The stipulated time frame for the delivery of product / service to be provided has expired in a commercial contract yet a business or an individual could not operate its business as usual in line with the Movement Control Order (MCO) and thus fails to comply with the time frame as provided in the agreement. Does the company need to pay any compensation? Could MCO be the reason to terminate or to seek extension of time for the contract?
What about the ongoing property sale and purchase agreement (how does the 3 + 1 function)?
Our government has enforced a 28 days lockdown period of Movement Control Order from March 18 to April 14 for the prevention of further epidemic of COVID-19 Corona Virus. All government and private institutions have to close and temporary cease operation during this period except for certain “essential” services or industries that can continue to operate (subject to restrictions on this area or industry).
At present, the nationwide prevention and control order are undoubtedly the best measures for epidemic prevention and many businesses and individuals would have to face severe challenges. Many businesses and individuals could not perform the terms or obligations of the contract due to the inability to operate which may lead to the risk of breach of contract.
Can a company or individual unilaterally terminate a contract or to seek for the extension of time for the contract period on the grounds that the MCO cause the temporary suspension of the business? This mainly depends on whether the parties have a written contract or commonly known as Black & White and the contents of the contract.
Be it a commercial contract or property sale and purchase agreements are determined based on the Contract Law of Malaysia. The following discussion applies to general commercial contract and property sale and purchase agreement.
- Is there a force majeure clause in the contract?
Force majeure refers to some unforeseen, unavoidable, and uncontrollable incidents. A force majeure clause is a disclaimer clause. This clause stipulates that the party who initially has to perform its duties while becoming unable to perform all or part of its contract’s obligations as scheduled because of force majeure can be exempted from all or part of its obligations or allow the contract to be performed at an extended period of time.
- Does the Force Majeure Clause cover COVID-19 MCO?
Force majeure incidents mainly include two situations where one is caused by natural forces, such as flood, storm, earthquake, etc; the other is caused by social reasons, such as war, epidemic, pandemic, disease, outbreak, government or administrative actions etc. Whether or not the force majeure clause can be cited depends on whether the force majeure clause in the contract covers conditions beyond the control of the disease, such as a MOC or closure.
- What if the force majeure clause is insufficient to cover the covid-19 MOC?
Don’t panic yet if the force majeure clause does not cover uncontrollable incidents caused by illness such as a movement control order as the judges may then decide the effect and extend of the force majeure clause by taking all other terms of the contract, the business nature, risks of the business and the mode of previous dealing as a whole into consideration.
- Does it mean that if there is no force majeure clause in the contract or the parties or there is no clear written down contract then the party must be liable to pay compensation?
This is not necessarily the case. The law has its equity and common law practice too. The parties may propose that the contract to be terminated because of the frustration event. As mentioned in paragraph 3, the judge may then take into consideration of the business nature, the risks, mode of previous dealing and the suspension of work due to the MCO or the problems caused by the resumption of work after MCO to decide on the frustration of the contract.
The time frame scheduled in a contract for the delivery of products or services and the 3 + 1 completion period in a property sale and purchase agreement should be allowed to be extended as a brief conclusion based on the above discussion. For example: In view of the 28-days lockdown period of MCO a property sale and purchase agreement with the initial scheduled completion time frame which fall on March 19th should also be allowed to be extended by 28 days to April 15th.
This article was published by Wong Wei Fan & Co for public awareness and sharing purposes. The content in this article does not constitute legal advice on any particular matter and should not be taken as a substitute for legal advice. Contact us or your lawyer for independent legal advice.
If you have additional questions relating to performance of contract and employment issues due to Covid-19 MCO please contact us at 017-7000023.