Kuwait Airways Corp. v. Iraqi Airways Co. et al., (2002) 291 N.R. 1 (HL)

• Case Date: Thursday May 16, 2002
• Jurisdiction: Canada (Federal)
• Citations: (2002), 291 N.R. 1 (HL)

Kuwait Airways Corp. v. Iraqi Airways (2002), 291 N.R. 1 (HL)

MLB headnote and full text

Kuwait Airways Corporation (respondents) v. Iraqi Airways Company and others (appellants)

Kuwait Airways Corporation (appellants) v. Iraqi Airways Company and others (respondents) (Consolidated Appeals)

([2002] UKHL 19)

Indexed As: Kuwait Airways Corp. v. Iraqi Airways Co. et al.

House of Lords

London, England

Lord Nicholls of Birkenhead, Lord Steyn, Lord Hoffmann, Lord Hope of Craighead and Lord Scott of Foscote

May 16, 2002.

Summary:

In 1990 when Iraq invaded Kuwait, Iraq proclaimed the sovereignty of Iraq over Kuwait and its annexation to Iraq. During the invasion, Iraqi forces seized ten commer­cial aircraft belonging to Kuwait Airways Corp. (KAC) and took them to Iraq. The Revolutionary Command Council of Iraq passed legislation dissolving KAC and trans­ferring all its property worldwide, including the ten aircraft, to the state-owned Iraqi Airways Co. (IAC). On January 11, 1991, KAC commenced proceedings against IAC in the United Kingdom, claiming the return of its ten aircraft or payment of their value, and damages. Shortly thereafter the Iraq war began. Four of the ten aircraft were moved to Mosul, Iraq, for safety reasons (the "Mosul four"). The other six aircraft were evacuated to Iran (the "Iran six)". Later in January and February, during the Iraqi war, the "Mosul four" were destroyed by coalition bombing. After the war, the "Iran six" were flown back to Kuwait, but KAC paid Iran a substantial amount for the cost of keeping, sheltering and maintaining the aircraft.

The issues of liability and damages were split for trial. On liability, KAC was largely successful (i.e., Mance, J., held that IAC wrongfully interfered with KAC's aircraft). However, Aikens, J., held that KAC failed to establish that it had suffered any recoverable damage and dismissed the action. Both sides appealed.

The Court of Appeal partially allowed KAC's damages appeal, holding that KAC could recover damages regarding the "Iran six". IAC appealed, arguing that the action should be dismissed in its entirety. KAC cross-appealed, claiming that it should be entitled to damages respecting the "Mosul four".

The House of Lords, Lord Scott of Foscote dissenting in part, dismissed the appeals.

Conflict of Laws - Topic 51

Application of foreign law - Bars - Public or moral law of lex fori (public policy) - The House of Lords stated that in proceed­ings having a foreign element, it may be appro­priate to apply foreign law to decide the issues, even though those laws differ from the law of the forum court - These differ­ences alone are not reason to decline to apply the foreign law - The court stated, however, that blind adherence to foreign law could never be required of an English court - Exceptionally and rarely, foreign law may be disregarded on the ground of public policy (i.e., when applying the foreign law would be contrary to the fun­damental requirements of justice as admin­istered by an English court) - The court cited laws resulting in human rights in­fringements as an example of unacceptable laws, but commented that the public policy principle was not confined to one particu­lar category of unacceptable laws, but could apply to laws that were fundamental­ly unacceptable for other reasons - See paragraphs 15 to 27, 111 to 118 and 135 to 168.

Conflict of Laws - Topic 51

Application of foreign law - Bars - Public or moral law of lex fori (public policy) - In 1990 when Iraq invaded Kuwait, Iraq seized ten commercial aircraft belonging to Kuwait Airways Corporation (KAC) and passed a resolution (resolution 369) trans­ferring all KAC assets to Iraqi Airways Co. (IAC) - In January 1991, KAC sued IAC for return of the aircraft and damages - Subsequently, four of the aircraft were destroyed by coalition bombing during the Iraqi war and the other six aircraft, which had been moved to Iran, were ultimately returned to KAC upon KAC making a sub­stantial payment to Iran - To establish its claim, KAC had to show that it was the owner of the aircraft when IAC did the impugned acts; however, at the relevant time resol­ution 369 had vested title in IAC - KAC argued that as a matter of overrid­ing public pol­icy, an English court should altogether disregard resolution 369 - The House of Lords agreed with KAC's argu­ment - The court stated that such a funda­mental breach of international law could properly cause the English courts to de­cline to enforce or recog­nize such a law - See paragraphs 12 to 29, 111 to 118 and 135 to 168.

