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01 July 2020
Dispute resolution mechanism under MAVCOM Act cannot be backdoor to challenge regulator decisions
Power to determine prevailing rate of passenger service charges lies solely with MAVCOM
Specified rate for passenger service charges is fixed rate
Airport conditions of use are valid and enforceable
In July 2019 the Kuala Lumpur High Court awarded a summary judgment for a combined sum exceeding RM40 million for unpaid passenger service charges in three civil suits brought by Malaysia Airports (Sepang) Sdn Bhd (MA Sepang) against AirAsia Berhad and AirAsia X Berhad (collectively, AirAsia).
The recently released written grounds of judgment for this matter have provided welcome clarification on several important issues for aviation service providers.
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 Kuala Lumpur International Airport 2 (klia2) which had been increased and gazetted by 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 core issue of these civil suits concerned the imposition of the newly increased rate of passenger service charges. The High Court determined that this was not really a dispute between AirAsia and MA Sepang, but was instead 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 of the MAVCOM Act did not apply to the present case.
The High Court stated that if AirAsia had disagreed with the increased passenger service charges, it 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 make such an application, the High Court held that AirAsia could not attempt to use the Part XI of the 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 states as follows:
 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…
 The Defendant ought not to be allowed to abuse the present proceeding as a backdoor Judicial Review against the Commission's statutory decisions.
The High Court determined that MAVCOM was the sole body empowered to determine the applicable passenger service charge rate. Further, the High Court stressed that aviation service providers cannot negotiate or opt out of the rates prescribed by MAVCOM.
The relevant portion of the judgment states as follows:
 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 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 stated as follows:
 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…
 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 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 been amended several times. Similar to the conditions of use for other airports around the world (eg, London Heathrow Airport, Singapore Changi Airport and Dubai International Airport), the conditions of use in Malaysia need not be signed by each individual aircraft operator and ground handler. Instead, the terms of the conditions of use are deemed binding on such parties on their use of the airport's services and facilities. MA Sepang's conditions of use for Kuala Lumpur International Airport 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, remained 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 over the years, including its uncontested and continued use 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 stated as follows:
 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…
 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…
 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.
The grounds of judgment serve as a timely reminder for aviation service providers 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 an 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 passenger service charges may also extend to other aviation service charges regulated by MAVCOM under the Malaysian Aviation Commission (Aviation Services Charges) Regulations 2016, including landing, security, housing and parking charges.
For further information on this topic please contact Shannon Rajan or Eric Gabriel Gomez at SKRINE by telephone (+603 2081 3999) or email (firstname.lastname@example.org or email@example.com). The SKRINE website can be accessed at www.skrine.com.
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