House of Lords
|Session 2001- 02
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Kuwait Airways Corporation v Iraqi Airways Company and Others
HOUSE OF LORDS
Lord Nicholls of Birkenhead Lord Steyn Lord Hoffmann Lord Hope of Craighead Lord Scott of Foscote
OPINIONS OF THE LORDS OF APPEAL FOR JUDGMENT
IN THE CAUSE
IRAQI AIRWAYS COMPANY
(APPELLANTS) AND OTHERS
KUWAIT AIRWAYS CORPORATION
IRAQI AIRWAYS COMPANY
(RESPONDENTS) AND OTHERS
ON 16 MAY 2002
 UKHL 19
LORD NICHOLLS OF BIRKENHEAD
1. On 2 August 1990 military forces of Iraq forcibly invaded and occupied Kuwait. They completed the occupation in the space of two or three days. The Revolutionary Command Council of Iraq then adopted resolutions proclaiming the sovereignty of Iraq over Kuwait and its annexation to Iraq. Kuwait was designated a 'governate' within Iraq.
2. When the Iraqi forces took over the airport at Kuwait they seized ten commercial aircraft belonging to Kuwait Airways Corporation (KAC): two Boeing 767s, three A300 Airbuses, and five A310 Airbuses. They lost no time in removing these aircraft to Iraq. By 9 August nine of the aircraft had been flown back to Basra, in Iraq. The tenth aircraft, undergoing repair at the time of the invasion, was flown direct to Baghdad a fortnight later. On 9 September the Revolutionary Command Council of Iraq adopted a resolution dissolving KAC and transferring all its property worldwide, including the ten aircraft, to the state-owned Iraqi Airways Co (IAC). This resolution, resolution 369, came into force upon publication in the official gazette on 17 September. On the same day IAC's board passed resolutions implementing RCC resolution 369.
3. On 11 January 1991 KAC commenced these proceedings against the Republic of Iraq and IAC, claiming the return of its ten aircraft or payment of their value, and damages. The aircraft were valued by KAC at US$630 million. The damages claimed at the trial exceeded $800 million.
4. The UN Security Council's deadline for Iraq's withdrawal from Kuwait expired at midnight on 15 January 1991. Military action by coalition air forces began twentyfour hours later. The airfield at Mosul, in the north of Iraq, suffered several attacks from the air. In late January and early February 1991 four of the ten aircraft seized from KAC, moved to Mosul for safety reasons, were destroyed by coalition bombing. The aircraft destroyed were the two Boeing 767s and two A300 Airbuses. In these proceedings these four aircraft have become known as 'the Mosul four'. The other six aircraft, known as 'the Iran six', were evacuated by IAC to Iran at much the same time. Following negotiations with the government of Iran these six aircraft were flown back eventually to Kuwait in July and August 1992. KAC later paid Iran a substantial amount, US$20 million, for the cost of keeping, sheltering and maintaining them.
5. The proceedings have had a lengthy procedural history, including an earlier appeal to your Lordships' House: see  1 WLR 1147. On that occasion the House was concerned with challenges to the jurisdiction of the English court. The House decided, on 24 July 1995, that the writ had been effectively served on IAC but not on the state of Iraq. The House also decided that IAC could not claim state immunity regarding the acts of which KAC was complaining, in so far as they were done after RCC resolution 369 came into force. IAC's retention and use of the aircraft as its own did not constitute acts done in the exercise of sovereign immunity. KAC then continued the proceedings against IAC alone.
6. The trial of the action was split between issues relating to liability and those relating to damages. Certain issues relating to liability were tried by Mance J. On these issues KAC achieved a large measure of success. Mance J held that IAC had wrongfully interfered with KAC's ten aircraft: see  CLC 31. Issues relating to causation, remoteness and amount of damages were tried by Aikens J. He held that KAC had failed to establish it had suffered any recoverable damage in respect of any of the aircraft. KAC would have suffered the losses claimed even if IAC had not wrongfully interfered with the aircraft. He dismissed the action: see  2 All ER (Comm) 360.
7. Both parties appealed. IAC appealed against the rulings of Mance J on liability, and KAC appealed against the conclusions of Aikens J on damages and his dismissal of the action. The judgment of the Court of Appeal, comprising Henry, Brooke and Rix LJJ, was given in November 2000: see  3 WLR 1117. KAC was partly successful. Its claims in respect of the Mosul four still failed but, save in one respect, its claims regarding the Iran six succeeded.