Conflict of Laws - Topic 7653

Torts - Choice of law - Rule in Phillips v. Eyre (double actionability rule) - In 1990 when Iraq invaded Kuwait, Iraq seized ten commercial aircraft belonging to Kuwait Airways Corporation (KAC) and in Sep­tember 1990 passed a resolution (resolution 369) transferring all KAC assets to Iraqi Airways Co. (IAC) - In January 1991, KAC sued IAC for return of the aircraft and damages - Subsequently, four of the aircraft were destroyed by coalition bomb­ing during the Iraqi war (the "Mosul four") and the other six aircraft, which had been moved to Iran, were ulti­mately returned to KAC upon KAC mak­ing a substantial payment to Iran (the "Iran six") - Since KAC pursued its action in the United Kingdom prior to 1995, it had to satisfy the double actionability test (i.e., the acts must be tortious if done in Eng­land and civilly actionable under the law of the country where the acts occurred) - The House of Lords held that IAC's acts met the double actionability test (i.e., IAC's acts would have constituted action­able conversion if done in England and consti­tuted usurpation which was civilly action­able in Iraq) - See paragraphs 37 to 46.

Conflict of Laws - Topic 7653

Torts - Choice of law - Rule in Phillips v. Eyre (double actionability rule) - In 1990 when Iraq invaded Kuwait, Iraq seized ten commercial aircraft belonging to Kuwait Airways Co. (KAC) - In January 1991, KAC sued Iraqi Airways Co. (IAC) for return of the aircraft and damages - Subsequently, six of the aircraft were moved to Iran for safety reasons, but were ultimately returned to KAC upon KAC making a substantial payment to Iran for keeping, sheltering and maintaining the aircraft (the "Iran six") - Since KAC pur­sued its action in the United Kingdom prior to 1995, its dam­ages claim had to satisfy the double actionability rule - The House of Lords held that since these air­craft were recovered largely undamaged the test for whether damages were recover­able was no more stringent under Iraqi law than under the English law of conversion; therefore, when considering the heads of damage regarding the "Iran six", Iraqi law could be put aside (i.e., a head of loss recoverable under English law was also recoverable under Iraqi law and the re­quirements of the double actionability rule would thus be met as regards both laws) - See paragraph 58.

Conflict of Laws - Topic 7653

Torts - Choice of law - Rule in Phillips v. Eyre (double actionability rule) - [See Conflict of Laws - Topic 9626].

Conflict of Laws - Topic 9626

Evidence and proof - Proof of foreign law - Effect of failure to prove - In 1990 when Iraq invaded Kuwait, Iraq seized ten com­mercial aircraft belonging to Kuwait Air­ways Co. (KAC) - KAC sued IAC for return of the aircraft and damages - Subsequently, four of the air­craft were destroyed by coalition bombing during the Iraqi war (the "Mosul four") - Since KAC pursued its action in the United Kingdom, prior to 1995, its damages claim had to satisfy the double actionability rule - KAC acknowl­edged that its claim respecting the "Mosul four" depended on satisfying the Iraqi law "but for" test (i.e., that the loss or damage would not have occurred but for the usur­pation) - The House of Lords affirmed that on the facts KAC did not meet the hurdle of the Iraqi "but for" test and could not recover damages for loss of the "Mosul four" - KAC raised ques­tions of law respect­ing this claim, but the court refused to con­sider these issues because they were not raised in the courts below and there­fore not put to the expert witnesses on Iraqi law - See paragraphs 47 to 57 and 121 and 122.

Damages - Topic 1810

Torts affecting goods - Conversion - Nor­mal measure - [See second to eighth Torts - Topic 3107].

Damages - Topic 1814

Torts affecting goods - Conversion - Basis for calcula­tion - [See second to eighth Torts - Topic 3107].

Damages - Topic 1815

Torts affecting goods - Conversion - Wrongful seizure - [See second Torts - Topic 3107].

