I don't see any chain setup here. The principle of the pattern is to have each link of the chain do its part, and then call the next link somehow.
So a method should look like the following:
public void processMalfunction(Malfunction malfunction) {
doSomething();
this.next.processMalfunction(malfunction);
}
And of course, the chain should be setup before, using something like
Link1 start = new Link1();
Link2 link2 = new Link2();
start.setNextHandler(link2);
Link3 link3 = new Link3();
link2.setNextHandler(link3);
...
Your current code consists in doing something if some condition is true, else assign the next handler of the next handler to itself:
next.setNextHandler(next);