Introduction
The Temporary Measures for Reducing the Impact of Coronavirus Disease (COVID-19) Act 2020 (“COVID-19 Act”) seeks to mitigate the impact of COVID-19 on businesses and individuals. It was gazetted on 23 October 2020 and shall remain in force for two years or until extended by the Prime Minister.
The construction sector is significantly affected by various provisions of the COVID-19 Act. This article examines its impact on construction contracts and construction disputes.
Inability to Perform Contractual Obligation
Part II of the COVID-19 Act addresses the inability of contracting parties to perform contractual obligations.
Section 7 states:
“The inability of any party or parties to perform any contractual obligation arising from any of the categories of contracts specified in the Schedule to this Part due to the measures prescribed, made or taken under the Prevention and Control of Infectious Diseases Act 1988 [Act 342] to control or prevent the spread of COVID-19 shall not give rise to the other party or parties exercising his or their rights under the contract.”
Relief under Section 7
Section 7 provides retrospective relief from 18 March 2020 to 31 December 2020 for parties unable to perform contractual obligations due to measures under the Prevention and Control of Infectious Diseases Act 1988 (PCID Act). During this period, the non-defaulting party is prevented from exercising contractual rights.
Contracts in the construction sector covered under Section 7 include:
- Construction work contracts
- Construction consultancy contracts
- Supply contracts for construction materials, equipment, or labor
- Performance bonds or equivalents under construction or supply contracts
- Professional services contracts
Enforcement Period
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Relief is available from 18 March 2020 to 31 December 2020 (“Relief Period”).
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The Minister of Law may extend this period by gazette order, subject to parliamentary tabling, but extensions cannot exceed the two-year period of the Act.
Degree of ‘Inability’
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Section 7 specifically covers inability to perform, not mere non-performance.
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This parallels the doctrine of frustration, which requires proof of impossibility to perform—a high threshold for contractors.
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The burden of proving inability remains circumstantial and case-specific.
Extent of Causation
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Construction work is often sequential and interconnected, making it challenging to identify which activities fall under Section 7 relief.
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Relief only applies if the inability arises from measures under the PCID Act, e.g., MCO, CMCO, RMCO.
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Critical path delays caused by COVID-19 measures are covered.
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Example: Delay in basement construction delaying upper floors may trigger Section 7 relief.
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Standalone activities unaffected by critical-path delays may not be protected.
By contrast, Singapore’s COVID-19 (Temporary Measures) Act 2020 allows relief if the inability is materially caused by a “COVID-19 event.”
Section 7 and Force Majeure Clauses
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Section 7 is similar to a force majeure clause, but does not invalidate contractual clauses covering pandemics or government orders.
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It supplements contracts that lack such clauses. Parties may rely on both the contract and Section 7 for relief.
Limitations of Section 7
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Section 10(3) saving provision protects actions taken between 18 March 2020 and 23 October 2020, including termination, forfeiture of performance bonds, or damages.
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Criticism: This excludes parties affected prior to the Act from relief, potentially disadvantaging them.
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Contractors may face financial burden, as they cannot suspend work due to non-payment or avoid liquidated damages for delays caused by COVID-19 measures.
Disputes Relating to Inability to Perform
Section 9 provides:
“Any dispute in respect of any inability of any party or parties to perform any contractual obligation… may be settled by way of mediation.”
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Mediation is optional, not mandatory (“may”), leaving room for parties to avoid mediation.
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The Minister of Law determines the mediation process, appointment of mediators, conduct, and conclusion.
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Settlement agreements are binding and authenticated, but the Act is silent on unresolved disputes post-mediation.
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Ongoing legal proceedings, arbitration, or mediation remain valid and unaffected by Sections 7 and 9.
Other Construction Disputes
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The Act modifies limitation periods under the Limitation Act 1953 and Public Authorities Protection Act 1948.
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Limitation periods expiring between 18 March 2020 and 31 August 2020 are extended to 31 December 2020.
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Similar provisions apply to Sabah and Sarawak Limitation Ordinances, though further extensions are not provided.
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Judicial guidance is required for actions struck out during the affected period, as the Act does not clearly resuscitate them.
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Contracting parties must carefully assess options and strategies in light of Sections 7 and 10 to avoid wasted time and costs.
Conclusion
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Sections 7 and 9 of the COVID-19 Act provide targeted relief for inability to perform contractual obligations.
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Contractors and employers must analyze applicability, sequential dependencies, and limitations of relief.
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Parties should consider mediation while remaining aware of ongoing legal rights and obligations.
Authors:
Tan Min Lee
Partner, Gan Partnership
E: minlee@ganlaw.my
Benjamin Kho Jia Yuan
Pupil-in-Chambers, Gan Partnership
E: jiayuan@ganlaw.my
Chew Zhen Tao
Associate, Gan Partnership
DISCLAIMER: This article is for general information only and should not be relied upon as legal advice. The position stated herein is as at 11 November 2020. For enquiries, contact Tan Min Lee (minlee@ganlaw.my).