Damages - Topic 1820

Torts affecting goods - Conversion - Loss of profits - [See second Torts - Topic 3107].

Torts - Topic 3093

Trespass - Trespass to goods - Conversion - What constitutes conversion - [See first Conflict of Laws - Topic 7653].

Torts - Topic 3107

Trespass - Trespass to goods - Conversion - Damages - General - [See second Con­flict of Laws - Topic 7653].

Torts - Topic 3107

Trespass - Trespass to goods - Conversion - Damages - General - Iraq invaded Kuwait and seized ten of Kuwait Airways Corp.'s (KAC's) aircraft and transferred them to Iraqi Airways Co. (IAC) - Six of the air­craft were moved to Iran - Subsequently, the aircraft were returned to KAC, upon KAC making a substantial payment to Iran for keeping, sheltering and maintaining the aircraft (the "Iran six") - The House of Lords held that IAC's acts constituted conversion (English law) and usurpation (Iraqi law) - The court held that the test to be applied in determining KAC's damages was whether the wrongful conduct causally contributed to the loss (the "but for" test) and, if it did, what was the extent of the loss for which the defend­ant ought to be held liable - The court held that KAC's claims passed the "but for" test - KAC was entitled to damages for the costs of recovering and repairing the air­craft and for consequential losses (i.e., the costs of substitute aircraft and loss of profits) - The court disallowed finance costs associated with buying replacement aircraft because KAC significantly changed the composition of its fleet - See paragraphs 95 to 105, 123, 129, and 130.

Torts - Topic 3107

Trespass - Trespass to goods - Conversion - Damages - General - The House of Lords stated that damages for the tort of conver­sion are to be based upon the actual loss sustained - The court stated that "... the aim of the law, in respect of the wrongful interference with goods, is to provide a just remedy. Despite its proprietary base, this tort does not stand apart and command awards of damages measured by some special and artificial standard of its own. The fundamental object of an award of damages in respect of this tort, as with all wrongs, is to award just compensation for loss suffered. Normally ('prima facie') the measure of damages is the market value of the goods at the time the defendant expro­priated them. This is the general rule, because generally this measure represents the amount of the basic loss suffered by the plaintiff owner. He has been dispos­sessed of his goods by the defendant. Depending on the circumstances some other measure, yielding a higher or lower amount, may be appropriate. The plaintiff may have suffered additional damage consequential on the loss of his goods. Or the goods may have been returned." - See paragraph 67.

Torts - Topic 3107

Trespass - Trespass to goods - Conversion - Damages - General - The House of Lords stated that damages for the tort of conver­sion are to be based upon the actual loss sustained - The court stated that the deter­mination of a plaintiff's "true loss" was a twofold inquiry, i.e., whether the wrongful conduct causally contributed to the loss and, if it did, what is the extent of the loss for which the defendant ought to be held liable - "The first of these enquiries, wide­ly undertaken as a simple 'but for' test, is predominantly a factual inquiry. The sec­ond inquiry, although this is not always openly acknowledged by the courts, involves a value judgment ('... ought to be held liable...'). Written large, the second inquiry concerns the extent of the loss for which the defendant ought fairly or reason­ably or justly to be held liable (the epithets are interchangeable)..." - See paragraph 70 - The court then elaborated on the two stages of the test - See paragraphs 70 to 86.

Torts - Topic 3107

Trespass - Trespass to goods - Conversion - Damages - General - The House of Lords stated that "consistently with its [the tort of conversion's] purpose of providing a reme­dy for the misappropri­ation of goods, liability is strict. As Dip­lock LJ said in Marfani & Co. v. Midland Bank Ltd. [1968] 1 WLR 956, 970-971, one's duty to one's neighbour is to refrain from doing any voluntary act in relation to his goods which is a usurpation of his property or possessory rights in them. Whether the defendant still has the goods or their pro­ceeds matters not. Nor does it matter whether the defendant was a thief or acted in the genuine and reasonable belief the goods were his. Baron Cleasby's aphorism, uttered in 1872 in Fowler v. Hollins, LR 7 QB 616, 639, still represents the law: 'persons deal with the property in chattels or exercise acts of ownership over them at their peril'. This, he observed, was regarded as a salutary rule for the protec­tion of property." - See paragraph 78.

