Kuwait Airways Corporation v Iraqi Airways Company (Consolidated Appeals)

The House held that an English court may, exceptionally and with great circumspection, refuse to recognise a foreign legislative act which is in flagrant breach of clearly established rules of international law. In this case RCC resolution 369, adopted by Iraq after its invasion and annexation of Kuwait, was contrary to the United Nations Charter and the Security Council resolutions and so was contrary to English public policy. Accordingly the English court was entitled to disregard the purported transfer of title effected by that decree when applying the double actionability rule to KAC's tort claims.

Applying the double actionability rule flexibly, the House held that IAC's conduct after 17 September 1990 would have been tortious if done in England (conversion/usurpation) and was civilly actionable under Iraqi law once resolution 369 was disregarded. On damages, KAC's claims for the four aircraft destroyed at Mosul failed because Iraqi law required proof that the destruction would not have occurred but for the usurpation and that burden was not discharged. KAC's claims in respect of the six aircraft detained in Iran succeeded in principle; certain heads of consequential loss were recoverable and were remitted for assessment, but a large claim for finance costs associated with fleet restructuring was rejected.

The appeals concerned ten commercial aircraft seized by Iraqi forces when Iraq invaded Kuwait in August 1990 and a legislative decree (RCC resolution 369) purporting to vest KAC's assets in Iraqi Airways Co (IAC). KAC claimed conversion and damages; IAC raised state-immunity and private international law defences. The litigation has a lengthy procedural history: a prior House decision ([1995] 1 WLR 1147) rejected state immunity for IAC as to acts after resolution 369; liability issues were tried by Mance J; damages issues by Aikens J; the Court of Appeal ([2001] 3 WLR 1117) partly allowed KAC's claims. Both parties appealed to the House.

The nature of the claim: KAC sought return or value of ten aircraft and damages for wrongful usurpation and conversion.

Issues framed:

• whether an English court should recognise RCC resolution 369 or disregard it as contrary to public policy and international law;
• the application of the double actionability rule where part of foreign law is objectionable;
• whether IAC's post-resolution conduct constituted conversion under English law;
• the applicable tests in Iraqi law for recovery (including the Iraqi 'but for' test for physical loss); and
• the appropriate measures of damages and causal tests for consequential loss (Mosul four v Iran six distinctions).

Court's reasoning: The House concluded that (i) the Security Council resolutions and the UN Charter established that Iraq's annexation and RCC resolution 369 were unlawful; (ii) an English court may refuse to recognise or give legal effect to such a provision of foreign law as contrary to public policy; (iii) having disregarded resolution 369, both limbs of the double actionability rule were satisfied because IAC's conduct would have been tortious in England and was actionable under Iraqi law as usurpation; (iv) on causation and damages KAC failed to prove on Iraqi law that the Mosul four would not have been destroyed but for IAC's usurpation, so those claims failed; (v) claims relating to the Iran six were recoverable in principle (costs of recovery, repairs, hire of substitute capacity and loss of profits) but certain heads (notably broad finance costs for fleet restructuring) were rejected as too remote or not causally attributable to IAC's wrongful acts. The Iran-six claims were remitted for assessment.

Appeals dismissed. The House held that RCC resolution 369 was contrary to English public policy and could be disregarded; on that footing the double actionability rule applied so that IAC's post-17 September 1990 conduct amounted to actionable conversion/usurpation. KAC's claims concerning the Mosul four failed because it did not satisfy the Iraqi 'but for' test for physical loss; claims in respect of the Iran six succeeded in principle but certain consequential heads (notably finance costs of fleet restructuring) were not recoverable and remaining heads were remitted for assessment.

Trial on liability before Mance J (judgment reported at [1999] CLC 31); trial on damages before Aikens J ([2000] 2 All ER (Comm) 360) whose dismissal of the action was partly reversed by the Court of Appeal ([2001] 3 WLR 1117). The House previously decided related state immunity issues in Kuwait Airways Corp v Iraqi Airways Co [1995] 1 WLR 1147. The present appeals were decided in the House of Lords ([2002] UKHL 19).