Contracts must be upheld, Covid-19 or no, says lawyer

Extenuating circumstances such as the government’s movement control order cannot be used as a reason to evade what was promised in contracts, says lawyer Ong Yu Jian.

PETALING JAYA: Parties to a contract must continue to uphold their side of the bargain unless the agreement contains an exemption clause, a lawyer says amid the turmoil in business as the government’s movement control order (MCO) nears the halfway point.

Ong Yu Jian said the exemption could take the form of a suspension, waiver or termination of the contract during a period of unforeseen circumstances.

“A party cannot use such extenuating circumstances to evade what was promised unless there is a ‘force majeure’ clause in the contract,” he told FMT.

Force majeure means that a party to a contract is prevented from fulfilling his or her obligations due to unforeseeable circumstances.

Ong was responding to the belief among some that such a clause would automatically come into play after the government announced the MCO in a bid to contain the spread of Covid-19.

He said any contract, including employment agreements, must be fulfilled unless an exemption clause is expressly specified.

“Many business owners have discovered and formed an assumption that force majeure is a magic button that automatically allows them to avoid all payment obligations because of the MCO.

“This assumption is wrong,” he said.

He added that it was important to seek legal advice before signing an agreement, instead of signing merely because the terms are “standard”. - FMT