Keynote of COVID-19 Act for Construction Industry
- Contractual obligation suspended from 18.3.2020 to 31.12.2020.
- No legal suit may be initiated for default of contract from 18.3.2020 to 31.12.2020.
- Effective period of Section 7 of COVID-19 Act can be extended beyond 31.12.2020.
- There can be no certification and payment during 18.3.2020 to 31.12.2020.
- No termination of contract during 23.10.2020 to 31.12.2020.
- No suit for LAD from 23.10.2020 to 31.12.2020 unless action has been initiated since 18.3.2020.
- Vacant possession from developer automatically extended and exclude the period from 18.3.2020 to 31.8.2020.
- Developer’s defect liability period shall exclude 18.3.2020 to 31.8.2020.
- Limitation period to initiate a suit extended to 31.12.2020 for any cause of action that expired during 18.3.2020 to 31.8.2020.
- Mediation is allowed during the enforcement of COVID-19 Act.
No Liability Under Construction Contract From March 2020 till December 2020
Q1.What is the relevance of COVID-19 Act to the construction industry?
A: It was mainly enacted to suspend contractual obligation to any party who is unable to perform as a result of the COVID-19 pandemic from 18.3.2020 to 31.12.2020 or any further period extended by minister of law.
Q2. Is it true that I will not be liable for breach of contract during March 2020 to December 2020?
A: Yes, Section 7 of Temporary Measures For Reducing The Impact Of Coronavirus Disease 2019(COVID-19) Act 2020 (“COVID-19 Act”) provides that if any party is unable to perform any contractual obligation under contracts specified in the COVID-19 Act due to the measures prescribed, made or taken under the Prevention and Control of Infectious Diseases Act 1988, the non-defaulting party or parties to the contract cannot exercise their rights under the contract.
Q3. Why is it that COVID-19 Act only covers breach of contract from March 2020 to December 2020?
A: Based on Section 5(1) of the COVID-19 Act, the protection given to defaulter of a contract shall operates from 18.3.2020 until 31.12.2020 subject to any extension given by Minister of Law by order published in the gazette.
Q4. What kind of contract that I will not be liable for any breach during March 2020 to December 2020?
A: Beside Construction contract, construction consultancy contract, contract for construction material supply, equipment or workers, Schedule under Section 7 of the COVID-19 Act also provides for:-
- Perform bond or equivalent that is granted pursuant to a construction contract or supply contract;
- Professional services contract;
- Lease or tenancy of non-residential immovable property;
- 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;
- Contract by a tourism enterprise as defined under the Tourism Industry Act 1992 and a contract for the promotion of tourism in Malaysia;
- Religious pilgrimage-related contract.
Q5. Is it true that Developer or main contractor can refuse paying its contractor for work done between March 2020 to December 2020?
A: Yes. Based on Section 7 of COVID-19 Act, your rights to payment under the contract will not bind the Employer or Main Contractor during the period between 18.3.2020 to 31.12.2020.
Q6. Is it true that Developer or main contractor can refuse to issue certification for work done from 18.3.2020 to 31.12.2020?
A:Yes. Based on Section 7 of COVID-19 Act, the term for certification and even period to honour payment based on the contract will not bind the Employer or Main Contractor during the period between 18.3.2020 to 31.12.2020.
Q7. If I have gotten a judgment or adjudication decision before 18.3.2020, can I execute or enforce it between 18.3.2020 to 23.10.2020(the date of publication of this act)?
A: Yes, if you refer to Section 10 of COVID-19 Act, you will notice that Section 7 of COVID-19 Act does not apply for any judgment granted before 18.3.2020 as well as enforcing an adjudication decision decided before 18.3.2020.
Q8. Can I terminate a construction contract between 18.3.2020 to 23.10.2020?
A: Yes, if you refer to Section 10 of COVID-19 Act, you will notice that any termination occurs between 18.3.2020 to 22.10.2020 is valid and Section 7 of COVID-19 Act will not prevent that. However, after 23.10.2020, Section 7 of COVID-19 Act will come into operation until 30.12.2020 and there should be no termination of construction contract due to any breach until 31.12.2020.
