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Cite as: [2000] EWCA Civ 284

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Case Nos: QBCMF 98/1234/A3; QBCMF 00/0419/A3; SLJ 00/5954/A3

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE COMMERCIAL COURT
Mance J
Aikens J
Royal Courts of Justice
Strand, London, WC2A 2LL
Date: 10th November 2000

B e f o r e :
LORD JUSTICE HENRY
LORD JUSTICE BROOKE
and
LORD JUSTICE RIX
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	KUWAIT AIRWAYS CORPORATION	Claimants
	- and -
	IRAQI AIRWAYS COMPANY (Conjoined Appeals)	Defendants

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(Transcript of the Handed Down Judgment of
Smith Bernal Reporting Limited, 190 Fleet Street
London EC4A 2AG
Tel No: 020 7421 4040, Fax No: 020 7831 8838
Official Shorthand Writers to the Court)
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Geoffrey Vos QC, Christopher Greenwood QC, Joe Smouha and Sam Wordsworth (instructed by Howard Kennedy for the Claimants)
David Donaldson QC and Stephen Nathan QC (instructed by Landau and Scanlon for the Defendants)
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JUDGMENT
(As Approved by the Court)
Crown Copyright

The Judgment of the Court of Appeal
Executive Summary
1. By this judgment of the court, the Court of Appeal upheld the judgment of Mance J. In particular, it ruled that an English court was entitled to decline to recognise Resolution 369 of the Revolutionary Command Council of Iraq. It held that at all material times Iraq was neither the de facto nor the de jure government of Kuwait; that the resolution was extra-territorial in its effect; and that it would be contrary to English public policy to grant recognition to a resolution which was in breach of clearly established principles of international law (see parts 22-35).
2. The court also upheld that part of the judgment of Aikens J in which he found that KAC could not recover damages in respect of the loss of the Mosul Four on the ground that those four aircraft would not have been destroyed by Coalition bombing even if IAC had not wrongfully usurped or converted the aircraft. The court upheld the ruling on the facts and upheld his decision on the law because, as required by Iraqi law, KAC was not able to show that the physical damage to the aircraft would not have occurred but for the usurpation (see parts 20-21).
3. The court allowed KAC's appeal against that part of the judgment of Aikens J in which he held that KAC was not entitled to recover loss flowing naturally and directly from IAC's wrongful usurpation and conversion of the Iran Six. Although it upheld his findings of fact in all material respects, it held that he was wrong to apply a "but for" test as a matter of English law, and that in relation to usurped and converted goods which had not been physically lost or damaged there was no material distinction between the Iraqi law of usurpation and the English law of conversion, which is a tort of strict liability (see parts 36-44).
4. The action will therefore be remitted to the Commercial Court for an assessment of the damages flowing naturally and directly from the wrongful usurpation and conversion of the Iran Six. The court held that the losses claimed by KAC were in principle foreseeable, and that it was entitled to recover damages in relation to the costs charged to KAC by Iran for their return; the cost of repairing them and reconstructing their maintenance records after their return; and the cost of substitute cargo capacity and substitute passenger capacity pending their return. It held that KAC's loss of profits claim should go forward to assessment. It rejected KAC's claim in relation to the finance costs involved in financing new aircraft ordered by KAC in September 1991 (see parts 45-54).

INDEX
Part Paragraphs
1. Introduction 1-3
2. A summary of the facts 4-9
3. 1991-2 10-30
4. 1993-5 31-35
5. 1995-8 36-46
6. Evidential difficulties 47-59
7. Conversion: The facts: Mance J 60-68
8. Conversion: The facts: Aikens J 69-74
9. The development of KAC's "but for" case 75-103
10. Nine discrete topics 104-106
11. The three airfields at Tekrit 107-121
12. Mosul Airfield 122-135
13. The threat to Mosul 136-143
14. The attitude of Jordan 144-145
15. The evacuation of aircraft at the outbreak of hostilities 146-165
16. General Horner's hypothesis about the 11 Iraqi Airfields 166-176
17 The subsequent history of the Iran Six 177-180
18. The relationship between IAC and the Iraqi government 181-187
19. Aikens J's findings as to government involvement 188-202
20. The "but for" test: Aikens J's findings 203-228
21 KAC's challenge to the judge's "but for" findings 229-235
22 The international law dimension 236-245
23 RCC Resolution 369 246-247
24 UN Charter and the Security Council resolutions 248-262
25 The Berman letter 263-264
26 The authorities on the international law dimension 265-324
27 The justiciability of a challenge to RCC Resolution 369 325-338
28 Was Iraq the de facto government of Kuwait? 339-360
29 Should RCC Resolution 369 be characterised as exorbitant? 361-371
30 Is the English public policy exception wide enough? 372
31 Can the court take account of Resolution 369's background
and context? 373-378
32 Is Resolution 369 in breach of international law principles? 378-383
33 Do the lex situs rule or the act of state doctrine apply? 384-388
34 The effect of the lex situs rule and double actionability 389-394
35 The letter of 10th September 1990 395-398
36 The Iraqi law of usurpation 399-406
37 English law: introductory 407-413
38 The scope of the law of conversion 414-438
39 The assessment of damages in conversion cases 439-484
40 Conversion, detinue, and the 1977 Act 485-488
41 The modern cases 489-518
42 Damages for conversion: conclusions on recoverability 519-524
43 Remoteness and foreseeability 525-538
44 Remoteness and new intervening cause 539-546
45 The financial claims 547-551
46 KAC's heads of claim 552-578
47 The Airbus purchase contract 579-586
48 The Liesbosch 587-598
49 Fair Market Value (FMV) or Current Market Price (CMP)? 599-605
50 A discount in relation to the Mosul Four? 606-620
51 The Mosul Four: additional heads of claim? 621-633
52 The decision to buy new rather than used aircraft 634-642
53 The finance costs claim 643-651
54 Summary of conclusions on KAC's heads of claim 652-653
55 Conclusion 654-655
ANNEX
56 The disputed movements of 9K-AHD and 9K-AHF 656-673
Lord Justice Brooke:
1 Introduction
1. This is the judgment of the court to which all its members have contributed. Rix LJ, in particular, is substantially responsible for parts 22-35 and 43-54 of the judgment.
2. In this matter we have been concerned with two appeals. The first is an appeal by the defendants Iraqi Airways Company ("IAC") from a judgment of Mance J on 29th July 1998 following the trial of issues relating to liability in this action. The second is an appeal by the claimants Kuwait Airways Corporation ("KAC") from a judgment of Aikens J on 5th April 2000 following the trial of issues relating to causation and remoteness. By a Respondents' Notice in that appeal IAC challenge a number of the findings made by Aikens J in his judgment. The judgment of Mance J is reported at [1999] CLC 31, and we will take our page references from that report. The judgment of Aikens J, which was laid out in numbered paragraphs, is reported at [2000] 2 All ER (Comm) 360.
3. It was arranged that the hearing of the appeal against the judgment of Mance J should be postponed until after judgment had been given at the end of what became known as the stage 2 trial, so that this court would be able to hear both appeals at the same time. This was a sensible course to adopt, and it enabled the court to obtain a clearer picture of all the issues in this case than would have been possible if the two appeals had been heard separately. We are grateful to both parties and their lawyers for the efficient way in which they prepared these appeals. This enabled us to complete the hearing of two very heavy appeals in 11 working days.
2 A summary of the facts
4. The appeals arise out of events in Iraq and Kuwait which took place ten years ago. On 2nd August 1990 Iraq invaded Kuwait by force. The occupation was complete by 5th August. On 8th and 9th August the Revolutionary Command Council of Iraq ("the RCC") passed Resolutions 312 and 313. These resolutions proclaimed the sovereignty of Iraq over Kuwait and its annexation to Iraq. Subsequently various Presidential Decrees of the government of Iraq designated Kuwait a "Governate" within Iraq and appointed a Governor of the "Governate of Kuwait".
5. At the time of the invasion 15 civil aircraft belonging to KAC were standing at Kuwait International Airport. Ten of these aircraft are at the centre of this litigation. The other five were seized and deployed elsewhere by the Iraqi government. They comprised a Boeing 727 owned by the Emir of Kuwait and four smaller aircraft. The ten aircraft with which we are concerned were two Boeing 767s (9K-AIB and 9K-AIC), three A300-600C Airbuses (9K-AHF, 9K-AHG and 9K-AHI), and five A310-200 Airbuses (9K-AHA, AHB, AHC, AHD and AHE). The first four of these aircraft came to be known, for reasons which will become apparent, as the Mosul Four, and the others as the Iran Six. The three A300 Airbuses had been leased to Egyptair in 1988-9 and returned to KAC in May-July 1990. The most valuable of the ten aircraft were the two Boeing 767s, which were built in 1986. The next most valuable were the three A300-600 Airbuses, built in 1984. These were larger and more versatile than the A310s (built in 1983) and were capable of operating in either passenger or cargo mode. KAC and IAC had enjoyed friendly working relations prior to August 1990, and at the time of the invasion there were three IAC pilots in Kuwait on temporary secondment to KAC.
6. On 6th August 1990 the Iraqi government directed IAC to fly the ten aircraft from Kuwait to the civilian airfield at Basra. Basra is in south-east Iraq, close to the Kuwait border. In the event Airbus 9K-AHI was under repair, and it did not leave Kuwait until 22nd August 1990 when it was flown direct to Baghdad. By 17th August six of the nine aircraft in Kuwait had been redeployed by the government, three of them to Mosul, a mixed civilian-military airfield in the north of Iraq, 500 miles from Basra, and the other three to the Al-Sahra airfield, one of three military airfields at Tekrit, which is 100 miles north-west of Baghdad. By the end of August all the aircraft at Tekrit had been moved again, and the ten aircraft were now deployed at IAC's three operational bases in Iraq (Baghdad, Basra and Mosul).
7. On 9th September 1990 the Revolutionary Command Council passed RCC Resolution 369. This resolution came into force on 17th September. It had the purported effect of dissolving KAC and transferring its assets, including the ten aircraft, to IAC. By 17th November 1990 four of these aircraft ("the Mosul Four") were stationed at Mosul and the other six ("the Iran Six") were stationed at Baghdad. They remained based at these two airfields until after the UN Security Council's deadline for Iraq's withdrawal from Kuwait expired at midnight on 15th January 1991.
8. Because Iraq did not comply with the Security Council resolutions, military action by Coalition air forces began in the early hours of 17th January 1991. Mosul airfield suffered a number of air attacks by Coalition forces between 17th January and 12th February 1991. During these attacks the Mosul Four were either destroyed or so severely damaged as to become total losses.
9. The Iran Six, for their part, were evacuated to Iran between 15th January and 4th February 1991. Following negotiations with the government of Iran they were flown back to Kuwait in July and August 1992 on the understanding that a sum for their return would be agreed subsequently. In March 1994 KAC agreed to pay US$20 million to Iran for the costs and expenses of keeping, sheltering and maintaining the Iran Six. This sum was duly paid. In the meantime KAC had concluded contracts with Airbus Industrie in September 1991 for the purchase of a total of 11 new Airbuses. KAC leased five Airbuses from the Polaris Holding Company with effect from 3rd July 1991 pending the delivery of the new Airbuses.
3 1991-2
10. Because this action had such a long procedural history before the two trials with which this court is now concerned, it is necessary to describe some of the earlier history in some detail. The writ was issued against both IAC and the Republic of Iraq on 11th January 1991. KAC relied on its title as the registered and beneficial owner of its ten aircraft, which it valued together at $630 million. It claimed delivery up of the aircraft with consequential damages for the defendants' unlawful interference with them, alternatively damages in the amount of the value of the aircraft pursuant to Section 3 of the Torts (Interference with Goods) Act 1977 and at common law. The writ was endorsed with Points of Claim. These were very short, and they have remained unaltered throughout the proceedings.
11. The writ was served on IAC's London office in Lower Regent Street on the same day, and this was subsequently held to be good service. The purported service of the writ on the Iraqi Embassy in London on 15th January 1991 was later held not to be good service. Judgment in default of appearance was entered against both defendants during the first six months of 1991. These judgments were subsequently set aside. In November 1991 Evans J heard a number of interlocutory applications by the defendants. He adjourned the hearing of these applications to enable the deponents of affidavits to be cross-examined. He then heard oral evidence on two days in December 1991 and on one day in January 1992. He gave judgment on 16th April 1992.
12. The witnesses who gave oral evidence to Evans J were two members of KAC's engineering staff (identified as KAC1 and KAC2), and three very senior officers of IAC. These were its Director-General (Mr Saffi), its present Director of Engineering (Mr Al Shaikhly), who was IAC's Line Maintenance Manager in September 1990, and its Assistant Director-General (Technical) (Mr Abbo).
13. The evidence given by KAC1 was largely directed to describing the approaches made to him by IAC from 13th August 1990 onwards in efforts to persuade him to work for IAC in maintaining and servicing the ex-KAC Airbuses in Iraq. He had visited Iraq in connection with these overtures on three occasions prior to 17th September, and in the course of his evidence he mentioned various occasions when he had seen ex-KAC aircraft repainted in IAC livery before 17th September 1990. The evidence given by KAC2 appears to have been largely based on hearsay and was found to be unconvincing.
14. Evans J recorded in his judgment how the IAC witnesses had disputed much of what the KAC engineers had said. In particular, they said that the negotiations with KAC personnel had been directed with a view to their employment by IAC if and when the ex-KAC aircraft were transferred to IAC, as occurred on 17th September 1990. They completely denied that any of the ex-KAC aircraft had been overpainted by IAC before that date. (IAC did not dispute that the evidence before Aikens J in 1999 showed that three of the ex-KAC aircraft had in fact been overpainted before 17th September).
15. Evans J said that a clear general picture emerged from the evidence. So far as is relevant in the context of the present appeals, he described the history of events along the following lines. On 6th August 1990, when the Iraqi authorities regarded the occupation as complete, the Minister of Transport and Communications (as the minister responsible for civil aviation) ("the minister") directed Mr Saffi, as Director-General of the national airline, IAC, to arrange for the KAC fleet of Airbuses and Boeing 767s to be brought to Iraq. Mr Saffi gave the necessary instructions to his chief pilot and to Mr Abbo. The necessary pilots and three ground engineers went to Kuwait, where the engineers carried out basic checks on the aircraft. The pilots then took them the short distance to Basra, a civilian airport. Evans J added:
"Then they were dispersed between Saddam Hussein Airport at Baghdad, also a civilian airport and the home base for IAC, which was already crowded with the grounded IAC fleet, and at Mosul and [Tekrit] which are civilian/military airports, as well as some remaining at Basra."
16. When Mr Saffi reported to the minister that his instructions had been carried out, he was instructed to "maintain" or "look after" the KAC aircraft which had been brought to Iraq. Evans J described how this presented a problem, because IAC had no specialist engineers or service personnel who were qualified to work on the Airbuses. The 767s presented less difficulty because IAC had its own fleet of older Boeing aircraft. Mr Saffi was particularly concerned because an Iranian aircraft, which had been in IAC's possession or custody for some years previously, had not been "looked after", and as a result its condition had deteriorated.
17. The kind of basic maintenance that was required was limited to checking the tyre pressures; moving each aircraft so that its tyres did not become deformed; checking for oil and fuel leaks; and removing and replacing engine cowlings and similar pieces of equipment from time to time. Evans J said that it might be doubted whether this work required particular skills or any specialist qualifications.
18. He said that Mr Saffi and his senior managers decided, however, that they should recruit a minimum staff of five Airbus-qualified engineers, one for each of the basic engineering and electrical disciplines involved, and that KAC1, being a senior radio and radar engineer for the Airbus fleet, was one of the five they attempted to recruit. Evans J added that the underlying issue was whether IAC was keeping the aircraft and recruiting these ex-KAC personnel with a view to operating the aircraft as part of its fleet at some future date, or whether it was doing so at the behest of the Iraqi government so that the aircraft would be available to the government for some other kind of operation at some future date.
19. He said that Mr Saffi was in something of a dilemma. IAC's fleet of Boeing aircraft was old, dating from 1982 and earlier, and Mr Saffi had already taken steps to modernise its fleet by the purchase of a substantial number of Airbuses. On 24th June 1990 he had signed a contract to buy five of these aircraft with an option to buy five more. They were for delivery from 1992 onwards, and in the meantime he planned to charter two Airbuses from the Royal Jordanian Airline ("RJ"). These would enable IAC to lay the foundations for the organisation that was necessary to operate an Airbus fleet. This fleet would require as many as 300 pilots, engineers and other ground staff: as Mr Saffi described it, a company within the company (IAC). His ambition was to develop an IAC fleet consisting of two aircraft types only, one of these being the Airbus.
20. This ambition was taking shape, and negotiations with RJ were in progress, when Iraq invaded Kuwait on 2nd August 1990. Eight Airbuses then became available for use by IAC as the national carrier for Iraq, of which Kuwait was now regarded as a part. They dated from 1983-4, and Mr Saffi regarded them as old. He much preferred to have the new ones which were on order. Moreover, and most importantly, IAC had for all practical purposes been refused landing and overflying rights by other states from 2nd August 1990, so that there was no immediate requirement for them or for any additions to the IAC fleet. Mr Saffi said that for the Airbuses he had no pilots, no engineers and no passengers. He did not need them - then.
21. Evans J commented that Mr Saffi was reticent about his relations with the minister between 8th August 1990 and 9th or 12th September 1990 (when he knew about Decree No 369), and that his evidence was contradictory. On the one hand he denied having any communications with the minister or the government during this period or having any foreknowledge of the Decree. On the other hand he said that before the Decree he had told the minister that he did not want the KAC aircraft, that he would prefer new aircraft, and that in any event IAC had no need of any aircraft until such time as international flights could resume.
22. The evidence before Evans J showed that after the Decree took effect at least two of the aircraft were repainted in the IAC livery, and at least one of them was used on internal flights.
23. Evans J concluded his survey of the facts in these terms:
"The evidence is compelling, in my judgment, that when the occupation of Kuwait was regarded as complete, the Iraqi Government arranged for the removal by the Iraqi Air Force of the five KAC aircraft which it required for other and possibly non-commercial uses, and it directed IAC to take possession of ten KAC aircraft which were to be used for commercial purposes, and to look after them until such time as commercial operations could resume. This was the object of the `safe-keeping' which Mr Saffi was instructed to achieve. The decision to recruit key specialist personnel for an Airbus fleet and the steps taken to implement this decision from mid-August onwards confirm that IAC was engaged, on the Minister's instructions, in the preliminary stages of establishing an Airbus operation and to this extent was anticipating the transfer of ownership which became effective, so it was believed, on September 17th."
24. Evans J added that he also found that from 8th August Mr Saffi was concerned to establish regular commercial flights by IAC into and out of Kuwait Airport. Such flights, to and from Iraqi airports, were regarded as internal flights. They began on about 14th August.
25. IAC produced three documents during the course of Mr Saffi's evidence in January 1992. The first was a letter dated 15th August 1990 from Mr al-Naqqash (later described as Mr Nekash), IAC's Director of Aircraft Technical Planning, to IAC's Director of Quality Control (Mr Abbo) in these terms:
"Would you kindly ask the Air Safety Division to give us a list of the necessary requirements for registration of aircraft in the Iraqi Civil Register, as it is intended to purchase or lease cargo planes from another company."
26. The second was a letter from Mr Abbo to the Director of Air Safety, dated 23rd August 1990, under reference MSA/1/1901:
"With reference to the letter from Technical Planning number 580 dated 15.8.90, kindly inform us the necessary requirements for registration with the Iraqi Civil Register of foreign-registered aircraft, and also for granting for these aircraft an airworthiness certificate. It is intended to purchase or lease cargo planes from a foreign airline."
27. The third was a letter written to Mr Abbo on 23rd August 1990 by the General Manager, Air Safety, of the Iraqi Civil Aviation Establishment, which is part of the Ministry of Communications and Transport ("the Ministry"):
"With reference to your letter no MSA 1/1901 dated 23.8.1990 we list below the requirements needed for registration of aircraft, mentioned in your letter, in the Iraqi Civil Aviation Law ..."
28. Six requirements followed, including the requirements that each aircraft must have a valid airworthiness certificate, that evidence must be submitted showing that the aircraft and its engines, equipment and instruments were being properly maintained, and that the aircraft cockpit crew and maintenance engineers all possessed licences to operate that aircraft.
29. Evans J said that these procedures were implemented in October 1990 when some at least of the ten KAC aircraft were re-registered in Iraq. A question had arisen as to whether this correspondence was the beginning of that process, or whether it referred to the proposed charter of two Airbuses from RJ. Evans J said that the latter might seem more likely from the documents themselves, and Mr Saffi had thought it was correct. However, Mr Saffi had also said that the negotiations with RJ came to an end with the invasion on 2nd August, and he could not explain why IAC should be making such enquiries as late as 15th August, either for the RJ aircraft or for some cargo aircraft which he could not identify. On balance, Evans J said he would find that the correspondence was in the nature of a preliminary enquiry regarding the KAC aircraft, and that it was not regarded as urgent in the conditions prevailing during August and September, He had reached his conclusions on the facts, however, without relying on this evidence.
30. It was common ground that IAC was a separate entity of the Republic of Iraq for the purposes of Section 14(2) of the State Immunity Act 1978, and Evans J held that in the circumstances of this case IAC was not entitled to immunity from the jurisdiction of this court except possibly in certain immaterial respects.
4 1993-5
31. In July 1993 this court allowed an appeal by IAC, and upheld its claim to state immunity (see the report at [1995] 1 Lloyd's Rep 25). It did not, however, disturb any of Evans J's findings of fact on the evidence before him (see Nourse LJ at pp 26-27). On a further appeal, the House of Lords held in July 1995, by a 3-2 majority, that although IAC enjoyed state immunity for its acts of taking the aircraft and removing them from Kuwait to Iraq as directed by the government of Iraq, its retention and use of the aircraft after Resolution 369 came into force were not acts done in the exercise of sovereign authority and thus were not covered by state immunity. At the beginning of his speech Lord Goff summarised very briefly the facts as found by Evans J, which had been encapsulated in an agreed statement of facts for the purposes of this further appeal. The House of Lords directed that the action should be remitted to the Commercial Court so that it might proceed against IAC in relation to those parts of KAC's claim in respect of which IAC could not now rely upon state immunity. Because issues concerned with the justiciability of IAC's acts after 17th September 1990 had not been properly defined in the pleadings, the House of Lords decided that it should not rule on them at this stage.
32. Before we leave this part of the history of this litigation, we must refer to certain features of the evidence given by Mr Saffi to Evans J, in the light of the different versions of events that emerged during the course of the trial before Aikens J nearly seven years later.
33. In an affidavit sworn on 31st October 1991 Mr Saffi said:
"3. In accordance with oral instructions and authorisations given by the Iraqi military authorities in charge at Kuwait Airport, the pilots were directed to take off from Kuwait Airport and to fly the ten aircraft involved initially all to Basra Airport and thence to various different airports in Iraq (the airports involved being jointly military and civilian ones).
...
5. Upon arrival at the Iraqi airports of final destination, the IAC aircrews parked the aircraft and simply left them at the stands to which they had been directed by the Air Force controllers ... Thereafter, until after RCC Resolution 369 of 9th September 1990 came into effect, IAC ground crews had nothing to do with the aircraft; indeed no one from IAC was involved in any activity concerning these aircraft.
...
9. Following RCC Resolution 369 of 9th September 1990, the Kuwaiti aircraft became the property of IAC under Iraqi law. As a result, IAC was then charged with having to do something about the aircraft. The first thing, therefore, which IAC did was to make the aircraft acceptable for registration by the Iraqi Civil Aviation Authority. ... Also, once the aircraft became the property of IAC under Iraqi law (and not before then) IAC informed its Iraqi insurers that these aircraft had become the responsibility and property of IAC under Iraqi law."
34. During the course of his oral evidence Mr Saffi gave the impression that once the KAC aircraft had been flown to Basra he had been responsible for deciding their ultimate destination in Iraq. However, at one point he said it was they who told him to take two or three to Tekrit and two or three to Mosul, and there is an obscure passage of his evidence (4L/284F-285A) in which he said that a number of aircraft movements were controlled by the minister, without making it at all clear which movements he had in mind when he said: "the second, the third, the movements is not me. It is the minister's control".
35. Mr Saffi said more than once that IAC did not start changing the colours of the aircraft until after 17th September. He said, in effect, that a Reuters report dated 17th September which stated that several KAC planes had already been repainted in IAC colours was inaccurate. This evidence, as we have already observed, was not correct.
5 1995-8
36. As events turned out, the proceedings which followed the decision of the House of Lords in July 1995 took an unsatisfactory course. Colman J made an order on 26th July 1996 which split the issues of liability and quantum, and the trial of issues of liability was listed before Mance J in November 1997. IAC had played a full part in the pre-trial interlocutory stages, but due to the absence of funding for its legal representatives, it was not represented before Mance J, and the initial hearing was abbreviated. After the judge had reserved judgment, IAC's funding difficulties were resolved, and the trial was re-opened, with Mance J eventually delivering a reserved judgment on 29th July 1998. He had made his judgment available to the parties in an embargoed draft form about three months earlier.
37. The scope of this judgment is plain from the terms of the ruling on costs which he made subsequently. He said that he had reached a conclusion on very extensive and significant issues relating to title, justiciability and recognition of foreign law as well as on conversion "on the facts". He had also made findings on the basis of expert evidence regarding the nature of the causal link and the burden of proof required under Iraqi law. On the other hand he had left over certain matters, including any issues on causation and remoteness under English law, and factual issues in these areas.
38. He said that the pleadings and the pre-trial skeleton arguments had all concentrated on issues of title, justiciability and recognition of foreign law and on the question whether there had in fact been any wrongful interference. They did not indicate the nature or scope of the issues of causation and remoteness which became apparent at the start of the resumed hearing. Mr Donaldson QC, who appeared for IAC, had then said that KAC needed to prove that it had suffered at least some damage as an element of the tort, and Mr Chambers QC, who then appeared for KAC, said that whilst principles governing causation could be considered his clients were not ready to deal with the factual aspects in detail. He submitted that there had been no proper factual inquiry on either side. In those circumstances, the judge said, it was agreed that further issues of fact (eg whether KAC could show that "but for" any wrongful interference the aircraft would not have been damaged or destroyed in Mosul or Iran (sic)) should be left over for further pleading and decision at a later stage. It became apparent later in the trial that there were issues relating to causation and possibly remoteness under English law which had not been identified in the pre-trial skeleton arguments or at any time during the trial. The judge decided that these, too, should be stood over until the factual cases had been pleaded and determined.
39. On page 49 of his reported judgment, Mance J said that among the most important questions, out of a number of unanswered questions which were of vital interest to the parties, were these:
(1) Can KAC hold IAC responsible for the destruction and/or damage of the four aircraft bombed at Mosul, and if so on what basis?
(2) Can KAC hold IAC responsible for the deterioration suffered by, and the storage charges which had to be paid to obtain release of, the six aircraft flown to Iran?
(3) What relevance could some of the acts of wrongful interference - those consisting, for example, of attempts to register and the effecting of insurance - have to claims for such losses?
(4) How, for example, might KAC seek to satisfy the "but for" test of causation applicable to usurpation under at any rate Iraqi law?
40. We will refer later to the issues which were left over to be decided at the second trial. These issues were formulated by the parties and approved by the judge. It is first necessary, however, to summarise the effect of Mance J's judgment. Before doing so, it is pertinent to note that although IAC had delivered five witness statements in June 1997, being the statements of Mr Saffi (Director-General, IAC), Mr Nekash (Technical Planning Director, IAC), Mr Al Hakim (Technical Contracts Director, IAC), Mr Al-Zubaidi (Deputy Prime Minister and one time Prime Minister of Iraq: Minister of Transport and Communications between March 1987 and March 1991) and Captain Jassim (a senior pilot employed by IAC), none of these witnesses gave oral evidence at the trial before Mance J because they were not able to obtain visas to enter this country in time for the trial. As a result, IAC's only "live" witness was its expert witness on Iraqi law, Mr Al-Mukhtar. The evidence of the other IAC witnesses was admitted pursuant to notices served under the Civil Evidence Act, and as things turned out this evidence bore almost entirely on issues of fact that would be determined at the stage 2 trial.
41. Mance J structured his judgment in seven parts, beginning with a short introduction and ending with an even shorter set of summarised conclusions. The other five parts were headed, respectively, "Wrongful Interference" (pp 36-51); "RCC Resolution 369" (pp 51-56); "Justiciability" (pp 56-63); "Applications of principles governing acts of state and justiciability" (pp 63-80); and "RCC Resolution 55" (pp 80-84). The importance of the third and fourth of these issues is that, as KAC acknowledged, if it were to succeed in this action, it would have to overcome the difficulty created by the transfer to IAC of the ownership of all ten aircraft then located in Iraq by RCC Resolution 369. Mance J ruled, in brief, that KAC was indeed able to surmount this hurdle. We will set out and analyse his reasons later in this judgment (see paragraphs 324-394 below). His conclusion on this issue is set out in a few words at the bottom of p 77:
"I consider in these circumstances that this court cannot and should not recognise Resolution 369 for any purpose or in relation to any point of time. It follows that IAC cannot show that it had any legal title to KAC's aircraft at any time after the passing of Resolution 369, and that its conduct in relation to what were and must be treated as KAC's aircraft constituted wrongful interference for which IAC is potentially liable in damages."
42. IAC appeals against this ruling. It is not necessary to say very much at this stage about a later RCC resolution, Resolution 55, which was made on 5th March 1991 and gazetted on 18th March 1991 following the end of the Gulf War. Mance J considered that it probably did have considerable retrospective effect, but he was not satisfied that it had the effect under Iraqi law that RCC Resolution 369 was to be treated as non-existent, or that it could assist KAC to establish a title which it did not otherwise possess between 17th September 1990 and 11th January 1991. KAC does not appeal against that part of his judgment.
43. The action fell to be determined in accordance with the old rules of "double actionability", and so far as the effect of English and Iraqi law is concerned, Mance J summarised his conclusions at pp 83-84 in these terms:
"Under Iraqi law, (i) in so far as KAC's claim involves or arises from physical loss to or damage of any particular aircraft usurped, KAC needs only to show that such physical loss or damage would not have occurred `but for' IAC's wrongful interference in respect of that aircraft; (ii) in so far as KAC claims for other loss, it must show that such loss was the natural result of the usurpation. In order to satisfy the test of double actionability, KAC must also satisfy the requirements of English law regarding causation and remoteness. It must also establish and quantify its loss under the various heads claimed."
44. The expert witnesses on Iraqi law, Professor Shanab (for KAC) and Mr Al-Mukhtar (for IAC), had been able to reach agreement on a number of issues. They were not, however, able to agree on the scope of the wrong of "usurpation" when it consists not of taking someone else's property but of keeping it. Mance J's conclusions on this part of the case, against which IAC appeals, can be seen on p 44 of his judgment:
"The conclusion which I reach as a matter of principle, on the material before me, is that usurpation by `keeping' depends on a combination of factors, such as whether the property has been in the possession or control of the alleged usurper and for how long, and whether he has conducted himself in relation to it, for example by exercising control over it, in a manner showing that he was `keeping' it as his own."
45. A little later, when considering the behaviour of a landowner who found a car left on his land and did nothing about it, Mance J said at p 44:
"On the evidence I have heard mere inaction in relation to another's property in one's possession would not suffice for usurpation. But I accept that it would, in this type of situation, probably require little in the way of positive conduct affecting the vehicle to lead to a conclusion that the landowner had decided to take advantage of the situation for his own benefit and was exercising control and keeping the car as his own."
We will refer in paragraphs 403-405 below to Mance J's findings in relation to the Iraqi law of causation of damage following an unlawful usurpation.
46. So far as the English law of conversion is concerned, Mance J discussed some of the rival arguments at pp 36-40 of his judgment. He decided, however, with the agreement of counsel, to leave these issues over to the stage 2 trial when KAC had pleaded the precise causal claim on which it relied in relation to each aspect of its loss, and when a court had had the opportunity of carrying out a full investigation of the issues of causation, remoteness and loss that would have been pleaded.
6 Evidential difficulties
47. Before we set out Mance J's findings in relation to the alleged acts of conversion and usurpation, we must mention a number of difficulties that confronted both that judge and Aikens J when they were concerned to investigate what had actually happened to these aircraft in Iraq, particularly during the first two months of their involuntary sojourn there. As we have described, they were seized by the Republic of Iraq on 6th August 1990 and formally transferred into IAC's ownership six weeks later on 17th September 1990. Because IAC's acts in relation to the aircraft prior to 17th September were protected by state immunity throughout that period, these acts were only of interest by way of setting the scene for the claims for damages for conversion and usurpation which took place after 17th September. The situation was made more complicated because IAC's acts prior to 17th September turned out to be much more extensive than was apparent from the agreed statement of facts compiled for the appeal to the House of Lords. Indeed, we were told that KAC had lodged a petition with the House of Lords inviting it to rescind and reconsider its earlier ruling on the ground that it was procured by perjury. Since the hearing of this appeal the House of Lords has dismissed that petition, and we have been told that KAC has now commenced separate proceedings.
48. The practical difficulties (apart from staff changes) that confronted IAC during the 1996-9 period, when it was preparing for the two trials, stemmed from the effect of the bombing in the Gulf War, the failure to keep routine records in the pre-17th September 1990 period, and the dictates of military security.
49. As to the first of these matters, IAC's headquarters building is at Saddam Hussein International airport at Baghdad. IAC also had administrative offices in two hangars next to its headquarters. These two hangars and part of the headquarters building were bombed and badly damaged in the war, and a large number of documents, including the records of IAC's maintenance department, were lost or blown away in the blasts. The control tower at Mosul was also bombed, and the records that were kept there of flights to and from Mosul were destroyed.
50. As to the second of these matters, Mr Nekash was responsible within IAC for complying with its discovery obligations, and both he and Mr Al-Hakim ascertained during their search for documents that no records had been kept of the repainting of KAC's aircraft at Baghdad (apart from a single reference to 9K-AHC on 29th September 1990). Mr Al-Hakim said that he was surprised to find that this repainting exercise had been treated as completely exceptional. It was completely contrary to normal required practice for the relevant departments and sections within IAC not to keep any records at all which related to this work.
51. Mr Nekash added that his department normally kept movement sheets which showed the location of all IAC's aircraft, but it possessed no records relating to the removal of the aircraft from Kuwait. It only started to keep records when IAC started to register the aircraft in its own name once RCC Resolution 369 had come into force. We refer in paragraphs 53 to 57 below to some IAC records which became available for the first time on the hearing of these appeals. Mr Najm, who was the manager of IAC's office at Mosul, added that no record had been kept of the maintenance carried out on the KAC aircraft by his maintenance team there, since the aircraft were not yet registered as Iraqi aircraft. For the same reason he did not keep any separate record of their arrival at Mosul, although the control tower would have possessed such a record, if its records had not been removed to a shelter where they were subsequently destroyed by bombing..
52. Finally, Mr Nekash said in June 1999 that the military authorities in Iraq still had a marked reluctance to disclose relevant information to IAC on national security grounds.
53. All these difficulties were in part alleviated and in part compounded by the fact that just before the stage 2 trial started in October 1999, Mr Nekash discovered for the first time that Mr Al Na'ama, who was IAC's Engineering Manager in 1990-91, had kept a diary of events during that time. Copies of this diary, together with English translations of what were said to be the relevant pages, were disclosed to KAC's lawyers on 12th October, six days after the trial before Aikens J was formally opened. Mr Nekash commented on some of these entries in his 24-page Third Supplementary Statement, which was served at the same time, and he was questioned about some of them when he gave evidence to Aikens J on 21st and 25th October. Mr Al Na'ama did not himself make a statement or give evidence, and Mr Nekash said that Mr Al Na'ama had told him that he did not make all the entries concerning the ex-KAC aircraft contemporaneously with the events they purported to record. He conceded, however, that there were some entries in the diaries which helped to refine some of the dating which he (and Mr Saffi earlier on) had previously given to the court. He told the court on 21st October that Mr Al Na'ama was waiting for a visa.
54. IAC also disclosed personal note-books made by two of its First Officers, Mr Safar Sheikhly and Mr Raghden Al-Gailani. Mr Nekash told the judge that he had been shown these diary entries in about February 1999, but the authors had confessed to him that they had fabricated the entries in the hope of obtaining a trip to London or Amman in connection with the trial. Mr Sheikhly's diary, for instance, referred to the wrong year. The diaries were first disclosed in a list of documents prepared in January 1999. The judge found that, if anything, the entries in these diaries were contrary to IAC's interests, and he did not understand how it might have benefited either of these men to create forgeries of their diaries with the details they recorded. He added that it was only at the stage 2 trial that the importance of the actual positions of the aircraft finally crystallised, so that it was difficult to see that either of them would have been able to judge that the manufacture of particular entries might obtain for him a trip abroad. He said, however, that he had treated these diary entries with great care. IAC continued to maintain on the appeal that they should be completely ignored. In our judgment, the judge's cautious approach to Mr Al-Gailani's diary was appropriate. We need not express any opinion on the other diary, since none of the entries in it were relied on by either party to these appeals.
55. Two further categories of IAC documents came to light for the first time in connection with these appeals. The first consisted of daily movement sheets prepared by Mr Nekash's Scheduling Department for the period between 19th September and 29th December 1990. This department was responsible for allocating in advance the aircraft for particular journeys and for ensuring that aircraft were not utilised beyond the time they were due to have maintenance checks. Because they were concerned with planned movements, they did not necessarily reflect what actually happened. Mr Nekash has explained how these documents were found by chance in a storage basement with other old records intended for routine disposal which were not, in fact, disposed of, while a member of IAC's staff was searching for documents in connection with a different action between the parties.
56. The other category consisted of IAC Board Minutes. It appears that IAC's solicitor, Mr Kosky, together with Mr Nathan QC, went through all the Board minutes in Baghdad in June 1997 and that two such minutes featured on a supplemental list of documents served in September 1997. On 5th December 1997, just before the resumed trial before Mance J was due to start, KAC's solicitors repeated a request they had made five weeks earlier to see all IAC's Board minutes for the period between August 1990 and January 1991.
57. There is an unresolved mystery about what happened next, and we did not find it necessary to try and resolve it. IAC's solicitors say they received the Board minutes in London on 10th December, and that they wrote two letters on 11th December, of which they have shown us copies. The first was to a translator and the second to KAC's solicitors informing them that the minutes had arrived, and that "the relevant part" was being translated. They say that because of the delay which then occurred Mr Kosky met the translator at lunchtime on 17th December, the day before the trial before Mance J ended, and between them they identified the documents which appeared to be relevant and ought to be disclosed. Mr Kosky says that he gave a representative of KAC's solicitors in court a copy of these documents, still in their untranslated state.
58. KAC's solicitors maintain, for their part, that they did not receive any letter on this subject on 11th December, and their representative in court at that time is adamant that she did not receive any documents in court, as is the Arabic-speaking member of their client company, also in court, to whom she would have referred the documents for translation.
59. IAC's solicitors say that they then overlooked the need to prepare a further list of documents in relation to these newly disclosed minutes or to pursue the translator to provide the translation they had requested of him. In the event, it appeared to us that none of the newly disclosed documents added in any significant way to the documents that were already before the court.
7 Conversion: The facts: Mance J
60. We now turn to the findings made by Mance J in relation to acts of usurpation and conversion. In this context, Mr Donaldson accepted that the disclosure of the Na'ama diary after the stage 1 trial meant that IAC could not reasonably argue that KAC was not entitled to rely on any additional acts of usurpation and conversion that were now demonstrated to have taken place after 17th September 1990. The starting point for the Stage 2 trial was, however, that part of Mance J's judgment in which he made findings of fact on these issues, and we will now set out the effect of those findings.
61. Mance J held that it was unrealistic to consider each aircraft in complete isolation from any other. They were all part of the former KAC fleet, and after Resolution 369 they were treated as part of the IAC fleet. He added that, not surprisingly, there were also various features common to the ways in which the different aircraft were dispersed and treated. In particular, steps were, to a greater or lesser degree, taken in relation to all the aircraft with the view to their use as part of the IAC fleet.
62. Against this background he identified six different categories of acts which occurred in relation to these aircraft while they were in the possession and control of IAC between 17th September 1990 (the date when RCC Resolution 369 came into effect) and 11th January 1991 (the date when the writ was issued). On the evidence before him he described these acts in the following terms:
(1) Applications for Certificates of Airworthiness and re-registration in IAC's name with the Iraqi Directorate of Air Safety
2 Oct 90 9K-AHD
Oct/Nov 90 9K-AHB
2-21 Oct 90 9K-AHA, AHC, AHE
21 Oct 90 9K-AIB, AIC; 9K-AHF, AHG (the Mosul Four)
Only AHD and AHB were in fact granted certificates and re-registered. (No application was ever made in respect of 9K-AHI, which was still in need of repair when hostilities began in January 1991).
(2) Insurance cover effected
18 Sept 90 9K-AHD
29 Sept - 8 Nov 90 9K-AHA; AHB; AHC; AHE
Insurance was effected on the Mosul Four after the issue of the writ.
(3) Repainting in IAC livery
Unknown dates after 17 Sept 90 9K-AHB, AHC, AHE, AHI
29 Sept 90 9K-AHA
Early Nov 90 9K-AHD
Mance J said that the first four aircraft had probably been repainted by early November 1990.
(4) Scheduled maintenance and weekly checks
29 Sept 90 - early Jan 91 9K-AHD
26 Nov 90 9K-AHB
For AHD, scheduled maintenance with weekly and "daily" checks, transit and pre-flight checks, represented maintenance of a type which demonstrated an intention to start commercial use of the aircraft. This began on 29th September 1990 and continued until early January 1991.
For AHB, scheduled maintenance and weekly checks were carried out from 26th November 1990, and daily checks from 29th December 1990 to 8th January 1991.
(5) Use for commercial flights within Iraq
17-23 Oct 90 (probably): 12 Dec 90 - 10 Jan 91 (certainly) 9K-AHD
(6) Use for training flights
10-30 Nov 90 9K-AHD.
63. On the evidence before Mance J there were only two movements of aircraft during the relevant period: the transfer of 9K-AIB and 9K-AIC from Basra to Mosul on 17th November 1990. Mance J said that this transfer suggested on the face of it that IAC regarded the aircraft as its own, to be kept wherever it chose.
64. Mance J made the following findings in relation to acts of conversion and usurpation:
(1) 9K-AHD: The acts specified in combination, and each act identified in (2) to (6) (above) individually, constituted both conversion and usurpation.
(2) The acts of repainting the remainder of the Iran Six and the re-registration of 9K-AHB in IAC's name amounted to further acts of conversion and usurpation.
(3) The scheduled maintenance done on 9K-AHB demonstrated the intention to start commercial use of that aircraft and also amounted to conversion and usurpation.
(4) By seeking re-registration for all the aircraft (except 9K-AHI) IAC was certainly asserting its ownership of the aircraft in its possession and custody. This constituted conversion and usurpation.
(5) IAC's act of insuring its purported interest as owner of 9K-AHA, AHB, AHC, AHD and AHE, being aircraft in its possession and custody, constituted conversion and usurpation.
65. The only individual acts of usurpation and conversion which Mance J found proved in relation to the Mosul Four related to the applications to re-register, the insurance of these aircraft and the flights of 9K-AIB and 9K-AIC from Basra to Mosul. (On the appeal, IAC correctly observed that insurance was effected on these aircraft after the issue of the writ). Mance J said that at its very lowest, IAC's conduct in relation to any particular aircraft must be viewed in the light of its overall intention, manifested very clearly in relation to some of the aircraft, to make all the "ex-KAC" aircraft in its possession part of its fleet, and as and when possible to put them to commercial use. His conclusion was that, when looking at the matter in this way also, IAC wrongfully interfered with all the aircraft.
66. IAC sought to persuade us that Aikens J was wrong to rule that Mance J had held that the conversion of the aircraft consisted of its incorporation into the IAC fleet and that the specific acts relied on by KAC were simply indicative of that process. We reject that argument. It is clear to us that Mance J did make this express finding and that the passages in his judgment whose effect we have summarised in paragraphs 61 and 65 above, are not susceptible of any other interpretation.
67. When he considered the effect of Mance J's judgment, Aikens J said that he had to consider what the position would have been "but for" the wrongful incorporation of the KAC aircraft into the IAC fleet. He thought that it was unrealistic to suggest that the factual position would have been that IAC had possession of the aircraft pursuant to Resolution 369, but that it nonetheless refused to obey the resolution and refused to incorporate the aircraft into its fleet. It therefore became necessary, the judge said, to imagine what the position would have been if the Iraqi government had decided to take the aircraft from Kuwait as booty of war, but had decided that they should not be made part of IAC's assets. In practice this involved assuming that Resolution 369 was not passed but that some other resolution was, which decreed that the aircraft were no longer the assets of KAC but were the assets of some other Iraqi entity.
68. The judge said that there was nothing wrong with doing that exercise, since courts often had to speculate to see what would have happened "but for" a tort. He rejected a suggestion by IAC that such an exercise fell into the trap of regarding Resolution 369 as part of the wrongful interference or usurpation. He appreciated that only the acts of IAC following that resolution were relevant, but in his view it was necessary to expunge Resolution 369 from the history of events, since it was that resolution which inevitably led to the acts of IAC that Mance J found to be wrongful.
8 Conversion: The facts: Aikens J
69. When we turn to the judgment at the end of the stage 2 trial, it is clear that the fuller evidence which was before Aikens J enabled him to make the following findings in relation to individual acts of conversion and usurpation which were inconsistent with the findings made by Mance J:
(1) Repainting in IAC livery
9K-AHB, AHD and AHI had all been overpainted in the IAC livery before 17th September 1990. Aikens J made no specific findings as to when the remainder of the Iran Six were overpainted, or repainted, except that the work had been completed at the latest by the outbreak of hostilities. The Na'ama diary records that the painting of 9K-AHA was due to start on 27th September and that 9K-AHC entered the hanger at Baghdad, presumably for repainting, on 11th November. It also records that the painting of an Airbus started on 15th December. It was common ground that the Mosul Four retained their KAC livery until they were destroyed by Allied bombing. None of these matters were in issue on the appeal, although the newly disclosed daily movement sheets reveal plans to bring 9K-AHB and 9K-AHD in for painting (or repainting?) between 19th September and 1st October. Other evidence shows that IAC had no paint available at that time. Special arrangements had to be made to purchase the necessary paint in Amman at the beginning of October.
(2) Aircraft Transfers
In addition to the transfer of the two Boeing 767s from Basra to Mosul on 17th November 1990, which Mance J recorded in his judgment, Aikens J found that the following further transfers took place between 17th September 1990 and 11th January 1991:
26 Sep 90 AHA from Mosul to Baghdad
AHC from Mosul to Baghdad
27 Sep 90 AHE from Basra to Baghdad
28 Sep 90 AHD from Mosul to Baghdad
17 Nov 90 AHF from Basra to Mosul.
70. IAC accepts that the first three of these movements took place, but it challenges the judge's findings on the last two. It maintains that AHD was in Baghdad for the whole of September, and that it was not flown to Mosul on 30th August and kept there until 28th September, as the judge found. So far as AHF is concerned, IAC says that if it was not flown straight from Basra to Mosul when the aircraft were originally dispersed from Basra, it went from Basra to Tekrit, and then from Tekrit to Mosul before the end of August and remained there until it was destroyed by the bombing. IAC challenges the judge's finding that AHF was flown from Tekrit to Basra on about 31st August, and that it stayed there until it was flown up to Mosul, along with the Boeing 767s, on 17th November.
71. We heard very full argument on these matters, which it was necessary for us to understand when we came to consider the parties' arguments in relation to KAC's "but for" case (for this case see parts 20 and 21 below). We have relegated our analysis of these very detailed arguments to an Annex to this judgment (see paragraphs 656-673 below). For present purposes it is sufficient to say that we have upheld the judge's findings in relation to AHD but reversed them in relation to AHF. We consider that it is more likely that AHF was flown direct from Tekrit to Mosul at the end of August, as IAC contended.
72. It follows that although three of the aircraft had actually been painted in IAC's livery before 17th September, contrary to the findings made by Mance J (and Evans J), there were at least four further aircraft movements to be attributed to the period during which Mance J was concerned to identify acts of usurpation and conversion. There was also evidence, although KAC did not rely on it as an act of usurpation or conversion as such, of a resolution by the IAC Board in September 1990, following RCC Resolution 369, to the effect that all aircraft belonging to the (dissolved) KAC should be registered in the name of IAC and that a number of other necessary ancillary steps in relation to these aircraft should be taken. Some of these steps, which are identified in the Board minute, were identical with the acts of conversion and usurpation mentioned by Mance J in his judgment. In other words, all these acts were performed consistently with the policy of the IAC Board and were not properly to be treated as a series of one-off events.
73. We have already said that Aikens J was right to find that Mance J had held that the conversion consisted of the incorporation of the aircraft into the IAC fleet and that the specific acts pleaded by KAC were simply indicative of that process. On this basis IAC argued that if Mance J did make this finding, he was wrong to do so. They submitted that one could only commit the tort of conversion by a positive act or acts, and that it was conceptually not possible to have a conversion which in some miasmatic way was greater than the sum of those acts.
74. We do not share their difficulty in understanding this concept. 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. Given IAC's policy in relation to the aircraft, the idea that the courts are bound to concentrate on individual acts performed within the framework of that policy rather than on the effect of the policy itself appears to us to be simplistic. In any event, as we shall explain later in this judgment, KAC needs only to identify a single act of conversion in relation to each aircraft, and this is more than adequately evidenced by the resolution of IAC's Board.
9 The development of KAC's "but for" case
75. Both parties addressed arguments to us, as they had to Aikens J, on the question what would have happened to these aircraft but for the acts of conversion and usurpation complained of. IAC maintained, however, that KAC was advancing arguments on the appeal which were not open to it because they had not formed part of KAC's pleaded case at the trial, and that the points on which KAC now wished to rely were not put to IAC's only witness of fact, Mr Nekash. IAC also said that it would have wished to deploy further evidence in response to the new way in which KAC was putting its case, and that it was therefore now too late for KAC to alter course like this.
76. In order to consider the validity of this objection, it is necessary to examine the way in which KAC's case was developed up to and during the stage 2 trial. As we have already said, the contentions in the Points of Claim were limited to the statement that on 11th January 1991 KAC was entitled to the return of the aircraft or their value. It was only after the end of the stage 1 trial that KAC pleaded a positive case on causation for the first time. By that time discovery of IAC's documents had taken place, and KAC had had the opportunity of reading the five IAC witness statements we have mentioned in paragraph 40 above, together with short supplementary statements by two of those witnesses (Mr Nekash and Mr Al Hakim).
77. On 18th September 1998 KAC pleaded its detailed case on issues of causation and quantum for the first time, and it gave further particulars six weeks later. This case was inevitably based on the history so far disclosed by IAC's documents and witness statements. It was divided into two parts.
78. As to the Iran Six, KAC said that they only went to Iran because they were part of IAC's fleet and IAC was instructed to evacuate its fleet to Iran. If they had not been part of IAC's fleet, they would not have been maintained and there would not have been pilots to fly them to Iran. It was Mr Saffi who took the initiative in having the Iran Six evacuated, and there was an obvious risk that the aircraft would be detained in Iran and not released without a substantial payment. The evacuation to Iran was therefore the natural and direct consequence of their incorporation into IAC's fleet.
79. If the Iran Six had been in the control of the Iraqi government, they would have been treated with the lowest priority. They would not have been maintained beyond perfunctory checks (which would have been inadequate to allow them to be ferry-flown anywhere) and they would not have been placed at Saddam International Airport. No pilots would have been available to fly them anywhere. The government had no use for them, and they would therefore not have been made the subject of any movement order unique to themselves.
80. As a result, they would have been parked out of the way and would have avoided damage, because the Coalition offensive was aimed at immobilising the Iraqi combat air offensive, and was intended to avoid harm to civilian property. It was said that the Iraqis were skilled and successful in distributing aircraft around Iraq in such a way as in fact avoided harm to other aircraft during the Gulf War, as might be seen from the survival statistics of other aircraft, including fighter aircraft.
81. KAC's case in relation to the Mosul Four was that after 17th September 1990 IAC decided to move two aircraft to Mosul and also to keep the two other aircraft there, so that their destruction was the natural and direct consequence of IAC's usurpation.
82. If they had not been in IAC's control, they would have been in the control of the Ministry of Transport and Communications. It was to be presumed that instructions would have been given to keep them safe from Coalition bombing. As a result, they would not have been at Mosul. Alternatively, having regard to certain criteria and the strategy of the Coalition, they would have been dispersed at airfields elsewhere in Iraq, or they would have been located in a different position at Mosul, and would thus have avoided destruction or damage. In addition to matters already mentioned in relation to the Iran Six, reliance was placed on the fact that the KAC Boeing 727 (the Emir of Kuwait's personal aircraft, which was kept separately by the Iraqi government) survived at Amman, in Jordan. It was said (incorrectly) that Mosul was a very large airport. It was also said that the aircraft would have been parked away from each other and that they would have been camouflaged.
83. In response to this case, IAC submitted further statements by Mr Saffi, Mr Al-Zubaidi and Mr Nekash, as well as statements by its office managers at Mosul and Basra airports, Mr Najm and Mr Mohammed.
84. At the end of July 1999 KAC was granted permission to amend its case on causation and quantum. Expert reports on causation had by now been exchanged. KAC had retained two experts on Middle Eastern and Gulf politics, Professor Halliday and Professor Freedman, and a military expert, General Horner, a retired USAF general who had been in command of all US and Coalition air assets during the Coalition's campaign against Iraq, which was known as "Operation Desert Storm". IAC, for its part, retained Mr Joffe as a counterpart to Professors Freedman and Halliday, and Air Vice-Marshal Mason as a counterpart to General Horner.
85. Aikens J was to say in due course that the evidence of Professor Halliday and Professor Freedman was clear and very helpful, and that Mr Joffe's evidence was also useful, although he was not prepared to accept his views on points relating to the likelihood of a specific agreement between Iraq and Iran which we will mention in due course: see paragraph 165 below. The judge found General Horner to be a very impressive witness, whose evidence he generally accepted. He found AVM Mason's evidence less impressive because he was not able to call on the first hand knowledge and experience available to General Horner. He said, however, that it was useful, and ultimately there was very little in dispute between AVM Mason and General Horner.
86. KAC's case, as now amended, was to the effect that IAC had no particular use for KAC's aircraft, whereas the Iraqi government accorded a very high value to them and would have accorded the highest priority to their protection and preservation. It was the government's instructions that they should be kept safe and not harmed.
87. The Iran Six would, on this case, have been flown to safety in Jordan like the Boeing 727, the Emir's aircraft. Alternatively, they would have been carefully dispersed to safe locations in Iraq, including locations away from airfields, and camouflaged. They would have survived because of the Coalition's strategy, or the skill and success of the Iraqis. The KAC aircraft had a better chance of survival than fighters and air transports, and as good a chance as the IAC aircraft which remained in Iraq during the war.