Torts - Topic 3107

Trespass - Trespass to goods - Conversion - Damages - General - The House of Lords stated that "consistently with this principle [i.e., the principle of strict liability], every person through whose hands goods pass in a series of conversions is himself guilty of conversion and liable to the owner for the loss caused by his misappropriation of the owner's goods. His liability is not dimin­ished by reason, for instance, of his having acquired the goods from a thief as distinct from the owner himself. In such a case, it may be said, looking at the successive conversions overall, the owner is no worse off as a result of the acts of the person who acquired the goods from the thief. Such a person has not 'caused' the owner any additional loss." - See paragraph 81.

Torts - Topic 3107

Trespass - Trespass to goods - Conversion - Damages - General - The House of Lords stated that calculation of damages for conversion was a twofold inquiry, i.e., whether the wrongful conduct causally contributed to the loss (the "but for" test) and, if it did, what was the extent of the loss for which the defendant ought to be held liable - The court discussed whether the "but for" test applied in cases of suc­cessive conversion - The court stated that "... if the test is to be applied at all, the answer lies in keeping in mind, ... that each person in a series of conversions wrongfully excludes the owner from pos­session of his goods. The exclusionary threshold test is to be applied on this foot­ing. Thus the test calls for consideration of whether the plaintiff would have suffered the loss in question had he retained his goods and not been unlawfully deprived of them by the defendant. The test calls for a comparison between the owner's position had he retained his goods and his position having been deprived of his goods by the defendant. Loss which the owner would have suffered even if he had retained the goods is not loss 'caused' by the conver­sion. The defendant is not liable for such loss." - See paragraph 83.

Torts - Topic 3107

Trespass - Trespass to goods - Conversion - Damages - General - The House of Lords, per Lord Nicholls of Birkenhead, discussed whether the test for liability for consequential loss in cases of conversion [i.e., loss beyond that represented by the value of the goods] was reasonable foreseeability as distinct from whether the loss arises naturally and directly from the wrong - His Lordship opined that since the tort of conversion may cause hardship for innocent persons, foreseeability, as the more restrictive test, was appropriate for those who acted in good faith - However, the remoteness test of "directly and nat­urally" should be applied in cases of con­version where the defendant acted dishon­estly" - See paragraphs 99 to 104.

Cases Noticed:

Boys v. Chaplin, [1971] A.C. 356 (H.L.), refd to. [paras. 12, 111, 153, 186].

Fuld Estate (deceased) (No. 3), [1968] P. 675, refd to. [para. 16].

Loucks v. Standard Oil Co. of New York (1918), 120 N.E. 198, refd to. [para. 17].

Oppenheimer v. Cattermole, [1976] A.C. 249 (H.L.), refd to. [paras. 18, 28, 114, 137, 195].

Nicaragua v. United States of America, [1986] I.C.J. Reports 14 (Int. C.J.), refd to. [para. 22].

Legal Consequences for States of the Con­tinued Presence of South Africa in Nami­bia, [1971] I.C.J. Reports 16 (Int. C.J.), refd to. [para. 23].

Buttes Gas and Oil Co. v. Hammer (No. 3), [1982] A.C. 888, refd to. [paras. 24, 113, 135].

Blathwayt v. Baron Cawley, [1976] A.C. 397, refd to. [paras. 28, 145].

Red Sea Insurance Co. v. Bouygues S.A. et al., [1995] 1 A.C. 190; 174 N.R. 241 (P.C.), refd to. [paras. 33, 152, 189].

Empresa Exportadora De Azucar (CUBAZUCAR) v. Industria Azucarera Nacional S.A. (IANSA); Ship Playa Larga and Marble Islands, Re, [1983] 2 Lloyd's Rep. 171 (C.A.), refd to. [para. 34].

Fouldes v. Willoughby (1841), 8 M. & W. 540 (Ex. Ct.), refd to. [paras. 41, 129].

Hiort v. London and North Western Rail­way Co. (1879), 4 Ex. D. 188, refd to. [para. 63].

Williams v. Peel River Land and Mineral Co. (1886), 55 L.T. 689, refd to. [para. 64].

Wickham Holdings v. Brooke House Motors Ltd., [1967] 1 W.L.R. 295 (C.A.), refd to. [para. 65].

