Kuwait Airways Corporation v Iraqi Airways Company and Other Kuwait Airways Corporation v Iraqi Airways Company and Other (Consolidated Appeals

An English court may exceptionally disregard foreign legislation where recognition would affront fundamental justice. The exception extends beyond grave human rights violations to legislation forming part of a flagrant breach of clearly established international law.

Conversion requires deliberate conduct inconsistent with the owner’s rights which encroaches so extensively as to exclude the owner from possession. Damages compensate the owner’s true loss. In successive conversions, the defendant cannot avoid liability merely because another wrongdoer had already deprived the owner of the goods or would otherwise have done so. The converter also bears the risk that later events prevent return of the goods.

Following Iraq’s invasion of Kuwait, ten aircraft belonging to Kuwait Airways Corporation were removed to Iraq. Iraqi Airways Company thereafter treated them as its own under Iraqi Revolutionary Command Council Resolution 369. Four aircraft were destroyed by coalition bombing at Mosul. Six were sent to Iran and eventually returned following a payment of US$20 million.

Mance J held that Iraqi Airways had wrongfully interfered with the aircraft: [1999] CLC 31. Aikens J nevertheless dismissed the action for want of recoverable loss: [2000] 2 All ER (Comm) 360. The Court of Appeal upheld the failure of the claims concerning the Mosul aircraft but allowed most claims concerning the Iran aircraft: [2001] 3 WLR 1117.

The consolidated appeals concerned public policy and recognition of Resolution 369, double actionability, the ingredients of conversion, causation and the recoverable measure of damages.

1. Both appeals dismissed. Lord Nicholls delivered the leading speech. Lord Hoffmann agreed with it, while Lord Steyn and Lord Hope agreed with its material conclusions and gave additional reasons. IAC’s appeal was dismissed by a majority of four to one. KAC’s cross-appeal concerning the Mosul four and finance costs was dismissed unanimously.

2. Per Lord Nicholls, Lord Steyn and Lord Hope, the public policy exception to recognition of foreign law is exceptional and must be exercised with great circumspection. It is not confined to grave violations of human rights. Resolution 369 formed part of Iraq’s unlawful annexation and plunder of Kuwait, contrary to clearly established international law and binding Security Council decisions. Recognition would be manifestly contrary to English public policy. The act-of-state and non-justiciability principles did not prevent adjudication because the governing international standards and the breach were clear.

3. Resolution 369 had to be disregarded when applying both limbs of the pre-1995 double-actionability rule. KAC was therefore treated as remaining owner of the aircraft. The flexibility recognised in Boys v Chaplin [1971] AC 356 and Red Sea Insurance Co Ltd v Bouygues SA [1995] 1 AC 190 permitted the repugnant lex situs rule to be severed when applying Iraqi law as the lex loci delicti.

4. Per Lord Nicholls, conversion required deliberate conduct inconsistent with the owner’s rights which was sufficiently extensive to exclude the owner from use and possession. Actual taking was unnecessary. Adverse detention accompanied by an intention to keep the goods could suffice, and demand and refusal were only the usual means of proving that intention. IAC’s incorporation, registration, insurance, repainting and use of the aircraft established conversion.

5. The Mosul claims failed because Iraqi law required proof that the physical destruction would not have occurred but for IAC’s usurpation. The concurrent factual conclusion was that the aircraft would have been placed at Mosul and destroyed in any event. New interpretations of Iraqi law could not be advanced because foreign law was a matter of evidence and the propositions had not been put to the experts.

6. The Iran claims were not defeated by a simple but-for argument. Each successive converter wrongfully excludes the owner, and liability is not reduced because another person previously converted, or would otherwise have converted, the goods. IAC bore the risk that governmental orders and Iran’s detention prevented return. Reasonable recovery and repair costs, substitute-aircraft costs and lost profits were recoverable in principle. The finance costs were excluded because they related to a commercially chosen restructuring of the fleet rather than replacement of the converted aircraft.

7. Lord Scott dissented on IAC’s appeal. He considered that no Iraqi tort had arisen because Resolution 369 formed part of Iraqi law, and that public policy could not create a foreign cause of action having no substantial connection with England.

1. House of Lords: Both consolidated appeals were dismissed: [2002] UKHL 19.
2. Court of Appeal: IAC’s liability appeal failed. KAC’s damages appeal succeeded substantially in relation to the Iran six but failed in relation to the Mosul four and finance costs: [2001] 3 WLR 1117.
3. High Court, damages trial: Aikens J held that KAC had established no recoverable damage and dismissed the action: [2000] 2 All ER (Comm) 360.
4. High Court, liability trial: Mance J held that IAC had wrongfully interfered with the ten aircraft: [1999] CLC 31.
5. Earlier House of Lords proceedings: The House held that IAC had been validly served and lacked state immunity for its retention and use of the aircraft after Resolution 369 took effect: [1995] 1 WLR 1147.