88. It was said that the Mosul Four would also have been flown to Jordan. Alternatively, they would have been placed at airports other than Mosul or dispersed to other locations (including places away from airfields) or differently dispersed at Mosul. KAC's case that the Mosul Four would not have been destroyed was now based, among other things, on the Coalition's strategy, the survival rates of aircraft, the fact that it would have been evident to those responsible for the Mosul Four that Mosul would have been a target for the Coalition because of the military presence there, and the skill and success of the Iraqi government in distributing and camouflaging aircraft.
89. This amendment to KAC's case led to a visit to Iraq by IAC's English solicitor, Mr Kosky. On his return he submitted a statement describing his visit to Mosul Airport in September 1999, supported by photos and a video. IAC now submitted further statements by Mr Saffi and Mr Najm, together with a statement by Brigadier Engineer Gasmi, who had been a colonel in charge of munitions at Mosul Airport at the relevant time. It also submitted statements by two Iraqi Generals, General Fehed, who had been Head of Air Operations in Iraq in 1990-91, and General Salah Ismail, the Iraqi Air Force ("IQAF") base commander at Mosul in 1989-91, who responded to a number of the assertions of fact made by General Horner on which part of KAC's new case was based. A further long report by General Horner, responding to AVM Mason, was dated 11th August 1999.
90. On 24th September 1999 KAC delivered to IAC a further draft amendment to its case, based on this new material. The trial before Aikens J began formally on 6th October, and it was then adjourned to allow the judge to read himself into the case. On the third day of the trial (13th October) KAC applied for permission to make this amendment. On the previous day, however, IAC had served a copy of the Na'ama diary, together with Mr Nekash's long additional statement (which, among other things, explained some of the diary entries), and KAC's counsel told the court that its new pleading and a document setting out KAC's amended case would be altered to take relevant entries in the diary into account. Permission to amend was granted on this basis on 14th October.
91. These latest amendments contained assertions by KAC that the Mosul Four would not have been at Mosul. One or more of them would have been in Jordan, Mauritania or Iran, or alternatively at Tekrit or one of 11 other Iraqi airfields identified in KAC's pleading. Alternatively they would have been differently located at Mosul. Two alternative cases were now put forward to support KAC's case that the Mosul Four would not have been at Mosul and would therefore not have been destroyed. One was based on the proposition that aircraft movements which took place from 17th August onwards would have been different if IAC had not been responsible for the aircraft, and the other was founded on the probability of different aircraft movements, on the same hypothesis, after 17th September 1991.
92. These new assertions in KAC's case led to the submission by IAC of two further substantive witness statements. Mr Saffi said that no country was willing to grant overflying permission for the KAC aircraft, and General Fehed made a further statement dealing with some new issues that had arisen. On the appeal there was no need for us to consider this further statement by Mr Saffi, since KAC was no longer contending that its aircraft could or would have been evacuated anywhere other than Jordan if the IAC usurpation/conversion had not taken place.
93. This, then, is the general history of the matter. Of necessity, KAC could only develop its "but for" case on the basis of the information it received from IAC from time to time, and this summary shows how a flood of much fuller evidence became available from IAC at a comparatively late stage of the preparations for the stage 2 trial. Moreover, some at least of IAC's evidence (for instance, parts of General Fehed's) was unbelievable: see paragraphs 115-117 below.
94. The particular matter to which IAC took objection was an argument advanced by Mr Vos QC to the effect that IAC had a specific interest of its own in KAC's A310s which caused the Iraqi government to instruct IAC to use them, and that the Iraqi government did not have any such interest. In this context, IAC objected to KAC deploying on the appeal two entries in the Na'ama diaries (on 23rd June and 1st September 1990 respectively) which related to leasing Airbuses. IAC said that these entries were not put to Mr Nekash or deployed in evidence at the trial. IAC also objected to KAC deploying on the appeal a new point, also not put to Mr Nekash, to the effect that the government's instruction was so short-lived that it did not continue beyond 8th September.
95. KAC submitted a 12-page written response to these objections, which was developed in Mr Vos's oral submissions. It drew our attention to the fact that the relevant part of IAC's case in the middle of 1997 had been limited to the proposition that the ministerial instruction to use an A310 Airbus for passenger flights between Iraq and Kuwait was not implemented. It showed us what was being said by each side in the written submissions that were exchanged just before the stage 2 trial started. IAC made no mention at that time of the government instruction of 23rd August 1990, whereas KAC was maintaining that the A310s were moved to Baghdad in order to become part of the IAC fleet.
96. On 19th October 1999, following the disclosure of the Na'ama diary, KAC now said in its amended case (submitted in a discrete document) that IAC had decided to give priority to the incorporation of A310s into its fleet, and that the movement to Baghdad would not have occurred if IAC had not decided to give this priority. This contention was incorporated into the re-integrated re-reamended particulars of causation and quantum which were served six days later. It was inconsistent with part of that pleading which had been amended four months earlier, but under the pressure of the trial nobody seems to have paid attention to this inconsistency.
97. IAC's reamended response dated 1st November 1999 mentioned the instruction of 23rd August 1990 and alleged that IAC's intended use of the Airbuses on the Baghdad-Kuwait route was in order to comply with that instruction, but this response did not detract from its plea two years earlier to the effect that the instruction was never implemented. IAC asserted that the government gave KAC and IAC aircraft equal high priority.
98. KAC complained that it was not until IAC's final submissions at the end of the trial that it stated a case for the first time as to what would have happened to KAC's aircraft but for IAC's conversion. It now said that the Iraqi government would still have wanted to use the A310s for internal flights (as a matter of prestige) and that it would still have given the earlier instruction that it gave on 20th or 23rd August. Some exchanges then followed, during the course of which IAC said that it was difficult to see what else apart from prestige the government could have had in mind when giving its instruction. A little later, in oral submissions, Mr Donaldson referred to the flights of 9K-AHD between Baghdad and Basra as the prestige flights.
99. We have been shown the written exchanges which followed the delivery by the judge of his draft judgment which showed that in his judgment he had accepted this new thesis which was being advanced by IAC at the end of the trial. KAC complained that this finding was based on an argument introduced by IAC at the eleventh hour which was based on unsupported speculation. Further written argument was then exchanged on the topic, but it did not have the effect of dissuading the judge from making the findings we record in paragraphs 188-190 below.
100. The word "prestige" appears on only one occasion in the evidence. The Na'ama diary entry for 22nd August 1990 records the effect of an instruction by Mr Saffi that the aircraft should be painted very quickly and that the engineers should prepare them for the Baghdad-Kuwait route as soon as possible. At the bottom of that diary entry is a rather heterogeneous set of entries which include the words "Company to provide breakfast - Punishment for theft is death - Operating - Prestige" and end with a reference to replacing six engineers. We have already described how Mr Al Na'ama did not make a statement or give evidence at the trial. In these circumstances the only witness who was asked about the word "prestige" was Mr Nekash. Mr Nekash said it meant "prestige working".
101. This appears to us, with respect to the judge, a very fragile basis for a finding that the government of Iraq wished to use the aircraft for prestige flights between Kuwait and Baghdad and that this intention subsisted until late September 1990. In the light of IAC's failure to call Mr Al Na'ama and Mr Nekash's failure to throw any useful light on the reason why the word "prestige" featured in that diary entry, we do not consider that the judge was entitled to make this finding. On the other hand, there was clear evidence that the government wished these aircraft to be used for scheduled flights within Iraq and Kuwait, and no evidence that it ever desisted from this wish.
102. It was against this moving background that KAC wished to draw our attention on the appeal to a number of strands of evidence which did not play any, or any prominent part, at the trial but were said to constitute an explanation why IAC might have had its own reasons for wishing to deploy Airbuses (and to bring them to Baghdad for painting) which would not have applied in the event that IAC had not been guilty of the acts of conversion and usurpation complained of.
103. It seems to us that the appropriate course for us to take is to concentrate on what was contained in the parties' written cases, as finally amended during the course of the trial, and to do our best to avoid points which were not deployed in those cases, particularly if a substantive KAC point was not put to Mr Nekash. KAC was certainly contending in its pleaded case that the A310s were moved to Baghdad for incorporation into IAC's fleet (and that the painting was for this purpose) and that this would not have happened if IAC had not decided to give this priority.
10 Nine discrete topics
104. In order to provide an orderly structure for this judgment, it appears to us that it would be better to set out Aikens J's findings in full, making comments on them whenever we consider this appropriate, before we return to consider the reasons IAC put forward for challenging Mance J's rulings at the first trial. The effect of Aikens J's judgment was to deprive KAC of all the fruits of its victory before Mance J, since Aikens J held that it had to show that the outcome would have been different if IAC had not usurped and/or converted the aircraft in the manner we have described, and that it was unable to satisfy him of this. We will defer explaining the reasons why Aikens J considered that English law obliged him to apply what has been called a "but for" test (see paragraphs 408-413 below) until after we have concluded our consideration of his judgment on the facts and then gone on to consider Mance J's rulings of law that are under challenge on IAC's appeal.
105. Before embarking, however, on our consideration of the reasons why Aikens J considered that IAC's usurpation/conversion of the aircraft on and after 17th September made no difference to their ultimate fate, it is convenient first to examine the evidence before him on a number of discrete topics which are important when considering alternative hypothetical outcomes, and the findings he made on those topics. We have already, of course, explained why we accept and adopt all his findings as to the location of the ten aircraft at different times except that we find that the other original A300, 9K-AHF, was flown from Tekrit to Mosul at the end of August 1990, and that it did not spend the ensuing two and a half months at Basra before joining 9K-AHG at Mosul.
106. The discrete topics to which we have referred cover the evidence relating to:
(1) The three airfields at Tekrit;
(2) Mosul Airfield;
(3) The threat to Mosul;
(4) The attitude of Jordan;
(5) The evacuation of aircraft at the outbreak of hostilities;
(6) General Horner's hypothesis about the 11 Iraqi airfields;
(7) The subsequent history of the Iran Six;
(8) The relationship between IAC and the Iraqi government;
(9) Aikens J's findings as to government involvement.
11 The three airfields at Tekrit
107. Tekrit is the home town of Iraq's President, Saddam Hussein, who has a presidential palace there. It is 100 miles north-west of Baghdad, and is surrounded by three military airfields. These airfields were known as Tekrit East, Tekrit South and Al Sahra. On a CIA map they are all shown as major Iraqi airfields, but there was no evidence that any IQAF aircraft were stationed permanently at Tekrit East or Tekrit South, which were categorised as dispersal airfields.
108. Aikens J found that a Tactical Pilotage Chart, which gave air information current at 8th July 1991, provided the most reliable evidence about the airfields, the runways at each, and an idea of their nature. It showed that each of the three Tekrit airfields was a major airfield, with long runways. Al Sahra had two runways. Each of the runways was comparable to that of the second runway at Saddam International Airport in Baghdad, which was long enough to permit the landing and takeoff of the Airbuses and the Boeing 767s. There was no notation on the chart which would have suggested that the runway at any of the Tekrit airfields was unusable.
109. It was at Al Sahra that some of the KAC Airbuses were stationed for a short time in August 1990. Al Sahra was categorised as a training airfield, and the principal IQAF training college was situated there. General Horner accepted that Al Sahra was a major training base. The judge said that there was an unresolved dispute about how important and active a military base it was. He said it was clear that there were some IQAF aircraft there.
110. Mr Nekash told the judge that he had never been to Tekrit, and that in 30 years he had never known any aircraft to have used what he called the airstrips at Tekrit East and Tekrit South, even in an emergency. So far as he knew, they had not been maintained since they had been built many years ago, and there were no services there of any kind. He said that there was one full length runway at Al Sahra, although, as we have said, other evidence, which the judge accepted, showed that that airfield had two runways.
111. General Fehed was disparaging about Al Sahra. He described it as the landing strip used by a training college for light aircraft only. He said that it had no proper lighting equipment or navigation equipment, and no maintenance facilities for the KAC aircraft. He explained that the other two airfields at Tekrit were airstrips which had been built to be used exclusively for VIP flights to and from Tekrit. They had never been maintained, and there were no services there of any kind.
112. So far as the strategic importance of Al Sahra was concerned, General Fehed said that both the town of Tekrit and Al Sahra airfield had been bombed by the Iranian Air Force during the Iran-Iraq war. He believed that this experience, coupled with the fact that there were a number of combat aircraft stationed there prior to the start of the Gulf War, made it plain that there was every likelihood that both the airfield and the town might be bombed by the Coalition, if it was to attack as far north as Baghdad.
113. General Horner, for his part, said that Al Sahra was ranked Number 28 on the Coalition's master target list, in a group of airfields which consisted mainly of dispersal airfields located in Central and Southern Iraq. Although the Tekrit airfields did not feature on the December 1990 targeting plan, General Horner said that there were 12 hardened air shelters at Al Sahra, and these would have made it a candidate for Allied bombing. He said that the Coalition also attacked a munitions storage area and a very large underground command and control centre in the Tekrit region.
114. The intelligence and other evidence available to him revealed that 17 out of 19 Albatross aircraft stationed at Tekrit East were dispersed in January 1991. The Albatross was a type of advanced jet trainer aircraft which had been developed by Warsaw Pact forces in the 1970s. Reports also showed that 50 utility aircraft were dispersed at Al Sahra at the time when Coalition bombing was occurring. AVM Mason said that these utility aircraft would have been essentially transport and support aircraft. He added that when a UN inspection team visited Al Sahra in September 1991, it noted that holes had been cut in the perimeter fence to enable aeroplanes to be dragged away from the airfield. The team also reported that there were about 100 aeroplanes, which AVM Mason took to be military aircraft, scattered throughout the area, with 4 foot berms bulldozed up and around them to protect them.
115. General Fehed gave a vivid description of a number of heavy air raids at Al Sahra. AVM Mason, on the other hand, had not been able to find any reference to attacks on airfields in the Tekrit area, although he had seen a map which contained a black arrow pointing at Tekrit, with B52 written underneath it. General Horner accepted that a B52 attack on Al Sahra had been planned, and at one point in his evidence he said that B52 bombers had bombed the town of Tekrit on the first night of the war, as a piece of psychological warfare designed to show its citizens that their commander was not protecting them. No sorties directed at Al Sahra were listed in the evidence available to him, which showed, however, that three hangars there had been damaged. There was also a report that craters had been painted on the runway, a device also used by the Argentinians at Port Stanley airfield during the Falklands War. In an intelligence analysis dated 15th March 1991 Al Sahra was listed as one of the airfields at which there had been no fixed wing support aircraft kills.
116. In these circumstances the judge understandably rejected General Fehed's evidence that there had been extensive raids on Al Sahra. He said that it was likely that the utility aircraft based there would have been attacked or damaged if this evidence had been true. He found that there had been few Coalition attacks on these airfields, and that the damage that was done at any of them was minor.
117. Although General Fehed had disparaged Al Sahra's ability to receive the KAC aircraft, because of the inadequacy of the runways, taxiways and hardstanding, there is no doubt that KAC Airbuses did land and take off at Al Sahra without mishap during August 1990, and the judge found as a fact that KAC's aircraft could land and take off safely at all three of Tekrit's airfields. In the absence of any plans that backed up General Fehed's evidence the judge concluded that the three airfields were as described in the Tactical Pilotage chart.
118. Mr Nekash and Mr Saffi both said that KAC Airbuses had been directed to Tekrit in August 1990 by the IQAF, following a government instruction that the KAC aircraft should be distributed round Iraqi airfields in accordance with the IQAF's directions. An IQAF officer, Brigadier Fatih, had been appointed to a co-ordinating role. Mr Nekash knew him personally, and he said that after the brigadier had seen Mr Saffi, he would sit and discuss the IQAF's requirements with him. The IQAF's initial instructions identified Mosul and Tekrit as airfields to which some of the KAC aircraft could be sent from Basra, and these instructions were duly followed.
119. Towards the end of August, however, Mr Nekash said that the brigadier told senior IAC managers, including Mr Nekash himself, that it was no longer acceptable to the IQAF for Al Sahra or any other IQAF airfield to be used for keeping KAC civilian aircraft, because they were purely military airfields. He added that the aircraft were in the way of military operations at Al Sahra. Al Sahra was not suitable since it did not have appropriate maintenance facilities, and civilians would not in future be allowed into the Al Sahra airfield. The Flight Movement Records kept by IAC's Operations Department contain references to the movement of an Airbus from Tekrit to Mosul which was scheduled for 29th August, and to the movement of two aircraft to Tekrit or from Tekrit two days later.
120. In his second statement, General Fehed said that the KAC aircraft had been sent to Tekrit by mistake. In addition to the inadequacy of the runways, he said that the aircraft were taking up too much of the area required by the IQAF for the dispersal of their aircraft. There was also no proper runway lighting equipment or navigation equipment there, and no maintenance facilities at Al Sahra for these aircraft.
121. Although KAC challenged the evidence that the IQAF had required the ex-KAC aircraft to be moved out of Tekrit at the end of August 1990, it did not dispute it when Mr Nekash was being questioned at the trial, and in any event we see no reason not to accept that this is what happened. Matters were settling down at the end of August, and the obvious places for these aircraft were IAC's bases, which had maintenance facilities appropriate for light maintenance of very large civilian airliners, and not military airfields which had not. On the hearing of the appeal KAC sought to place reliance on two references to Tekrit in the Na'ama diaries, made in January 1990 and January 1991 respectively, but for whatever reason these entries were never explored at the trial, and in our judgment they formed a fragile basis for the conclusions KAC sought to draw from them.
12 Mosul Airfield
122. The city of Mosul is situated about 230 miles north of Baghdad, and 500 miles north of Basra. It is just over 100 miles south of Iraq's border with Turkey. Its airfield lies to the south of the city, with its single runway running from north-west to south-east. At the north-west end of the airfield, houses have been built close to the end of the runway, while there is a hilly region to the east.
123. The evidence showed that although the airfield has been used for civilian flights for many years, it was originally built as an IQAF fighter base. At the end of the Iran-Iraq war in 1989 the IQAF stopped using Mosul as a fighter base, although it continued to be used as a base for military helicopters. At that time the main terminal building was completely refurbished, since it had been decided to upgrade Mosul's status as a civilian airport. In February 1990 the refurbished terminal building was formally opened, and two or three scheduled civilian flights in each direction took place between Mosul and Baghdad.
124. This main passenger terminal was at the south-east corner of the airfield, with a small parking stand in front of it which was said to have enough room for one aircraft. In 1990-1 a VIP terminal building was under construction at the north-west corner of the airfield, and an aircraft hangar was also being constructed. In the meantime, any maintenance work performed on IAC aircraft was carried out in the open air. Although the airfield was now mainly used for civil flights and IAC had an office manager there, the IQAF base commander was in overall control. Until the Kuwait crisis, the IQAF helicopters based at Mosul were mainly used for patrolling the border with Turkey.
125. When the KAC aircraft were sent to Mosul from mid-August 1990 onwards, they were parked on a taxiway close to the place where the VIP terminal building was being constructed, and on the far side of the runway from the main terminal. In that position they did not obstruct the normal day to day use of the terminal for scheduled flights. There was a dispute between the parties, which the judge said he did not need to decide, on the question whether Mosul had "working capacity" for only four civil aircraft of this size, or whether it could accommodate up to six. Mr Nekash had explained that the answer to this question depended on how close together the aircraft were to be parked and whether they might have to get airborne in a hurry. After considering maps and aerial photographs and a video taken by Mr Kosky, the judge said that he thought six aircraft could have been parked there if necessary, even assuming that eight fighter aircraft and possibly some helicopters and other light aircraft were also present. We have considered all the available evidence, and we see no reason to disturb the judge's finding.
126. The evidence showed that about two months before the outbreak of hostilities in January 1991, the IQAF moved eight Mig 23BN Flogger aircraft to Mosul. General Fehed sought to downplay the significance of this move. It was common ground that these aircraft were not air defence fighters, or interceptors, because they were not equipped with air-to-air missiles or air-to-air radar. On the other hand there was evidence that these Migs represented a new variant of attack aircraft with improved avionics. General Fehed described them as elderly training aircraft, whose main use was for training new pilots. He said that it was not intended to use them operationally, and they were not armed. They had been flown up to Mosul, he said, in order to keep them out of the way and safe from attack. They were positioned in eight hardened aircraft shelters, four at each end of the runway. Mr Joffe, for his part, observed that the IQAF possessed 540 fighter aircraft, and the fact that only eight of them were deployed at Mosul indicated that there was no major concern about the security of that airfield.
127. In the event the airfield at Mosul sustained heavy bombing during the Gulf War. General Horner gave details of attacks on 17th, 19th, 21st, 22nd, 27th and 29th January, followed by further attacks in early February. All the hardened aircraft shelters were damaged, the runway was cratered, and the control tower, a munitions store and other buildings, including what was wrongly believed to be a chemical weapons storage bunker, were also damaged or destroyed.
128. According to General Ismail, the IQAF had decided that because it was not feasible to try to conceal or camouflage the four ex-KAC aircraft, and it would have been hopelessly impractical to move them off the concrete onto the very soft surrounding ground, the best course would be to treat them as if they were ambulance aircraft, by parking them openly in the civilian parking area where they could be seen for what they were. Despite this strategy the four aircraft were damaged on a number of occasions. After the heavy raid on the night of 22nd-23rd January, one of them was moved, at the direction of General Ismail as base commander, to the hardstanding in front of the civilian air terminal, and arrangements were made to increase the space between the other three. On 12th February the aircraft which had been moved sustained a direct hit, and all four aircraft had by now been so severely damaged as to be effectively destroyed.
129. There was a marked difference between the two sides as to the strategic importance of Mosul Airport. General Fehed said that the IQAF had regarded it as the safest airfield in Iraq in August 1990 because of its location in the far north and its function as a civilian airfield. He said that in January 1991, the perception of IQAF commanders was that if diplomatic initiatives failed, the airfields close to Kuwait would be attacked as part of the Coalition's strategy, and the theatre of battle would be in the south of Iraq. Substantial attacks on airfields in the north, particularly on a mainly civilian airport in the far north, were not expected. General Fehed said that Mosul was regarded very much as a secondary, if not even a tertiary, IQAF airbase. General Ismail, for his part, said that Mosul airport was only lightly defended with anti-aircraft artillery, its complement of eight fighters and a small number of surface-to-air missile (SAM) batteries located several kilometres away. The evidence showed that these air defences had been located at and near Mosul in the 1980s in connection with the Iran-Iraq war and the continuing threat from Israel.
130. Mosul was, in AVM Mason's view, well placed to defend Iraq's north-eastern airfields against air attack from Israel at that time. Professor Freedman, when asked why Iraq would station civil aircraft at Mosul, replied that in Iraq they did not have a clear separation between what was civil and what was military. Everything potentially was of military benefit, and he thought they would have seen Mosul as possibly as good a parking place as any.
131. General Horner said that Mosul was attacked more often than most of the airfields in Iraq, because it contained more targets than most. The bombing of Mosul was a key element in the Coalition's plan to secure air control over northern Iraq. In his first witness statement he said that Mosul featured active fighter operations, a command and control centre, munitions storage, radar and chemical weapons facilities. The last of these features was a reference to what was said to be an S-shaped bunker, believed to contain chemical munitions that could be delivered by the military aircraft at Mosul. S-shaped bunkers were embedded and camouflaged structures which according to the judge were built to a design developed in this country in the 1940s. In this connection, there was evidence that a variant of the Mig-23 Flogger aircraft had been involved in delivering chemical weapons in the Gulf War, and it was believed that if Saddam Hussein decided to use chemical weapons against the Coalition, the Flogger Aircraft at Mosul were one of the two types of Iraqi aircraft likely to be used for this purpose.
132. A UN inspection team found an S-shaped bunker at Mosul airfield and at two other sites when it visited Iraq after hostilities ended. It reported that these S-shaped bunkers appeared to be of an unusual design for the storage of conventional munitions. With their singular, isolated location at airfields there was a suspicion that they were intended for the storage of chemical or biological weapons. It found, however, no evidence that such weapons were stored there at the time of the bombing. AVM Mason said he had very little doubt that although the Iraqis would have regarded Mosul Airport as a significant military airfield in the north of the country, it would have been regarded by them in a very different way from the way in which it was regarded by Coalition intelligence. He said that there was in fact no chemical weapons facility there. There was also no evidence of large weaponry storage facilities, or large maintenance facilities, and only what he described as eight third-rate fighter aircraft, which could only be used for ground attacks during the daytime. On the other hand, he said that if he had been in USAF intelligence he would have been very suspicious indeed of the aircraft at Mosul.
133. General Horner was puzzled by the evidence that there were only eight Mig aircraft at Mosul, because a normal fighter squadron on alert would comprise 18-24 aircraft. He said that if this evidence was indeed correct, it could be explained by the fact that there were eight hardened air shelters there, and to the Iraqi military mind these shelters afforded the first line of protection to aircraft on the ground. He said that the deployment of these aircraft to Mosul showed either that it was being used as an air defence base or that it may have been housing strike aircraft which would be used if Turkey entered the war. He said that of the nine major airfields in northern Iraq, Mosul and Kirkuk were accorded the highest priority for attack during the phase of the Coalition campaign which was designed to give them control of the air.
134. The judge said that IAC relied on the evidence of their Iraqi witnesses (principally General Fehed and General Ismail), their solicitor Mr Kosky, who visited Mosul in September 1999, and the expert evidence of an imagery analyst, to challenge the existence of the S-shaped bunker. He concluded that the best evidence available to him was the report of the UN expert inspection team, who were experienced, knowledgeable and impartial. He said it was not possible to state exactly where at Mosul the S-shaped bunker was sited, and he was not satisfied, on the evidence he had seen, that chemical weapons were actually stored at Mosul between August 1990 and April 1991. He said that it was clear that Coalition intelligence believed that there were chemical weapons there, and that this belief undoubtedly fashioned the Coalition's approach to Mosul as a target. He thought, however, that all the evidence of what the Iraqi government actually did pointed to the conclusion that it did not appreciate the Coalition's belief. It followed that that belief did not bear upon the Iraqi government's calculations (at least until the outbreak of hostilities) on how safe Mosul was, either generally, or for the KAC aircraft in particular.
135. The judge added that if the Iraqi government had perceived Mosul to be a dangerous place in mid-November 1990, when the KAC Boeings were cleared out of Basra on the orders of the Ministry of Defence, they would not have been moved to Mosul, and it would have been likely that the aircraft already at Mosul (on our findings, the two A300s, 9K-AHF and 9K-AHG) would have been moved away. Nothing of this kind happened, and this led the judge to conclude that at the start of hostilities neither IAC nor the Iraqi authorities regarded Mosul as a dangerous place to park the KAC aircraft.
13 The threat to Mosul
136. Although Mosul was in the northern part of Iraq, it was always at risk of attack from Coalition bombers, particularly if they were allowed to use an airbase in Turkey. So far as Turkey is concerned, the judge received a good deal of evidence about its attitude towards the Coalition's use of force for the purpose of driving Iraq out of Kuwait. It was an important part of KAC's case that there had been every reason for the Iraqis to expect an attack on Mosul by Coalition aircraft stationed at Incerlik, a Turkish airbase close to the border with Iraq. IAC, for its part, maintained that an attack from that quarter could not reasonably have been expected.
137. The evidence showed that although President Ozal of Turkey had been determined that his country should support the Coalition as soon as the Gulf crisis erupted in August, this was by no means a generally accepted view in Turkey. Iraq was a major trading partner of Turkey, with trade valued at $1.65 billion in 1989, and although Turkey dutifully cut the Kirkuk-Ceyhan oil pipeline as soon as sanctions on Iraq were announced, it took no proactive initiatives against Iraq on its own account. Turkish public opinion and Turkish military opinion were divided, and although Turkey moved 100,000 troops to the frontier during the run-up to the outbreak of war, the extra aircraft it sought from NATO in December 1990 were for defensive purposes only. A large force of F16 and F111 bombers had been amassed at Incerlik, as the judge found, since the autumn of 1990.
138. This position did not alter until the Coalition's ultimatum to Iraq expired in mid-January 1991. Then, on 16th January, the Turkish Parliament gave authority for the Coalition to use the airbase at Incerlik for offensive strikes against Iraq. The Turkish Defence Minister, Foreign Minister and Army Chief of Staff all resigned, and on 17th January the first sorties were made over Iraq by Coalition aircraft based at Incerlik. These aircraft, together with others at co-ordinated bases elsewhere, became known collectively as the "Joint Task Force Proven Force".
139. AVM Mason pointed out in his evidence that there had been no earlier mention in Western media reports of any offensive aircraft being deployed to Incerlik, and no evidence that prior to 17th January 1991 the Iraqi government had been aware of the danger of air attacks on Mosul from Turkey. In September 1990 a USAF General had been reported as saying that if the Iraqis dispersed their aircraft to the north, this would make it more costly to attack them, because they would be near the limits of US aircraft range. When Turkish MPs visited Baghdad in the second week of January 1991, the Turkish government was still declining to allow Incerlik to be used for offensive purposes, and the disagreements within Turkey on this issue had received widespread publicity.
140. General Horner's attitude was that strategic targets (like Mosul airfield) in Northern Iraq were always at risk from B52 bombers stationed in the United Kingdom or in Diego Garcia, and that some of the bombers stationed in Saudi Arabia, such as the F111, the F15E and the A6, had the ability to reach Northern Iraq. He accepted that if the Turkish airbases had been denied to the Coalition, it would have been more difficult for fighter aircraft to strike Mosul, but alternative plans had been prepared. He said: "Turkey in or out, Mosul was going to be hit, the Iraqi intelligence knew it, and the Iraqi military attempted to be ready".
141. This was one of the issues the judge had to decide at the trial, and as we have already seen (see paragraph 135 above), he concluded that at the start of hostilities neither IAC nor the Iraqi authorities regarded Mosul as a dangerous place to park the KAC aircraft. (Objectively speaking it was far from safe, but the Iraqis did not realise this). AVM Mason, for his part, observed that on 17th and 18th January, the first two days of hostilities, IQAF aircraft were seen flying north to take refuge from Allied air attacks. He said it was well known that Iraqi military intelligence was heavily dependent on Soviet sources. He had visited Moscow himself several times in 1991 and discussed the air campaign with Soviet army and air force officers. He said that they had been surprised and severely shocked by the effectiveness of the Coalition air campaign.
142. He had found this reaction unsurprising since the campaign had been unprecedented in the history of warfare in the scale and intensity of the simultaneous attacks which had been made on so many different targets. He said that it was now recognised as marking the emergence of a new age in warfare, and that there could be no doubt that the Coalition air attacks on Iraq had achieved complete surprise. He described as typical of a general reaction some evidence given by Mr Najm, IAC's manager at Mosul. Mr Najm said that before the start of the Gulf War, he and his family and friends had never expected that Mosul town or airport would be affected by the threatened hostilities. Mosul was so far away from the expected place of conflict, more than 1,000 kilometres from Kuwait, that nobody whom he knew had expected Mosul to be attacked.
143. AVM Mason explained that the Iraqi government had been taken completely by surprise by the scale and intensity of the Coalition air campaign. Saddam Hussein, although politically astute, was strategically untutored and inept. He had expected the inevitable war with the Coalition to be confined to the south, and if the conflict had broken out in July 1990 his prediction would have been correct. AVM Mason explained the changes that took place in the USAF concept of operations during the last four months of 1990, when the actual campaign plan for Desert Storm was evolved.
14 The attitude of Jordan
144. The evidence before the judge showed that Jordan was in a very difficult position when the Kuwait crisis blew up. There were a large number of Iraqi businesses based in Jordan, and its economy was quite heavily dependent on trade with Iraq. In 1989 up to 70% of Jordan's trade was with Iraq. Before the oil embargo Jordan was importing 83% of its oil needs from Iraq at a fixed price in repayment of a loan of $550 million it had made to Iraq during the Iraq-Iran war. In addition, Iraq had a reputation as a hardline state in the Arab-Israel dispute, which had made it highly popular among Jordan's large Palestinian population. From the start of the crisis, Jordan was Iraq's most sympathetic supporter. It would have been very difficult for King Hussein to take an anti-Iraq line, and in the event he did not try. On the other hand, he and his government had to concern themselves with the country's relations with the Arab states which had joined the Coalition, and with a number of leading western states, particularly the United States, which had been supportive of the King in the past. Its formal position was one of neutrality, and it opposed the use of force to liberate Kuwait.
145. Jordan never specifically repudiated sanctions, but it was recognised as a weak link in the sanctions regime, and a substantial amount of cross-border smuggling went on. It said, in effect, that it would use its best endeavours to behave properly in an international context, but everyone on the Coalition side recognised the dilemma in which the country was placed. King Hussein made it clear that if Jordanian airspace was invaded by anyone (and he had Israel in mind, in particular) Jordan would be brought into the hostilities against that party. In the event, after permitting a number of IAC aircraft to stay in Amman overnight before flying out in the morning, Jordan closed its airspace at 2am on 18th January, the day after hostilities commenced. Professor Freedman told the judge that it was known that officials in western embassies in Amman were watching for violations of the sanctions regime. Mr Joffe, for his part, could not imagine for one moment the Jordanian government giving official permission for the ex-KAC aircraft to stay in Jordan, whether they were still in their original livery or whether they had been repainted in IAC colours. In the latter case, the aircraft type (the Airbus) would have attracted attention. The Jordanian government would have been obliged to notify the United Nations and to hold the aircraft on trust for Kuwait, whatever the outcome of the hostilities.
15 The evacuation of aircraft at the outbreak of hostilities
146. The judge received a great deal of evidence from Iraqi witnesses about the Iraqi government's arrangements for evacuating aircraft from Iraq should hostilities break out. The judge heard that a similar expedient had been followed by Iraq at the start of the Iran-Iraq war, and that civilian aircraft had been evacuated from Lebanon at the time of the civil war in that country. On the present occasion the Royal Jordanian airline flew its aircraft from Amman to Vienna for overnight stays in the days leading up to the outbreak of hostilities, to save them from being attacked by Israeli aircraft in the event of that country giving way to Iraqi provocation and entering the war on the Coalition side.
147. There was no evidence before the judge to the effect that IAC had made any contingency plans to move any of its aircraft to airfields in Iraq that were perceived to be safer for them than Baghdad's two airports or Mosul airport. General Fehed said that the IQAF did not anticipate any attacks on civilian airliners, but that it was planned that civilian transport aircraft of any large size, including those seconded to the IQAF, should so far as possible be flown out of Iraq in the event that hostilities commenced. It was considered that it might be possible to conceal small aircraft from enemy bombers and missiles. Such concealment would be out of the question for large freighters like the Ilyushin 76 or the Antonov 12 and 24 aircraft which were seconded to the IQAF, or for the airliners operated by IAC. He said that the timing of any evacuation was a matter for political decision. When in due course the government gave the order to evacuate the transport fleet, the IQAF immediately implemented it.
148. So far as evacuation to Iran was concerned, Mr Al-Zubaidi said that the possibility of flying aircraft to safety there was first raised at governmental level on the occasion of an official visit by an Iraqi government delegation to Iran on 8th January 1991. This visit had formed part of the process of normalising relations after the Iran-Iraq war. He was a member of that delegation, and when they raised the possibility of sending Iraqi civilian and military aircraft to a safe haven in Iran, they received a favourable response.
149. He said that when his government decided five days later that it would not submit to the Coalition's ultimatum, it contacted the governments of a number of different countries, with a view to evacuating aircraft to their territories for the period of the expected hostilities. The government of Iran had been the first to respond positively. He had personally contacted his opposite number in Teheran by telephone, and the two ministers had reached an agreement on the evacuation plan within two hours of this first contact. He said that no question had ever arisen about the government of Iran being entitled to keep possession of the aircraft after hostilities had ceased.
150. He said that it was government policy, decided by the RCC that day, that Iraq's civilian airfleet (regardless of who owned it) and part of the IQAF fleet should be moved to places of safety, so far as was possible within the time available. All the larger transport aircraft were to be moved outside Iraq. The RCC was concerned lest any of these aircraft, and particularly those located close to the expected field of conflict, might be the subject of armed attack by Coalition forces.
151. Once this policy had been decided, Mr Al-Zubaidi verbally instructed Mr Saffi, as IAC's Director-General, to evacuate his fleet from Iraq as quickly as possible, and with complete secrecy. He also told Mr Saffi to keep him informed of progress. Mr Al-Zubaidi said that the KAC aircraft were treated by him and by his government in exactly the same way as all the other civilian aircraft, so far as priority treatment was concerned. Civilian airliners are very large expensive items of equipment, and the KAC aircraft were regarded by the government as very valuable Iraqi property.
152. He said that there could have been no question of camouflaging these aircraft, or of towing them off the hardstandings and taxiways and hiding them, in groves of palm trees, for instance, as could be done with the lighter civilian aircraft and helicopters for which he had ministerial responsibility. He said that on one occasion, before the outbreak of hostilities, the government had considered whether any of the transport aircraft which were being used for civilian purposes should be moved to military airfields. With the help of expert advice, the RCC had concluded that there would be a danger if this was done, since military airfields would be likely targets for the Coalition forces.
153. When Mr Saffi gave evidence to Evans J in January 1992 he said that on 13th January 1991 he had contacted the President's office and suggested that IAC's fleet should be evacuated outside Iraq, and that Mr Al-Zubaidi had contacted him very shortly after he had made this suggestion. It did not occur to him that the fleet should go to Iran, and he knew nothing about the minister's discussions with the Iranians until Mr Al-Zubaidi revealed what had happened in a television interview on 4th January 1993.
154. Be that as it may, he said that Mr Al-Zubaidi told him to send as many IAC aircraft as he could to Iran as quickly as possible. Captain Jassim described how an IQAF colonel addressed all IAC's senior pilots at this time and told them that they were to fly a highly secret mission in anticipation of hostilities breaking out. The government wished to distribute IAC's fleet of civilian aircraft outside Iraq, and the ex-KAC aircraft were to be shuttled to Iran, using the normal civilian flight paths. The flight from Baghdad to Teheran is comparatively short. On 15th January Mr Saffi instructed the IAC pilots to start flying the IAC fleet, including the ex-KAC aircraft, outside Iraq. The special evacuation flights to Iran were regarded as top security military flights, and the IQAF colonel instructed the pilots not to reveal their destination to anyone, not even to the ground engineers preparing the aircraft for take off.
155. Mr Saffi had already instituted measures to fly IAC's regular fleet of Boeing aircraft to safe havens outside Iraq. The evidence showed that on 1st January 1991 there were 14 IAC civilian aircraft at Baghdad: a mixture of Boeing 707s, 727s, 737s and 747s. The judge accepted Mr Saffi's evidence that on 15th January IAC managed to evacuate 18 aircraft in all, and there was no dispute on the evidence that between 14th and 16th January five Boeings were flown to Tunisia, one to Mauritania, one to Libya, and two to India. During the same period two of IAC's Boeings were flown to Amman, where they stayed for the duration of the hostilities. Three IAC Boeings were flown to Iran, on 16th and 19th January and 23rd February respectively, and two further IAC Boeings were redeployed from Delhi to Iran when the Indian authorities threatened to increase the parking fees they were charging IAC. The judge appears to have accepted Mr Nekash's evidence that between 15th and 29th January 1991 14 IAC aircraft were evacuated from various Iraqi airfields (including the two at Baghdad) to Iran.
156. In order to further the evacuation, IAC increased the number of flights each day to Amman, and we were given a short paper which showed how this exercise was carried out. In addition to its own Boeings, IAC also included on one of these flights the Emir of Kuwait's private Boeing 727, which had remained under the control of the Iraqi government. This aircraft had been painted in IAC livery in September and stationed at Al Muthana Airport in Baghdad where it had been used by the government for VIP flights. Mr Al-Zubaidi said that he gave instructions for this aircraft to be flown to safety in Jordan, and Mr Saffi has explained that he was anxious that he might not have enough pilots to fly this aircraft to Iran in time, which was why he dealt with this aircraft in the way we have described. In appearance it was indistinguishable from IAC's other Boeing aircraft, and it remained at Amman until the end of the Gulf War, when it was handed back to the Kuwaitis at Amman airport as part of the peace settlement.
157. Mr Saffi had obtained informal permission to station a few IAC aircraft at Amman from the Director-General of the Jordan Civil Aviation Authority, who was a colleague of long standing. On 14th or 15th January Mr Saffi had rung him up and asked him if his government could assist by accepting some of the aircraft. He received the reply that this would need an official request from the Iraqi government. He was told informally, however, that Jordan would in principle be prepared to accept not more than four aircraft. He was also warned that the political situation in Jordan was very tense indeed, and he was told about the RJ aircraft being flown to Vienna every night.
158. The first flights of ex-KAC Airbuses from Baghdad to Iran took place on 15th January. The three qualified IAC Airbus pilots each flew one of the Airbuses to Teheran. After an eight hour delay there, they then flew them on to Mashad airport, in North-East Iran. They were flown back to Teheran on an Iranian aircraft, but their return to Baghdad on an IAC Boeing 737 was delayed by bad weather, and they did not get back to Baghdad until midnight on 16th January, just before the outbreak of hostilities.
159. The second flight, on 18th January, was much more risky. Two of the pilots flew an Airbus each to Mashad. Mr Nekash said that repair work was still being done on 9K-AHI, so that it was not flown out at this time. Captain Jassim described how the pilots had been instructed by the IQAF colonel to maintain complete radio silence during the flight, and to fly either very high or very low, not using the normal civilian air routes and overflying any built-up areas. He had chosen to fly at 500 feet, and he found himself fired on by Iraqi air defences en route. The two pilots, who had no cabin crew, were detained by the authorities at Mashad, and were not allowed to leave for 12 days. They then returned to Iraq by road. The same fate befell other Iraqi pilots who flew aircraft to Iran at this time.
160. Efforts were also made to evacuate the whole of the IQAF's transport fleet at this time. In 1990-1 this fleet consisted entirely of aircraft seconded to the IQAF from IAC. It consisted of 20 Russian built cargo aircraft (18 Ilyushin 76s, one Antonov 12 and one Antonov 24), two Falcon 20 and three Falcon 50 VIP passenger aircraft, and five Jetstar VIP aircraft. All these aircraft were registered and insured in IAC's name.
161. General Fehed described how the Iraqi government instructed the IQAF to evacuate as many of these aircraft as possible to Iran. The IQAF did its best to comply with this instruction, and indeed a few aircraft were flown to Iran shortly after hostilities began, but the IQAF encountered the same difficulty as IAC when their pilots were detained in Iran and not released sufficiently quickly to complete the task.
162. According to General Fehed, ten of these aircraft therefore had to remain under the IQAF's operational control in Iraq. They were distributed round a number of IQAF airbases and the civilian airfield at Al-Muthana, where they were moved to the locations regarded as being the safest places for them. They were all destroyed or damaged during the hostilities, and only three of them were capable of being repaired. General Fehed said that if the parking area at Mosul had not been occupied by the Mosul Four, the IQAF would have located four of its transport aircraft there, since it would have considered Mosul to be a much safer place during the hostilities than any of the airbases it actually used.
163. IAC had also planned to send the Mosul Four to Iran. Its manager at Mosul was instructed to prepare one of the Airbuses for a flight to Baghdad, and Mr Al Na'ama went to Mosul on 19th January to assist in this regard. On 21st January, however, it was decided that the Airbus should remain where it was, and we have already described the damage to a number of the Mosul Four in the bombing on the night of 22nd-23rd January. Mr Al Na'ama described in his diary how Airbus 9K-AHF was towed to its new position in front of the civilian terminal on 23rd January. There was then a concern about the amount of fuel in the four aircraft. The IQAF airbase commander wished to have the Mosul Four emptied of fuel, but the necessary equipment was not available at Mosul and IAC decided not to send a defueling bowser from Baghdad to Mosul for this purpose.
164. On 4th February 1991 two of IAC's qualified Airbus pilots flew the remaining A300, 9K-AHI, to Mashad, and the Iran Six then all remained at Mashad until long after the Gulf War ended a month later.
165. So far as the arrangements between Iraq and Iran were concerned, Aikens J was not prepared to accept Mr Joffe's view that it was likely that there had been a specific agreement between Iraq and Iran in relation to the terms under which the Iran Six would be kept by Iran or in relation to their return at the end of hostilities, whether to Iraq or any other claimant. Since neither side challenged this finding, it is not necessary to say anything more about the evidence the judge summarised in paragraph 159 of his judgment. He was satisfied that no one at IAC had any idea of the terms on which the Iranian government had agreed to allow Iraqi aircraft to land in Iran, and that both the government and IAC took a risk, whatever the outcome of the hostilities, that the Iran Six might be detained by Iran after the hostilities between Iraq and the Coalition had ended. (IAC disputed on the appeal that it, as opposed to the Iraqi government, had taken this risk).
16 General Horner's hypothesis about the 11 Iraqi Airfields
166. KAC instructed General Horner to imagine, when he was preparing his evidence, that he had been an Iraqi general who had received instructions to keep the eight Airbuses and two Boeing 767s safe on Iraqi territory for the duration of any hostilities.
167. He said that in those circumstances he would seek to disperse them at locations that could support their takeoff and landings, that were not associated with military operations and, so far as possible, where they could be protected from air attack. Because 40 divisions of the Iraqi army were deployed in the southern region of Iraq and in Kuwait he would avoid that area. He would also avoid airfields in the vicinity of Baghdad, because of their proximity to targets associated with the Iraqi leadership and its command and control centres. He identified 35 active airfields as being capable of handling transport aircraft of this size, and said that 14 of them were appropriate for the intended purpose. He also considered the suitability of 18 non-active airfields with runways of the appropriate length. 11 of these qualified for consideration on the grounds that they were not too far south to be excluded.
168. He then went on to discuss the additional criteria which would lead him to make his selection from these 25 airfields. He stressed that the time to implement an aircraft dispersal plan would be an important element in planning for the protection of the aircraft taken from Kuwait and that the planning process should have started in August or September 1990 to allow plenty of time for detailed preparations to be made in advance of the time, immediately prior to the outbreak of hostilities, when the aircraft would be flown to their dispersal destinations.
169. In his second report, dated 11th August 1999, he refined the process by identifying three selection criteria:
(1) Is the dispersal airfield near the Kuwait theatre of operations and near Baghdad's strategic leadership targets?
(2) Does the airfield feature active operations of fighters, bombers, or other military activities that will draw attack from the Coalition air forces?
(3) Do the airfields remaining have a hard surface runway sufficient to allow landing and takeoff of a transport aircraft with minimum fuel and no cargo or passengers?
170. The application of the first criterion led him to the identification of 16 airfields located north of a line drawn through Balad airfield, which is about 50 miles north of Baghdad. This list was progressively reduced to 11 when the other two criteria were applied.
171. In his first statement, dated 16th September 1999, General Fehed gave reasons in response why in his view each of these suggested airfields was unsuitable. In many cases he said that the Load Classification Number ("LCN") of the airfield was too low to contemplate its use by aircraft as heavy as an Airbus or a Boeing 767. At the trial, however, AVM Mason, giving expert evidence on behalf of IAC, discounted this ground of objection. He said that an airstrip might be unsuitable for repeated use by a particular type of aircraft, but that it might nevertheless be perfectly able to accommodate the occasional landing and takeoff.
172. AVM Mason accepted General Horner's first criterion, and also, in principle, his third. He said that the second criterion made no allowance for the wartime use of dispersal airfields by the IQAF. The third criterion did not take account of the need for a hardstanding strong enough to support the parked aircraft. He added a fourth criterion: might the designated airfield be required for operations in the impending war?
173. Both General Horner and AVM Mason agreed that evacuation was the safest option for the aircraft. General Horner said that evacuation was one policy, and dispersal another, indicating, as was the case, that his evidence about the "11 safe airfields" was based on the hypothesis that dispersal within Iraq was the chosen policy. He said that on his dispersal scenario the KAC aircraft would have had a reasonable chance of surviving the air attacks conducted during Desert Storm. There were 128 airfields in Iraq, and a large number of them were never attacked because there was little or no military activity at them. There was always a demand on Coalition resources to attack higher priority targets, primarily SCUDs and Iraqi army units in the Kuwait theatre of operations. Airfields not associated with military operations were seldom attacked.
174. He said that transport aircraft were not a targeting priority. Over half the military transports and most of the civilian transports had survived the war undamaged. One Ilyushin 76 had been shot down only because it had attempted to fly, making it an easy target for an F15 fighter. (General Fehed disputed this evidence: he said that all the attacks on IQAF transport aircraft took place when they were on the ground). General Horner said that if the Mosul Four had been moved away from Mosul to one of his 11 airfields and appropriate measures taken to protect them, then their chances of survival would have been excellent. None of the 11 airfields he selected were in fact attacked.
175. The judge dealt with all this evidence very briefly. He said that the important airfields to consider, if the Iraqi government had considered the possible dangers to KAC aircraft at various airfields in the event of hostilities, were Basra, Mosul, Saddam International Airfield in Baghdad and the three airfields at Tekrit. He disregarded General Horner's suggestion that up to 11 other airfields might have been used for the dispersal of the KAC aircraft by saying that he thought that it was most unlikely that the Iraqi government would have considered using them for that purpose in the period before hostilities. There was no evidence that it did think of using them, and the judge saw no logical reason why it should.
176. We would accept that on the evidence before him, Aikens J was entitled to find that the Iraqi government never did consider a dispersal programme of the type that General Horner suggested, and may not have thought it necessary. However, we think that there is force in General Horner's evidence that, if such a programme had been considered, whether by the Iraqi government or by IAC, the KAC aircraft might well have been preserved. Moreover, we see no reason why the government of Iraq and IAC would not have been prudent to have considered such a programme, or indeed to have made earlier provision for evacuation of the aircraft, for we consider, for instance, that Mosul was, objectively speaking, far less safe than it was apparently considered to be.
17 The subsequent history of the Iran Six
177. We will now describe what happened to the Iran Six after they were flown from Baghdad to Mashad between 15th January and 4th February 1991. In late January 1991 KAC learned that five of its Airbuses were in Iran, and on 18th March 1991 the Iraqi representative at the United Nations confirmed that six KAC aircraft were located at Mashad.
178. Efforts to recover the aircraft began immediately. It was not, however, until September 1991 that a KAC inspection team was permitted to visit Mashad to see the aircraft, but they were given no indication as to when or on what terms they would be released. Following this visit, on 3rd October 1991 the Prime Minister of Kuwait made a formal request to the Foreign Minister of Iran for the release of the aircraft. In January 1992 the government of Iran said for the first time that a charge would be made as a condition for the aircraft's release.
179. In March 1992 a Kuwaiti delegation visited Teheran for the purpose of negotiating the release. On this occasion they were presented with a bill for $87,488,328, of which they requested a breakdown. Negotiations then continued for the next four months, and eventually in July 1992 the Iranians agreed that they would release the six aircraft on the basis that "the question of costs be discussed later". The aircraft were returned to Kuwait at the end of July and the beginning of August 1992. In due course a figure of $20 million was agreed, a formal memorandum of agreement was signed on 5th March 1994, and the money was paid over in four tranches between March and September 1994.
180. The court received evidence that there was still considerable resentment in Iran in 1991-2 over Kuwait's support for Iraq in the Iran-Iraq war. Although relations between the two countries improved after August 1990, their relations were not particularly good, and they were further strained after the liberation of Kuwait by Kuwait's decision to offer military facilities to the United States and the United Kingdom.
18 The relationship between IAC and the Iraqi government
181. An issue arose on the appeal as to the extent to which IAC was a free agent in relation to the deployment of the ten aircraft. There was also a side-issue relating to the extent to which the movement of all civil aircraft after the invasion of Kuwait was controlled by the government of Iraq. Before examining the findings of the judge and the detailed contentions of the parties on these matters, it is first necessary to say a little about IAC and its formal relationship with the government of Iraq.
182. IAC was a public statutory body, created by a law enacted in 1988 with its own juridical personality. Its predecessor, the State Establishment for Iraqi Airways, had formed part of the State Organisation of Civil Aviation. Apart from its Director-General, who was appointed by the government, IAC's employees elected its board of directors, who were answerable to the Council of Ministers. Its employees were all civil servants.
183. IAC's property was the private property of the State unless it was dedicated for public benefit. Its projects were financed centrally from the National Development Plan, and its budget was approved by the Council of Ministers. It was obliged to comply with the orders and instructions given by the Council of Ministers, by the Minister of Transport and Communications, or by Saddam Hussein (either in his capacity as President of Iraq or as Chief of the Armed Forces or both).
184. The Council of Ministers, whose chairman was Saddam Hussein, was the principal executive arm of the Iraqi government. Mr Al-Zubaidi, as Minister of Transport and Communications, was a member of the Council of Ministers. He was the minister responsible for all civilian aircraft in Iraq. There were three primary legislative bodies in Iraq: the President (who issued Presidential Decrees), the National Assembly (whose legislation was approved by the RCC by means of an RCC Resolution) and the RCC, also chaired by Saddam Hussein, which was the principal legislative body. The laws approved by the RCC were enacted in the form of formal resolutions which were published in the Official Gazette.
185. Each Iraqi minister was empowered by the law governing his ministry to issue instructions to facilitate the provisions of the relevant ministry law and regulations. Under the Law of the Transport Ministry that ministry was directed, among other things, to work to secure air transport and to provide air services for passengers and cargo, and to administer and operate airports. The Minister was given power to issue decisions, orders and instructions for the purpose of achieving the objectives of the Ministry. Under the same law, the Transport Ministry's headquarters included the Under-Secretary for the Affairs of the Ministry's Organisation, and the State Organisation for Civil Aviation came within the Under-Secretary's sphere of responsibility.
186. IAC maintains that these arrangements meant that it fell "within the control and direction" of the RCC, the Council of Ministers and the Minister of Transport and Communications. KAC says that this characterisation is overstated. The effect of the unchallenged evidence of IAC's expert on Iraqi law was merely that IAC was supervised by the Council of Ministers (among whom the Minister of Transport and Communications bore principal responsibility for IAC's affairs) and that like everyone else it was obliged to follow the President's orders.
187. We do not for our part consider that an over-concise summary of the relationship between IAC and the government is necessary. It is clear that Mr Saffi and his fellow directors possessed a good deal of autonomy in controlling the day to day operations of IAC, but they were of course bound to obey any lawful directions given to them by the minister or the RCC (see Mr Saffi's evidence at 4/L/285C and 338B). While it must have been correct, as the judge found, that "ultimately" all civil aircraft movements in Iraq after the invasion of Kuwait and the extremely hostile international reaction to it were controlled by the government of Iraq, there is no evidence of any relevant government instruction between 17th September and 13th January, apart from the decision to clear the IAC aircraft out of Basra on 17th November. If an aircraft movement was planned, it had to be given clearance by a public authority concerned with controlling the use of Iraqi airspace, but there is nothing particularly surprising about that.
