MAY 1 — The following facts appear in a decided case sometime in 2017.
The defendant was a licensed housing developer. The defendant embarked on a housing project in Bandar Damansara. Pursuant to 2 sale agreements, 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 sale agreements, the defendant agreed that if vacant possession was not delivered within the stipulated time the defendant would immediately pay the plaintiff liquidated damages at the 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 giving vacant possession of the first property by 2847 days and delayed completing the common facilities by 2834 days.
The delay in respect of the second property was 2895 days (vacant possession) and 2882 days (common facilities). Total damages was RM1,406,626.00. The plaintiff sued the defendant for the damages.
In its defence, the defendant contended that it was due to factors or events beyond its control, namely dispute with the main contractor, escalation in the cost of raw materials and finance charges, rectification works and several others.
Hence, the defendant contended that these events constituted force majeure (frustration) which justified the completion time being extended for late delivery charges to be avoided.
The sale agreements 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 follow:
“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 sale agreements.
There was also no basis whatsoever for the force majeure clause to be implied in the sale agreements which were in a statutory form of contract prescribed under the law. The HDA makes it mandatory for the statutorily prescribed form to be used without addition, modification or variation.
It must also be borne in mind that the doctrine is to be confined to very narrow circumstances, the reason being that commercial bargains should not be lightly avoided or brushed aside merely upon a change of circumstances.
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 the HDA and the regulations made thereunder which were enacted primarily with the objective of protecting the house buyer.
The High Court found that the plaintiff’s claim was plain and obvious premised on the sale agreements. Both parties were bound by the terms and conditions of the sale agreements, particularly as to the time for delivery of vacant possession and liquidated damages payable for late delivery.
The High Court therefore allowed the plaintiff’s claim against the defendant.
There are many similar cases like the above. Some are reported, but many more are not. It is expected that there will be many more claims for breach of contracts after the movement control order (MCO) is lifted — even if lifted in phases.
This is because while parties to a contract are made to observe the MCO by staying at home, their contractual obligations continue and remain to be fulfilled, failing which they will incur contractual liabilities.
Can a party who is breach of a contract then contend that the Covid-19 pandemic has frustrated the contract or made the contract impossible of performance?
In the case of Guan Aik Moh (KL) Sdn Bhd & Anor v Selangor Properties Bhd, Gopal Sri Ram, who was then Judge of the Court of Appeal, identified three elements woven into the fabric of the doctrine of force majeure, one of which is that the event relied on as having frustrated the contract must have been one for which no provision has been made in the contract. If provision has been made then the parties must be taken to have allocated the risk between them.
Which existing contract has a provision that Covid-19 is a force majeure or frustrating event?
The legislature (parliament), therefore, has to step in and intervene. It becomes the duty of the government. In a 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 contract must be upheld.
However, during an exigency like the Covid-19 pandemic, and given the magnitude of the effects caused by the outbreak, the government should introduce legislation – no matter how unprecedented it may be.
Which is why there have been urgent calls for Parliament to convene and enact such a law: the Covid-19 law. This law would provide for temporary measures to aid businesses — especially small and medium enterprises (SME) — and individuals that are adversely affected by the pandemic. Individuals, for example, may be unable to service their credit cards’ outstanding sums, which may lead to many bankruptcies.
The temporary measures may include temporary relief from the inability to perform contractual obligations under certain contracts if that inability is materially caused by the Covid-19 pandemic, and temporary changes to bankruptcy and insolvency laws to increase the debt thresholds for winding up and bankruptcy. This will give a safety net to allow businesses to continue to trade while technically insolvent.
The most important thing to note is that the measures will only be temporary and will cease either when the legislation expires in a stipulated time — the sunset clause — or if the legislation is repealed earlier. Generally, such legislation will not affect the 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 contract.
Enact a Covid-19 law! No, not in July, but the earlier scheduled sitting of Parliament on May 18.
Let legal sense prevail or Covid-19 will “mutate” into Covid-20 (Coronavirus Induced Disputes 2020).
* This is the personal opinion of the writer or publication and does not necessarily represent the views of Malay Mail.
