07 Apr Impact of Covid-19 & MCO order in the logistics industry
Application of force majuere clause
Due to the rising number of coronavirus cases in Malaysia, Prime Minister Muhyiddin Yassin has announced that the Government has decided to implement a Movement Control Order (“MCO”), commencing from 18th March 2020 and recently extended till 14th April 2020. To the exception of essential services all businesses, government agencies and companies are to shutdown and operate from home.
Due to the MCO, the logistics industry is undergoing tremendous challenges not limited to delay in clearance of containers, late pick-up and delivery and so forth. It is common knowledge that goods are stacking up at the port due to the MCO especially if the products fall under non-essential services. Parties involved in the transmission of goods are now placed at risks of claim in terms of loss suffered by the shipper and/or consignee of the goods. Parties are uncertain on who is to bear the losses.
01. Announcement from Ministry of Transport and International Trade & Industry
On 26th March 2020, Minister of Transport has announced that Port Klang, Penang Port and Johor Port in Pasir Gudang have reached nearly 100% of their capacities to hold goods. To allow smooth transition and delivery of goods, the Royal Malaysian Police personnel will ensure the vehicles belonging to freight forwarders and haulage companies are allowed to commute from 27th March 2020 till 29th March 2020. On 3rd April 2020, following the earlier decision announced, freight forwarders and hauliers have been given another four days from 4th April 2020 till 7th April 2020 to speed up the movement of cargo from congested ports nationwide. The movement of cargo is focus on essential goods. Further pursuant to a trade session, MITI has also agreed to grant exemption to certain industries to operate at a certain percentage.
Cases referred to:
Muhammad Radhieddeen Abdul Khalid V. Saujana Triangle Sdn Bhd  MLRHU 620 Magenta Resources (S) Pte Ltd v China Resources (S) Pte Ltd  3 SLR 62 Sababumi (Sandakan) S/B v Datuk Yap Pak Leong  3 MLJ 151
02. Force Majeure Clause
In a contract, a force majeure event is usually defined as one which neither party could have reasonably predicted and/or anticipated and which will affect the ability of one or more parties to fulfil its contractual obligation. There can therefore be no general rule as to what constitutes a situation of force majeure.
The question arises now is whether the MCO would trigger the application of force majeure. The answer is arguably in the affirmative i.e that a pandemic such as Covid 19 and the MCO order are force majeure events as both are unpredictable. Therefore, a forwarder and/or haulage can seek leverage on the principle of force majeure in the event there is a prospective claim against them from their customer. This is of course subject to a written contract in normal circumstances. In the interest of business efficacy, it is highly recommended that the logistics provider notify their customers on the possibility of delay and challenges that they are facing as a result of the MCO.
03. Whether Force Majeure can be an implied term
It is important to consider the test pronounced in the case of Sababumi that the parties must have intended to include such an implied term in the contract, which is subjective in nature. If the party can show that there is intention to include it, the implied term should be a kind that will give business efficacy to the transaction of the contract of both parties. However, in Malaysia, the defence of Force Majeure would render to be unsustainable if the contract does not provide for a Force Majeure event.
04. Frustration – section 57(2) Contracts Act 150
In the event the contract does not provide a force majeure clause, the Malaysian Contracts Act 1950 allow a contracting party to rely on the doctrine of frustration. The test applicable to determine whether an event is a frustrating event within the ambit of Section 57 is the “radical change in the obligation” test. The test indicates that frustration of contract will occur where there is a radical or fundamental change in circumstances which renders the performance of the contract to be legally and physically impossible. Depending on the circumstances of the contractual obligations and performance, the ongoing Covid-19 pandemic may fulfill the said test that renders your contract frustrated.
05. Remedy to Frustration
In the event the contract is deemed frustrated within the definition of Section 57 of the Contracts Act 1950, such contract becomes void. However, the termination is only as to the future obligations. It would not be deemed void from the beginning.
In conclusion, the circumstances on whether a party can carry out its contractual obligation depends largely on the directive of the government and the seriousness of the pandemic.
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