Introduction
Facts
Issues
Decision
Comment
The covid-19 pandemic, which began in March 2020, has undoubtedly caused major disruptions across numerous industries and has led to unexpected changes to business operations. To make matters worse, there has been much uncertainty as regards the interpretation of the phrase "inability to perform contractual obligation" under section 7 of the Temporary Measures for Reducing the Impact of Coronavirus Disease 2019 (Covid-19) Act 2020 (the Act). As a result, there have been broad interpretations of the phrase.
The Act's purpose is to provide temporary relief to parties affected by the pandemic and the consequential lockdowns. However, due to the open-ended and ambiguous wording that is used in the Act, numerous cases have been filed in the Malaysian courts to determine the degree of one's inability to perform contractual obligations.
Given that the purpose of the Act is to avoid abuse by unscrupulous parties, the courts have exercised caution to ensure that only those with genuine proof are protected under the Act. Therefore, the interpretation of the wording in the Act is circumstantial.
The high court has recently interpreted "inability" in Ravichanthiran A/L Ganesan v Lee Kok Sun.(1)
The plaintiff, Ravichanthiran A/L Ganesan (Ravinchanthiran), an advocate and solicitor at G Ravi, filed an action in court against Lee Kok Sun (the first defendant) as the sole proprietor of L&L Brother Engineering Services (the second defendant) for unpaid legal fees for services previously rendered to the defendants. Ravinchanthiran further claimed against the first defendant's current solicitor, Shaik Saleem (the third defendant), for conspiring with the first and second defendants. All three defendants then counterclaimed against the plaintiff for, among other things, 200,000 ringgit, which was the amount that the plaintiff had misappropriated from a judgment sum obtained on behalf of the second defendant from a previous suit.
At the sessions court, the plaintiff's claim was dismissed, and the defendants' counterclaim was allowed. Dissatisfied with the decision, the plaintiff appealed to the high court and applied for a stay of execution pending the appeal.
The following issues were canvassed before the high court:
- Was there a special circumstance that could warrant a stay of execution?
- Was the plaintiff unable to perform his contractual obligation?
First issue
The high court concluded that the plaintiff had provided no evidence to show that the defendants were not in a financial position to repay the judgment sum to the plaintiff if the appeal was successful. As such, the high court disallowed the plaintiff's application for stay.
Second issue
The high court observed that the wording of section 7 of the Act clearly indicates that the burden of proof is on the defaulting party to establish the "inability to perform contractual obligation" due to the measures prescribed, made or taken under the Prevention and Control of Infectious Diseases Act 1988 (PCIDA).
The judicial commissioner then categorised "inability" into:
- "declared inability" – where the defaulting party expressly declares its inability to perform the contractual obligation; or
- "factual inability" – where the facts render it inevitable that the defaulting party is unable to perform its contractual obligation.
In addition to categorising a party's inability to perform an obligation, the high court further stressed that the word used in section 7 is "inability", not "refusal". Such "inability" to perform would have a higher threshold than a mere breach of contract when considering that the dictionary defines "inability" as the "state of being unable to do something", in addition to the Federal Court's interpretation of the words as "unable to perform".(2)
The high court's decision determined that "inability" should be factual and not merely a declared inability. As the plaintiff had failed to adduce any evidence pertaining to his inability to perform his obligation, be it factual or declared, and that such inability was due to measures prescribed, made or taken under the PCIDA, his refusal or unwillingness to pay fell beyond the purview of "inability". To this end, the high court held that the Act was inapplicable in this case.
First issue
When it comes to a judgment that is purely monetary in nature, it is often more difficult for the defaulting party to hit the metaphorical pause button by succeeding in an application for a stay of execution pending appeal. This is unless the defaulting party can, among other things, establish that a company is insolvent or is a foreign company. This alone would amount to a special circumstance.
Second issue
At the time of writing, there is no reported case where section 7 of the Act has been successfully invoked by the defaulting party. This shows that the courts have been cautious in applying section 7 to avoid causing an overwhelming volume of defaulting parties to circumvent their liability because of the pandemic.
As such, it remains questionable as to whether the Act will meet its intended purpose. Nevertheless, this case has provided clearer guidance on the interpretation of "inability to perform" for future litigants.
For further information on this topic please contact Min Lee Tan or Hui Juan Lee at Gan Partnership by telephone (+603 7931 7060) or email ([email protected] or [email protected]). The Gan Partnership website can be accessed at www.ganlaw.my.
Endnotes
(2) SPM Membrane Switch Sdn Bhd Kerajaan Negeri Selangor (2016) 1 CLJ 177.