Kuwait Airways Corporation v Iraqi Airways Company and Others
108. On 17 January 1991, coalition forces began air strikes in Iraq and Kuwait. By 28 February 1991 the Gulf war had been won and Iraq defeated. On 28 February 1991, the coalition forces suspended their offensive. This was followed on 2 March 1991 by UN Security Council Resolution 686 which noted that the coalition offensive had been suspended; required Iraq immediately to rescind its actions purporting to annex Kuwait; required it to accept liability under international law and called upon Iraq to return all property seized by it. On 3 March 1991, Iraq agreed to comply with Resolution 686. Iraq withdrew from Kuwait. On 5 March 1991, Iraq promulgated Resolution 55 which abrogated all Iraqi Resolutions enacted from 2 August 1990 relating to Kuwait, including Resolution 369. This resolution took effect in Iraq law on 18 March 1991.
109. The fate of the KAC aircraft was as follows: The four KAC aircraft at Mosul (the "Mosul Four") were destroyed by coalition bombing at Mosul airport in late January and early February 1991. The other 6 aircraft were flown to Iran between 15 January and 4 February 1991. These aircraft (the "Iran Six") were not returned to KAC by the Government of Iran until July to August 1992 and then only in return for an eventual payment by Kuwait to Iran of US$20m for storage, sheltering and maintenance costs.
110. KAC brought an action in the Commercial Court against IAC for conversion of the 10 aircraft. IAC, a state controlled enterprise, raised the defence of state immunity. In 1995 the House of Lords held that IAC was entitled to state immunity in relation to the removal of the aircraft from Kuwait to Iraq, which were exercises of governmental power by Iraq. But the House of Lords held that IAC was not entitled to immunity in relation to the retention and use of the aircraft from 16 September 1990, immediately before Resolution 369 came into force. It was held that no sovereign immunity attached to IAC's subsequent conduct in treating the aircraft as belonging to them: Kuwait Airways Corporation v Iraqi Airways Co  1 WLR 1147. The action proceeded. It is unnecessary to dwell on the forensic history. I must, however, record my admiration of the massive and excellent judgments of Mance J, Aikens J and the Court of Appeal. They enable the House to put to one side the minutiae of the case and to concentrate on the essentials. The shape of the case before the House appears from the following part of the executive summary of the effect of the judgment of the Court of Appeal  3 WLR 1117, 1127H-1128E:
The status of Resolution 369
111. Two questions arise. The first is whether the recognition of Resolution 369 would be contrary to English public policy. The second arises in this way. KAC's claim must satisfy the so-called double actionability rule, viz it must be sustainable both under Iraqi law of usurpation and under English law of conversion: see Boys v Chaplin  AC 356. The double actionability point has been formulated as follows: For the purpose of determining whether the acts of IAC were actionable under Iraqi law, must regard be had to the totality of Iraqi law, including Resolution 369, or can that resolution be treated as excised from the corpus of Iraqi law for this purpose if it is contrary to English public policy? The Court of Appeal held that recognition of Resolution 369, would be contrary to English public policy and must be wholly disregarded. The grounds of its decision on public policy were twofold. First, the Court of Appeal refused to give effect to it because of its extraterritorial and exorbitant scope. Secondly, the Court of Appeal held that recognition of the resolution would be contrary to English public policy because it breached established principles of international law.
112. The first reason is not a very secure foothold for the decision. Undoubtedly, an English court would be right to refuse to give effect to the resolution in relation to KAC's property outside Iraq, eg in KAC's London office. But why should the resolution have no effect on the aircraft which were on Iraqi soil at the relevant time? After all, it is well established that courts must not sit in judgment on the acts of a foreign government within its own territory. The Court of Appeal explained, at p 1216, para 369:
For my part this is not a satisfactory reason. Notionally, and by applying a blue pencil, it was entirely possible to sever the extraterritorial effect of the resolution from its territorial effect within Iraq. I would, therefore, not accept this part of the reasoning of the Court of Appeal.