Brandeis Goldschmidt & Co. v. Western Transport Ltd., [1981] Q.B. 864, refd to. [para. 65].

IBL Ltd. v. Coussens, [1991] 2 All E.R. 133 (C.A.), refd to. [para. 65].

Butler v. Egg and Egg Pulp Marketing Board (1966), 114 C.L.R. 185 (Aust. H.C.), refd to. [para. 66].

Banque Bruxelles Lambert S.A. v. Eagle Star Insurance Co. - see South Australia Asset Management Corp. v. York Mon­tague Ltd.

South Australia Asset Management Corp. v. York Montague Ltd., [1997] A.C. 191; 222 N.R. 66 (H.L.), refd to. [para. 71].

Reeves v. Metropolitan London Commis­sioners of Police, [2000] 1 A.C. 360; 245 N.R. 362 (H.L.), refd to. [paras. 71, 127].

Barnett v. Chelsea and Kensington Hospi­tal Management Committee, [1969] 1 Q.B. 428, refd to. [para. 72].

Marfani & Co. v. Midland Bank Ltd., [1968] 1 W.L.R. 956, refd to. [para. 78].

Fowler v. Hollins (1872), L.R. 7 Q.B. 616, refd to. [para. 78].

Lipkin Gorman v. Karpnale Ltd., [1991] 2 A.C. 548; 127 N.R. 380 (H.L.), refd to. [para. 79].

Cooper v. Chitty (1756), 1 Burr. 20, refd to. [para. 80].

Hollins v. Fowler (1875), L.R. 7 H.L. 757, refd to. [para. 80].

Attorney General v. Blake, [2001] 1 A.C. 268, refd to. [para. 87].

Solloway v. McLaughlin, [1938] A.C. 247, refd to. [para. 88].

Eda Holdings Ltd. (Liquidation) et al. v. BBMB Finance (Hong Kong) Ltd., [1990] 1 W.L.R. 409; 106 N.R. 110 (P.C.), refd to. [para. 89].

Wagon Mound - see Overseas Tankship (U.K.) v. Morts Dock & Engineering Co.

Overseas Tankship (U.K.) v. Morts Dock & Engineering Co. (Wagon Mound), [1961] A.C. 388 (P.C.), refd to. [para. 100].

Overseas Tankship (U.K.) v. Morts Dock & Engineering Co. (Wagon Mound) (No. 2), [1967] 1 A.C. 617 (P.C.), refd to. [para. 100].

Cambridge Water Co. v. Eastern Counties Leather plc, [1994] 2 A.C. 264; 162 N.R. 301 (H.L.), refd to. [para. 100].

Saleslease Ltd. v. Davis, [1999] 1 W.L.R. 1664 (C.A.), refd to. [para. 100].

Smith New Court Securities Ltd. v. Scrimgeour Vickers (Asset Management Ltd.) et al., [1997] A.C. 254; 206 N.R. 30 (H.L.), refd to. [para. 101].

Stansbie v. Troman, [1948] 2 K.B. 48, refd to. [para. 127].

Environmental Agency v. Empress Car Co. (Abertillery) Ltd., [1999] 2 A.C. 22, refd to. [para. 127].

Bonnington Castings Ltd. v. Wardlaw, [1956] A.C. 613, refd to. [para. 127].

McGhee v. National Coal Board, [1973] 1 W.L.R. 1, refd to. [para. 127].

Wagg (Helbert) & Co., Re, [1956] Ch. 323, refd to. [para. 139].

Phillips v. Eyre (1870), L.R. 6 Q.B. 1, refd to. [paras. 152, 182].

Warren v. Warren, [1972] Qd. R. 386 (Aust.), refd to. [para. 155].

Corcoran v. Corcoran, [1974] V.R. 164, refd to. [para. 155].

Pfeiffer (John) Pty. Ltd. v. Rogerson, [2000] H.C.A. 36 (Aust. H.C.), refd to. [para. 156].

Breavington v. Godleman (1988), 169 C.L.R. 41 (Aust. H.C.), refd to. [para. 158].

Ewing v. Orr Ewing (1883), 9 App. Cas. 34, refd to. [para. 177].

Chellaram v. Chellaram, [1985] Ch. 409, refd to. [para. 177].