19 Aikens J's findings as to government involvement
188. It was against this background that Aikens J made a number of findings of fact in relation to the acts or instructions of the government, usually acting through the minister, in relation to the ten aircraft. He also made findings as to certain instructions given by the IQAF which IAC found itself obliged to obey.
189. It was the Iraqi government, of course, which had decided to seize the aircraft in the first place and have them flown to Basra. The judge accepted Professor Halliday's evidence that Iraq's motive was that it wished to seize the booty of war and to hold on to it and use it if possible. The government also decided to distribute the aircraft initially at Basra, Mosul and Tekrit. Aikens J found (at paragraph 130(1) of his judgment) that by 23rd August 1990 the minister had instructed IAC to put some of the KAC A310-200 aircraft into service on domestic flights between Kuwait and Baghdad. He had also given instructions that they should be overpainted in IAC livery for this purpose. Aikens J said that it was clear from the evidence, particularly from Mr Al Na'ama's diary, that KAC aircraft were being moved to Baghdad for this overpainting before 17th September, when Resolution 369 took effect. He added that IAC was expecting, probably from late August onwards, that the KAC aircraft would be operated by it or would be handed over to it, as opposed to some other Iraqi body.
190. Aikens J said that it was the government's intention that the world should see that it was serious about keeping and using the property that Iraq had seized from Kuwait. The proposed flights between Kuwait and Baghdad were prestige flights, planned for that purpose. In so far as the aircraft were not being handled in accordance with the minister's instructions, they were to be given light maintenance and not completely ignored.
191. Although by 8th September 1990 it had been decided to operate one Airbus between Mosul and Basra, Aikens J found that the government's intention to attempt to use the A310s between Baghdad and Kuwait had subsisted until late September 1990 in any event. He said that Mr Al-Zubaidi's evidence was to the effect that in August-September 1990 the RCC was discussing what should be done with the ex-KAC aircraft, and its eventual decision was that part of it should be handed over to IAC and that another part should continue to be kept by the Iraqi military and air force authorities.
192. So far as the IQAF was concerned, Aikens J held that the IQAF ordered the aircraft out of Tekrit at the end of August. He also found that the Iraqi Ministry of Defence ordered that the KAC aircraft be cleared out of Basra in mid-November and that it was unrealistic to suggest that IAC had had a free hand as to their destination. That order was given on the grounds that the aircraft were in the way, and because it was becoming increasingly dangerous for them to remain at Basra. As to the events of January 1991 the judge accepted the evidence of Mr Saffi and Mr Al-Zubaidi about the role played by the minister in deciding that the Iran Six should be evacuated to Iran, and the involvement of the IQAF in giving flight orders to the IAC pilots. He said that it was clear that the whole of this operation was conducted under the orders and direction of the IQAF, and therefore of the government of Iraq.
193. There was a dispute between the parties about the effect of some of the documents disclosed by IAC in relation to the early history following the invasion of Kuwait. We have already mentioned in paragraphs 25 to 27 above three letters produced by IAC during the course of Mr Saffi's evidence in January 1992. We must now describe two further documents which were disclosed by IAC in 1996.
194. The first was another letter written by Mr Abbo on 23rd August 1990, this time to the Manager of the Air Safety Division on the subject of registration. The letter reads:
"Pursuant to the instructions that issued from the office of the Minister of Transport and Communication, it has been decided to put the Airbus (A310-200) (formerly Kuwaiti) into service on domestic routes between Kuwait and Baghdad.
Please let us know the requirements for registering these aircraft as Iraqi and give the matter your utmost attention."
195. This letter appears to have been typed on 23rd August (because that date appears typed at the foot of the letter) and signed on 27th August (the date in manuscript against the signature). The date on the top of the letter appears to have been 28th August, which was subsequently altered in manuscript to 23rd August. The reference on the letter appears to have been altered in manuscript from MSA/1/1901 to 1909. The words "A310-200" appear in manuscript between typed brackets.
196. The other letter is a letter sent on 25th August 1990 by Mr Saffi to all the employees of IAC. Because of an initial mistranslation KAC originally sought to argue that this letter showed that the former KAC aircraft had been merged in the IAC fleet over three weeks before RCC Resolution 369 came into effect. It was later, however, agreed that the opening sentence of the letter begins like this:
"After the announcement of the merging unification with Kuwait and the joining of the Kuwaiti aircrafts fleet with [IAC], all the employees are requested to take care of the aircrafts ..."
197. We were told that no questions were asked of Mr Nekash about the effect of this letter at the trial, and once the word "joining" had been substituted for "merging" it appeared to us that no particular significance could be attached to this letter. The other new letter, on the other hand, formed part of a controversy which subsisted throughout the hearing of the appeal.
198. We do not find it profitable to devote much time to unravelling this dispute. The reason for this is that at the trial the features of the new Abbo letter which we have described in paragraph 195 above were unknown to the judge and were not explored with Mr Nekash. Nor was it suggested to Mr Nekash, as it was to us, that the first Abbo letter (which we have described in paragraph 26 above) was a forgery. No objection was made by KAC to a copy of that letter, which had been disclosed in 1996, being placed in the trial bundle as if it was a copy of a true original.
199. We do not have to make any finding about the purpose of Mr Nekash's first inquiry about the requirements for registration on 15th August (see paragraph 25 above). It is certainly on the cards that this was a routine inquiry connected with the proposed wet-lease of Airbuses from the RJ Airlines. There is no evidence that as early as 15th August the government had taken any decision in relation to the KAC aircraft, which were probably still at Basra at that time.
200. Now that agreed detective work has been performed on the second Abbo letter it appears that this was an inquiry sparked off by the minister's instruction to Mr Saffi that the Airbuses should be put into service on the Baghdad-Kuwait route. The letter was typed on 23rd August and signed on 27th August, and this might on one version of this sequence of events account for the reference in the reply to a letter dated 23rd August. Because these matters were not explored at the trial, it would be quite wrong for us to speculate about the reasons for the manuscript changes to the second Abbo letter or about the genuineness (or otherwise) of the first Abbo letter, or about any of the other features of this exchange of correspondence about which we received submissions from the parties.
201. In our judgment the only safe conclusions to draw from the evidence are these:
(1) At about the end of the third week in August the RCC decided that it wished to use the KAC aircraft, notwithstanding the fact that there were a lot of grounded IAC Boeings at Saddam International airport.
(2) The minister gave Mr Saffi instructions that the aircraft should be painted in IAC livery and be put into service on the Baghdad-Kuwait route as soon as possible.
(3) In so far as the aircraft were not used for this purpose, IAC was to look after them as agents for the government.
(4) When IAC received the minister's instruction, it made the inquiry set out in the second Abbo letter.
(5) It then became apparent that the minister's wishes could not be fulfilled until a team of qualified Airbus engineers was in place, and this did not happen until the end of September. (On 8th September it was decided to use an Airbus on the Basra-Mosul route, and two weeks later a general decision was taken by IAC to use two Airbuses on domestic routes. Captain Jassim believed that there was a fear that if these Airbuses had been used on flights to Kuwait they might have been fired on).
(6) In the meantime, at the end of August 9K-AHD, newly painted, was flown up to Mosul to be out of the way, and the IQAF airfield at Tekrit was emptied of KAC aircraft, with two being flown to Mosul and one to Basra, both of them being IAC airfields where IAC could perform the acts of light maintenance required of them by the government.
(7) Throughout August and early September IAC was acting as the agent of the Iraqi government. It did not know which type of Airbus the government wanted to use at the time when the second Abbo letter was typed.
202. As we have said in paragraph 101 above, we consider that the introduction of the controversial word "prestige" into this description of events is unhelpful. It is undoubtedly the case that the government had decided to put the KAC Airbuses into service, although it had no actual need for them, and we see no reason to question the judge's willingness to accept Professor Halliday's evidence about its motives. We also see no reason to question the evidence that it was the government (acting through the IQAF) which decided at the end of August that the aircraft at Tekrit should be moved to IAC airfields.
20 The "but for" test: Aikens J's findings
203. Aikens J held, as a matter of both English and Iraqi law, that in order to recover damages KAC had the burden of demonstrating that it was more likely than not that "but for" the wrongful interference of IAC the loss and damage of which they make complaint in this action would not have occurred. We have already shown (see paragraph 41 above) how Mance J had ruled that the English court could not and should not recognise RCC Resolution 369 for any purpose. IAC could not therefore show that it had any legal title to KAC's aircraft at any time after that resolution was passed, and Aikens J was therefore concerned to ascertain whether the fact that IAC took over the control of the aircraft after 17th September 1990 made any difference to their ultimate fate. As he put it (judgment, paragraph 91):
"Therefore it becomes necessary to imagine what the position would have been if the Iraqi government had decided to take the aircraft from Kuwait and keep them as booty of war, but had decided that they should not be made part of IAC's assets. In practice that involves assuming that Resolution 369 was not passed but some other Resolution was, which decreed that the aircraft were not longer the assets of KAC but were the assets of some other Iraqi entity."
204. Aikens J accepted Mr Al-Zubaidi's evidence that if Resolution 369 had not been passed, the control of the KAC aircraft would have been given either to the IQAF or to some other ministry of the Iraqi government. He also found that in that case the aircraft would have remained under the effective control of the Iraqi government and would have been subject to its orders in every respect from 17th August onwards. He adopted this earlier date for three reasons. First, he thought that in principle if one had to decide what would have happened "but for" an event, it might be necessary to see whether prior circumstances or events were intimately concerned with the event that one wanted, ultimately, to disregard. Secondly, he said that it was clear from the evidence that KAC aircraft were being moved to Baghdad before Resolution 369 took effect in order that they should be overpainted in IAC livery. He considered that IAC was expecting, probably from late August, that the KAC aircraft would be operated by it or would be handed over to it, as opposed to some other Iraqi body. And thirdly, since KAC had indicated that it might revisit the House of Lords because of its wish to argue that IAC had seriously misled the English courts in the immunity proceedings in relation to its activities prior to 17th September, it seemed sensible that since he had received evidence and submissions from the parties on the relevant issues, he should make findings of fact as to where the KAC aircraft would have been from about 17th August 1990 onwards "but for" IAC's wrongful interference or usurpation from some date earlier than 17th September.
205. After making his findings, to which we have referred earlier in this judgment, as to the actual movements of the ten aircraft between 17th August 1990 and the outbreak of hostilities, Aikens J prefaced his findings on the "but for" part of the case in the following way (judgment, paragraph 118):
"I have already concluded that when considering this question I should regard the wrongful interference or `usurpation' by IAC as being the actual incorporation by IAC of the ten aircraft into the IAC fleet. I have also concluded that, for the purposes of considering what would have happened `but for' the `usurpation', I should disregard all the preparatory acts of IAC between 17 August and 17 September, when the RCC Resolution 369 took effect officially. This means that I have to disregard all that was being done by IAC to the aircraft in the period from 17 August 1990. Lastly I have concluded that, upon the basis that the wrongful interference or `usurpation' by IAC was the general incorporation into the IAC fleet, then `but for' that usurpation, I must assume that some other body would have been in control of the KAC aircraft and that this is likely to have been the IQAF or some other Iraqi government ministry. I think that the precise identity of the ministry does not matter because there is no credible evidence that the attitude or actions of any one particular entity would have differed from any government ministry or other body that might have exercised control over the ten KAC aircraft."
Aikens J said that in making findings on these issues, he was obviously engaging in an exercise of speculation on a grand scale. Both parties had accepted that the movements of the ten aircraft were all linked, and that he could not properly consider the disposition of the Mosul Four in isolation from the Iran Six.
206. He began his analysis by identifying what he described as three key factors that might determine how and where an entity other than IAC would have placed the ten aircraft in the relevant period. The first was that it would have been the government of Iraq which would have made the decisions about the aircraft, even if some other entity had been nominally given control of the aircraft. The second was that in seizing and deploying the aircraft the government was activated by its wish to seize the booty of war and to hold onto it and to use it if possible, so that it would have wished to keep them safe and use them if it possibly could. The third factor related to the view that the government would have taken about the possible dangers posed to the KAC aircraft at Basra, Tekrit, Mosul and Saddam International airfields and the priority it would have given to safeguarding the aircraft from destruction in the event of any hostilities.
207. So far as the aircraft at Basra were concerned, the judge concluded that they would have been treated in exactly the same way even if IAC had not usurped them. It will be remembered that he had found that the two Boeing 767s were at Basra until they were flown to Mosul on 17th November 1990, and that Airbus 310 9K-AHE was flown from Tekrit to Basra on about 31st August 1990, and from Basra to Baghdad on 27th September. So far as Airbus 300 9K-AHF is concerned, we have reversed the judge's finding, and held that it was probably flown from Tekrit to Mosul (not Basra) on about 31st August 1990, so that it did not form part of the fleet evacuated from Basra on 17th November.
208. The judge rejected an argument by KAC to the effect that if the KAC aircraft were not going to be incorporated into the IAC fleet, then the IQAF would have tolerated their presence at Tekrit. He took account of the fact that the IQAF had ordered these aircraft out of Tekrit at the end of August at a time when no formal decision had been taken about their future, and he considered that the same events would have occurred even if there had been no plans to incorporate them into the IAC fleet. The IQAF would have had no positive reason for retaining these civilian aircraft at Tekrit, which was an active military airfield associated with an air force training college, and KAC could not point to any positive reason why the IQAF should have wanted to keep them there.
209. The judge dealt separately with the likely deployment of Airbus 310 9K-AHE "but for" IAC's usurpation. So far as the Boeing 767s (and, on his findings, Airbus 300 9K-AHF) were concerned, it was common ground that they had to be moved from Basra on 17th November, because it was becoming increasingly dangerous for them to remain there. The judge felt that the only realistic candidates for their redeployment would have been Tekrit and Mosul. He excluded Saddam International from consideration because of the congestion at that airport. The Boeing 767s were not in fact moved from Basra to Baghdad, and the judge thought that the probable reason for this was that it was recognised that there were already many civil aircraft at Baghdad, and there was no point in adding to their number any additional aircraft which were not going to be used immediately. He said that the Iraqis might also have thought that an airfield further north in Iraq would have been safer than Saddam International if hostilities did occur.
210. In deciding between Tekrit and Mosul in the "but for" scenario, the judge observed that there were probably three reasons why the KAC aircraft were in fact ordered to Mosul rather than Tekrit in mid-November 1990. The first was that there were maintenance facilities at Mosul, but not at Tekrit. The second was that there was room for them in Mosul. The third was that either IAC or the Iraqi government, or both, thought that Mosul, being far from Kuwait and Baghdad in the north of Iraq, was a safer place to park them. On this basis, he could not see that the attitude of the Iraqi authorities about Mosul as an appropriate parking place for the Basra aircraft would have been any different "but for" the IAC usurpation: they would have ended up in Mosul in any event.
211. So far as the KAC aircraft at Baghdad were concerned, the judge observed that Saddam International Airport was by far the largest civil airport in Iraq, and that if the Iraqi government had wished to use some or all of the KAC aircraft for civil purposes (which, by reason of UN sanctions, would have been restricted to flights within Iraq and Kuwait), then it would have been the obvious place to send them even if there had been no intention of incorporating them into the IAC fleet. There were, after all, reasonable maintenance and storage facilities and ground crews at that airport. The judge discounted an argument by KAC to the effect that that airfield was already congested by IAC aircraft in August 1990 by observing that room was in fact found there for five A310 Airbuses and that if the government had directed that the KAC aircraft should go there the airport authorities would have had no option but to ensure that there was room for them there.
212. The judge considered on the evidence that even if the Iraqi government had decided that the ownership of the KAC aircraft should not be vested in IAC, it was still likely that it would have wished to use some or all of the A310 Airbuses on flights between Baghdad and Kuwait and Basra. Mr Saffi had spoken of Mr Al-Zubaidi's wishes to this effect, and the judge found evidence in Mr Abbo's second letter of 23rd August 1990 and in the Na'ama diaries to support the conclusion that the government had decided to use the aircraft in this way before any final decision had been made as to whether IAC or some other Iraqi state entity should obtain the ten KAC aircraft.
213. The judge found that the intention of the Iraqi government was and would have remained (for as long as possible) that the world should see that it was serious about keeping and using the property it had seized. In these circumstances he found that it would in any event have ordered the movement of the five KAC A310 Airbuses to Baghdad in August and September 1990, and that they were in fact moved there because the government still intended, as late as September 1990, that they should be overpainted and used for "prestige" flights between Baghdad and Kuwait.
214. He went on to find that even if they had not been formally part of the IAC civilian fleet, they would still have been overpainted in IAC livery in common with other Iraqi aircraft owned by the state. This had happened in the case of the Emir of Kuwait's private jet, and two KAC executive HS125 jets. Even when IAC aircraft were seconded to the IQAF, they had retained their IAC livery, and the judge broadly accepted Mr Nekash's evidence that all Iraqi aircraft, whether government or non-government, had IAC livery.
215. The judge therefore found that the five A310s would have been overpainted in IAC livery even if they had not been transferred to IAC's ownership. The obvious, and probably the only, place for this to be done was Saddam International Airport in Baghdad, and for this reason the judge thought it likely that by the end of September 1990 they would in any event have been placed there for overpainting, and then for use if possible.
216. The judge then turned to consider whether they would probably have remained there until the outbreak of hostilities "but for" IAC's usurpation of them. He believed that this must depend on the view that the Iraqi government would have taken as to the overall likelihood of hostilities breaking out and as to the danger of bomb attacks on Baghdad generally and on civil aircraft at Saddam International Airport in particular.
217. It was common ground that Iraqi government's perceptions and policy at this time were largely driven by the opinions of Saddam Hussein himself. Although he might well have been aware in early November 1990 that if he had refused to quit Kuwait there was a strong possibility of military conflict, he and his government did not in fact think that the danger of conflict was so great that it necessitated the dispersal of all the civil aircraft based at Saddam International. The judge thought it more likely that he had believed up to early January 1991 that the USA and its Coalition allies would baulk at actually using force to liberate Kuwait, and that it was only after an abortive meeting between Secretary of State Baker and Foreign Minister Aziz on 9th January 1991 that he realised that war was inevitable. The judge accepted Professor Halliday's view that Saddam Hussein also realised that he could not possibly win the war, and that he made his military and other dispositions accordingly.
218. The judge observed that the perception of the danger of hostilities and the threat to Baghdad would have been the same whether or not there had been any usurpation of the KAC aircraft by IAC. He therefore concluded that the five A310 Airbuses would have remained at Saddam International until at least 9th January 1991, and that there was no credible evidence to show that they would have been moved during the next six days. Once the UN Security Council deadline had passed on 15th January it was clear that the Iraqi government regarded both Baghdad airports as vulnerable and that civil aircraft there could be targets of Coalition bombing raids.
219. Finally, the judge held that the disposition of the remaining A300 Airbus, 9K-AHI, would have been the same whether or not it had been usurped by IAC. It had been flown from Kuwait to Baghdad on 22nd August 1990, and it required maintenance whether it was to be part of the IAC fleet or not. The obvious place for this was Saddam International, where work was still being done on it as late as January 1991. The judge concluded, not surprisingly, that its disposition until the outbreak of hostilities would have been the same whether or not it was incorporated into the IAC fleet.
220. The judge therefore held, on this part of the case, that the disposition of the ten aircraft would have been exactly the same even if they had remained under the control of the Iraqi government or been vested in some Iraqi government entity other than IAC. He said that his conclusions would have been the same even if it had been only permissible for him to have considered the movement of the aircraft on and after 17th September 1990.
221. He then went on to analyse KAC's arguments to the effect that the fate of the aircraft in January 1991 and thereafter would have been different if they had not been usurped by IAC. KAC had contended that in that event more aircraft would have been evacuated, and that the Mosul Four would not have been on the ground as targets of Coalition raids in January and February 1991. Its primary case was that five of the ten KAC aircraft would have been evacuated to Jordan. Whatever their destination, the most valuable aircraft (being the Boeing 767s and the A300 Airbuses) would have been lifted first, followed by any aircraft from Mosul (if different from these), followed by the others. KAC also contended that but for IAC's usurpation five pilots would have been available to lift the aircraft, which according to its case at the trial would then have been stationed at Mosul and Tekrit.
222. The judge rejected the suggestion that any more aircraft would have been flown to Jordan. For this purpose he reviewed the available evidence carefully. He reminded himself how Mr Al-Zubaidi had said that the government of Iran had been the first to respond positively to the appeals his government had made on 13th January 1991, and how Mr Saffi had been told the following day that the Iraqi government had decided to evacuate the whole of the Iraqi civilian air fleet, including the KAC aircraft, to Iran. The judge inferred from this evidence that if overtures had indeed been made to the Jordanian government, they had not been successful before the Iraqi government took its decision to evacuate civil aircraft to Iran.
223. Because Mr Saffi had been worried that such an evacuation could not be completed before the UN Security Council deadline expired on 15th January, he had spoken to the Director-General of Civil Aviation in Jordan (see paragraph 157 above). The upshot of this conversation, however, was that he was told that any Jordanian assistance would be predicated on an official request to that effect being made by the Iraqi government. The judge said that there was no evidence that any such official request was made. Instead, Mr Saffi instigated his own informal method of lifting the Emir of Kuwait's Boeing 727 to Jordan. He said he told Mr Al-Zubaidi that he had been told informally that Jordan would accept a very small number of aircraft, and that he received instructions from the minister that he should continue to try to send all the rest to Iran.
224. The judge accepted the sequence of events as recorded by Mr Al-Zubaidi and Mr Saffi. He said that their evidence demonstrated conclusively either that an overture to Jordan to take civilian aircraft had been made by Iraq on 13th January and had failed, or that no such overture had been made at that time, and despite Mr Saffi's discussion with his Jordanian colleague, no further attempt was made thereafter. In those circumstances, since Iraq's plea for help had related to the provision of places of refuge for all its civilian aircraft, he was unable to see how the position of Iraq or the attitude of Jordan would have been any different if the KAC aircraft had not been usurped by IAC. He found that the decision to fly the Iran Six to Iran, and the manner in which that operation was conducted, would have been exactly the same if there had been no usurpation of the KAC aircraft by IAC. The Iraqi government regarded these aircraft, according to Mr Al-Zubaidi, as very valuable assets of the Iraqi state, and the judge found that it would have given orders, through the IQAF and the Ministry of Defence, to evacuate them so far as possible, in order to ensure their safety, whichever Iraqi authority had held the aircraft.
225. We turn, finally, to the judge's findings in relation to the Mosul Four. We have already described how he held that the disposition of the ten aircraft in January 1991 would have been exactly the same if they had not been usurped by IAC, and how the Iraqi authorities had regarded Mosul as a safe haven for these aircraft, safer even than Tekrit because it was further to the north of their country. He therefore considered that there was no reason to suppose that any greater priority would have been given to the evacuation of these aircraft if they had been under the control of some other Iraqi government entity. He went on to hold that there was no evidence that any pilots would have been available to fly either the Airbuses or the Boeing 767s other than the three who were actually used. This finding was not challenged on the appeal.
226. The judge also rejected arguments by KAC to the effect that the Mosul Four would still have survived, but for the IAC usurpation, even if they had not been flown to Jordan or Iran. It was said that they would either have been moved to other airfields in Iraq or would have been positioned differently at Mosul so as to survive Coalition air attacks. We have already given our reasons for upholding the judge's finding that they would not have been moved to other airfields (see paragraph 167 above). As to the other point the judge thought it unrealistic to imagine that the attitude of the IQAF base commander at Mosul as to how the KAC aircraft there should be protected or camouflaged would have been significantly different if the aircraft had been seconded to the IQAF as opposed to being a part of the IAC fleet. There was, incidentally, cogent evidence to the effect that the weather conditions at Mosul were such that it would have been out of the question to move these heavy aircraft off the hardstandings and onto the adjacent land.
227. The judge therefore concluded that "but for" the usurpation of IAC, the disposition of the ten KAC aircraft would have been exactly the same as it was in fact. The Iran Six would have been flown to Mashad, in Iran, and detained there until July 1992, and the Mosul Four would have remained at Mosul and would have been destroyed by the Coalition bombing.
228. He added that, if necessary, he would have concluded that the bombing by the Coalition was not a "new intervening act". Given the circumstances in which the Mosul Four were at Mosul (and would also have been there but for IAC's usurpation) their bombing by the Coalition was not "ultroneous" (for this expression, see The Oropesa [1943] P 32 per Lord Wright at p 39: and see paragraph 540 below). For these reasons he dismissed all KAC's claims.
21 KAC's challenge to the judge's "but for" findings
229. We believe that it is convenient to deal with KAC's challenges to these findings at this stage of our judgment. In our judgment, the judge's findings on this part of the case demonstrate the difficulties facing KAC, and we would accept the ultimate failure of KAC to satisfy the burden of proof that lay on it to show that the outcome would have been different. In this sense the judge was entitled to find that the Iran Six would all have come to Saddam International Airport and stayed there even if they had not been vested in IAC. He was entitled to accept Professor Halliday's evidence that the Iraqi government would have wished to be seen to be using them as "booty of war" even if its scope for doing so was strictly limited by UN sanctions. He was entitled to find on the evidence that the control of the aircraft might have been passed to the IQAF or to an Iraqi ministry, but that in either event they would have been under the effective control of the Iraqi government. He was entitled to find that the aircraft would have been painted in IAC livery even if they had not been vested in IAC, and that Saddam International was the obvious place to take them for this purpose. He was entitled to regard Basra, Saddam International and Mosul as the obvious places at which to park civilian airliners of this size, whether or not they were vested in IAC, because they had maintenance facilities for large civilian airliners. He was also entitled to find that there was no evidence of any plans by the Iraqi government to fly any of their civilian aircraft to alternative "safer" airfields within Iraq, and to hold that the Iraqis did regard Mosul as a safe place for such aircraft right up to the outbreak of hostilities, even if objectively speaking they were probably unwise to do so.
230. Although we have differed from the judge as to the probable disposition of Airbus A300 9K-AHF between late August and mid-November 1990, and as to his adoption of the words "prestige flights" for the government's wish to place the A310 Airbuses into service as soon as they could lawfully be used for this purpose, these minor differences can make no difference to the result. The reality, in our judgment, is that between August 1990 and January 1991 the Iraqis possessed these ten large airliners which, because of UN sanctions, were all surplus to their strictly limited requirements. Whether or not they were vested in IAC, they would have been progressively overpainted in IAC livery to mark their transmutation from Kuwaiti to Iraqi aircraft, and they would have been progressively prepared for service, with the training of engineers and other necessary staff, against happier days when it was hoped that sanctions would be lifted and they could be used for long haul flights. In the meantime we see no reason to overturn the judge's conclusion that the Iraqi government would have been anxious, in any event, to see one or two of these aircraft being used on scheduled flights within Iraq and Kuwait whether or not they were formally vested in IAC.
231. We recognise KAC's argument that there may well have in fact been other options and/or possible permutations of movement available to the Iraqi government entities, such as Tekrit itself and General Horner's 11 airfields. But that goes nowhere near proving that, in the absence of IAC's usurpation, KAC aircraft would not have been destroyed at Mosul or flown to and detained in Iraq.
232. We can also see no grounds for thinking that KAC can meet the burden of disproving the judge's conclusion that once the Coalition gave its ultimatum to Iraq the destination and ultimate fate of these aircraft would have been the same even if another Iraqi government entity had been in control of them. The judge's finding that Jordan was not a serious option is in our judgment unassailable on the evidence, and the only reason why the Iraqis were thwarted in their efforts to fly all these aircraft to safety in Iran, given that they had only three pilots capable of flying them, stemmed from the fact that all three pilots were detained in Iran for 12 days at a critical stage of the evacuation. Of course, it might be said that if IAC had not also been flying its own (ie not ex-KAC) fleet out of Iraq as well (see paragraph 160 above) or had given precedence to the KAC aircraft, then at the very least the two KAC Boeing aircraft at Mosul could also have been evacuated to Iran in time. But this is part of the grand speculation of which Aikens J spoke.
233. In this connection we are influenced by the evidence which specifically related to the fate of the IAC aircraft which had been seconded to the IQAF: see paragraphs 160-162 above. A helpful schedule made it much easier for us to trace the history of these aircraft. The most significant, for present purposes, were the 18 Ilyushin and two Antonov transport aircraft, which were described in the evidence as large freighters. These were used by the IQAF for their own military purposes, and stationed at the IQAF bases where they were being used. At the outset of hostilities an effort was made to fly them all to Iran. Those which could not be evacuated in this way, because the necessary pilots had been detained in Iran, and because it became too dangerous to try to fly them out, remained at the airfields where they were based, and they were all damaged or destroyed by Coalition bombing in due course. There was no hint in the evidence that the Iraqis had any plans for moving any of these aircraft to safer airfields within Iraq.
234. We have explained why we were not able to take into account any of the arguments deployed by KAC on its appeal which were based on propositions of fact which were not put to Mr Nekash in evidence. In spite of this unwillingness on our part, we see no reason why another Iraqi government entity should not have been just as willing as IAC to explore the possibilities of the A310 Airbus, as opposed to the other types of aircraft seized by the Iraqis, given that this was one of the future aircraft of choice of the government's state airline. We were unimpressed by the contention that but for the IAC usurpation the Iraqi government might have preferred to give precedence to the Boeing 767s or the A300 Airbuses. There was simply no evidence pointing that way at all.
235. It follows from these findings that if Aikens J was correct as a matter of law to hold that a "but for" test falls to be applied under the English law of conversion as well as the Iraqi law of usurpation, we will be bound to dismiss KAC's appeal from his judgment, on the basis that KAC conceded before Mance J that the relevant burden of proof falls on it. (For issues connected with the incidence of the burden of proof in Iraqi law, see paragraph 403 below). Similarly, if IAC persuades us that Mance J was wrong to decline recognition to RCC Resolution 369 (see paragraph 7 above), IAC's success on the first appeal would mean that KAC's action must be dismissed because IAC could show that they had lawful title to the KAC aircraft under the lex situs, which is the governing law for English conflict of laws purposes. We will now turn to the issues raised by IAC's appeal against the judgment of Mance J before we go on to consider the many issues of English law which arise on KAC's appeal. We will end by considering the issues relating to KAC's claim for damages, insofar as Aikens J made positive findings on particular aspects of that claim.
22 The international law dimension
236. We now come to a number of issues which have an international law dimension. RCC Resolution 369 (the "resolution") purports to transfer KAC's assets to IAC. These assets include the ten aircraft which are the subject matter of these proceedings. If that resolution is effective to give IAC title to the aircraft under Iraqi law, then it will have a complete defence to any claim by KAC in conversion or usurpation (for convenience we will use the expression "conversion" as covering both), since the principle of double actionability requires liability under Iraqi law and an owner cannot be liable for converting his own property. This is a threshold question.
237. IAC submits that the English courts are bound to give effect to the resolution. For these purposes it relies on the general rule of English private international law that title to movable property is determined by the lex situs, that is to say by the law of the country in which the property in question is situated at the time of the transfer: see eg Dicey & Morris, Conflict of Laws, 13th Edition, Rule 116 at p 963. It also relies on the further principle, which is both an expression of the lex situs rule and constitutes one paradigm form of the act of state doctrine, that the English courts are bound to recognise a title derived from a transfer effected by government act or legislation with respect to property that is situated within the acting or enacting state's territory at the time of that act or legislation: see eg Dicey & Morris, Rule 120, at pp 995-6. This version of the act of state doctrine is sometimes formulated in terms that the English courts will not "sit in judgment on" the acts of a foreign government done within its own territory. That is an expression which goes back to the judgment of Fuller CJ in the US Supreme Court in Underhill v Hernandez 168 US 250, 252 (1897), and has frequently been cited with approval and applied in subsequent cases both in the United States and in this jurisdiction: see for instance Luther v Sagor [1921] 3 KB 532 at p 548 and Princess Paley Olga v Weisz [1929] 1 KB 718 at p 725. We are not in this case at all concerned with that other version of the act of state doctrine, identified by Lord Wilberforce in Buttes Gas and Oil Company v Hammer [1982] AC 888 at p 930G, which relates to action by an officer of the Crown taken outside this country against foreigners otherwise than under colour of legal right.
238. KAC accepts that if effect is given to Resolution 369, then IAC has a complete defence to this action and its own claim must fail. However, Mr Greenwood QC, who presented KAC's argument in this section of the case, submits that the English courts will not give effect to the resolution for two main reasons. The first of these reasons is that the resolution, when considered as a whole, lies outside the letter and the spirit of the principles relied on by IAC. It lies outside their letter, because the resolution deals only incidentally with assets within Iraq (such as the ten aircraft with which we are at present concerned), being primarily concerned with the universal succession by IAC of KAC, a Kuwaiti company. It lies outside the spirit of those principles because, even though the ten aircraft were in Iraq as of 17th September 1990, they were only there because they had been previously stolen from Kuwait and brought across the border by the very government which then legislated for their transfer to IAC.
239. The other main reason put forward for disregarding the resolution is that, as a matter of English public policy, no effect should be accorded to it because it is in breach of clearly established principles of public international law. This second submission has three strands. First, that there is an exception to the act of state doctrine where the act or legislation of the foreign government is contrary to English public policy. Secondly, that an act in breach of clearly established principles of public international law is within that public policy exception. And thirdly, that on the facts and in its context Resolution 369 was in breach of such principles, as demonstrated by the resolutions adopted by the United Nations Security Council in the latter part of 1990.
240. Mr Donaldson did not dispute the first strand of this alternative argument, but he rejected the second and third strands. He argued that the public policy exception is limited to laws which constitute grave infringements of human rights (see Oppenheimer v Cattermole [1976] AC 249, 278) and that the resolution transferring KAC's aircraft to IAC did not constitute such an infringement. Moreover, while he did not enter into any dispute as to the legitimacy or illegitimacy of Iraq's acts for the purposes of public international law, he submitted that the UN material upon which Mr Greenwood relied was immaterial, both because it had not been incorporated into English law and because the background to the resolution was not the subject matter of the current dispute, as distinct from that of the wider dispute which had been transformed when the House of Lords ruled that KAC's claim could only go forward in respect of matters on and after 17th September 1990. For similar reasons, Mr Donaldson rejected Mr Greenwood's first main submission relating to the contextual characterisation of the resolution, while observing that whatever the wider ramifications of the resolution, it did transfer title to aircraft then in Iraq. In any event, Mr Donaldson submitted, it is impermissible even to raise the question whether the resolution transgresses international law, because such issues are not susceptible of adjudication.
241. For this last submission, Mr Donaldson relied, in addition to the general rule relating to the lex situs and to the act of state doctrine, on a third principle, that of the non-justiciability of the transactions of foreign sovereign states, which was formulated by Lord Wilberforce in Buttes Gas, being a principle which is not limited by any formal requirement of territoriality. This principle was described rather than defined in Lord Wilberforce's speech, but for present purposes it may be formulated in his words (at pp 931G-932A) as
"a more general principle that the courts will not adjudicate upon the transactions of foreign sovereign states...one for judicial restraint or abstention ... not one of discretion, but...inherent in the very nature of the judicial process."
Mr Greenwood on the other hand submitted that the principle of non-justiciability, when properly understood and applied, did not prevent the courts from adjudicating on the present dispute.
242. Mr Donaldson also had two fall-back positions. One was that even if the resolution would not be recognised for the purpose of the act of state doctrine, and the principle of non-justiciability had no application, it would still have to be recognised for the purpose of the basic rule of lex situs, so that KAC would fail to prove double actionability in any event. The second was that even if the resolution would not be recognised for any purpose whatsoever, nevertheless IAC could rely on the act of state and non-justiciability principles all over again in relation to a separate presidential instruction directing it to incorporate the KAC aircraft in its fleet. In this connection IAC relied on a letter from the office of President Saddam Hussein dated 10th September 1990 by which a copy of the resolution, which it will be recalled had been issued on 9th September, was sent to various ministries and to IAC. We shall revert to this letter in paragraphs 395-398 below.
243. A point which was debated in connection with these matters was whether the government of Iraq was, at the time of the resolution, the de facto government of Kuwait. The relevance of this issue to this action is of some uncertainty. Mr Donaldson told us, as he had told Mance J (see Mance J's judgment at p 64) that the issue is of no relevance to the current action, whereas it has some relevance in a different action brought by KAC in respect of the conversion of its spares, presumably because some at any rate of those spares were still in Kuwait, rather than Iraq, as at 17th September 1990. Despite that disclaimer, it appears to have been raised by IAC before Mance J both to counter KAC's submission that the resolution was an exorbitant measure in that it sought to affect the status of KAC by dissolving it, and to support IAC's submission, made at any rate in its written skeleton argument below even if not persisted in, that the present action must fail because KAC did not exist at the date of any conversion (ibid). Against this rather confused background Mance J considered that the issue did bear on the extent to which it could be said that the resolution was exorbitant and that it could therefore also bear on the further issue whether the resolution as a whole should be disregarded as a matter of public policy. While continuing to disclaim its relevance, Mr Donaldson nevertheless opened this issue in his stage 1 appeal against the judgment of Mance J and argued it at some length.
244. All these submissions (and other related points) were fully considered by Mance J in his judgment (at pp 51-84). He resolved them all in favour of KAC, and to the extent that they remain controversial they are the subject matter of IAC's stage 1 appeal. They give rise to the following issues:
(1) Is the effectiveness or validity of Resolution 369 justiciable in the English courts?
(2) If it is, does it matter whether Iraq was the de facto government of Kuwait at the time, and in any event was it?
(3) Should the resolution be characterised as exorbitant, or regarded as at least prima facie applicable, both under the lex situs rule and the act of state doctrine, so as to affect the title of KAC's aircraft within Iraq as of 17th September 1990?
(4) Is the English public policy exception to the act of state doctrine wide enough to entitle English courts to take account of breaches of clearly established principles of international law?
(5) If it is, is the court limited to considering the resolution by itself or is it entitled to take account of its background and context?
(6) Is the resolution in breach of clearly established principles of international law? Is it contrary to English public policy? Does the act of state doctrine preclude the court from denying recognition to the resolution?
(7) Do the lex situs rule or the act of state doctrine apply to goods which have been brought by the state in question unlawfully into its own territory?
(8) Does the resolution have to be recognised for the purposes of the lex situs rule and the principle of double actionability, even if it would not be recognised for the purposes of the act of state doctrine on the ground that it offends against English public policy?
(9) Does the letter of 10th September 1990 from the office of the president make any difference, so as to provide a defence?
245. We have stated the issues in this way and in this order, because we think that logically the question of non-justiciability comes at the very front. Similarly, the issue of the characterisation of the resolution is a threshold question. Before we turn to deal with these issues, we must first set out the relevant facts in greater detail.
23 RCC Resolution 369
246. At the outset of this judgment (see paragraph 7 above) it was sufficient to say that this resolution had the purported effect of dissolving KAC and transferring its assets, including the ten aircraft, to IAC. In fact, the resolution was in even wider terms. It read as follows:
"I. (1) That the Kuwaiti Airways Corporation be dissolved and all its fixed and liquid assets, rights and liabilities be transferred to the Iraq Airways Company, who will register all assets in accordance with domestic and international laws.
(2) All assets belonging to Kuwait Airways are to be transferred to the Iraqi Airways Company as soon as this resolution comes into effect.
II. All activities of Kuwait Airways offices abroad must cease and all their assets are to be transferred to the Iraqi Airways Company, in accordance with clause I of this Resolution.
III. The Board of Iraqi Airways is to conduct a complete survey of all Kuwait Airways personnel and determine the level of the work force in the light of current needs and central directives.
IV All withdrawal authorisations granted to Kuwait Airways employees are cancelled from the date this Resolution comes into effect..."
247. It will be observed that the transfer of title of KAC's aircraft comes about either as a result of the universal succession of IAC to all KAC's rights and liabilities under clause I(1) or under the specific reference to the transfer of all assets under clause I(2). In any event, the primary purpose and first provision of the resolution is to dissolve KAC and to render IAC its universal successor. Clause II deals specifically with KAC offices "abroad", ie outside Iraq or Kuwait, while clauses III and IV deal with KAC employees, who at the relevant time were to be found almost entirely in Kuwait or elsewhere in the world, but not in Iraq.
24 The United Nations Charter and the Security Council resolutions
248. Following the invasion of Kuwait the UN Security Council adopted a series of resolutions, starting with Resolution 660 which was adopted on 2nd August 1990, the same day as the invasion began. These resolutions were binding on all the members of the United Nations, including the United Kingdom and Iraq itself, under their adherence to the UN Charter.
249. That Charter had of course been made in 1945, in the aftermath of the Second World War. Its preamble contains the following language:
"WE THE PEOPLES OF THE UNITED NATIONS DETERMINED
to save succeeding generations from the scourge of war, which twice in our lifetime has brought untold sorrow to mankind, and
to reaffirm faith in fundamental human rights, in the dignity and worth of the human person, in the equal rights of men and women and of nations large and small, and
to establish conditions under which justice and respect for the obligations arising from treaties and other sources of international law can be maintained, ... AND FOR THESE ENDS ...
to unite our strength to maintain international peace and security, and
to ensure, by the acceptance of principles and the institution of methods, that armed force shall not be used, save in the common interest...
HAVE RESOLVED TO COMBINE OUR EFFORTS TO ACCOMPLISH THESE AIMS"
250. Chapter I of the Charter sets forth the purposes and principles of the United Nations. Of particular relevance are the following parts of articles 1 and 2:
"Article 1. The purposes of the United Nations are:
1. To maintain international peace and security, and to that end: to take effective collective measures for the prevention and removal of threats to the peace, and for the suppression of acts of aggression or other breaches of the peace, and to bring about by peaceful means, and in conformity with the principles of justice and international law, adjustment or settlement of international disputes or situations which might lead to a breach of the peace...
Article 2. The Organisation and its Members, in pursuit of the Purposes stated in Article 1, shall act in accordance with the following Principles...
All Members shall refrain in their international relations from the threat or use of force against the territorial integrity or political independence of any State, or in any other manner inconsistent with the Purposes of the United Nations.
All Members shall give the United Nations every assistance in any action it takes in accordance with the present Charter, and shall refrain from giving assistance to any State against which the United Nations is taking preventive or enforcement action..."
251. Chapter V of the Charter deals with the Security Council and provides -
"Article 24. 1. In order to ensure prompt and effective action by the United Nations, its Members confer on the Security Council primary responsibility for the maintenance of international peace and security, and agree that in carrying out its duties under this responsibility the Security Council acts on their behalf.
2. In discharging these duties the Security Council shall act in accordance with the Purposes and Principles of the United Nations. The specific powers granted to the Security Council for the discharge of these duties are laid down in Chapters VI, VII, VIII and XII...
Article 25. The Members of the United Nations agree to accept and carry out the decisions of the Security Council in accordance with the present Charter."
252. Chapter VII is entitled "Action with respect to threats to the peace, breaches of the peace, and acts of aggression". It includes the following provisions:
"Article 39. The Security Council shall determine the existence of any threat to the peace, breach of the peace, or act of aggression and shall make recommendations, or decide what measures shall be taken in accordance with Articles 41 and 42, to maintain or restore international peace and security.
Article 41. The Security Council may decide what measures not involving the use of armed force are to be employed to give effect to its decisions, and it may call upon the Members of the United Nations to apply such measures. These may include complete or partial interruption of economic relations...
Article 42. Should the Security Council consider that measures provided for in Article 41 would be inadequate or have proved to be inadequate, it may take such action by air, sea, or land forces as may be necessary to maintain or restore international security. Such action may include demonstrations, blockade, and other operations by air sea and land forces of Members of the United Nations."
253. Article 103, which appears in a chapter called "Miscellaneous Provisions", provides that the obligations of the members of the United Nations under the Charter take precedence over their obligations under any other international agreement.
254. It was pursuant to these provisions of the Charter that the Security Council adopted the resolutions we have mentioned for the purpose of addressing Iraq's invasion of Kuwait. Resolution 660 of 2nd August 1990 stated that the Security Council was acting under articles 39 and 40 of the Charter. It declared that it:
"1. Condemns the Iraqi invasion of Kuwait;
2. Demands that Iraq withdraw immediately and unconditionally all its forces to the positions in which they were located on 1 August 1990..."
255. Resolution 661 followed on 6th August. This resolution stated that in order to restore "the authority of the legitimate government of Kuwait" which Iraq had "usurped", all states were called upon to impose sanctions on Iraq. The resolution continued:
"9. ...nothing in the present resolution shall prohibit assistance to the legitimate Government of Kuwait, and [the Security Council] calls upon all States:
(a) To take appropriate measures to protect assets of the legitimate Government of Kuwait and its agencies;
(b) Not to recognise any regime set up by the occupying Power..."
256. Resolution 662 followed on 9th August, in response to RCC Resolutions 312 and 313 which had proclaimed the integration of Kuwait into Iraq and designated Kuwait as a governate forming part of Iraq. In its Resolution 662 the Security Council -
"Determined to bring the occupation of Kuwait by Iraq to an end and to restore the sovereignty, independence and territorial integrity of Kuwait,
Determined also to restore the authority of the legitimate Government of Kuwait,
1. Decides that annexation of Kuwait by Iraq under any form and whatever pretext has no legal validity, and is considered null and void;
2. Calls upon all States, international organisations and specialised agencies not to recognise that annexation, and to refrain from any action or dealing that might be interpreted as an indirect recognition of the annexation..."
257. By Resolution 670 of 25th September the Security Council required all states to impose further stringent sanctions against Iraq, and by paragraph 8 of its Resolution 674 of 29th October it reminded Iraq
"that under international law it is liable for any loss, damage or injury arising in regard to Kuwait and third States, and their nationals and corporations, as a result of the invasion and illegal occupation of Kuwait by Iraq..."
258. The Security Council ultimatum to Iraq ("to allow Iraq one final opportunity, as a pause of goodwill") was delivered by Resolution 678 of 29th November which authorised
"Member States co-operating with the Government of Kuwait, unless Iraq on or before 15 January 1991 fully implements, as set forth in paragraph 1 above, the foregoing resolutions, to use all necessary means to uphold and implement resolution 660 (1990) and all subsequent relevant resolutions and to restore international peace and security in the area..."
259. Following the success of the Coalition's campaign against Iraq the Security Council recognised the Iraqi concession to the demands of the United Nations in Resolution 686 of 2nd March 1991. This resolution includes demands that Iraq
"2. ...(a) Rescind immediately its actions purporting to annex Kuwait;
(b) Accept in principle its liability under international law for any loss, damage or injury arising in regard to Kuwait and third States, and their nationals and corporations, as a result of the invasion and illegal occupation of Kuwait by Iraq...and
(d) Immediately begin to return all Kuwaiti property seized by Iraq, to be completed in the shortest possible period..."
260. It was in response to Resolution 686 that Iraq adopted its own RCC Resolution 55, made on 5th March and gazetted on 18th March 1991, as follows:
"In line with the acceptance by the Government of Iraq of the Security Council Resolution 686 of 1991 and its previous acceptance of other resolutions of the Council and in accordance with the provisions of paragraph (A) of Article Forty Two of the Constitution, the Revolutionary Command Council has resolved:
First: All Resolutions of the Revolutionary Command Council enacted from 2 August 1990 and relating to Kuwait are hereby repealed.
Second: All Laws, Regulations, Orders, Instructions, Directives and Measures taken in accordance with the resolutions of the Revolutionary Command Council referred to in (First) are repealed and all consequences resulting thereof are annulled..."
261. In an obiter part of his judgment (at pp 80-84) Mance J considered whether RCC Resolution 55 had retroactive effect. If it had, then it might be that no effect would have to be given to Resolution 369 in any event. He considered that it would only have given rise to that result if provision had been made to render Resolution 369 null and void from the date when it was passed. He concluded, however, that -
"[That] is not, to my mind, the result, if RCC Resolution 369 is recognised as a valid resolution when passed, but RCC Resolution 55 had the effect of reversing it and its consequences. The difference is that, although all persons would have retroactively to unravel and to account for all that happened in the meanwhile, it could not be said that it had never happened, and in particular it could not be suggested that IAC had not under Iraqi law actually acquired ownership for a period...The upshot is that, although I consider that RCC Resolution 55 probably did have considerable retrospective effect going back to the inception of RCC Resolution 369, I am not satisfied that it meant under Iraqi law that RCC Resolution 369 was to be treated as non-existent, or that it can assist KAC establish a title which it did not otherwise have during the relevant period."
262. There has been no attempt on this appeal to persuade us to reach any different view of Iraqi law on this matter. It follows that RCC Resolution 369 would, if given effect by the English court, provide IAC with a defence under Iraqi law. But it also follows from the existence of RCC Resolution 55 that Iraq ultimately recognised the authority of the United Nations' demands and accepted the obligation, albeit vi et armis, to repeal, and annul the consequences of, all its resolutions relating to Kuwait, including Resolution 369.
25 The Berman letter
263. On 24th October 1997, in preparation for the stage 1 trial before Mance J, an order was made that the Secretary of State for Foreign and Commonwealth Affairs be requested, if he be willing to answer the request, to answer the following question:
"Has Her Majesty's Government recognised at any time that the State of Iraq exercised de facto sovereign power in Kuwait as at 17 September 1990 or at any time thereafter?"
264. The reply to that question came in the form of a letter dated 7th November 1997 from Sir Franklin Berman, the Legal Adviser to the Foreign and Commonwealth Office. The letter (the "Berman letter") read in part as follows:
"...Her Majesty's Government in the United Kingdom have not at any time, throughout the period from the date specified in the learned Judge's Order until the expulsion of Iraqi forces from Kuwait on 26 February 1991, recognised Iraqi occupation or control over the territory of Kuwait.
On 6 August 1990, four days after Iraqi invasion and occupation of Kuwait, the Security Council of the United Nations adopted Resolution No 661 (1990). This Resolution was binding on all Member States under the terms of the Charter of the United Nations and determined inter alia that Iraq had usurped the authority of the legitimate Government of Kuwait and that all States should not recognise any regime set up by the occupying Power.
On 9 August 1990, the Security Council adopted Resolution No 662 (1990). This Resolution was likewise binding on all Member States...
Copies of both resolutions are annexed to this letter.
A subsequent decision of the Security Council of 2 March 1991 required Iraq to rescind immediately its actions purporting to annex Kuwait.
The conduct of Her Majesty's Government in the United Kingdom has been strictly in conformity with the requirements of these Resolutions and all other pertinent decisions of the Security Council relating to the Iraqi invasion and occupation of Kuwait."
26 The authorities on the international law dimension
265. The authorities on these topics have to be considered as a whole, for they are part of a seamless web. In particular, the act of state doctrine and the non-justiciability principle, although two separate rules, can only be understood in relation to one another.
266. The authorities were fully and ably considered by Mance J, which makes our task easier.
267. It is well established that the act of state doctrine operates only in so far as the goods in question are within the territory of the foreign sovereign at the time when he acts or legislates in relation to them. Provided those territorial and temporal conditions are met, it does not matter whether or not the goods are in England at the time of the subsequent proceedings (Luther v Sagor, Princess Paley Olga v Weisz; cf The Playa Larga [1983] 2 Lloyd's Rep 171 at p 194, where the goods were on the high seas at the relevant time). In the first two of those cases the claimant was a citizen or company of the foreign state.
268. In the past there was an open question whether it made any difference whether the claimant was a person who owed no allegiance to the foreign state, and thus whether international law principles relating to the expropriation of the property of aliens might properly be invoked. In Ricaud v American Metal 246 US 304 (1918), where the claimant was an American citizen, the US Supreme Court held, following the earlier broad statement of the doctrine in Oetjen v Central Leather 246 US 297 (1918), that that fact made no difference to the application of the act of state doctrine.
269. In Anglo-Iranian Oil Co Ltd v Jaffrate [1953] 1 WLR 246, however, Campbell J in the Supreme Court of Aden held that the expropriation by Iran of the oil concessions of an English company would not be recognised because Iran was in breach of a rule of international law to the effect that such expropriation must be accompanied by "adequate, effective and prompt" compensation. The width of that decision was not, however, followed by Upjohn J in In re Claim by Helbert Wagg & Co Ltd [1956] 1 Ch 323, a case in which he was considering the effectiveness of a German moratorium law. He said at pp 348-9:
"In In re Banque des Marchands de Moscou (Koupetschesky), Royal Exchange Assurance v The Liquidator (which does not appear to have been cited to Campbell J) Vaisey J expressed the view that the general principle was not limited to nationals of the confiscating state. I respectfully agree with him, for it seems to me that on this question nationality must be irrelevant. If the principle be true in respect of a State in relation to its own nationals, it must surely be conceded in relation to those persons who, though not subjects of the State, nevertheless bring their movables within its jurisdiction for business or private reasons or for the like reasons enter into contracts governed by the law of the State, and in general enjoy the same benefits and protection and are subject to the same disadvantages and disabilities as subjects of the State.
With all respect to Campbell J, I think that Luther v Sagor and Princess Paley Olga v Weisz laid down principles of general application not limited to nationals of the confiscating State.
In my judgment the true limits of the principle that the courts of this country will afford recognition to legislation or contracts governed by the law of that State rests in consideration of international law, or in the scarcely less difficult considerations of public policy as understood in these courts. Ultimately I believe the latter is the governing principle. But, whatever be the true view, the authorities I have reviewed do show that these courts have not on either ground recognised any principle that confiscation without adequate compensation is per se a ground for refusing recognition to foreign legislation."
270. He then went on to consider what other limitations might nevertheless exist on the doctrine of recognition of the acts of foreign states. He cited (at p 350) a dictum of Lord Simonds in Kahler v Midland Bank Ltd [1950] AC 24 at p 27, who spoke of
"a law of such a penal or discriminatory nature that it should be disregarded by the courts of this country."
Upjohn J continued (at pp 351-2)
"In my judgment these courts must recognise the right of every foreign State to protect its economy by measures of foreign exchange control and by altering the value of its currency. Effect must be given to those measures where the law of the foreign State is the proper law of the contract or where the movable is situate within the territorial jurisdiction of the State. That, however, is subject to the qualifications that this court is entitled to be satisfied that the foreign law is a genuine foreign exchange law, that is, a law passed with the genuine intention of protecting its economy in times of national stress and for that purpose regulating (inter alia) the rights of foreign creditors, and is not a law passed ostensibly with that object, but in reality with some object not in accordance with the usage of nations."
271. It will be observed that Upjohn J did not say that international law was wholly irrelevant to the issues which he had to consider. On the contrary, he referred at p 349 to "considerations of international law" and at p 352 to "the usage of nations". His disagreement with the decision in The Rose Mary was therefore a narrower one. It appears to have rested on the proposition that the nationality of the claimant is not decisive, since the foreign claimant may, just like the national, owe a form of allegiance which he has voluntarily undertaken, either by reason of doing business within the state in question, or by bringing his property within the state's jurisdiction, or by being willing to enter into contracts that are governed by its law : see, generally, p 348.
272. At any rate, KAC does not in this case ask the court to disregard Resolution 369 by reference to any rule in international law which might require compensation for the expropriation of the property of non-nationals.
