THE TWO FACES OF JANUS: THE COVID-19 ACT
Updated: Dec 13, 2020
Janus was a pagan god worshipped by the ancient Romans before an event commenced or during transitional periods such as from war to peace. Commonly depicted with two faces pointing towards opposite directions, the two-faced god represents the past and future, opposing sides but also deceit. As this article shall explain below, the Covid-19 Act is an instrument meant to guide us on navigating this post-coronavirus age but regrettably, does not live up to all of its tales.
The Temporary Measures for Reducing the Impact of Coronavirus Disease 2019 (Covid-19) Act 2020, commonly referred to as the Covid-19 Act (“the Act”), was gazetted on 23 October 2020 and is a legislative instrument intended to retrospectively cure the harms created by the pandemic on legal processes. Like it says on the tin, it is intended to be a temporary measure to reduce the pandemic’s effect on Malaysians but while seemingly well-intentioned, the attested impact may be arguably little.
Unless expressly provided for in the Act, the Act has comes into operation and will remain as law for a period of two (2) years from the date of publication which is 23 October 2020. It has been stated that the Act shall prevail in the event of a contradiction with other written laws.
The Act seeks to introduce measures to ease the negative impact of the abrupt lockdown measures on businesses and citizens’ lives primarily through the amendments to 16 existing Acts. The most notable of which are the Insolvency Act 1967 (“Insolvency Act”), the Housing Development (Control and Licensing) Act 1966 (“HDA”), the Distress Act 1951 and several others. This Article shall focus on the amendments to these Acts as well as the introduction of Section 7 to protect contractual obligations under listed contracts.
The Act seeks to assist parties who were or are unable to perform any contractual obligation from 18 March 2020 until 31 December 2020 via Section 7 of the Act which states that if a party has an “inability” to perform a contractual obligation (arising from listed contracts in the Schedule for Section 7) due to the measures prescribed under the Prevention and Control of Infectious Diseases Act 1988 to prevent the spread of Covid-19 shall not give rise to the other party exercising their rights under the contract.
Therefore, the legal test for a party to succeed in having the Act apply to its situation would be to prove that there was an actual “inability to perform” obligations as stipulated by the contract.
However, the Act seeks to hold off contractual obligations until December 2020. In those situations, it would be more difficult to prove that one had an actual inability to perform given that one could have foreseen the impact of the lockdown and taken certain measures to perform the contract especially contracts signed during the various incarnations of the Movement Control Order (“MCO”) such as the Conditional and the Recovery MCO. The nuances in this argument on whether one had an inability to perform the contract would certainly lead to more litigation and therefore, not benefit parties who have been most affected by this pandemic.
Effectively, a party should not be able to exercise its right in terminating a contract for failure to complete obligations because of Covid-19 or the various MCOs such as termination of a construction contract for failure to execute a project or levying penalties for cancellation of events due to Covid-19.
However, the deception lies in the delay of time that the powers that be have accrued in pushing for the Act. Up till 23 October 2020, parties would have had the opportunity to enforce or preserve their usual legal rights by commencing legal actions. This is reinforced by the saving provision in the Act where forfeited deposits, damages or judgments from legal proceedings from 18 March 2020 until the date of publication of the Act is deemed to be validly done. Therefore, while seeming to protect the most vulnerably affected by this pandemic, the chicanery in the drafting is apparent and amiss.
Further, Section 9 loosely proposes a mediation arrangement through which parties can attempt to amicably resolve their differences with the assistance of a mediator. There is a possibility of future legislations where the Government will clarify the relevant mediation procedures to be adopted for such an action by parties. We believe that this can be overcome by existing mediation facilities including but not limited to court mediation centres or simply through the appointment of a mutually-agreed mediator between affected parties.
However, the mediation process has been made voluntary by the Act and would therefore require the agreement of both parties to even commence the first attempt at mediation. Due to the savings provision, there is an inevitable unequal bargaining power where the Goliath with the “saved” legal rights can and almost likely will pursue legal proceedings. Conversely, this may be at the advantage of some parties who do not wish to be forced to settle the disputes through mediation. Therefore, it would seem that attempts for mediation, while worthwhile, may be futile for the underdogs. This problem is exacerbated by the aforementioned test in proving inability to perform those contractual obligations.
