Enact a COVID “moratorium” law to help consumers & businesses cope during MCO

These unprecedented times require legislative intervention and a temporary suspension of all contractual agreements will also help provide some relief to both consumers and business owners including homebuyers and developers. 

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The Coronavirus has derailed the entire world and the current word being bandied about globally is ‘unprecedented’. Such a description is fitting as the devastating effects of this pandemic can be seen and felt without respect for borders, sovereignty, wealth or status.

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COVID -19 has disrupted supply chains, businesses and societies to such an extent not seen since World War II.

Whilst the Government has granted various financial incentives in their economic stimulus packages to supplement and stabilize businesses in these challenging times, one aspect of relief that has been overlooked is the provision of a ‘legal shield’ to people and businesses who are unable to fulfil their contractual obligations due to the lockdown and restrictions during the Movement Control Order (MCO), now extended to 28 April 2020.

How can we protect consumers & businesses from the effects of COVID 19?

Contracts or agreements are nothing new to us as it is part and parcel of our lives. However, the inability to perform or fulfil any contractual obligation during the MCO because lives and businesses have come to a grinding halt was certainly not within the contemplation of most Malaysians, be it individuals, businesses or corporations. It would be utterly unjust to hold them strictly liable for their failure to do so, under the circumstances.

The Government via the Parliament should provide a ‘legal shield’ to offer legislative protection from legal consequences arising from failures or inabilities to perform their contractual obligations and to allow additional opportunities or time to remedy or rectify such deficiencies or shortcoming by individuals or businesses before the other party to a  contract proceeds to enforce their legal rights under such a contract. These should range from:

  • right to forfeit a deposit
  • right to impose interest or other forms of monetary penalties or for financial institutions, the right to recall a performance bond under a default
  • recovery of outstanding loans
  • foreclosure or auction of properties, recovery of motor vehicles for hire-purchase loans.

How is Singapore’s new COVID-19 ACT assisting their people?

On 7 April 2020, the Singaporean parliament passed an Act titled: COVID-19 (Temporary Measures) Act, 2020 (ACT) and it was promptly assented to by the President and gazetted on 9 April.  Its purpose was to provide a temporary measure, to deal with other matters relating to the pandemic before certain dates stipulated within the ACT, and to make amendments to certain existing laws.

Here is how the COVID 19 ACT is providing relief:

1) Where a party to a scheduled contract that is unable to perform an obligation that is to be performed on or after 1 February 2020 or where the inability is materially caused by a COVID-19 event; the ACT prohibits the other party from commencing or continuing an action in court, arbitration or enforcement of immovable property. The prescribed period of relief is six (6) months. In addition to a suspension, there is also an extension of limitation for filing of actions.

The ACT has modified the Bankruptcy Act to increase their monetary limits and the prescribed period for any action has been increased from 21 days to 6 months and in tandem, Singapore’s Companies Act and Insolvency and Restructuring and Dissolution Act have also been modified with increases to the monetary threshold and extension of time from 3 weeks to 6 months before a company is deemed unable to pay their debts. It is an offence for any individual or company to take legal action against the non-performing party if that party has given a notice of his inability to fulfil the contract due to COVID-19.

There are, however, many other areas covered by the ACT that we may not be receptive of.

READ: What is the impact of COVID-19 on Malaysia’s property market?

Malaysia should formulate its own protection laws for COVID-19

Singapore’s ACT could be localized to suit our Malaysian context. Under the Singapore Act, it is a panel of assessors who will decide on the relief/s granted under the Act. The decision of such assessors is final.

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How can the ACT be modified to suit Malaysian context?

Instead of a panel of assessors, it should be the Malaysian Courts who should resolve disputes/grant relief involving COVID-19 cases or to decide whether such cases fall within the scope of a Covid19 event or performance was materially impacted by COVID-19.

Second, there should be a formation of a temporary 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. Moreover, the appointment of an assessor in Malaysia may be politically tainted or industry influenced, thus justice might be denied to the aggrieved party.

Also, the COVID-19 procedure should be simplified with a checklist of documents to be furnished to the presiding Judge to evaluate, assess and decide.