Ship Halley, Re (1868), L.R. 2 P.C. 193, refd to. [para. 180].

Phillips v. Eyre (1869), L.R. 4 Q.B. 225, refd to. [para. 182].

R. v. Lesley (1869), 1 Bell C.C. 220, refd to. [para. 183].

Dobree v. Napier (1836), 2 Bing. N.C. 781 (C.P.D.), refd to. [para. 183].

Carr v. Fracis Times & Co., [1902] A.C. 176, refd to. [para. 184].

Machado v. Fontes, [1897] 2 Q.B. 231 (C.A.), refd to. [para. 186].

Scott v. Seymour (1862), 1 H. & C. 219 (Ex. Ct.), refd to. [para. 187].

Authors and Works Noticed:

American Law Institute, Restatement of the Law, Third, The Foreign Relations of Law of the United States (1987), vols. 1, p. 27, para. 102, comment (h) [para. 114]; p. 28, para. 102, comment (k) [para. 114]; 2, p. 152 et seq., para. 701 [para. 115].

Cane and Gardner, Relating to Responsi­bility (2001), p. 168 [para. 70].

Cheshire, G.C., and North, P.M., Private International Law (13th Ed. 1999), p. 123 [para. 114].

Clerk, John F., and Lindsell, The Law of Torts (17th Ed. 1995), p. 636, para. 13-12 [para. 38].

Craig, Park and Paulsson, International Chamber of Commerce Arbitration (3rd Ed. 2000), pp. 338 to 346, para. 17.04 [para. 115].

Dicey, A.V., and Morris, H.C., Conflict of Laws (12th Ed. 1993), rule 22 [para. 177].

Fleming, John G., The Law of Torts (9th Ed. 1998), pp. 222 to 230 [para. 73].

Fouchard, Gaillard and Goldman, Interna­tional Commercial Arbitration (1999), p. 953 et seq. [para. 115].

Lalive, Pierre, Transnational (or Truly International) Public Policy and Interna­tional Arbitration, ICCA (1986), Com­parative Arbitration Practice and Public Policy in Arbitration 257, pp. 284, 285, 286 [para. 115].

Mann, F.A., Further Studies in Interna­tional Law (1990), pp. 175 [para. 144]; 176 [para. 145]; 177 to 183 [para. 148].

Mann, F.A., International Delinquencies before Municipal Courts (1954), 70 L.Q.R. 181, p. 202 [para. 148].

Markesinis and Deacon, Tort Law (4th Ed. 1999), pp. 178 to 191 [para. 73].

Oppenheim's International Law (9th Ed. 1992), vol. 1, pp. 371 to 376, para. 113 [para. 29]; 376 [para. 145].

Redfern and Hunter, Law and Practice of International Commercial Arbitration (3rd Ed. 1999), p. 152, para. 3-27 [para. 115].

Salmond and Heuston, The Law of Torts (21st Ed. 1996), pp. 97, 98 [para. 38].

Stapleton, Jane, Unpacking "Causation", in Cane and Gardner, Relating to Responsi­bility (2001), p. 168 [para. 70].

Todd, Stephen M.D., The Law of Torts in New Zealand (3rd Ed. 2001), para. 11.3 [para. 119].

United Kingdom, Law Reform Committee (1971), 18th Report (Cmnd 4774) para. 91 [para. 68].

Counsel:

Geoffrey Vos, Q.C., and Christopher Greenwood, Q.C., for Kuwait Airways;

Stephen Nathan, Q.C., and Joe Smouha, for Iraqi Airways.

Agents:

Howard Kennedy, for Kuwait Airways;

David Donaldson, Q.C., for Iraqi Airways.

These appeals were heard in the House of Lords on January 15-17, 21-24 and 28-29, 2002, by Lord Nicholls of Birkenhead, Lord Steyn, Lord Hoffmann, Lord Hope of Craig­head and Lord Scott of Foscote.

The decision of the House was delivered on May 16, 2002, and the following opinions were filed:

Lord Nicholls of Birkenhead - see para­graphs 1 to 105;

Lord Steyn - see paragraphs 106 to 124;

Lord Hoffmann - see paragraphs 125 to 130;

Lord Hope of Craighead - see paragraphs 131 to 170;

Lord Scott of Foscote, dissenting in part - see paragraphs 171 to 205.