Covid-19 Bill: The (legal) vaccine for contracts?

By Chang Kim Loong

Inordinate delays in the Covid-19 ‘Legal Shield’ has rendered it redundant and meaningless. But, it is better to hold onto something than trying to get something better. 

On August 12, the Temporary Measures For Reducing The Impact Of Coronavirus Disease, 2019 (Covid-19) Bill, 2020 was tabled in Parliament for its first reading. 

The purpose of the Bill is clear enough – an Act to provide for temporary measures to reduce the impact of Covid-19 including to modify the relevant provisions. 

We have previously mooted the idea of a ‘legal shield’, ‘time freeze’ and temporary suspension of all contractual covenants to provide temporary relief, offer extension of time for rectification and to minimise legal entanglement.

But is the Bill capable of meeting these aspirations? We have time and again, forewarned the government that delays in passing of the proposed law would be fatal to all the aggrieved parties.

On April 16,  we have highlighted the need for a law to ‘time freeze’ and temporarily suspend all contracts so as not to cause further hardship to a weaker party who does not have an equal bargaining strength with the other contractual party.

We too have periodically highlighted and waved ‘red flags’ on the urgency of the Bill and even liaised with the related people of high office. 

We were hopeful that the Bill would be tabled in the May 18 Parliament sitting. But, alas the Covid-19 Bill suffered inordinate delays for whatever reason best known to the government.

The delays will continue until the Bill is put through the process of debate at the second reading between Aug 19 and 21 and whereupon, if there are no objections, the Covid-19 Bill may be called for third reading (passing of the Bill) on the last day of Parliament on Aug 27. 

The Bill has to go through the House of Senate that convenes from Sept 2 to 23. Thereafter, the Royal assents to the said law is received/ endorsed and subsequently it will be gazetted and published as law. 

Given the pace of the making of the law, we anticipate that the law will be ‘published’ and implemented sometime early October. This is a rather optimistic projection which does not take into account further political interruption. 

Effluxion of Time 

From the start of the MCO on March 18 until now, the effects of MCO and Covid-19 have been set in motion with high unemployment, sluggish economy (domestic and global) and a projected rise in non-performing loans when the loan moratorium ends on Sept 30. 

Affected parties would have ‘moved on’ because of the effluxion of time. In other words, a late Covid-19 Act is redundant in nature. Even our Director General of Health had stressed that early medical treatment is key to preventing deaths for those who have contracted the virus. Death renders medical treatment redundant for patients who seek treatment too late.

It is the same for tabling a late Covid-19 Bill and the passing of a tardy Covid-19 Act. It is impossible to turn back time and undo the carnage of Covid-19 by passing a Covid-19 Bill any later than now! 

The effect of such a late Covid-19 Bill which is retrospective in nature will be simply too late and redundant in nature. In most, if not all contracts, there is always a stipulation that a party to a contract must perform their obligation within a certain time.

Time is of the essence of a contract and the failure to follow stipulated timelines will be considered an event of default giving rise to enforcement of rights or remedies by the other contracting party. 

You cannot legislate back to life a business that has already closed down due to the failure of the business owner to sustain their business and pay rent during the MCO. 

Biting the bullet

The popular proverb “better late than never” will not apply in the Covid-19 Bill. In fact, it appears that many people who were living in hope of being able to rely on a Covid-19 law to obtain temporary reprieve will be disappointed to know that there is a ‘disclaimer clause’ that read inter-alia: 

‘Notwithstanding Section 7 (Inability to perform contractual obligation), 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 18th March, 2020 until the date of publication of this Act shall be deemed to have been validly terminated, forfeited, received, commenced, granted or carried.’ 

It seems like a scenario of ‘let bygones be bygones’ and we have to ‘bite the bullet’ and move on in life (whatever left of it) pun intended.

Evidently, it doesn’t matter anymore when the party, having the upper hand, would have inflicted damages painfully, no matter how legally justified it may be, to the weaker contracting party. 

