Judgments - Kuwait Airways Corporation v Iraqi Airways Company and Others

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    34. The House was not referred to any decision where this point has arisen in proceedings relating to a tort committed abroad. But the conclusion I have reached accords with the established position regarding claims in contract. The effect of disregarding a provision of foreign law as manifestly contrary to public policy may be to render enforceable in England a contract which is not enforceable by its proper law: see, for example, Emp Exportadora de Azucar v Industria Azucarera National SA (The Playa Larga) [1983] 2 Lloyd's Rep 171, 190.

    35. Nor can I accept IAC's suggested distinction between a claim for delivery up and a claim for damages for wrongful interference in Iraq. According to this submission, an English court would have compelled IAC to hand over the aircraft had they been flown to Heathrow airport, but the court will not award damages for their wrongful misappropriation in Iraq. I do not think this suggestion really makes sense. The vice which causes an English court to disapply resolution 369 is apt to have a like consequence in the adjudication of both these claims.

    36. This approach can hardly be unjust to IAC. IAC was fully aware of how its possession of the ten KAC aircraft came about. Effectively, the government of Iraq had stolen the aircraft from Kuwait. IAC took the risk that its title might not be recognised outside Iraq. It may be that in practice IAC had no option but to proceed as it did and accept possession of these aircraft thrust upon it by the government of Iraq. That may be so. The government of Iraq, very probably, would not have tolerated the return of the aircraft by IAC to KAC. That is not an issue now before the House. On the earlier appeal the House decided this feature does not mean that the acts done by IAC after RCC resolution 369 came into force were acts done by IAC 'in the exercise of sovereign authority' within section 14(2)(a) of the State Immunity Act 1978. Accordingly these acts do not qualify IAC for immunity from the jurisdiction of the English court.

Double actionability: conversion

    37. I turn, then, to apply the double actionability rule on the footing that the transfer of title purportedly made by RCC resolution 369 is to be disregarded. IAC submitted that its acts would not have been tortious if done in this country. The relevant tort is conversion. But, so it was submitted, the acts done by IAC post-17 September 1990 did not constitute conversion. IAC did not take the aircraft. The aircraft had already been taken from KAC by the government of Iraq in the exercise of sovereign authority, before the crucial date of 17 September 1990. IAC did not dispose of the aircraft. KAC does not rely upon the removal of the Iran six from Baghdad to Iran, which occurred after the issue of the writ on 11 January 1991, as an act of conversion. Nor is this a case of wrongfully keeping the aircraft. IAC had possession of the aircraft, but mere unauthorised possession or detention is not an act of conversion. Demand and refusal to deliver up are required, as under the old tort of detinue, which did not occur here. Anyway, such a demand would have been unreal: KAC could not have required delivery other than in Iraq and that would have been impossible.

    38. Nor, it was submitted, do the acts done by IAC after 17 September 1990 suffice, even if they constituted a denial of KAC's title. Denial of title is not of itself conversion: see section 11(3) of the Torts (Interference with Goods) Act 1977. To constitute conversion there must be a concomitant deprivation of use and possession. In support of this submission Mr Donaldson fastened upon a statement in Clerk & Lindsell on Torts, 17th ed (1995), p 636, paragraph 13-12:  

    'conversion is an act of deliberate dealing with a chattel in a manner inconsistent with another's right whereby that other is deprived of the use and possession of it.' (Emphasis added)

A similar passage appears in Salmond and Heuston on the Law of Torts, 21st ed (1996), pages 97-98. In the present case, it was said, none of the acts of IAC deprived KAC of use or possession of the aircraft. Some of IAC's acts were entirely abstract, such as applying for certificates of airworthiness. Even the physical acts, such as repainting or flying the aircraft, had no impact on KAC's possession.

    39. In my view this line of argument was misconceived. I need not repeat the journey through the textbooks and authorities on which your Lordships were taken. Conversion of goods can occur in so many different circumstances that framing a precise definition of universal application is well nigh impossible. In general, the basic features of the tort are threefold. First, the defendant's conduct was inconsistent with the rights of the owner (or other person entitled to possession). Second, the conduct was deliberate, not accidental. Third, the conduct was so extensive an encroachment on the rights of the owner as to exclude him from use and possession of the goods. The contrast is with lesser acts of interference. If these cause damage they may give rise to claims for trespass or in negligence, but they do not constitute conversion.

