MCO 04 – NEW NORMALITY BITES

POSTCRIPT:

Interesting enough the conundrum of MCO has been given another, "garnishes of the stale plate" as the stakeholders are all 'surfing in the dark', where more questions are remained unanswered. Although something interesting I noticed from the webinar, 'Kisah Benar', the lawyers are exploring unchartered territory relying on the following logic:

Foremost,  cl.11.1, PAM 2018 requires "[Variation] means the alteration or modification [...]" and with regards to cl.11.1(d), "Any changes to the provision of the contract" [may also take into consideration the saving effects of the COVID ACT]; with regards to, cl.11.1(d)(i), "Any limitation of working hours", by token imposed upon by the MCO, compliance to SOP, FMCO and the sorts. Cl.11.7, "[Variation] has caused [...] contractor to incur additional expenses"; cl.11.7(a), "[Written] Notice to the Architect", and vested upon the Architect to ascertain accordingly. 

Secondly, this move away from the reliance on cl.4.2, "inconsistencies between the [Documents] and any laws regulation [...] give to the Architect a written notice"; on the pretext that the MCO, FMCO and compliance to SOP, is a changes in the law that has not been contemplated by the parties before, thus the 'discrepancies'; although lawyers find difficulty to reconcile this, owing to the fact that most lacked the site-experiences. 

Thirdly, the 'tipping point' between cl.11.7 and cl.4.2, is cl.11.7 require the Architect's Instruction as condition precedent and cl.4.2, has a 'deeming-effect', in absence of an AI. So, the question is will the Architect stands to lean towards the contractor to issue an AI to invoke cl.11.7? Highly unlikely ...

​MCO 04 – NEW NORMALITY BITES

Welcome to MCO 04 from 28.04.2020 to 12.05.2020. Having gone through the 3 phases everybody in the construction industries are looking at the ‘crystal ball’ to see ‘when it is going to end’, what is the ‘exit plan’ and more importantly, how to face the ‘new normal’. While some is in ‘consolidation’, ‘downsizing’, ‘closing shops and claim frustration’ or ‘forge ahead’, it is no longer a question of ‘extension of time’, but who is going to pay for the ‘extra costs’ of ‘moving ahead’, while some contract provided the provision of ‘mitigation of delay’ vested upon the contractor to ‘forge ahead’, at whose costs? That is a question…

The PAM Form 2006 provided at least 4 routes to go about, or it could be more, but let’s look at this 4 possible ways to maneuver the delirium of post-MCO ‘new normal’…

Foremost, the force majeure exit plan. Everyone is chanting force majeure, from the President of PAM to our minister. What is this force majeure? Unlike other standard forms of contract, the PAM2006 has been very explicitly defined force majeure to include epidemic[1]. A question may arise, what is the different between an epidemic and a pandemic. Covid-19 was declared a pandemic. Does it automatically qualify as a force majeure? If the minister says so, where is the ‘gazette’? Sorry, forgot, the parliament too is in ‘lock down’. So, it remains a theoretical question at the moment. Having said that, based on an advisory from the President of PAM to the Architect to render and only to ‘recognize’ any EOT application under this force majeure while omitting the rest of the ‘other possibilities’ in the absent of a ‘national gazette’ automatically classifying the MCO as a force majeure, regardless of how the ‘contract is formed’, would any rational mind construe such as being ‘just’? Notwithstanding that the next, possible event to take place is to instruct the contractor to ‘mitigate delay’ by applying to MITI to resume work during MCO. The next logical question is, who is going to pay for the extra-costs and expenses incurred to fulfill MITI’s ‘strict conditions’, having to note that a force majeure is a ‘neutral event’ not due to anyone’s fault yet, the contractor may have to absorbed all costs and risk arising from its action of ‘mitigating delay’ to work during MCO, for all purpose that the contractor is still liable to indemnify against the employer for any breach[2].

Second, the ‘changes to the law’ exit plan. There are possibility to rely on a change in the ‘law governing the construction industry’ as an exit plan to forge ahead with a view to be compensated[3] for loss and or expenses arising from this ‘changes to the law’.[4] Reminded by the fact that MCO was invoked under two existing legislation namely the Prevention and Control of Infectious Diseases Act 1988 and the Police Act 1967, where is the ‘changes to the law’? The respective Local Authorities PBT is still relying on the power and jurisdiction under the Street Drainage and Building Act 1974 for administration of the MCO. Unless otherwise via an Act of Parliament such as those mirrored against our neighboring Singapore’s the COVID-19 Act 2020, such can be construed as ‘changes to the law’ exit plan with a view to be compensated for loss and or expenses besides EOT.