273. In Oppenheimer v Cattermole [1976] AC 249 the House of Lords refused to sanction recognition to a Nazi decree by which a German Jew, already then a refugee in England, had lost his nationality. The context of the dispute was not the appliability of the act of state doctrine, but whether Mr Oppenheimer had, by reason of German nationality law, lost the right to double taxation relief in England which was available to those of dual British and German citizenship. Lord Cross of Chelsea gave the leading speech, with which the other members of the House of Lords agreed, save that Lord Hailsham of St Marylebone preferred to express no concluded view on the effect of the Nazi decree, and Lord Pearson dissented on that issue. Lord Cross said at pp 276H-278C:
"The third ground on which it was argued that English law should pay no regard to the 1941 decree was that it was contrary to international law.
In his judgment Buckley LJ says [1973] Ch. 264, 273:
`...the answer to the question whether or not the person is a national or citizen of the country must be answered in the light of the law of that country however inequitable, oppressive or objectionable it may be.'
With all respect I cannot agree that that is the law. If a foreign country purported to confer the benefit of its protection on and to exact a duty of allegiance from persons who had no connection or only a very slender connection with it our courts would be entitled to pay no regard to such legislation on the ground that the country in question was acting beyond the bounds of any jurisdiction in matters of nationality which international law would recognise. In this respect I think that our law is the same as that of the United States as stated by the Circuit Court of Appeals, Second Circuit in United States ex rel. Schwarzkopf v Uhl, 137 Fed Rep 2d 898...
Mr Vinelott...pointed out that the 1941 decree was only aimed at persons who had already left Germany for good and that emigration was a common and well-recognised ground for the withdrawal of nationality. This is, of course, true, and if the decree had simply provided that all Germans who had left Germany since Hitler's advent to power with the intention of making their homes elsewhere should cease to be German nationals it may be that our courts would have had to recognise it even though many of those concerned were not in truth voluntary emigrants but had been driven from their native land. But the 1941 decree did not deprive all "emigrés" of their status as German nationals. It only deprived Jewish emigrés of their citizenship. Further, as the later paragraphs of the decree show, the discriminatory withdrawal of their rights of citizenship was used as a peg upon which to hang a discriminatory confiscation of their property. A judge should, of course. be very slow to refuse to give effect to the legislation of a foreign state in any sphere in which, according to accepted principles of international law, the foreign state has jurisdiction. He may well have an inadequate understanding of the circumstances in which the legislation was passed and his refusal to recognise it may be embarrassing to the branch of the executive which is concerned to maintain friendly relations between this country and the foreign country in question. But I think - as Upjohn J. thought (see In re Claim by Helbert Wagg & Co. Ltd. [1956] Ch. 323, 334) - that it is part of the public policy of this country that our courts should give effect to clearly established rules of international law. Of course on some points it may be by no means clear what the rule of international law is. Whether, for example, legislation of a particular type is contrary to international law because it is "confiscatory" is a question upon which there may well be wide differences of opinion between communist and capitalist countries. But what we are concerned with here is legislation which takes away without compensation from a section of the citizen body singled out on racial grounds all their property on which the state passing legislation can lay its hands and, in addition, deprives them of their citizenship. To my mind a law of this sort constitutes so grave an infringement of human rights that the courts of this country ought to refuse to recognise it as a law at all."
274. Mr Donaldson submits that in this passage Lord Cross's reference to the accepted principles of international law was merely an obiter reflection, and that the proper ratio of that part of his decision was founded exclusively in the context of grave infringements of human rights, a context inapplicable to the present case and its subject matter of the property of a commercial, corporate enterprise. We do not think that this is a legitimate way of reading what Lord Cross said. Of course, the true ratio of Oppenheimer v Cattermole is not to be found in this passage at all, but in the ultimate decision, which went against Mr Oppenheimer, namely that under the post-Nazi legislation of the Federal German Republic he was as a non-resident presumed to have ceased to be a German national unless he applied anew for citizenship, which he was entitled to do. In the meantime the Nazi decree had been abrogated, and the German Constitutional Court had declared it for the purposes of German municipal law as from the first "Unrecht" and not law (see p 263G). The post-Nazi legislation was retrospective in the complete sense that it was "null and void ab initio" (see p 270D). This state of affairs had only become apparent since the decision in the Court of Appeal. That court's reasoning had thus turned on a misconception and become irrelevant. Nevertheless, the majority of the House of Lords were unwilling to leave the matter there (see Lord Cross at p 275B-C). It follows that the passage we have cited which relates to the status of the Nazi decree in English Law is, strictly speaking, entirely obiter. On the other hand it is imbued with a special authority in the sense that a majority of the members of the House of Lords wished to deal with it when they need not have done so.
275. The whole passage is permeated with a consideration of the role of international law in a particular subject matter, that of nationality, which prima facie may be said to be peculiarly the province of each sovereign state. The passage begins (at p 276H) by referring to the argument that the decree should not be recognised in that "it was contrary to international law". That argument is nowhere rejected. Next, Lord Cross expressed his disagreement with the cited dictum of Buckley LJ, basing himself (at p 277B) on the specific ground that exorbitant legislation could be disregarded where a state "was acting beyond the bounds of any jurisdiction in matters of nationality which international law would recognise". Thirdly, he rejected (at p 277D-E) a submission that international law set no limits on a state's power to withdraw citizenship. Fourthly, he acknowledged (at p 277H) that the courts should be very slow to refuse to give effect to legislation in which "according to accepted principles of international law" the state has jurisdiction. Fifthly, he cited with approval (at p 278A) Upjohn J's dictum in Helbert Wagg that our courts should as a matter of public policy give effect to clearly established rules of international law. He thereby equated such clearly established rules (which he contrasted with controversial issues of international law) with English public policy. He then moved rapidly forward to his conclusion. In our judgment, in this passage Lord Cross was using clearly established principles of international law as a two-way test for the recognition of foreign legislation. That is to say, where international law recognises the jurisdiction of a state to legislate regarding its affairs, an English court should be slow to refuse its own recognition. On the other hand, where international law would reject the legitimacy (eg on the ground of exorbitancy) or the legality of a state's legislation, it should be open to challenge in England as a matter of public policy.
276. Lord Cross's views are put into sharper relief by Lord Pearson's dissent. Lord Pearson said (at p 265F-266A):
"When a government, however wicked, has been holding and exercising full and exclusive power in a foreign country for a number of years, and has been recognised throughout by our government as the government of that country, and some legislative or executive act of that government, however unjust and discriminatory and unfair, has changed the status of an individual by depriving him of his nationality of that country, he does in my opinion effectively cease to be a national of that country and becomes a stateless person unless and until he has acquired some other nationality ...The problem of effecting any necessary rectification of the position created by the unjust decree of the wicked government is a problem for the successor government of the foreign country..."
277. Lord Hodson in his short speech expressed his disagreement with Lord Pearson's dissent in these terms (at p 265C):
"I do not agree that this is a correct view of the relevant international law and as present advised am of the opinion that Lord Cross's approach, consistent with that of Martin Wolff in his work on Private International Law, 2nd ed (1950), p 129, is to be preferred."
278. Thus Lord Hodson not only viewed Lord Cross's approach as being premised on the relevance of international law to English public policy, but also for himself formulated his disagreement with Lord Pearson's positivist view in terms of the impact of international law.
279. Lord Cross did not address the territorial act of state doctrine directly. He merely threw it a sidelong glance while he was discussing the uncertainty of the international rule regarding "confiscatory" legislation. Lord Hailsham, however, and Lord Salmon were both more explicit. Thus Lord Hailsham said (at p 263E-F) that:
"It may be that English law will not give a single and unequivocal answer to the problems raised by the unjust and discriminatory legislation of a foreign country.."
He then contrasted the cases of Luther v Sagor and Princess Paley Olga v Weisz with Frankfurther v WL Exner Ltd [1947] Ch 629 and Novello & Co Ltd v Hinrischsen Edition Ltd [1951] Ch 595.
280. Lord Salmon, while in entire agreement with Lord Cross, added some remarks of his own. He said (at p 282E):
"The comity of nations normally requires our courts to recognise the jurisdiction of a foreign state over all its own nationals and all assets situated within its own territories. Ordinarily, if our courts were to refuse to recognise legislation by a sovereign state relating to assets situated within its own territories or to the status of its own nationals on the ground that the legislation was utterly immoral and unjust, this could obviously embarrass the crown in its relations with a sovereign state whose independence it recognised and with whom it had and hoped to maintain normal friendly relations."
281. He then expanded upon the facts of Luther v Sagor and quoted from Scrutton LJ's judgment at pp 558-9, ending his citation where Scrutton LJ said at p 559:
"I do not feel able to come to the conclusion that the legislation of a state recognised by my Sovereign as an independent sovereign state is so contrary to moral principle that the judges ought not to recognise it."
282. Lord Salmon concluded:
"The alleged immorality of the Soviet Republic's 1918 decree was different in kind from the Nazi decree of 1941. The latter was without parallel. But, even more importantly, England and Russia were not at war in 1918 whilst England was at war with Germany in 1941 - a war which, as Goulding J points out [1972] Ch. 585, 595, was presented in its later stages as a crusade against the barbarities of the Nazi régime of which the 1941 decree is a typical example. I do not understand how, in these circumstances, it could be regarded as embarrassing to our government in its relationship with any other sovereign state or contrary to international comity or to any legal principles hitherto enunciated for our courts to decide that the 1941 decree was so great an offence against human rights that they would have nothing to do with it."
283. It appears therefore to be important to Lord Salmon's reasoning that the international comity which would normally require recognition of the jurisdiction of foreign states to legislate within their own territory may be abrogated where England is at war, at any rate in the face of exceptional immorality.
284. Buttes Gas v Hammer reached the House of Lords in 1981. The case arose out of a defamation action, the issues in which embraced two conflicting oil concessions which neighbouring states in the Arabian Gulf had granted over their territorial and offshore waters. The foreign relations of the United Kingdom and Iran were also involved in the dispute. The authorities concerning acts of state were reviewed for the purpose of a submission by the defendants that the action raised issues which were non-justiciable in English courts and should therefore be stayed. Lord Wilberforce gave the only speech with which the other members of the House of Lords concurred. Oppenheimer v Cattermole was cited in argument, but it was not mentioned in Lord Wilberforce's speech.
285. In the event, a general principle of non-justiciability was accepted which went beyond the doctrine, and the limitations, of the territorial act of state rule itself. Lord Wilberforce detected the first trace of this principle in the 17th century in Bland v Bamfield (1674) 3 Swan 604, 607. He then moved forward nearly two centuries in time and drew on the distinction between sovereign immunity ratione personae and immunity from jurisdiction ratione materiae which he derived from Duke of Brunswick v King of Hanover (1844) 6 Beav 1, (1848) 2 HL Cas 1. At p 932F-H he cited from the speech of Lord Cottenham LC in that case at p 21 and said:
"and he continues by distinguishing cases of private rights (cf Luther v Sagor [1921] 3 KB 532). He then said, at pp 21-22:
`If it were a private transaction...then the law upon which the rights of individuals may depend, might have been a matter of fact to be inquired into...But...if it be a matter of sovereign authority, we cannot try the fact whether it be right or wrong.'"
286. Lord Wilberforce then turned to consider the United States authorities, and concluded that in more recent years their courts had moved towards a "flexible" use of the doctrine of non-justiciability on a case by case basis. In a much-quoted paragraph he concluded (at p 938A-C):
"It would not be difficult to elaborate on these considerations, or to perceive other important inter-state issues and/or issues of international law which would face the court. They have only to be stated to compel the conclusion that these are not issues upon which a municipal court can pass. Leaving aside all possibility of embarrassment in our foreign relations (which it can be said not to have been drawn to the attention of the court by the executive) there are - to follow the Fifth Circuit Court of Appeals - no judicial or manageable standards by which to judge these issues, or to adopt another phrase (from a passage not quoted), the court would be in a judicial no-man's land: the court would be asked to review transactions in which four sovereign states were involved, which they had brought to a precarious settlement, after diplomacy and the use of force, and to say that at least part of these were `unlawful' under international law."
287. It may be observed that Buttes Gas is not a case concerned with the territorial expropriation of goods. On the contrary, at the heart of the dispute in that case was a boundary dispute between states which made it impossible to say what the territorial limitations of those states were.
288. The Playa Larga [1983] 2 Lloyd's Rep 171 was a case concerned with the conversion of goods by order of a foreign state. The goods in question were on the high seas at the relevant time. The defendant Cubazucar was the state's sugar trading company. Since the territorial act of state doctrine therefore had no application, Cubazucar set up a defence based on the wider principle of non-justiciability, which failed in the event. Ackner LJ, giving the judgment of this court, thought (at p 194) that where the acts relied on were carried on outside the sovereign's territory:
"there seems no compelling reason for judicial restraint or abstention".
289. In a subsequent passage at pp 194-5, he opined, obiter, that if, contrary to the court's view, the case brought into question the legislative or international transactions of the Cuban government, it nevertheless involved an act of a private law character such as a private citizen might have entered into.
290. Another issue in The Playa Larga was concerned with a Cuban decree which had frustrated the outstanding instalments of a contract of sale by Cubazucar of Cuban sugar. The arbitrators had found that this decree was penal and discriminatory in that it "confiscated" the Chilean claimant's valuable right under an English law contract to take delivery on a rising market. Nevertheless, this court agreed with the arbitrators (and with Mustill J at first instance) that the English courts should not refuse recognition to it. Helbert Wagg and Oppenheimer v Cattermole were treated as the leading authorities. Ackner LJ said (at p 190):
"The Court must look at all the circumstances, and then consider whether the law is so far-reaching in its scope and effect as really to offend against public policy..."
291. Ackner LJ then quoted from Lord Cross in Oppenheimer at pp 277H-278A and continued:
"It is quite impossible for a Court in this country to set itself as a judge of the rights and wrongs of a controversy between two friendly countries [viz Cuba and Chile]. We cannot judge the motives or the justifications of governments of other countries in these matters and, if we try to do so, the consequences might seriously prejudice international relations (Reggazoni v K.C. Sethia (1944) Ltd, [1957] 2 Lloyd's Rep 289; [1958] AC 301 per Lord Reid at pp 299 and 326. Adopting the language of Lord Cross and Lord Salmon in the Cattermole case at p 278C and 283F, does the legislation constitute so grave an infringement of, or an offence against, human rights that the Courts of this country ought to refuse to recognise it as a law at all? The law was directed essentially against Chilean official and semi-official agencies. The seizure was intended in part as a means of achieving compensation for Cuban property damaged as a result of the coup, in which a government strongly hostile to Chile [sc Cuba] had come into power by military force, and whose existence Chile [sc Cuba], rightly or wrongly, clearly considered to be strongly inimical to its political and economic interests. We agree with the view of the learned Judge, which by inference must have been that of the arbitrators, that the legislation was not so repugnant to British ideas of international and personal morality as to require the English courts to ignore its existence."
292. It would seem therefore that in so far as Cuba expropriated sugar on the high seas, the resultant conversion, shared in by Cubazucar, was justiciable in the English courts, but that in so far as Cuba expropriated the valuable chose in action possessed by the Chilean claimant under an English law contract, even though that expropriation was penal and discriminatory, the Cuban (legislative) act had to be recognised, on a rationale which in another context would have supported the principle of non-justiciability. This distinction, if fine, appears to turn on the importance of the fact that in the first instance Cuba acted outside its territory, whereas in the latter instance within it (albeit in relation to an English contract).
293. Mr Donaldson relied on this passage in The Playa Larga as supporting his submission that the scope of the Oppenheimer v Cattermole exception is to be limited to offences against human rights. It may be observed, however, that there was no issue in The Playa Larga as to whether the Cuban decree was in breach of international law.
294. In Williams and Humbert Ltd v W & H Trade Marks (Jersey) Ltd [1986] 1 AC 368 the territorial act of state principle was discussed in the context of the expropriation by Spanish decrees of shares in a Spanish company whose English subsidiary had rights in trade marks which it had sold to a Jersey company. The Spanish and English companies, under their new ownership, sought certain relief in relation to those trade marks, but the dispossessed proprietors sought to argue that the Spanish decrees should not be recognised on the ground that they were penal or confiscatory. The defence was rejected on the ground that the claimants' case did not depend in any way on the Spanish decrees but arose under the general law anterior to those decrees. The only effect of the decrees was that the Spanish company and its subsidiaries were now under the control of different owners, who had different policies to pursue. Lord Templeman, however, (with whose speech the other members of the House of Lords agreed) discussed the act of state doctrine in the context of a submission that the English courts would refuse to recognise the Spanish decrees. He began (at p 427G) by putting the matter on a broad domestic and international law policy level, seeing no difference between the two points of view:
"This pleading could be justified if English law abhorred the compulsory acquisition legislation of every other country, or if international law abhorred the compulsory acquisition legislation of all countries. But in fact compulsory acquisition is universally recognised and practised."
295. He then drew attention to international examples of the recognition of compulsory acquisition, subject to public interest and just compensation, beginning with the 1789 Declaration of the Rights of Man. He continued (at p 428C) by drawing attention to the territorial limitation of the act of state doctrine:
"There is undoubtedly a domestic and international rule which prevents one sovereign state from changing title to property so long as that property is situate in another state."
296. Once again, the English rule and the international rule were said to march in step. Lord Templeman next mentioned the exception that one state will not enforce the revenue and penal laws of another state, which he described as "another international rule" (at p 428F). Before turning to the authorities he concluded (at p 430D) -
"If the principles of English domestic and international law are applied and if the plaintiffs succeed in establishing liability against any of the appellants in tort, misfeasance or breach of fiduciary duty then an English court will grant the appropriate relief."
Throughout this passage there is no suggestion that domestic law is out of step with international law.
297. He then mentioned Luther v Sagor and Princess Paley Olga v Weisz before commenting (at p 431C):
"These authorities illustrate the principle that an English court will recognise the compulsory acquisition law of a foreign state and will recognise the change of title to property which has come under the control of the foreign state and will recognise the consequences of that change of title."
After discussion of other authorities Lord Templeman cited from Lord Cross in Oppenheimer v Cattermole and added (at p 434E):
"The views of Lord Cross of Chelsea in that case in relation to a Nazi law which offended human rights are of no assistance to the appellants in the present case which is a simple case of compulsory acquisition."
298. The present case is not concerned with the human rights of individuals nor is it a simple case of compulsory acquisition. How it should be characterised will have to be considered below.
299. The United States authorities have resonance in this context, since English cases have cited and approved American dicta and vice versa, and in Buttes Gas Lord Wilberforce, while acknowledging constitutional differences (at 936F), remarked on the close interweaving of legal doctrine in the decisions of the two nations in this area of the law (at pp 936H-937A).
300. In Banco Nacional de Cuba v Sabbatino 376 US 398 (1963) the Cuban government expropriated sugar of a Cuban corporation, largely owned by American interests, which was due for export under contracts of sale to an American purchaser. The purchaser then entered into new contracts with an instrumentality of the Cuban government, but was persuaded to pay the expropriated seller's US receiver, Sabbatino, to await judicial determination of the parties' rights. The petitioner now sued as assignee in effect for the Cuban government to recover the price of the sugar. The Cuban law provided for compensation, which "may well be deemed illusory" (at p 402). The case therefore concerned territorial expropriation. The lower courts declined to give effect to the act of state doctrine on the ground that the expropriation was in breach of international law and that the executive branch had declined to intervene to deter a judicial determination. The Supreme Court, after considering the practice not only in England but also in other jurisdictions (at footnote 21), considered that international law dictated neither the application nor the refusal of the doctrine (at pp 421-3). It could not be thought that "every case or controversy which touches foreign relations lies beyond judicial cognizance" (at p 423). The judicial branch had to be careful, however, that:
"its engagement in the task of passing on the validity of foreign acts of state may hinder rather than further this country's pursuit of goals both for itself and for the community of nations as a whole in the international sphere" (ibid).
301. Justice Harlan continued (at pp 427-8):
"The doctrine's continuing vitality depends on its capacity to reflect the proper distribution of functions between the judicial and political branches of the Government on matters bearing upon foreign affairs. It should be apparent that the greater the degree of codification or consensus concerning a particular area of international law, the more appropriate it is for the judiciary to render decisions regarding it, since the courts can then focus on the application of an agreed principle to circumstances of fact rather than on the sensitive task of establishing a principle not inconsistent with the national interest or with international justice...Therefore, rather than laying down or reaffirming an inflexible and all-encompassing rule in this case, we decide only that the Judicial Branch will not examine the validity of a taking of property within its territory by a foreign sovereign government, extant and recognised by this country at the time of suit, in the absence of a treaty or other unambiguous agreement regarding controlling legal principles, even if the complaint alleges that the taking violates customary international law."
302. He then went on to remark that there were few, if any, issues in international law at that time on which opinions seemed to be so divided as the limitations of a state's power to expropriate the property of aliens (at p 428), and concluded that adjudication in this area, perhaps more than any other, touched sensitively on "the practical and ideological goals of the various members of the community of nations" (at p 430). Justice White delivered a powerful dissent.
303. Nine years later the identical question came again before the Supreme Court in First National City Bank v Banco Nacional de Cuba 406 US 759 (1972). On this occasion, however, the executive branch had expressly represented to the court that the application of the act of state doctrine in the case would not advance the interests of American foreign policy. A majority of the court, this time including Justice White, held that the act of state doctrine did not prevent judicial examination of the legal issues raised in the case. After citing from previous Supreme Court decisions and from Luther v Sagor (at p 599), Justice Rehnquist said (at pp 767-8):
"We think that the examination of the foregoing cases indicates that this Court has recognized the primacy of the Executive in the conduct of foreign relations quite as emphatically as it has recognized the act of state doctrine...The act of state doctrine is grounded on judicial concern that application of customary principles of law to judge the acts of a foreign sovereign might frustrate the conduct of foreign relations by the political branches of the government...
Our holding is in no sense an abdication of the judicial function to the Executive Branch. The judicial power of the United States extends to this case...The only reason for not deciding the case by use of otherwise applicable principles would be the fear that legal interpretation by the judiciary of the act of a foreign sovereign within its own territory might frustrate the conduct of this country's foreign relations. But the branch of the government responsible for the conduct of those relations has advised us that such a consequence need not be feared in this case. The judiciary is therefore free to decide the case without the limitations that would otherwise be imposed upon it by the judicially created act of state doctrine."
304. It was in the light of these decisions that Lord Wilberforce was able to agree both that the courts of the United States had moved to a "flexible" use of the doctrine on a case by case basis and also that there was room in suitable cases for a principle of judicial restraint or abstention. Lord Wilberforce also found in United States decisions arising out of the Buttes Gas dispute itself support for his principle of judicial restraint. He endorsed the "obvious pertinence and rationality" of a letter to the Fifth Circuit Court of Appeals from the Legal Adviser to the Department of State which relied on
"the general notion that national courts should not assume the function of arbiters of territorial conflicts between third powers even in the context of a dispute between private parties."
305. He then quoted the Fifth Circuit's comment that "judicial or manageable standards are lacking" (at p 936C-E), and without quoting the relevant passage, he also mentioned its vivid phrase that the court would be in a judicial no-man's land (see p 938B).
306. Since that time, in Kirkpatrick and Co Inc v Environmental Tectonics Corporation International 493 US 400 (1990) the flexibility, but also the limits, of the American doctrine have been confirmed. Kirkpatrick sought relief against Environmental Tectonics on the former's allegation that the latter had bribed Nigerian officials to obtain a contract. The defence relied on the act of state doctrine, which the Supreme Court refused to apply since governmental acts were not directly or indirectly in question. The fact that foreign relations might be embarrassed was therefore irrelevant. Justice Scalia, in giving the opinion of the court, pointed out that even where the validity of sovereign acts within the foreign state's own territory were concerned, the application of the doctrine was not necessarily justified, but "a sort of balancing approach" could be applied. He concluded at p 100:
"The short of the matter is this: the Courts in the United States have the power, and ordinarily the obligation, to decide cases and controversies properly presented to them. The act of state doctrine does not establish an exception for cases and controversies that may embarrass foreign governments, but merely requires that in the process of deciding, the acts of foreign sovereigns taken within their own jurisdictions shall be deemed valid. That doctrine has no application to the present case because the validity of no foreign sovereign act is at issue."
307. The American authorities, while to some extent dependent on the constitutional implications of the priority of the executive branch in matters of foreign policy, demonstrate that some of the widest expressions of the doctrine have to be read as subject to the rationality of the principle. They also support the view expressed in Oppenheimer v Cattermole and elsewhere, that whereas the expropriation of the property of aliens may be controversial, in those cases where the relevant principles of international law are clearly established, judicial determination should neither be feared nor rejected on the ground that the conduct of international relations preempts it.
308. We turn now to see how the authorities have been treated in leading text-books and other academic writings. Dicey & Morris, Rule 2, at p 81, is stated in these terms:
"English courts will not recognise a right, power, capacity, disability or legal relationship arising under the law of a foreign country, if the enforcement or recognition of such right, power, capacity, disability or legal relationship would be inconsistent with the fundamental public policy of English law." (Emphasis added).
The commentary at paragraph 5-013, after discussing cases involving foreign contracts and foreign status, continues:
"Apart from these two groups of cases, examples of the exclusion of foreign law on the ground of public policy are rare. It has been said that it is a principle of public policy that the courts should give effect to clearly established rules of international law. It is not however contrary to public policy to recognise a decree of a foreign state expropriating property within its territory merely because it is `confiscatory', ie does not provide for compensation. But it may be otherwise if the decree is penal or discriminatory in such a way as to offend against public policy, or otherwise offends against the principles of safeguarding human rights..."
309. The territorial act of state doctrine is discussed at paragraphs 5-040 and 5-041. Paragraph 5-041 states:
"The general principle, however, is not an absolute one. In the first place, the foreign legislative act may be disregarded if it is not applicable under the normal principles of the conflict of laws. But although the English court may consider the expressed intention of the foreign legislation and the circumstances in which it was enacted, it will be slow to investigate the motives of the foreign legislator and to question its good faith. Secondly, the extent to which foreign legislation which would otherwise be regarded as valid and applicable may be disregarded on the ground that it is contrary to public international law is a controversial question..."
Against the last sentence in this passage there is a footnote reference (mis-dated) to Mance J's judgment in the present action.
310. The territorial act of state doctrine is dealt with at greater length under Rule 120 (at pp 995ff). The territorial limitation is emphasised at paragraph 25-006. The public policy exception and the role of customary international law are discussed at paragraphs 25-008 to 25-010, essentially in terms of the authorities we have cited above.
311. Dr F A Mann was not deterred by controversy from arguing in favour of the recognition of international law in this area. His article "International Delinquencies before Municipal Courts" (1954) 70 LQR 181, reprinted in Studies in International Law (1973) at p 366, is a well-known milestone. He ended the article (at pp 201-2) by advancing the following conclusions, among others, as his contribution to a "broad and still fertile subject of inquiry":
"1. When the conflict rule of the forum refers the court to a foreign law (lex causae), the court will not apply the latter if and in so far as it expresses or results from an international delinquency...
5. The question whether an international delinquency has been committed is to be answered according to the generally accepted principles of international law, but a municipal court will not answer it affirmatively except where both the law and the facts are clearly established..."
There is an echo of the last proposition in Lord Cross's formulation, containing as it does a reference to "clearly established principles of international law".
312. Dr Mann returned to this topic in later publications: see Foreign Affairs in English Courts, 1986, in particular at pp 148-182, and "The Consequences of an International Wrong in International and National Law" in Further Studies in International Law (1990) at pp 175-188. It is fair to say that his thesis as to the extent to which international law should guide national courts goes further than has so far been adopted in English jurisprudence. But it is also clear that since his 1954 article, English law has developed in its willingness to recognise international law as relevant to its reasoning (see Sir Thomas Bingham, The Changing Perspectives of English Law (1992 ICLQ 513). This may be seen not only in the dicta we have cited from Helbert Wagg, Oppenheimer v Cattermole, and Williams and Humbert, but also from the treatment of the analogous doctrine of sovereign immunity.
313. Our law for a very long time adopted an absolute theory of sovereign immunity which had been left behind by the growth of state involvement in trade and commerce. Sovereign immunity is a doctrine derived from international law. Ultimately the transition to the modern international law theory of a restricted version of sovereign immunity, which takes account of state trading, was sanctioned in England by the State Immunity Act 1978. But even before that Act came into effect, the courts had changed the common law principles of sovereign immunity by their willingness to recognise and incorporate into English law the requirements of international law doctrine. This process can be seen in development in a sequence of cases from Thai-Europe Tapioca Service Ltd v Government of Pakistan [1975] 1 WLR 1485, through The Philippine Admiral [1977] AC 373 and Trendtex Trading Corporation Ltd v Central Bank of Nigeria [1977] QB 529 to The I Congreso del Partido [1983] 1 AC 244. In the first of those cases the doctrine of incorporation of international law was rejected, but in Trendtex it was accepted: see Lord Denning MR at pp 553-4. As Lord Wilberforce said in The I Congreso del Partido at p 265C:
"But since, in this area, English courts are applying, or at least acting so far as possible in accordance with, international law, it is necessary to see what assistance can be gained. If the determination of the character of the relevant act has to be made by municipal courts, they should do so, so far as possible, in conformity with accepted international standards..."
It is noteworthy that in this area, too, Lord Wilberforce (at p 266G-H) paid particular tribute to the quality of the reasoning of United States courts which "while denying immunity to breaches of commercial agreements, even though for governmental reasons, seems to recognise the legitimacy of inquiring whether the act in question is within the area of commercial activity into which the state has descended."
314. In the context of English public policy there has also been a tendency in other areas of the law to look for guidance (inter alia) to international law. Thus in Blathwayt v Lord Cawley [1976] AC 397 Lord Wilberforce said at p 426A:
"I do not doubt that conceptions of public policy should move with the times and that widely accepted treaties and statutes may point the direction in which such conceptions, as applied by the courts, ought to move."
315. He was there speaking in the context of discrimination on the ground of religion, and the possible relevance of Article 9 of the European Convention on Human Rights. Lord Simon of Glaisdale at p 427G put the same point more generally, saying that rules of law expressing principles of public policy fell to be treated with the same respect and circumspection, the same common sense and regard to changing circumstances, as any other rules of law. There is no hint that he would have excluded relevant principles of international law from the spectrum of considerations a court would be under a duty to take into account in this context.
316. Oppenheim's International Law, 9th edition, 1992, Vol I, discusses the act of state doctrines at pp 365ff. Authoritative decisions of the courts of England, the United States and some other countries are discussed. Whether or not the doctrines are founded in public or private international law, it is said that in the light of those authorities there is probably no rule of international law which either positively requires or forbids the recognition of foreign acts of states, not even where those acts are themselves contrary to international law. The subject is treated as a matter of principle, however, in this passage at pp 375-6:
"Courts may be under a constitutional compulsion to give effect to the law of their own sovereign legislature even if violative of international law - although they will not lightly impute to it the intention to violate international law and although in some countries courts have in fact the power to refuse to give effect to national legislation contrary to international law - but there is no compelling reason why they should assist in giving effect to violations of international law by a foreign legislature. In the absence of compulsory jurisdiction of international tribunals and having regard to the prohibition, under the Charter of the United Nations and elsewhere, of compulsive means of enforcement of international law by national action, municipal courts may on occasions provide the only means for securing respect for international law in this and other spheres. Principle does not countenance a rule which, by reference to international law, obliges courts to endow with legal effect legislative and other acts of foreign states which are in violation of international law..."
317. In our judgment, these authorities indicate that English law is seeking to balance (at least) three separate insights as to the appropriate role of national courts when faced with reliance on foreign legislative or executive acts by way of defence to what might otherwise be a wrong for which those courts are called upon to provide a remedy.
318. First, there is the prima facie rule that a foreign sovereign is to be accorded that absolute authority which is vested in him to act within his own territory as a sovereign acts. This rule reflects concepts of both private and public international law as to territorial sovereignty. As such, we think that the rule is founded primarily on a view as to the comity of nations, rather than on concern as to giving offence to the foreign sovereign or as to the absence of judicial standards (see Buck v Attorney-General [1965] Ch 745 per Diplock LJ at p 770). We say this because, if the sovereign purports to act outside his territory, or even if he acts within it in a penal or discriminatory way and a claimant then seeks to found his claim on that sovereign act, the English court vindicates to itself the right in the first case not to recognise and in the second case not to enforce it. This shows that embarrassment about sitting in judgment on the acts of a foreign sovereign is not per se the cause of judicial restraint in this context. Rather, each sovereign says to the other: "We will respect your territorial sovereignty. But there can be no offence if we do not recognise your extra-territorial or exorbitant acts."
319. The second insight, however, is that, whether the sovereign acts within his own territory or outside it, there is a certain class of sovereign act which calls for judicial restraint on the part of our municipal courts. This is the principle of non-justiciability. It is or leads to a form of immunity ratione materiae. It may not be easy to generalise about such acts, and the application of the principle may be fact sensitive. Guidance, however, is to be found in such considerations as whether there are "judicial or manageable standards" by which to resolve the dispute, whether the court would be in "a judicial no-man's land", or perhaps whether there would be embarrassment in our foreign relations, at any rate if that possibility was drawn to the court's attention by the executive. Sensitive issues involving diplomacy between states, or uncertain or controversial issues of international law, may be other examples of situations calling for judicial restraint. The distinction which has been developed in the analogous area of sovereign immunity between situations where the sovereign acts by way of sovereign authority (acta iure imperii) and where he acts in the commercial sphere (acta iure gestionis) may also be of some assistance, because with the development of the restrictive theory of sovereign immunity there has come the realisation that it is not every impleading of a sovereign that requires judicial restraint or gives rise to a legitimate fear of giving offence. In essence, the principle of non-justiciability seeks to distinguish disputes involving sovereign authority which can only be resolved on a state to state level from disputes which can be resolved by judicial means.
320. The third insight is that the rule whereby there is a principle of judicial restraint in so far as a sovereign acts within his own territory, is only a prima facie rule. It is subject to certain exceptions. One exception we have already mentioned is that a penal or discriminatory act of a foreign sovereign cannot be made the basis of a claim in our courts. This is perhaps one aspect of a general exception to the effect that these courts will not recognise the act of a foreign sovereign which is contrary to English public policy. The existence of this exception is not in doubt. But how far does it extend, and what is meant by English public policy in this context? The width of the exception is uncertain both because the concept of public policy is itself not hard edged, and also because it has to take into account the abhorrence of outrageous acts on the one hand, and on the other hand the concerns which give rise to the first and second insights to which we have referred. This is the route by which it is possible to say that discriminatory breaches of fundamental human rights will not be recognised, even in a sphere which is as much a matter for individual sovereign choice as a person's nationality.
321. We have seen that the courts have been unwilling to interfere in acts of compulsory acquisition, on the basis that it is "universally recognised and practised". Even confiscation without compensation has on the whole been recognised in the past, apparently on the basis that it is difficult in this area to detect any clearly established rules of international law. Certain commentators, such as Dr Mann himself, would disagree with that view of international law, and it is not, we suppose, impossible that the views of our courts as to what international law teaches about confiscation may change. Lord Templeman, it may be noted, spoke cautiously about compulsory acquisition subject to public interest and just compensation; and Lord Wilberforce in Buttes Gas was equally cautious (at p 932H) to posit that "cases of private rights" (and here he referred, by way of example, to Luther v Sagor) might have to be distinguished from matters of sovereign authority in the context of a principle of non-justiciability.
322. It follows, in our view, but it is unnecessary to decide, that some of the dicta in this court in cases like Luther v Sagor and Princess Paley Olga v Weisz may now be subject to some reinterpretation. In those cases there was no attempt to deflect recognition of the Russian decrees by reference to English public policy. In such circumstances it may not have mattered much whether the courts gave effect to those decrees under the more limited doctrine of the territorial act of state principle or the wider principle of non-justiciability. Now, however, that those two principles have been separated by Lord Wilberforce's speech in Buttes Gas, it is possible to understand that the classic situation where the territorial act of state principle applies need not be, and perhaps is not appropriately, buttressed by language which is more suited to the rather different case where the principle of non-justiciability comes into play. The latter language makes it plausible to think that there are no circumstances where the territiorial act of state principle could be displaced by an exception. We know today, however, that exceptions can exist, and it follows that the principle of non-justiciability does not necessarily apply in every such case.
323. We think that behind these three competing insights, which between them strive to produce a balanced answer to the conflicting needs of private rights, sovereign immunities, and international relations, there is the constant theme of the role of universal, or at least generally accepted, principles of private and public international law. It ought to come as no surprise that restraints on judicial intervention that are suggested or required by considerations of what the international community of nations demands in certain situations should themselves be susceptible to exceptions which are mandated by clearly established principles of international law. If English public policy can be shown to differ from such principles, then no doubt the courts of this country will be required to follow the dictates or limits of that public policy. But there is, at any rate in the abstract, every reason to think that in most cases English public policy will be at one with, and will be illuminated by, clearly established principles of international law.
324. After this long review of the relevant caselaw and of the principles that may be derived from the authorities we have cited, we turn to the issues which the submissions of the parties have identified for discussion and decision.
27 Is the effectiveness or validity of RCC Resolution 369 justiciable in the English courts?
325. As we have already said, we regard this as a threshold question. If a principle of non-justiciability is applicable, then the circumstances which make it so ought to be more or less readily ascertainable. A principle of judicial restraint which can only identify the situation which calls for its application at the end of a difficult process of investigation and analysis can hardly be said to be fulfilling the function for which that principle has been formulated.
326. In the present case what does Mr Donaldson rely upon as requiring this court to declare KAC's claim to be non-justiciable? The essence of his submission can be found in paragraph 39 of his skeleton argument:
"The principle of non-justiciability reposes on the consideration that inter-state disputes involving sovereign (ie non-commercial) acts of states and their governments are not to be adjudicated upon by state courts but are rather for resolution on the inter-state plane. That is paradigmatically the case where invasions or annexations are involved. Notoriously, these are far from rare events even in modern times: the world has known and still must live with the phenomenon of many areas occupied by (even friendly) states in arguable or actual breach of international law. There is no rational basis for not applying the principle of `non-justiciability' in all such cases."
327. In developing this submission orally Mr Donaldson argued that it was irrelevant whether the annexation of Kuwait was or was not in breach of international law. Issues arising out of such an annexation were a matter for inter-state resolution. He pointed out that as a condition of the cease-fire Iraq agreed to pay compensation for Kuwaiti property that had been seized, and that a claims commission had been set up in this connection and provision made for successful claims to be paid out of Iraq's oil revenues (after the cessation of sanctions). The fact that the Security Council's resolutions had survived the possibility of the exercise of a veto was an inadequate basis, he said, for stigmatising the Kuwaiti invasion and annexation in any way different from those relating to other invasions or annexations, such as Goa by India, or Tibet by China.
328. Just as our courts could not entertain litigation against the sovereign state of Iraq in respect of the annexation of Kuwait, so, he said, it was impossible for them to entertain litigation against a state enterprise such as IAC. Justiciability could not depend on the attitude of the UK government, which could in theory change overnight. In any event, it was invidious for the court's decision to turn on executive fiat, rather than on a rule of law. Thus the Berman letter, with its reference to the non-recognition of Iraqi occupation or control over Kuwait and to the UN resolutions, was irrelevant. It should not be regarded as an invitation to the court to adjudicate upon KAC's claim.
329. Mance J dealt with this issue at a later stage of his analysis, after he had already concluded that Iraq had consistently acted in violation of its obligations under international law. Thus at p 73 he found that the UN resolutions:
"constituted a clear and consistent refusal to afford any degree of recognition at any time to Iraq's attempt by armed invasion to absorb Kuwait, a refusal which accorded with the seriousness of that attempt under international law generally and under the United Charter in particular..."
And at p 74 he added:
"It was, accordingly, Iraq's obligation under Chapters V and VII of the Charter to comply with the decisions of the Security Council...In maintaining its invasion, in removing KAC's aircraft from Kuwait and in enacting Resolution 369 and in failing to rescind these actions, Iraq was in breach of its Charter obligations."
330. He therefore concluded that there was not in this case any absence of judicial or manageable standards. Nor was the court in a judicial no-man's land. The court would not be setting itself up as the arbiter of disputed or sensitive issues. It would be more likely to "imperil amicable relations between governments" or to "vex the peace of nations" (see Oetjen v Central Leather Company 246 US 297, 303-4 (1918)) if the court refused to take account of fundamental wrongdoing at the international level. On the contrary:
"It would run strangely contrary to this country's international obligations, under the Security Council resolutions, if its courts, as an emanation of this country's sovereignty independently of the executive and the legislature, adopted an approach contrary to that to which this country is committed under the Charter and as a result of the Security Council Resolutions" (at p 75).
He therefore concluded that Iraq's conduct was justiciable and that he was not only entitled, but bound, to take it into account.
331. We agree that the Security Council resolutions, against the background of the Charter of the United Nations, to which both the United Kingdom and Iraq were signatories, were binding on both nations, and indeed on all member states of the United Nations, which embrace practically all the nations in the world. We agree also that this material provides clear evidence of breach by Iraq of clearly established principles of international law. Indeed, the opposite has not been asserted on behalf of IAC. The only difficulty which perhaps might be said to arise with the judge's approach in principle is that it ought in theory to be possible to decide whether KAC's claim is justiciable or not without first entering upon an adjudication of whether Iraq's conduct is or is not contrary to international law, which involves sitting in judgment on that conduct.
332. There is something here, therefore, of a paradox. A solution to it may be to begin by asking what issues the proceedings will inevitably involve determining (see Buttes Gas at p 937B). That approach would lead one straight into the territorial act of state doctrine, for IAC relies on Resolution 369, and the question immediately becomes whether these courts are bound to recognise it, which prima facie they are, or whether the exception based in English public policy applies. It is that question which leads to a consideration, if it is feasible, of Resolution 369 in its overall context, and as to whether a breach of international law has occurred. To decline to adjudicate on that question would be to reject the idea that the territorial act of state doctrine has any limitation based on clearly established principles of international law. Nor would it be obvious why any similar enquiry could be conducted under the rubric of English public policy. Moreover, Lord Wilberforce appears to have thought that "cases of private rights (cf Luther v Sagor...)" were different.
333. The issues in Buttes Gas itself can be contrasted. There the alleged defamation involved deciding what the boundaries of the territorial waters overlying the continental shelf were as between three sovereign states, and also what the motives of sovereign rulers were (see p 937). No considerations of this kind are present in the present case. It is a relatively straightforward case where a defendant who is sued for the conversion of another's property relies on a transfer of title brought about by the legislation of a foreign sovereign. The question is whether that transfer of title can be attacked as contrary to English public policy. There is prima facie nothing unmanageable about that issue, which is familiar to English jurisprudence, even if its ramifications are not entirely clear. Whatever jurisdictional claim may have been the colourable pretext of Iraq's invasion and annexation of Kuwait, Iraq itself had by March 1991 foresworn its own actions, albeit under force of arms, and accepted that it was obliged to reverse its conduct. So far as Resolution 369 is concerned, its reversal by Resolution 55 may not have been comprehensively retroactive in the way in which the post-Nazi legislation mentioned in Oppenheimer v Cattermole obliterated the Nazi nationality decree ab initio. Nevertheless Iraq has made clear its own acceptance of the need to return all Kuwaiti property seized, and of the need to acknowledge in principle its liability under international law for any loss arising out of the invasion and illegal occupation of Kuwait: see the wording of Security Council Resolution 686, and of RCC Resolution 55 which responds directly to that resolution.
334. In these circumstances, there was nothing precarious or delicate, and nothing subject to diplomacy, which judicial adjudication might threaten; there could be no embarrassment to diplomatic relations, no casus belli, and nothing to vex the peace of nations in judicial investigation. On the contrary, the Security Council resolutions had made clear to all its member states that they were not to recognise Iraq's attempt to annex Kuwait, that that annexation was null and void, and that Iraq bore responsibility for loss caused by its invasion. Moreover, the Berman letter provided an opportunity for the executive branch of government to make known to the judicial branch any concern it might have felt about the non-justiciability of the issues raised by KAC's claim, and to do so against the background of the speech of Lord Wilberforce in Buttes Gas. In the event the letter emphasised Her Majesty's Government's commitment to its obligations under the UN Resolutions.
335. It also follows from the decision of the House of Lords in this action on the question of sovereign immunity that, at any rate from the date of Resolution 369 and the placing of the Kuwaiti aircraft fleet at the disposal of IAC pursuant to that decree, there was no question of IAC sharing in any immunity that derived from acta iure imperii. Moreover, Mr Donaldson accepted in argument before us that whether KAC's fleet of aircraft was operated directly by Iraq, or by IAC, once there came a time, viz at latest 17th September 1990, when a decision had been taken to operate KAC's aircraft as part of Iraq's civil aviation fleet, then both Iraq and IAC would have been acting within the range of commercial activity for which neither a sovereign nor its agent could claim the immunity of a sovereign. If therefore Iraq had simply kept the aircraft for itself, it would not have had sovereign immunity for at any rate its retention of KAC's fleet.
336. The fact that it first acquired possession of that fleet by an exorbitant act of international piracy, carried out on the territory of another sovereign state, ought not, save on some irresistible doctrine of non-justiciability, to prevent Iraq answering, under legal principle, for the usurpation of KAC's property. Nor should the fact that it enacts a law in its own favour giving title to itself or, as in fact occurred, to its agency IAC. The Buttes Gas principle of judicial restraint, however, is very far from a principle of overwhelming applicability. It is sensitive to the issues involved in a given case. In Buttes Gas it was applied to a case concerned with unresolved territorial conflicts between neighbouring states. It is not clear why it should apply to a case where IAC has suggested no judicially unmanageable issue of international or diplomatic sensitivity, nor any other issue at all which would need to be resolved in order to adjudicate upon the validity of Iraq's seizure, in the course of its invasion of Kuwait, of KAC's aircraft, or of Iraq's decision to transfer the aircraft to IAC rather than merely keep them for itself.
337. Mr Donaldson submits that issues arising out of the annexation of Kuwait were a matter for inter-state resolution, but he has not suggested what issues for such resolution relevant to KAC's claim there exist. He points to the setting up under the terms of the cease-fire of a claims commission, but the existence of this commission does not exclude litigation in national courts. He suggests that the case of Kuwait's invasion is no different from that of other invasions where the Security Council's role was neutered by veto, but this case cannot be judged by reference to other cases which arise on different facts (if only because of the imposition of such vetoes) and which have not come to national courts in similar circumstances. He relies on the immunity that Iraq or its agents would have for acts directly involved in the invasion, but this immunity does not survive the retention of the fleet for the purposes of civil aviation. He argues for the irrelevance of the Berman letter, and the undesirability of executive influence on the courts, but the letter is not irrelevant to the court's concern that the issues placed before it are judicially unmanageable or are liable to vex the peace of nations or interfere with international diplomacy. Nor does it seek to dictate to the court. Instead, it seeks to inform the court, and thus leave it free to apply its own principles to the claim placed before it and which prima facie it has a judicial responsibility to determine.
338. In all these circumstances it seems to us that there is no need to decide the question of international law, or to speculate about other invasions or annexations past or future, or to prejudge the applicability of the territorial act of state doctrine, in order to conclude that KAC's claim does not fall to be driven away from the courts on the ground of non-justiciability.
28 If it matters, was Iraq the de facto government of Kuwait at the time of Resolution 369?
339. We have referred (at paragraph 243 above) to a degree of scepticism on the part of IAC as to the relevance of this issue in this action, as distinct from the spares action. We agree with Mance J, however, that it is relevant to the categorisation of the resolution as more or less exorbitant in purporting to dissolve KAC, a Kuwaiti corporation whose status must depend on the law of its domicile.
340. It is necessary in this context to make a distinction between the recognition of governments and the recognition of states. Until 1980 a certificate of the UK Government as to whether it had or had not recognised a foreign government or state was treated by the courts as conclusive. In The Arantzazu Mendi [1939] AC 256 the Foreign Office was asked to say whether it recognised the Nationalist government of Spain, a ship in the possession of which had been arrested by the Republican government. The Nationalist government asked for the ship to be released on the ground of sovereign immunity, on the basis that it represented a foreign sovereign state. The House of Lords approved the course taken at first instance whereby the views of the Foreign Office were ascertained, to the effect that the Nationalist government was recognised as exercising de facto administrative control over the larger part of Spain and in particular the Basque provinces, where the ship in question had been registered (at Bilbao). Lord Atkin said (at p 264):
"Our State cannot speak with two voices on such a matter, the judiciary saying one thing, the executive another. Our Sovereign has to decide whom he will recognize as a fellow sovereign in the family of States; and the relations of the foreign State with ours in the matter of State immunities must flow from that decision alone."
341. In April-May 1980, however, the UK government announced in Parliament a change in practice with regard to the recognition of foreign governments. It stated:
"...we have conducted a re-examination of British policy and practice concerning the recognition of Governments. This has included a comparison with the practice of our partners and allies. On the basis of this review we have decided that we shall no longer accord recognition to Governments. The British Government recognises States in accordance with common international doctrine...
We have therefore concluded that there are practical advantages in following the policy of many other countries in not according recognition to governments. Like them, we shall continue to decide the nature of our dealings with regimes which come to power unconstitutionally in the light of our assessment of whether they are able of themselves to exercise effective control of the territory of the State concerned, and seem likely to continue to do so...
In future cases where a new regime comes to power unconstitutionally our attitude on the question of whether it qualifies to be treated as a Government will be left to be inferred from the nature of the dealings, if any, which we may have with it, and in particular whether we are dealing with it on a normal Government to Government basis."
342. This statement is quoted (at greater length) by Sir John Donaldson MR in Gur Corporation v Trust Bank of Africa Ltd [1987] QB 599 at p 619. In that case a question had arisen as to whether the Republic of Ciskei, which the Republic of South Africa had carved out of its own territories, existed as a separate state. Despite the 1980 statement, the Foreign Office was asked to inform the court as to Her Majesty's Government's attitude towards the Republic of Ciskei. The Foreign Office replied (see p 618C):
"...it is not the current practice of Her Majesty's Government to accord recognition to Governments. The British Government recognises states in accordance with common international practice, but so far as governments are concerned, the attitude of Her Majesty's Government is to be inferred from the nature of its dealings with the regime concerned...Her Majesty's Government does not recognise the `Republic of Ciskei' as an independent sovereign state, either de jure or de facto..."
343. Sir John Donaldson MR said (at p 617H) that the steps taken to obtain the views of the Foreign Office were "rightly taken"; and (at p 620E) that there existed:
"the basic public policy constraint that the courts cannot take cognizance of a foreign juridical person, if to do so would involve them in acting inconsistently with the foreign policy or diplomatic stance of this country."
344. He also described (at p 623B) the Foreign Office certificate as "conclusive" that the Republic of Ciskei was not recognised as a foreign sovereign state. Nourse LJ pointed out at p 625B that a question as to the recognition of a state could be asked and answered, as it had been, "without any offence" to the new practice initiated in 1980. In Republic of Somalia v Woodhouse Drake & Carey (Suisse) SA [1993] 1 QB 54, at 66B-C, Hobhouse J again distinguished the question of recognition of a state from that of a government, and pointed out that the Gur case was concerned with the former. He also remarked that it would be "contrary to public policy" not to recognise the accredited diplomatic representative of a foreign state.
345. In the present case, in answer to the question whether the UK Government had ever recognised Iraq as exercising "de facto sovereign power" in Kuwait, the Berman letter made no mention of the 1980 statement but stated that the Government:
"have not at any time...recognised Iraqi occupation or control over the territory of Kuwait."
346. The letter then went on to refer directly to (and to annex) Security Council Resolutions 661 and 662, pointing out that those resolutions had called on all member states not to recognise Kuwait's annexation, which "was considered null and void", nor to recognise any regime set up by "the occupying Power", and to refrain from anything that might be interpreted as (even) an indirect recognition of the annexation. The resolutions also referred to the "legitimate Government of Kuwait", and called on member states to take measures to protect the assets of that legitimate government and its agencies. The letter also made the point that the Security Council resolutions were binding on all member states, and concluded by stating that the conduct of Her Majesty's Government had been "strictly in conformity" with the requirements of these resolutions.
347. It is impossible to read that letter other than as a blunt statement that Her Majesty's Government had always continued to recognise Kuwait as an independent state, and its legitimate government as the only government entitled to recognition, and that, in accordance with its obligations as a member state of the United Nations, it had never given any recognition either to Kuwait's annexation or to any regime set up by Iraq by virtue of its occupation.
348. There is some uncertainty as to whether the question for us to determine goes to the recognition or otherwise of the absorption of Kuwait into Iraq, or to the exercise of de facto sovereignty in Kuwait by the Iraqi government. We have considerable sympathy for KAC's primary submission that the question is not so much whether the government of Iraq constituted the de facto government of Kuwait as of the date of Resolution 369, but rather whether Kuwait then continued to exist as an independent foreign state recognised by Her Majesty's Government. This is because Iraq did not claim to be the effective government of the separate state of Kuwait. Instead, it claimed that it had incorporated Kuwait into Iraq as an Iraqi province as from 8th August 1990. Unless, however, the UK government was prepared to recognise Kuwait's absorption into Iraq, which it was not, it would seem to follow that an independent Kuwait could hardly be regarded as ruled as though it was a mere province by the government of Iraq, although Iraq might, we suppose, be regarded as in belligerent occupation of Kuwait.
349. If that be right, then all question of the 1980 statement and the modern judicial test for determining the de facto government of a state falls away. Her Majesty's Government has never given up the right to inform the courts as to its recognition or non-recognition of states, and the public policy need for the courts to follow that information, spoken to by Lord Atkin and others, remains.
350. Even if that be wrong, however, we agree with Mance J that, despite the 1980 statement, there is nothing to prevent the UK government, if it thinks it appropriate, to tender to the courts an unequivocal certificate of recognition or non-recognition of the existence of a foreign government. In the first place, the 1980 statement was a statement of policy, nothing more. That policy may change, and the present exceptional circumstances may be thought to provide a valid occasion for such change. After all, the government was under a positive obligation, in the light of the UN resolutions, not to recognise any regime other than the legitimate government of Kuwait, and to do nothing which might be interpreted as even an indirect recognition of Kuwait's annexation. Secondly, the policy statement makes its clear (see Gur, p 619D) that its focus is on the typical case where "an unconstitutional change of regime takes place in a recognised State", where the question of formal recognition may lead to misunderstandings as to whether there is an implication of approval. Such a policy, however, does not even purport to answer or deal with the exigencies of the present case, where the government wanted, and was obliged, to make its attitude to the situation perfectly clear, and where the United Kingdom was in the process of allying itself to a Coalition which would, if necessary, take even belligerent steps to restore the status quo prior to Iraq's invasion. As Mance J put it (at p 67):
"In a particular case or in different circumstances, Her Majesty's Government must remain free to take and to inform the court of a more categorical attitude regarding recognition, or non-recognition, of a foreign government. If so, circumstances may still arise where Her Majesty's Government's attitude to recognition of a suggested government is clear to a point where, if this court were to take a different attitude, the State would be speaking with two voices in the manner emphatically rejected in The Arantzazu Mendi."