    40. The judicially approved description of the tort in Clerk and Lindsell encapsulates, in different language, these basic ingredients. The flaw in IAC's argument lies in its failure to appreciate what is meant in this context by 'depriving' the owner of possession. This is not to be understood as meaning that the wrongdoer must himself actually take the goods from the possession of the owner. This will often be the case, but not always. It is not so in a case of successive conversions. For the purposes of this tort an owner is equally deprived of possession when he is excluded from possession, or possession is withheld from him by the wrongdoer.

    41. Whether the owner is excluded from possession may sometimes depend upon whether the wrongdoer exercised dominion over the goods. Then the intention with which acts were done may be material. The ferryman who turned the plaintiff's horses off the Birkenhead to Liverpool ferry was guilty of conversion if he intended to exercise dominion over them, but not otherwise: see Fouldes v Willoughby (1841) 8 M & W 540.

    42. Similarly, mere unauthorised retention of another's goods is not conversion of them. Mere possession of another's goods without title is not necessarily inconsistent with the rights of the owner. To constitute conversion detention must be adverse to the owner, excluding him from the goods. It must be accompanied by an intention to keep the goods. Whether the existence of this intention can properly be inferred depends on the circumstances of the case. A demand and refusal to deliver up the goods are the usual way of proving an intention to keep goods adverse to the owner, but this is not the only way.

    43. Here, on and after 17 September 1990 IAC was in possession and control of the ten aircraft. This possession was adverse to KAC. IAC believed the aircraft were now its property, just as much as the other aircraft in its fleet, and it acted accordingly. It intended to keep the goods as its own. It treated them as its own. It made such use of them as it could in the prevailing circumstances, although this was very limited because of the hostilities. In so conducting itself IAC was asserting rights inconsistent with KAC's rights as owner. This assertion was evidenced in several ways. In particular, in September 1990 the board of IAC passed a resolution to the effect that all aircraft belonging to the (dissolved) KAC should be registered in the name of IAC and that a number of ancillary steps should be taken in relation to the aircraft. In respect of nine aircraft IAC then applied to the Iraqi Directorate of Air Safety for certificates of airworthiness and reregistration in IAC's name. IAC effected insurance cover in respect of five aircraft, and a further four after the issue of the writ. Six of the aircraft were overpainted in IAC's livery. IAC used one aircraft on internal commercial flights between Baghdad and Basra and for training flights. The two Boeing 767s were flown from Basra to Mosul in mid-November 1990.

    44. Mance J concluded that in these circumstances IAC had wrongfully interfered with all ten aircraft. In the Court of Appeal Brooke LJ said, at p 1146, paragraph 74:

    'The board resolution makes it completely clear that as soon as RCC resolution 369 came into effect IAC resolved to treat these ten aircraft as their own and to exercise dominion over them in denial of KAC's rights, and this continuing usurpation and conversion of KAC's aircraft subsisted right up to the issue of the writ in this action by which KAC demanded the return of all these aircraft.'

I agree. IAC's acts would have been tortious if done in this country.

Double actionability: usurpation

    45. I turn now to consider whether IAC's acts were civilly actionable in Iraq. Again, this is on the footing that RCC resolution 369 was ineffective to divest KAC of its title. Articles 192 to 201 of the Iraqi Civil Code provide remedies for the civil wrong of usurpation, or misappropriation. The Code contains no definition of usurpation. Mance J held that under Iraqi law a usurper need not actually take the asset from the possession or control of its owner. Property can be usurped by keeping. Whether keeping amounts to usurpation depends on a combination of factors, including whether the alleged usurper has conducted himself in a manner showing that he was 'keeping' the asset as his own.

    46. The Court of Appeal upheld this finding of Iraqi law. The Court of Appeal also decided that Mance J was entitled to hold that, ignoring RCC resolution 369, as a matter of Iraqi law IAC had wrongfully usurped KAC's aircraft by acting as it did: see pages 1223-1224, paragraphs 399 to 402. These conclusions were not challenged in your Lordships' House.

The Mosul four

    47. Thus far I have concluded that the conduct of which KAC complains meets the requirements of the double actionability rule. The conduct would have been tortious if done in this country and was civilly actionable as usurpation in Iraq. I turn next to the question of damages. To be recoverable in these proceedings the heads of damage claimed by KAC must also meet the requirements of both limbs of the double actionability rule. This was common ground between the parties.