Third, the ‘Stop Work Order’ Architect’s Instruction AI exit plan. This is a ‘novel idea’ that some Architect friends actually say, “[…] you need a ‘spine’ or alternatively, a ‘steel ball’ to issue such an AI for such, you may not get another project from your Client, post-MCO” Acknowledging the fact that by virtue of this simple AI, it has placed upon the shoulder of the Architect that arising from this act, alone, he has caused the contractor to ‘stop work’[5], ‘discontinue work’ or ‘temporary halt work’ on site, for reasons only best known to the architects, thus the notion of the ‘satisfaction of the architect’. Under such circumstances, the PAM2006 form allows the contractor to be compensated[6] with loss and or expenses together with the relevant EOT, subject otherwise to any ‘mitigation of delay’ required by the contractor. At least such appear to be ‘fair’ to both parties and the most ‘noble act’ to have been performed by the Architect, without ‘fear and favor’, avoiding dispute in any manner foreseeable. Sorry, how many Architects actually do so?  

Finally, the ‘Government’s Stop Work Order’ exit plan. Having to ‘toe the line’ some Architects may be ‘smart enough’ to circumvent the ‘conundrum’ by issuing a rather ‘vague’ AI such as “You are herewith instructed to comply with the Government of Malaysia’s Order for MCO” In other words, the Architect has instructed the contractor to ‘follow government’s instruction’ not its ‘instruction to stop work’, brilliant! For obvious reasons, now the contractor has been placed in a ‘doubtful situation’ as can such AI be construed as a ‘stop work order’ enabling them to claim EOT and ultimately, loss and or expenses? It appears to be that the contractor is ‘statutory bound’ to comply with the government’s instruction and thus entirely and mandatory ‘self voluntarily’ that has nothing whatsoever to do with the ‘employer or its agent’. Another facet is to look at arising from the MCO, the contractor cannot carry out its work and not the force majeure arising from the pandemic as the MCO is the causa causans to the course of the ‘damages’ in the entire ‘matrix of causation’. However, it is interesting to note that the PAM2006 allows for loss and or expenses arising from a delay due to a ‘stop work order’ from the government, subject otherwise that such is due to the ‘omission by the employer or its agent’[7]. Having said that, the ‘burden of proof’ falls squarely upon the shoulder of the contractor and the ‘sufficient of proof’ is on balance that the Architect has ‘failed to discharge’ its duty, thus the omission. Voila! Under the ‘strict liability rule’ and having a ‘close proximity’ in terms of reasonable ‘duty of care’ for the Architect towards the contractor, it is easily for the contractor just to mount a claim that the architect ought to have issue an AI for ‘stop work’ but it didn’t thus the omission of a reasonable ‘duty of care’ that has violated their rights under the contract.       

When the dust settles, we are able to see more clearly and rationally the entire spectrum of the effects of the MCO towards the continuity of work in the ‘new normal’ society. The legal construct of the ‘standard forms’ may have been ‘blinded’ by so many possibilities that has not been taken into consideration when the parties sealed the contract. The best possible way is a call to the government, instead of reliance on the obscure version of force majeure that only the ‘Frenchman’ knows what it truly meant, to pass an Act of Parliament mirrored  the Singapore’s COVID-19 Act 2020 and ‘ctr-alt-del’ any ‘contractual omissions’ for a ‘level playing field’ for a ‘new normal’ future.
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Having wrote these as a personal reflection or opinion, not as a ‘lawyer’ or a legal counsel, as disclaimer, never take this writing of mine, to be your ‘legal advice’. You should seek appropriate ‘legal advice’ for your own situation. I am not liable for the accuracy of facts and representation on this writing.        

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[1] Art7(ad)PAM2006
[2] Cl.18.PAM2006
[3] Cl.4.3PAM2006
[4] Cl.4.1.PAM2006
[5] Cl.21.4.PAM2006
[6] Cl.24.3(c)PAM2006, “Compliance to a written AI in regard to the postponement […] to be executed under Cl21.4”
[7] Cl.24.3(n)PAM2006, “[…] provided always the same is due to negligence or omission on part of the employer […]”