4th Extension of the Operation of Part II Covid-19 Act 2020 – friend or foe?

Poon Wei Ying

Legal Associate
Kuala Lumpur

The Temporary Measures for Reducing the Impact of Coronavirus Disease 2019 (Covid-19) Act 2020 came into operation on 23 October 2020. What this Act did was essentially prevent a party from bringing legal action against another party who could not perform their contractual obligations owing to the measures imposed by the Government to control the Covid-19 pandemic in the country. This includes measures like the Movement Control Order (MCO) that decimated many businesses.

However, the legal action bar is only limited to categories of contracts specified in the Schedule of the Act and includes among others commercial lease / tenancy contracts, construction work / consultancy contract, professional services contract and hire purchase contracts entered into by micro enterprises.

While the Act was published on 23 October 2020, section 5 of the Act backdated the legal action bar to 18 March 2020, that is, the first day the MCO was implemented. Nonetheless, section 10 of the Act provides that any contract terminated, any deposit forfeited, any damages received, any legal proceedings commenced, any judgment granted and any execution carried out for the period from 18 March 2020 until 23 October 2020, are deemed to be valid.

It is important to note that a party being sued may only rely on the legal action bar to starve off the legal action only if that party is able to show that his/her business was indeed affected negatively by the measures imposed by the Government. Otherwise, the legal action may be allowed to proceed against the party being sued.

Originally, the legal bar was supposed to expire on 31 December 2020. However, this has been extended 4 times with the latest extension being made vide an Order dated 23 December 2021 i.e., from 1 January 2022 to 22 October 2022.

Whilst such extension grants relief to small and medium-sized businesses in respect of their contractual obligations (e.g., payment of monthly rent and payment to suppliers), it frustrates the party with the higher bargaining power as they are barred from enforcing their rights under the contracts by either pursuing a legal action or enforcement action. Such extensions inevitably disrupt the pace of commercial transactions, from entering into new contracts to termination of contracts.

In the interim, parties are encouraged to resolve any dispute by mediation or entering into negotiations with one another regarding their inability to perform the contractual obligations. Mediation may be explored via the Covid-19 Mediation Centre set up under section 9 of the Act by the Prime Minister’s Office. More information may be obtained from the centre’s website: www.pmc19.gov.my/en-index.html

Only when the parties to a contract are willing to explore the possibility of a solution together that both parties can tide through the challenges brought by the Covid-19 pandemic.

About the Author

Poon Wei Ying is an Associate of NKPT who graduated with First Class Honours from the Cardiff University, United Kingdom. She believes in giving back to the society and that education can change a person’s life.