Construction Law and Building Contracts

Licensing Requirement for the Import of Heavy Construction Equipment into Malaysia

ABC Sdn Bhd wishes to bring into Malaysia several pieces of heavy construction equipment owned by them, for a certain period of time.

ISSUES

A.        Is a license required for importing heavy construction equipment into Malaysia?

Import Permit Licenses, or Approved Permits, are usually required when importing heavy construction equipment into the country. This requirement, however, only extends to machinery or equipment that is less than five years old. The importation of any machinery or equipment that ismore than 5 years old is prohibited.

The importation of machinery that is less than 5 years old is restricted under Schedule Two of the Customs (Prohibition of Imports) Order 1998 as goods that may not be imported into Malaysia except under an Import Licence. Hence Approved Permits are required for the importation of certain items of heavy machinery. These requirements must be checked in theTariff Customs Code. This can be done in the Classification Code Section of the Royal Customs and Excise Department, Putrajaya (Bahagian Kod Perjenisan)

Guidelines for the application of the Approve Permits should also be used to facilitate easy and efficient application. These can be obtained at the Service Counter of the Ministry of International Trade and Industry (MITI) or from the MITI website. The purpose of these guidelines is to explain the conditions and procedures that need to be complied with by companies that wish to apply for Approved Permits for commercial products controlled under the Customs Orders (Prohibition of Imports) 1998 and the Customs Act 1967.

The conditions and procedures for application of an Approved Permit for heavy construction equipment is as follows:

 

  • Companies that are eligible to apply need to be register with the Companies Commission of Malaysia.

 

  • How to apply

Companies need to submit the Application Form together with:

    1. Customs Form JK69.
    2. Memorandum and Article of Association (M & A).
    3. Form 24 : Information of Shareholders.
    4. Form 49 : Information of directors, managers and secretary of company

                          M&A, Forms 24 and 49 are required for the first time application.

 

  • Supporting Documents

Other documents that need to be enclosed with the Application Form are:

Heavy Machinery and Spare Parts

Heavy Machinery.

  • Certificate of Origin from exporting country (heavy machinery must not exceed 5 years old).
  • Catalogues and photographs.
  • Record of importation.
  • Purchase Invoice.

Spare Parts of Heavy Machinery

  • Catalogues and photographs.
  • Record of importation.
  • Purchase Invoice.

Prime Mover

  • Certificate of Origin from exporting country. (Prime Mover must not exceed 5 years old).
  • Approval letter from Commercial Vehicles Licensing. Board (LPKP).
  • Purchase Invoice.

 

  • Application Form

Customs Form JK69 is available from:

Syarikat Percetakan Nasional (M) Bhd.
Jalan Chan Sow Lin
50554 Kuala Lumpur

Tel. : 03-92212022
Fax. : 03-92220690

  • Submission of Application:

Completed application must be submitted to:

Ministry of International Trade & Industry (MITI)
Trade Services Department
Ground Floor, (Service Counter), Block 10
Government Offices Complex, Jalan Duta
50622 Kuala Lumpur

Tel.: 03-6203 3022
Fax.: 03-6201 3012

 

 The approving authority for these applications is the Secretary General of MITI. After the application is received, the documents will be checked and verified, and after consideration, the decision letter will be issued. The applicant will also be sent a letter of notification of receipt within seven working days of MITI receiving the completed application form.

  Import Permit Licenses, or Approved Permits, are not required for the temporary importation of heavy construction equipment for the purpose of carrying out specific construction projects. The importer must be able to prove that there is a fixed project for which the equipment is required.

B.               Is an Approved Permit required to store heavy construction equipment in a Free Trade Zone?

 The Free Zones Act 1990 describes activities that are permitted within a Free Zone. Section 4 of the Act pertains to goods and services in a free zone, as follows:

“ Subject to this Act, goods and services of any description, except those specifically and absolutely prohibited by law, may be brought into, produced, manufactured or provided in a free zone without payment of any customs duty, excise duty, sales tax or service tax.”

As stated in paragraph 5 above, the importation of heavy construction equipment that is less than 5 years old is merely restricted, and not absolutely prohibited. Therefore, it may be brought into a free zone without the need of an Approved Permit.

CONCLUSIONS

 

  • ABC Sdn Bhd is advised that they should enquire into the exact requirements under the Customs Tariff Code for the specific type and/or class of heavy construction equipment that they wish to import into Malaysia, and thus whether or not an Approved Permit is required of each one.

 

  • However, it must be noted that only heavy machinery that is less than 5 years old may be imported into Malaysia and if any of the equipment that ABC Sdn Bhd wishes to import into the country does not meet this requirement it will be completely prohibited from entering Malaysia. ABC Sdn Bhd may thus wish to consider another route.

 

  • As no Approved Permit is required for bringing heavy construction equipment into a Free Trade Zone, ABC Sdn Bhd is advised that it may be a more suitable course would be to adopt this option.

Letter of Intent vs Letter of Undertaking

  • A letter of intent is generally not legally binding unless both parties intended that it should be enforceable and it does not refer to a resulting future contract. On the other hand, the law imposes an obligation to pay a reasonably price for work done pursuant to a request under the principle of quantum meruit. A letter of undertaking is contractual in nature and failure to comply with it will result in a breach of obligation.

 

LETTER OF INTENT

 

  • A letter of intent (LOI) is a document which expresses the intention of a party to enter into a contract at a future date by outlining the terms which are intended to be included in a finalised agreement. As a general principle, a LOI is not legally binding save in exceptional circumstances. However, many LOIs contain provisions that are binding such as non-disclosure agreements, a covenant to negotiate in good faith, or a “stand-still” or “no-shop” provision which promises exclusive rights to negotiate.

 

  • The Supreme Court in Ayer Itam Tin Dredging Malaysia Berhad v. YC Chin Enterprise Sdn. Bhd. [1994] 2 AMR 32:1631 held that generally, an arrangement made “subject to contract” or “subject to the preparation and approval of a formal contract”, and similar expressions, would be construed to mean that the parties were still in a state of negotiation and did not intend to be bound unless and until a formal contract was exchanged.

 

 

  • However, having said that, there are still exceptional circumstances which can cause a LOI to be legally binding despite having a “subject to contract clause”. In determining whether any liability shall attach to the person who issues the LOI, the Court will scrutinise the terms of the document and the circumstances in which it came to be written (See Turriff Construction Ltd. and Turriff Ltd. v. Regalia Knitting Mills Ltd. [1971] 9 BLR 20 (QBD)). Where the LOI indicates that both parties intend that it should be enforceable and it does not refer to the execution of a formal contract in the future, the LOI can constitute an agreement between the parties.

 

  • On the other hand, it is to be noted that even if both parties expect a formal contract to eventuate, but one party requests the other to commence work, the work done is treated as having been done under the expected contract, and if no contract is entered into, the party carrying out the work at the request of the other, can claim payment under the principle of quantum meruit, i.e. a reasonable price for work done pursuant the said request.

 

LETTER OF UNDERTAKING

  • An undertaking from a bank is similar in effect as that of a bank guarantee, performance bond or standby letter of credit. The definition of a valid undertaking adopted in Public Bank Bhd v Perwira Affin Bank Bhd (2001) 7 CLJ 447 HC was “a pledge, a promise and a guarantee”.

 

  • The construction to be given to an undertaking is similar to that applied to an ordinary contract (See Michael C Solle v. United Malayan Banking Corporation [1984] 1 CLJ 151). Thus, a breach of an undertaking attracts damages in the same manner as a breach of contract.

Construction Law and Building Contracts

 

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