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What Happens To A Contract During COVID-19 Period If It Is Silent Or Does Not Have Any ‘Force Majeure’ Clause?

Need consultation or advice from lawyers regarding contracts/agreements during Covid-19:

We all know how the current Covid-19 pandemic has brought hardship upon many. With that in mind, what happens to all the contracts that people have signed during this time, before this time? If companies had entered into a contractual agreement with another individual/ entity, what would happen to the contract? Can parties choose to terminate the contract/ pursue legal actions against the other party?

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Firstly, is there a force majeure clause in the contractual agreement?

What is a force majeure? As the dictionary puts it, a force majeure is “an event that can generally be neither anticipated nor controlled/ circumstances must be abnormal and unforeseeable, so that the consequences could not have been avoided through the exercise of due care”1.

Such clauses are usually present in a contractual agreement. While the wording might vary from one tenancy agreement to another, it all boils down to the same thing- a force majeure clause frees both the parties from any liability or obligation (for example, a tenant is not required to perform his obligation under the tenancy agreement i.e. pay rent) if an unforeseeable event takes place, such as war, an outbreak of diseases, natural disaster, etc.

However, two things the parties should take note of in regards to this matter:

  1. A party cannot invoke force majeure as a reason not to perform their obligations under a contractual agreement if there is no such clause in the agreement. The courts will not entertain such pleas nor will they imply into the agreement2.
  2. In the event there is a force majeure clause in the agreement, the law dictates that a party that wishes to rely on the clause3:
    1. Must be able to prove that the event falls under one of the category in the force majeure clause and that he is being prevent from performing his obligations under the agreement as a result of the event; and
    2. Must be able to prove that the event was beyond his control and that there were no reasonable steps that he could have taken to avoid or mitigate the event or its consequences.

Secondly, if there are no force majeure clauses/ the contract is silent on this matter, what will happen to the rights of the parties of the contract?

Even without a force majeure, laws have been amended to deal with the impact of the current Covid-19 pandemic in Malaysia- in comes Temporary Measures For Reducing The Impact Of Coronavirus Disease 2019 Act4.

Essentially, the Act modified contractual provisions (that is at the moment, still in operation until the end of 2021 at least5) in certain acts to ensure that the laws take into factor the current Covid-19 pandemic crisis in Malaysia and how it might affect the contractual relationship between parties. The modification provides that parties to a contract cannot exercise/ enforce their rights (terminate, rescind, claim for damages etc.) if one party is unable to perform its contractual obligations due to the Covid-19 pandemic, subject to the modified laws prescribed under the Act.

However, there are limits to the general description above, as only the contracts prescribed below can apply the above principle:

  1. Construction related contract (construction work, consultancy, the supply of construction materials, equipments or workers);
  2. Performance bond or equivalent that is granted pursuant to construction/ supply contract;
  3. Professional services contract;
  4. Lease or tenancy (only for non-residential immovable property);
  5. Event(s) contract;
  6. Tourism contract and contract for promoting tourism; and
  7. Religious pilgrimage contract.

Essentially, a contract is put on hold i.e. both parties cannot exercise their legal rights against one another if either party cannot perform its contractual obligation during this period of time.

Need consultation or advice from lawyers regarding contracts/agreements during Covid-19:

Other related articles:

  1. A Quick Guide to Contractual Obligations
  2. Template Letter to Landlord during MCO

1. The Longman Dictionary of Law, 7th Edition.

2. Muhammad Radhiedeen Bin Abdul Khalid v Saujana Triangle Sdn Bhd [2017] MLJU 950.

3. Intan Payong Sdn Bhd v Goh Saw Chan Sdn Bhd [2004[ 1 LNS 537.

4. 2020.

5. Temporary Measures For Reducing The Impact OF Coronavirus Disease 2019 (Covid-19)(Extension of Operation)(No..2) Order 2021.