In July 2019, the Kuala Lumpur High Court awarded summary judgment for a combined sum exceeding RM40 million for unpaid passenger service charges in the three civil suits brought by Malaysia Airports (Sepang) Sdn Bhd (“MA Sepang”) against AirAsia Berhad and AirAsia X Berhad (collectively, “AirAsia”).
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The recently released written grounds of judgment for this matter has provided welcome clarification on several important issues for providers of aviation services.
Facts
The civil suits were filed after AirAsia had refused to collect from its passengers and pay to MA Sepang the newly revised passenger service charges for long haul flights from klia2 which had been increased and gazetted by the nation’s economic aviation regulator, the Malaysian Aviation Commission (“MAVCOM”), pursuant to its powers under the Malaysian Aviation Commission Act 2015 (“MAVCOM Act”). This non-payment was mainly due to AirAsia’s contention that the revised charge merely represented a ceiling rate and that the applicable rate should be determined in accordance with the level of services and facilities at each airport.
Further, AirAsia had applied to strike out the civils suits on the basis that the matter ought to be determined pursuant to the dispute resolution mechanism prescribed under Part XI of the MAVCOM Act, which stipulates that any dispute between two or more aviation service providers regarding any matter under the MAVCOM Act must first be resolved through mediation, failing which MAVCOM will commence to decide on the dispute.
The dispute resolution mechanism under the MAVCOM Act cannot be used as a backdoor to challenge the regulator’s decisions
The core issue of these civil suits was regarding the imposition of the newly increased rate of passenger service charges. The High Court determined that in actuality this was not really a dispute between AirAsia and MA Sepang, but instead was a dispute between AirAsia and MAVCOM itself, given that it was the regulator which had determined the increased rate. MA Sepang had simply been seeking to collect from AirAsia the revised statutory rate prescribed by MAVCOM. As such, the dispute resolution mechanism under Part XI the MAVCOM Act was not applicable to the present case.
The High Court stated that if AirAsia had disagreed with the increased passenger service charge, then AirAsia should have applied for a judicial review against MAVCOM’s decision to raise the rate. Given that AirAsia was far beyond the prescribed three-month time limit to launch such an application, the High Court held that AirAsia could not attempt to use the Part XI dispute resolution mechanism as a backdoor opportunity to bring this issue before MAVCOM and challenge the regulator’s decision.
The relevant portions of the judgment are produced below:
“[48] If indeed the Defendant genuinely disputes the imposition of the increased PSC rate, then the Defendant should have mounted a challenge against the statutory decision laid down by the Commission and not vex the Plaintiff who is merely enforcing what is statutorily incumbent upon the Plaintiff to claim. …Instead of faulting the Plaintiff for allegedly failing to adhere to the Mavcom Act’s dispute resolution mechanism, the Defendant should have accordingly moved its own initiative to challenge the Commission’s decision. This court is in full agreement with the Plaintiff’s counsel that the Defendant should have move for Judicial Review against the Commission’s statutory decision years ago when the Increased PSC Rate was coined to be applicable. But even years afterwards, this is exactly what the Defendant has failed or outright refused to do.”
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“[52] …the Defendant ought not to be allowed to abuse the present proceeding as a backdoor Judicial Review against the Commission’s statutory decisions…”
The power to determine the prevailing rate of passenger service charges lies solely with MAVCOM
The High Court determined that the sole body which is empowered to determine the applicable passenger service charge rate is MAVCOM. Further, the High Court stressed that aviation service providers cannot negotiate or opt-out from the rates prescribed by MAVCOM.
The relevant portion of the judgment is produced below:
“[72] …It must be stressed that neither the Plaintiff nor the Defendant can simply agree to opt out of the New PSC Rate set by the Commission. Even if both the Plaintiff and the Defendant are in agreement to dispute the New PSC Rate, such agreement can never override a statutory decision by the Commission.”
The specified rate for passenger service charges is a fixed rate
The High Court stated in no uncertain terms that the passenger service charge rate prescribed by MAVCOM was indeed a fixed rate, rather than a ceiling rate.
The relevant portions of the judgment are produced below:
“[60] It is immensely clear as specified under the Second Schedule of the Present ASC…is set at RM67. This Court fully agrees with the Plaintiff’s counsel that there is nothing whatsoever in the Second Schedule to suggest or imply that RM67 is a ceiling rate.”
“[61] There is no necessity at all for this Court to examine beyond the clear, precise, plain and ordinary meaning of the words of the Present ASC. This Court has no difficulty in concluding that the rate stipulated in the Second Schedule of the Present ASC is a fixed rate. If indeed the Commission has intended of such allowance to negotiate a ‘ceiling rate’ then the Commission would have included such an allowance.”
The Airport Conditions of Use are valid and enforceable
The use of almost every airport in Malaysia by aircraft operators and ground handlers is governed by a contract known as the Conditions of Use, which was first introduced in 2010 and has since been amended on a few occasions. Similarly to the Conditions of Use for other airports around the world, such as London Heathrow Airport, Singapore Changi Airport and Dubai International Airport, the Conditions of Use in Malaysia do not need to be signed by each individual aircraft operator and ground handler. Instead, the terms of the Conditions of Use are deemed binding on such parties upon their use of the airport’s services and facilities. MA Sepang’s Conditions of Use for KLIA and klia2 specifies that the applicable passenger service charge rate for aircraft operators will reflect any revisions made by MAVCOM.
The High Court determined that the statutory passenger service charge rate, as determined by MAVCOM, remains enforceable regardless of an aircraft operator’s acceptance of the Conditions of Use. However, the High Court went on to add that AirAsia’s conduct throughout the years, including
inter alia its uncontested and continued usage of the airport’s services and facilities, showed an unequivocal acceptance of the Conditions and Use and consequently AirAsia was estopped from denying the applicability and enforceability of the terms therein.
The relevant portions of the judgment are produced below:
“[84] Thus, as the PSC rate is prescribed by law, the Defendant’s obligation to pay the New PSC Rate to the Plaintiff remains enforceable regardless of whether the Defendant has agreed to the COUs or not.”
“[85] Furthermore, it is severely unjust for the Defendant to now claim that it has never agreed to the COUs, while on the extreme contrary, all their conducts throughout the years have clearly indicated unequivocal adherence, acceptance, and enforcement of the COUs.”
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“[90] Thus, with all of the above in mind, the Defendant here clearly ought to be estopped from denying the validity and enforceability of the terms of the COUs.”
Comment
The grounds of judgment serve as a timely reminder for providers of aviation services to commence any challenge against a contested decision from MAVCOM by way of judicial review proceedings within the prescribed three-month period. The High Court has made it clear that the dispute resolution mechanism under Part XI of the MAVCOM Act cannot be used as alternative avenue to scrutinise and dispute decisions made by MAVCOM, even if said dispute is framed as being against another aviation service provider.
The High Court’s decision regarding the non-negotiability and fixed rate nature of the passenger service charges may also extend to the other aviation service charges regulated by MAVCOM under the
Malaysian Aviation Commission (Aviation Services Charges) Regulations 2016. These include landing charges, security charges, housing charges and parking charges.
The plaintiff was represented by our Partner Shannon Rajan and our Associate Eric Gabriel Gomez.