Lastly, lawyers appointed to present and argue their client’s case should limit their professional fees to ‘not in excess of RM3,000’, otherwise it will defeat its purpose. This is a temporary and speedy relief to facilitate regularization of performance and is not meant to cause further hardship to a weaker party or parties already suffering from possible financial and emotional distress.

The ‘Force Majeure’ clause does not qualify for most COVID-19 cases

Most legal experts are trying to determine if COVID-19 falls within the legal concept of ‘force majeure’ and therefore applies to contracts which provide for a ‘force majeure’ event. A ‘force majeure’ clause is a contractual provision which allows the nonperformance of one or more of the contractual obligations by a party/parties due to unforeseen events beyond the control of both parties which prevents the performance of said contract in events such as wars, riots, strikes, civil commotions, natural disasters, epidemics, riots, strikes, government intervention etc.

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However, there is no Force Majeure clause in numerous contracts namely tenancy agreements, property leases, and the statutory Sale & Purchase Agreement (SPA) regulated under the Housing Development (Control & Licensing) Regulations, 1989. It would be unfair to both the buyers and housing developers to enforce strict terms of the contract or to insist on performance during the MCO and to an extent, post-MCO.

In the absence of a ‘force majeure’ provision within our scheduled housing agreements, there arise practical issues which both developer and purchaser would encounter and if unresolved, will lead to unnecessary legal challenges by both developer and purchaser. Issues such as the ability of the purchaser to take vacant possession (VP) under the now extended MCO within the 14 days from the developer’s notice (otherwise deemed to have taken VP) and the commencement of ‘Defects Liability Period’ of 24 months clock has already started ‘ticking’ from the date of notice of VP. The purchaser would be at the losing end in such a scenario.

On the other hand, any delay by the developer to complete construction works due to the MCO and deliver VP within the agreed completion date would consequently mean the developer has to pay ‘additional’ liquidated ascertained damages (LAD). Since construction works is not within the ‘essential services’ category, it is understandable the developer will also likewise suffer financial hardship through the additional delays and payment of LAD.

Meanwhile, most tenants, especially those who are renting retail and commercial units who are unable to pay their rent due to financial difficulty or loss of income during MCO will see them losing their place of business or stay. One of the proposed measures under Singapore’s ACT is to suspend the obligation of non-residential tenants to pay rent for a period of six months. Instead, the rent will be accrued much like the accruing of interest for loans which are being deferred under BNM’s loan moratorium.

Put in place a “mandatory” force majeure relief

We would recommend a form of mandatory ‘force majeure’ relief (temporary) which applies to situations where a party’s ability to perform their contractual obligations is hampered due to the MCO and COVID-19. Under our proposed Act, safeguards to the developer and purchaser can range from the duration of relief, prohibition from penalization (termination/determination/ forfeiture/ levy of penalties) due to breach of obligations under a contract.

Why is it important to enact a COVID-19 Protection Act?

The goal here is two-fold, firstly, to offer temporary reprieve for contracting parties who are impacted during the MCO period and secondly, to provide a platform for continuous economic activity. We anticipate post-MCO and COVID-19, there will be a period of adjustment to a ‘new normal’ environment. A reasonable amount of time is required for the market players to get back on their feet from where they left off before any ‘real activities’ will take effect.

With the threat of a looming local and global recession, it is important for our country to focus on getting back on the economic bandwagon and the enactment of a COVID-19 Act to protect and allow businesses and even investors to continue their activities with confidence. Resources which are much slimmer now after COVID-19 should be channelled to the right direction of economic rejuvenation not towards litigation. We believe Malaysia has the resilience to survive the MCO and regain its status as a progressive and dynamic powerhouse. If we stand by our clarion call “Malaysia Boleh” now is the time.

This article is written by Datuk Chang Kim Loong is the honorary Secretary-General of the National House Buyers Association (HBA), a non-profit, non-governmental Organisation manned wholly by volunteers. The proposals in this article are written in simple language, succinctly to the issues at hand and we suggest that a focus group of legal, economic and financial brains to be appointed to explore and study all possible angles of legal entanglements that may plague post-MCO, COVID-19 and beyond.

Edited by Reena Kaur Bhatt

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