Federal Court dismisses appeal on whether guidelines issued by Labuan Financial Services Authority were ultra vires section 7(6) of Labuan Companies Act 1990

25 February 2021

Nabors Drilling (Labuan) Corp v Lembaga Perkhidmatan Kewangan Labuan [2020] 12 MLJ 54

In Nabors Drilling (Labuan) Corp v Lembaga Perkhidmatan Kewangan Labuan, the matter before the Federal Court involved the statutory interpretation and construction of statutes.

The Labuan Financial Services Authority (Lembaga Perkhidmatan Kewangan Labuan) (“respondent”), set up under the Labuan Financial Services Authority Act 1996 (“LFSAA”), is empowered to issue guidelines (“Guidelines”) to regulate leasing business transactions in Labuan. The appellant, registered under the Labuan Companies Act 1990 (“LCA”) had licensed leasing transactions with a Malaysian company, NDIL Malaysia Sdn Bhd (“NDIL”), resident in Labuan. When the appellant leased an offshore oil rig drilling platform (“Rig 503”) to NDIL without obtaining the respondent’s prior approval and without payment of the requisite fees as stipulated under the Labuan Financial Services and Securities Regulations 2010 (“Regulations”), it was fined for the transgression.

The appellant filed a judicial review application in the High Court challenging the requirement that the respondent’s approval was needed for the leasing of Rig 503 in view of section 7(6) of the LCA under which the appellant was purportedly not required to notify the respondent about any subsequent leasing transaction if it was already carrying out a licensed activity with the Malaysian resident. The High Court dismissed the judicial review application and the Court of Appeal, in upholding the decision, held that there was nothing ultra vires or unlawful about the requirement for payment of fees to obtain the respondent’s approval for every subsequent leasing transaction. The Court of Appeal also held that:

• Item 8.2 of the Guidelines, which stipulates that all leasing transactions with Malaysian residents are subject to the respondent’s prior approval and payment of requisite fees, was within the respondent’s powers and functions.
• Section 7(6) of the LCA merely provided generally that for any licensed activity, notification was not required in respect of transactions with a Malaysian resident, but this did not mean approval was not required in respect of any subsequent leasing transaction as per item 8.2 of the Guidelines.
• In any case, the LFSSA, being a specific legislation providing for the licensing and regulation of financial services and securities in Labuan, prevailed over the LCA with regard to the leasing business carried out by the respondent.

The appellant obtained leave to appeal to the Federal Court against the Court of Appeal’s decision on the question whether the Guidelines, specifically item 8.2, were contrary and ultra vires section 7(6) of the LCA. The Federal Court dismissed the appeal and held:

• The Guidelines, made under the Regulations to facilitate the exercise of the respondent’s powers to, inter alia, impose conditions when granting a licence or giving its approval, was rightly held by the courts below to have the force of law. The Regulations were not ultra vires section 7(6) of the LCA. 
• As held by the courts below, section 7 of the LCA was a general provision whereas the Regulations and Guidelines made pursuant to it were specifically enacted to deal with leasing transactions. It was an accepted principle in the construction of statutes that the special or specific provisions of a written law would exclude the operation of the general provisions.