On 3 March 2022, the Court of Appeal unanimously dismissed six appeals by AirAsia Berhad and AirAsia X Berhad (collectively, AirAsia) relating to the Kuala Lumpur High Court's decision to award summary judgment in the total sum of approximately 41.5 million Malaysian ringgit to Malaysia Airports (Sepang) Sdn Bhd (MA Sepang) for unpaid passenger service charges (PSC).
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 queues for payment at the airports, PSC is not collected directly by airport operators from passengers. Instead, by common convention and pursuant to a contract known as the "conditions of use", the airlines are obliged to collect PSC from their passengers on the purchase of a ticket and pay this to the airport operator following the completion of the flight.
In December 2017, Malaysia's economic aviation regulator, the Malaysian Aviation Commission (MAVCOM), produced regulations to increase the PSC rate from 44 to 67 Malaysian ringgit 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 this sum from its passengers and pay the new PSC rate to MA Sepang for such flights and instead continued to collect and pay 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 facilities provided at each airport.
Between December 2018 and 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 41.5 million Malaysian ringgit in unpaid PSC. AirAsia appealed the high court's decision.
The Court of Appeal considered the following points.
Whether MA Sepang had bypassed mandatory dispute resolution mechanism under MAVCOM Act
AirAsia relied on sections 74 to 78 of the MAVCOM Act, which state that any dispute between aviation service providers regarding any matter under the MAVCOM Act will first be resolved through mediation, failing which MAVCOM will decide 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, which merely collected from airlines the statutory PSC rates imposed by MAVCOM. Accordingly, the proper avenue for AirAsia to take 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 new PSC rate was 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, among other things, certain newspaper articles where the former minister of transport and former chair of MAVCOM had purportedly insinuated 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 them 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 PSC was unauthorised tax
AirAsia argued that 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 was an unauthorised tax and therefore was entirely unpayable.
In response, MA Sepang relied on the case of Malaysia Airports (Sepang) Sdn Bhd v Federal Express Brokerage Sdn Bhd,(1) in which the Federal Court had determined that a charge imposed to operate at a commercial-free zone at KLIA was a service charge rather than a tax because it had specifically been applied for the use of a certain service. Similarly, 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 retention of PSC by MA Sepang was ultra vires the MAVCOM Act
AirAsia also argued that, by the express wording of section 25 of the MAVCOM Act, the retention of 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, among other things, charges imposed by or payable to MAVCOM. AirAsia submitted that 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 PSC by MA Sepang was ultra vires the MAVCOM Act and therefore PSC was entirely unpayable to MA Sepang.
In response, MA Sepang submitted that 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.
The Court of Appeal's decision on the legality of the PSC charge as well as the applicable rate has provided welcome clarity for all key players in Malaysia'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 the media.(2)
For further information on this topic please contact Shannon Rajan, Eric Gabriel Gomez or Laarnia Rajandran at SKRINE by telephone (+603 2081 3999) or email ([email protected], [email protected] or [email protected]). The SKRINE website can be accessed at www.skrine.com.
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