8. IAC then appealed against this decision to your Lordships' House. IAC submits that the action should be dismissed in its entirety. Aikens J's decision was correct, and should be restored. KAC cross-appealed. KAC contends that its claims regarding the Mosul four were wrongly dismissed by both courts below. KAC also contends it should succeed on the head of damages on which it failed in the Court of Appeal.
9. A further procedural matter should be noted. In May 2000 KAC petitioned the House to vary its order of 24 July 1995. The variation sought was that IAC should not benefit from sovereign immunity for the period 9 August 1990 to 16 September 1990. The ground of the petition was that, in respect of its activities in this period, IAC had obtained the judgment of the House by fraud. Evidence of IAC witnesses was perjured. On 27 July 2000 the House dismissed the petition  1 WLR 429. The appropriate procedure was for KAC to commence a fresh action. On 16 October 2000 KAC started new proceedings. This new action ('the perjury action') is due to be tried shortly.
10. A notable feature of the present proceedings is that this is a claim in tort for damages in respect of events having no connection with this country. The acts of which complaint is made took place in Iraq. Nor do the parties themselves have any connection with England. Both IAC and KAC had places of business in London, but that is of no real significance. As international airlines, no doubt they had branch offices in several countries.
11. At an early stage in the proceedings IAC raised an 'inconvenient forum' objection to the jurisdiction of the English court. The basis of the objection was that the United Nations Organisation had established a compensation commission for the purpose of considering claims against Iraq for damage and loss caused by its invasion of Kuwait. Evans J rejected this objection, and his decision was not the subject of an appeal. At a later stage IAC raised a further forum non conveniens objection but subsequently abandoned this. Thus it came about that the English court accepted jurisdiction to decide the issues raised in the proceedings.
12. Given that the alleged wrongs were committed in Iraq, and given also the absence of any particular connection with any other country, it is to be expected that when adjudicating upon KAC's claims an English court would apply the law of Iraq. As English law now stands, that would be so. The general rule is that the law to be used for determining issues relating to tort is the law of the country in which the events constituting the tort occurred: see sections 9(1) and 11(1) of the Private International Law (Miscellaneous Provisions) Act 1995. But the events of which complaint is made by KAC occurred long before this statute was enacted. Accordingly, as was common ground between the parties, in the present proceedings the court has to apply the so-called double actionability rule, as generally understood since the decision of the House in Boys v Chaplin  AC 356. The rule is that, in order to be actionable here, the acts done abroad must satisfy both limbs of a dual test. The acts must be such that, if done in England, they would be tortious. Additionally, the acts must be civilly actionable under the law of the country where they occurred.
13. KAC immediately comes up against an obvious difficulty. In order to satisfy the double actionability test KAC must show it was the owner of the aircraft when IAC did the acts of which KAC is complaining. But, on the face of things, that was not so. By September 1990 the aircraft had been seized by the government of Iraq and moved from Kuwait to Iraq. Under Iraqi law, RCC resolution 369 was effective to divest KAC of its ownership of the aircraft and vest title in IAC. Under Iraqi law the subsequent repeal of this decree did not retrospectively give KAC a title it did not otherwise have during the relevant period. Under English conflict of laws principles the transfer of title to tangible movable property normally depends on the lex situs: the law of the country where the movable was situated at the time of the transfer. Likewise, governmental acts affecting proprietary rights will be recognised by an English court as valid if they would be recognised as valid by the law of the country where the property was situated when the law takes effect. Here, that was Iraq.
14. KAC does not dispute these propositions. Nor does KAC contend that the lex situs of the aircraft was the law of Kuwait as the place where, presumably, the aircraft were registered. KAC's response is that in the present case, as a matter of overriding public policy, an English court will altogether disregard RCC resolution 369. An English court will not regard this decree of Iraqi law as effective to divest KAC of its title to the ten aircraft.
RCC resolution 369 and English public policy
15. Conflict of laws jurisprudence is concerned essentially with the just disposal of proceedings having a foreign element. The jurisprudence is founded on the recognition that in proceedings having connections with more than one country an issue brought before a court in one country may be more appropriately decided by reference to the laws of another country even though those laws are different from the law of the forum court. The laws of the other country may have adopted solutions, or even basic principles, rejected by the law of the forum country. These differences do not in themselves furnish reason why the forum court should decline to apply the foreign law. On the contrary, the existence of differences is the very reason why it may be appropriate for the forum court to have recourse to the foreign law. If the laws of all countries were uniform there would be no 'conflict' of laws.