Q9. Can the main-contractor or employer forfeit my performance bond despite Section 7 of COVID-19 Act says no liability for non-performance of contract?
A: Yes, Section 10 of COVID-19 Act provides that if your performance bond has been forfeited during any period between 18.3.2020 and 23.10.2020, the forfeiture will be valid notwithstanding Section 7 of COVID-19 Act. However, after 23.10.2020, Section 7 of COVID-19 Act will come into operation until 30.12.2020 and there should be no forfeiture of performance bond due to any breach until 31.12.2020.
Q10. If I have already commenced an arbitration or adjudication on 18.3.2020 before the act come into publication on 23.10.2020, can I still proceed with the matter?
A: Yes. Section 10 of COVID-19 Act provides that any legal proceedings, arbitration or mediation commenced between 18.3.2020 until 22.10.2020 will not be caught by Section 7 of COVID-19 Act which protect the defaulter of a contract.
Q11. My contractor has delayed in its progress of work done from 18.3.2020 until 18.5.2020 and I intent to impose Liquidated Ascertained Damage(LAD) on him, can I do so?
A: Yes, if you have initiated an action to recover LAD between 19.5.2020 to 22.10.2020. This is because Section 10 of COVID-19 Act expressly mean that parties would still be allowed to exercise their rights under the contract even if the performance of such contract was affected by the measures taken since 18 March 2020 to combat the spread of COVID-19. However, if you have not taken action before 23.10.2020, Section 7 of COVID-19 Act will apply and you can’t initiate an action to recover LAD until after 31.12.2020.
Q12. I am a developer and I have delayed for about 8 months in handing over vacant possession(“VP”) since 18th March 2020 until 18th November 2020, can purchaser sue me for LAD now?
A: No. Based on Section 35 of COVID-19 ACT, the calculation of time for delivery of VP of a housing development and computation of LAD for failure to deliver vacant possession shall exclude the period from 18 March 2020 to 31 August 2020.
On a side note, if a legal proceeding in relation to LAD has been commenced between 18.3.2020 until 22.10.2020, Section 37 of COVID-19 Act will allow such legal proceeding to be carried on and remain unaffected.
Q13. I am a developer and my project’s defect liability period starts from 18.3.2020 until 18.3.2021, but I have failed to rectify the defects between 18.3.2020 until 31.8.2020, can the purchaser sue me for damages now?
A: No, the calculation of the defect liability period and period for the developer to carry out works to repair and make good the defect, shrinkages and other faults in a housing development shall exclude the period from 18 March 2020 to 31 August 2020. Therefore, your contractual defect liability period will be prolonged accordingly.
Q14. I have a construction claim against the main-contractor due since 1.5.2014 but I cannot initiate a legal action in view of Movement Control Order(MCO) and I believe limitation period has kicked in, what can I do?
A: Although Limitation Act 1953 provides that an action under contract must be brought within 6 years from the date on which cause of action accrued, Section 12 of the COVID-19 Bill provides that any limitation period that expired during the period from 18.3.2020 to 31.8.2020 shall be extended to 31.12.2020. This simply means that although the limitation period of your construction claim expires on 1.5.2020, Section 12 has provided an extension to the limitation period and you can still pursue a legal action any time before 31.12.2020.
Q15. Does Section 7 of COVID-19 Act really leave no mode to recover remedies for the innocence party under the contract?
A: Not exactly. Section 9 of COVID-19 Act provides mediation for any dispute arising out of parties inability to perform a contractual obligation due to COVID-19 pandemic. Although there is no strict liability to participate in a mediation, it will be the only remedy a party has during the enforcement of COVID-19 Act.
THIS FAQS ARE PREPARED AND PUBLISHED BY MESSRS GAN & ZUL, ADVOCATES & SOLICITORS, KUALA LUMPUR.
-CONSTRUCTION & ALTERNATIVE DISPUTE RESOLUTION DIVISION-
Ben Lee Kam Foo (Partner)
Head of Dispute Resolution
Arbitrator & Adjudicator
Fellow of ADR, AIAC
Cross Boarder Taxation Planning
Phang Ting Hong (Associate)
Construction Dispute Resolution Division