Monday, April 6, 2020

Malaysia too needs a Covid-19 Bill

The Star Biz

by Roger Tan

MALAYSIA should enact a law similar to the one proposed by the Singapore government to offer temporary relief to businesses, in particular SMEs and individuals who are unable to perform their contractual obligations because of the movement control order (MCO) brought about by the Covid-19 pandemic. 

On April 1, the Singapore Ministry of Law announced that it intended to introduce the Covid-19 (Temporary Measures) Bill this week. 

The Bill will have a retrospective effect and cover contractual obligations that are to be performed on or after Feb 1,2020 and contracts that were entered into or renewed before March 25,2020. 

According to its statement, Feb 1 was used as the approximate date when the impact of Covid-19 started to be significantly felt in Singapore’s economy. 

These measures will be in place for a prescribed period, which will be six months from the commencement of the new law, expected to come into force this month itself, and may be further extended for up to a year from the commencement of the new law. 

In other words, the non-performing party’s liabilities will be suspended and non-enforceable during the prescribed period. 

Contracts covered by the Bill are: 

> Non-residential leases and licences in that if the commercial tenants or licensees are unable to pay rent for February and/or March, they may seek relief; 

> Construction and supply contracts in that the contractors will not have to pay damages for late delivery or non-performance of contractual obligations; 

> Contracts for the provision of goods and services (eg, venue, catering) for events (eg, the cancellation of weddings, business meetings) and for visitors to Singapore, domestic tourists or outbound tourists, or promotion of tourism (eg, the cancellation of cruises, hotel accommodation bookings), for example, there shall be no forfeiture of booking fees or deposits; and 

> Certain loan facilities granted by a bank or a finance company to SMEs with turnover of not more than S$100mil in the latest financial year. 

The Bill will prohibit a contracting party from taking the following legal actions against a non-performing party: 

> Court and insolvency proceedings. As regards insolvency proceedings, the monetary thresholds to take bankruptcy or insolvency proceedings against individuals and businesses (companies and partnerships) are increased to S$60,000 and S$100,000, respectively. 

Similarly, the statutory period which debtors are required to respond to creditors before insolvency proceedings can be commenced will also be lengthened. 

> Enforcement of security over properties used for the purpose of business or trade. This covers private-hire drivers who are unable to afford monthly instalments on their hire-purchase loans. 

> Call on a performance bond given pursuant to a construction contract. 

> Termination of leases of non-residential premises. 

If relief is given under this new law, it will become an offence for any individual or organisation 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. 

According to the Singapore Ministry of Law, it will also employ about 100 assessors (mainly lawyers) to resolve disputes arising from the application of measures under this new law. 

This is to safeguard against any unfair outcomes, especially when parties fail to come to an amicable settlement or they dispute the application of the new law. 

The assessors’ decisions will be final and not appealable. Similarly, parties are not allowed to be represented by lawyers, and there will be no order as to costs. 

I am of the view that this protective legislation as proposed in Singapore to protect contracting parties should also be introduced here, urgently.  

However, our legislation should be simple and to the point. 

It should protect all parties to any contract from being deemed to be in breach of the contract simply because of an inability to perform any obligation of the contract owing to Covid-19 and, in particular, due to the MCO. 

Many contracting parties, either on their own or through their solicitors, have not been able to perform their contractual obligations owing to the MCO. 

For example, whilst banks are open for business, lawyers are not permitted to return to their office to retrieve their files or access their cheque books. 

Hence, solicitors are not able to release moneys held by them as stakeholders. 

It follows that legal services should have been listed as essential services in the regulations made under the Prevention and Control of Infectious Diseases Act, 1988 (Act 342). Vendors of properties are also unable to deliver vacant possession of properties to purchasers. 

As land offices are also closed, bank solicitors are not able to register transfers of land title and charges to financing banks. 

This will result in the banks not being able to release loan sums to complete a sale and purchase transaction. 

As a result, such purchasers and borrowers are not able to complete the sale within the period stated in the sale and purchase agreement (SPA), which unless extended by the vendors, is an event of default, entitling the vendors to terminate the sale and forfeit the deposits as most agreements do not contain clauses dealing with force majeure or changes in circumstances. 

Hence, a statutory force majeure clause should be automatically inserted into such written contracts to excuse any inability of a contracting party to perform due to Covid-19 and the MCO. 

It should apply to all contracts, including loan and financing contracts, SPAs of immovable and movable properties, tenancies, hire-purchase agreements and construction and services contracts. 

On the other hand, the application of the limitation period should be automatically suspended during the MCO period and an extension of time, which is commensurate with the MCO period, should be automatically given. 

Needless to say, a brief period of moratorium should be imposed to prevent recovery and court proceedings being taken against contracting parties. 

This would give a chance and lifeline to individuals and businesses to get back on their feet in a post-Covid-19 environment. 

Like the Singapore Bill, the right to commence insolvency proceedings should be deferred and restricted accordingly.

Further, instead of appointing assessors to deal with disputes arising from this new law, we can avail to the ready pool of advocates and solicitors who sit as presidents in various tribunals such as the Tribunal for Consumer Claims; the Tribunal for Homebuyers’ Claims and the Tribunal for Strata Management. 

These presidents can be empowered and automatically roped in to deal with such disputes under the new law. This is indeed an extraordinary time and it requires extraordinary measures. 

Stay safe and stay positive everyone. Let us all protect ourselves and our country against Covid-19.

Datuk Roger Tan is a senior lawyer and the chairman of the Bar Council’s Conveyancing Practice Committee. Views expressed here are entirely his own.

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