    48. It is at this stage that, on the application of Iraqi law, KAC's claims regarding the Mosul four failed in the courts below. Iraqi law, as found by Mance J, does not recognise a head of loss consisting of the value of the goods at the time of the wrongful usurpation. What is required is some further loss, such as the destruction by bombing at Mosul. Moreover, if the property usurped is physically lost or damaged, as happened in the case of the Mosul four, the owner must show that this loss or damage would not have occurred but for the usurpation (the so-called 'but for' test). The burden of proof is on the owner unless the usurper was acting in bad faith. Admittedly that is not the present case. IAC acted in the belief that RCC resolution 369 gave it a good title. This also was common ground. (In this regard, and to this extent, the existence of this decree will be recognised by an English court. This is not giving effect to resolution 369. This is doing no more than accept the existence of this decree as the explanation for IAC's state of mind.)

    49. In your Lordships' House KAC acknowledged that its claim for the value of the Mosul four depends on satisfying the Iraqi law 'but for' test. Likewise, all other claims for financial loss consequent upon the destruction of the Mosul four depend on satisfying this test.

    50. Aikens J observed that, in applying this test and making findings on how the Mosul four, and indeed all ten aircraft, would have been positioned before and during the hostilities 'but for' the usurpation of IAC, he was having to speculate on a grand scale. But this, he said, was an exercise he had to perform. After carefully considering the evidence he concluded that, in the absence of usurpation by IAC and the incorporation of the ten KAC aircraft into IAC's fleet, the disposition of the ten aircraft would have been exactly the same as it was in fact. Without the usurpation of IAC the Iraqi authorities would still have parked the Mosul four at Mosul and made no attempt to move them afterwards. These four aircraft would still have been destroyed by the coalition bombing. Accordingly, KAC's claims regarding the Mosul four wholly failed.

    51. The Court of Appeal rejected KAC's challenge to this conclusion. KAC could not discharge the burden of disproving the judge's factual conclusions. On one matter the Court of Appeal did disturb the findings of Aikens J regarding the whereabouts of the Mosul four. The judge found that on 17 September 1990, when RCC resolution 369 came into force, the two Boeing 767s and one of the A300 Airbuses (AHF) were at Basra. The other A300 Airbus (AHG) was already at Mosul. The two Boeing 767s and Airbus AHF were flown from Basra to Mosul on 17 November 1990. Differing from the judge, the Court of Appeal held that the A300 Airbus AHF was flown from Tekrit to Mosul at the end of August 1990 and not, as the judge had found, from Basra to Mosul on 17 November 1990. This difference of view did not affect the overall outcome.

    52. In your Lordships' House KAC mounted a sustained challenge to the Court of Appeal's decision. The primary ground advanced by Mr Vos was that the Court of Appeal misunderstood and misapplied the Iraqi law 'but for' requirement. This requirement, it was submitted, does not mean that the court should consider whether the same result might have been caused by another wrongful activity by someone else. Still less does it enable IAC to advance a case that, absent IAC's acts of conversion, the aircraft would still have been distributed as they were because the government of Iraq would still have delegated to IAC the task of looking after them. Rather this requirement means only that the court should consider what would have happened if the usurper had not committed the wrong. The proper comparison is between what actually happened to the Mosul four and what would have happened to them if IAC had acted lawfully. Had IAC acted lawfully it would not have moved the aircraft to Mosul. They would have remained at Basra airport. Basra airport was not damaged by coalition bombing. KAC further submitted, in the alternative, that to discharge the onus of proof imposed upon it by the Iraqi law 'but for' requirement, all it had to do was to prove there was a substantial chance the Iraqi government would have treated KAC's aircraft differently. It was not necessary for KAC to prove this would have been so.

    53. I need not elaborate further on these arguments, none of which was advanced in the courts below. They all suffer from the same fatal defect. Each of them raises a question of Iraqi law, but none of them was put to the expert witnesses on Iraqi law. Iraqi law is a matter of evidence. The House cannot entertain an argument dependent on an interpretation of Iraqi law on which the expert witnesses had no opportunity to comment.

    54. KAC also challenged the Court of Appeal's factual conclusions. In one respect the challenge is well founded. This relates to the one factual point on which the Court of Appeal disagreed with Aikens J, concerning the whereabouts of A300 Airbus AHF. On this point I found KAC's submissions, set out in its written case, compelling. In my view the Court of Appeal fell into error on this point. This does not affect the outcome of these appeals. In all other respects I have been unable to see, in the considerable amount of detailed material put before the House, any ground of substance on which the Court of Appeal can be said to have misdirected itself in any significant regard. Nor is the overall conclusion of Aikens J and the Court of Appeal so inherently improbable that something must have gone awry in their reasoning.

