Kuwait Airways Corp v Iraqi Airways Co

In conversion claims, damages ordinarily reflect the market value of the goods when converted, but the court may adopt another measure that provides just compensation. Market value must be assessed by reference to the relevant market and all the circumstances, including replacement cost, buying and selling prices, quality, provenance and mitigation.

A claimant may also recover a sensibly calculated sum for the period during which converted goods were retained or used, provided there is no double recovery. Betterment is deductible only where the defendant shows that the claimant had a less costly reasonable means of mitigation. The assessment remains fact-sensitive and pragmatic.

Kuwait Airways Corporation claimed damages from Iraqi Airways Company for the admitted conversion of aircraft spare parts removed from Kuwait International Airport following the Iraqi invasion of Kuwait. Liability from 9 August 1990 was admitted, but quantum remained disputed.

The issues included the reliability of Kuwait Airways’ stock data, credits for remaindered and recovered spares, the proper market-value starting point, betterment, replacement purchases, repair and warehousing costs, and compensation for the temporary retention or use of the spares. The court also considered whether a prior consent order excluded the simulator-spares claim.

1. Conversion and damages. The tort of conversion protects ownership of goods and is strict. Its basic features are deliberate conduct inconsistent with the owner’s rights which substantially excludes the owner from use and possession. The ordinary measure of damages is the market value of the goods at conversion, but another measure may be adopted where necessary to provide just compensation.

2. The assessment requires two inquiries: whether the wrongful conduct causally contributed to the loss, and the extent of the loss for which the defendant should fairly, reasonably and justly be liable. The ordinary “but for” inquiry is a threshold factual guide, not a mechanically applicable rule for every tort.

3. Valuation. The relevant market and all the circumstances must be considered. Kuwait Airways’ pre-invasion policy of buying new manufacturer or OEM parts, the limited secondary market, replacement constraints and the quality and provenance of the stock justified a valuation of the converted spares at 80% of manufacturer’s list price. Credits for non-scrapped remaindered and recovered spares were fixed at 48% of manufacturer’s list price because of missing history, incomplete traceability and stigma or taint.

4. Betterment. A deduction requires proof that the claimant had a less costly reasonable alternative which would have achieved mitigation. Where mitigation produced a measurable benefit, credit must be given. Applying that principle, the replacement engine’s additional hours of available use produced measurable betterment, and the engine claim was reduced by $1,769,895.

5. User compensation. Value damages and compensation for temporary retention or use are not necessarily alternative remedies, but double recovery must be avoided. The court may award a reasonable sum reflecting the use or potential use of the goods even where the claimant did not ordinarily hire them out and the defendant derived limited actual benefit. The award is a pragmatic assessment of just compensation, having regard to all relevant circumstances.

6. For remaindered spares, the court awarded 2.5% of manufacturer’s list price per month for the period from 9 August to 31 December 1990, in addition to value damages and repair costs. For recovered spares, it awarded 1.25% per month from 9 August 1990 to 20 May 1992, again subject to avoiding double recovery. No separate user award was made for lost spares because value damages with interest and post-invasion purchases provided just compensation.

7. The consent order of 4 May 2001 withdrew and deleted specified claims from the schedule. It otherwise barred claims for simulator spares not itemised in the schedule, but did not delete simulator spares already itemised there.

8. The claim succeeded in the final quantum assessment. Judgment was entered for principal damages of $161,951,961, with additional principal of $83,768,806 and interest of $82,944,156, subject to the final cap and the orders previously made.

The judgment describes extensive earlier proceedings, including decisions by Evans J, Mance J, Aikens J, the Court of Appeal and the House of Lords in related aircraft proceedings. Those proceedings established the relevant liability background. This judgment determined the outstanding quantum issues in the Spares Action.