113. The second ground for the Court of Appeal's decision on Resolution 369, although not directly supported by any earlier precedent, is much stronger. It invoked public policy as a justification for not applying otherwise applicable principles of private international law. The foundation of it is that the annexation of Kuwait, and Resolution 369, was a flagrant breach of international law. If any proof was required, the Security Council Resolutions establish this fact beyond doubt. In any event, the Iraqi state unequivocally accepted that in annexing Kuwait and passing Resolution 369 it had acted in breach of international law. This is the context against which IAC argued, relying on Buttes Gas and Oil Co v Hammer (No 3) 1982 AC 888, that "the issues" are not justiciable. Counsel for IAC relied on what he described as an absolute rule in the Buttes case that courts in England will not adjudicate upon acts done abroad by virtue of sovereign authority: p 932E-F, per Lord Wilberforce. For my part this is too austere and unworkable an interpretation of the Buttes case. There were rival claims by rulers to part of the continental shelf and there was a dispute about the motives of a foreign ruler: p 937C-H. Lord Wilberforce found that there were "no judicial or manageable standards by which to judge these issues" and "the court would be in a judicial no-man's land": P 938B. He added "it is not to be assumed that these matters have now passed into history, so that they now can be examined with safe detachment": at p 938C. Buttes was an unusual case decided on a striking out application and without the benefit of a Foreign Office certificate. But reading Lord Wilberforce's judgment as a whole I have no doubt that counsel for IAC is wrong in seeking to derive from it the categorical rule put forward. In any event, in the present case there is no difficulty in adjudicating on Iraq's gross breaches of international law. There is no relevant issue: Iraq accepted the illegality of the annexation and of Resolution 369. In agreement with the Court of Appeal I would reject the argument based on non justiciability.
114. That brings me to the next step in the reasoning of the Court of Appeal, viz that because the annexation of Kuwait and Resolution 369 constituted a breach of international law it would be contrary to English public policy to recognise Resolution 369. The conception of public policy is, and should be, narrower and more limited in private international law than in internal law: Cheshire and North's Private International Law, 13th ed (1999), p 123. Local values ought not lightly to be elevated into public policy on the transnational level. But rightly, the Court of Appeal found support in Oppenheimer v Cattermole  AC 249. In that case the House of Lords considered a Nazi law which discriminated against Jews. The flavour of the decision appears from the following passage in the judgment of Lord Cross of Chelsea, with whom Lords Hailsham of St Marylebone LC, Hodson, Pearson and Salmon agreed, at p 278:
It is true, of course, that the present case does not involve human rights. That is how counsel for IAC sought to confine the public policy exception stated in the Oppenheimer case. I would reject this argument. It is true that the Court of Appeal broke new ground. It was the first decision to hold that the acts of a foreign state within its territory may be refused recognition because they are contrary to public international law. On the other hand, the Court of Appeal built on the Oppenheimer case which was permeated, as the Court of Appeal observed, by considerations of the public international law. In my view the Court of Appeal was right to extend the public policy exception beyond human rights violations to flagrant breaches of public international law. It does not follow, however, that every breach of international law will trigger the public policy exception. The present case is, however, a paradigm of the public policy exception. If the statutory enactment of the exception in section 14(3) of Private International Law (Miscellaneous Provisions) Act 1995 had been engaged it would have been a classic case for the application of that provision. Marching logic to its ultimate unreality, counsel for IAC submitted that the UN Charter and Security Council Resolutions are not incorporated into our law and must be disregarded. Displaying a commendable internationalism the Court of Appeal observed, at p 1218, para 378:
I would endorse this observation. I would add a few observations. Not only has the Charter of the United Nations been adhered to by virtually all states, that is 189 states, but even the few remaining non-members have acquiesced in the principles of the Charter: The Restatement of the Law Third, The Foreign Relations of Law of the United States, (1987), vol 1, p 27, para 102, comment (h). It is generally accepted that the principles of the United Nations Charter prohibiting the use of force have the character of jus cogens, ie is part of peremptory public international law, permitting no derogation: see Restatement, p 28, para 102, comment (k). Security Council Resolutions under Chapter VII of the Charter, and therefore the resolutions in question here, were binding in law on all members including the United Kingdom and Iraq. And, under article 2(6) of the United Nations Charter, the resolutions called on the few non-members of the United Nations to abide by the resolutions, and they at least acquiesced. There was a universal consensus on the illegality of Iraq's aggression. Moreover, in the light of the letter of Sir Franklin Berman, the Legal Adviser of the Foreign and Commonwealth Office, of 7 November 1997, describing the United Kingdom's consistent position as to the binding effect of the Security Council Resolutions, it would have been contrary to the international obligations of the United Kingdom were its courts to adopt an approach contrary to its obligations under the United Nations Charter and under the relevant Security Council Resolutions. It follows that it would be contrary to domestic public policy to give effect to Resolution 369 in any way.