16. This, overwhelmingly, is the normal position. But, as noted by Scarman J in In the Estate of Fuld, decd (No 3)  P 675, 698, blind adherence to foreign law can never be required of an English court. Exceptionally and rarely, a provision of foreign law will be disregarded when it would lead to a result wholly alien to fundamental requirements of justice as administered by an English court. A result of this character would not be acceptable to an English court. In the conventional phraseology, such a result would be contrary to public policy. Then the court will decline to enforce or recognise the foreign decree to whatever extent is required in the circumstances.
17. This public policy principle eludes more precise definition. Its flavour is captured by the much repeated words of Judge Cardozo that the court will exclude the foreign decree only when it 'would violate some fundamental principle of justice, some prevalent conception of good morals, some deep-rooted tradition of the common weal': see Loucks v Standard Oil Co of New York (1918) 120 NE 198, 202
18. Despite its lack of precision, this exception to the normal rule is well established in English law. This imprecision, even vagueness, does not invalidate the principle. Indeed, a similar principle is a common feature of all systems of conflicts of laws. The leading example in this country, always cited in this context, is the 1941 decree of the National Socialist Government of Germany depriving Jewish émigrés of their German nationality and, consequentially, leading to the confiscation of their property. Surely Lord Cross of Chelsea was indubitably right when he said that a racially discriminatory and confiscatory law of this sort was so grave an infringement of human rights that the courts of this country ought to refuse to recognise it as a law at all: Oppenheimer v Cattermole  AC 249, 277-278. When deciding an issue by reference to foreign law, the courts of this country must have a residual power, to be exercised exceptionally and with the greatest circumspection, to disregard a provision in the foreign law when to do otherwise would affront basic principles of justice and fairness which the courts seek to apply in the administration of justice in this country. Gross infringements of human rights are one instance, and an important instance, of such a provision. But the principle cannot be confined to one particular category of unacceptable laws. That would be neither sensible nor logical. Laws may be fundamentally unacceptable for reasons other than human rights violations.
19. The question raised in the present proceedings is whether resolution 369 of the Revolutionary Command Council of Iraq is of this character. This decree was one of the RCC resolutions issued with a view to giving effect to the integration of Kuwait into Iraq following the invasion. It was part and parcel of the Iraqi seizure of Kuwait and its assets and the assimilation of these assets into the political, social and economic structure of Iraq.
20. That this seizure and assimilation were flagrant violations of rules of international law of fundamental importance is plain beyond argument. International reaction to the invasion was swift. On the first day of the invasion, 2 August 1990, the UN Security Council condemned the invasion as a breach of the peace and demanded immediate Iraqi withdrawal (resolution 660). On 6 August the Security Council determined that Iraq had usurped the authority of the legitimate government of Kuwait. All member states were to take specified measures to restore the authority of the legitimate government of Kuwait. The council called upon all states to take appropriate measures to protect assets of the legitimate government of Kuwait and its agencies, and not to recognise any regime set up by the occupying power (resolution 661). On 9 August the Security Council decided that the annexation of Kuwait by Iraq had no legal validity and was null and void. The council called upon all states not to recognise this annexation, and to refrain from any action which might be interpreted as an indirect recognition of the annexation (resolution 662). Later resolutions of the Security Council included resolution 674 (29 October 1990) which condemned the seizure by Iraq of public and private property in Kuwait and reminded Iraq of its liability under international law for loss and damage caused to Kuwaiti nationals and institutions. On 29 November 1990 the council authorised military action against Iraq (resolution 678).
21. In the event no state recognised Iraq's annexation of Kuwait or its authority in Kuwait. On 2 March 1991 the UN Security Council laid down conditions for a ceasefire. The conditions included demands that Iraq should rescind its purported annexation of Iraq, accept in principle its liability under international law for any loss or damage caused to Kuwait and its nationals and corporations, and begin to return all Kuwaiti property immediately (resolution 686). On 5 March 1991 Iraq accepted these obligations and repealed resolution 369 of the Revolutionary Command Council.
