Ipsofactoj.com: International Cases [2002] Part 12 Case 4 [HL]


HOUSE OF LORDS

Coram

Iraqi Airways Co

- vs -

Kuwait Airways Corp

LORD NICHOLLS OF BIRKENHEAD

LORD STEYN

LORD HOFFMANN

LORD HOPE OF CRAIGHEAD

LORD SCOTT OF FOSCOTE

16 MAY 2002


Judgment

Lord Nicholls of Birkenhead

My Lords,

  1. On 2 August 1990 military forces of Iraq forcibly invaded and occupied Kuwait. They completed the occupation in the space of two or three days. The Revolutionary Command Council of Iraq then adopted resolutions proclaiming the sovereignty of Iraq over Kuwait and its annexation to Iraq. Kuwait was designated a 'governate' within Iraq.

  2. When the Iraqi forces took over the airport at Kuwait they seized ten commercial aircraft belonging to Kuwait Airways Corporation (KAC): two Boeing 767s, three A300 Airbuses, and five A310 Airbuses. They lost no time in removing these aircraft to Iraq. By 9 August nine of the aircraft had been flown back to Basra, in Iraq. The tenth aircraft, undergoing repair at the time of the invasion, was flown direct to Baghdad a fortnight later. On 9 September the Revolutionary Command Council of Iraq adopted a resolution dissolving KAC and transferring all its property worldwide, including the ten aircraft, to the state-owned Iraqi Airways Co (IAC). This resolution, resolution 369, came into force upon publication in the official gazette on 17 September. On the same day IAC's board passed resolutions implementing RCC resolution 369.

  3. On 11 January 1991 KAC commenced these proceedings against the Republic of Iraq and IAC, claiming the return of its ten aircraft or payment of their value, and damages. The aircraft were valued by KAC at US$630 million. The damages claimed at the trial exceeded $800 million.

  4. The UN Security Council's deadline for Iraq's withdrawal from Kuwait expired at midnight on 15 January 1991. Military action by coalition air forces began twenty-four hours later. The airfield at Mosul, in the north of Iraq, suffered several attacks from the air. In late January and early February 1991 four of the ten aircraft seized from KAC, moved to Mosul for safety reasons, were destroyed by coalition bombing. The aircraft destroyed were the two Boeing 767s and two A300 Airbuses. In these proceedings these four aircraft have become known as 'the Mosul four'. The other six aircraft, known as 'the Iran six', were evacuated by IAC to Iran at much the same time. Following negotiations with the government of Iran these six aircraft were flown back eventually to Kuwait in July and August 1992. KAC later paid Iran a substantial amount, US$20 million, for the cost of keeping, sheltering and maintaining them.

    THE PROCEEDINGS

  5. The proceedings have had a lengthy procedural history, including an earlier appeal to your Lordships' House: see [1995] 1 WLR 1147. On that occasion the House was concerned with challenges to the jurisdiction of the English court. The House decided, on 24 July 1995, that the writ had been effectively served on IAC but not on the state of Iraq. The House also decided that IAC could not claim state immunity regarding the acts of which KAC was complaining, in so far as they were done after RCC resolution 369 came into force. IAC's retention and use of the aircraft as its own did not constitute acts done in the exercise of sovereign immunity. KAC then continued the proceedings against IAC alone.

  6. The trial of the action was split between issues relating to liability and those relating to damages. Certain issues relating to liability were tried by Mance J. On these issues KAC achieved a large measure of success. Mance J held that IAC had wrongfully interfered with KAC's ten aircraft: see [1999] CLC 31. Issues relating to causation, remoteness and amount of damages were tried by Aikens J. He held that KAC had failed to establish it had suffered any recoverable damage in respect of any of the aircraft. KAC would have suffered the losses claimed even if IAC had not wrongfully interfered with the aircraft. He dismissed the action: see [2000] 2 All ER (Comm) 360.

  7. Both parties appealed. IAC appealed against the rulings of Mance J on liability, and KAC appealed against the conclusions of Aikens J on damages and his dismissal of the action. The judgment of the Court of Appeal, comprising Henry, Brooke and Rix LJJ, was given in November 2000: see [2001] 3 WLR 1117. KAC was partly successful. Its claims in respect of the Mosul four still failed but, save in one respect, its claims regarding the Iran six succeeded.

  8. IAC then appealed against this decision to your Lordships' House. IAC submits that the action should be dismissed in its entirety. Aikens J's decision was correct, and should be restored. KAC cross-appealed. KAC contends that its claims regarding the Mosul four were wrongly dismissed by both courts below. KAC also contends it should succeed on the head of damages on which it failed in the Court of Appeal.

  9. A further procedural matter should be noted. In May 2000 KAC petitioned the House to vary its order of 24 July 1995. The variation sought was that IAC should not benefit from sovereign immunity for the period 9 August 1990 to 16 September 1990. The ground of the petition was that, in respect of its activities in this period, IAC had obtained the judgment of the House by fraud. Evidence of IAC witnesses was perjured. On 27 July 2000 the House dismissed the petition [2001] 1 WLR 429. The appropriate procedure was for KAC to commence a fresh action. On 16 October 2000 KAC started new proceedings. This new action ('the perjury action') is due to be tried shortly.

  10. A notable feature of the present proceedings is that this is a claim in tort for damages in respect of events having no connection with this country. The acts of which complaint is made took place in Iraq. Nor do the parties themselves have any connection with England. Both IAC and KAC had places of business in London, but that is of no real significance. As international airlines, no doubt they had branch offices in several countries.

