I READ with interest Sitpah Selvaratnam’s letter, and share the learned writer’s view that Parliament needs to pass a Covid-19 law now, and not during the session to be held from July 13 to August 27.

Let me share the facts of a contractual dispute that was decided in 2017.

The defendant was a licensed housing developer. The defendant embarked on a housing project in Bandar Damansara. Pursuant to two sales agreements (SAs), the defendant sold two properties to the plaintiff. The defendant delayed in delivering vacant possession for the properties, and further delayed in completing the common facilities.

Under the SAs, the defendant agreed that if vacant possession was not delivered within the stipulated time frame, the defendant would immediately pay the plaintiff liquidated damages at a rate of 10% per annum, calculated on the purchaser price until the date of delivery. The defendant did not deny the delay, but refused to pay the late-delivery damages.

The defendant delayed in delivering vacant possession of the first property by 2,847 days, and delayed completing the common facilities by 2,834 days. The delay in respect of the second property was 2,895 days (vacant possession) and 2,882 days (common facilities).

The total damages came up to RM1,406,626. The plaintiff sued the defendant for the damages.

As stated above, the defendant did not dispute that there was delay in the completion and handover of the properties. In its defence, the defendant contended that it was due to factors or events beyond its control, namely a dispute with the main contractor, escalation in the cost of raw materials and finance charges, rectification works and others.

In other words, the defendant contended that the events constituted force majeure (frustration), which justified the completion time being extended for late-delivery charges to be avoided.

The SAs were in the statutory prescribed form (Schedule H) under the Housing Development (Control and Licensing) Act 1966 (HDA). The form does not contain any force majeure clause. Force majeure may be explained as follows:

“What is referred to as force majeure in our law (as opposed to French law, from which that term originates) is really no more than a convenient way of referring to contractual terms that the parties have agreed upon to deal with situations that might arise, over which the parties have little or no control, that might impede or obstruct performance of the contact. There can therefore be no general rule as to what constitutes a situation of force majeure. Whether such a (force majeure) situation arises, and where it does arise, the rights and obligations that follow would all depend on what the parties, in their contract, have provided for.”

As there was no agreement between the parties to the sale to include a force majeure clause in their contract, there could be no question of the events being beyond the control of the defendant so as to deny the plaintiff the right to late-delivery charges expressly stipulated in the SAs.

There was also no basis whatsoever for the force majeure clause to be implied in the SAs, which were in a statutory form of contract prescribed under the law. HDA makes it mandatory for the statutorily prescribed form to be used without addition, modification or variation.

The high court accordingly decided that force majeure was clearly inapplicable on the facts of the case. More importantly, in principle, the doctrine had no application in the case of a statutory contract, whereby transactions between developers and purchasers are strictly governed by HDA and the regulations made thereunder, which were enacted primarily with the objective of protecting the house buyer.

The court found that the plaintiff’s claim was plain and obviously premised on the SAs. Both parties were bound by the terms and conditions of the SAs, particularly as to the time for delivery of vacant possession and liquidated damages payable for late delivery.

The court therefore allowed the plaintiff’s claim against the defendant.

There are many similar cases. Some are reported, but many more are not. The facts are straightforward, and the claims are a simple breach of contract.

It is expected that there will be many more claims for contract breaches after the movement-control order (MCO) is lifted – even if it is lifted in phases. This is because while parties to a contract are made to observe the MCO by staying home, their contractual obligations continue and remain to be fulfilled, failing which, they will incur contractual liabilities.

Can a party who is in breach of a contract then contend that the Covid-19 pandemic has frustrated the contract or made it impossible to perform?

In the case of Guan Aik Moh (KL) Sdn Bhd & Anor v Selangor Properties Bhd, Gopal Sri Ram, who was then a Court of Appeal judge, identified three elements woven into the fabric of the doctrine of force majeure, one of which being, the event relied on as having frustrated the contract must have been one for which no provision has been made in the contract. If a provision has been made, then the parties must be taken to have allocated the risk between them.

Which existing contract has a provision that the Covid-19 pandemic is a force majeure or frustrating event?

The legislature, namely Parliament, has to intervene. It becomes the duty of the government. In the normal course of things, the government should not intervene as contracts are commercial bargains entered into by consenting parties. It is said that the sanctity of contracts must be upheld.

However, during an exigency like the virus crisis, and given the magnitude of the effects caused by it, the government should introduce legislation, even if it is unprecedented.

This is why there have been urgent calls for Parliament to convene and enact the Covid-19 law. This law would provide for temporary measures to aid businesses, especially small and medium enterprises, and individuals adversely affected by the pandemic. For example, individuals, may be unable to service their credit cards’ outstanding sums, which may lead to bankruptcies.

The temporary measures may include temporary relief from the inability to perform obligations under certain contracts if that inability is materially caused by the pandemic, and temporary changes to bankruptcy and insolvency laws to increase the debt thresholds for winding up and bankruptcy. This provides a safety net, allowing businesses to continue to trade while being technically insolvent.

The most important thing to note is that the measures will only be temporary, ceasing either when the legislation expires in a stipulated period – the sunset clause – or if it is repealed earlier. Generally, such legislation will not affect underlying contractual obligations. It will only freeze the rights to enforce those obligations, for a period of time. As such, it will not offend the sanctity of a contract.

As Sitpah said, enact a Covid-19 law now. Let legal sense prevail, please. – May 10, 2020.

* Hafiz Hassan reads The Malaysian Insight.

* This is the opinion of the writer or publication and does not necessarily represent the views of The Malaysian Insight. Article may be edited for brevity and clarity.