Although RFC 3986 obsoletes RFC 2396, the XSLT and XQuery specifications allow implementations to use either. The Saxon/Java result here is as described in RFC 2396, appendix C.2. The specification of resolve-uri(), as given at

http://www.w3.org/XML/2007/qt-errata/xpath-functions-errata.html#E1

says "If $relative is a relative URI reference, it is resolved against $base, or the base-uri property from the static context, using an algorithm such as the ones described in [RFC 2396] or [RFC 3986]". This very permissive wording was deliberately chosen in recognition of the fact that there are corner cases where the two RFCs differ, and that implementations may well need to use underlying libraries which implement one rather than the other, or in some cases have made their own interpretations of a very confusing specification. (Saxon in some cases does things that aren't allowed by either spec, for example it handles the "jar:" URI scheme, which is completely non-conformant with the RFCs. I'm always reluctant to do this, but sometimes pragmatism wins.)

In practice, I will move Saxon forward to use the RFC 3986 rules at such time as a reliable implementation is available in the standard Java library.