The makers of the Bill appear to have forgotten the real objective and aspiration of this social legislation, which is to suspend, for a specified period; to afford a legal shield on contracts and give a chance and lifeline to individuals and businesses in the post-Covid-19 environment. 

Form a designated High Court to preside over Covid-19 cases

We feel that instead of a mediation process (which includes the Minister’s appointment of a mediator, role of a mediator, conduct of mediation and conclusion of mediation by way of a Settlement Agreement), it should be the Courts which should resolve disputes involving Covid-19 cases and to grant whatever relief/s, or to decide whether such cases fall within the ambit of a Covid-19 event, or whether performance was materially impacted by Covid-19. 

There should be a formation of a specialised designated High Court, for a prescribed period, to preside over all Covid-19 related cases. After all, our Federal Constitution prohibits exclusion of jurisdiction of the Courts. 

Furthermore, the appointment of a mediator in the Malaysian context is far too arbitrary and any appointment may be politically tainted, or industry-influenced, and the result of which, justice is denied to the aggrieved party. 

Will the costs be a deterrence to resolving disputes via mediation? The mediators’ fees may not be regulated therefore subject to gross inflation. 

The Courts are more expeditious and cost effective than mediation and the Courts are also a neutral arbiter of disputes. 

Why is there a necessity to reinvent the wheel when the legal process is available vide the Courts of Law? Even in Courts, there is a process of mediation where parties appear before the Registrar (sometimes presided by Judges) in their chambers attempting possible out-of-court settlement. 

We have proposed that the Covid-19 procedure at the High Courts should be simplified, perhaps with a prescribed form and checklist of documents to be furnished to the presiding Judge to evaluate, assess and decide.

Lawyers appointed to present and argue their client’s case should even limit their professional fees to “not in excess of RM5,000”, as otherwise it would defeat its purpose. 

This is a temporary and speedy relief to facilitate regularisation of performance and is not meant to cause further hardship to a weaker party, or parties already suffering from possible financial and emotional distress. 

Modification to the Housing Development (Control & Licensing) Act, 1966 

Section 34 and 36 seek to deal with issues related to ‘late payment interest’ and ‘defects liability period’, respectively requiring the purchasers to ‘apply to the Minister for an extension of period’ beyond the impacted period of March 18 to August 31.

This avenue to obtain an extension sounds good on paper. However, the mechanism for application, factors to consider for allowing extensions and timeline for the entire process is not stated and accords far too much power to the Minister. 

The reading of the Bill is simple enough; the aggrieved purchaser may appeal to the Minister and render reasons why he/she deserves an extension. If all the affected purchasers (if they are capable of even offering a valid explanation), were to write to the Minister, the Ministry will be overwhelmed with voluminous letters; having to structure the files; deliberate on each and every appeal through their internal committee/s and responding effectively, it will surely take time. 

Why take on more work? 

The extension should be automatically extended to Dec 31 (the protection period) without the necessity for the purchasers to apply. Afterall, by the time this Covid-19 law is ‘published’ and implemented; its’ nearly the end of the year and irrelevant to purchasers and developers. 

Also, we are still trying to figure out why there is no modification to the Strata Management Act, 2013 (SMA) under the Covid-19 Bill.

This will address the issues related to delays in conducting AGMs/ EGMs for election of members of JMBs/ MCs/ SMCs, delays in the filing of statutory forms, audited accounts and resolutions and the penalties in late filings. 

Perhaps, the Minister has been advised by the Attorney General, Chambers to invoke her wide powers in Section 150 (Regulations) and Section 151 (Power to Exempt) to address the issues vis-à-vis ‘Special Circumstances’ inclusive of Covid-19 pandemics.

If this is so, we appeal to the Minister to act expeditiously. 

Datuk Chang Kim Loong is the Sec-Gen of the National House Buyers Association (HBA) a non-governmental and not-for-profit organisation.

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