Introduction
Categories of contract under part II of covid-19 act
Tenancy
Construction contract
Comment
Part II of the Temporary Measures for Reducing the Impact of Coronavirus Disease 2019 (Covid-19) Act 2020(1) (part II of the covid-19 act), which offers relief to contracting parties that cannot perform contractual obligations, came into operation retrospectively from 18 March 2020, upon the enforcement of the covid-19 act on 23 October 2020. In June 2021 the former minister in the prime minister's department (parliament and law), Datuk Seri Takiyuddin Bin Hassan, once more extended the operation period of part II of the covid-19 act from 1 July 2021 to 31 December 2021.(2) Thus, for the time being, protection under part II of the covid-19 act is still available to eligible businesses, at least until the end of 2021.
Throughout the operation of part II of the covid-19 act (which has been effective for more than 18 months), there have been many uncertainties in the legal and business sectors regarding the precise scope of its operation, especially in respect of section 7 (the inability to perform contractual obligations) and section 10 (saving). The lack of reported judicial authority in this regard has also contributed to these uncertainties.
Nonetheless, from the few reported cases discussed in this article, it can generally be observed that the courts have been vigilant in ensuring that only those that genuinely satisfy the requirements are afforded protection under part II of the covid-19 act.
Categories of contract under part II of covid-19 act
In WPP Business Services Sdn Bhd v Cosmopolitan Avenue Sdn Bhd,(3) there was a dispute between a landlord and a tenant in respect of the termination of the tenancy agreement and vacation of the premises. The parties entered into a settlement agreement in respect of the dispute. Based on the settlement agreement, the landlord was supposed to make certain payments to the tenant. Apparently, the landlord failed to make the necessary payments in accordance with the settlement agreement.
The tenant commenced an action against the landlord and applied for a summary judgment for, among other things, the principal sum of RM600,000. In opposing the summary judgment application, the landlord argued that its financial situation had been affected by the covid-19 pandemic and the imposition of the movement control orders (MCOs). As such, the landlord attempted to seek protection under the covid-19 act.
One of the key issues in WPP Business Services was whether the settlement agreement fell under any of the categories of contract specified in the Schedule of the covid-19 act.
The sessions court held that the landlord was not entitled to get protection thereunder, except for some remaining payments, as the settlement agreement (notwithstanding that it had been entered into based on a tenancy agreement) did not fall under any of the categories specified in the Schedule of the covid-19 act. Additionally, the court was also not convinced that the landlord was facing financial difficulties as a result of the MCOs.
In Ang Pi Kui v Lee Wee Teck,(4) the plaintiff, a tenant of a coffeeshop, filed an action in court to seek, among other things, a declaration that their landlord was not entitled to terminate the tenancy agreement. The tenant argued that the landlord could not terminate the tenancy agreement due to section 7 of the covid-19 act.
One of the key issues that arose in Ang Pi Kui was whether the landlord was entitled to terminate the tenancy agreement.
The high court held that the tenant was not entitled to protection under part II of the covid-19 act because the tenancy had expired on 31 August 2020. In the absence of a notice of renewal, the tenancy had been terminated on 18 September 2020. Section 7 of the covid-19 act did not apply in this case as the saving provision of section 10 of the covid-19 act applies to contracts terminated between 18 March 2020 and 23 October 2020, and both the expiry date (31 August 2020) and the termination date (18 September 2020) of the tenancy were within this period.
In Pilecon Engineering Bhd v Malaysian Trustees Bhd,(5) the plaintiffs filed an action for, among other things, a reasonable time extension to comply with their payment obligations under a consent judgment. In support of their action, the plaintiffs argued that the pandemic had adversely affected the first plaintiff, who was in the construction business. As such, the plaintiffs sought to rely on section 7 of the covid-19 act for protection of construction contracts.
One of the key issues before the high court in Pilecon Engineering was whether the plaintiffs were entitled to protection under section 7 of the covid-19 act.
The high court held that the plaintiffs were not entitled to protection because they had breached their payment obligations multiple times in previous consent judgments and settlement agreements between the parties, prior to the pandemic.
The above decisions may serve as guidance on how part II of the covid-19 act may be interpreted by the courts. However, it appears that there is still no appellate authority in relation to part II. In any event, it is scheduled to expire by the end of 2021. It remains to be seen whether the government will enact another extension order.
For further information on this topic please contact Lee Xin Div at Gan Partnership by telephone (+603 7931 7060) or email ([email protected]). The Gan Partnership website can be accessed at www.ganlaw.my.
Endnotes
(1) Temporary Measures for Reducing the Impact of Coronavirus Disease 2019 (Covid-19) Act 2020 (Act 829).
(2) Temporary Measures for Reducing the Impact of Coronavirus Disease 2019 (Covid-19) (Extension of Operation) (2) Order 2021 – PU(A) 287/2021.
(3) WPP Business Services Sdn Bhd v Cosmopolitan Avenue Sdn Bhd [2021] MLJU 1042 (sessions court).
(4) Ang Pi Kui v Lee Wee Teck [2021] 1 LNS 58 (high court).
(5) Pilecon Engineering Bhd v Malaysian Trustees Bhd [2021] MLJU 1167 (high court).