Act does give some sense of comfort. However, as can be seen from the cases cited above, the successful application of the Act thus far has been in extending limitation periods. Thus far, the Courts have failed to be persuaded on other attempts to rely on the Act.