And a little later (at p 68):
"The imperative to avoid the State speaking with two voices is at its most powerful, when the United Kingdom Government, responsible for foreign affairs, draws to the court's attention the obligations by which this country was and is bound under international law...The strongest considerations thus combine to indicate that this court cannot accord to the Government of Iraq in Kuwait any de facto governmental status."
351. In any event, even if the court was free to determine for itself whether or not the government of Iraq had become the de facto government of Kuwait by 17th September 1990, we would agree with Mance J that that question would have to be answered in the negative. The leading decision, following the 1980 statement, on the criteria to be adopted by the courts for determining this question is that of Hobhouse J in the Republic of Somalia case. He listed (see his judgment at p 68E) the following four factors as those to be taken into account in deciding whether a government exists as the government of a state, viz:
"(a) whether it is the constitutional government of the state; (b) the degree, nature and stability of administrative control, if any, that it of itself exercises over the territory of the state; (c) whether Her Majesty's Government has any dealings with it and if so the nature of those dealings; and (d) in marginal cases, the extent of international recognition that it has as the government of the state."
352. Factor (a) operates entirely against IAC in the present case. The constitutional government of Kuwait remained that of the Emir, and the UN resolutions reflected the almost universal opinion that it should continue to be so regarded. Earlier in his judgment, Hobhouse J had said at p 67B-C that it was relevant:
"to distinguish between regimes that have been the constitutional and established government of a state and a regime which is seeking to achieve that position either displacing a former government or to fill a vacuum. Since the question is now whether a government exists, there is no room for more than one government at a time nor for separate de jure and de facto governments in respect of the same state. But a loss of control by a constitutional government may not immediately deprive it of its status, whereas an insurgent regime will require to establish control before it can exist as a government."
The Emir's government may have lost control of Kuwait, but it seems difficult to say that it had been deprived of its status.
353. Factor (b) reflects the criterion of effective administrative control referred to in The Arantzazu Mendi, where Lord Atkin spoke (at pp 264-5) of:
"all the functions of a sovereign government, in maintaining law and order, instituting and maintaining courts of justice, adopting or imposing laws regulating the relations of the inhabitants of the territory to one another and to the government."
354. In Carl Zeiss Stiftung v Rayner & Keeler Ltd (No 2) [1967] AC 853 Lord Reid cited at p 906 a Parliamentary statement made by the Secretary of State for Foreign Affairs on 21st March 1951 to the effect that it was international law which defined the conditions under which a government should be recognised de jure or de facto. For de facto recognition, the conditions were not only that "the new regime has in fact effective control over most of the state's territory", but also that "this control seems likely to continue".
355. As to these considerations, we are content to adopt Mance J's finding that while the invasion lasted, Iraq exercised a considerable measure of control in Kuwait. Thus, to quote his judgment (at p 68):
"Kuwait was governed and administered as an integral part of Iraq without frontier or controls save security checks to prevent looting; the laws of Iraq replaced those of the Emirate of Kuwait (although said to be very similar in many respects) and were administered by special Iraqi courts established by the Iraqi authorities; all public property of the Emirate, including KAC and its assets, was taken over by Iraq; the Iraqi dinar replaced the Kuwaiti dinar as legal tender; and Iraqi police took over the issue of driving licences and car registration documents, all Kuwaiti licence plates being replaced by new Iraqi plates."
356. IAC relied on these findings. However, Mance J immediately went on to find that Iraqi control was only "fragile and temporary". He cited the strong international reaction, as evidenced by the UN resolutions and ultimately the military action taken by the Coalition forces. He said, in effect, that it was clear from the outset that the international community intended and determined to reverse the invasion, if necessary by force.
357. Mr Donaldson submitted that the possibility that the Iraqi government might, if the Coalition held together and was prepared to invade, at some future date be forced out of Kuwait, did not mean that its rule was not wholly effective. He said that almost to the date of the expiry of the UN ultimatum there was uncertainty as to whether there would be war, or success for the Coalition. Uncertainty there may have been, but we would not dissent from the judge's finding that Iraq's hold on Kuwait was fragile. As at 17th September 1990 Iraq's invasion was less than two months old, and it was opposed by the great majority of the world's nations. Although the outcome of battle cannot be taken as proof of the instability of Iraq's tenure as it might have been seen in the autumn of 1990, it is consistent with the view that Iraq's control was only temporary. Indeed, Security Council Resolution 670, adopted on 25th September 1990, expressly underlined to the Iraqi government that its continued failure to comply with the terms of the earlier Security Council resolutions could lead to further serious action by the council under the UN charter, "including under chapter VII".
358. Hobhouse J's factor (c) again operates entirely against IAC's submission that Iraq should be regarded as the de facto government of Kuwait. Her Majesty's Government had made clear that it did not have any dealings with Iraq as the government of Kuwait, that it would not do so, and that it accepted an obligation in international law not to do so. Hobhouse J did not consider the possibility that the government might, despite the terms of its 1980 statement, pronounce categorically on its recognition or non-recognition of a putative foreign government, as has happened in the present case. Even so, he did contemplate that a clear finding as to the government's dealings might cover almost the whole ground of the court's determination. Thus he said at pp 65H-66A:
"Where Her Majesty's Government has dealings with the foreign government on a normal government to government basis as the government of the relevant foreign state, it is unlikely in the extreme that the inference that the foreign government is the government of that state will be capable of being rebutted and questions of the interrelationship of the judicial and executive arms of government may be paramount: see The Arantzazu Mendi [1939] AC 256, 264 and Gur Corp v Trust Bank of Africa Ltd [1987] QB 599, 625. But now that the question has ceased to be one of recognition, the theoretical possibility of rebuttal must exist."
In other words, an unequivocal position adopted by Her Majesty's Government, even if not formally conclusive, may be compelling, at any rate in the absence of some countervailing and paramount factor. In the present case, no such factor is present.
359. Finally, factor (d) acknowledges that the extent of international recognition might, in marginal cases, have a bearing on the determination. Hobhouse J's slightly disparaging acceptance of the significance of this factor ("in marginal cases") appears to stem from the facts of the Republic of Somalia case itself (see at p 67A-G). We do not think, on the facts of the present case, that it would be right to introduce a similar note of tentativeness. Seeing, as Hobhouse J accepted, that the degree of international recognition is a relevant factor, we think that its significance can best be seen as a matter for evaluation on the facts of any particular case. Of course, there is a certain undesirability on practical grounds in opening up the test to an evaluation of the world's dealings with a putative government. Where the material to be obtained from such an evaluation is vague or ambiguous, it may prove not to be of any help at all. Where, however, as in the present case, such material is clear and unequivocal, we do not see why it should not provide considerable support for a particular view.
360. For all these reasons, which in deference to the submissions before us, we have sought to set out in this judgment anew, we reject IAC's submission that Iraq was the de facto government of Kuwait at the time of Resolution 369. We might more simply have said that we agree with the conclusion of Mance J, for the reasons which he gave in his judgment at pp 64-69.
29 Should Resolution 369 be characterised as exorbitant, or regarded as at least prima facie applicable, both under the lex situs rule and the act of state doctrine, so as to affect the title of KAC's aircraft within Iraq as of 17th September 1990?
361. It will be recalled that Resolution 369 dissolved KAC and made IAC the universal successor of all its rights and liabilities and assets, wherever situate. It so happened that as at 17th September 1990 the aircraft with which this action is concerned were in Iraq, but this was only because they had been taken there from their base in Kuwait (where they were registered) as a direct result of Iraq's invasion of Kuwait and its policy of plunder. They were among the first of Kuwait's assets to be moved out of Kuwait into Iraq. As we have seen, orders for their removal were given by Iraq's minister of transport to IAC on 6th August, and the necessary arrangements were completed by 8th August 1990, save for Airbus 9K-AHI which, because it was under repair, did not leave Kuwait (for Baghdad) until 22nd August. Resolution 369 was passed on 9th September, even though it did not come into effect for another eight days.
362. It was IAC's own evidence (that of Mr Al-Mukhtar, its Iraqi law expert) that the resolution was part and parcel of the annexation and absorption of Kuwait. He said that it was one of a number of resolutions issued with a view to "giving effect to the integration of Kuwait into Iraq". Professor Freedman, KAC's expert, gave evidence regarding Iraq's policy of systematic plunder. He quoted from Efraim Karsh's "Reflections on the 1990-1991 Gulf Conflict" (The Journal of Strategic Studies, 19.3 (September 1996), pp 306-7) as follows:
"The Emirate's financial assets (gold and currency deposits in Kuwaiti banks, etc); its industrial and commercial infrastructure (both public and private); its transport (eg ports, Kuwait Airways Corporation), health, education, and communication systems, among others, were all stripped down and removed to Iraq, in one of the most striking instances of national piracy in modern history."
The resolution gave effect to Iraq's determination to use KAC's aircraft in Iraq's national civil aviation operation which was managed by IAC.
363. The question we have to answer is whether in these circumstances and for the purposes of the lex situs rule and the territorial act of state doctrine the resolution should be regarded as prima facie effective to pass title to IAC, at any rate so far as KAC's assets present within Iraq as of 17th September 1990 are concerned, or whether the resolution should be regarded as exorbitant as a whole and thus outside that rule and that doctrine. IAC has not disputed that the resolution is ineffective to pass title to IAC of any property of KAC then located outside Iraq. Nor has it maintained its earlier submission that the resolution was effective to dissolve KAC and thus deprive it of existence at the relevant time.
364. It may be noted that there is no specific reference to the aircraft in the resolution, nor any separate reference to KAC assets situate in Iraq. Indeed, so far as Iraq was concerned at that time, Kuwait was part of Iraq. It therefore made no difference whether the assets were situate in Iraq proper or in the province of Kuwait. There is a specific reference to KAC offices "abroad", ie outside Iraq or Kuwait.
365. KAC submitted that in these circumstances it would be contrary to both logic and principle to treat the resolution's application to the aircraft as severable from the main thrust of the resolution, which represents an exorbitant exercise in the dissolution and universal succession of a Kuwaiti company. IAC submitted, on the other hand, that the resolution should be applied to the extent that it dealt with KAC's property within Iraq proper, and that this was sufficient to enable IAC to invoke the lex situs and the territorial act of state doctrine.
366. In this connection Mance J said at p 69:
"In the result I hold that Resolution 369 was directed at the status and worldwide assets of KAC in excess of any jurisdiction which this court, applying ordinary principles of private international law, can or should recognise Iraq or its Government as having had at any time. Further, the purported transfer of KAC's assets, wherever they were, to IAC only occurred in the context of a purported exercise of an exorbitant jurisdiction to dissolve KAC. That is, in my view, of considerable relevance when considering whether the English courts should as a matter of public policy refuse to recognise the transfer as effective in relation to assets which happened to be within Iraq. The mere fact that Resolution 369 happened to embrace certain assets which happened (though only as a result of the invasion) to be in Iraq does not affect the fundamentally exorbitant character of the Resolution."
367. We agree, and if anything we would go further. In that passage Mance J states his conclusion that the Resolution should be characterised as fundamentally exorbitant, both because of its purported intention to dissolve a foreign (Kuwaiti) corporation and also because of its intention to affect property and assets wherever situate. He uses that conclusion as an element in his subsequent consideration of the question whether as a matter of English public policy the resolution should be enforced, at any rate to the extent that it does embrace KAC property situate in Iraq. But he does not consider, as we have been asked to consider, whether in such a situation there is anything which is even prima facie legitimately territorial in the resolution and so deserving, subject to the public policy exception, of transnational respect.
368. We have not been cited any authority on this further question. Both parties before us have asserted their respective positions without reference to authority. As a matter of principle, however, we see great difficulty in seeking to rescue a limited, legitimate, territorial provision out of the illegitimate wreck of a fundamentally exorbitant piece of legislation.
369. Resolution 369 opens with the provision for KAC's dissolution. It is in that context that all its rights and liabilities, and all its assets, are to be transferred to IAC. If, however, the provision for KAC's dissolution is ineffective for recognition in this forum, it is hard to see why a limited transfer of such assets as happened to be situate in Iraq at the relevant time should be recognised. Moreover, there is no separate provision for transfer of KAC's assets located in Iraq. It is not therefore as though the application of a blue pencil rule to extra-territorial assets could save a provision dealing with assets within Iraq. Nor are we dealing with the dissolution or assets of an Iraqi company.
370. We would mention in passing in this context a line of authority which shows how the English courts, while respecting the rights of foreign states to legislate in respect of matters occurring within their borders, will be disposed to interpret such legislation in such a way that it does not purport to have extra-territorial effect: see Lecouturier v Rey [1910] AC 262, 265-6 and 267; The Jupiter (No 3) [1927] P 122, 145; and Re Russian Bank for Foreign Trade [1933] Ch 745, 767. Against that background, we do not see why the courts of this forum should give effect to foreign legislation which seeks, in a fundamentally exorbitant way, to affect the status of a company beyond the borders of the legislating state together with its assets wherever situate. A rule which would recognise such legislation, so far at any rate as relevant assets are located within the territory of the legislating state, would both encourage exorbitant legislation and also in effect rewrite that legislation.
371. We would add, by way of completeness, that KAC did not seek to argue that the lex situs of these aircraft was the law of the place where they were registered. There is a discussion in Dicey & Morris at p 937 of a suggested exception to Rule 112 (which sets out rules for determining the situs of things) to the effect that a civil aircraft may at some times be deemed to be situate in its country of registration. It is clear from the text of that discussion that the editors are seeking a tidy solution for cases in which an aircraft is in flight over the high seas or in a territorium nullius, and as we have said we received no submissions to the effect that the lex situs of these aircraft at the material time was not the law of the place in which they physically were for the time being (compare, in the case of a yacht registered in Jersey but normally berthed in Southampton, Trustees Executors and Agency Co Ltd v IRC [1973] 1 Ch 254).
30 Is the English public policy exception to the act of state doctrine wide enough to entitle English courts to take account of breaches of clearly established principles of international law?
372. This question has already been considered and answered, incidentally, in the context of our discussion of the relevant caselaw. We have concluded that the acknowledged exception in favour of English public policy is, on the authorities, wide enough to take account of clearly established breaches of international law: see paragraph 323 above.
31 Is the court limited to considering the resolution by itself or is it entitled to take account of its background and context?
373. KAC submits that for the purpose of considering whether the public policy exception to the act of state doctrine applies, the court is entitled to consider the resolution in its context, namely as part of Iraq's policy of annexation and plunder consequent on the invasion of Kuwait. IAC submits, however, that the resolution must be considered by itself, and that anything which happened prior to 17th September 1990 is not only irrelevant, but out of bounds in as much as it falls within a period when the government of Iraq, and IAC as its agent, were acting iure imperii and entitled to sovereign immunity.
374. In our judgment this argument of irrelevancy is contrary to both principle and authority. It is contrary to principle because it is always appropriate, generally wise, and often nothing short of necessary, to see and understand such enactments in their proper context. It is contrary to authority, because leading cases such as Helbert Wagg counsel otherwise. We refer to the passage from the judgment of Upjohn J at pp 351-2 in that case, which we have cited in paragraph 270 above. Upjohn J went on to give examples of what he described as the court's right to be satisfied that a law passed ostensibly for some legitimate purpose did not in reality have some object "not in accordance with the usage of nations". Thus he said (at p 352):
"For example, in Frankfurther v WL Exner Ltd a law was passed under the Hitler regime in Austria with the apparently innocent object of providing for receivers in certain cases, but with the real object of confiscating the property of Jews and others. Romer J expressed the view that this court is entitled to inquire what manner of legislation it really was, and for that purpose to see what was done under it. Again, if it had not been for the difficulties which arose on the pleadings in that case, I do not think that the House of Lords in Kahler's case would have hesitated to investigate the question whether an exchange control statute passed in 1934 with the genuine object of protecting the State's economy had not by 1946 become an instrument of oppression and discrimination."
375. As for the argument that the court's enquiry cannot trespass into the period prior to 17th September, this is an argument based on non-justiciability in another guise. The submission of non-justiciability had been raised precisely because, on IAC's own case, Resolution 369 was not to be looked at entirely by itself, but had to be seen as part and parcel of what Lord Wilberforce described in Buttes Gas as "the transactions of foreign sovereign states". But we have already rejected the submission of non-justiciability. If, despite the context of invasion on which IAC has itself relied, the submission of non-justiciability has failed, KAC can hardly be blamed for praying in aid the same essential facts so far as they bear on a proper understanding of the resolution in issue. In truth, where a real point has arisen under the English public policy exception as to the legitimacy of a foreign statute for the purpose of recognition in this forum, an examination of the context in which that statute was enacted has been unavoidable.
376. What are the essential facts? Mance J listed them at p 71 of his judgment. We would express them very similarly in the following way. (a) Iraq invaded and purported to annex Kuwait; (b) Iraq promptly removed KAC's aircraft from Kuwait to Iraq, as part of its policy of plunder; (c) Resolution 369 purported to legislate for the dissolution of KAC and the transfer of all its property wherever situate to IAC, as part of its policy of annexation, (in this case concerned with the integration of Kuwait's national airline into Iraq's); and (d) the United Nations reacted, in a way that led ultimately to military action by the Coalition pursuant to the United Nations' own ultimatum and thus to the reversal of the invasion together with all its consequences, such as Resolution 369 itself. To this we would add the fact that (e) the United Kingdom at all times recognised the binding force of the UN resolutions and was itself a member of the Coalition. None of those facts have been in dispute. They could hardly be ignored. Many, if not most of them, have been led by IAC itself. As Mance J was able to affirm, no suggestion was made to him that Iraq's conduct was other than illegal under international law. That remained the position in this court.
377. In our judgment, whatever might be the position in other circumstances, for example where an attempt is made to raise the public policy exception (whether or not in the shape of breach of clearly established principles of international law) on spurious or inadequate or highly debatable grounds, and/or where this country has friendly and peaceful relations with the foreign state in question, or where the issues raised are unsuitable for judicial resolution, or where judicial intervention would undermine the diplomatic process or vex the peace of nations, no such considerations are present in this case so as to require the courts to ignore the essential context of Resolution 369.
378. On the contrary, the UN resolutions - by condemning Iraq's conduct in the strongest terms, which include the reminder to Iraq (in Resolution 670 of 25th September 1990) that "under international law it is liable for any loss, damage or injury arising in regard to Kuwait...and their nationals and corporations...", and the demand, acceded to by Iraq, (see Security Council Resolution 686 and the response to it in RCC Resolution 55, which repealed Resolution 369) that Iraq rescind its actions of annexation, accept liability in international law for loss caused to Kuwait and its corporations as a result of the invasion, and return all property seized by it - demonstrate that the very matters which are before the court, and which KAC seek to rely on for the purpose of showing that Resolution 369 should not be recognised, have already been determined, if not by an international court, at any rate by an international forum, of which nearly all the nations of the world are members, and whose decisions are binding on all those nations, including the United Kingdom and Iraq.
32 Is the resolution in breach of clearly established principles of international law? Is it contrary to English public policy? Does the act of state doctrine preclude the court from denying recognition to the resolution?
379. The first of these questions has in effect already been answered. Whatever might have been said in other circumstances about Resolution 369, for instance that it was an ordinary and legitimate exercise in compulsory acquisition or state confiscation, has not been said on the present occasion, since it cannot be said. On the contrary, IAC's essential approach to this issue has been simply that the international law dimension cannot be investigated: see for instance paragraphs 34-39 of its skeleton argument on its appeal from the judgment of Mance J. We agree with Mance J that Resolution 369 is in breach of clearly established principles of international law. It merely sought to put on a formal and convenient basis (so far as Iraqi law and administration were concerned) what had always been the position, namely that the KAC fleet had been taken by force following the invasion of Kuwait, as part of and pursuant to Iraq's policy of annexation and plunder, and had been put de facto into the operational hands of IAC. As Mance J put it (at p 73):
"Having removed KAC's aircraft by force of arms and in breach of international law, Iraq cannot claim the protection of any principle of international law which might allow a state in some circumstances to expropriate property, even though belonging to the nationals of other states, which happened to be within its jurisdiction."
380. The next question is whether in the circumstances the recognition of Resolution 369 would be contrary to English public policy. This may not, perhaps, be a different question, or a necessary further question. In case it is, we will now give our answer to it.
381. This case may not be concerned with individual human rights in the direct way in which they were in issue in Oppenheimer v Cattermole, if only because the present claimant is a corporation. Nevertheless, the context of war and peace is one of hardly less fundamental importance to the welfare of mankind, as the preamble to the UN Charter makes abundantly clear. There the reaffirmation of fundamental faith in human rights and in the dignity and worth of the human person are sandwiched between references to the scourge of war, the need to maintain international peace and security and the need to ensure that armed force not be used save in the common interest. It is a commonplace that it is in the midst of war that human rights are often most easily trampled on. Moreover the fundamental nature of the purposes and principles of the Charter are underlined by the provision in article 103 to the effect that its obligations are paramount.
382. In the circumstances it is hard to think of any good reason why the breaches of international law that have been established in this case should not lead to a refusal to recognise Resolution 369 as a matter of English public policy. The very serious breaches of international law committed by Iraq in August 1990 led to all but universal condemnation in which this nation shared, to the extent of military action designed to reverse their effect. If a clear statement of the UK government's recognition of a state (or, as we have held above, of a government) imposes on the courts of this country the need to respect that recognition as a matter of public policy, the present discussion is an extreme case of the cogency of the example set by this nation, among most of the other nations in the world, on a matter of public policy. To put the matter the other way round, if this court were to recognise Resolution 369, it would be recognising an exorbitant dealing with property stolen out of a sovereign and independent state, in breach (as Mance J commented at pp 75-76) of the obligations imposed on this nation by the UN resolutions, eg "to take appropriate measures to protect assets of the legitimate Government of Kuwait" (Resolution 661), and "to avoid any act or dealing that might be interpreted as an indirect recognition of the annexation" (Resolution 662).
383. The third question contained in the heading of this section of our judgment asks whether the act of state doctrine precludes the court from denying recognition to the resolution. The answers to the other two questions mean that this third question can receive only one answer: No. The act of state doctrine does not require the recognition of a foreign statute which is contrary to English public policy.
33 Do the lex situs rule or the act of state doctrine apply to goods which have been brought by the state in question unlawfully into its own territory?
384. KAC submits that neither the lex situs rule nor the act of state doctrine applies to property which is within the territory of a foreign state only because it has been unlawfully brought there. IAC submits that no such qualification exists, and that even to ask how the goods came to be within the territory of the legislating state is to offend either principle. The point has not been previously decided, and Mance J left it open (at p 70). Nevertheless he opined that:
"a case where the foreign state has itself brought movables within its jurisdiction by infringing the jurisdiction of another sovereign state is on no view within the spirit, albeit within the letter, of the principle of Luther v Sagor and other authorities."
385. He noted that in such circumstances the underlying rationale of the principle, which is founded in respect for the territorial sovereignty of the state whose act or legislation is in question, may yet be very relevant to considering on particular facts whether it would be contrary to public policy to recognise a particular act or law.
386. Like Mance J, we have been able to resolve the status of Resolution 369 without deciding this further point. We consider, however, that KAC's submission has much to commend it, at any rate in a situation such as obtains in the present case, for the following reasons.
387. In Helbert Wagg Upjohn J, in rejecting the submission that the act of state doctrine applied only to the property of nationals of the confiscating state, said at pp 348-9:
"...it seems to me that on this question nationality must be irrelevant. If the principle be true in respect of a State in relation to its own nationals, it must surely be conceded in relation to those persons who, though not subjects of the State, nevertheless bring their movables within its jurisdiction for business or private reasons or for the like reasons enter into contracts governed by the law of that State, and in general enjoy the same benefits and protection and are subject to the same disadvantages and disabilities as subjects of the State."
Those words were carefully expressed. He did not simply say that the doctrine applied equally to the property of non-nationals found within the confiscating state. He gave the rationale for this extension, namely that when non-nationals bring their own property within a state (or, it might be said, acquire it there), they put that property as much subject to the laws and territorial sovereignty of that state as is the property of its nationals.
388. It seems to us that this rationale does not apply to the case where property has first been stolen from beyond its borders by the confiscating state in question and is then disposed of within its own borders by that state. The act of theft within another sovereign state could not be protected by the territorial act of state doctrine (at best, the principle of non-justiciability would have to be invoked). It would seem surprising if an unquestioned title could subsequently be granted to itself or any other party simply by reason of any law or decree passed by the pirate state. Even though a third party grantee of such property may be innocent of any complicity in the theft, and even though it may be supposed that, unlike IAC, it was also innocent of any knowledge of the theft that had occurred, it is not for the sake of such grantees that the act of state doctrine exists, but for the sake of the sovereign who acts within his own territory. Whatever may be the position where the legislating state acts in ignorance of the origin of goods found within its own territory (for instance where they have been stolen abroad by third parties and have then found their way into the state's territory), we are doubtful that the act of state doctrine applies to the case of KAC's aircraft.
34 Does the resolution have to be recognised for the purposes of the lex situs rule and the principle of double actionability, even if it would not be recognised for the purposes of the act of state doctrine on the ground that it offends against English public policy?
389. Mr Donaldson submitted that, whatever attack might be brought home on Resolution 369 under any exception to the act of state doctrine, nevertheless the principle of double actionability served to ensure that IAC could always claim the protection of a title validly acquired under Iraqi law. The test in this context was not how an English court would treat an Iraqi statute, but how an Iraqi court would do so, and the latter would be obliged to give effect to it. IAC had therefore acquired a valid title, and it could not be liable for the conversion of the aircraft.
390. Mr Donaldson sought to support this submission by two further arguments. The first was to emphasise the difference between IAC and KAC. The fact that out of regard for Iraq's conduct English public policy required these courts to disregard its resolution ought not to deprive IAC of a defence available to it under Iraqi law. IAC had acted on the faith of Iraqi law and the lex situs rule justified that response. By his second argument, a distinction had to be made between the case, as here, of a claim in damages based on a defendant's conduct in a foreign country in relation to property there which a claimant alleged to belong to him, and the quite different case of a claim to the return of property which had been brought within the jurisdiction of the English courts. In the former case the double actionability principle operated to its full extent, whereas in the latter case the claim was based simply on English law, because of the refusal to deliver up the chattel.
391. In response to these arguments Mance J pointed out that the background to Resolution 369 was well known, not least by IAC, so that it, or indeed any third party which dealt with it on the basis of a title granted by that resolution, took the risk that both resolution and title would not be recognised beyond Iraq's borders. He rejected Mr Donaldson's submission, on the ground that once a decision had been made not to recognise the resolution, then it could not be recognised for any purpose, and IAC could not rely on it to found title to the aircraft.
392. We agree. Once public policy requires that a foreign law or act should not be recognised at all (ie it is not merely a case where the law or act is refused recognition to the extent that it purports to act extra-territorially, or to some other limited extent), then it is impossible to have regard to it for any purpose. It is as though it did not exist: see Oppenheimer v Cattermole at p 278C and Williams and Humbert v W & K Trademarks per Fox LJ at p 392D. Even if that were not the case, or even if Resolution 369 were not among that class of laws which the courts of this country "ought to refuse to recognise...as a law at all" (per Lord Cross at p 278C), it nevertheless seems to us that if these courts will not recognise the transfer of title under a foreign law because that law, in purporting to transfer title, albeit of goods within the territorial jurisdiction of the legislating state, has breached clearly established principles of international law, then it is simply illogical and irrational to ask for recognition on the basis of rules of private international law (the lex situs rule or the rule of double actionability) which are grounded in just those principles of comity and deference to territorial sovereignty as have failed, exceptionally but for reasons founded in the very rationale of such rules, to have preserved recognition for the transfer of title in question.
393. The argument may, schematically, perhaps be put in this way. A claimant makes a claim by alleged right of ownership in its chattels. Its ownership would or must be conceded, but for a sovereign transfer of title upon which the defendant relies. Prima facie that transfer of title must be recognised because it is both the lex situs and the lex loci delicti (the latter being vital to the rule of double actionability). The claimant, however, says: even so (ie even though I do not dispute that the lex situs and the lex loci delicti support the defendant's title), nevertheless that transfer of title should not be recognised because it is in breach of international law and conflicts with English public policy. The defendant replies: the courts of this country cannot enter into any such issue, therefore the transfer of title upon which I rely must be recognised. The court rules that the issue may be adjudicated and holds that the transfer of title should not be recognised. The defendant then says: nevertheless the court must recognise the transfer of title because it is the lex situs and the lex loci delicti. The court responds: but that is the very issue that has been adjudicated, that, exceptionally, the title granted by the lex situs and the lex loci delicti will not be recognised in this forum.
394. Mr Donaldson's main criticism of the judge's reasoning at this point of his judgment was that he had failed to distinguish between the case of a claim in damages based on acts abroad and a claim to the return of the chattels in question when they have been brought to England. He called the latter claim the "hot goods" scenario. We do not think, at any rate for present purposes, that any such distinction has any relevance. Of course in the latter case, assuming that the only claim made is in reference to a tort which is alleged to have taken place in England, the rule of double actionability does not apply, for no tort is complained of abroad. But the lex situs rule still prima facie applies. That is why, in those cases where the foreign act of state which transfers title is recognised, the defendant succeeds whether or not the goods in question have been brought to the home forum: see Oetjen v Central Leather Co 246 US 297 (1918) at pp 302-3 (where the goods confiscated in Mexico had been brought to the United States) and Princess Paley Olga v Weisz, where this court approved and followed the US Supreme Court in the former case. Where, however, the foreign act of state plea fails, whether because the act of state purports to legislate extra-territorially or because the English court refuses to recognise the foreign law even though acting territorially, the foreign law ceases to be of relevance whether as lex situs or as lex loci delicti.
35 Does the letter of 10th September 1990 from the office of the president make any difference?
395. Mr Donaldson relied on a letter dated 10th September 1990 from the office of President Saddam Hussein as evidencing a presidential order to take all necessary steps to implement Resolution 369. He submitted that such an order was a separate act of state which was entitled to the defences of non-adjudicability and territorial act of state.
396. The letter from the "Head of Presidency Office", addressed to the Ministries of Foreign Affairs, Justice and Finance and to IAC, reads as follows:
"We enclose a copy of the Republican Decree number 369 issued on 19 Safar 1411, corresponding to 9.9.90, requesting that all necessary action be taken to implement it. Thank you."
Mr Al-Mukhtar, IAC's Iraqi law expert, said that IAC was legally obliged to comply with that instruction.
397. We cannot, however, find in the terms of this letter anything which amounts to a presidential instruction separate from the resolution itself. The letter merely encloses a copy of the resolution and commends it to the parties which will have responsibility for acting upon it.
398. However, even if there had been such a presidential instruction, its status could not differ from that of the resolution which was its subject matter. If that resolution cannot be recognised for the reasons we have explained in this judgment, it follows that a presidential instruction to take all necessary steps to implement it cannot be recognised, either.
36 Iraqi Law: usurpation
399. We turn now, briefly, to the Iraqi law of usurpation. Usurpation is not defined in the Iraqi Civil Code, and we have summarised Mance J's findings in relation to the relevant features of Iraqi law in paragraphs 44-45 of this judgment. In essence, he held that a person's inaction in relation to finding another person's property in his possession would not in itself suffice to constitute "usurpation by keeping". He suggested two tests which a court might use in those circumstances to determine whether a defendant had decided to take advantage of such a situation for his own benefit: how long the property had been in his possession or control, and whether he had conducted himself in relation to it in a manner which showed that he was keeping it as his own.
400. In its skeleton argument in support of its appeal IAC maintained that the parties' experts in Iraqi law had reached agreement on a textbook definition of usurpation which referred to the "taking of property belonging to others in an unjust manner that results in the owner losing custody". It suggested that this definition coincided with what it contended was the appropriate definition of conversion under English law (for which see paragraphs 414-430 below). When opening his clients' appeal Mr Donaldson dealt with this matter very briefly (T4/46/4 to 4/49/25). He repeated that the experts had reached agreement on the point, although he conceded that the relevant paragraph of his own expert's report did not mean that the defendant necessarily had to take the object away from the plaintiff in order to be liable in usurpation.
401. KAC, on the other hand, showed us the evidence on which the judge placed reliance when making the findings to which we have referred, and reminded us that the judge had preferred the evidence of its expert. We do not consider that we need spend much time on this point, because it is clear that neither expert considered that taking was a necessary ingredient of usurpation under Iraqi law and that the judge was entitled to make the findings he did make on this issue. We accept the written submissions on Iraqi law prepared by KAC. In our judgment they are soundly based on the evidence we have read.
402. Given that he had, correctly, decided that he must ignore RCC Resolution 369, it follows that Mance J was entitled to hold as a matter of Iraqi law that IAC had wrongfully usurped KAC's ten aircraft when it resolved to keep them in their possession as part of their fleet and to put them to commercial use as and when it was possible to do so.
403. KAC did not appeal against the findings of Mance J (at p 45 of his judgment) on that part of Iraqi law which is concerned with a usurper's liability for loss and damage in consequence of a wrongful usurpation. He found that if the property usurped is physically lost or damaged (as in the case of the Mosul Four) the owner must show that the loss or damage would not have occurred but for the usurpation, unless the usurper was acting in bad faith, in which case the onus of proof is reversed. KAC conceded before the judge that this reverse burden of proof was inapplicable in the present case, since IAC had acted in the belief that RCC Resolution 369 gave it a good title. It was not therefore open to Mr Vos to re-open this issue in response to IAC's appeal so that we do not have to consider the interesting question whether the onus of proof should indeed have been reversed in the circumstances of this case.
404. Since we have declined to disturb Aikens J's (albeit speculative) finding that the Mosul Four would on the balance of probabilities have been destroyed at Mosul even if IAC had not taken control of them, it follows that KAC's claim for compensation in respect of the Mosul Four stands to be dismissed under the double actionability rule, whatever our findings as to the relevant state of English law.
405. In the case of a head of loss not involving or arising from physical loss or damage, Mance J said that it was common ground that the relevant test under Iraqi law was whether the loss resulted "naturally" from the usurpation. So far as the Iran Six are concerned, it therefore follows that if KAC succeeds in persuading us that Aikens J was wrong in applying a "but for" test in English law when determining whether KAC could recover the losses of which it made complaint (or any of them), there is nothing in Iraqi law to preclude it from recovering for the losses flowing naturally and directly from the conversion, if this is the appropriate test in English law.
406. Whether KAC can recover any damages in this action therefore depends crucially on the soundness, or otherwise, of Aikens J's conclusions as to the relevant features of English law in this part of the case.
37 English law: introductory
407. In paragraph 104 of this judgment we said, quite briefly, that Aikens J held that KAC had to show that the outcome would have been different if IAC had not usurped and/or converted the aircraft in the manner we have described. Although it is now clear that a reversal of this conclusion, as a matter of English law, will only help KAC in relation to its claim for damages in respect of the conversion of the Iran Six, we can deal with the issues as a matter of pure law without much regard to their factual context.
408. The critical section of Aikens J's judgment is in Section E, paragraphs 45 to 57. He began his analysis by referring to an Australian case, Air Express Ltd v Ansett Transport Industries (Operations) Pty Ltd (1979) 146 CLR 249 in which Mason J, in a dissenting judgment, was concerned to examine the purpose which an undertaking as to damages was designed to serve, and to identify "that causal connexion or standard of causal connexion" which was most appropriate to that purpose. He found, not surprisingly, that it was for the party seeking to enforce the undertaking to show that the damage he had sustained would not have been sustained "but for" the injunction. On his way to that conclusion, however, he made a general comment on the non-uniform approach to causation adopted by English law which Aikens J cited in paragraph 45 of his judgment.
409. After saying that he was "plagued" with the issue of causation in the present case (the vivid language is taken from Fleming, The Law of Torts, 9th Edition (1997), p 218), Aikens J said that all the issues with which he was confronted were all aspects of a single broader question that had plagued the courts. He posed that question in these terms: assuming that the other elements of the tort or breach of contract are proved, is the defendant liable for the damages that are said to be a consequence?
410. He said that generally the court had to approach this enquiry in two stages. First, it had to make a finding of fact, using its commonsense, as to whether the wrongdoing complained of was "in fact" an effective cause of the loss or damage claimed. It then had to consider whether the defendant was legally liable for that loss, and at this point issues of remoteness or issues of policy might arise.
411. After making these general propositions the judge then asked himself whether these general rules as to causation "in fact" in tort applied to the tort of wrongful interference with goods. He concluded (at paragraph 57) that they did. He did not analyse any of the peculiar features of the tort of conversion in this part of his judgment, or ask himself what was the mischief which this part of the law of torts was concerned to remedy.
412. In paragraph 45-57 he mentioned seven cases, and seven cases only. The first two (Barnett v Chelsea & Kensington HMC [1969] 1 QB 429 and McWilliams v Sir William Arrol & Co Ltd [1962] 1 WLR 295) are cases derived from the law of negligence. The third, R H Willis & Son v British Car Auctions Ltd [1978] 1 WLR 438, was a case where a hirer had converted a car by taking it to an auction, and this court was concerned to ascertain whether the auctioneers, too, were liable in conversion. The next two, Hiort v London and North Western Railway (1879) 4 Ex D 188 and Brandeis Goldschmidt & Co Ltd v Western Transport Limited [1981] 1 QB 864 were cases where a warehouseman (in the first) and a carrier (in the second) had been liable for detaining goods wrongfully for a short period of time without any intention of using them and the court was concerned to assess what, if any, compensation they should pay the owner of the goods in relation to this period of non-use. And the last two were recent cases in which the judgment of this court in Brandeis had been mentioned, and in one case followed. We refer to BBMB Finance (Hong Kong) Ltd v Eda Holdings Ltd [1990] 1 WLR 409, a decision of the Privy Council, and IBL Ltd v Coussens [1991] 2 All ER 133, a decision of this court.
413. It was this comparatively brief review of the caselaw which led Aikens J to conclude that the general rule in tort, namely that the claimant must establish that the damage claimed was caused "in fact" by the tort, applied to the tort of wrongful interference with goods. In the following section of his judgment (at paragraphs 58-62) Aikens J appears to accept Mr Donaldson's submission that causation "in fact" cannot begin to be proved unless a claimant can show, as a preliminary, that his loss would not have occurred "but for" the tort (see also paragraph 176 of his judgment). It appears to us, with respect to the judge, that the answer to this important and difficult question cannot be arrived at so quickly, and that it is necessary to consider relevant aspects of the tort of conversion in greater depth before it is possible to attempt an answer to the question he asked himself.
38 The scope of the law of conversion
414. This action is concerned with the law of conversion, which exists to provide a remedy in a large variety of situations in which a third party exercises dominion over a claimant's goods and treats them as his own. It is hardly surprising in these circumstances that the usual measure of damages is the value of the claimant's goods at the time of the conversion, because this method of providing compensation will restore to the claimant, so far as money can do it, what he has lost. The cases show that complications may arise when the goods are subsequently returned to the claimant. In such a case the traditional approach was to credit the claimant with the value of the goods at the time of their return as against their value at the date of the conversion, and to order the defendant to pay compensatory consequential damages in relation to the period when the claimant was not able to use his goods. The cases also show that the courts were likely to adopt a different approach to situations where the defendant is a carrier or a warehouseman, who simply detains the goods in the course of its business without any intention of using them, as opposed to cases where goods are used by the defendant, who must therefore pay for their use.
415. A lot of difficulties have occurred because acts of conversion may take so many different forms. In Hiort v London & North Western Railway Company (1879) 4 Ex D 188 Bramwell LJ said at p 194 that he had frequently stated that he never understood with precision what a conversion was. IAC placed great weight in this context on a dictum of Bayley J in Keyworth v Hill (1820) 3 B & Ald 685, 687, to the effect that "the foundation of the action (in trover) is not the acquisition of property by the defendants, but the deprivation of property to the plaintiffs". Bayley J said this in order to dispose of a wholly unmeritorious plea by a co-defendant to the effect that because she was a married woman she could not acquire property in the converted bond and promissory notes in her own right. While it is of course correct that a claimant cannot bring an action in conversion unless the property in his goods has been prejudiced (as KAC's undoubtedly was) this dictum does not, in our judgment, take the matter any further forward than that.
416. It is worth noting that in Keyworth v Hill Best J commented at p 689 that there might be a distinction between detinue and trover. We will refer to the distinction between these two old common law remedies at a later stage of this analysis (see paragraphs 485-486 below). By the Common Law Procedure Act 1852 Parliament sanctioned the form of declaration in trover that "the defendant converted to his own use, or wrongfully deprived the plaintiff of use and possession of the plaintiff's goods". In detinue, Section 78 of that Act gave the court power to order delivery up of the detained chattel without giving him the option to pay its value as assessed at that later date.
417. For the time being we will confine ourselves to the tort of conversion, as distinct from the remedy in detinue. In order to understand its nature it is convenient to look at one nineteenth century case and four cases decided between 1919 and 1969.
418. In Hollins v Fowler (1874-5) LR 7 HL 759, the issue which divided the judges both in the courts below and when they gave their opinions to the House of Lords was whether the innocent intermediary in that case should be treated on the jury's verdict as guilty of conversion. There was no dispute about the basic proposition, articulated by Cleasby B in the Exchequer Chamber (sub nom Fowler v Hollins) (1871-2) LR 7 QB 616 at p 633, to the effect that liability under the action of trover was founded on what was regarded as a salutory rule for the protection of property, "namely that persons deal with the property in chattels or exercise acts of ownership over them at their peril". On the further appeal, Blackburn J and Brett J were among the judges who gave their opinions to the House of Lords. Blackburn J said at p 766:
"It is generally laid down that any act which is an interference with the dominion and right of property of the Plaintiff is a conversion, but this requires some qualification.
From the nature of the action, as explained by Lord Mansfield [in Cooper v Chitty 1 Burr 20], it follows that it must be an interference with the property which would not, as against the true owner, be justified, or at least excused, in one who came lawfully into the possession of the goods.
And in considering whether the act is excused against the true owner it often becomes important to know whether the person, doing what is charged as a conversion, had notice of the Plaintiff's title."
419. Brett J, although dissenting on the application of the law to the facts, said at p 782:
"All, I think, agree that the assumption and exercise of dominion over a chattel, inconsistent with the title of the true owner, is a conversion. All would agree that the detaining goods so as to deprive the person entitled to the possession of them of his dominion over them is a conversion, if by the word 'dominion' in the last proposition is intended `title as owner'."
And at p 785:
"I believe that [the action of trover] was invented in order to provide a remedy in damages, where there has been a trespass, and more than trespass to goods, namely, acts done with the intention of transferring or interfering with the title to or ownership of them, or which are done as acts of ownership of them or where without an original trespass there have been acts done with the intention of transferring or interfering with the title to or ownership of them or which have been done as acts of ownership of them."
420. Grove J, at p 790, also used the expression "dominion over the goods", an expression which was adopted by Lord Cairns LC in his speech at p 797.
421. In Lancashire and Yorkshire Railway v MacNicholl (1919) 88 LJKB 601 Atkin J said at p 605:
"It appears to me plain that dealing with goods in a manner inconsistent with the right of the true owner amounts to a conversion, provided that it is also established that there is also an intention on the part of the defendant in so doing to deny the owner's right or to assert a right which is inconsistent with the owner's right. That intention is conclusively proved if the defendant has taken the goods as his own or used the goods as his own."
422. This definition was adopted by Scrutton LJ in Oakley v Lyster [1931] 1 KB 148 at p 153. Slesser LJ, for his part, said at p 156:
"... I think the evidence shows quite clearly that the appellant was exercising dominion over the goods inconsistent with the rights of the true owner. In the correspondence the appellant quite plainly and without any ambiguity said that he was the owner and proposed to use the hard core as he felt disposed. There could be no clearer way of asserting dominion over the goods than that."
423. In Caxton Publishing Co Ltd v Sutherland Publishing Co [1939] AC 178 Lord Porter at p 201 adopted Atkin J's definition of conversion, noting that it had been approved by Scrutton LJ in Oakley v Lyster. He added at p 202:
"Atkin J goes on to point out that, where the act done is necessarily a denial of the owner's right or an assertion of a right inconsistent therewith, intention does not matter. Another way of reaching the same conclusion would be to say that conversion consists in an act intentionally done inconsistent with the owner's right, though the doer may not know of or intend to challenge the property or possession of the true owner."
424. In Douglas Valley Finance Co Ltd v S Hughes Hirers Ltd [1969] 1 QB 739 McNair J was concerned with a case in which some lorries had remained in the physical possession of the claimants throughout, but there had been dealings with them by third parties to their disadvantage which had greatly diminished their value, since they had lost the benefit of some valuable special licences. The facts of the case, in which the claimant recovered damages for conversion, do not matter, but McNair J's judgment is interesting in that in addition to recent decisions we have mentioned in paragraphs 422-423 above, he went back to much earlier authorities at pp 751-752:
"Nor, in my judgment, are the authorities above referred to inconsistent with the earlier authorities. In Baldwin v Cole (1704) 6 Mod Rep 212 Holt CJ said:
`The very denial of goods to him that has a right to demand them is an actual conversion, and not only evidence of it, as has been holden; for what is conversion, but an assuming to one's self the property and right of disposing of another's goods ...'
See too, the judgment of Lord Ellenborough in McCombie v Davies (1805) 7 East 5, 6, where the Chief Justice accepted the submission that apart from any question of possession the assumption of any dominion over the goods of another is sufficient to constitute conversion.
Reference may also be made to Cleasby B in Fowler v Hollins (1872) LR 7 QB 616, 639, to the effect that the liability under an action in trover `is founded upon what has been regarded as a salutary rule for the protection of property, namely that persons deal with the property in chattels or exercise acts of ownership over them at their peril'. As it seems to me, the essence of the tort is the doing of some act or acts which are in fact inconsistent with the rights of the true owner, whether or not the doer of the act knew who the true owner was or whether or not any knowledge of the act or acts was communicated to the true owner."
425. These definitions of conversion are apt to catch not only someone like a thief, as an original converter, but also the successive converters, like auctioneers or the innocent recipients of stolen goods. When Diplock LJ explained the law of conversion in the context of converted cheques in Marfani & Co Ltd v Midland Bank Ltd [1968] 1 WLR 956, he said at pp 970-971:
"... one of the consequences of the historic origin of the tort of conversion and its application to negotiable instruments as `goods' is that the tort at common law is one of strict liability in which the moral concept of fault in the sense of either knowledge by the doer of an act that it is likely to cause injury, loss or damage to another, or lack of reasonable care to avoid causing injury, loss or damage to another, plays no part.
At common law, one's duty to one's neighbour who is the owner, or entitled to possession, of any goods is to refrain from doing any voluntary act in relation to his goods which is a usurpation of his proprietary or possessory rights in them. Subject to some exceptions which are irrelevant for the purposes of the present case, it matters not that the doer of the act of usurpation did not know, and could not by the exercise of reasonable care have known, of his neighbour's interest in the goods. The duty is absolute; he acts at his peril."
426. For the purpose of his arguments Mr Donaldson seized on a definition of conversion which appeared in the first edition of Salmond on Torts at p 207:
"The wrong of conversion consists in any act of wilful interference with a chattel, done without lawful justification, whereby any person entitled thereto is deprived of the use and possession of it."
427. This definition, repeated in the 18th Edition of that textbook, was adopted and applied by Lawton LJ in Lewis Trusts v Bambers Stores Ltd [1983] FSR 453 at p 459. A similar description of the ingredients of conversion is to be found in Clerk & Lindsell on Torts, 17th Edition, at 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."
428. Mr Donaldson sought to derive from these textbook definitions a proposition that a claimant must be able to identify a causal nexus between the act of conversion of which he complains and his deprivation of the use and possession of his property.
429. Although this causal nexus will be present in many cases of conversion (the most obvious example being that of an original thief of goods) it does not embrace the case of successive converters of the same goods. That the editor of the first edition of Salmond was aware of this type of conversion is clear from the text of a section of his book headed "Conversion by Detention" at pp 297-300, which starts with a rule framed in the following terms:
"Every person is guilty of a conversion who, without lawful justification, detains a chattel adversely to him who is entitled to the possession of it."
Similarly, the editor of Clerk & Lindsell, op cit, paragraph 13.13 identified a case in which property is wrongfully retained as one of the five principal ways in which a conversion may take place. (See also paragraph 40 of the Law Reform Committee's 18th Report, on Conversion and Detinue, 1971). Of course, in an important sense the successive converter who retains goods is depriving the owner of the use and possession of his property, even though that converter was not the person who originally took the goods.
430. Mr Vos based his arguments on principle and on a careful historical analysis of the development of the tort of conversion, and the way in which damages for conversion have been awarded over the last 150 years. Mr Donaldson did not, in our judgment, provide any kind of effective answer to the powerful case deployed by Mr Vos. He relied on the passages in Salmond on Torts and Clerk & Lindsell which we have mentioned, some judicial dicta in cases where the goods were returned by a "non-user" in which the judges were concerned to arrive at the appropriate measure of compensatory damages for the period of the conversion, and a quite different principle to the effect that a tortfeasor should only be liable to pay compensation for what he has caused (see, by way of example, an exchange between Mr Donaldson and the court at T5/107-108). As we have seen, however, conversion is a tort of strict liability, and once the tortfeasor has interfered with the owner's right of dominion over his goods in the manner explored in the authorities, he is prima facie liable to pay the owner the market value of those goods over which he has asserted his competing dominion at his peril.
431. This is a quite different exercise from the exercise with which English courts have become increasingly involved in the last 20 years, where a court has been concerned to determine whether a claimant can bring an action in negligence to enable him to recover economic loss, and if he can, the principles upon which his compensation by way of damages is to be assessed. It is now well known that in such cases a court must first be satisfied whether a legal duty of care exists, and if it does exist, must ascertain the scope of that duty. Once these exercises have been performed, then compensation will only be awarded for those losses against which the defendant failed in its duty to protect the claimant.
432. It is commonplace in those cases that a court will ask itself, in a commonsense way, whether the claimant would have suffered those losses (or any of them) but for the defendant's breach of duty, and if the court is satisfied that some of the losses claimed were attributable to a new intervening cause, then it will not order the defendant to pay the claimant compensation in respect of them. The relevant principles have been worked out in a series of well-known cases: see, in particular, Caparo Industries plc v Dickman [1990] 2 AC per Lord Bridge at p 627 and Lord Oliver at p 651; Galoo v Bright Grahame Murray [1994] 1 WLR 1360 per Glidewell LJ at pp 1376-1381; and South Australia Asset Management Corporation v York Montague Ltd [1997] AC 191 per Lord Hoffmann at pp 210-214, 217-218. The recent judgment of Laddie J in BCCI v Price Waterhouse [1999] BCC 351 at pp 360-2 provides a good example of the way in which these principles may be applied in a complex case.
433. Whether the claimant is claiming damages in negligence for economic loss, or more traditionally for personal injuries or physical damage to his property, the exercise upon which the court embarks will be the same. The first two cases on which the judge relied provide examples of the sort of questions a court may have to ask during the course of its inquiries. In McWilliams v Sir William Arrol & Co Ltd [1962] 1 WLR 295 the trial judge was satisfied that even if the defendants had performed their duty at common law and pursuant to statute, and had provided the deceased steel erector with a safety harness, he would not have worn it, and he therefore suffered no loss as a consequence of the breach of duty complained of. In Barnett v Chelsea and Kensington HMC [1969] 1 QB 428 Nield J was satisfied that even if the defendants had performed their duty of care and admitted the deceased to their hospital, he would still have died of arsenical poisoning five hours after being admitted, and that he, too, had suffered no loss as a consequence of the breach of duty complained of. These illustrations taken from a very familiar, but different, branch of the law, cast no useful light on the approach to be adopted by a court when awarding damages for conversion. The nature of the inquiry is an entirely different one.
434. We have seen how in the Marfani case Diplock LJ spoke of the common law duty we owe to our neighbour to refrain from doing any voluntary act in relation to his goods which is a usurpation of his proprietary or possessory rights in them. If we breach that duty we do so at our peril, and we cannot generally be heard to say that we did not know that the goods were his. This is the wrong for which we will be liable to compensate him, and as we have said in paragraph 414 above the general measure of the damages we have to pay him is the value of his goods at the time we usurped his rights in them. It simply will not be open to us to say that he was so careless he would have lost them anyway, or that he was so generous he would probably have given them away, and that he has therefore suffered no loss. Conversion is a tort of strict liability. We usurped his goods at our peril, and as a matter of principle we should not be allowed to say that he has to prove that he would not have suffered the loss of which he makes complaint if it had not been for our wrongful act of conversion.
435. As Mr Vos said, it seems to be intuitively wrong for the law to place such a burden on the innocent owner of goods, particularly when he is claiming compensation from the second or third converter in a chain. Why should the innocent owner be put to the bother and inconvenience of trying to set up the truth of facts of which he knows nothing until Converter 3 says by way of defence that if Converter 2 had not passed the goods to me, he was nevertheless bound to dispose of them in some other way to the owner's detriment?
436. It is interesting to see how a solution has been found in two situations to the potential hardship created by the strict liability rule in conversion in a way that does not impose such an unfair burden on the dispossessed owner.
437. Section 4 of the Cheques Act 1957 provides the modern version of the statutory defence that has been available to bankers in one form or another since 1882 which enables them to escape liability for the conversion of a cheque in certain circumstances provided that they can show that they acted in good faith and without negligence. If they cannot establish that defence there is no "but for" escape route open to them: see A L Underwood Ltd v Bank of Liverpool [1924] 1 KB 775, 785; Lloyds Bank Ltd v E B Savory & Co [1932] AC 201, 228; and Thackwell v Barclays Bank Ltd plc [1986] 1 All ER 876. In the last of these cases Hutchison J said at p 684:
"I would hold that as a matter of law it is no answer for a bank who have been guilty of negligence in the collection of a cheque to prove that, even had the question the omission to ask which constitutes such negligence been asked, a reassuring answer would have been given."
This is an entirely different approach to the approach, on which the judge relied, which is adopted in the two negligence cases we have discussed in paragraph 433 above.
438. Similarly, if a bailee was sued in detinue, the common law provided him with a defence if he could show that his inability to deliver up the goods to the bailor was caused by an event which occurred without any default on his part, or alternatively (if he did not know what happened to them) that he had exercised all reasonable care during the period of the bailment (see Coldman v Hill [1919] 1 KB 443, 449; Houghland v R R Law Luxury Coaches Ltd [1962] 1 QB 694, 698-9 and 700). Like the banker, the bailee had the burden of proving the matters which will, if proved, enable him to escape liability. The law does not place an unfair burden on the claimant in circumstances where it is the defendant who knows all the relevant facts relating to the issue which may provide him with a defence.