115. This conclusion on English public policy does not reflect an insular approach. Our domestic public policy on the status of Resolution 319 does not stand alone. In recent years, particularly as a result of French scholarship, principles of international public policy (l'ordre public veritablement international) have been developed in relation to subjects such as traffic in drugs, traffic in weapons, terrorism, and so forth: see a magisterial paper by Professor Pierre Lalive, "Transnational (or Truly International) Public Policy and International Arbitration, ICCA," in Comparative Arbitration Practice and Public Policy in Arbitration, ed Sanders, (1986), p 257, at pp 284-286; Fouchard, Gaillard and Goldman on International Commercial Arbitration, (1999), p 953, et seq.; Redfern and Hunter, Law and Practice of International Commercial Arbitration, 3rd ed (1999), p 152, para 3-27; Craig, Park and Paulsson, International Chamber of Commerce Arbitration, 3rd ed (2000), pp 338-346, para 17.04. Similarly, there may be an international public policy requiring states to respect fundamental human rights: Restatement, vol 2, pp 152 et seq, para 701. The public policy condemning Iraq's flagrant breaches of public international law is yet another illustration of such a truly international public policy in action. This international dimension reinforces the view of the Court of the Appeal.
116. There is no scope for treating Resolution 369 as only in part contrary to public policy. The nature and width of the public policy engaged here, based on flagrant breaches of international law, strikes at the root of the Iraqi annexation policy and the entirety of Resolution 369. There is no basis for severance of any part of it. It follows that IAC's argument on Resolution 369 for the purpose of invoking the act of state doctrine, in respect of what was done on Iraqi soil, must be rejected.
117. It is now necessary to turn to the consequences of this conclusion for the double actionability point. The court is obliged, in the words of Lord Cross of Chelsea, in the Oppenheimer case  AC 249, 278, "to refuse to recognise it as a law at all." It may not recognise Resolution 369 for any purpose. One might have thought that it follows inexorably that IAC's argument based on Resolution 369 must fail. Counsel for IAC accepted that this would necessarily be so in any action for delivery up of the aircraft in an English court if maintainable here. But he argued that it is different where KAC must establish an actionable usurpation under Iraqi law. He argued that in constructing a tort under Iraqi law the plaintiff must necessarily take account of the whole corpus of Iraqi law which must include Resolution 369. In such a case, he argued, an English court cannot excise part of Iraqi law in deciding whether a tort has been committed under Iraqi law. Plausibly as the argument was dressed up it ought not to succeed. Postulate, for example, an action in tort in the English courts for recovering loss caused by negligent mistatements which are prima face actionable under the applicable foreign law and under English law. The defendant relies on the underlying contract which excludes all liability for negligent statements. The contract is valid under the law of the country where it was made: it is not contrary to the public policy of that country. But the contract is contrary to English public policy. Once an English court concludes, in accordance with the stringent test applicable in respect of transnational transactions to which I referred in paragraph 114 above, that recognition of the contract would be contrary to English public policy, it follows in my view that the defendant would not be entitled to rely on the exception clause in defence to the tort claim. To permit to do so would be an affront to English public policy. The answer to the argument of IAC is that an acceptance of it would run counter to clear public policy. To accept it would seriously erode the public policy here engaged. The general position is straight forward. An English court may not give direct or indirect recognition to Resolution 369 for any purpose whatever. An English court may not recognise any Iraqi decree or act which would directly or indirectly enable Iraq or Iraqi enterprises to retain the spoils or fruits of the illegal invasion.
