Clause 7 Covid-19 Bill: Complete Answer or Half-Measure?

19 August 2020

1. Construction work contract or construction consultancy contract and any other contract related to the supply of construction material, equipment or workers.

2. Performance bond or equivalent that is granted pursuant to a construction contract or supply contract.

3. Professional services contract.

4. Lease or tenancy of non-residential immovable property.

5. Event contract for the provision of any venue, accommodation, amenity, transport, entertainment, catering or other goods or services including, for any business meeting, incentive travel, conference, exhibition, sales event, concert, show, wedding, party or other social gathering or sporting event, for the participants, attendees, guests, patrons or spectators of such gathering or event.

6. Contract by a tourism enterprise and a contract for promotion of tourism in Malaysia.

7. Religious pilgrimage-related contract.

1. There must be an inability to perform a contractual obligation by the defaulting party;

2. The contractual obligation must arise from a contract that is within the categories of contracts specified in the Schedule;

3. The inability to perform a contractual obligation must be due to the measures prescribed, made or taken under the Act. Note that this includes all the regulations made by the Minister and any direction issued by the Director General for the purpose of preventing and controlling the infectious disease, pursuant to the Act.

1. Clause 7 does not stipulate whether there is a requirement that the contractual obligation that the defaulting party is unable to perform is one which is to be performed on or after a specific date. Nonetheless, the relief would presumably cover contractual obligations required to be performed during the operation period of this relief, i.e. from 18 March to 31 December 2020^[1].

2. The categories of contract set out in the Schedule do not include some types of contracts which may require this temporary relief, in particular, contracts that may affect individuals and small to medium enterprises. These categories of contracts include:

• Contract for the grant of a loan facility by a bank or financial institution^[2]
• General and non-construction related supply contract
• Contract for the sale of goods (that are not covered under the Consumer Protection Act 1999)
• Contract for the provision of (non-professional) services

3. It is interesting to note that Clause 7 has stipulated the measures prescribed, made or taken under the Act as the so-called “force majeure” event for this relief to be invoked, instead of a wider catch-all event, such as “any COVID-19 event”, as seen in the Singapore COVID-19 (Temporary Measures) Act 2020 (the “Singapore Act”). The effect of this is two-fold:

1. It may not be wide enough to cover many contractual obligations affecting individuals and small to medium enterprises, e.g. payment obligations arising from existing contracts, as strictly speaking, the measures prescribed, made or taken under the Act do not prevent parties from performing such obligations; and

2. The measures prescribed, made or taken under the Act may affect the performance of contractual obligations only for a limited time period, e.g. during the Movement Control Order, all businesses (save for those performing essential services) were ordered to be closed, but this order has since been lifted by the Government. Strictly speaking, there is no longer any inability to perform contractual obligations, such as to deliver goods to the other party. 

4. It is anticipated that there will be many disputes as to the meaning of “due to”. These are words that one may typically see in a force majeure clause, which is generally strictly construed by the courts. In order to successfully invoke a force majeure clause, a party is required to show that the inability to perform or delay in performance of contractual obligations has been caused by the force majeure event. There will be a need for the court’s guidance on this. 

5. The Bill does not provide for any consequences for acting in contravention of Clause 7. Under section 8 of the Singapore Act, any person who, without reasonable excuse, contravenes the Act shall be guilty of an offence and shall be liable on conviction to a fine not exceeding SGD1,000.

6. There is no mechanism to determine whether the case in question is one to which Clause 7 applies. Under the Singapore Act, the party seeking relief under the Act must serve a notification for relief to the other party to the contract. The parties may then apply to the Registrar of assessors to appoint an assessor to make a determination as to whether the case is one to which the relief applies.

7. Clause 9 provides for a voluntary mediation process to determine any dispute. Given the nature of the mediation process, which is not mandatory, parties will likely continue to refer their disputes through the court or arbitration process.

8. The Bill contains a saving provision (“Clause 10”) which provides that “… any contract terminated, any deposit or performance bond forfeited, any damages received, any legal proceedings, arbitration or mediation commenced, any judgment or award granted and any execution carried out for the period from 18 March 2020 until the date of publication of this Act shall be deemed to have been validly terminated, forfeited, received, commenced, granted or carried out.” As the Bill is unlikely to come into operation until late September this year^[3], Clause 10 could drastically curtail the efficacy of Clause 7 as it may result in a surge of legal actions being commenced by non-defaulting parties to preserve their existing contractual rights by relying on Clause 10.