The proposed modifications to the HDA was meant to abate the financial consequences on both home-buyers and developers alike. From the home-buyer’s perspective, Section 34 of the Act states that the developer will not be allowed to levy late payment charges for any failure to pay instalments for the period between 18 March to 31 August 2020. Further, home-buyers are entitled to seek an extension of time for further suspension of the late payment charges beyond 31 August 2020 but the burden of doing so lies with the home-buyer herself. In such a scenario, the relevant Minister would be in charge of the time extension.
On the other side of the coin, Sections 35 and 36 of the Act protects developers through the exclusion of the time period between 18 March to 31 August 2020 from the calculation of defect liability period and time for delivery of vacant possession.
It must be highlighted that the Act similarly allows the developer to apply for an extension of time to deliver vacant possession and defect liability period but the conditions enabling them to do so have not been specifically stated. This lack of clarity may provide the opportunity for some developers to exploit the provisions of the Act by lengthening the period of vacant possession delivery and the defects liability period, even if and especially when it does not pertain to the restrictions caused by the MCOs.
THE DISTRESS ACT
The Act introduces an amendment to the Distress Act via Section 30 where it states that landlords cannot distrain for arrears of rent from the period of 18 March to 31 August 2020. This applies to tenants of all premises but the fact that the Act comes into effect after the critical period of the complete lockdown of Malaysia between 18 March to 9 June 2020 which severely impacted tenants who were not getting paid from their employers or may not have been employed with no recourse to find another form of employment.
Further, it does not bar a landlord from going to court to recover unpaid rentals. For impecunious tenants, this would appear to be going against the spirit of the Act and one would have to rely on the court’s discretion to remedy the grievances in a fair manner. It is likely that the judicial system, where discretion is required, may exercise its powers in favour of an impecunious tenant. However, the Act is creating a space promoting litigation as opposed to tempering litigious spirits during these uncertain times.
THE INSOLVENCY ACT
On the bright side, one promising aspect of the Act would appear to have come in the form of the Section 20 of the Act which generously increases the debt threshold to RM100,000 and therefore, prohibits creditors from commencing bankruptcy suits against debtors unless the aggregate amount of debts amounts to at least RM100,000. This shall remain in operation until 31 August 2021 and this fact shows the government acknowledging the potential long-term impact of Covid-19 on many individuals.
For commercial entities, especially small and medium enterprises, the existing protections from being wound-up unless one’s debt-threshold exceeds RM50,000 and the expanded time limit for winding-up notices to six months should remain.
While the Government’s attempt to take the edge of the harsh toll of MCO-related measures on businesses and individuals is commendable, the Act cannot be viewed as the saving grace that would benefit most Malaysians for it lacks clarity when it concerns the possibility of your situation falling under the scope of the relevant sections and therefore, would be deemed worthy of its hallowed blessings.
At its best, the Act has been crafted to benefit stakeholders within the dispute resolution mechanism due to the lack of guidance on the types of alternative dispute resolution mechanisms available. Further, discretionary powers given to relevant Ministers under the Act creates a possibility for uncertainty in the law to occur.
While many other nations were swift to take action, the government’s late introduction of the bill and the added delay in gazetting the Act misses the critical period from 18 March to 9 June 2020, and the damage may have already been done. It is important to note that while the Act acts retrospectively, the time the Government has taken to publish the Act in the Gazette has given certain parties the opportunity to preserve their rights under the law and therefore, makes the use of the Act by other parties futile.
Inadvertently, the late introduction has not stopped business from sustaining losses, leases from being terminated, individuals from being evicted from rented properties and other business contracts from being terminated due to Covid-19. What remains to be seen is in the enforcement of the Act if it will achieve the objective of providing relief against financial constraints sustained during the MCO.
Thulasy Suppiah (Senior Associate)
Haamsaaveni Kumar (Pupil)