22. The effect of these Security Council decisions, as a matter of international law, is clear. Iraq and Kuwait are both members of the United Nations. Article 2(4) of the United Nations Charter provides that in their international relations all members shall refrain from the use of force against the territorial integrity of any state. This is also a principle of customary international law binding on states independently of the provisions of the Charter: see the International Court of Justice in Nicaragua v United States of America  ICJ Reports 14, 98-100, at paragraphs 187-188.
23. Further, article 25 of the United Nations Charter provides that the members of the United Nations agree to accept and carry out the decisions of the Security Council in accordance with the Charter. Chapter VII of the Charter empowers the Security Council to determine that there exists a breach of the peace. When the council has made such a determination, as happened in the present case on the very day of the invasion, the council may decide upon measures to restore international peace and security. These measures include both military and non-military measures. Decisions of the Security Council taken under these chapter VII powers are legally binding upon all members of the United Nations: see the opinion of the International Court of Justice concerning Legal Consequences for States of the Continued Presence of South Africa in Namibia  ICJ Reports 16, 53-56, paragraphs 115-125. The Security Council resolutions mentioned above were decisions taken under chapter VII.
24. On behalf of IAC Mr Donaldson submitted that the public policy exception to the recognition of provisions of foreign law is limited to infringements of human rights. The allegation in the present action is breach of international law by Iraq. But breach of international law by a state is not, and should not be, a ground for refusing to recognise a foreign decree. An English court will not sit in judgment on the sovereign acts of a foreign government or state. It will not adjudicate upon the legality, validity or acceptability of such acts, either under domestic law or international law. For a court to do so would offend against the principle that the courts will not adjudicate upon the transactions of foreign sovereign states. This principle is not discretionary. It is inherent in the very nature of the judicial process: see Buttes Gas and Oil Co v Hammer (No 3)  AC 888, 932. KAC's argument, this submission by IAC continued, invites the court to determine whether the invasion of Kuwait by Iraq, followed by the removal of the ten aircraft from Kuwait to Iraq and their transfer to IAC, was unlawful under international law. The courts below were wrong to accede to this invitation.
25. My Lords, this submission seeks to press the non-justiciability principle too far. Undoubtedly there may be cases, of which the Buttes case is an illustration, where the issues are such that the court has, in the words of Lord Wilberforce at page 938, 'no judicial or manageable standards by which to judge [the] issues':
This was Lord Wilberforce's conclusion regarding the important inter-state and other issues arising in that case: see his summary at page 937.
26. This is not to say an English court is disabled from ever taking cognisance of international law or from ever considering whether a violation of international law has occurred. In appropriate circumstances it is legitimate for an English court to have regard to the content of international law in deciding whether to recognise a foreign law. Lord Wilberforce himself accepted this in the Buttes case, at page 931D. Nor does the 'non-justiciable' principle mean that the judiciary must shut their eyes to a breach of an established principle of international law committed by one state against another when the breach is plain and, indeed, acknowledged. In such a case the adjudication problems confronting the English court in the Buttes litigation do not arise. The standard being applied by the court is clear and manageable, and the outcome not in doubt. That is the present case.
27. Against this background I return to the question whether as a matter of public policy an English court ought to decline to recognise RCC resolution 369 as effectual to divest KAC of its title to its aircraft. Mance J and the Court of Appeal said that an English court should so decline. I agree with them.
28. The acceptability of a provision of foreign law must be judged by contemporary standards. Lord Wilberforce, in a different context, noted that conceptions of public policy should move with the times: see Blathwayt v Baron Cawley  AC 397, 426. In Oppenheimer v Cattermole  AC 249, 278, Lord Cross said that the courts of this country should give effect to clearly established rules of international law. This is increasingly true today. As nations become ever more interdependent, the need to recognise and adhere to standards of conduct set by international law becomes ever more important. RCC resolution 369 was not simply a governmental expropriation of property within its territory. Having forcibly invaded Kuwait, seized its assets, and taken KAC's aircraft from Kuwait to its own territory, Iraq adopted this decree as part of its attempt to extinguish every vestige of Kuwait's existence as a separate state. An expropriatory decree made in these circumstances and for this purpose is simply not acceptable today.
