DISPUTE RESOLUTION UNDER THE COVID-19 ACT: An Overview of Mediation under the COVID-19 Act

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The main objective of the Malaysian COVID-19 Act 2020 is to “provide temporary measures to reduce the impact of COVID-19”. Central to the Act is Section 7, which bars the enforcement of a contractual right against a defaulting party if such default arises out of the inability of the defaulting party to perform a contractual obligation. For the purposes of providing a speedy out of court settlement of disputes arising from such circumstances, the Act further provides mediation as a dispute resolution mechanism.

In a media statement dated 11 November 2020, the Prime Minister’s Department announced the establishment of a mediation centre, i.e. Pusat Mediasi COVID-19 (PMC-19), to oversee mediations commenced under the Act.

This alert provides an overview of PMC-19, how it works, and how members of the public could benefit from it.

What is PMC-19?

Any dispute in respect of the inability of any party to perform a contractual obligation arising from any of the categories of contracts specified in the  schedule to Part II of the Act (Applicable Contracts) due to the measures to control or prevent the spread of COVID-19, may be settled by way of mediation. PMC-19’s primary role is to coordinate the implementation of the mediation process, from receiving and processing nationwide online application, through to the appointment of mediators and the appeal process.

The Applicable Contracts are:

(a) Construction work contract or construction consultancy contract and any other contract related to the supply of construction material, equipment or workers in connection with a construction contract. (b) Performance bond or equivalent that is granted pursuant to a construction contract or supply contract. (c) Professional services contract. (d) Lease or tenancy of non-residential immovable property. (e) Event contract for the  provision of any venue, accommodation, amenity, transport, entertainment, catering or other goods and services. (f) Contact by a tourism enterprise as defined under the Tourism Industry Act 1992 and a contract for the promotion of tourism in Malaysia. (g) Religious pilgrimage related contract.

How Does It Work? Mediation is a process where parties in dispute select an impartial third person (mediator) to resolve their dispute. The mediator’s role is not to adjudicate but to facilitate discussions as the mediator will try to make suggestions or recommendations to help parties in dispute to arrive at a mutually acceptable solution. In other words, mediation is an informal way of guiding disputing parties to reach an amicable settlement. Whilst mediation in Malaysia is generally governed by the Mediation Act 2012, mediation under PMC-19 is governed only by the COVID-19 Act. The rules governing the mediation process administered by PMC-19 are the PMC-19 Mediation Rules.

The power to determine the appointment and role of a mediator and the conduct of mediation commenced pursuant to the Act rests with the Minister in the Prime Minister’s Department. In the event a party is dissatisfied with the decision made through PMC-19, an appeal can be made online and the decision on the appeal will be notified via e-mail within 21 days from the date of receiving the complete set of documents.

Upon conclusion of the mediation, parties are required to enter into a written settlement agreement. The settlement agreement shall be binding on parties and in the event of a breach of a settlement agreement, the affected party may bring the matter before the court for failure to comply with the settlement agreement.

Eligibility Criteria & Application Process As discussed above, mediation administered by PMC-19 is limited to disputes arising from the Applicable Contracts. In addition, the applicants must fulfil the following criteria:

(a) Disputed value must not exceed RM 300,000.00. (b) The applicant must be a Malaysian citizen. (c) The individual must not be declared bankrupt or the company should be wound up. (d) Individuals declared bankrupt or wound up companies are required to obtain approval from the Director-General of Insolvency. (e) Companies, Limited Liability Partnership, Businesses registered under the Companies Commission of Malaysia, Local Authorities, District Offices or any other bodies should submit the registration certificate. (f) Applications of businesses from Sabah and Sarawak must submit their Business or Company Registration Certification certified by their respective district offices. (g) Small Medium Enterprises under the Micro and Small category must submit SME Status Certificate obtained from SME Corporation.

For an application to be considered, applicants must successfully pass the COVID-19 Relatedness Assessment, and submit complete information as well as the Agreement to Mediate Form signed by both parties within a stipulated timeframe. Upon successful application, parties will be contacted by PMC-19 on further information such as the appointed mediator, date and venue of the mediation as determined.

If parties are unable to refer their dispute for mediation to PMC-19, as an alternative, parties may refer their dispute to other mediation service providers such as Asian International Arbitration Centre, Malaysian Mediation Centre, or any other private mediators.

Government Subsidy In line with the Government’s efforts to alleviate difficulties faced by the M40 and B40 groups during the pandemic, the Government has sought to bear the full cost of the mediation service provided through PMC-19, if the applicant falls under either of the categories below –

(a) B40 (household income of RM 4,849.00 and below). (b) M40 (household income of RM 4,850.00 to RM 10,659.00). (c) Micro Enterprises with sales turnover below RM300,000 or less than 5 full-time employees. (d) Small Medium Enterprises:

i. In the manufacturing industry; with sales turnover from RM300,000 to less than RM15 million or full-time employees from 5 to less than 75 people; or ii. In the services and other sectors; with sales turnover from RM300,000 to less than RM300,000 to RM3 million or full-time employees from 5 to less than 30 people.

Every applicant will undergo the Means Test to assess whether they would be entitled to the subsidy. It should be noted however that the subsidy is limited to one mediation process only and the government will not subsidise any subsequent mediation.

Conclusion As discussed in the alert dated 11 November 2020, there will be inevitable disputes due to the ambiguity of Section 7 of the COVID-19 Act. Accordingly, the establishment of PMC-19 is a timely initiative by the government to assist those with limited resources to effectively resolve their disputes.

December 9, 2020