    55. KAC also sought to attack the reliability of the evidence given by IAC witnesses, praying in aid the contents of documents of which discovery was made belatedly, after the trial in front of Aikens J had finished. This is not a matter to which, at this stage, the House can attach any weight. The apparent discrepancies between the witnesses' evidence and these documents, and the reasons for these discrepancies, are matters par excellence which can only be investigated satisfactorily by examination and cross-examination in the course of oral evidence. If the perjury action comes to trial, no doubt this investigation will take place.

    56. As I see it, save for the one point I have mentioned regarding the movements of A300 Airbus AHF, no basis has been established for this House to disturb the factual conclusions of the Court of Appeal, substantially concurrent as they are with those of the judge.

    57. It follows that KAC's appeal against the dismissal of its claims regarding the Mosul four must fail. On the facts in this case KAC has not been able to surmount the hurdle of the Iraqi law 'but for' test.

The Iran six

    58. The Iraqi law 'but for' test applies only to a head of loss involving or arising from physical loss or damage. This principle of Iraqi law does not apply to claims regarding the Iran six, because the Iran six were recovered, largely undamaged, by KAC. The test under Iraqi law for these claims is whether the loss resulted 'naturally' from the usurpation. The parties were agreed that this test is no more stringent than the requirements of the English law of conversion. Accordingly, when considering the recoverable heads of damage regarding the Iran six, Iraqi law can be put aside. A head of loss recoverable under English law will also be recoverable under Iraqi law and the requirements of the double actionability rule will thus be met as regards both laws.

    59. In one respect Aikens J and the Court of Appeal expressed divergent views on the English law of conversion. The judge held that a threshold 'but for' test applies in English law when measuring the damages recoverable in cases of wrongful interference with goods. Accordingly, KAC's claims in respect of the Iran six failed. This was because, as he found, the Iran six would have been flown to Iran even if they had not been incorporated into the IAC fleet.

    60. The Court of Appeal reached a different conclusion on the requirements of the English law of conversion. Brooke LJ, at [2001] 3 WLR 1117, 1256-1257, paragraphs 520-522, rejected the 'but for' test as a test of universal application. Rather, the rule is that in addition to whatever figure may be attributed to the value of the converted goods, the claimant is prima facie entitled to recover all losses flowing naturally and directly from the defendant's acts of conversion, provided they are not too remote.

    61. Applying this test, the Court of Appeal held that in principle the following claims made by KAC in respect of the Iran six succeeded: the amount paid to the Iranian government for the return of the Iran six (US $20 million); the cost of repairing the Iran six ($11 million); loss of profits ($66 million); the cost of hiring substitute aircraft capacity for carrying cargo ($46 million); and the cost of hiring substitute aircraft capacity for carrying passengers ($99 million). The court entered judgment for KAC for $20 million and otherwise remitted the claims to the High Court for assessment. The amounts claimed for loss of profits and cost of substitute aircraft capacity include claims in respect of the Mosul four. To that extent the figures need adjustment in any event. The Court of Appeal rejected KAC's claim for finance costs associated with its purchase of new aircraft ($290 million). All the amounts claimed are more precisely stated, and their composition elaborated, in the judgment of Aikens J: see [2000] 2 All ER (Comm) 360, 378-379, paragraph 37.

    62. On these appeals KAC seeks to uphold the views of the Court of Appeal, save that it seeks to reverse that court's rejection of its claim for finance costs. IAC, for its part, seeks to uphold the views of Aikens J. In challenging the views of the Court of Appeal IAC submitted there must be a causal nexus between the acts relied upon as constituting the tort of conversion and the loss being claimed. Here there was no such nexus, for the reason given by Aikens J. The damage suffered by KAC failed the 'but for' test.

The Iran six: causation and the 'but for' test in the tort of conversion

    63. This submission, and the divergent views of the judge and the Court of Appeal, make it necessary to consider the role of the 'but for' test in the assessment of damages in the tort of conversion. I start by going back to first principles regarding the measure of damages in this tort. In days past, when forms of action and pleading technicalities reigned supreme, awards of damages for trover and detinue may have been made in accordance with set formulae. Those days have long gone. As long ago as 1879 Thesiger LJ, in Hiort v London and North Western Railway Co 4 Exch Div 188, 199, observed that the action of trover had been surrounded by technicalities which might in some instances have worked injustice. He continued:

    'I think, however, of late the tendency of the courts has been to treat this action with more common sense than it had been previously treated. Just as in other actions of tort it is held that a person to whom a wrong has been done can only recover the damages which flow from the wrong; so in an action of trover it is the tendency of the courts to apply the same rule.'