29. I have already noted that Iraq's invasion of Kuwait and seizure of its assets were a gross violation of established rules of international law of fundamental importance. A breach of international law of this seriousness is a matter of deep concern to the world-wide community of nations. This is evidenced by the urgency with which the UN Security Council considered this incident and by its successive resolutions. Such a fundamental breach of international law can properly cause the courts of this country to say that, like the confiscatory decree of the Nazi government of Germany in 1941, a law depriving those whose property has been plundered of the ownership of their property in favour of the aggressor's own citizens will not be enforced or recognised in proceedings in this country. Enforcement or recognition of this law would be manifestly contrary to the public policy of English law. For good measure, enforcement or recognition would also be contrary to this country's obligations under the UN Charter. Further, it would sit uneasily with the almost universal condemnation of Iraq's behaviour and with the military action, in which this country participated, taken against Iraq to compel its withdrawal from Kuwait. International law, for its part, recognises that a national court may properly decline to give effect to legislative and other acts of foreign states which are in violation of international law: see the discussion in Oppenheim's International Law, 9th ed (1992), vol 1, (ed Jennings and Watts) pages 371-376, paragraph 113.
Iraqi law of usurpation and RCC resolution 369
30. IAC had another string to its bow. It advanced a further argument based on RCC resolution 369. Even if this decree is disregarded in considering the first limb of the double actionability rule (tortious if done in England), it would not be right to disregard it when applying the second limb (civilly actionable under the foreign law). In considering whether the impugned acts would have been civilly actionable in Iraq, one must examine how an Iraqi court would have been required to rule on KAC's claim in autumn 1990. An Iraqi court would have had regard to the entirety of Iraqi law, including RCC resolution 369. KAC's claim for misappropriation ('usurpation') of the ten aircraft would have failed. When applying the second limb of the rule the foreign law must be taken as it is. An English court should not treat as civilly actionable under Iraqi law a state of affairs which, in fact, would not have been so actionable. An English court should not, by excision of part of the foreign law, treat as existing under foreign law a cause of action which the foreign law did not actually recognise at the time.
31. I cannot accept this argument. For reasons already given, in these proceedings an English court will not regard RCC resolution 369 as effective to transfer ownership of the ten aircraft from KAC to IAC. In the eyes of an English court KAC remained the owner. The double actionability rule, in both its limbs, falls to be applied on this footing. If an English court were to proceed otherwise the court would be giving effect to the unacceptable RCC resolution 369. The court would be recognising that, in deciding KAC's claims against IAC, properly brought in an English court, resolution 369 was effective to divest KAC of its title to the aircraft. Given the public policy objection to recognising the purported effect of this decree, that would be a bizarre conclusion.
32. I must elaborate a little more. Stated more fully, IAC's argument invokes two different aspects of the law of Iraq: (1) as the lex situs, governing the effectiveness of the transfer of ownership by RCC resolution 369, and also (2) as the lex loci delicti, governing the impugned conduct of IAC in Iraq. IAC seeks to apply Iraqi law as the lex situs under (1) as a ground for excluding any liability which would otherwise exist in accordance with Iraqi law as the lex loci delicti under (2). I am not attracted by this reasoning. Given that the lex situs under (1) is not acceptable to an English court in these proceedings, the just result is to apply the lex loci delicti under (2) on the footing that Iraqi law as the lex situs under (1) is to be disregarded.
33. There is sufficient flexibility in the double actionability rule for the court to take this course. The double actionability rule is one of the principles applied by an English court in seeking to arrive at a just result when the claims involve a foreign element. When approving this rule in Boys v Chaplin  AC 356 the majority of the House observed that this was a 'general' rule which would 'normally' apply to foreign torts. The rule should be interpreted flexibly, 'so as to leave some latitude in cases where it would be against public policy to admit or to exclude claims': see Lord Hodson, at page 378, and Lord Wilberforce, at pages 391-392. The existence and width of this flexibility were affirmed by the Privy Council in Red Sea Insurance Co Ltd v Bouygues SA  1 AC 190. Adapting the language of Lord Hodson in Boys v Chaplin, in the present case it would be contrary to public policy to permit application of the repugnant Iraqi law as the lex situs under (1) to exclude claims KAC would otherwise have against IAC in accordance with Iraqi law as the lex loci delicti under (2). I add that the position would be the same if these proceedings had been governed by the current law, set out in the Private International Law (Miscellaneous Provisions) Act 1995: see sections 11(1) and 14(3)(a)(i).