39 The assessment of damages in conversion cases
439. After this introduction to the law on conversion, we turn to consider the way in which the courts approached the assessment of damages in conversion cases in the period of 125 years between the Common Law Procedure Act 1852 and the Torts (Interference with Goods) Act 1977. We will then consider the assessment of damages in detinue cases before going on to look at a few post-1977 decisions.
440. In Hardman v Booth (1863) 1 H & C 803, G fraudulently obtained goods from the claimant and pledged the goods with the defendant, an auctioneer, with a power of sale, for £300. G became bankrupt. The defendant subsequently sold the goods for £344. Pollock CB said at p 806:
"A person having no authority over goods sends them to the defendant, an auctioneer, who, supposing the goods belong to that person, bona fide advances money upon them, taking a power of sale; but that did not authorise him to sell another person's goods, and retain the proceeds to reimburse himself. I think that he is liable to the extent of the money realised by the sale ..."
The defendant auctioneer was therefore found liable for £344, the sum realised on the sale. The conversion was the unauthorised sale, and the value was taken at that date.
441. In France v Gaudet (1871) LR 6 QB 199, the claimant, a wine merchant, agreed to sell 100 cases of champagne to H, whose ship was in the London docks. The wine was lying at the defendants' wharf and the defendants refused to deliver it to H, who sailed without it. The defendants did not know of the agreement to sell to H. There were no replacement goods on the market. Mellor J, giving the judgment of the Court of Queen's Bench, said, at pp 203-204:
"Under ordinary circumstances the direction to the jury would simply be to ascertain the value of the goods at the time of the conversion, and in case the plaintiff could, by going into the market have purchased other goods of the like quality and description, the price at which that would have been done would be the true measure of damages...We are of opinion that the true rule is to ascertain the actual value of the goods at the time of the conversion."
442. The defendants contended that knowledge of the special circumstances was required, by analogy with the second limb of the rule governing the recovery of damages in contract cases (see Hadley v Baxendale (1854) 9 Exch 341). Mellor J rejected this argument, saying at p 205:
"... the conversion consists in withholding from another property to the possession of which he is immediately entitled, and the circumstances which affix the value are then determined; no notice to the wrong-doer could then affect the value, ... In such a case as the present, the actual value is fixed by circumstances at the time of the demand, and no notice of the special circumstances could then affect the actual value of the goods withheld from their rightful owner, who thereby sustains an `actual present loss', which appears to us to be a convertible term with `actual value'."
443. The measure of damages was therefore the sale price the plaintiff had agreed for the wine at the time of the conversion. It was not the value of the goods at any later time when they were still on the wharf.
444. We have already mentioned Hollins v Fowler (1874-5) LR 7 HL 757, where the question for decision was whether the innocent defendant brokers, who had bought the claimant's goods from a fraudster, were liable in conversion. Once it was determined that they were, the House of Lords applied without hesitation the rule in Hardman v Booth (see Lord Chelmsford at p 795 and Lord O'Hagan at p 800) and upheld the judgments in the courts below. It was not even suggested in argument that the House of Lords should apply a "but for" test. If it had, it would not have been difficult to demonstrate that the fraudster would probably have disposed of the goods to someone else so that the claimants would still have been deprived of them. Lord O'Hagan described the policy of the law in these terms at pp 798-9:
"The result of your Lordships' consideration of this case will, I fear, inflict hardship upon the Defendants. They are innocent of any actual wrongdoing, but those with whom they are in conflict are as innocent as they, and we can only regard the liability attached to them by the law, without being affected in our judgment by its unpleasant consequences. They appear to me to have been guilty of a conversion in dealing with the Plaintiffs' property, and disposing of it to other persons, without any right or authority to do so. Confessedly, that property never passed from the Plaintiffs. Bayley's fraud vitiated the sale to him, and he could not convey to the Defendants what in no way belonged to himself. ... It seems to me that this state of facts entitles the Plaintiffs to recover in an action of trover, which rests on a right of property, wrongfully interfered with, at the peril of the person interfering with it, and whether the interference be for his own use or that of anybody else."
445. Aikens J did not refer to any of these three cases. Instead, he sought to draw assistance from the problematic case of Hiort v London & North Western Railway Company (1879) 4 Ex D 188. The judge described the case in these terms:
"An early but important example is Hiort v London & North Western Railway (1879) 4 Ex D 188, a decision of the Court of Appeal. The defendant warehousemen had delivered up grain to someone who acted as the agent of the claimant, but the agent was perpetrating a fraud on the claimant by obtaining delivery from the warehouseman without a proper delivery order. In this case there was a five day gap between the wrongful delivery of the grain to the fraudster and the presentation of a valid delivery order of the claimant which the claimant had endorsed in favour of the fraudster. Meanwhile the goods had disappeared. The claimant sued for the value of the grain but the Court of Appeal held that he was only entitled to nominal damages.
Bramwell and Thesiger LJJ held that there was a conversion by the defendant warehousemen as soon as they delivered the grain to the fraudster and that completed the cause of action for conversion. They then went on to hold that the effect of the subsequent valid delivery order was equivalent to the grain being returned to the claimant. Therefore there had only been a temporary deprivation of the claimant's rights over the grain. All three Lords Justices held that the claimant had to show that the damage alleged resulted from the unauthorised act of the defendant. They all concluded that no substantial damage had been proved as against the defendant warehousemen because the goods would have been lost anyway, but on the valid order of the claimant."
In a footnote the judge said that it was not clear whether Baggallay LJ (who would not even have awarded nominal damages) had thought that a conversion had taken place.
446. The three judgments in Hiort case were subjected to meticulous analysis on the hearing of KAC's appeal. The claimants were maintaining that they were entitled to the full value of their goods, being the normal measure of damages in conversion. The defendants' case was that there had been no misdelivery and no conversion, since the goods had been delivered to the persons who were entitled to them and to whom the claimants intended that they should be delivered. Thesiger LJ records at p 200 that the claimants admitted that they suffered no damage during the period of five days between the actual delivery of the grain to its intended recipient and the presentation of the relevant delivery order. In these circumstances this court had to answer three questions: (i) Were the goods converted? (ii) Does the normal measure of damages in conversion apply? (iii) If not, given that the claimants accepted that they suffered no damage during the critical five-day period, are they entitled to nominal damages, or to no damages at all? It appears to us that all three members of the court answered "yes" to the first question and "no" to the second question, and that they were divided 2-1 in their answers to the third question. Baggallay LJ could hardly have said (at p 197) that possibly there might have been a case for damages in respect of the interval between 19th and 24th November (if any such claim had been made), if he had not considered that there had been a conversion on 19th November, however technical.
447. We need not concern ourselves with the way in which the court answered the first question. On the third question Bramwell LJ considered (at p 195) that the claimants were entitled to nominal damages "because a conversion cannot be purged, and if a defendant is guilty of conversion he must pay some damages". On the second question he thought that what had taken place was in the nature of a return of the goods, and in this respect he described contemporary practice in these terms:
"A return of the goods undoubtedly might be shown to reduce the damages in the case of a conversion, not only where the owner voluntarily received back the goods, but where he took them back against his will. In an action of trover or conversion the practice was for a defendant to apply to the Court for a stay of proceedings on the delivery up of the goods, and on payment of nominal damages and costs; but if the plaintiff refused to accept delivery, and insisted on proceeding with his action for substantial damages, he did so at his peril, and if he failed to get substantial damages he was made to pay the costs of the action. It is clear, therefore, that on the return of the goods the plaintiff would recover, not their value, but the damages he had sustained by the wrongful act, which was called the conversion."
448. We would accept Mr Vos's submission that Bramwell LJ was here referring to a method of assessing damages which was concerned with measuring, in money terms, the natural and direct consequences of the wrongful act. If the value of the goods was the same at the date of their conversion and at the date of their [notional] return five days later, then in the absence of any claim based on user or potential user the claimants would have suffered no loss.
449. It appears that Baggallay LJ was disposed to come to the same conclusion, differing only on the very technical issue as to whether the claimants were entitled to nominal damages (assessed at one shilling) or no damages at all.
450. Thesiger LJ delivered the longest judgment, He began the relevant part of his judgment, after describing how the claimants put their case, in robust terms at p 198:
"The mere statement of that proposition shews that it cannot be maintained; and I think that there is a complete answer to it. If it is said that the unauthorised act constituted a breach of the contract of bailment, or a breach of duty which flows from the bailment, then it follows that the bailors can only recover the damages which have resulted from the unauthorised act which constitutes that breach of contract or duty, and here it is obvious that no damages have resulted from the act of the defendants."
451. This is the "natural and direct consequence" test. Thesiger LJ then went on to inquire whether there was some magic in the term "conversion" which entitled the claimants to recover the full value of their goods, which they had never received back since the date of the conversion. He dealt with this suggestion equally robustly at p 199:
"That argument is not sound. No doubt the action of trover has been surrounded by technicalities, which may have in some instances worked injustice. 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."
452. This, too, is the "natural and direct consequence" test. After considering some technical aspects of the action of trover, Thesiger LJ repeated the effect of this test at the end of his judgment at p 200:
"It appears to me, therefore, to follow from the ordinary rules which are applicable to actions of trover that the plaintiffs are entitled to recover damages only for the deprivation of their control over the goods from the time of the unauthorised delivery; but inasmuch as it is admitted that during that period the plaintiffs sustained no damage they can only recover nominal damages."
453. It is certainly true that there are echoes of a "but for" test in some of the discussion between Bramwell LJ and counsel (at p 192) and in part of the judgment of Thesiger LJ at p 198 where he is concerned to test the first of the propositions we have quoted, but we can see nothing in these judgments to suggest that at the point of decision the court was not concerned to assess, in a case where the goods were to be treated as having been wrongfully out of the claimants' dominion for five days, what was the natural and direct loss flowing from that wrong. Since no such loss was asserted, none was awarded.
454. Barker v Furlong [1891] 2 Ch 172 is a case which shows vividly the absence of a "but for" test in conversion. The plaintiff held furniture on trust. S, without his knowledge and consent, sent it to the auctioneer via his brother. The auctioneer sold part of it for £121 6s 6d and returned the remainder to S. The plaintiff sued S for the full value of the furniture, and the auctioneer for £121 6s 6d. Romer J held the auctioneer liable for receiving the goods into his custody and, on selling them, handing them over to the purchaser. Because there is no "but for" test, the auctioneer could not say, by way of defence, that S would probably have sent the furniture elsewhere and that he was fully liable anyway. S, his brother, and the auctioneer were all held liable and there was no suggestion that one of them could rely on the acts of any of the others occurring in any event. Even such a plea by way of defence would not amount to the test posited by Aikens J, which in his view constitutes part of the burden of proving causation which rests on a claimant.
455. Although The Mediana [1900] AC 113 was an action in negligence, not conversion, a theme appears in the Earl of Halsbury LC's speech in that case which reappears in some of the later cases concerned with the measurement of damages in conversion where the converted goods have been returned.
456. The appellants' steamship The Mediana had negligently collided with the respondents' lightship The Comet. A spare lightship, The Orion, was always on standby. In addition to claiming out of pocket expenses for the repairs, the respondents also claimed loss of use of The Comet, or for the hire of the services of The Orion, which would otherwise have lain idle. Counsel for the appellants argued at p 115 that this was not a case of trover or detinue, and that the respondents' real loss in the actual circumstances should be looked at. Of this argument the Earl of Halsbury LC said, at p 117:
"...the broad proposition appears to me that by a wrongful act of the defendants the plaintiffs were deprived of their vessel. When I say deprived of their vessel, I will not use the phrase `the use of their vessel'. What right has a wrongdoer to consider what use you are going to make of your vessel? More than one case has been put to illustrate this: for example the owner of a horse, or of a chair. Supposing a person took away a chair out of my room and kept it for twelve months, could anybody say you had a right to diminish the damages by shewing that I did not usually sit in that chair, or that there was plenty of other chairs in the room? The proposition so nakedly stated appears to me to be absurd ..."
457. There is a valuable discussion of the fields of law in which the "user principle" has been adopted as the appropriate method of measuring damages in the judgment of Nourse LJ in Stoke-on-Trent City Council v W J Wass Ltd [1988] 1 WLR 1406 at pp 1410-1414. In addition to "detinue" cases, he found the principle adopted in cases concerned with trespass to land, patent infringement and some cases of nuisance. In a Privy Council case concerned with trespass to land, Inverughie Investments Ltd v Hackett [1995] 1 WLR 713, Lord Lloyd of Berwick said at p 717:
"The cases to which [their Lordships] have already referred establish, beyond any doubt, that a person who lets out goods on hire, or the landlord of residential property, can recover damages from a trespasser who has wrongfully used his property whether or not he can show that he would have let the property to anybody else, and whether or not he can show that he would have used the property himself."
There is no trace of a "but for" test here.
458. Since the hearing ended, Lord Nicholls of Birkenhead has cast further light on this issue in his speech in Attorney-General v Blake [2000] 3 WLR 625 at pp 632A-633B, in a passage in which he was concerned with the way in which the common law provides financial recompense for interference with rights of property. After referring to the general rule that the measure of damages is to be, as far as possible, that amount of money which will put the injured party in the same position in which he would have been had he not sustained the wrong, Lord Nicholls added that "the common law, pragmatic as ever, has long recognised that there are many commonplace situations where a strict application of this principle would not do justice between the parties". He said that in those cases compensation for the wrong done to the plaintiff was measured by a different yardstick.
459. He then referred to cases illustrating the user principle which has been adopted, as we have seen, for calculating damages in cases of trespass to land, wrongful detention of goods and patent infringement. He concluded at p 633A-B:
"This principle is established and not controversial. More difficult is the alignment of this measure of damages within the basic compensatory measure. Recently there has been a move towards applying the label of restitution to awards of this character: see, for instance, Ministry of Defence v Ashman [1993] 2 EGLR 102, 105 and Ministry of Defence v Thompson [1993] 2 EGLR 107. However that may be, these awards cannot be regarded as conforming to the strictly compensatory measure of damages for the injured person's loss unless loss is given a strained and artificial meaning. The reality is that the injured person's rights were invaded but, in financial terms, he suffered no loss. Nevertheless the common law has found a means to award him a sensibly calculated amount of money. Such awards are probably best regarded as an exception to the general rule."
460. Lord Nicholls would, no doubt, have found a similar method of rationalising the methods by which the common law permits the owner of property to recover damages from a "converter by keeping" without obliging him to satisfy the requirements of the "but for" test, which is not a universal panacea, as this passage makes clear.
461. In Lancashire & Yorkshire Railway v MacNicoll (1919) 88 LJKB 601, Atkin J found the defendants liable for converting the plaintiff bailees' drums of carbolic acid. He said at p 607:
"Therefore I think the defendant has committed a conversion, and I am of the opinion that the true measure of damages, whether it be considered as a claim by the bailor, the true owner, or whether it be considered as a claim by the bailee, the railway company, is the true value of the goods, which is always the prima facie measure of damages for a claim in conversion."
462. Lord Atkin (as he later became) returned to the same theme when giving the opinion of the Privy Council in Solloway v McLaughlin [1938] AC 247. The claimant had instructed the defendant to buy for him 7,000 shares in a mining company at the then market price, $7 per share. At the same time he deposited 3,500 shares in that company with the defendant as margin and received a contract note purporting to show the purchase. The shares steadily declined in value and further requests for margin were made. The claimant duly deposited a further 10,500 shares and $8,000 cash. When he closed his account he was given, in return for the balance, 21,000 shares. The market value of the shares was then much lower. The transactions had been part of a fraud, and the defendant had actually made other sales of shares in the company and used the plaintiff's shares to complete those sales, so that the defendant was always "short".
463. The defendant argued that the claimant had got back exactly the same property he complained of and that on the evidence he did not want the shares during the period he was out of possession of them. He argued that if a person owned goods which are in a safe, and through a period when he believed that they were in the safe somebody else had extracted them and used them, but put them back into the safe before the owner wanted them, no damages could be awarded in conversion except nominal damages.
464. Lord Atkin dealt with the matter quite shortly at pp 257-258. He said:
"Their disposal of the deposited shares amounted to nothing short of conversion, and the client on each occasion on which the shares were sold had vested in him a right to damages for conversion which would be measured by the value of the shares at the date of the conversion. How then, is his position affected by the fact that, not knowing of the conversion, he received from the wrongdoer, and has retained, the very goods converted or their equivalent? It appears to their Lordships that the only effect is that he must give credit for the value of what he has received at the time he received it, and that the damages are reduced by that amount."
465. In other words, the usual measure of damages in conversion is applied, but if the converted goods, or their equivalent, are returned to the owner, he must give credit for their value at that time. Again, there is no trace of a "but for" test. A claimant does not have to prove that he would have realised the shares at the value at which they stood when converted. The defendant cannot even say that he is able to prove that but for his conversion the claimant's property would have depreciated in value in any event.
466. In Caxton Publishing Co Ltd v Sutherland Publishing Co [1939] AC 178 the defendants' publication had been found to contain extracts from a publication by the claimants which had been included without the claimants' authority. Two passages in Lord Porter's speech are relevant in the present context. In the first, he observed at p 198 that the overlapping of damages was no new thing in English law:
"Two persons may cause an accident by separate acts of negligence and judgment for the whole damages may be given against each. So, too, damages to the full value of the property converted may be given against two persons for successive conversions of the same chattel and, until payment in full of the sum awarded is made by one of the defendants, the judgment remains in force against the other.
In neither case, however, would the plaintiff be permitted to recover more than the sum awarded for the injuries received or the value of the chattel as the case might be, because the law will not permit any greater sum to be recovered than the actual damage suffered."
467. In the second, he said at p 203:
"... there is no dispute as to the principle on which in general the measure of damages of conversion is calculated. It is the value of the thing converted at the date of the conversion, and this principle was accepted by both sides in the present case. But I should wish to leave open for consideration in a case in which it directly arises the question whether the statement of Abbott CJ in Greening v Wilkinson (1825) 1 C & P 625, 626 that the jury `may give the value at the time of the conversion or at any subsequent time' can be supported or not.
The appellants sought to put a qualification upon the words `the value of the thing converted' by adding the words `to the owner'.
Such a qualification is, I think, inaccurate and likely to lead to confusion of thought.
I do not accept the view that an article has no value or a diminished value to its owner because he has no machinery for selling it. Has a book a diminished and different value to me who have just purchased it from what it had a moment before in the hands of the bookseller, even though the bookseller will not take it back and I have no market for its sale? The value is not necessarily the price for which the owner could sell the article. Is a publisher who infringes an author's copyright to make a large profit out of an unexpectedly successful book because he could have bought the copyright cheaply if before the publication he had approached the author and paid his price? Even the loss of the use for a time of a chattel which the owner would not have used during that time may give rise to substantial damage whether in an action for damages or in an action for conversion: see The Mediana [1900] AC 113. It is the value known or unknown which has to be paid, and that value is not necessarily the price which the owner could have obtained or would have taken. It may have to be ascertained by finding out what price for the infringing matter, in the form in which it is offered, the public or some other individual is prepared to pay, or in some other way in the light of after events."
468. Lord Roche, too, said that there was no dispute but that the measure of damages was the value of the thing converted at the time of the conversion. He continued (at p 192):
"It is true enough to say that the value is the value to the owner; but it is wrong to say this if you mean what the owner will make out of the thing in money if it is not taken away from him. This latter idea was repelled by this House in a serious of cases dealing with such trespasses to goods as deprived the owner of them temporarily. They were cases where the owner either did not use the things at all or not for money gain, for example, spare lightships and dredgers. The Mediana is an instance."
469. After referring to Lord Halsbury's speech in The Mediana, Lord Roche said:
"So with permanent deprivation or wrongful appropriation of a chattel one of a variety of tests may be the best available test of value according to circumstances. In Reid v Fairbanks (1853) 13 CB 692 there was a very good one available - because the true owner had contracted to sell a ship under construction when finished for x pounds. Held, or rather agreed (because the actual decision was on another point) that the damage was x-y, y representing the cost of finishing the construction. Here, unfortunately, the available material is very different and not so easy to deal with. The sheets in question only became the respondents' property after the appellants had brought them into existence by reproducing the respondents' letterpress and illustrations in a form useful not for the respondents' publication but for their own. I conceive the proper test here is what ought the appellants to have paid for that matter in the form it was when converted. I say `ought to have paid' because of certain cases I propose to refer to, but I do not think that the test of what they would have paid would yield a different result."
470. As Mr Vos observed, there are hints here that the court is concerned to identify a "just sum" with which to compensate the owner for the wrongful conversion. There is certainly no glimmer of a suggestion in any of the speeches in the House of Lords in Caxton that the application of a "but for" test was the appropriate way of measuring damages in conversion.
471. Sachs v Miklos [1948] 2 KB 23 is a good example of a case in which the identification of the date when the claimant became aware of the conversion of his goods made a critical difference, because the value of second-hand furniture, depressed during the war years, increased enormously after the war was over.
472. In 1940 the first defendant had allowed the claimant to store his furniture in her house free of charge. The parties then lost contact with each other, because the claimant failed to keep the first defendant aware of his whereabouts. The first defendant then required the use of the room in which the furniture was stored. She wrote to the claimant at an address supplied by his bank, and she also tried to contact him by telephone, without success. Eventually she put the furniture in the hands of the second defendants, a firm of auctioneers, who sold it in 1944 for £13 net of commission. In 1946 the claimant re-emerged and tried to recover his furniture. Litigation ensued, in which the claimant sought the higher value of the furniture in 1946.
473. Lord Goddard CJ (with whom Tucker LJ and Jenkins J agreed), despite his sympathies for the first defendants, felt constrained at p 37 to hold that their action did amount to a conversion. He said at p 39:
"It seems to me that in assessing damages for detinue or for conversion (and, for myself, I do not see where the distinction is to be drawn between those two causes of action for this purpose) the damages are not necessarily and in all cases the value of the goods at the date of judgment. If the action is brought in detinue, the conversion may be inferred from the demand and the refusal to deliver. Not only is that evidence of a conversion, but if a demand by the owner of the goods on the person who holds them for delivery to him of them is not complied with, the non-compliance presumes a conversion ... On the other hand, the conversion in a case where the goods have been sold takes place at an earlier date; namely, when they were sold, so that the conversion took place in this case in July 1944. The demand for the return of the goods was not made until January 1946, when the refusal or failure to deliver took place. So the material date for the action in detinue no doubt is the date of the refusal, which was in January 1946 ... The value of the goods converted, at the time of their conversion, is one thing, we have the figure of £13 odd; but it does not follow that that sum is the measure of the plaintiff's loss. The question is what is the plaintiff's loss, what damage he has suffered, by the wrongful act of the defendant. If that is kept firmly in mind, I think, this case may well become fairly clear when the county court judge has found, one way or the other, whether the plaintiff received the letters - whether he knew or ought to have known in July 1944, that if he did not remove the goods the first defendants intended to sell them. If he did have that knowledge, then, it seems to me, this great rise in value which has taken place since is not damage which he can recover as flowing from the wrongful act. If he neither knew nor ought to have known that his goods would be sold, and did not find out that they had been sold until January 1946, then, it seems to me, however unfortunate it may be for the defendants, it is impossible to say that he is not entitled to recover the value of the goods at that time."
474. If a "but for" test had been applied, the claimant would have received nothing from the auctioneers, because the first defendant would have disposed of the furniture in 1944 anyway, with or without their intervention. Instead, the court considered that he was entitled to the value of his goods in 1944, together with any other loss which naturally and directly flowed from the act of conversion. The case was remitted to the county court for further investigation on that point, for the reasons explained by Lord Goddard at pp 40-41:
"... it seems to me that if he knew, or ought to have known, of this conversion in or about July 1944, the damage which he now says that he has suffered owing to the rise in price is damage for which the defendants are not liable because it has not flowed from their act: it has flowed from his act. What flowed from their act was that the furniture was sold and realised £15. That has been tendered to him or paid into court. He could have had it at the time if he had known. If a man does not know that his property is being sold, so that he cannot intervene and stop the sale he may, when he does find out, be able to maintain that his property has been disposed of without any authority from or notice to him, and claim damages on the basis of its increase in value. That in my opinion, is how the measure of damage works out."
475. Strand Electric and Engineering Co Ltd v Brisford Entertainments Ltd [1952] 2 QB 246 was an action in detinue. The claimants carried on a business of hiring portable switchboards. They hired some of their switchboards at an agreed weekly rate to a company which the defendants had allowed into possession of their theatre, but after a week the defendants took back possession of the theatre and gave instructions that nothing might be removed. After about 10 weeks the claimants issued a writ against the defendants claiming the return of their equipment or its value and damages for its detention. At the time of the trial the equipment had been detained for 43 weeks.
476. The judge made an order for the return of the goods or their value. He then applied the "but for" test in assessing damages for detention. He deducted a period of a month as a reasonable time to allow the defendants in which to investigate the situation and consider their position. He also made allowance for the possibility that if returned to the plaintiffs some of the switchboards might not have been on hire for the whole period of 43 weeks, or might have been accidentally destroyed.
477. The appeal raised in a clear-cut way the question whether in assessing damages for detention in a case of this kind the "but for" test is the appropriate test to be applied. Counsel for the claimants identified the first question of general importance on the appeal in these terms:
"Where a chattel of the kind that is hired out by the owner in the course of his business is wrongfully detained for a period by the defendant for purposes of his own, are the damages that the defendant must pay to be measured by the reasonable market rate of hire for that period, or are they a lesser sum, equal to the reasonable hiring charges for such proportion only of the period during which the plaintiff might probably have been able to hire out the chattel, if returned to him?"
This court held that the claimants were entitled to the full market hire of the equipment for the period of detention, without deduction. They applied what later came to be described as the "user principle".
478. Somervell LJ began his judgment at pp 249-250 by observing that the principles for assessing damages in detinue might be different from those applied in negligence cases. He described the claimant's argument in these terms:
"If this had been a case where the plaintiffs had been deprived of the use of their switchboards because they had been damaged by the negligence of the defendants the principles applied by the judge would, I think, have been right. It is, however, submitted that in a claim in detinue, and one in which the defendants have used a profit-earning chattel, they must pay by way of damages a fair sum for that user. They cannot, as wrongdoers, have the use of the chattels for less than a fair price for their hire. Otherwise they would be benefiting by their own wrong."
479. He then observed (at p 250) that:
"There may be a distinction in the measure of damage in detinue between, say, a warehouseman who merely stores and a person who during the period of detention enjoys the beneficial use of the chattels. It is the latter case with which, in my opinion, we are concerned."
We would observe that this is an important distinction in relation to such cases as Hiort and Brandeis, on which the judge relied, because it shows why the "user principle" is inappropriate in such cases.
480. After referring to Lord Halsbury's speech in The Mediana, Somervell LJ expressed his conclusion in these terms at p 252:
"Why is not the plaintiff's loss the value in the market of the user? The wrong is not the mere deprivation, as in negligence and possibly some detinue cases, but the user ... The damages could not, in my view, be increased by showing that a defendant had made by his use of the chattels much more than the market rate of hire. Equally, they cannot be diminished by showing that he had made less."
481. Denning LJ made the same distinctions in his judgment. He set out the general principle at p 254:
"If a wrongdoer has made use of goods for his own purposes then he must pay a reasonable hire for them, even though the owner has in fact suffered no loss. It may be that the owner would not have used the goods himself, or that he had a substitute readily available, which he used without extra cost to himself. Nevertheless the owner is entitled to a reasonable hire. If the wrongdoer had asked the owner for permission to use the goods, the owner would be entitled to ask for a reasonable remuneration as the price of his permission. The wrongdoer cannot be better off because he did not ask permission. He cannot be better off by doing wrong than he would be by doing right. He must therefore pay a reasonable hire."
482. After making it clear that consequential loss could be recovered on normal principles (for example if substitute equipment was hired by a dispossessed claimant at greater cost), he continued:
"I am here concerned with the cases where the owner has in fact suffered no loss, or less loss than is represented by a hiring charge. In such cases if the wrongdoer has in fact used the goods he must pay a reasonable hire for them. Nor do I mean to suggest that a wrongdoer who has merely detained the goods and not used them would have to pay a hiring charge. The damages for detention recoverable against a carrier or a warehouseman have never been measured by a hiring charge. They are measured by the loss actually sustained by the plaintiff."
483. Romer LJ, for his part, said at pp 256-7:
"The fundamental aim in awarding damages is in general to compensate the party aggrieved. The inquiry is: what loss has the plaintiff suffered by reason of the defendants' wrongful act? In determining the answer to this inquiry the question of quantifying the profit or benefit which the defendant has derived from his wrongful act does not arise; for there is no necessary relation between the plaintiffs' loss and the defendants' gain. It follows that in assessing the plaintiffs' loss in the present case one is not troubled by any need to evaluate the actual benefit which resulted to the defendants by having the plaintiffs' equipment at their disposal.
That element then being out of the way, the only substantial reason put forward by the defendants why the plaintiffs should not receive the full hiring value of the equipment during the period of detention is that the plaintiffs might not have been able to find a hirer. In my judgment, however, a defendant who has wrongfully detained and profited from the property of someone else cannot avail himself of a hypothesis such as this."
484. Like Somervell LJ, Romer LJ expressed no opinion (see p 257) as to what the claimants' rights would have been in the matter of damages if the property detained had been of a non-profit earning character, or if, although profit-earning, the claimants had never applied it to remunerative purposes. In other words, the majority of the court considered that a valid distinction might be made in these other cases, but they did not, unlike Denning LJ, see the need to go any further on that occasion.
40 Conversion, detinue and the 1977 Act
485. In this analysis of the caselaw we are approaching the time when Parliament intervened by abolishing the remedy in detinue and making a range of remedies available to a court when goods have been wrongfully detained. In advance of this reform Diplock LJ made a valuable analysis of the different remedies available to a claimant under the former regime in General and Finance Facilities Ltd v Cook Cars (Romford) Ltd [1963] 1 WLR 644. Four extracts from his judgment (at pp 648-650) will suffice for present purposes:
"There are important distinctions between a cause of action in conversion and a cause of action in detinue. The former is a single wrongful act and the cause of action accrues at the date of conversion; the latter is a continuing cause of action which accrues at the date of the wrongful refusal to deliver up the goods and continues until delivery up of the goods or judgment in the action for detinue ...
The action in conversion is a purely personal action and results in a judgment for pecuniary damages only. The judgment is for a single sum of which the measure is generally the value of the chattel at the date of the conversion together with any consequential damage flowing from the conversion and not too remote to be recoverable in law. With great respect to the dictum of Goddard LJ in Sachs v Miklos [1948] 2 KB 23, 38 this is not necessarily the same as the measure of damages for detinue where the same act constitutes detinue as well as conversion, although in many cases this will be so ...
On the other hand the action in detinue partakes of the nature of an action in rem in which the plaintiff seeks specific restitution of his chattel. At common law it resulted in a judgment for delivery up of the chattel or payment of its value as assessed, and for payment of damages for its detention. ...
In addition to an order for specific restitution of the chattel or for payment of its value as assessed, the plaintiff was always entitled to damages for wrongful detention of the chattel."
486. Diplock LJ was a member of the strong Law Reform Committee which in September 1971 published its 18th Report, on Conversion and Detinue. This report was the precursor of the Torts (Interference with Goods) Act 1977, although Parliament did not accept all the committee's recommendations. In paragraph 88 of the report the committee considered issues relating to the measure of damages in conversion and detinue in these terms:
"Under the existing law, the general rule as to the measure of damages both in conversion and detinue is that the plaintiff is entitled to recover the value of the chattel together with any consequential damage which is not too remote. ...
In conversion the value of the chattel is assessable as at the date of the conversion whereas in detinue it is assessable as at the date of the judgment, the reason for this distinction being the proprietary character of the latter action.
But the decided cases do not suggest that the overall effects of rises or falls in market value are any different in the two actions; for in a proper case the plaintiff can recover as consequential damages in conversion the amount of a rise in value, and the plaintiff in detinue can similarly recover the amount of a fall in value, between the act of conversion or detinue and the date of the judgment, such recovery, however, being subject to the principles of mitigation and standing-by and also to evidence bearing on what the plaintiff would be likely to have done with the chattel if it had remained in his possession."
487. There is no indication in the committee's report that it considered the present condition of the law to be undesirable. By whatever route the claimant should be entitled to an appropriate figure for the value of his goods (if they are not returned to him), together with any consequential damages flowing naturally and directly from the defendant's wrongful act. It is not clear what cases the committee had in mind in the final paragraph of this extract. The Mediana and Caxton Publishing would not support the comment as to conversion; Strand Electric would not support it as to detinue. In any event the comment only reaches evidence as to what the claimant would have done with the chattel, and nowhere refers to evidence that because of the acts of a prior converter the claimant is to be deprived of recovery.
488. Section 2 of the Torts (Interference with Goods) Act 1977 provides for the abolition of detinue. It also provides that an action lies in conversion for loss or destruction of goods which a bailee has allowed to happen in breach of his duty to his bailor. There is a new statutory definition of "wrongful interference with goods" in Section 1, which includes "conversion of goods (also called trover)". Section 3 provides, so far as material:
"(1) In proceedings for wrongful interference against a person who is in possession or in control of the goods relief may be given in accordance with this section, so far as appropriate.
(2) The relief is -
(a) an order for delivery of the goods, and for payment of any consequential damages, or
(b) an order for delivery of the goods, but giving the defendant the alternative of paying damages by reference to the value of the goods, together in either alternative with payment of any consequential damages, or
(c) damages."
41 The modern cases
489. In Hillesden Securities Ltd v Ryjack Ltd [1983] 1 WLR 959 Parker J applied the new Act in a case concerned with the conversion of a Rolls Royce car. He held that the claimant was not restricted to the value of the car at the date of the conversion, but could recover on the basis that he was entitled to the return of the car and the full hire charge up to the date of its return. Parker J cited a dictum of Denning LJ in the Strand Electric case at p 255 in these terms:
"If the goods are retained by the wrongdoer up to judgment, the hiring charge runs up to that time, and in addition the owner will get the return of the goods or their value at the time of judgment (Rosenthal v Alderton & Sons Ltd [1946] KB 374); but if the goods have been disposed of by the wrongdoer the hiring charge will cease at the time of such disposal, but the owner will get in addition damages for the loss he has sustained by the conversion, which is usually the value at the time of conversion."
490. Parker J then commented (at p 963D-E):
"The action in that case was in detinue and not in conversion, but there will in almost all cases of detinue have been an original act of conversion also and what was in effect held in that case was that, in the case of a conversion of a profit earning chattel which a defendant has used for his own benefit, the owner can recover by way of damages a hire charge plus either the return of the chattel or, if there has been a subsequent conversion by disposal, the value of the chattel at the date of such conversion.
Thirdly, although damages for conversion normally consist in the value of the goods as at the date of the conversion, consequential damages are always recoverable if not too remote.
Finally, there is no basis upon which damages could be assessed as being the value as at the date of original conversion plus interest, for the car has in the end been returned.
What the plaintiffs have lost is the use of the car over the whole period from original conversion until ultimate return. Until March 11, 1982, both the defendants are without doubt liable for the hire charge. On that date Mr Edwards may have put it out of his power to return the car, but he cannot by so doing have terminated his liability. He must either be liable for the hire charge to date of return or he must be liable, in addition to the hire charge up to March 11, for the value of the car at that date on the basis that he then disposed of it. He cannot be heard to say that by putting it out of his power to return the car he terminates his liability. It was not submitted, as it would have been open to Mr Edwards to do, that the value of the car at March 11, was less than the agreed hire charge between that date and date of return, nor was it submitted by the plaintiffs that they were entitled to recover more than the hire charge. Accordingly, there will be judgment against Mr Edwards for the hire charge over the whole period."
491. Mr Vos understandably observed that the 1977 Act entitled his clients to an order for the delivery up of their aircraft on 11th January 1991, the date of the issue of the writ, when the aircraft were all still in existence, or their value. IAC was now maintaining that their subsequent actions in relation to the aircraft somehow or other deprived KAC of that entitlement as a matter of English law, and Mr Vos called in aid this part of the judgment of Parker J in Hillesden Securities in support of his submission that the 1977 Act does not work in the way suggested by IAC.
492. As we have observed, the judge did not refer (and, to some extent, so far as we can see, was not referred) to this very strong line of authority at all, with the single exception of Hiort. Instead, he placed reliance on the three cases to which we now turn.
493. Of the first of these cases, Brandeis Goldschmidt & Co v Western Transport Ltd [1981] 1 QB 864, Aikens J said (at p 30 of his judgment):
"The issue of whether the claimant could establish that it had suffered substantial damages as a result of the conversion also arose in Brandeis Goldschmidt & Co Ltd v Western Transport Ltd [1981] 1 QB 864, another decision of the Court of Appeal. The defendant transporters had detained a portion of a consignment of scrap copper that they were employed to carry from Avonmouth to Walsall, where it was to be refined and made into cathodes. When the defendants would not deliver up the copper upon demand the claimants issued a writ claiming delivery up and obtained an order from the Master. After the copper had been delivered the claimants pursued their claim for damages. The claim was based on a fall in the price of copper during the period of detention and the additional interest that the claimants had to pay to their bankers during the period of detention, because they had borrowed money to finance the purchase. The judge had awarded those damages to the claimants. His decision was reversed by the Court of Appeal. Brandon LJ gave the only substantial judgment. The claimants had argued that they were entitled `as of right' to the damages claimed. Brandon LJ held that, as a matter of principle, there was no universal rule applicable for assessing damages for wrongful detention of goods. He also held, as a matter of principle that:
It is for the plaintiffs to prove what loss, if any, they have suffered by reason of a tort, and when, as here, the effect of the tort is potentially adverse interference with the course of their business operations, it is for them to establish by evidence that there was in fact such adverse interference, and that they suffered a properly quantifiable loss by reason of it.
It is clear that Brandon LJ envisaged that there must be a causative link between the conversion and the loss alleged. He went on to consider various cases and concluded that they supported his view based on principle. He held that the claimants had not proved either head of damage, so that they were only entitled to nominal damages of £5."
Aikens J said in a footnote that strictly speaking the claim was in detinue, but that this did not affect the general point on conversion.
494. There were, in our judgment, a number of features of this case which make us reluctant to ascribe to it the very wide binding force attributed to it by Mr Donaldson.
495. The most important of these was that this was a pre-1977 Act action in detinue where the goods were returned. The claimants were therefore not claiming for the value of the goods, but only for loss consequential on their detention. The writ was issued in September 1976, and in May 1977 the defendants delivered up the copper to the claimants in pursuance of an interlocutory order to the effect that "the defendants should deliver up the copper concerned, or for value to be assessed, and for damages to be assessed". During a further interlocutory skirmish, Peter Pain J set aside an order for discovery relating to the question of what would have happened to the copper and at what time if it had not been detained, and what the effect (if any) of the detention on the claimants' business had been. He did this after the claimants had told him that at the trial on damages they would limit their case to a single contention. This contention was to the effect that they were entitled to recover as of right under a general rule of law the amount of the fall in the market value of the copper during the period of detention, together with interest on so much of their bank overdraft as was attributable to its purchase during the same period, irrespective of the use which they would actually have made of the copper if it had not been detained. The claimants told Peter Pain J that they would not seek to rely on any other way of putting their claim. In effect they wished to recover the prima facie measure of damages in conversion in an action in detinue.
496. They accordingly put their case on this basis to the judge at the trial of the assessment of damages. They quantified the fall in the market value of the copper during the relevant period at £3,588, and the additional interest payable to their bankers at an agreed figure of £2,800. The defendants contended before the judge that there was no general rule of law to the effect that damages for detention should be assessed on the suggested basis. If the claimants had been copper merchants who had acquired the copper for the purpose of trading it on the market, then the suggested measure of damages might well have been the correct one. They had, however, acquired it as a raw material for use in their business, and it was for them to show how their business had actually been affected adversely, if at all, by the detention of the copper. Since they had adduced no evidence on that issue, they were entitled, at best, to nominal damages. The judge preferred the claimants' arguments, and the defendants appealed.
497. In these circumstances, this court was being invited to determine the correctness of the claimants' contention that in an action in detinue the court was bound, as a matter of law, not fact, to award them the fall in the value in their goods during the period of their detention as damages for detention. The word "conversion" does not appear in the report of the case, and the only authorities on which the claimants relied were three nineteenth century cases concerned with damages for detention in detinue. In these circumstances, in the absence of any argument based on conversion cases - and the claimants did not claim damages for conversion - it is hardly surprising that the three very experienced members of this court upheld the defendants' contentions. They did not have to concern themselves with the differences between a cause of action in conversion and a cause of action in detinue, because no argument was addressed to them on those differences, and in any event the argument would have been irrelevant to what they had to decide. The claimants relied on the old detinue cases: they did not suggest that the law, even in detinue, had moved on.
498. It was while the court was trying to solve the conundrum relating to the correct measure of damages for detention in detinue that Brandon LJ made the comment quoted by the judge. Immediately before that comment he had said (at p 870C-D):
"Looking at the matter from the point of view of principle first, I cannot see why there should be any universally applicable rule for assessing damages for wrongful detention of goods, whether it be the rule contended for by the plaintiffs or any other rule. Damages in tort are awarded by way of monetary compensation for loss or losses which a plaintiff has actually sustained, and the measure of damages awarded on this basis may vary infinitely according to the individual circumstances of any particular case."
The first sentence is of course unexceptional. It is the second sentence which may give rise to difficulties, if slavishly applied without attention to the particular features of the tort in question.
499. The second distinctive feature of this case is that for the reasons we have explained the evidence adduced by the claimants in support of their claim was deliberately deficient. Brandon LJ observed at pp 868H-869B that their company secretary did not say what would have happened to the detained copper if it had not been detained, what would, but for the detention, have been the timetable for converting the copper into cathodes, and whether the detention in fact delayed that process at all. Nor did he say anything about the stocks of copper already held by the claimants, or whether they had replaced the detained copper by a purchase in the market. Brandon LJ said that the only inference that could be safely drawn was that the claimants had not acquired the copper with the purpose of selling it on the market, but for using it as a raw material for their business.
500. The third distinctive feature is that this is a case in one of those categories set on one side by the majority of this court in the Strand Electric case (a detinue case not mentioned by Brandon LJ), where there has been a mere detention of goods by a defendant (a carrier) who has no intention of putting the goods to profit-earning use during the period of detention, so that the "user principle" in assessing damages has no relevance, and even in a conversion case the court might be reluctant, in any given case, to apply automatically the general rule in conversion (the value of the converted goods at the date of conversion less their value at the date of return) if it considered it unjust to do so in all the circumstances. Indeed, a carrier/bailee, originally lawfully in possession of the goods, who holds on after the termination of the bailment, was not, without more, guilty of conversion, although he may, of course, have become guilty of detinue if he wrongly refused to deliver up on a proper demand (see paragraph 40 of the Law Reform Committee report).
501. The fourth distinctive feature is that for the reasons we have explained Brandon LJ was taken to three cases concerned with the recovery of damages in detinue, which were decided between 1846 and 1886, long before the decision of the Privy Council in Solloway v McLaughlin. In particular, it is not easy to reconcile the citation from the judgment of Bowen LJ in Williams v Peel River Land and Mineral Co Ltd (1886) 55 LT 685, 692-3, on which Brandon LJ relied, with Lord Atkin's approach in Solloway v McLaughlin in the passage we have cited. Lord Atkin made it clear that the claimant was prima facie entitled to the value of his stock at the date of the wrongful conversion, whether or not there was any evidence that he would have sold it before the market collapsed. Bowen LJ said, in contrast, in an action in detinue concerned with the same subject-matter:
"You do not give damages in an action for detention in poenam; it is not a personal correction inflicted by the court, but simply compensation for the loss. Now, Sir Horace Davey was inclined, I thought at one time, to argue the question as if there was some legal crystallised rule as to damages for the detention of stock of this sort - that the law created a kind of definition which we must adhere to, whether there was a loss or not. I cannot think that the law would really lay down anything so ridiculous as that a man should be compensated whether he suffered damages or not."
This proposition sits uneasily alongside Lord Halsbury's celebrated dictum in The Mediana 16 years later.
502. It follows, in our judgment, that although Brandon LJ was clearly applying a "but for" test when considering how to assess damages for detention in a pre-1977 Act case, the court was concerned not with the general question of valuing consequential losses arising from conversion or even a wrongful detention (since there was no evidence of any), but with a very particular question which arose in a particular type of case brought in detinue, where the claimants were maintaining that there was a rigid rule. Anything Brandeis may have decided did not in any event purport to apply to a case like that of the KAC aircraft in which (i) the Mosul Four were never returned; (ii) the Iran Six were not returned for a long time; (iii) KAC was in the business of using its aircraft for profit; (iv) IAC could not be compared with a mere carrier or warehouseman (having every intention of using the detained aircraft as and when it was possible to do so); and (v) there is ample evidence of the losses said (rightly or wrongly) to have arisen out of the conversion.
503. Aikens J mentioned the next case, the decision of the Privy Council in BBMB Finance (Hong Kong) Ltd v Eda Holdings Ltd [1990] 1 WLR 409, very briefly. He merely said that in that case the Brandeis case was distinguished on the facts, but that the principle set out by Brandon LJ was not doubted. In BBMB the claimants' shares had been deposited with the defendants as security for a loan. The defendants unlawfully sold them at a rate of US$5.75 per share and later purchased replacement shares at US$2.40 per share. They contended that the claimants had suffered no damage, having received back the full number of shares they deposited.
504. Lord Templeman said at p 412 that the general rule was that a plaintiff whose property is irreversibly converted has vested in him a right to damages for conversion measured by the value of the property at the date of conversion. He said that Solloway v McLaughlin provided clear authority for this rule, and at p 413 he said that the Privy Council did not consider that the decision in that case could be affected by the Brandeis case or by the Act of 1977 which only came into force after the Brandeis case had been decided (sic). It was therefore held, on conventional grounds, that the claimants were entitled to the market price of their shares at the date of their conversion less the value of the replacement shares at the date of their replacement.
505. During the course of giving the opinion of the Board, Lord Templeman said at pp 412-3:
"[Counsel for the defendant] pointed out that damages for conversion may exceed the value of the property at the date of conversion if, for example, the property increases in value between the date of the conversion and the date when the plaintiff discovers the conversion: see Sachs v Miklos [1948] 2 KB 23. And where in conversion or in detinue, the plaintiff has only suffered temporary deprivation of his property, the appropriate measure of damages may be assessed by reference to the value at the date when the plaintiff demanded the return of the property (Williams v Archer (1847) 5 CB 318) or the date when the plaintiff was prevented from reselling the property (Barrow v Arnaud (1846) 8 QB 595) ....
Both the Brandeis case and the Peel River case were concerned with damages caused by temporary deprivation of possession and use of property. A different consideration will apply when the property is irreversibly converted and the plaintiff loses that property. The plaintiff loses the value of the property at the date of the conversion and the general rule is that the measure of damages is the value thus lost. To depart from that rule in the present case would be inconsistent with Solloway."
506. Lord Templeman was making a distinction here between the type of case where the converted property is never restored to the claimant and the type of case where it is. In the former case he says, uncontroversially, that the general rule is that the measure of damages is the value of the property at the date of the conversion. In the latter he posits no kind of general rule. He merely says that the appropriate measure of damages may be assessed in a different way in relation to two types of factual situations covered by decided cases. We will revert to this distinction in paragraphs 519-520 below.
507. The final case mentioned by the judge was IBL Ltd v Coussens [1991] 2 All ER 133. He said that in IBL this court held that the principles stated by Brandon LJ in Brandeis applied to the question of what damages were recoverable under Section 3 of the 1977 Act.
508. In IBL the claimant company had bought an Aston Martin and a Rolls Royce for the use of the defendant while he was its chairman and managing director. When he was dismissed, he was given the option of returning the two cars or purchasing one or other or both of them at set prices. He failed to return the cars or purchase them, and when the action reached the Court of Appeal it was concerned with the limited question of identifying the appropriate date when the value of the cars, if he wished to keep them, was to be assessed. Both Neill LJ and Nicholls LJ cited with approval the statement by Brandon LJ in Brandeis at p 870 to the effect that:
"Damages in tort are awarded by way of monetary compensation for loss or losses which a plaintiff has actually sustained, and the measure of damages awarded on this basis may vary infinitely according to the individual circumstances of the particular case."
509. After stating, briefly, the result in Brandeis, Neill LJ continued (at p 139e-j):
"An examination of the provisions of the 1977 Act in the light of the existing rules of the common law indicates that when making an award of damages under Section 3 of the 1977 Act the court is faced with a number of competing considerations. These considerations include: (a) the fact that the tort of detinue has been abolished; (b) the fact that the remedies now available for the tort of conversion (hitherto a purely personal action) have in effect extended the scope of the tort so that a proprietary claim can be asserted; (c) the general rule that where goods have been irreversibly converted their value is assessed at the date of conversion. It may be noted, however, that even where goods are articles of ordinary commerce the damages may be assessed by reference to the cost of replacement goods if the cost has increased between the date of conversion and the date when the plaintiff, acting reasonably, ought to have obtained the replacement: cf Empresa Exportadora de Azucar v Industria Azucarera Nacional SA, The Playa Larga and Marble Islands [1983] 2 Lloyd's Rep 171; (d) the former general rule that in detinue the value of the goods detained was assessed at the date of judgment; (e) the fact that after conversion the value of goods may fall instead of rise.
I have come to the conclusion that if one takes account of all these considerations and the fact that several different remedies are available under Section 3 of the 1977 Act it is not possible, or indeed appropriate, to attempt to lay down any rule which is intended to be of universal application as to the date by reference to which the value of goods is to be assessed. The method of valuation and the date of valuation will depend on the circumstances."
510. The third member of the court, Butler-Sloss LJ, simply agreed that the claimant's appeal should be allowed, so that it is not possible to extract from this decision any wider ratio than these very general observations.
511. The question at issue was whether the defendant should be allowed the benefit of purchasing the cars at the price set in the original option which he had refused, together with interest, or whether, given that one of the cars at any rate had increased greatly in value by the date of judgment, the value should be taken, as in detinue, at the date of judgment. Neill LJ decided that the fair course in these circumstances would be to remit the case to the lower court, with directions that it should proceed as follows:
"(1) to decide whether if the cars had not been converted IBL would have kept and used the cars or have disposed of them elsewhere; (2) to decide whether if the cars would have been kept and used IBL could and should have obtained replacement cars and, if so, when; (3) if (a) the cars would have been kept and used and (b) it is decided either that IBL were under no obligation to obtain replacements or that they would have been unable to do so, the court will assess the damages in the light of those findings. It seems to me that the damages on this basis are likely to be assessed by reference to the value of the cars at the date of judgment, 3 November 1989. Such an assessment would take account of the value of the option which the judge's order gave to Mr Coussens; (4) if the court decides that the cars would not have been kept and used or replacements could and should have been obtained it seems clear that an earlier date should be used for the calculation of the damages; (5) to calculate any damages suffered by reason of the loss of the use of the cars between the date of conversion and the date ascertained in accordance with (3) and (4)."
512. Direction (1) unquestionably applies a "but for" test to a particular issue in the computation of damages - the value to be adopted for the converted cars if the defendant wished to have them. It has never been suggested in any of the cases that the "value at the date of the conversion" should be adopted as an inflexible rule. Atkin J in MacNicoll referred to it as the prima facie measure of damages for a claim in conversion (see paragraph 461 above) and we have seen in paragraph 467 above how Lord Porter expressly left this point open in Caxton. Where the converted goods had increased so greatly in value before the trial, and where in addition there was no sensible way of assessing damages on the user principle, it is understandable that the court should seek to use a variety of techniques for assessing a just determination of the value to be adopted. There is nothing in Neill LJ's judgment to suggest that any other damages which flowed naturally and directly from the wrongful conversion would not be assessed in the conventional way. Thus the "but for" test was used, not as a condition precedent to the recovery of loss, but as a tool for the fair assessment of the extent of loss.
513. In his supporting judgment Nicholls LJ, too, was concerned only with identifying the date at which the value of the cars was to be fixed. He, too, observed at p 141h that there was no absolute rule governing the date as at which damages were to be assessed in conversion or the value of the goods were to be assessed in conversion. After citing the general principles recited by Brandon LJ in Brandeis, where the value of the detained goods had fallen, Nicholls LJ said at p 143a-c:
"In my view the same approach is applicable in the converse case, where property is wrongfully detained and is still held by the defendant and the price has risen meanwhile. If the court declines to make an order in the form of Section 3(2)(a), the sum to be stated in the Section 3(2)(b) form of order as the amount of damages payable as the alternative to handing over the goods will frequently be the current value of the goods. After all, the goods are the property of the plaintiff. But this will not necessarily be the measure of his loss. For example, if the plaintiff would have sold the goods had they been delivered to him when they should have been, his basic measure of loss will be the market price at that date plus interest. To award him damages by reference to the later value of the property would be to award him a windfall. In such a case, despite the proprietary nature of the plaintiff's claim, the amount of damages fixed as the alternative to handing over the goods will have to be tailored suitably."
514. After citing BBMB and paragraph 88 of the Law Reform Committee's 1971 report (see paragraph 486 above), Nicholls LJ concluded his examination of the law (at pp 143h-144b) by saying:
"Once it is kept in mind that there is no absolute rule regarding the date as to which the goods are to be valued, the difficulties in the interpretation and application of Section 3 substantially disappear. The sum to be specified in the present case as payable by the defendant as the alternative to returning the two cars is to be calculated by reference to the value of the cars at such date as will fairly compensate the plaintiff for its loss if the defendant chooses to pay the sum and keep the cars.
This conclusion involves interpreting the reference in Section 3 to `damages by reference to the value of the goods' as not compelling the court always to assess such damages by reference to the up-to-date value of the goods. In other words, for it comes to much the same, the statute leaves at large the date as at which the value of the goods is to be determined. In my view that is the proper construction of this section. Nowhere does the Act expressly state a date as at which the value of the goods is to be assessed. To construct the references to the value of goods as being by implication references only to the up-to-date value would fly in the face of the need for damages to be assessed in a sum which represents the true loss suffered by the plaintiff by reason of the defendant's act. Further, there is some indication in the statute that the draftsman envisaged that an assessment of damages by reference to the value of the goods in form (b) was a flexible formula: see Section 3(6)."
515. In New Court Securities Ltd v Scrimgeour Vickers [1997] AC 254 Lord Browne-Wilkinson at p 266 mentioned IBL Ltd v Coussens as a case illustrating the current flexibility of the law, in which there has been a movement away from the general rule that damages are to be assessed as at the date the wrong was committed if to follow such a rule would give rise to injustice.
516. Trailway Transport Ltd v Thomas [1996] 2 NZLR 443 provides an example of a court seeking to ascertain the effect of Brandeis and BBMB in a conversion case. The defendant was liable for the conversion of two refrigerated containers which had gone missing from their premises between March 1988 and April 1991, when they were recovered by the police. They were then sold for about $31,000 less than their value at the date of the conversion. The district court judge had applied a "but for" test, following Brandeis, and in the absence of any evidence as to loss which the claimants would not have incurred but for the conversion, simply awarded them the transport costs involved in recovering the containers, together with nominal damages. In reversing this decision, Tompkins J applied the conventional measure of damages in conversion cases, namely the market value of the goods at the date of the conversion, less the value of the goods when returned. He applied Solloway v McLaughlin and BBMB.
