Challenges faced by foreign investors in Malaysia: The risk of being sued by the local authorities.

Updated: Nov 5, 2020

Recently we came across a decision made by a High Court Judge in Melaka (one of the states in Malaysia) by a local authority known as Syarikat Bekalan Air Melaka Berhad vs Sunpower Malaysia Manufacturing Sdn Bhd[1]. The Plaintiff is the local authority in the Melaka State to provide supply of water to the public including industry. The Defendant is a foreign investor company (from USA) engaged in solar manufacturing. The history went back somewhere in 2007. During that time the Defendant wanted to build a factory in Malaysia and searched for the best location. During the searching, the Defendant received offers from various state government and was attracted by the offer or special incentives offered by the State of Melaka after discussions with the Melaka State Government, Invest Melaka and The Malaysia Industrial Development Authority (“MIDA”). One of the incentives that attracted the Defendant to build its factory in Melaka was a favourable water tariff. As we know solar manufacturing need a lot of raw water and treated water supply.

The Plaintiff has pleaded that the State Government of Melaka had agreed on 21 January 2008 to provide raw water and treated water at a “special water tariff” to the Defendant. The rates were to be applicable for 10 years. Permission was also given for the Defendant to carry out its own drilling within the factory are to procure raw water.

The issues raised are (1) whether the Plaintiff is entitled in law to charge the costs of the building of certain infrastructure to the Defendant and (2) whether the claims are barred by limitation

Since this decision was only related to the Defendant’s application to strike out the Plaintiff’s claim, the merits of the case has not been dealt with. As at this moment, we cannot find the status of this case online and will update accordingly.

Briefly, the Plaintiff had incurred cost for the treated water infrastructure package and the raw water infrastructure package for the sum of RM42,784,761.14 in which the Defendant has failed to pay. The Plaintiff filed a Writ Summons against the Defendant on 12 February 2018.

Challenges for foreign investors in Malaysia

The Defendant raised the defence of limitation because the requirement for supply of water was initiated and agreed in December 2007[2]. At that time the applicable legislation was only Enactment 10/2002. In addition to that, the Defendant also contended that there was no agreement by the Defendant to pay for the costs of infrastructure built by the Plaintiff and the Plaintiff has no power to enter into any contract that is not authorised by statute. The Defendant further contended that it is unlawful for the Plaintiff to pass on the cost of building water infrastructure to the Defendant. This is because for raw water, the Plaintiff is not authorised by Enactment 10/2002 to charge for the cost of building infrastructure. As for the treated water, the Plaintiff is not authorised by Water Services Industry Act 2006 (WASIA) to charge for the cost of building infrastructure (the public mains). The Plaintiff is statutorily obligated to provide the infrastructure at its own cost.

The Plaintiff in rebutting the limitation defence alleged that limitation has not set in because each time the Defendant had substantially changed its position and stands, it would amount to a new request. Consequently, the change would then reset the limitation period. Therefore, the Civil Suit is filed within the limitation period. (We assume the request is related to the construction of the infrastructure).

The learned Judge has decided to dismiss the Defendant’s application for striking out the Plaintiff’s claim because there are issues of facts or law and mixed of facts and law that could be resolved upon full trial.

From the above case, what we are trying to highlight here is that it is important for foreign investors to have trusted and reliable local representatives in Malaysia especially from legal side to avoid this kind of issues. Even though foreign investors are being offered with many incentives, it is pertinent to protect your interest from being ‘harassed’ and ‘bullied’ by the local authorities or any parties in Malaysia. Get to know the culture of the way Malaysian people are working. We are still a third world country which driven by money. Nothing is free in Malaysia. RM42 million is a lot of money if the local authority win the case. We will see.

[1] [2020] MLRHU 57 pg 1 [2] S.6 (1)(d) Limitation Act 1953, i.e actions to recover any sum recoverable by virtue of any written law… shall not be brought after the expiration of 6 years from the date on which the cause of action accrued.

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