118. In considering whether KAC has established a sustainable usurpation under Iraqi law, the court must wholly disregard Resolution 369. It cannot in any way be set up by IAC as a defence in whole or part to a usurpation claim by KAC under Iraqi law.
119. Despite elaborate citation of authority, I am satisfied that the essential feature of the tort of conversion, and of usurpation under Iraqi law, is the denial by the defendant of the possessory interest or title of the plaintiff in the goods: see Todd, The Law of Torts in New Zealand, 3rd ed., (2001), para 11.3 for an illuminating discussion. When a defendant manifests an assertion of rights or dominion over the goods which is inconsistent with the rights of the plaintiff he converts the goods to his own use. I am therefore in agreement with the legal analysis of the Court of Appeal.
120. It is unnecessary to review yet again the battle ground of the trial so carefully described by the Court of Appeal. On the facts, I agree with the Court of Appeal that it was correct to conclude that IAC embarked on a policy of incorporating the 10 aircraft belonging to KAC into their fleet. It was realistic to consider the cumulative effect of the evidence concerning all 10 aircraft rather than to concentrate on the conduct in respect of each aircraft separately. It matters not exactly how far the policy was implemented in respect of particular aircraft. The overall picture left no doubt in my mind that IAC had planned and initiated a process of incorporating the 10 aircraft in their fleet.
The Mosul Four
121. KAC had to show, in accordance with Iraqi law, that physical damage to the aircraft would not have occurred but for the usurpation. In the light of the undisputed findings of fact of Aikens J the issue before the Court of Appeal largely turned on what were the correct inferences. Despite detailed argument to the contrary, I have been left unpersuaded that the Court of Appeal erred in concluding that KAC failed to discharge this burden. On the contrary, I incline to the view the conclusion of the Court of Appeal was correct.
122. Given this conclusion no other issues on the Mosul Four arise for decision. Specifically, I express no view on the valuation issues.
The Iran Six
123. In my view the Court of Appeal made a correct decision when it allowed KAC's appeal against the decision of Aikens J on the Iran Six.
124. For the reasons given by my noble and learned friends Lord Nicholls of Birkenhead and Lord Hope of Craighead, as well as the reasons I have given, I would dismiss the appeals of IAC and KCA.
125. I have had the advantage of reading in draft the speech of my noble and learned friend Lord Nicholls of Birkenhead. I agree with it and add a few remarks only on the causal requirements of an action in conversion.
126. Mr Donaldson's submission amounted to saying that it was a general rule of liability in tort that the tortious act must have been at least a necessary condition of the damage. That might not be enough but was a threshold requirement. It follows that the plaintiff must always fail if he cannot prove on the balance of probabilities that the damage would not have happened anyway. In the present case, KAC could not show that but for the tortious acts of IAC they would not have been kept out of possession of their aeroplanes. The Iraqi government would have retained them or given them to some other state institution.
127. My Lords, it would be an irrational system of tort liability which did not insist upon there being some causal connection between the tortious act and the damage. But causal connections can be of widely differing kinds. Sometimes the act may have been a necessary condition but followed by a voluntary human act or exceptional natural event (novus actus interveniens). Such a causal connection is usually insufficient to found liability in negligence. But in the case of certain kinds of duty, even in negligence, it will be enough. It may be sufficient to show that the act was a necessary condition, even if the subsequent voluntary act of a third party (Stansbie v Troman  2 KB 48) or the plaintiff himself (Reeves v Commissioner of Police of the Metropolis  1 AC 360) was also a necessary condition. And the same may be true when liability is strict: see Environmental Agency v Empress Car Co (Abertillery) Ltd  2 AC 22. Sometimes the act cannot be shown to have been even a necessary condition but only to have added substantially to the probability that the damage would be suffered. But in some situations even this limited causal connection will suffice: see Bonnington Castings Ltd v Wardlaw  AC 613; McGhee v National Coal Board  1 WLR 1.