517. His judgment is interesting in that he says at p 448 that the passage in BBMB, where Lord Templeman suggested that different considerations would apply where property was irreversibly converted, was not easy to follow:
"In Solloway the shares were not irreversibly lost, because they were replaced by identical shares in the same company. Certainly, the shares originally converted were not themselves returned - what was returned was virtually the same being shares in the same company. It is difficult to see why the return of identical replacement shares should be treated differently from the return of the share themselves."
We will return to this issue in paragraph 520 below.
518. Finally, in this survey of the caselaw, we must mention briefly the third of the seven cases relied on by the judge (see paragraph 412 above), R H Willis & Son v B Car Auctions Ltd [1978] 1 WLR 438. This was not a case concerned with the measure of damages but with the question, raised 100 years earlier in Hollins v Fowler, as to whether in a particular factual situation an innocent intermediate handler, such as a broker or an auctioneer, should be liable to the original owners of the goods in conversion. The cases had suggested that there might be a distinction between an auctioneer who had effected a sale "under the hammer" and an auctioneer who effected a sale "as a provisional bid", and this court held that in their anxiety to protect the auctioneer as an innocent handler from the strictness of the law earlier courts had introduced fine distinctions which were difficult to apply. In future, they should merely ask whether the auctioneer was an "efficient cause" of the sale, and if so, the owner is protected by the strict law of conversion. We do not consider that this decision, concerned as it was with determining whether an intermediate handler was liable in conversion, casts any useful light on the proper method of measuring the damages payable by those found liable in conversion, other than to emphasise the strictness of the law and to provide yet another example of an innocent successive converter being liable in full for the value of the goods converted.
42 Damages for conversion: conclusions on recoverability
519. This very long review of the authorities was triggered off by KAC's challenge to the judge's conclusion (at paragraph 57 of his judgment) that in a case coming within the 1977 Act the claimant must establish that the damages he claims was caused "in fact" by the wrongful interference with his goods of which he makes complaint. We have seen how this test has never been applied in the case of second and subsequent converters, and how the only trace of a "but for" test has been detected in cases where the court considers that it might be unjust to apply the normal rule that the goods are to be valued at the date of their conversion subject to credit being given for their value at the date of their return.
520. One example of such a case has been seen to arise when the goods have been detained by a carrier or warehouseman who has no intention of using them in the course of his business. Another has been where the goods have increased in value between the date of their conversion and the date of trial and the defendant is to be given the option of retaining them. When determining what justice demands in such cases, the court may apply a variety of tests, including a "but for" test, in its quest for a just solution. Lord Templeman's dictum in BBMB, however, must not be taken to suggest that there is one rule in "irreversible" cases and a different rule in the others, particularly if use has been made of the converted goods during their period of detention. In all these cases the court is concerned to arrive at a just determination of the value to be attributed to the goods which the defendant has wrongfully converted. As Neill LJ said in IBL v Coussens, the method of valuation and the date of valuation will depend on the circumstances. The unreported decision of this court in Farid v Theodorou (CAT 30th January 1992) is just one example of the techniques now used by the courts in their search for justice.
521. Nothing in all this, however, detracts from the rule that conversion is a tort of strict liability, and 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 act of conversion, provided that they are not too remote (see the "third" point mentioned by Parker J in the citation at paragraph 490 above, and Clerk & Lindsell, op cit, paragraph 13-136). This rule is evident throughout the history of the cases we have examined. It is reproduced in Section 2(2)(a) and (b) of the 1977 Act, which are to be interpreted as containing a reference to damages flowing naturally and directly from the wrongful interference complained of, and not to damages which would not have been caused but for the wrong complained of (a test completely unworkable in any fair manner in the cases of second and subsequent converters). The absurd unfairness of requiring an innocent owner to set up a positive case as to what would have happened to his or her goods but for the conversion of which he or she makes complaint is well illustrated by the matters to which we have alluded in paragraph 93 and the final part of paragraph 205 above.
522. It follows that since the writ was issued on 11th January 1991, after IAC's conversion of the aircraft and at a time when they were still in its possession in Iraq, IAC was at the latest on that date obliged to return them or pay damages for their value, together with any consequential losses. In the absence of their safe return, IAC is liable for all losses flowing naturally and directly from its failure to return the aircraft, subject to any questions of remoteness, foreseeability, and new intervening acts, which we discuss in paragraphs 525-546 below. In other words, IAC's conversion (and/or usurpation) of the aircraft is the effective, natural and direct cause of such consequences, both as a matter of English law and, as we have seen in paragraph 405 above, of Iraqi law. This was also the view which Aikens J reached, and which he would have applied had he not held that the application of the "but for" test as a matter of English law caused all KAC's claims to fail at that point: see, for instance, paragraph 197 of his judgment.
523. On the first day of his clients' appeal Mr Vos quoted at length from the speech of Lord Hoffmann in Environment Agency v Empress Car Co (Abertillery) Ltd [1999] 2 AC 22 at pp 29-35 on the subject of causation. The conclusions we have reached on the authorities are consistent with the guidance set out by Lord Hoffmann in that speech.
524. Lord Hoffmann emphasises that it is not possible to give a common sense answer to a question of causation for the purpose of attributing responsibility under some rule without knowing the purpose and scope of the rule. The purpose and scope of the rule in conversion may be said to be that of providing to the owner of goods strong and strict protection against anyone who plays an efficient and deliberate role in prejudicing that owner's rights of ownership, even in ignorance of those rights. Thus the rule embraces second and subsequent converters, who deal with or retain the goods at their peril, irrespective of whether the goods had already been lost to the owner by reason of the first conversion. It is as if the successive converter is treated as being under an obligation to retain the goods only for their true owner. It is otherwise, however, if the person in possession has no intention of exercising dominion over the goods, such as a mere finder or a bailee who holds over after the termination of his bailment, for in such cases he is not liable in conversion at all. Once liable, however, as coming within the scope of the tort, a converter cannot avoid liability in damages by complaining that the owner had already been deprived of his goods by another converter.
42 Remoteness and foreseeability
525. We turn therefore to issues of remoteness and foreseeability. These arose before Aikens J in the following way. IAC submitted that, quite apart from the "but for" test in Iraqi and/or English law, KAC's claims would have to fail on the basis that both the loss of the Mosul Four by Coalition bombing and, as to the Iran Six, their evacuation to, detention in, and cost of recovery from Iran, were all unforeseeable events and thus too remote to be visited on IAC as consequences of its acts of conversion. Therefore, for that additional reason, all of KAC's claims must fail.
526. KAC, on the other hand, submitted that there was no foreseeability test in the tort of conversion. It was sufficient that the damages claimed were the direct and natural result of the conversion.
527. Aikens J dealt with these competing submissions at paragraphs 70-83 of his judgment. He concluded both that he was bound by the recent decision in this court in Saleslease Ltd v. Davis [1999] 1 WLR 1664 to hold that the foreseeability test and not the direct test had to be applied in such a claim (paragraph 82), and that this decision reflected "the development of the English law on issues of causation and remoteness in tort over the last forty years or more" (paragraph 83). He considered moreover that the Saleslease decision had been already anticipated in The Arpad [1934] P 189. On the facts, however, he found that, if KAC's claims had not failed on the "but for" test, they would not have been too remote on the ground that they were unforeseeable: their losses were in fact foreseeable.
528. The Arpad related to a claim brought in respect of the breach of a contract of carriage and in conversion. The issue this court had to determine was whether the claimant could recover as damages for non-delivery the price he had agreed for a sub-sale by sample, or whether the true measure was the value of the goods at the time when they should have been discharged. The distinction was important, because there had been a steep fall in the price of Roumanian wheat in the period between the conclusion of the sub-sale contract and the time for the delivery of the cargo at Hull. Two members of the court (Greer and Maugham LJJ) considered that the cargo owner was only entitled to the value of the wheat at the date of non-delivery in the absence of any knowledge by the shipowner of the sub-sale price. Scrutton LJ dissented, and would have allowed recovery of the sub-sale price.
529. Aikens J (at paragraph 79) described the competing arguments in these terms:
"Greer LJ concluded that the principles governing the recovery of damages in conversion were the same as for tort claims generally. Those principles were the same as those for contract `with the exception that in cases of tort the court has only got to consider the first rule in Hadley v Baxendale'. He concluded that in a contract claim the sub-sale price would be disregarded unless known to the shipowner. He held that the same rule applied to a conversion claim. Maugham LJ said that in a tort claim the defendant was only liable for the damages that were the natural and direct result of the wrongful act. Losses on sub-sales which were unknown to the tortfeasor were not the natural and direct result of the wrongful act. The basis of Scrutton LJ's dissenting conclusion was, I think, that in cases where there was a carriage from a wheat producing port, it was always probable that the shipper was sending the goods for resale. Therefore, in the absence of a market for the particular goods, the claimant could recover the value of the lost sub-sale, without having to prove that the particular facts of the sub-sale were known to the ship owner."
530. Aikens J observed, correctly, that these judgments were given at a time when the general rule on remoteness, in both contract and tort, was governed by the Court of Appeal's decision in Re Polemis [1921] 3 KB 560 to the effect that damages which were the "direct" result of the wrong could be recovered. They were also given at a time when it was generally held that there was no distinction between the remoteness rules applied to claims in contract and tort. He thought, however, that all three members of the court were refusing to adopt a mechanistic rule that any damages "directly" resulting from the conversion could be recovered.
531. He went on to describe the judgments in this court in the recent Saleslease case in these terms:
"In the Saleslease case the issue was whether the claimant could recover the value of a contract, that was particularly profitable, which he lost as a result of the wrongful interference (by detention) with MOT testing equipment belonging to the claimant. The majority of the Court of Appeal (Butler-Sloss and Waller LJJ) held that he could not; Schiemann LJ dissented, holding he could. Waller LJ gave the leading judgment. He considered The Arpad, re Polemis and The Wagon Mound No 1) and the current edition of McGregor on Damages. He concluded that the test was `whether the defendant could reasonably have anticipated that the loss on the [special] contract would be fully mitigated by a further lease if the equipment was returned when demanded but could not be mitigated other than by a sale if there was delay in return'. ... Butler-Sloss LJ said: `In my view a consequential loss which is special to the circumstances of the particular plaintiff and which is not known to the tortfeasor may be regarded as too remote: see: Overseas Tankship (UK) Ltd v Morts Dock & Engineering Co Ltd (The Wagon Mound (No 1)) AC 388'. Schiemann LJ accepted that the general test was: what did the defendant know about the potential loss if he continued with his wrongful interference. But he held that in this case the defendant knew enough to make him liable for the losses suffered as a result of his wrongful interference."
Aikens J concluded that all three members of the court were considering the question of remoteness by using a foreseeability test. Mr Vos conceded before us that we were bound by the decisions in The Arpad and in Saleslease, although he reserved his position in the event that this case reached the House of Lords. In the circumstances, we need say nothing more on this point.
532. When one asks the question "foreseeability of what?" the situation in negligence cases, at least, has been illuminated by the recent decision (since the judgment of Aikens J) of the House of Lords in Jolley v Sutton LBC [2000] 1 WLR 1082. In that case the House of Lords confirmed the continuing authority of its earlier decision in Hughes v Lord Advocate [1963] AC 837. Thus it is only necessary to foresee the type of damage in question, not the precise manner of its occurrence. Lord Steyn observed that the results of decided cases were inevitably very fact-sensitive.
533. On the facts Aikens J found, contrary to IAC's submissions, that all of KAC's claimed losses had been foreseeable. He said that the time at which to test the question of foreseeability was the time of the tort, and for these purposes he took neither mid-September 1990, when the aircraft were transferred to IAC, nor January 1991, when KAC's action was brought and when the consequences of Saddam Hussein's policies might be said to have become much clearer, but 17th November 1990, ie "when all the acts found by Mance J to constitute the wrongful interference had been completed" (paragraph 195).
534. As for the loss of the Mosul Four, although Aikens J recorded (at paragraph 38(4)) IAC's argument that the destruction of the Mosul Four was not the result of a type of event that was foreseeable when IAC committed its acts of wrongful interference, he did not (at paragraph 44(5)) identify this as an issue he needed to address, and for this reason he did not address it when he came to consider issues relating to the claim for the value of the Mosul Four (at paragraph 178).
535. He did, however, make findings that the Coalition bombing was not a new intervening cause (as to which, see paragraphs 539-546 below), and that the Iraqi government knew from mid-November that there was a possibility of war and aerial bombing, and that this was the reason why it moved the Boeing 767s from Basra to Mosul on 17th November 1990 (paragraph 172 and footnote 258). He also said that he would be inclined to accept KAC's submissions that "viewed objectively, Mosul was a very likely target for Coalition bombing" (paragraph 143). We would regard these findings as tantamount to findings that the loss of the Mosul Four by Coalition bombing was not unforeseeable.
536. As for the detention of the Iran Six, Aikens J specifically rejected IAC's submissions that it was not foreseeable or was the result of a new intervening cause. He addressed the facts of the evacuation, detention and recovery of the Iran Six at several places in his judgment (see paragraphs 157-161, 194-197 and 201). It is sufficient for us to quote from paragraph 201:
"I would have held that the US$20 million was not too remote to be recoverable. The steps to my conclusion are as follows. (i) It was foreseeable to IAC in November 1990 that it would have to obey government orders in relation to the KAC aircraft. (ii) It was foreseeable that if hostilities were imminent, then the government would have taken steps to safeguard these `valuable state assets'. (iii) As I have already held, the Iraqi government and IAC knew that they were taking a risk when the Iran Six were sent to Mashad. The risk was that Iran could prove awkward about returning the aircraft to whoever claimed them at the end of the hostilities. (iv) It was foreseeable that if the aircraft were left in Iran, then Iran might demand payment of a substantial sum from the true owners of the aircraft for keeping them safe there. So, if the general key to issues of remotenesss is "foreseeability" then, in my view, it was foreseeable to IAC that, as a result of incorporating the Iran Six into the IAC fleet a payment of some kind might have to be made to recover the Iran Six from the Iranian authorities. IAC suggested that the amount of US$20 million was neither justified in amount or in terms of any liability of KAC to Iran and so is `too remote'. There are two answers to this argument. First, as a matter of fact, the Iraqi government and IAC would have foreseen that Iran would not have been well disposed to Kuwait and any state company of Kuwait, given Kuwait's support of Iraq in the Iran-Iraq war. Secondly, on well established principles the precise amount of the claim is legally irrelevant."
537. Mr Donaldson has asked this court to review these findings. As to the Mosul Four, he has pointed out that the UN ultimatum was not made until 29th November 1990 and that Turkey's assistance to the Coalition (which produced the threat to Mosul) was not in play until 17th January 1991, after this action was brought. He submitted that a mere possibility of bombing was not enough; that it was not reasonably foreseeable that the move to Mosul would have made any difference, eg as against Basra where the Boeings had come from, and that merely moving from one part of the battlefield to another was not causative. In any event Mosul was safer. As to the Iran Six, he submitted that even if each step in the judge's reasoning as to foreseeability was correct, which he in any event disputed, the credibility of the chain as a whole was stretched to destruction. The demands made by Iran were outrageous, as compared with any reasonable parking or maintenance fees (the latter were in any event charged separately), and the ultimate payment, following the return of the aircraft, was voluntary.
538. We find no cogency in any of these submssions and consider that the judge was entitled and correct to make the findings that he did. It appears to us that as the law now stands, in conversion cases a court has to ask whether at the time of the conversion the type of loss that occurred (as opposed to the precise manner in which it occurred) was reasonably foreseeable. We would not differ, therefore, from the judge in his general approach, namely that as things stood in the confused situation that obtained in the autumn of 1990, it was foreseeable that the KAC aircraft might be evacuated from Iraq or destroyed in Iraq in the event of hostilities and that if evacuated there might ensue a long delay before they were recovered and that the cost of recovery might be considerable. The judge took the relevant date as being 17th November 1990. Conversion is regarded as a single act, so that on another occasion it might be necessary to address the difficulties that might arise in a case of "conversion by keeping" for a long period of time if the foreseeability test has to be applied once and for all at the moment when the conversion first takes place. This was a topic which Waller LJ treated as a "vexed question" which he did not have to decide in Saleslease Ltd v Davis [1999] 1 WLR 1664 at p 1671G. We see no reason, however, in the present case, to doubt that in a general sense the problems KAC encountered were foreseeable when IAC resolved that it would incorporate those aircraft into its fleet.
43 Remoteness and new intervening cause
539. Finally, under this consideration of causation, we come to the concept of the new intervening act (formerly known as novus actus interveniens). IAC submitted before Aikens J that where the human agency of a third party intervenes, the chain of causation is broken unless the new intervening act is not merely foreseeable but "likely" or "very likely". It relied in this context on phraseology used by Lord Reid in Dorset Yacht Co v. Home Office [1970] AC 1004 at p 1030 and by Oliver LJ in Lamb v. Camden LBC [1981] QB 625 at p 644C-D. On this basis, IAC submitted that the Coalition bombing (in the case of the Mosul Four) and the evacuation, detention and cost of recovery (in the case of the Iran Six) were each of them a novus actus interveniens which destroyed KAC's claims.
540. KAC submitted, on the other hand, that it was only what Lord Wright in The Oropesa [1934] P 32 at p 39 called:
"ultroneous, something unwarrantable, a new cause which disturbs the sequence of events, something which can be described as either unreasonable or extraneous or extrinsic"
which could break the chain of causation, and that IAC failed to bring any of its candidates within that concept.
541. Aikens J agreed with KAC in this connection, too: see paragraph 172 (the Mosul Four) and paragraphs 194-6 and 201 (the Iran Six). He applied Lord Wright's test from The Oropesa and regarded the same facts as relevant to questions of both foreseeability and new intervening cause.
542. In this court Mr Donaldson submitted that Aikens J had adopted the wrong test. He ought to have found that the matters relied on by KAC were new intervening acts because they were not likely, even if they were foreseeable. In Dorset Yacht v Home Office at pp 1027-8, in the context of a claim in negligence, Lord Reid distinguished between inanimate and human acts. As to the latter, he said (at p 1030B-C):
"These cases show that, where human action forms one of the links between the original wrongdoing of the defendant and the loss suffered by the plaintiff, that action must at least have been something very likely to happen if it is not to be regarded as novus actus interveniens breaking the chain of causation. I do not think that a mere foreseeable possibility is or should be sufficient, for then the intervening human action can more properly be regarded as a new cause than as a consequence of the original wrongdoing."
543. What Lord Reid there said was obiter and was not reflected in the speeches of the other members of the House of Lords. In Lamb v Camden London Borough Council [1981] QB 625 his dictum was the subject of comment in this court. Lord Denning MR (at pp 634-6) thought that in this instance Homer had nodded, and that the real test for the exclusion of the novus actus interveniens was neither "very likely" nor "reasonably foreseeable" but "a question of policy for the judges to decide". Oliver LJ, however, said (at p 642) that Lord Reid had been seeking to distinguish between what is foreseeable as a mere or bare possibility and what ought objectively and reasonably to be foreseen as likely to happen. For him the critical finding in the case then before the court was that the intervening act was "unlikely" (at p 643B). This might be said to turn Lord Reid's test inside out, for it is relatively uncontroversial to say that an unlikely intervening act breaks the chain of causation, at any rate if it is not the very thing that the duty of care is designed to guard against. Watkins LJ also had doubts about the utility of Lord Reid's test (at p 645): while prepared to accept that damage done by squatters (the intervening act in that case) was reasonably foreseeable, it remained "unreasonable conduct of an outrageous kind" (at p 647D), and on that basis he would trust his instinctive feeling that it was too remote. Instinct may have played a part, but his test was close to that of Lord Wright. The Oropesa had been cited, but was not mentioned in the judgments.
544. Mr Donaldson also relied on Ward v Cannock Chase District Council [1986] 1 Ch 546, where Scott J considered the previous authorities. His synthesis was to adopt the question whether the damage caused by the intervening act was "a reasonably foreseeable consequence" of the defendant's breach of duty (at p 569F).
545. We are not here concerned with the tort of negligence. Even if we were, however, we would not regard the authorities relied on by Mr Donaldson as vindicating the submission, based on Lord Reid's dictum, that human intervention will break the chain of causation unless it is itself very likely. Scott J, having considered the authorities, adopted the ultimate test of whether the damage was reasonably foreseeable: if it was, then human intervention did not break the chain of causation. This is, to our mind, the opposite side of the same coin that bears Lord Wright's test. If the test of reasonable foreseeability is applied, then the remoteness tests of foreseeability (see above) and new intervening act will yield the same result, just as Aikens J believed that they did. If the test of ultroneous conduct is applied, as Aikens J was prepared to do, then the same answer is reached, for the fear of Coalition bombing was precisely what drove the Iraqi government and IAC, successfully or not, to dispose of KAC's aircraft as they did, and the response of the Iranians was precisely the risk which the judge found that the Iraqis consciously took when they adopted the expedient of evacuation. In such circumstances the Coalition bombing and the Iranian response can hardly be regarded as "something unwarrantable, a new cause which disturbs the sequence of events, something which can be described as either unreasonable or extraneous or extrinsic" (per Lord Wright). Nor can Mr Donaldson properly describe the decision to evacuate as an intervening act, when it was one shared in and executed by IAC itself.
546. Having said that, we do not in any event think that the cases on negligence are the guiding authorities in a case of conversion. Conversion is a tort of strict liability. Mr Donaldson conceded in argument (T11/110-114) that if he were to sell or give away a claimant's silver goblet, the loss would be proved in full, even though it might also be proved that the cup would have been returned to its owner but for some third party's unexpected destruction of it. In such circumstances there would seem in principle to be little or no room in this corner of the law for the concept that a new intervening act may break the chain of causation. Rather, we think that in this respect the law is similar to that applied in deviation cases: see Davis v Garrett (1830) 6 Bing 716. We will revert to this topic at paragraphs 609-614 below.
45 The financial claims
547. For the reasons we have given, the Iraqi law of usurpation bars KAC from recovering damages in relation to the loss of the Mosul Four. On the other hand they are entitled, both under English and Iraqi law, to recover damages naturally and directly flowing from IAC's wrongful usurpation and conversion of the Iran Six. This conclusion leads inevitably to the detailed consideration and assessment of the individual heads of loss they put forward.
548. This process has been rendered more difficult by a number of factors. In the first place, since Aikens J decided that KAC's claim failed in total, he quite understandably tended to summarise his further conclusions, necessarily all obiter, on individual heads of claim, and did not set out his findings and determinations in extenso. This has led in places to some argument as to what he has, or would have, really decided. Secondly, he was not concerned with any detailed questions of assessment (save such as may have been incidentally agreed between the parties and their experts in the course of the preparation for the hearing itself). This may often happen where there are separate trials of liability and quantum. Questions of principle regarding quantum issues, whether concerned with causation or remoteness or, as may occur in contract disputes, with the construction of documents, may be taken as part of the liability trial, in a very proper attempt to decide all questions of principle at the first stage, so as to leave only questions of detailed assessment to the second. The problem that may arise in such circumstances, however, is that the question of principle cannot easily be decided with an incomplete knowledge of how a particular head of claim is put on the facts. There is also a danger that matters stated by the court at the first stage, with an incomplete knowledge of the facts, may cause difficulties at a later stage, when the facts have to be investigated in greater detail.
549. We are conscious of those dangers and difficulties in this case. Nevertheless, the alternative procedure, of trying to decide everything at one trial, with its own attendant dangers of over-complexity and wasted expenditure of costs, makes the attempt to stage the determination of issues desirable or even necessary at times. We would, however, sound the note of caution that some at any rate of the facts stated in this part of our judgment cannot have the hard edge of a definitive finding. We will try to indicate where there are factual uncertainties, but we cannot be sure that we will always succeed.
550. It is tempting to regard the status of claims with regard to the Iran Six, where KAC has in principle succeeded, as having a higher claim on our attention than those advanced in the case of the Mosul Four. We feel, however, that we should give equal weight to both sets of claims because they are in certain important respects interlinked.
551. This part of our judgment is not concerned with general questions of causation or general arguments with respect to new intervening acts. These have already been discussed (see paragraphs 519-546 above). A particular head of claim, however, may raise its own, as it were, micro issue of causation or remoteness, or of reasonable foreseeability or response. We will have to address any such issues where they arise.
46 KAC's heads of claim
552. KAC's financial claims are structured around three straightforward facts. The first is that the Mosul Four were totally lost. The second is that the Iran Six were detained in Iran for a long time following the end of the Gulf War in March 1991. They remained in Iran until the end of July or early August 1992. The third is that at a comparatively early stage KAC decided to reconstitute its fleet, not by buying in comparable used aircraft, but by purchasing from Airbus Industrie a brand new fleet of 11 Airbuses. The purchase contract was made in September 1991. Under this contract KAC had an option to require Airbus Industrie to buy the 5 Airbus A310s detained in Iran when they were returned. The new aircraft were delivered over a period which started in 1993 and ended in 1995. In the meantime, KAC resumed operations using temporary substitute capacity.
553. Aikens J described KAC's heads of claim, which he catalogued under five headings (A-E), at paragraph 37 of his judgment. He derived this catalogue from KAC's re-re-re-amended particulars of causation and quantum (formally re-served on 13th January 2000, after the stage 2 trial had ended). Head A is for the value of the Mosul Four, which had of course been destroyed. Heads B-D concern the Iran Six alone. They cover aspects of the effects of their detention in Iran such as the costs charged to KAC by Iran for their return (head B), the cost of repairing them and reconstructing their maintenance records after their return (head C), and the diminution in their value by reason of the "taint" of their history (head D). Head E covers all ten aircraft, both the Mosul Four and the Iran Six, and relates to claims in respect of commercial financial loss said to have been suffered by KAC by reason of the destruction or detention of those aircraft.
554. Head E is the most complex, and by far the largest, of the claims. It is broken down into five sub-heads, lettered (a) to (d)(i) and (ii). We would prefer to number them (i) to (v).
555. Head E(i) is a loss of profits claim. It is described in KAC's pleadings as "loss of additional net income which would have been earned had fleet been available from 11th May 1991". The date of 11th May 1991 has been taken by KAC as the date by which it could have had its fleet ready for service, if it had been available, and on the assumption that it had been able to start preparations for the resumption of its normal activities as soon as hostilities ceased in March 1991. KAC's pleading describes this loss as reflecting a period when "the Gulf War provided substantial opportunities to make profits beyond those that [KAC] could expect to make by ordinary operation as a civil airline working commercial routes". Thus head E(i) claims loss of profits which are in addition to the cost of leasing in substitute capacity.
556. Heads E(ii) and E(iii) relate to that substitute capacity. Head E(ii) deals with substitute cargo capacity and head E(iii) deals with substitute passenger capacity.
557. Heads E(iv) and E(v) identify two financial claims which are said to arise out of the purchase of the new aircraft. Because the KAC fleet was renewed five to six years earlier than it would have been in the ordinary course of events, KAC alleges that it has suffered additional costs from the early replacement. Head E(iv) is a claim for higher depreciation costs, being the difference between the depreciation that would have occurred on the lost aircraft and the depreciation that has occurred or will occur on the new fleet. Head E(v) is a claim for the costs of financing the new aircraft. This, the "finance costs" claim, was one of the major issues relating to damages at the appeal hearing. In the event head E(iv), the depreciation claim, was rejected by Aikens J, and was not pursued by KAC on appeal.
558. The quantum of these claims was pleaded as follows:
A. The value of the Mosul Four: $199,011,75.
B. The cost of the return of the Iran Six: KD 30,155 and US$ 269,000, being the cost of servicing the aircraft in Iran, and $20 million, being the payment made to Iran by KAC in 1994, following their return to Kuwait.
C. The cost of repairing the Iran Six: $10,977,000.
D. The "taint" claim to the Iran Six: $6,418,000.
E(i). The loss of profits claim: $66,313,737.
E(ii). The cargo substitute capacity claim: $46,297,301.
E(iii). The passenger substitute capacity claim: $99,100,000.
E(iv) The depreciation claim: $103,048,850.
E(v). The finance costs claim: $290,189,824.
559. IAC is the appellant in connection with an aspect of head A (value of the Mosul Four). In principle IAC accepts that, were they to have lost the "but for" argument with respect to the Mosul Four, they would be liable to compensate KAC for their value. There remains a dispute between the parties, however, as to how that value should be assessed. Unusually, the issues of assessment themselves raise issues of principle. There are two limbs to the dispute. The first, and perhaps the major limb, concerns two different methods, concepts or bases of valuing the Mosul Four. One is the current market price basis (or CMP), and the other is the fair market value basis (or FMV). The experts agreed definitions for these concepts, and also agreed values for the aircraft on each of them, adjusted to take account of the aircraft's maintenance cycle. Values were given for a variety of dates, among them 1st January 1991. Thus to this extent the question of assessment has been performed, and the issue for Aikens J, as for us, is to decide which method to adopt. KAC and its expert adopted FMV, IAC and its expert adopted CMP. The latter basis produced figures some considerable way beneath those produced by FMV. For instance, as at 1st January 1991, the adjusted FMV for 9K-AHF was $45,158,333, whereas the equivalent CMP was $35,758,333.
560. What is the difference between FMV and CMP? We shall have to set out (in paragraph 599 below) the agreed definitions of the experts, but for the present it may suffice if we say that whereas CMP seeks to give a "spot" price or value for an aircraft bought or sold at a specific date, reflecting the exigencies of the market at that date, FMV seeks to iron out short-term market fluctuations and assumes a sufficient period of time (of up to 18 months) for a willing buyer and seller to reach agreement based on prevailing supply and demand, but ignoring any pressure on a party to transact within a short period.
561. The other issue of principle under head A arose from IAC's submission that at the very least a substantial discount would have to be assessed on either valuation basis to allow for the fact that, even before IAC's conversion of the Mosul Four, those aircraft were already based in Iraq where their value to KAC was reduced, perhaps even to nothing, by the dismal prospects for their safety and recovery.
562. As for head B (the payments to Iran), it will be clear from the findings we have already made in relation to the Iran Six that IAC's extensive submission, viz that the whole episode of their evacuation, their (long) detention in Iran, and the price that had to be paid for their release, was in any event not caused by IAC's conversion, or was the result of new intervening acts, or was otherwise too remote or unforeseeable, has failed in principle. It will not be necessary therefore to consider such matters again for the purpose of head B or otherwise.
563. Aikens J did not consider head C at all, because it had previously been adjourned by order of the court to a further hearing. Nothing has been said about it on the appeal. In the light of our decision about the Iran Six, this head of claim survives in principle. Its validity and, if it is valid, its assessment will be for further consideration in the Commercial Court in the light of this judgment.
564. Heads D and E(iv) are no longer pursued. Head D, the "taint" claim, was rejected by Aikens J on the facts. Nothing more needs to be said about it. Little further needs to be said about E(iv), the depreciation claim, save to consider in due course what, if any, significance there may be in the circumstances that (a) Aikens J would have rejected it (if he had held that IAC was in principle liable for the conversion of the aircraft) as not being caused by IAC's wrongdoing "principally for the same reasons" as he would have rejected the finance costs claim (head E(v)) (see paragraph 235 of the stage 2 judgment); and (b) KAC has in any event chosen not to pursue the claim. Its quantum had been agreed by the experts.
565. Head E(i) was adjourned by agreement in the course of the stage 2 hearing. As Aikens J did not therefore have to consider the facts of the claim, he made certain assumptions about the way it would have been put, and rejected it in principle so far as the Mosul Four were concerned (at paragraph 212), on the basis that the recovery of the value of those aircraft (under head A) was the limit of what the law allowed. He would have allowed it in principle, however, with respect to the Iran Six (at paragraph 220), subject to proof. In this, as in other aspects of his decisions as to KAC's financial claims, Aikens J was much influenced by his reading of the famous case of The Owners of Dredger Liesbosch v Owners of Steamship Edison [1933] AC 449 (The Liesbosch) where the House of Lords had to consider the damages for total loss (by negligence) of a profit earning chattel.
566. Head E(ii), the substitute cargo capacity claim, was also adjourned by agreement at the stage 2 trial, as being bound up with the head E(i) claim for lost profits. Even so Aikens J again went on to consider the claim in principle, and decided that it was recoverable both with respect to the Mosul Four (at paragraph 215) and also with respect to the Iran Six (at paragraph 222). He further found, with respect to the Mosul Four, that it was reasonable for KAC to have continued with leasing in substitute capacity until the new aircraft were delivered. He therefore rejected IAC's submission that in any event the claim should not extend beyond a period of six to nine months which, on its evidence, would have allowed KAC enough time to buy in substitute used aircraft (at paragraphs 217-8). As for the Iran Six, there was also a dispute as to the length of the substitute leasing. This dispute related to the period of post-return repairs at Sogerma. Aikens J was unable to make any findings on this issue (at paragraph 223).
567. Head E(iii), the substitute passenger capacity claim, was considered by Aikens J together with head E(ii), and approved in principle for the same reasons.
568. Head E(v), the finance costs claim, was rejected by Aikens J: in the case of the Mosul Four because of his decision that KAC's claim in respect of their conversion was limited to the recovery of their value (plus the cost of substitute capacity) and in the case of the Iran Six because KAC's financial loss claim was limited to loss of profits and the cost of substitute capacity (paragraph 229); and in both cases because the decision to buy new aircraft, reasonable as it was, was not caused by IAC's conversion but either by KAC's impecuniosity (paragraph 230), or by reason of the unavailability of prompt payment of damages, a matter for interest but not for the payment of damages parasitic on deferred payment of damages (paragraph 233).
569. It follows that Aikens J was prepared, had he found in favour of KAC on the general question of causation, to rule, at any rate in principle and subject to any necessary assessment, in favour of recovery on heads A, E(ii) and (iii) (value and substitute capacity) with respect to the Mosul Four, and on heads B, E(i), (ii) and (iii) (payments to Iran, loss of profit and substitute capacity) with respect to the Iran Six, but not otherwise, save that head C was left entirely on the sidelines.
570. It also follows that on appeal, KAC is the appellant in seeking recovery under heads E(i) (loss of profits, with respect to the Mosul Four), and E(v) (finance costs with respect to the purchase of its new fleet) and IAC is the appellant in resisting recovery under heads B (payments to Iran), E(i) (loss of profits with respect to the Iran Six), and E(ii) and (iii) (substitute capacity with respect to all ten aircraft).
571. This brief review of KAC's financial claims, of their fate in the obiter part of the judgment of Aikens J, and of the matters argued before this court, demonstrates that the major issues which we have yet to resolve are as follows:
(1) Which is the more appropriate basis for the valuation of the Mosul Four, FMV or CMP? Does any discount have to be allowed for the fact that these aircraft were already in Iraq? (Head A)
(2) What, if anything, does the law allow in the case of the total loss of a profit-earning chattel other than its value? In particular, can loss of profits or the cost of substitute capacity be claimed in addition to value? What exactly does The Liesbosch decide? (Heads E(i), (ii) and (iii), so far as they concern the Mosul Four)
(3) Was the decision to buy new rather than used aircraft by way of replacement a reasonable one? If so, does this permit the recovery of loss of profits or the cost of substitute capacity, if otherwise in principle available, up until the receipt of such new aircraft, or only until a period allowed for the replacement of the Mosul Four, or until the recovery of the Iran Six? (Heads E(i), (ii) and (iii), so far as they concern all ten aircraft)
(4) If the decision to buy new aircraft was reasonable, does this justify the finance costs claim, or are those costs in any event caused for reasons other than IAC's conversion, eg by KAC's decision to buy new aircraft or by KAC's impecuniosity, or are they too remote or otherwise irrecoverable eg because they amount to damages where only interest is recoverable?
572. KAC's quantum pleading sets out its claims very briefly, with only bottom line quantum figures quoted (as set out above). It states that particulars are contained in various reports which were in evidence before Aikens J. The report of Mr AHF Campbell FCA, in particular, sheds some further light on the principal issues for our consideration on this appeal.
573. Such papers indicate that KAC's case runs along the following lines. It decided in principle at an early date to purchase new aircraft to replace the Mosul Four and the Iran Six, knowing that the former had been destroyed and being uncertain as to exactly when the latter would be returned. Pending the delivery of these new aircraft, KAC leased in five A310-300 aircraft from Polaris Aircraft Leasing International Limited ("Polaris"), one or more of which they operated from August 1991 at the earliest to October 1993 at the latest. The new aircraft were delivered over a period from May 1993 to May 1995: six were delivered between May and July 1993, two more in January-February 1994, and the balance in April-May 1995. Despite the later arrival of the last five aircraft, the Polaris leases, which had all ended by October 1993, were sufficient to create the basic substitute capacity needed to maintain KAC's normal passenger services. In addition, ad hoc temporary leasing arrangements were entered into for additional passenger aircraft to cover peak demand periods in the period up to October 1993. KAC's normal cargo services were met by leasing or chartering in further capacity at various dates beginning in May or June 1991 and continuing into June 1993. As a result, at the cost of acquiring this substitute capacity (heads E(ii) and (iii)), there was no loss in terms of KAC's normal passenger and cargo services.
574. Nevertheless, if its original fleet had been available to it, KAC would have converted its three A300-600C aircraft (two of which were part of the Mosul Four and the other of which was part of the Iran Six) into cargo carrying mode in order to take advantage of the exceptional opportunities in the aftermath of hostilities to carry cargo into Kuwait for its rebuilding. Head E(i) represents the net profits which would have been earned from that conversion and those opportunities, up to June 1993.
575. As for finance costs (head E(v)), these were calculated on the basis of the cost of loan finance, plus the interest foregone on cash deposits used by KAC to finance prepayments and that portion of the cost of the new aircraft not funded by loans. Although it may be true that if the old aircraft had been replaced by new aircraft later in the 1990s KAC might or would have built up greater profits in the meantime, and might then have had to fund the purchase to a lesser extent from loan capital, KAC's case under this heading was in no way premised on impecuniosity. These finance costs were calculated over the lifetime, assumed to be 15 years, of the replacement aircraft. When the five A310s were taken by Airbus under KAC's put option, the sale price was used as a credit against the purchase price of the new aircraft. KAC has allowed for this credit in its finance costs calculations.
576. The depreciation claim was also calculated on the assumption of a 15 year cycle, adopting KAC's policy of depreciating its aircraft on a straight line basis allowing for a residual value of 15% of cost. The actual comparison of the depreciation costs of the old and new aircraft was performed over a period from May 1991 to the date on which each of the old aircraft would have been replaced had it not been for their loss or detention, being various dates between September 1998 (5.3 years) and April 2001 (very nearly 8 years). For the purpose of the calculations the old aircraft were regarded as having been disposed of (the Mosul Four in January 1991 and the Iran Six at the time of their actual disposal after recovery) at book value without profit or loss. The new aircraft were regarded as being the equivalent of the aircraft they replaced and no credits were allowed for any material improvement in the economy of performance of the former. This was on the basis that -
"the replacement aircraft, taken together, would not have been materially more or less economical when used on KAC's actual routes and schedules than the Ten Aircraft, particularly in the context of my depreciation calculations. Consequently I have not attempted to make any adjustments either up or down in this respect" (Mr Campbell's report, at paragraph 9.14).
577. In effect, therefore, the depreciation claim was a form of exercise at calculating the greater cost of the replacement aircraft, over the period of the remaining life of the old aircraft, as compared with the cost of the old aircraft during the same period. Or to put the matter in another way, the remaining value, in book terms, of the old aircraft was used as a credit against the cost of the new aircraft, as was a further credit represented by the depreciated value of those new aircraft at the respective cut off dates for the 15 year end of life of each old aircraft. There were eleven new aircraft, which were compared with eleven old aircraft, being the Mosul Four, the Iran Six, and the "orphan" Boeing 767 9K-AIA, the only surviving KAC Boeing after the destruction of the other two B767s at Mosul. Eleven new aircraft were ordered on the basis that it made sense for KAC, as part of its fleet replacement strategy, to trade in the orphan Boeing in order to achieve an entirely Airbus operation.
578. We should add that IAC was prepared to put much of the detail of these calculations in issue. In particular Mr Donaldson stressed to us that the new aircraft were superior in many respects, not only because they were new, but also because they had superior technology, capacity, range, efficiency and flexibility. So much so, he submitted, that they could not fairly be regarded as true replacements for the old aircraft.
47 The Airbus purchase contract
579. Something more needs to be said at this point about the Airbus purchase contract. It was executed on 16th September 1991, although a draft was already in being by June 1991. Indeed, "updated proposals" from Airbus had been made in writing to KAC on 24th April 1991. That offer also contained proposals for what ultimately became the put option. KAC's strategy to buy new aircraft appears to have been under consideration as early as February 1991, since there is an internal KAC memorandum dated 11th February in which various leasing options are discussed "during the Interim Period of April 1991 till the delivery of new aircraft from the aircraft manufacturers".
580. An internal KAC document dated 30th March 1991 addressed to KAC's chairman discussed an operational evaluation of the Iran Six and the orphan Boeing as against the potential order to Airbus. The document began by saying that the Iran Six were expected to be restored to KAC "in the near future". Mr Al-Zabin, KAC's deputy director general of engineering affairs, agreed in his oral evidence that KAC had been expecting to obtain the recovery of the Iran Six from March 1991 onwards.
581. A further KAC document of about this period but undated, entitled "Fleet Plan for Kuwait Airways up to the Year 2000", also discussed the purchase of aircraft which ultimately figured in the Airbus order, and contained inter alia the following remarks:
"The fleet plan address[es] itself to replacing the aircraft lost due to the Iraqi invasion also to the replacement of the ageing B727/B747 technology with better technology, more efficient and longer range aircraft. The purpose is also to take advantage of being able to sell the old fleet at good reasonable prices while they still have market value; to place early orders on new aircraft in order to avoid price escalations and also to reduce lease period of aircraft in case the lost fleet is not retrieved."
582. It was on the basis of material such as this that Mr Donaldson submitted that the Airbus order was not the result of the loss and detention of KAC's ten aircraft, but because of a strategic decision to update its fleet, taken even in the knowledge that the Iran Six were safe and would be returned, and in the belief that their return would take place sooner rather than later. The length of their ultimate sojourn in Iran was not as yet anticipated. The strategic decision was, he continued, taken for both technical and commercial reasons. In addition to the advanced modernity, efficiency and flexibility of the new aircraft, there were also the considerations that in the current recessionary and thus depressed conditions for the market in both new and used aircraft the prices offered by Airbus were advantageous to KAC, and even the put option offered by Airbus with respect to the Iran Six was on favourable terms designed to facilitate KAC's purchase. In making these submissions he was able to rely on the evidence contained in the reports of Mr CPW Villa of Apollo Aviation Advisory, IAC's aviation expert.
583. Nevertheless, Mr Villa also conceded under cross-examination that KAC's decision to replace its fleet was a "reasonable commercial decision". He said (Day 18/16-17):
"A. My own view is had I lost these 10 aeroplanes which were by then, that time, standard obsolete in terms of performance, and the new aircraft were so much better, it would have given me a marvellous opportunity to get something better. Whether I would have done what KAC did or not is another matter...
Q...Do I understand from the measured hesitancy of your response that you do not consider the course that KAC did, in fact, take to have been an unreasonable one?
A. From KAC's point of view (and I have said this in my evidence) I believe it is up to KAC to take their own commercial views. They took a commercial view and the argument which I am not here to settle is who pays for that decision?
Q...You said it was a commercial decision. It was a reasonable commercial decision, others might have taken a different commercial decision, but it was a reasonable commercial decision?
A. Yes."
584. That was the answer which Aikens J recorded in his judgment in the following passage (at paragraph 218):
"In my view the actions of KAC were reasonable. It was always assumed (reasonably) from March 1991 that the Iran Six would eventually be returned. It therefore made no sense to purchase `stop-gap' aircraft, as Mr Villa accepted in cross-examination. If KAC was going to purchase new aircraft, an option which was under active consideration from April 1991, it made reasonable sense to lease aircraft until a decision was made. And if the decision was to buy, then it made reasonable sense to continue to lease aircraft until the new purchases were delivered. Mr Villa accepted in cross-examination that the decision of KAC to purchase new aircraft was `a reasonable commercial decision'. He also accepted that it was a `common sense option' for KAC to obtain aircraft (on dry leases up to the time of purchase) of the type that were to be purchased. Given these answers from the expert called by IAC on matters of airline operations, I must conclude that the arrangements made by KAC to lease substitute capacity were generally reasonable in the circumstances..."
585. Mr Donaldson submitted that the judge had placed undue stress on the answers given by Mr Villa in cross-examination, and that properly understood all that he had intended to say was that, if a decision had been taken to buy new, then the action taken by KAC was reasonable. Mr Donaldson relied in this connection on a passage in Mr Villa's re-examination, at Day 18/48, as follows:
"Q...You ended up at the end of it, you were asked whether it was a reasonable decision and you said, yes, it was. Now, having regard to what factors do you view that as a reasonable decision?
A. If I had made a decision to replace the aeroplanes, and decided that I never did want those A310-200s again, if that was my commercial decision, it would, was a reasonable decision to do what they did."
586. We shall revert to these submissions in paragraphs 634-651 below. However, it seems to us that there was little to choose between Mr Villa's answers: a decision to buy new was a reasonable commercial decision. Nor can we fault the judge's conclusions at paragraph 218 of his judgment. At most it might be said that the option to buy new was under active consideration prior to April 1991, and that this option would have been equally under consideration whether or not the Iran Six were expected to be returned earlier than turned out to be the case. The fact is, however, that KAC was not committed until 16th September 1991, by which time it was certainly becoming clear that the recovery of the Iran Six would be no easy matter. By that time Kuwait had been liberated for more than six months, the aircraft had still not been returned, and KAC had only very recently been allowed for the first time to conduct a (brief and limited) inspection of the aircraft in Iran (on 5th September). In truth, the factors in favour of starting afresh, rather than buying second-hand aircraft on a stop-gap basis, made KAC's decision not merely reasonable, but compelling. The question remains, however, as to whether IAC is responsible for the financial consequences of that decision, and if so, in what amount.
48 The Liesbosch
587. We turn next to The Liesbosch, which was the linchpin of many of Mr Donaldson's submissions, not only in relation to the choice between FMV and CMP, and to the question whether KAC could recover anything by way of loss of profit or cost of substitute capacity in addition to the value of the Mosul Four; but also with regard to the question of the right approach to the causation of KAC's decision to buy new, and thus to the financial consequences which followed on from that decision.
588. The Liesbosch was a case concerned with a claim in negligence arising out of the total loss of the claimants' dredger in a collision with the defendant's vessel. (The argument before us proceeded on the basis that it was applicable to the present case of total loss in conversion). The claimants had been using their dredger under a contract with a third party under which they would come under severe penalties in the event of delay. They had to obtain a replacement. It was found as a fact in the courts below that a replacement dredger could have been obtained "at a moderate price and with comparatively short delay" (see [1933] AC 449, 460). As a result of their impecuniosity, however, the claimants could not afford to purchase a replacement and they therefore lost time while they sought out a dredger for hire and then chartered it in at an expensive rate. The replacement dredger was also expensive to work, and it required a tug and two hopper barges to be in attendance. In due course the third party employer bought the replacement dredger from her owners and resold it to the claimants for a price payable in instalments. All these costs, including the purchase price, formed part of the claim. At first instance Langton J upheld the Registrar's report to the effect that this claim was in substance recoverable on the footing that, in the light of the severe terms of the claimants' contract with their employer and their own want of liquidity, they had acted reasonably. The Court of Appeal (sub nom The Edison [1932] P 52) reversed Langton J on the ground that the claimants' loss over and above the capital value of the lost dredger at the time and place of her loss, plus interest, was too remote.
589. In the House of Lords the judgment of the Court of Appeal was upheld in substance, but varied in detail. It was agreed that the special loss or expense due to the financial position of the claimants could not be recovered and that damages should be measured only by the value of the lost dredger, but it was held that such value was not merely its market value, but its value as a profit earning chattel. The award should therefore include a sum for adapting and bringing a comparable replacement on site and a further sum to compensate the claimants for losses due to the inevitable interruption of their contract. Lord Wright gave the only speech, with which the other members of the House of Lords concurred. As for the special losses caused by the claimants' impecuniosity, in a famous passage Lord Wright said at p 460:
"But the appellants' actual loss in so far as it was due to their impecuniosity arose from that impecuniosity as a separate and concurrent cause, extraneous to and distinct in character from the tort; the impecuniosity was not traceable to the respondents' acts, and in my opinion was outside the legal purview of the consequences of these acts. The law cannot take account of everything that follows a wrongful act; it regards some subsequent matters as outside the scope of its selection, because `it were infinite for the law to judge the cause of causes', or consequences of consequences. Thus the loss of a ship by collision due to the other vessel's sole fault, may force the shipowner into bankruptcy and that again may involve his family in suffering, loss of education or opportunities in life, but no such loss could be recovered from the wrongdoer. In the varied web of affairs, the law must abstract some consequences as relevant, not perhaps on grounds of pure logic but simply for practical reasons. In the present case if the appellants' financial embarrassment is to be regarded as a consequence of the respondents' tort, I think it is too remote, but I prefer to regard it as an independent cause, though its operative effect was conditioned by the loss of the dredger."
590. As for the measure of damages to be applied to the circumstances of the case, Lord Wright continued (at pp 461ff) as follows:
"I agree with the conclusion of the Court of Appeal that the Registrar and Langton J proceeded on the wrong basis and that the damages must be assessed as if the appellants had been able to go into the market and buy a dredger to replace the Liesbosch..."
591. Were the claimants, however, also entitled to damages arising out of the delay to their contract? Lord Wright considered the opinion of Dr Lushington that in the case of the loss of a vessel due to another's fault, damages were limited to the value of the property lost, without any regard to the profits to be derived from her voyage. This view was held because of the difficulties and "endless ramifications" which would be imposed on judicial determination. Lord Wright said, however, that -
"In these cases the dominant rule of law is the principle of restitutio in integrum, and subsidiary rules can only be justified if they give effect to that rule..."
He preferred the view of Sir Robert Phillimore in other cases that where a vessel was lost by collision when she was under charter, the proper measure of damages was the value of the vessel plus the profits lost under the charter. Lord Wright continued (at pp 464-5) -
"The true rule seems to be that the measure of damages in such cases is the value of the ship to her owner as a going concern at the time and place of her loss. In assessing that value regard must naturally be had to her pending engagements, either profitable or the reverse. The rule, however, obviously requires some care in its application; the figure of damage is to represent the capitalized value of the vessel as a profit-earning machine, not in the abstract but in view of the actual circumstances. The value of freights cannot simply be added to market value but ought to be taken into account in order to ascertain the total value for purpose of assessing the damage, since if it is merely added to market value of a free ship, the owner will be getting pro tanto his damages twice over. The vessel cannot be earning in the open market, while fulfilling the pending charter or charters...But different considerations apply to the simple case of a ship sunk by collision when free of all engagements, either being laid up in port or being a seeking ship in ballast, though intended for employment, if it can be obtained, under charter or otherwise. In such a case the fair measure of damage will simply be the market value, on which will be calculated interest at and from the date of loss, to compensate for delay in paying the loss. But the contrasted cases of a tramp under charter or a seeking tramp do not exhaust all the possible problems in which must be sought an answer to the question what is involved in the principle of restitutio in integrum. I have only here mentioned such cases as a step to considering the problem in the present case. Many, varied and complex are the types of vessels and modes of employment in which their owners may use them. Hence the difficulties constantly felt in defining rules as to the measure of damages. I think it impossible to lay down any universal formula. A ship of war, a supply ship, a lightship, a dredger employed by a public authority, a passenger liner, a trawler, a cable ship, a tug boat (to take a few instances), all may raise quite different questions before their true value can be ascertained."
592. Having considered matters thus in the abstract, Lord Wright turned to the case before the House (at p 464):
"The question here under consideration is again different; the Liesbosch was not under charter nor intended to be chartered, but in fact was being employed by the owners in the normal course of their business as civil engineers, as an essential part of their plant they were using in performance of their contract at Patras. Just as in the other cases considered, so in this, what the Court has to ascertain is the real value to the owner as part of his working plant, ignoring remote considerations at the time of loss. If it had been possible without delay to replace a comparable dredger exactly as and where the Liesbosch was, at the market price, the appellants would have suffered no damage save the cost of doing so, that is in such an assumed case the market price, the position being analogous to that of the loss of goods for which there is a presently available market. But that is in this case a merely fanciful idea. Apart from any consideration of the appellants' lack of means, some substantial period was necessary to procure at Patras a substituted dredger; hence, I think, the appellants cannot be restored to their position before the accident unless they are compensated (if I may apply the words of Lord Herschell in The Greta Holme [1897] AC 596, 605), `in respect of the delay and prejudice caused to them in carrying out the works entrusted to them'."
593. Finally, at pp 468-9, Lord Wright's conclusion was expressed in these terms:
"On the whole I think that Mr Raeburn is right in urging that the matter should be referred back to the Registrar and Merchants to ascertain the true value on the principles I have stated. From these it follows that the value of the Liesbosch to the appellants, capitalized as at the date of the loss, must be assessed by taking into account: (1) the market price of a comparable dredger in substitution; (2) costs of adaptation, transport, insurance, etc, to Patras; (3) compensation for disturbance and loss in carrying out their contract over the period of delay between the loss of the Liesbosch and the time at which the substituted dredger could reasonably have been available at Patras, including in that loss such items as overhead charges, expenses of staff and equipment, and so forth thrown away, but neglecting any loss due to the appellants' financial position. On the capitalized sum so assessed, interest will run from the date of the loss."
594. We have quoted extensively from Lord Wright's speech because of the extensive use made of it in Mr Donaldson's submissions, and because we believe that it is important that what Lord Wright said should be seen in context. Among the submissions made by Mr Donaldson on the basis of this speech were: (i) that KAC's claim to recover its finance costs had to be rejected, as Aikens J had rejected it, on the basis that a claimant cannot recover for the consequences of his own impecuniosity; (ii) that KAC's aircraft were like charter-free ships and that therefore KAC could only recover, in the case of the Mosul Four, for their value as at the time and place of their loss (conversion) plus interest; (iii) that to value the Mosul Four at the time and place of their loss meant that account had to be taken of their vulnerability and ultimate worthlessness in Iraq; (iv) and that to award damages for loss of use or substitute capacity would run foul of Lord Wright's insight (at p 464) that such losses, if merely added to the value of a free chattel, would give its owner "his damages twice over".
