Covid-19 and Business Law

Legal Implications of a Global Pandemic

Adnan Trakic, Adnan Trakic

• Publisher: De Gruyter
• Year: 2021
• ISBN:
  9783110723809
• Edition: 1
• Topic: Business
• Subtopic: Business Law
• Index: Business

Harmonisation of law, a term that refers to an effort to bring two different legal traditions in harmony with one another, has developed a rather negative connotation over time when mentioned in the context of Shari'ah and common law. Harmonisation began to be looked at as an attempt by one legal system to impose its values on the other. A major reason for that is the lack of understanding of the scope to which these two legal traditions converge. One of the principal findings of this book is that Shari'ah and common law have many more commonalities than differences. As a result, the need for harmonisation between the two might have been exaggerated. The similarities do not need to be harmonised. Rather, they need to be acknowledged and appreciated. If the differences between Shari'ah and common law, which undoubtedly exist as evidenced in this book, are approached from the position of appreciation for commonalities, the ambiance to reconcile the differences would be more conducive to the harmonisation process which would, in that case, be reflective of compromise. This book is intended to help readers better understand Shari'ah and common law and aid harmonization efforts when needed.

1 COVID-19 and Business Law: Challenges and Opportunities

Adnan Trakic

Introduction

The Coronavirus Disease 2019 (COVID-19) pandemic has had extraordinary effects on human lives and economies around the world. As of 21 February 2021, there have been a staggering 110,749,023 confirmed cases of COVID-19, including 2,455,131 deaths.¹ Many countries have introduced various measures to stop the spread of the virus and preserve human lives and livelihoods. Some of these measures have been extreme, like the restrictions imposed on people’s movement and lockdown of countries’ borders. It has been reported that over half of the world’s population, more than 3.9 billion people, have been confined to their homes due to the restrictions and lockdowns imposed by countries due to COVID-19.²

China was the first country to put Wuhan City, a place where the coronavirus originated from, on lockdown on 23 January 2020.³ As the virus spread, many other countries followed suit. Malaysia, for example, promulgated a nation-wide movement control order (MCO) on 18 March 2020.⁴ Around the same time, some states in the USA and Australia also began to impose strict social distancing measures,⁵ while Singapore and most of the EU countries introduced nation-wide lockdowns in April and May 2020.⁶ The medical professionals, who have been advising the governments, have claimed that such measures are critical in the time of a pandemic.⁷

While these measures have undoubtedly saved lives and curbed the spread of the deadly virus, they have also produced some unintended legal implications for individuals and businesses, particularly in the areas of contractual obligations, employment relationships, tourism and hospitality industry, company law, competition law, human rights and the rule of law, protection of vulnerable groups like migrant workers, and access to judicial and legal services.

Key Objectives and Research Approach

This book has five major objectives that underpin the analysis of the legal impacts of the COVID-19 pandemic on individuals and businesses. First, to identify and discuss specific legal challenges caused by the COVID-19 pandemic in earlier mentioned business law-related areas. Second, to increase the awareness about parties’ rights and obligations in the time of the pandemic. Third, to enable the scholars and practitioners to present their views and solutions to the issues at hand in an appropriate manner. Fourth, to enable the public and interested parties to learn from the presented views. Fifth, to suggest to governments reforms of the existing laws and policies, where considered necessary.

These objectives lead to the following questions:

1. What are the specific legal implications of the COVID-19 pandemic for individuals and businesses?
2. How to address and remedy the legal implications of the pandemic in an effective manner?

Structure and Framework

This book consists of ten chapters. Chapters 1 and 10 are written by the editor. Chapter 1 introduces the topics and sets the expectation of all other chapters. It highlights the areas that are sought to be discussed. The legal implications of the COVID-19 pandemic are many, and they could be examined through the lens of different areas of law. This book, however, limits the scope of the discussion only to business law-related areas mentioned above. It is noted that some of these areas, like the reference to human rights and vulnerable groups, may not, in a traditional sense, be considered as business law areas. Nonetheless, the editor has taken the liberty of including them due to their significance and correlation with business and commerce. Fundamental human rights and liberties cannot be divorced from business and commerce, especially when it comes to employment matters, responsible business conduct, and social and environmental considerations in the global supply chain.

Chapter 2 begins with the most fundamental aspect of business law: the impact of COVID-19 on the performance of the contractual obligations. Many individuals and businesses became unable to perform their contractual obligations either due to COVID-19 (i.e. the disease) or the measures adopted by governments to contain the spread of the disease (i.e. the lockdown). This unintended non-performance of contractual obligations is a legal risk that burdens the non-performing parties. But why should they be burdened when they are not responsible for the non-performance? Chapter 2 examines the extent of the parties’ liability in these circumstances with reference to two relevant legal concepts – frustration and force majeure. While, at first glance, the common law doctrine of frustration appears to be the solution to the problem, the doctrine could only be invoked to provide relief to individuals and not to the whole segments of the society affected by the pandemic. There is also a concern about whether the doctrine’s remedy of avoidance of the contract is suitable for the breaches of contract caused by COVID-19 or related events.

