Kuwait Airways Corporation v Iraqi Airways Company

An English court may refuse to recognise a foreign legislative act which is fundamentally exorbitant or contrary to clearly established principles of international law. The territorial act of state doctrine is subject to English public policy and does not require recognition of an act giving effect to an unlawful annexation and seizure of property.

Conversion is a tort of strict liability. A claimant need not prove that the loss would have been avoided but for the conversion. The claimant may recover losses flowing naturally and directly from the conversion, subject to remoteness and reasonable foreseeability. In assessing damages, the court must adopt the method and date of valuation that fairly compensate the claimant in the circumstances.

The conjoined appeals arose from Iraq’s invasion and occupation of Kuwait and the seizure of ten aircraft belonging to Kuwait Airways Corporation. Iraqi Airways Company appealed against Mance J’s ruling that Iraqi RCC Resolution 369 could not be recognised and that its subsequent conduct constituted wrongful interference. Kuwait Airways appealed against Aikens J’s ruling that it had failed to establish that its losses would not have occurred but for the conversion.

The central issues were the justiciability and recognition of Resolution 369, the effect of the territorial act of state and lex situs doctrines, the requirements of Iraqi and English law, and the recoverability of losses arising from conversion.

1. Disposition. Iraqi Airways’ appeal was dismissed. Kuwait Airways’ appeal was allowed in part. The matter was remitted to the Commercial Court for assessment of damages flowing from the conversion of the Iran Six.
2. Resolution 369. The validity and effect of the resolution were justiciable. The court could consider its context, including the invasion, annexation, seizure of Kuwaiti property, the United Nations Security Council resolutions and the United Kingdom’s position. Iraq was neither the de facto nor the de jure government of Kuwait. The resolution was fundamentally exorbitant because it purported to dissolve a Kuwaiti corporation and transfer its worldwide assets.
3. The English public policy exception to the territorial act of state doctrine extended to clearly established breaches of international law. Resolution 369 formed part of the unlawful annexation and plunder of Kuwait and was contrary to English public policy. It could not be recognised for any purpose, including under the lex situs rule or the rule of double actionability.
4. Conversion and causation. Conversion is a tort of strict liability. The ordinary rule is that the claimant may recover the value of the goods and losses flowing naturally and directly from the conversion, provided they are not too remote. The “but for” test applied by Aikens J was inappropriate for the Iran Six and for consequential losses arising from conversion. The Mosul Four claim nevertheless failed under Iraqi law because their destruction would have occurred even without the usurpation.
5. Remoteness and damages. The relevant type of loss, rather than its precise manner of occurrence, had to be reasonably foreseeable. The Coalition bombing, evacuation to Iran, detention and recovery costs were not too remote. The Iran Six claims for return costs, repair and maintenance-record reconstruction, substitute capacity and, subject to assessment, loss of profits could proceed. The finance-cost claim failed because the purchase of new aircraft was a strategic decision with independent causes and the claimed finance costs were not an independent head of damages.

• Court of Appeal (Civil Division): [2000] EWCA Civ 284 . IAC’s appeal from Mance J was dismissed. KAC’s appeal from Aikens J was allowed in part.
• Commercial Court: Mance J’s liability judgment dated 29 July 1998, reported at [1999] CLC 31, was upheld.
• Commercial Court: Aikens J’s judgment dated 5 April 2000, reported at [2000] 2 All ER (Comm) 360, was varied in relation to the “but for” test and consequential losses.