595. Putting aside for the moment the separate question of impecuniosity, we think that Lord Wright's speech may be said to give rise to the following propositions: (i) that the fundamental rule is restitutio in integrum; (ii) that every sub-rule has to be checked against the rationale of that fundamental rule; (iii) that given the manifold circumstances applying even to so limited a subject-matter as ships, it is impossible to lay down any universal formula; (iv) that a profit-earning chattel being used by its owner in the normal course of his own business is unlike both the case of a chartered ship and that of a charter-free ship; and (v) that if the court is seeking the "value" of a chattel in order to compensate its owner for its loss, then the court must be prepared to award not only the "market price", but also such other elements as add up to its "real value to the owner" (at p 465), as demonstrated in Lord Wright's final conclusion (at p 468).
596. We think that these considerations go far to undermine the width of Mr Donaldson's submissions. We will revert to these matters below.
597. As for the issue of impecuniosity, it might appear from Lord Wright's speech that he regarded this as something which could never, as a matter of principle, give rise to an award of damages greater than would be awarded to a claimant who was sufficiently solvent to minimise his loss, particularly as he put his reasoning on the basis that either impecuniosity was to be regarded as the sole independent cause of its consequences or its consequences were to be regarded as too remote. Consistently with that view, he pointed out (at p 461) that he was concerned with the measure of damage, and not with the victim's duty of mitigation "which is quite a different matter". This may well reflect either the way the matter was argued in The Liesbosch or something about its special facts, but it might also be said that subsequent history has not fully borne out a rigid, as distinct from a fact sensitive, analysis. Thus Lord Wright's doctrine has been much attenuated in cases such as Dodd Properties Ltd v Canterbury City Council [1980] 1 WLR 433, Perry v Sidney Phillips & Son [1982] 1 WLR 1297, and Mattocks v Mann [1993] RTR 13; and see also The Borag [1981] 1 WLR 274 at p 283C and pp 284A-285C, cf p 281D-E, and The Eurus [1996] 2 Lloyd's Rep 408 at p 429.
598. It is unnecessary, however, to decide about the continuing vitality or limitations of the issue of impecuniosity in The Liesbosch, because we are quite satisfied that KAC's claim for finance costs was never based on impecuniosity, and that in as much as IAC argued below that it was, an argument which Aikens J accepted, both IAC and the judge were in error. At the end of the day, even Mr Donaldson acknowledged that that was so, after adopting an interim position, later abandoned, to the effect that KAC's argument had changed between the court below and this hearing. Indeed, he submitted that what he termed KAC's new argument, namely that it was entitled to its finance costs as part of the cost of a reasonable decision to buy new aircraft in response to IAC's conversion of the old fleet, was not open to it. He subsequently resiled from that submission, however, and thereby accepted that much if not all of the debate regarding impecuniosity was rendered academic. He was wise to make that concession. Whatever the validity of KAC's finance costs claim, it does not turn on impecuniosity. KAC did not buy new aircraft, as in The Liesbosch the claimants chartered rather than bought in a substitute dredger, because it was impecunious: rather the contrary - an impecunious airline would never have been able to undertake such a purchase contract or the raising of the loan capital involved. Nor did it borrow to pay for such aircraft because it was impecunious. We suspect that even the most solvent of airlines buy their aircraft with the assistance of loan finance, rather than with cash in the bank, for a variety of reasons. But even if KAC had paid cash in full for its new aircraft, that would merely have affected the quantum, not the principle, of head E(v), which would then have been premised entirely, rather than merely in part, on the loss of interest on deposit. In the circumstances we need say nothing more about the issue of impecuniosity or about that aspect of The Liesbosch.
49 Fair Market Value (FMV) or Current Market Price (CMP)?
599. The valuation experts, Mr John McKay (of Lloyd's Aviation) for KAC and Mr Morten Bayer and Mr Clifford Brown (of Morten Beyer & Agnew International Ltd) for IAC agreed the definitions of FMV and CMP in a document which they drew up following a meeting. The document reads as follows:
"Current Market Price
Current Market Price ("CMP") is MBA's opinion of the most likely transaction price that may be generated for an aircraft under prevailing market conditions that are perceived to exist at the relevant time.
The experts agree that the CMP could reflect the cost that would need to be incurred/paid to replace the aircraft for a `like for like' aircraft if available. CMP also reflects the most likely realisable cash amount in the event that the aircraft was to be sold at a specific date.
MBA assigns a Market Adjustment Factor ("MAF") to convert the Base Value ("BV") or what is termed by many as the Fair Market Value ("FMV") to a Current Market Price. When the market is in a reasonable state of equilibrium, this factor is usually 100%. If the market favours the seller, the factor will be greater than 100%; if the market favours the buyer, the factor will be less than 100%.
The product of the BV or FMV and the MAF produces a `price' at which the aircraft is likely to be traded in the market reflecting the criteria detailed above. MBA call this price the Current Market Price. The MAF may indicate that the CMP is in excess of, or below the FMV
Fair Market Value
Fair Market Value ("FMV") approach is different from CMP. The FMV provided by LA are based on the prevailing relationship between supply and demand and ignores any pressures on the seller to dispose of the aircraft in a short period.
That the parties to the hypothetical sales transaction are willing, able, prudent and knowledgeable and under no unusual pressure for a prompt sale; and that the transaction would be negotiated in an open and unrestricted market on an arm's length basis for consideration and given an adequate amount of time which could take between 12 to 18 months for effective exposure to prospective buyers and to come to fruition.
FMV does not directly take into account specific types of market transactions or availability of aircraft from situations involving forced sales through bankruptcy; mergers of airlines, fleet redundancy and lease terminations."
In the same document the experts also agreed inter alia as follows:
"At the time prevailing, the market conditions were poor. There were few transactions completed of the type that would confirm the Current Market Price. This is due to the small population size of the A310-200 and A300B4-600 aircraft concentrated into a handful of operators. Due to little or no availability of the subject model variants the market could be described as static.
The Experts opinion of Current Market Prices while not directly supported by recorded transactions, reflects that in a depressed market some aircraft actual transactions are effected at lower figures than that which an aircraft can be given a Fair Market Value."
Despite the reference there to "little or not availability", it seems to have been common ground that used substitutes could have been purchased and made available, albeit not without some delay, the extent of which seems to have been disputed (see paragraph 632 below).
600. In the light of this agreed evidence and Lord Wright's speech in The Liesbosch, Aikens J preferred FMV as the basis of KAC's recovery under head A. He reasoned (at paragraph 189) as follows:
"It seems to me that `CMP', as defined, does not reflect any enhancement in value for the fact that the aircraft that were destroyed could earn profits and, in the case of the Boeing 767s, were actually earning profits before Kuwait was invaded. (The two A300-600s, AHF and AHG had been leased to Egyptair but the leases had expired in, respectively, July and May 1990, when they had been returned to KAC. See Schedule 1 to the judgment.) It seems to me that `CMP' does [sc not] encompass sufficiently Lord Wright's notion of the `value...to the [claimants] at the time of the loss', which has to allow for the fact that the aircraft were being used for business. So if `CMP' were adopted as the basis for valuing the lost aircraft, I think that some account would have to be made for the fact that aircraft were, at least potentially, profit earning goods. `FMV' does allow for the fact that the aircraft could earn profits over their lifetimes. Therefore if the point had arisen for decision, I would have held that KAC was entitled to the FMV of the Mosul Four."
601. We do not, however, think that this reasoning is compelling. It so happens that the FMV was higher than the CMP, because of the nature of the two definitions and the fact that the current "spot" market price dictated by immediate supply and demand, the CMP, was depressed and lower than the FMV at that time. In a good market, however, the CMP would have been higher than the FMV, and it would have been the CMP which would have made greater allowance than the FMV for the ability to earn profits. We think that a choice between the concepts should not depend on the incidental factor of which basis happens to give a greater value at any one time, and then ascribing that additional value to the concept of the loss of potential profits. The search should be, rather, for the concept which better fulfils the purpose of the legal principles involved. In that connection, it is CMP which better reflects the market's anticipation of the profitability of a profit-earning chattel: the spot market is lower in depressed market conditions; but when demand for flying (or shipping) is strong and aircraft are full (or ships are in demand), the spot market will presumably rise to reflect the potential profits available. Of course, there are many factors which will no doubt affect the current price of assets, but we think that, generally speaking, their price rises and falls in line with the market's expectation of their earning potential.
602. Of course, it may be that in certain circumstances a depressed market will not adequately reflect the potential profitability of particular assets, perhaps because their owners have a particular strength in a niche area. Thus even in times of slump, there may be some players who prosper, because of individual strengths or connections. In the case of KAC, it submits (under its head E(i) claim) that the ill wind of Iraq's invasion blew in a cloud with a silver lining in the form of special opportunities for transporting the means of Kuwait's resurgence. Many points might in theory be made about that claim, eg that it fails as a matter of proof, or is too speculative, or too remote, and so on; but that assessment would have to be made on the merits of that particular claim.
603. Aikens J appears to have regarded the Mosul Four as if they were profit-earning assets analogous to charter-free ships, and that certainly was Mr Donaldson's submission. We doubt, however, that that is the correct analogy. In principle, KAC's aircraft were in use in its own airline, and the closest parallel available from Lord Wright's speech in The Liesbosch would be the claimants' dredger itself. Although KAC's aircraft were not committed, as was that dredger, to a specific contract, they were, at any rate generally speaking, used in KAC's airline, servicing committed schedules. That at any rate appears to have been the case with the Boeing 767s. It is true that the A300-600s had been recently leased to Egyptair, possibly because they were surplus to KAC's pre-invasion requirements, but KAC's case was that in the aftermath of invasion and liberation they would, following conversion, be used in performing cargo services for KAC itself.
604. The question of loss of profits and cost of substitute capacity will have to be considered below. In the meantime, our view is that, if IAC had been liable for the conversion of the Mosul Four, then the correct basis for beginning to value their loss to KAC would have been CMP.
605. It was agreed before Aikens J that, in the light of Mance J's finding on Iraqi law that damages for "usurpation by keeping" are only recoverable upon actual damage or destruction, the correct date for valuation is 1st January 1991. In the light of that agreement, there was no further argument before us on that point.
48 Does any discount have to be allowed from what would otherwise be the value of the Mosul Four by virtue of the fact that they were already in Iraq at the time of their conversion or destruction?
606. Mr Donaldson submitted that the Mosul Four were already worthless by the time of their conversion by IAC, since they had already been taken to Iraq, where KAC had no access to them, and they would have been destroyed by bombing even in the absence of such conversion. In any event a substantial discount would have to be given to take account of that risk and the general difficulty of making any recovery. In this connection he emphasised Lord Wright's dictum that the value that is sought is that at the time and place of the loss.
607. Aikens J rejected this submission (at paragraph 190). He said that there is no principle that a claimant is only entitled to the value of the goods at the place where the wrongful interference has taken place and they have been destroyed. Otherwise a hijacker could take advantage of his own wrong by destroying the converted goods in some remote spot.
608. We think that Mr Donaldson's submission is more complex and difficult to meet than this response might suggest. Its gravamen is not so much that a converter is to be allowed to take advantage of his own wrong, which it is relatively easy to say seems wrong in principle, but that a second converter is entitled to rely on the damage already caused or put in train by a first converter. It is very similar in that respect to the fundamental argument discussed above by reference to the "but for" test. Of course, if KAC's claim in respect of the Mosul Four had survived that test, as it has not, then it is at least possible or even probable that this should be regarded as an attempt to resurrect it at the second stage of considering individual heads of damage, and should fail for the same reasons. And if KAC's claim founders on that test, as it has, then the question need not be answered a second time (or "cadit quaestio" as we used to be allowed to say).
609. Two cases relied on by Mr Donaldson in the context of the "but for" test have particular resonance for his current submission. The first arises out of the case of a bailee who deviates, the famous case of Davis v Garrett (1830) 6 Bing 716, a case originally relied on by Mr Vos. Tindal CJ said at pp 723-4:
"But the objection taken is, that there is no natural or necessary connection between the wrong of the master in taking the barge out of its proper course, and the loss itself; for that the same loss might have been occasioned by the very same tempest, if the barge had proceeded in her direct course.
But if this argument were to prevail, the deviation of the master, which is undoubtedly a ground of action against the owner, would never, or only under very peculiar circumstances, entitle the plaintiff to recover, For if a ship is captured in the course of deviation, no one can be certain that she might not have been captured if in her proper course. And yet, in Parker v James (4 Campd 112), where the ship was captured whilst in the act of deviation, no such ground of defence was even suggested. Or, again, if the ship strikes against a rock, or perishes by storm in the one course, no one can predicate that she might not equally have struck upon another rock, or met with the same or another storm, if pursuing her right and ordinary voyage. ...
But we think the real answer to the objection is, that no wrong-doer can be allowed to apportion or qualify his own wrong; and that as a loss has actually happened whilst his wrongful act was in operation and force, and which is attributable to his wrongful act, he cannot set up as an answer to the action the bare possibility of a loss, if his wrongful act had never been done."
610. In that extract the rationale of this judgment is against Mr Donaldson's submission. But he relies on what Tindal CJ immediately went on to say:
"It might admit of a different construction if he could shew, not only that the same loss might have happened, but that it must have happened if the act complained of had not been done; but there is no evidence to that extent in the present case."
611. The second case is a well-known modern case in the law of contract, The Mihalis Angelos [1971] 1 QB 164. There the charterer of a vessel cancelled his charterparty in advance of her arrival at the load port on the ground of force majeure, in response to which the owner accepted the cancellation as a repudiatory breach of contract and claimed damages. The claim of force majeure failed, but the charterer relied in his defence on the alternative ground that the vessel would in any event have missed her cancellation date, which would have enabled the charterer to terminate the charterparty under an express liberty to do so, so that the owner had suffered no loss. The arbitrators found that this defence succeeded, on the facts "beyond doubt", and awarded only nominal damages. The Court of Appeal agreed. Lord Denning said (at p 197A) -
"Seeing that the charterers would, beyond doubt, have cancelled, I am clearly of opinion that the shipowners suffered no loss..."
612. Edmund Davies LJ said (at p 203B) that in the circumstances -
"The rights lost to the owners by reason of the assumed anticipatory breach were thus certain to be rendered valueless."
And Megaw LJ said (at p 210A) that -
"if it can be shown that those events were, at the date of the acceptance of the repudiation, predestined to happen, then in my view the damages which he can recover are not more than the true value, if any, of the rights which he has lost, having regard to those predestined events."
613. Neither of those cases are conversion cases. Similar principles arise in the tort of negligence, where there is some pre-existing weakness leading ultimately to the same loss: see Cutler v Vauxhall Motors [1971] 1 QB 418, where Karminski LJ referred to "the strong probability on the evidence that in any event this loss was inevitable, though at a later date" (at p 427G). However, bailment, the subject matter of Davis v Garrett, has an affinity to conversion, particularly since the enactment of section 2(2) of the 1977 Act. Moreover Davis v Garrett was followed in Lilley v Doubleday (1881) 7 QBD 510, where a bailee had warehoused the claimant's goods in a different place from the place where they ought to have been stored, and they were destroyed by fire. The claimant alleged conversion. The defendant said that the fire occurred without his negligence. The court, without having to decide whether there was a conversion, held the defendant liable. Grove J said (at p 511):
"The only exception I see to this general rule is where the destruction of the goods must take place as inevitably at one place as the other. If a bailee elects to deal with the property entrusted to him in a way not authorised by the bailor, he takes upon himself the risks of doing so, except where the risk is independent of his acts and inherent in the property itself."
614. It may be, but we express no concluded view, that a general principle could be postulated that a defendant is always entitled, whatever the cause of action raised against him, to seek to prove that, even in the absence of his own legal wrong, the claimant would have suffered the loss of which he complains in any event. In such a case it could well be said that there may be additional uncertainty as to the standard of proof involved in that submission. In general the standard of proof in civil cases is the balance of probability. In certain cases, however, such as fraud and dishonesty, it has been said that "the more serious the allegation the higher the degree of probability that is required" (Hornal v Neuberger Products Ltd [1957] 1 QB 247, 258). In Davis v Garrett Tindal CJ said that it would have to be proved that the same loss "must have happened"; and in The Mihalis Angelos all three members of the court spoke in various ways of the fact that the vessel's late arrival and cancellation were "beyond doubt". In Lilley v Doubleday Grove J put the test as "inevitably" (at p 511). In another analogous situation, where a defendant wishes to say that his failure to take proper steps to obtain a licence would have made no difference to the fate of his sale contract, it has been said that the defendant must show and show clearly that there was nothing that he could reasonably have done which would have led to the licence being obtained, a difficult burden to sustain (see the cases cited in Benjamin's Sale of Goods, 5th Ed, 1997, at paragraph 18-259).
615. In the case of conversion, however, as has already been discussed in this judgment above, no case has been cited to us in which a second converter has sought to say that even in the absence of his own conversion the claimant would have suffered the same loss in any event by reason of the first converter's prior conversion. And yet the opportunity for such a submission must have arisen in numerous cases. We think that the reason for this is that the second converter is under an independent duty to preserve the true owner's property from loss or damage, or to put it negatively, to do nothing to put that property or its owner's title at risk (see Diplock LJ's formulation of the common law duty in Marfani at paragraph 425 above). Where, therefore, the second converter fails in that duty, it is not open to him to say that the owner would have lost his property in any event by reason of the first conversion.
616. Even if that be wrong, however, and even if IAC could seek to prove that the Mosul Four would have been lost in any event, we do not think that on the facts it could sustain that submission. This is not a case, like the storm in Davis v Garrett, where a defendant can blame some act of God or other intervening act: the attempt to find some new intervening act in the Coalition bombing or otherwise has failed. Nor is it a case, like The Mihalis Angelos, or Cutler v Vauxhall Motors, where the claimant was responsible for his own loss in the sense that the seed of it was already present at the time of the defendant's wrong. Nor is it a case such as that discussed in argument with counsel, of some inherent flaw in the aircraft themselves, as where the claimants would have encountered grave difficulties in using their aircraft (if not wrongfully detained), for instance because the manufacturers grounded all the aircraft in question. What IAC seeks to say is that what happened to the aircraft while they were a matter of its own responsibility as their usurper was due to the Iraqi government's dispositions of them, and that such dispositions would have occurred in any event even without IAC's usurpation. Therefore the Mosul Four would in any event have been at Mosul and have been destroyed there. It seems to us, however, that IAC cannot, as usurper, pass all responsibility for their handling onto the Iraqi government. It has its own responsibility, which it cannot delegate. If the government's then disposition of the aircraft led to their loss, IAC cannot say "That has nothing to do with us". By adopting the government's dispositions as its own - indeed, IAC's pilots were the instruments of such disposition - IAC cannot thereafter say that it can escape liability because the government would have done the same even if IAC had never come on the scene.
617. But apart from that factor, what IAC has, in our judgment, to show, on the balance of probability, is that the aircraft were already destined for destruction, whatever it or the government could, within reasonable possibilities, have done with them. It is clear, however, from the possibilities canvassed by KAC in its evidence and discussed in an earlier section of this judgment (see, for example paragraphs 166-176 above), that whatever may have been the rationality or reasonableness of the aircraft's actual dispositions, as seen from the Iraqi point of view in the light of their then understanding of events and without hindsight, IAC or the government could, equally well, have chosen from a wide selection of airfields in Iraq, or could have begun their evacuation at an earlier time and with greater success. It may be, as we have found, that KAC cannot prove that the government (or IAC) would have acted differently from the way they did in fact, but this for present purposes is not the point. IAC must prove that whatever might, as a matter of reasonable possibility, have been done, would not have saved the aircraft from destruction.
618. Moreover, in so far as Mr Donaldson seeks to obtain a discount for the possibilities of the aircraft's destruction despite IAC's conversion, Tindal CJ's judgment in Davis v Garrett demonstrates that a wrong-doer cannot be allowed "to apportion or qualify his own wrong". A bare possibility cannot be set up as a reason for mitigating the defendant's liability.
619. Nor has any case been cited to support the submission in favour of such a discount. The present situation is of course quite different from that where a claimant sues for loss of a chance, typically where a client sues a solicitor in negligence which he says has lost him the chance of succeeding in some other claim: see Kitchen v Royal Air Force Association [1958] 1 WLR 563.
620. So far we have discussed the position of the Mosul Four. IAC makes a similar submission with regard to the Iran Six, and it is designed to cover all heads of claim which relate to them. Thus Mr Donaldson submits that if the Iran Six had not been evacuated to Iran they would have been destroyed, like the Mosul Four, by Coalition bombing in Iraq. However, quite apart from the discussion above regarding "but for" and the fact that even in Iraqi law the "but for" concept does not apply to the case of the Iran Six, we think that this present submission runs into the same difficulties as we have just reviewed above in relation to the Mosul Four. It may be that it is in theory open to IAC to say that even if it had not converted the Iran Six, the same loss would have occurred in any event, because the aircraft would still have found their way to Iran; or, to quote its slightly different submission from paragraph 65 of its stage 2 skeleton argument, that even if the aircraft had not gone to Iran, they would have been destroyed in Iraq in any event, with the consequence, among others, that the Iraqi law of "but for" would then have applied. In our judgment, however, these submissions would fail, first because IAC cannot excuse the consequences of its own conversion (by reference to what the Iraqi government would have done) on the ground that such consequences would have been the same as what it joined with the Iraqi government in actually doing; and also because it cannot prove to the required degree that if the aircraft had been left in Iraq, they would have been destroyed.
51 Can loss of profits or the cost of substitute capacity be claimed in addition to the value of the Mosul Four?
621. To some extent this question has been dealt with when we were considering The Liesbosch above. Mr Donaldson submits that the Mosul Four must be regarded as though they were charter-free ships available for charter, and that market value (together with interest) is the most that the law allows.
622. While Aikens J was developing his analysis with regard to The Liesbosch at paragraphs 211-212 of his judgment, he agreed that the Mosul Four were to be regarded as charter free as distinct from under charter and that therefore no loss of profits were to be allowed. He regarded KAC's claim as "speculative". Apart from The Liesbosch he cited The Racine [1906] P 273 as a case where the lost vessel was under charter and loss of profits were therefore recoverable, The Llanover [1947] P 80 as a case where the vessel was not under charter and no loss of profits in addition to value was recoverable, and The Fortunity [1961] 1 WLR 351 as a case where, although the vessel was not under charter, Hewson J made a finding that the earnings of the Broads cruiser concerned were lost to her owners for a single season. Aikens J therefore regarded her employment position as "equivalent to a vessel under charter".
623. In our judgment, however, the matter is more complex than this. We have already made the point that a national airline is not like the owner of a tramping vessel, which may or may not have employment. It is committed to running services, and carries a large infrastructure. By and large, it earns its profits by providing scheduled services to passengers and commercial cargo clients, not by putting its craft out to charter (albeit it may do so exceptionally). If it loses its aircraft, and cannot replace them immediately, it continues to suffer (much of) its expenses and loses offsetting income. In good times that income may be sufficient to make a profit, so that it loses those profits as well; in bad times it may make a loss, but the lack of income increases that loss.
624. Moreover, in The Llanover the vessel was in fact under charter, to the British government in wartime. The war conditions had driven up the need for shipping, and with it the market value of ships. Pilcher J was unwilling to attempt to apply the legal principles to be found eg in The Liesbosch without a thorough investigation of the facts. He found that the value of the vessel had been enhanced by the market conditions; that such was the demand for shipping that it made no difference whether the vessel was under charter or not, because of the "virtual certainty of profitable employment" (at p 86); and that the profit obtainable from that employment "was reflected in the prices paid at the sales" of vessels which provided the evidence for the finding of value (at p 87). He therefore concluded that the value found -
"being based as it is upon the prices realized at these comparable sales, includes any sum to which the plaintiffs might have been entitled under the principles laid down in The Philadelphia and The Edison."
625. It seems to us, therefore, that it would (and should) have made no difference to the decision in The Llanover whether or not the vessel was under charter or free, and that the crucial finding was that the market price was an enhanced price which reflected the profitability of the vessel. That can be compared with the present case where such evidence as has been brought to our attention would suggest that the market value of the aircraft was depressed, reflecting general (world) recessionary conditions, and would not reflect the loss of profits obtainable, so KAC alleged, from the particular conditions arising from Kuwait's destruction and deliverance. Thus The Llanover does not tell against KAC. On the contrary it would suggest that it would be dangerous and wrong to reject KAC's head E(i) claim, so far as the Mosul Four are concerned, without further investigation of that claim.
626. The Fortunity is another case which, in our judgment, demonstrates the need for close attention to the particular circumstances of a claim. The Broads cruiser there was a pleasure craft, and Hewson J declined to look on it as though it was an ocean going tramp vessel, whose future employment, if not under charter, might be subject to great doubt. He found (at p 255) that its "seasonal employment at scheduled rates, not subject to fluctuation, can be fairly accurately determined by comparison with what actually occurred in this case in the hiring of other craft similarly employed by the same owners". He cited and specifically directed himself by that passage in Lord Wright's speech where (at pp 464-5 of The Liesbosch) attention was drawn to the principle of restitutio in integrum and the need to have regard to vessels and problems of assessment different from the contrasted cases of a chartered or charter-free tramp vessel. He therefore allowed £350 in addition to the £2,200 value of the cruiser. In our view it is wrong, just because Hewson J was able on the facts to find that the owner had lost a season's profits, to say that the case should be treated as equivalent to a vessel being under charter. That was not Hewson J's approach.
627. And what of the facts of the present claim? They have not been properly investigated. KAC's claim might have turned out to be speculative, as Aikens J surmised; or in theory it could prove that the opportunities cited were a virtual certainty, although it is not clear why, if the opportunities were there, KAC did not make use of them, if necessary by leasing in further capacity. All such questions would have had to have been considered as part of the assessment of this claim on the facts, had KAC's claim in respect of the Mosul Four succeeded in principle
628. We turn next to the claim for substitute capacity in respect of the Mosul Four. This would have been allowed by Aikens J, on the basis that The Liesbosch is authority for the proposition that, where there has been temporary disturbance and thus loss to the claimant's business by reason of the loss of profit earning goods, damages can be recovered beyond their value alone. As for the period of the recovery of the costs of substitute capacity, that would cover KAC's full claim, and not a mere 6-9 months, since it was reasonable for KAC to want to buy new aircraft.
629. In this respect, therefore, unlike the previous case of loss of profits, Aikens J appears to have treated KAC's business as though it was analogous to the contract under which the dredger was employed in The Liesbosch (see his judgment at paragraph 215). We think that he was right to do so, for reasons which we have already sought to explain, but the contrast between his approach to this claim and to the loss of profits claim has given an equal measure of support and discouragement to the contrasting submissions of both Mr Donaldson and Mr Vos on both claims. The fact is, however, that where a replacement cannot be purchased immediately, and there is business to be performed, it will be necessary to hire in substitute capacity temporarily. Of course, if it could be surmised that interest on the value of the lost aircraft, from the date of their loss, would adequately compensate KAC for all such disruption in their business, as Mr Donaldson submitted, then the position might be different. As it was, Mr Donaldson went still further in his submission, to the effect that value plus interest was all the law ever allowed or could allow in the case of loss of a profit earning chattel. However, we reject both Mr Donaldson's proposition of law, based on a misreading of The Liesbosch, and his implicit submission on the facts. There is no hard and fast rule of law: the principles which are discussed in The Liesbosch are an attempt at showing how restitutio in integrum can be achieved in varying circumstances. It stands to reason, however, that where a replacement cannot be obtained for some time, but is needed in order to carry out the claimant's business commitments, interest on the value is unlikely to compensate for the need to hire in substitute capacity. It may be otherwise where the claimant's business is a speculative one, so that the need for substitute capacity over the period required for obtaining the replacement is uncertain.
630. In this connection Mr Vos submitted that in the circumstances the right approach would be to give interest on the value not from the date of loss, which is the prima facie rule in negligence, but from the date of replacement. Mr Donaldson riposted with the submission that such a concession merely served to demonstrate the error of the substitute capacity claim. It is true that in The Liesbosch interest ran from the date of the alleged loss on all the damages actually awarded (at p 469). Nevertheless, we are inclined to think that Mr Vos's approach is intuitively correct. The principle that the loss of a chattel is to be compensated by its value as at the date of loss plus interest from the date of loss is the prima facie rule in negligence, which assumes that the chattel can be immediately replaced as at the date of loss. In such a case there is, as Lord Wright pointed out (at p 465), an analogy with "the loss of goods for which there is a presently available market". What is to happen, however, where there is no immediately available market? What if, as may well happen in a case of conversion, the owner does not even know of his loss for some time?
631. The latter problem arose in the case of Sachs v Miklos [1948] 2 KB 23, albeit that case did not involve profit earning goods, as distinct from household furniture put into store early in the Second World War. We have described the facts of this case and the approach of this court to those facts in paragraphs 472-474 above. The matter of interest was not dealt with in the Court of Appeal, but it would seem to follow that, even though the furniture was actually converted in 1944, interest ought to run from the relevant date for the assessment of loss, 1944 or 1946. Sachs v Miklos indicates that prima facie rules may have to make way for the circumstances of the case, just as it is commonly found, for instance in sale of goods law, that the prima facie rule applicable where there is an available market has to make way for a different rule where such a market is lacking.
632. In the present case it has been agreed that the "correct" date for the assessment of the value of the Mosul Four should be taken (perhaps as something of a compromise) as 1st January 1991 (see Aikens J at paragraph 37(1)). On the other hand it has also become common ground, on the basis of the evidence given by Mr Villa, IAC's expert, that a minimum period of 6-9 months would have been necessary to purchase substitute (used) aircraft (see Aikens J at paragraph 217). It is not clear to us how this (or any longer period which KAC might contest) is to be visualised as made up. In his supplementary report Mr Villa appears to have contemplated a timetable beginning in February 1991, then three months for a decision on purchase (May), three months for delivery (August) and three months for operational efficiency for all aircraft (October). What is not clear, however, is how the date taken for valuing the loss, (or any other circumstances, such as the fact that KAC seems to accept that the disruption caused by the hostilities in any event postpones the date for resumption of service and the beginning of its loss of profits or substitute capacity claims to May 1991) might affect the award of interest. We are also unclear how the agreed date of 1st January 1991 operates in the context of delay in acquiring substitutes.
633. We note, however, that interest is ultimately in the discretion of the court, and that, for instance in Kaines (UK) Ltd v Österreichische Warren-handelsgesellschaft [1993] 2 Lloyd's Rep 1, where buyers had to buy in substitute goods under a repudiated sale contract at a price higher than the contract price, this court held that interest on those damages ran not from the date of breach but from the later time when the buyers were required to pay for the substitute goods. On KAC's case it could not have used its Mosul Four in any event until May 1991. There has been no detailed argument on such issues. We do not, however, think that the fact that KAC might concede, in a case where the lost aircraft could not in any event be used immediately, and where replacement aircraft could not in any event be acquired for immediate service, that interest on the value of such aircraft should be postponed, invalidates the reasoning which has appealed to us so far.
52 Was the decision to buy new rather than used aircraft by way of replacement a reasonable one? If so, does this permit the recovery of loss of profits or cost of substitute capacity, if otherwise in principle available, up until the receipt of such aircraft, or only until a period allowed for the replacement of the Mosul Four, or until the recovery of the Iran Six?
634. There remains the question as to the date to which the cost of substitute capacity, or the loss of profits, should be allowed. Mr Donaldson submits that this should only be allowed up to the time when the operational efficiency of the hypothetically replaced used aircraft is established, somewhere within his 6-9 month bracket. He makes a similar point with respect to the Iran Six, viz that the period for loss of profits and substitute capacity should only last until the recovery of those aircraft, and that it should not include a period of repairs at Sogerma. Mr Vos, however, submits, and Aikens J agreed (subject to leaving the Sogerma point open), that the period should extend in principle up to the delivery of the new aircraft bought from Airbus, on the basis that such a purchase was reasonable in the circumstances (paragraph 218). Nevertheless, at a later stage of his judgment, when dealing with the finance costs and depreciation claims, Aikens J said that the latter was not caused by IAC's conversion but was too remote, being caused by KAC's impecuniosity. Mr Donaldson no longer asserts impecuniosity as the ground for such a ruling, but he submits that the decision to buy new rather than used aircraft was both unreasonable and in any event itself an independent cause, and renders its consequences too remote. Thus this question of the period of the loss of profits or substitute capacity claim is intimately tied up with the argument on the finance costs claim.
635. The first thing to say is that we are in no better position than Aikens J to resolve any issue relating to the Sogerma repairs.
636. Secondly, as we have already stated in the section of this judgment headed "The Airbus purchase contract" (see paragraphs 580-587 above), we would agree with Aikens J that the decision to buy new aircraft was a reasonable one. The question is whether that is enough to make good the claims in heads E(i), (ii) and (iii) even if the decision to buy new was also, as IAC submits, an independent cause of loss, giving rise to consequences which were too remote. On the other hand, is that submission even consistent with the judge's finding that the purchase of new aircraft was reasonable conduct?
637. In the normal case, the law lays down certain principles for the recovery of damages irrespective of what the claimant actually does. Thus in the typical case of non-delivery of goods sold, the claimant receives the difference between the contract cost and the available market price at the date of breach. The claimant may decide not to replace the goods, or he may decide to delay the substitute purchase for a while, in effect speculating on the market. Whatever he does may be in his own best interests, or may be described as a reasonable commercial decision, but this would not affect the damages recoverable in the slightest. Similarly there are cases where there is not an immediately available market, but there comes a time when a market is available, and cases where the claimant is allowed some time for reflection. Prima facie the law requires the claimant to be treated as though he had made use of his market opportunity as soon as he reasonably could. It does not matter whether the issue is looked at as a matter of causation or mitigation: see, for instance, Kaines v Österreichische.
638. That rule, however, is archetypically a rule designed for traders in fungibles. Matters may get more complicated in different situations. Thus Mr Vos relied on the case of Moore v DER Ltd [1971] 1 WLR 1476, where the claimant's 18 month old car had been written off by the defendant's negligence, and he replaced it with a new rather than a second-hand substitute. There was no claim for the value of the car (the claimant had presumably been insured), and the matter was dealt with in another way (see p 1479D). However, he claimed the cost of hiring in another car pending the arrival of his new one. He had to wait 18 weeks for his new Rover 2000, whereas the county court judge found that a comparable second-hand replacement could have been obtained within three weeks of the accident, and limited his damages accordingly. This court disagreed. The claimant was a professional man who needed a reliable car, and he had always bought new cars and changed them every two years. Thus he would in any event have changed his old car within 6 months. The court found that he had acted in reasonable mitigation of his loss, and that it was unexpected bad luck that a strike had delayed delivery for longer than anybody anticipated (at p 1480F). Davies LJ applied at p 1479F-H the well-known statement of Lord Macmillan from Banco de Portugal v Waterlow & Sons Ltd [1932] AC 452 at p 506:
"Where the sufferer from a breach of contract finds himself in consequence of that breach placed in a position of embarrassment the measures which he may be driven to adopt in order to extricate himself ought not to be weighed in nice scales at the instance of the party whose breach of contract has occasioned the difficulty. It is often easy after an emergency has passed to criticise the steps which have been taken to meet it, but such criticism does not come well from those who have themselves created the emergency. The law is satisfied if the party placed in a difficult situation by reason of the breach of a duty owed to him has acted reasonably in the adoption of remedial measures and he will not be held disentitled to recover the cost of such measures merely because the party in breach can suggest other measures less burdensome to him might have been taken."
639. Mr Vos submits that these principles and their application in Moore v DER apply in the present case. KAC was a national airline, which had to plan for the future in the face of an emergency which was not of its making, and it should not be limited to the purchase of second-hand aircraft on a stop-gap basis.
640. Although the principles governing mitigation of loss are clear, we think this is a difficult issue. First, while the principles of causation/remoteness and mitigation may be said to be different sides of the same coin, different results may arise depending on whether the approach is by one route or the other: see McGregor on Damages, 16th Ed, 1997, at paragraph 332 and footnote 19. The difficulty is to know which approach is the right approach in any particular circumstance. Secondly, whereas the relevant passage in Aikens J's judgment (paragraph 218) reads as though it is dealing with mitigation, he elsewhere states (at paragraph 222) that the claim for substitute capacity is a matter of damages, not mitigation. In the court below, it appears that it was IAC that was arguing in favour of mitigation rather than damages, a position reversed in this court. It is therefore difficult to say whether Aikens J thought of himself as deciding a factual issue of mitigation or of causation.
641. We are inclined in these circumstances to think that the issue of causation/remoteness raised by IAC, most clearly in relation to the finance costs claim, should be investigated first. If IAC were right to say that the decision to buy new, however reasonable, was an independent cause of KAC's loss, then the question of mitigation would or might be pre-empted. Moreover, there are a number of respects in which Moore v DER is not a compelling analogy. A decision to buy new not very much more than half-way through the normal business replacement cycle for aircraft is not all that close to a personal decision to buy a new car a mere six months earlier than Mr Moore would normally have done; and KAC knew or ought to have known when it bought from Airbus that there would be a delay of up to two years or more beyond the period when it could have reequipped itself by purchasing used aircraft, whereas Mr Moore was not to anticipate the delay due to the strike.
642. There is also this further consideration. The normal rule in the case of proper mitigation is that it brings with itself both the right to claim further losses caused by the mitigation (as in the case of the strike in Moore v DER) and the obligation to give credit to the defendant for any benefits entailed in the mitigation: see British Westinghouse Co v Underground Electric Railways [1912] AC 673, where the replacement turbines, being more powerful machines, brought in a greater profit than the original machines would have done, even if they had been up to specification. In the present case, however, KAC never approached its claim before Aikens J on the basis that there were credits to be given to IAC arising out of the acquisition of its new aircraft. We will proceed therefore to the fourth question, before returning (at paragraph 651 below) to the third.
53 If the decision to buy new aircraft was reasonable, does this justify the finance costs claim, or are those costs in any event caused other than by IAC's conversion, eg by KAC's decision to buy new or by KAC's impecuniosity, or are they too remote or otherwise irrecoverable, eg because amounting to damages where only interest is recoverable?
643. One matter can by now be cleared away at the start. IAC no longer contends that the finance costs claim was caused by impecuniosity, nor was it. The essential basis of Aikens J's reasoning has therefore gone.
644. Even so, it may be said that Aikens J's reaction to the finance costs and depreciation claims indicates an intuitive feeling that the responsibility for the cost of the new aircraft could not be placed at IAC's door.
645. On this point we agree with IAC's submission that its conversion was not the cause of KAC's decision to buy new aircraft. The loss of the Mosul Four and the detention of the Iran Six may have been the occasion of the decision to buy new, but it was not the cause of it. That decision was a strategic one, based on a number of factors, foremost among them the desire to upgrade its fleet and to take advantage of attractive business conditions for an aircraft buyer. Those reasons were independent causes of the decision. The primary consequence of the loss of the Mosul Four was the need to replace them, measured by their value to KAC, of which the foremost component would be the market cost of equivalent substitutes, if available. They were available, and would have been operational within a period of, if not necessarily 6-9 months as IAC asserts, at any rate something of that order. It was the cost of such used replacements that was KAC's primary claim.
646. If the purchase of new aircraft had really been by way of mitigation for the loss of the Mosul Four, then one might have expected that KAC would claim the cost of the new aircraft, less any credits to be allowed by reason of the benefits which their purchase entailed. And in a limited sense that is what KAC had originally claimed, by virtue of its head E(iv) claim for higher depreciation. However, KAC has abandoned that claim.
647. Similarly, the primary consequence of the detention of the Iran Six was the need for substitute capacity pending their return. KAC was always expecting their return, and in the early days, when a decision in principle (even though as yet no commitment) was being made to buy new, its expectation was that the aircraft in Iran would be returned sooner rather than later. In essence, therefore, the decision to buy new was not made because the detention was expected to be a long one. But if it had been decided to buy replacements over against the possibility that the detention would be a long one, treating a long detention as though it entailed, as it were, the constructive total loss of those aircraft, then again the primary claim would be, as in the case of the Mosul Four, a claim for their market value, less any credit to be allowed in due course from their ultimate recovery. Again, in the case of the Iran Six, the original depreciation claim has been abandoned.
648. In the course of the hearing before us Mr Vos reformulated the rationale of the finance costs claim. In opening his oral submissions he put the finance cost claim on the basis that -
"KAC was entitled, not to spend 46 million dollars on four aircraft to replace - 46 million dollars, which is the Fair Market Value roughly of each of the ones that were destroyed - KAC was entitled to spend, say, 80 million dollars on buying new ones. Plainly KAC has to give credit for the fact that it would have had to buy new ones anyway in 1998 to 2001 and will not have to buy new ones in 1998 to 2001 because they have a fifteen year life span. So effectively the loss which the judge should have compensated KAC for is the cost of financing the early purchase of the aircraft which it reasonably bought...As for assessment, and as for the difference between the Iran Six and the Mosul Four, well, my Lords, it is a very difficult question. I freely admit it is a very difficult question. I am not familiar and I do not need to be on this appeal, in my submission, and your Lordships do not need to be familiar, with how the figure claimed by KAC was made up. Because all your Lordships are invited to do is to say that there is a proper claim for the cost of financing the purchase of the new aircraft which the judge held we reasonably bought..."
649. The difficulty we have with this submission, however, is that there is no claim for the cost of the new aircraft. The nearest that KAC came to such a claim, in respect to all ten aircraft, was in its depreciation claim, but that has been abandoned. It is impossible to see how KAC could get its (extra) financing costs on the cost of the new aircraft without beginning by claiming the cost of those new aircraft (less all appropriate credits, beginning with the value of the Iran Six themselves, but also allowing for all other benefits that new for old will have brought KAC). If, as KAC now appears to concede, KAC is not entitled to the basic extra cost of the new aircraft (allowing for all proper credits as part of the assessment), how can the finance element of that basic extra cost be attributable to IAC?
650. Thus, even if, contrary to the view which we have expressed, the finance costs (or at any rate those of the Iran Six replacements) had been caused by IAC's conversion, it would appear that those finance costs turn out to be, as IAC has itself submitted, merely the value of money expended on some other item, namely the cost of the new aircraft. However, the value of money in such a case is something which, rare exceptions apart, is compensated for in interest and does not stand as a separate head of claim in damages itself. What the law seeks to do, as Lord Wright expressed it in The Liesbosch, is to find a capitalised sum which represents the total value of all that a claimant has lost and can properly visit on his defendant, on which interest is payable. That interest, however, cannot stand as a separate item of damages. Nor can that interest stand by itself, without an item of damages upon which it is payable. In our judgment, quite apart from the question of causation, KAC's finance costs claim falls foul of both those difficulties, and it must therefore fail.
651. To revert to the question of the period of the validity of heads E(i), (ii) and (iii), it follows from what we have concluded above in relation to the decision to purchase new aircraft, that the loss of profits and substitute capacity claims could succeed in principle only up to the time when, in the case of the Mosul Four, used replacements would have been operationally efficient to resume service for KAC, and in the case of the Iran Six, when those aircraft had been recovered, subject to the factor that in the latter case the period of repairs at Sogerma has to remain a matter for future assessment and decision.
54 Summary of conclusions on KAC's financial heads of claim
652. It follows that KAC's claims succeed, as a matter of principle but subject to assessment (or agreement), only with respect to the Iran Six, and only under heads B, C and E(ii) and (iii). Head E(i) is in a special category, in that we would not, differing from Aikens J, have rejected it in principle at this stage. We cannot, however, be certain, in the absence of the greater factual scrutiny that it will undergo at the assessment stage, that it will eventually succeed. IAC, indeed, has suggested that if we dismiss KAC's claim in respect of the Mosul Four, as we have, it is no longer a live claim. Unless KAC accepts this conclusion, we will have to hear argument on the question whether there is anything left under claim E(i) to go forward to assessment, for the Commercial Court to resolve both as a matter of principle and, if necessary, detail, in the light of the guidance which we have sought to give above. Claim E(v) fails. Claims D and E(iv) have not been pursued. Claims E (ii) and (iii) succeed in principle only up to the dates of the recovery of the Iran Six. Whether that period extends to cover the repairs at Sogerma will also be a matter for the Commercial Court to decide. The same would apply to any success in principle under head E(i).
653. If the claim in respect of the Mosul Four had succeeded, then KAC could in principle have recovered, subject to assessment or agreement, on the same basis under heads E(ii) and (iii), and (perhaps) under E(i), and in addition under head A. The claims under heads E (i), (ii) and (iii), however, would be limited to the period up to the operational efficiency of used replacements, and the claim under head A would be assessed on the CMP rather than the FMV basis.
55 Conclusion
654. In the result, we dismiss IAC's appeal against the judgment of Mance J and we allow, in part, KAC's appeal against the judgment of Aikens J. We also allow some of the points made by IAC in its respondents' notice on that appeal. We hope that the parties will be able to agree minutes of order which reflect the rulings we have made.
655. We would not wish to leave these appeals without paying tribute to both Mance J (as he then was) and Aikens J for their impressively clear judgments. We have upheld the judgment of Mance J in every respect. Although we have overruled Aikens J in certain respects, his judgment, covering over 100 pages of single-spaced print, embraces a mass of detail which neither party sought to challenge, and it was of the greatest assistance to us in finding our way through the intricate maze of facts and submissions which confronted us on KAC's appeal.
ANNEX
56 The disputed movements of 9K-AHD and 9K-AHF
656. In this Annex we are setting out our reasons for concluding that the judge was correct in holding that Airbus 9K-AHD was flown from Baghdad to Mosul on 30th August and kept there until 28th September when it was flown back to Baghdad. We also give our reasons for concluding, contrary to the judge's view, that Airbus 9K-AHF was flown from Tekrit to Mosul on about 31st August, where it stayed until it was destroyed by Coalition bombing.
657. So far as the first of these issues is concerned, Airbus 9K-AHD had been flown from Basra to Baghdad on 20th August, and its repainting in IAC livery took place the following week. There seems to be little doubt that it was selected as the first of the A310 Airbuses to be put into operational service. Before this could happen, however, it needed to be re-registered in IAC's name and to receive a certificate of airworthiness. For this purpose the Air Safety Division had made it clear to IAC that it would not permit registration until, in effect, IAC had obtained the services of qualified Airbus maintenance engineers which it did not possess at the time the aircraft were seized. Four former KAC maintenance engineers with appropriate qualifications entered IAC's service on about 28th September, and there is documentary evidence which shows that on 29th September a check-list of items of maintenance, first drawn up on 12th September, was in fact carried out. 9K-AHD was re-registered and received its certificate of airworthiness on 2nd October.
658. The Na'ama diaries show that this aircraft was at Baghdad, its painting duly completed, on 27th August. It is not mentioned in the diaries again until 28th September. Captain Jassim's log records that he flew this Airbus from Baghdad to Mosul on 30th August. Mr Al-Gailani's diary records that on 28th September he flew to Mosul as a supernumerary in an IAC aircraft and that he "returned to Baghdad with the Airbus plane". If this diary entry is reliable, then AHD was the only Airbus which could have travelled from Mosul to Baghdad that day. The judge did not in fact refer to Mr Al-Gailani's diary entry. He based his finding on Captain Jassim's log.
659. Mr Nekash told the judge that if it was true that Captain Jassim had flown 9K-AHD to Mosul on 30th August, then he flew it back the same day. He might have gone there to take the crew which had flown another aircraft from Tekrit back to Baghdad that day. He maintained, however, that Captain Jassim's log book was not reliable. The entries in the operations logbook showed that he had made many return trips between Basra and Baghdad which he did not enter in his personal logbook. Mr Nathan pointed out to us that the previous entry in Captain Jassim's logbook recorded a flight by 9K-AHD on 20th August for which he gave that aircraft its Iraqi code name YI-AOA which it did not in fact receive until about a week later.
660. Mr Nekash said that there would have been no point in moving 9K-AHD to Mosul when it was needed in Baghdad for scheduled maintenance (once the KAC engineers came into IAC's employment). IAC wished to use this aircraft for operational purposes as soon as it was possible to do so. It was the first aircraft to be painted in IAC livery, and it would have made no sense to move it to Mosul.
661. The judge was not persuaded by this evidence. He heard Mr Nekash give evidence for three days, and he said he was satisfied that he had tried his best to give his honest recollection of events. His first statement, however, had not been taken until June 1997, and his first detailed statement relating to aircraft movements was made in June 1999. He did not keep any personal contemporaneous notes on aircraft movements, so that he had to rely on his own and others' memory and on such contemporaneous documentary evidence as had survived. The judge felt Mr Nekash had not been entirely open about his knowledge of the overpainting of KAC aircraft in Baghdad in August and September 1990. In the circumstances, and mainly because he was giving evidence so long after the events in question, the judge said he was reluctant to accept Mr Nekash's evidence on the whereabouts of the KAC aircraft unless it was corroborated by other evidence, and particularly documentary evidence.
662. Although the judge found IAC's arguments logically persuasive, he said that the Iraqi authorities did not do everything on an entirely logical basis during those months. He concluded that he should prefer Captain Jassim's contemporaneous record, which Captain Jassim did not question or qualify in any way in his witness statement.
663. Captain Jassim had in fact said in paragraph 7 of his witness statement that on 30th August he flew "another aircraft" (ie other than 9K-AHD) from Basra to Mosul (not from Baghdad to Mosul). He believed that it was 9K-AHG but he could not be absolutely sure and he made no record of this in his personal log. Aikens J held that 9K-AHG was flown from Basra to Tekrit in mid-August, and from Tekrit to Mosul on 29th August, and there is no appeal against these findings.
664. On this appeal IAC submitted a helpful written analysis designed to show that Mr Nekash was right when he said that Captain Jassim's personal logbook was not a reliable document. It purports to show the flights he made in 9K-AHD, but the next entry following the entry for 30th August is an entry for 16th November, and he omits reference to flights he made in that aircraft on 15th, 17th, 19th and 21st October, all of which are recorded in the IAC Flight Log. He also omits two training flights he mentions in his statement (on 12th and 20th November). Finally, his log records a return flight from Baghdad to Basra on 17th November, a day when another IAC record shows that the aircraft was not in service because it was having a CY7 SEG5 maintenance check.
665. We see no reason to disturb the judge's finding on this issue. Although he might have been more cautious about his willingness to rely on Captain Jassim's personal log book in the light of the arguments which were addressed to us about it, it remains the case that 9K-AHD is not mentioned in the Na'ama diaries for the whole of the period during which the judge placed it at Mosul, and that it would have been obvious to IAC that until they had a team of qualified Airbus engineers in place (an event which did not take place until the end of September) they could not take forward their plans to put this newly painted aircraft into operational service. There is plenty of evidence that the airport at Baghdad was over-crowded at this time, with IAC's regular fleet for the most part grounded, and in those circumstances the idea of sending this aircraft up to Mosul for the time being, until such time as it could be recalled for scheduled maintenance, was not as silly as Mr Nekash suggested to Aikens J it would have been. It was not needed at Baghdad, and there was room for it out of the way at Mosul.
666. So far as the movements of AHF are concerned, four of IAC's witnesses maintained that it was at Mosul with another A300, AHG, at least from the end of August, and that it stayed there until it was destroyed. Mr Najm, IAC's Office Manager at Mosul, said (in April 1999) that these two Airbuses arrived at a time before they were transferred to the ownership of IAC, whereas the two Boeings arrived there in mid-November. In his statement made in June 1997 Mr Saffi said that he had initially believed that all the Mosul Four had been flown to Mosul at the end of August, but he now understood that the two Boeing 767s were not flown there until 17th November. This evidence appears to have been based on inquiries Mr Nekash had recently made, since he gives the same account of the matter in his statement made on the same day.
667. Finally, in his second statement General Fehed said that in late August the IQAF told IAC that the KAC aircraft had to be moved from Al Sahra and directed them to Mosul instead. There is also an entry attributed to 26th September in IAC's flight log which records a request from one of IAC's pilots, Captain Zaki, for the agreement of the Sector to be obtained for the movement of "two airplane A300 from Mousel to Baghdad". Although there is no evidence that any such movement took place, IAC says that this entry provides further evidence that there were two A300s (and not only one, as the judge found) at Mosul at the end of September.
668. Evidence which pointed the other way consisted of two entries in the Na'ama diaries and one entry in Mr Al Gailani's diary. On 1st November Mr Al Na'ama records that there were two 767s and one Airbus at Basra. He wrote "300?" against the Airbus.
669. On 17th November he mentioned the names of three of the KAC engineers: "They leave for Basra. They are to take the Air Bus to Mosul ... Approval of air safety on 767 aircraft ... 310 from BSR to Mosul". The relevant entry in Mr Al Gailani's diary reads: "Accompanied the Iraqi plane to Basra SNY [supernumerary]. Stayed in Basra about two hours to prepare the Airbus plane. Two hours later we flew from Basra to Mosul ... Returned to Baghdad in the evening with the Iraqi plane".
670. The judge recorded in his judgment a contention by IAC to the effect that it was improbable that the authorities would move an aircraft back to Basra [in late August] so soon after it had moved it away. He said, however, that it was common ground that the Iraqi authorities regarded Basra as safe in August, and that 9K-AHC had indeed been flown back to Basra at that time about two weeks after it had left Basra for Tekrit. He thought that the entry on the IAC Flight Log probably referred to A310s, since it was only aircraft of that type that were wanted at Baghdad. In the circumstances he accepted KAC's arguments, based as they were on the entries in the Na'ama diaries, to the effect that an Airbus A300 was flown from Basra to Mosul in November, and the only possible candidate was AHF. The judge did not refer in this context to the evidence of the four witnesses for IAC to which we have referred, or consider the likelihood (or otherwise) of a decision to separate the two A300 aircraft. He thought Mr Al Na'ama's reference to a 310 on 17th November was a mistake.
671. At the trial IAC had argued that the Airbus in question was 9K-AHE, and that the Na'ama diary entry of 17th November was correct when it referred to an A310 being flown out of Basra that day. The judge found, however, that 9K-AHE was flown from Basra to Baghdad on 27th September, and there is no appeal against that finding, which is supported by an entry in the Na'ama diaries and confirmed by an entry in IAC's flight movement records.
672. We have found this a difficult issue to resolve, but since the judge did not take account of the evidence of IAC's witnesses, we have had to reconsider the available evidence very carefully. Although we would not attach much weight to General Fehed's evidence (since IAC does not dispute that an A310, 9K-AHC, was flown from Tekrit to Basra at the end of August), Mr Najm was IAC's manager at Mosul and his statement, served as long ago as June 1997, places the two A300 Airbuses unequivocally in Mosul prior to 17th September 1990. Mr Najm would have been likely to have remembered if it had really been the case, as the judge found, that there was only one KAC aircraft for him to look after at Mosul between 28th September and 17th November. There are bound to be some loose ends in detection work of this type, and it may never be known which A310 Airbus was flown from Basra to Mosul on 17th November, as Mr Al Na'ama (supported by Mr Al Gailani) record in their diaries. Perhaps there was some temporary repositioning of an A310 Airbus in late October-November which is not otherwise recorded.
673. On the totality of the evidence we would reverse the judge's finding in relation to 9K-AHF and hold that it was flown from Tekrit to Mosul at the end of August 1990 and that it stayed there until it was destroyed with the rest of the Mosul Four.