In that case the Court of Appeal awarded the plaintiffs nominal damages of one shilling in respect of the defendants' conversion of sixty quarters of oats worth £79. The goods would have been equally lost to the plaintiffs if, instead of being misdelivered, they had been retained and properly delivered by the railway company under the subsequent lawful orders given by the plaintiffs.

    64. Similarly, in Williams v Peel River Land and Mineral Co Ltd (1886) 55 LT 689, 692-693, Bowen LJ, whose judgments are invariably instructive, was scathingly dismissive of the idea that substantial damages should be awarded in an action for wrongful detention of goods when there has been no substantial loss. He said:

    'You do not give damages in an action for detention in poenam; it is not a paternal correction inflicted by the court, but simply compensation for the loss. … I cannot think that the law could really lay down anything so ridiculous as that a man should be compensated whether he suffered damages or not.'

    65. This approach has been adopted by the Court of Appeal on several occasions. In 1966 it was applied in Wickham Holdings v Brooke House Motors Ltd [1967] 1 WLR 295, 299-300. In refusing to award damages measured by reference to the value of the Rover car converted by the garage dealer, Lord Denning MR said that the plaintiff finance company was 'only entitled to what it has lost by the wrongful act of the defendants'. Again, in Brandeis Goldschmidt & Co Ltd v Western Transport Ltd [1981] QB 864, 870: failing evidence of loss resulting from the wrongful detention of copper, the court awarded only nominal damages. Having acquired the copper for use as a raw material in its business, the fall in the market value of the copper occasioned the plaintiff no loss. Brandon LJ could not see why there should be any universally applicable rule for assessing damages for wrongful detention of goods: '[d]amages in tort are awarded by way of monetary compensation for a loss or losses which a plaintiff has actually sustained'. This view was echoed by the Court of Appeal in IBL Ltd v Coussens [1991] 2 All ER 133, 139 and 142.

    66. A similar approach has been adopted by the High Court of Australia, in Butler v Egg and Egg Pulp Marketing Board (1966) 114 CLR 185. Damages for the eggs converted by the producer were assessed, not on their value at the time of the conversion, but upon the actual loss sustained by the defendant, namely, the profit the board would have made on a resale of the eggs.

    67. I have no hesitation in preferring and adopting this view of the present state of the law. 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.

    68. This approach accords with the conclusion of the Law Reform Committee in its 18th report (1971) (Cmnd 4774) that the general rule as respects the measure of damages for wrongful interference should be that the plaintiff is entitled to recover the loss he has suffered. The committee considered this conclusion was 'right in principle', and added, in paragraph 91:

    'In many cases the value of the chattel itself will either represent this loss or form an important element in its calculation; but consideration of the value of the chattel should not be allowed to obscure the principle that what the plaintiff is entitled to recover is his true loss.'

This committee had a distinguished membership including, among others, Lord Pearson and Lord Diplock.

    69. How, then, does one identify a plaintiff's 'true loss' in cases of tort? This question has generated a vast amount of legal literature. I take as my starting point the commonly accepted approach that the extent of a defendant's liability for the plaintiff's loss calls for a twofold inquiry: 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 application of this test in cases of conversion is the matter now under consideration. I shall return to this in a moment.

    70. 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). To adapt the language of Jane Stapleton in her article 'Unpacking "Causation"' in Cane and Gardner (ed) Relating to Responsibility (2001), page 168, the inquiry is whether the plaintiff's harm or loss should be within the scope of the defendant's liability, given the reasons why the law has recognised the cause of action in question. The law has to set a limit to the causally connected losses for which a defendant is to be held responsible. In the ordinary language of lawyers, losses outside the limit may bear one of several labels. They may be described as too remote because the wrongful conduct was not a substantial or proximate cause, or because the loss was the product of an intervening cause. The defendant's responsibility may be excluded because the plaintiff failed to mitigate his loss. Familiar principles, such as foreseeability, assist in promoting some consistency of general approach. These are guidelines, some more helpful than others, but they are never more than this.

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