On 3 March 2022, the Court of Appeal unanimously dismissed six appeals by AirAsia Berhad and AirAsia X Berhad (collectively, “AirAsia”) relating to the High Court’s decision to award summary judgment in the total sum of approximately RM41.5 million to Malaysia Airports (Sepang) Sdn Bhd (“MA Sepang”) for unpaid Passenger Service Charges (“PSC”).
Background Facts
The PSC is a charge levied on departing air passengers and paid to airport operators for the passengers’ use of the airport services and facilities. In order to prevent lines for payment at the airports, the PSC is not collected directly by airport operators from the passengers. Instead, by common convention and pursuant to a contract known as the Conditions of Use, the airlines are obliged to collect the PSC from its passengers upon the purchase of a ticket and thereafter pay the same to the airport operator following the completion of the flight.
In December 2017, the nation’s economic aviation regulator, the Malaysian Aviation Commission (“MAVCOM”) produced regulations to increase the PSC rate from RM44 to RM67 for passengers departing on long-haul flights from Kuala Lumpur International Airport Terminal 2 (“klia2”). In doing so, MAVCOM equalised and standardised the PSC rates between klia2 and the Kuala Lumpur International Airport Main Terminal (“KLIA”).
However, AirAsia, which predominantly operates from klia2, refused to collect from its passengers and pay to MA Sepang the new PSC rate for such flights and instead continued to collect and make payment of the former PSC rate. AirAsia did so based on its contention that the new PSC rate merely represented a negotiable ceiling rate and that the payable rate should instead be determined between airlines and airport operators in accordance with the level of services and facilitates provided at each airport.
Between December 2018 to January 2019, MA Sepang filed three civil suits against AirAsia for the unpaid PSC and applied for summary judgment for each suit. AirAsia opposed the summary judgment applications and further applied to strike out all three civil suits on the basis that MA Sepang had purportedly bypassed the mandatory dispute resolute mechanism for aviation service providers contained in the Malaysian Aviation Commission Act 2015 (“MAVCOM Act”).
In July 2019, the Kuala Lumpur High Court dismissed AirAsia’s striking out applications and awarded MA Sepang the full sum of approximately RM41.5 million in unpaid PSC. AirAsia appealed the High Court’s decision.
Court of Appeal Decision
Whether MA Sepang had bypassed the mandatory dispute resolution mechanism under the MAVCOM Act
AirAsia relied on Sections 74 to 78 of the MAVCOM Act which states that any dispute between aviation service providers regarding any matter under the MAVCOM Act shall first be resolved through mediation, failing which MAVCOM shall commence to decide on the dispute. AirAsia submitted that a dispute had clearly arisen between itself and MA Sepang regarding the new PSC rate and therefore MA Sepang ought to have utilised the dispute resolution mechanism under the MAVCOM Act. AirAsia further stated that where a statute prescribes a dispute resolution mechanism, the Courts have no jurisdiction until and unless the statutory procedures and remedies are exhausted.
In response, MA Sepang submitted that the true construction of AirAsia’s dispute was that the new PSC rate
should be a ceiling rate to reflect any disparity in the infrastructure and facilities between KLIA and klia2. In this regard, AirAsia’s actual dispute was against MAVCOM’s statutory decision to equalise the PSC rates between KLIA and klia2, rather than against MA Sepang who merely collects from airlines the statutory PSC rates imposed by MAVCOM. Accordingly, the proper avenue for AirAsia to address this issue should have been by way of judicial review proceedings against MAVCOM’s decision to equalise the PSC rates. As such, the dispute resolution mechanism under the MAVCOM Act was not applicable as this was only for disputes between aviation service providers and therefore the Courts had the requisite jurisdiction to determine this matter.
The Court of Appeal unanimously agreed with MA Sepang’s submissions and dismissed AirAsia’s striking out appeals.
Whether the new PSC rate was a negotiable ceiling rate
Although the regulations produced by MAVCOM prescribed the new PSC rate simply as “RM67.00”, AirAsia relied on Section 46 of the MAVCOM Act which states that MAVCOM has the power to set charges “
including maximum charges” for aviation services. AirAsia also relied on extraneous material including
inter alia certain newspaper articles wherein the former Minister of Transport and former Chairman of MAVCOM had purportedly alluded that the PSC rates were ceiling rates.
In response, MA Sepang submitted that the regulations produced by MAVCOM were clear and unambiguous in that the prescribed rates were fixed rates and there was no necessity for the Court to examine beyond the clear, plain and ordinary meaning of such words.
The Court of Appeal unanimously agreed with MA Sepang’s submissions and held that it was “crystal clear” that the new PSC rate was a fixed rate rather than a negotiable ceiling rate.
Whether the PSC is an unauthorised tax
AirAsia argued that the PSC was a form of tax and that the wording of the MAVCOM Act was not sufficiently precise to meet the higher standard required when an enabling legislation confers power on a statutory body to impose taxes by way of subsidiary legislation. In this regard, AirAsia submitted that the PSC is an unauthorised tax and therefore is entirely unpayable.
In response, MA Sepang relied on the case of
Malaysia Airports (Sepang) Sdn Bhd v Federal Express Brokerage Sdn Bhd1 wherein the Federal Court determined that a charge imposed to operate at a commercial free zone at KLIA was a service charge rather than a tax because it was specifically applied for the use of a certain service. Similarly, the PSC was a service charge specifically for a passenger’s use of the services and facilities provided by the airport operator, and therefore could not be construed as a tax.
The Court of Appeal unanimously agreed with MA Sepang’s submissions and held that the PSC was not a tax.
Whether the retention of PSC by MA Sepang is ultra vires the MAVCOM Act
AirAsia also argued that, by the express wording of Section 25 of the MAVCOM Act, the retention of the PSC by MA Sepang was
ultra vires the MAVCOM Act. Section 25 provides for the creation of an Aviation Commission Fund for MAVCOM (“the Fund”) and Section 25(2)(b) states that the Fund shall include
inter alia charges imposed by or payable to MAVCOM. AirAsia submitted that the PSC was imposed by MAVCOM and therefore was expressly payable by airlines to MAVCOM, and not to airport operators. In this regard, AirAsia submitted that the retention of the PSC by MA Sepang was
ultra vires the MAVCOM Act and therefore the PSC was entirely unpayable to MA Sepang.
In response, MA Sepang submitted that the PSC was neither imposed by nor payable to MAVCOM. Instead, MAVCOM merely sets the applicable PSC rates and thereafter the airport operator must impose the prescribed rates on airlines.
The Court of Appeal unanimously agreed with MA Sepang’s submissions and held that the retention of PSC by MA Sepang was not
ultra vires the MAVCOM Act.
Comment
The Court of Appeal’s decision on the legality of the PSC charge as well as the applicable rate thereof has provided welcome clarity for all key players in the nation’s aviation industry, including airlines, airport operators, MAVCOM and air passengers. The decision further serves 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 Court of Appeal’s decision has been reported in media.
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MA Sepang was represented by our Partners Ivan Loo and Shannon Rajan, and Associates Eric Gabriel Gomez and Laarnia Rajandran.