Kuwait Airways Corp v Iraqi Airways Co (Nos 4 and 5) [2002] UKHL 19

Following Iraq's invasion of Kuwait, Kuwaiti aircraft were seized and transferred to Iraqi Airways by an Iraqi decree. The House of Lords refused to recognise this decree, finding it breached fundamental principles of international law, and held Iraqi Airways liable for conversion.

Facts

In August 1990, Iraq invaded Kuwait. Iraqi forces seized ten commercial aircraft belonging to the claimant, Kuwait Airways Corporation (KAC), from Kuwait’s international airport and flew them to Iraq. The Iraqi Revolutionary Command Council then passed Resolution 369, which purported to dissolve KAC and transfer all of its assets, including the ten aircraft, to the defendant, the state-owned Iraqi Airways Company (IAC). IAC integrated the aircraft into its own fleet, overpainting KAC’s livery with its own, and used them for its services. Six of the aircraft were later flown out of Iraq to other countries, while four were destroyed in Iraq by Allied bombing. KAC brought proceedings in the English courts against IAC, claiming damages for the tort of conversion.

Issues

The central legal issues before the House of Lords were:

1. Whether the English courts should recognise and give effect to Iraq’s Resolution 369, which would mean that title to the aircraft had validly passed from KAC to IAC, thereby providing IAC with a complete defence to the claim of conversion.
2. This raised the question of the scope of the ‘act of state’ doctrine, which generally prevents English courts from questioning the validity of the legislative acts of a foreign sovereign state in respect of property within its own territory.
3. Specifically, whether there is a public policy exception to the act of state doctrine where the foreign legislation constitutes a gross violation of clearly established principles of public international law.
4. If title did not pass, whether IAC’s actions in relation to the aircraft (receiving them, rebranding them, and using them) amounted to the tort of conversion.

Judgment

The House of Lords unanimously allowed KAC’s appeal, holding IAC liable for conversion. The leading speech was delivered by Lord Nicholls of Birkenhead.

The Act of State Doctrine and Public Policy

Lord Nicholls affirmed the general principle that an English court will not adjudicate upon the validity of acts and laws of a foreign sovereign state concerning property within that state’s territory. However, he established that this principle is not absolute and is subject to a public policy exception. He held that English courts should refuse to recognise a foreign law that is contrary to the fundamental public policy of English law.

Crucially, Lord Nicholls extended this public policy consideration to include breaches of universally recognised principles of international law. He found that Resolution 369, sanctioning the plunder of a neighbouring country’s assets, was in flagrant violation of such principles, as confirmed by numerous UN Security Council Resolutions condemning the invasion and expropriation.

He powerfully articulated the court’s role in such circumstances:

But it is one thing for a court to be unable to switch on a red light. It is another for a court deliberately to shut its eyes and switch on a green light.

He concluded on this point that public policy demanded the court’s refusal to recognise the Iraqi law:

The public policy of this country does not require our courts to give legal recognition to a transaction which is not only illegal under the law of the state where it took place but which constitutes a gross violation of established rules of international law.

Consequently, the House of Lords refused to recognise Resolution 369 as having any legal effect. Title to the aircraft never passed from KAC to IAC, and KAC remained the true owner throughout.

The Tort of Conversion

With KAC’s title established, the court considered whether IAC’s conduct constituted conversion. It was held that IAC’s actions, including taking possession of the aircraft, incorporating them into its fleet, applying its own livery, and using them as its own, were a clear denial of KAC’s rights and an assertion of rights inconsistent with KAC’s ownership. This conduct amounted to the tort of conversion, for which IAC was liable in damages.

Implications

The decision in Kuwait Airways v Iraqi Airways is a landmark case in English private international law. Its primary significance lies in establishing a clear and robust public policy exception to the act of state doctrine. It confirms that English courts will not recognise foreign legislation, even if effective within its own territory, when it blatantly violates fundamental principles of public international law. The case demonstrates the willingness of the English judiciary to integrate norms of international law into the resolution of domestic private law disputes, reinforcing the rule of law at both a national and international level. It also provides a modern and authoritative analysis of the tort of conversion in a complex, cross-border context.

Verdict: The appeal by Kuwait Airways Corporation was allowed. Iraqi Airways Company was held liable for the tort of conversion.

Source: Kuwait Airways Corp v Iraqi Airways Co (Nos 4 and 5) [2002] UKHL 19