128. There is therefore no uniform causal requirement for liability in tort. Instead, there are varying causal requirements, depending upon the basis and purpose of liability. One cannot separate questions of liability from questions of causation. They are inextricably connected. One is never simply liable; one is always liable for something and the rules which determine what one is liable for are as much part of the substantive law as the rules which determine which acts give rise to liability. It is often said that causation is a question of fact. So it is, but so is the question of liability. Liability involves applying the rules which determine whether an act is tortious to the facts of the case. Likewise, the question of causation is decided by applying the rules which lay down the causal requirements for that form of liability to the facts of the case.
129. In the case of conversion, the causal requirements follow from the nature of the tort. The tort exists to protect proprietary or possessory rights in property; it is committed by an act inconsistent with those rights and it is a tort of strict liability. So conversion is "a taking with the intent of exercising over the chattel an ownership inconsistent with the real owner's right of possession": per Rolfe B in Fouldes v Willoughby (1841) 8 M & W 540, 550. And the person who takes is treated as being under a continuing strict duty to restore the chattel to its owner. It follows, first, that it is irrelevant that if IAC had not taken possession of the aircraft, someone else would have done so. Secondly, it is irrelevant that, having taken possession, IAC would have been prevented from restoring the aircraft (even if it had wished to do so) by circumstances beyond its control: the orders of the Iraqi government and their detention in Iran. The liability is strict. Thus the causal questions are answered by reference to the nature of the liability.
130. When one comes to consequential loss, the causal requirements are different. The primary purpose of conversion is to protect the proprietary or possessory interest in the chattel. Thus the cost of putting the aircraft into repair or paying a ransom for their recovery from Iran is part of the damage or expenditure incurred in mitigation of the damage to the proprietary interest. But when one comes to real consequential losses, such as the cost of hiring substitute aircraft, the cost of financing the purchase of new ones and loss of profit, there is no reason why causal requirements which are considered fair in other cases of consequential loss flowing from wrongful acts should not also be applied. For the reasons given by Lord Nicholls of Birkenhead, I would agree that these requirements are in principle satisfied in respect of the hire of substitute aircraft and the loss of profits, but that although the failure of IAC to restore the aircraft was a necessary condition of the decision to buy a new fleet, that decision was a voluntary act which on conventional principles made the causal connection with IAC's tortious conduct insufficient.
LORD HOPE OF CRAIGHEAD
131. The facts of this case have been fully narrated by my noble and learned friend Lord Nicholls of Birkenhead, and I gratefully adopt his narrative.
132. The decision of this House in Kuwait Airways Corporation v Iraqi Airways Co  1 WLR 1147 provides the background to the issues of law with which we are concerned. As Lord Goff of Chieveley explained in that case, at p 1163A-D, the taking of the aircraft belonging to Kuwait Airways Corporation ("KAC") and their removal from Kuwait Airport to Iraq constituted an exercise of governmental power by the State of Iraq. The participation of Iraqi Airways Co ("IAC") in that action, by supplying engineers and pilots who performed the task of preparing the aircraft for flying and then flying them from Kuwait to Iraq in August 1990, was not just a job of work. On the contrary, IAC was closely involved with the State of Iraq in the last stage of an enterprise which entailed both the seizure of the aircraft and their removal to Iraq to be used for such purposes as the Government of Iraq should direct. The House held that in so doing it was acting in the exercise of sovereign authority. But the situation changed after RCC Resolution 369 came into effect on 17 September 1990. As from that date IAC's retention and use of the aircraft as its own were acts done not in the exercise of sovereign authority but in consequence of the vesting or purported vesting of the aircraft in it by legislative decree.