For the aforesaid reasons, the contract law concept of force majeure has been viewed by many as a more appropriate instrument to absolve liability for the non-performance of the contract caused by the pandemic. That said, there are also some concerns around force majeure, like how the clause should be drafted and whether the commonly used “Act of God” term is wide enough to include the event such as a global pandemic. Chapter 2 addresses the frustration and force majeure–related concerns, mainly with reference to relevant Malaysian legislative provisions and judicial decisions.

Both frustration and force majeure remedies are normally sought by the affected contracting parties through litigation. But why should parties have to experience the discomfort of having to go to court and seek remedies that they may or may not get? In addition, the court processes are likely to be lengthy and costly. They would also take the court’s time and resources, which could be put to better use in times of the pandemic. This is where the governments should be proactive in mitigating the COVID-19’s impact on individuals and businesses. This chapter specifically examines Malaysia’s Temporary Measures for Reducing the Impact of Coronavirus Disease (COVID-19) Act 2020 and compares it with Singapore’s COVID-19 (Temporary Measures) Act 2020. The detailed analysis of the COVID-19 Act will show whether the legislative measures are sufficient and broad enough in scope to provide the appropriate relief for the contractual breaches caused by both the COVID-19 (the disease) and the measure (the lockdown) adopted to contain the spread of the disease. While Chapter 2, for the most part, considers issues with reference to the relevant laws of Malaysia, occasional comparisons with other jurisdictions such as India, Singapore, and the UK are also made.

Some contract law principles that apply to general commercial contracts may not necessarily apply in the same manner to other more specific types of contracts, like employment contracts. This is why Chapter 3 specifically examines the impact of the COVID-19 pandemic on employment contracts and relationships, particularly with regard to employers’ rights and duties in relation to downsizing, reducing salaries, temporary changing scope of work, and annual leaves. These measures have been generally considered legitimate options at the disposal of employers to navigate uncertain economic times. They are meant to prevent lay-offs and redundancies. In addition, many counties have introduced various job retention schemes (also known as furlough schemes) to support employers and workers through government grants to pay the workers’ salaries.⁸ While these schemes have been effective in preventing unemployment, they have also put significant constraints on countries’ economies and their fiscal costs.⁹

The health of workers has been another primary concern. Employers are under obligation to provide a safe working environment to their workers, including the protection against the COVID-19. Many employers have allowed workers to work from home to ensure their safety. This has reignited the need for well-designed flexible work arrangement policies, which would ensure workers’ productivity and, at the same time, provide adequate protection to workers against possible abuses.

In examining these challenges, this chapter offers solutions that are reflective of legal as well as social justice. What is required is a balanced approach that will not discriminate either against employers or workers. The tremendous economic challenges caused by the pandemic can only be overcome if both sides are prepared to offer their cooperation and understanding. This is even more so in sectors of the economy that have been affected the most by the pandemic, such as the tourism and hospitality industry.

Chapter 4 addresses the legal implications of COVID-19 for the tourism and hotel industry. Many hotels, tour companies, and transport operators had to close down as a result of the travel restrictions introduced by governments, which have been seen as a necessary means of preventing the spread of the virus. For countries like Malaysia, which heavily rely on the tourism industry’s revenues, the COVID-19 pandemic presented major economic challenges and tremendous job losses. It is estimated that the Malaysian tourism industry lost RM100 billion in revenue in 2020 alone due to the pandemic.¹⁰ Malaysian Association of Hotels has said that approximately 90 hotel establishments have closed permanently or temporarily since 2020, affecting around 7,000 employees, some of who have been retrenched and others have been on pay cuts or placed on unpaid leaves.¹¹ In addition, some 95 tourism agencies have been closed.¹² The Malaysian Government projected that average hotel occupancy for 2020 was 61.1%, while in 2021, it is projected to be 58.4%, the figure described as unrealistic by some critiques.¹³

While the governments have been working to save their ailing tourism industries, there has been little talk about the consumers whose bookings and package tours had been cancelled due to the pandemic. Are these consumers adequately protected under the existing laws? What is the extent of the compensation that they are entitled to if any? Are there any differences in treatment by law between outbound and inbound travellers? The Malaysian Tourism Industry Act (TIA) and Tourism Industry (Tour Operating Business and Travel Agency Business) Regulations 1992 seem to provide more protection to outbound travellers. Should this type of discrimination be acceptable? Also, what happens when a tour operator winds up? Are there any insolvency protection measures accorded to the affected consumers, or will they be treated as unsecured creditors with little hope of being adequately compensated? These and similar questions are addressed in Chapter 4.

The chapter explores the strengths and weaknesses of the existing regulatory framework under the TIA and the Regulations 1992 and offers suggestions by reference to the laws of the EU and the UK. More specifically, it considers insolvency protection measures under the EU Package Travel Directive 2015, and the UK’s 2015 Directive and the Package Travel Regulations 2018, which implemented the EU Directive 2015. As a result of the comparison with the EU and UK laws, the chapter proposes several changes in the Malaysian regulatory framework intended to provide adequate protection to both the consumers and the tourism industry. It also discusses travel companies’ response through their representative, the Malaysian Association of Tours and T...