  11. At an early stage in the proceedings IAC raised an 'inconvenient forum' objection to the jurisdiction of the English court. The basis of the objection was that the United Nations Organisation had established a compensation commission for the purpose of considering claims against Iraq for damage and loss caused by its invasion of Kuwait. Evans J rejected this objection, and his decision was not the subject of an appeal. At a later stage IAC raised a further forum non conveniens objection but subsequently abandoned this. Thus it came about that the English court accepted jurisdiction to decide the issues raised in the proceedings.

  12. Given that the alleged wrongs were committed in Iraq, and given also the absence of any particular connection with any other country, it is to be expected that when adjudicating upon KAC's claims an English court would apply the law of Iraq. As English law now stands, that would be so. The general rule is that the law to be used for determining issues relating to tort is the law of the country in which the events constituting the tort occurred: see sections 9(1) and 11(1) of the Private International Law (Miscellaneous Provisions) Act 1995. But the events of which complaint is made by KAC occurred long before this statute was enacted. Accordingly, as was common ground between the parties, in the present proceedings the court has to apply the so-called double actionability rule, as generally understood since the decision of the House in Boys v Chaplin [1971] AC 356. The rule is that, in order to be actionable here, the acts done abroad must satisfy both limbs of a dual test. The acts must be such that, if done in England, they would be tortious. Additionally, the acts must be civilly actionable under the law of the country where they occurred.

  13. KAC immediately comes up against an obvious difficulty. In order to satisfy the double actionability test KAC must show it was the owner of the aircraft when IAC did the acts of which KAC is complaining. But, on the face of things, that was not so. By September 1990 the aircraft had been seized by the government of Iraq and moved from Kuwait to Iraq. Under Iraqi law, RCC resolution 369 was effective to divest KAC of its ownership of the aircraft and vest title in IAC. Under Iraqi law the subsequent repeal of this decree did not retrospectively give KAC a title it did not otherwise have during the relevant period. Under English conflict of laws principles the transfer of title to tangible movable property normally depends on the lex situs: the law of the country where the movable was situated at the time of the transfer. Likewise, governmental acts affecting proprietary rights will be recognised by an English court as valid if they would be recognised as valid by the law of the country where the property was situated when the law takes effect. Here, that was Iraq.

  14. KAC does not dispute these propositions. Nor does KAC contend that the lex situs of the aircraft was the law of Kuwait as the place where, presumably, the aircraft were registered. KAC's response is that in the present case, as a matter of overriding public policy, an English court will altogether disregard RCC resolution 369. An English court will not regard this decree of Iraqi law as effective to divest KAC of its title to the ten aircraft.

    RCC RESOLUTION 369 AND ENGLISH PUBLIC POLICY

  15. Conflict of laws jurisprudence is concerned essentially with the just disposal of proceedings having a foreign element. The jurisprudence is founded on the recognition that in proceedings having connections with more than one country an issue brought before a court in one country may be more appropriately decided by reference to the laws of another country even though those laws are different from the law of the forum court. The laws of the other country may have adopted solutions, or even basic principles, rejected by the law of the forum country. These differences do not in themselves furnish reason why the forum court should decline to apply the foreign law. On the contrary, the existence of differences is the very reason why it may be appropriate for the forum court to have recourse to the foreign law. If the laws of all countries were uniform there would be no 'conflict' of laws.

  16. This, overwhelmingly, is the normal position. But, as noted by Scarman J in In the Estate of Fuld, decd (No 3) [1968] P 675, 698, blind adherence to foreign law can never be required of an English court. Exceptionally and rarely, a provision of foreign law will be disregarded when it would lead to a result wholly alien to fundamental requirements of justice as administered by an English court. A result of this character would not be acceptable to an English court. In the conventional phraseology, such a result would be contrary to public policy. Then the court will decline to enforce or recognise the foreign decree to whatever extent is required in the circumstances.

  17. This public policy principle eludes more precise definition. Its flavour is captured by the much repeated words of Judge Cardozo that the court will exclude the foreign decree only when it 'would violate some fundamental principle of justice, some prevalent conception of good morals, some deep-rooted tradition of the common weal': see Loucks v Standard Oil Co of New York (1918) 120 NE 198, 202

  18. Despite its lack of precision, this exception to the normal rule is well established in English law. This imprecision, even vagueness, does not invalidate the principle. Indeed, a similar principle is a common feature of all systems of conflicts of laws. The leading example in this country, always cited in this context, is the 1941 decree of the National Socialist Government of Germany depriving Jewish émigrés of their German nationality and, consequentially, leading to the confiscation of their property. Surely Lord Cross of Chelsea was indubitably right when he said that a racially discriminatory and confiscatory law of this sort was so grave an infringement of human rights that the courts of this country ought to refuse to recognise it as a law at all: Oppenheimer v Cattermole [1976] AC 249, 277-278. When deciding an issue by reference to foreign law, the courts of this country must have a residual power, to be exercised exceptionally and with the greatest circumspection, to disregard a provision in the foreign law when to do otherwise would affront basic principles of justice and fairness which the courts seek to apply in the administration of justice in this country. Gross infringements of human rights are one instance, and an important instance, of such a provision. But the principle cannot be confined to one particular category of unacceptable laws. That would be neither sensible nor logical. Laws may be fundamentally unacceptable for reasons other than human rights violations.

  19. The question raised in the present proceedings is whether resolution 369 of the Revolutionary Command Council of Iraq is of this character. This decree was one of the RCC resolutions issued with a view to giving effect to the integration of Kuwait into Iraq following the invasion. It was part and parcel of the Iraqi seizure of Kuwait and its assets and the assimilation of these assets into the political, social and economic structure of Iraq.

  20. That this seizure and assimilation were flagrant violations of rules of international law of fundamental importance is plain beyond argument. International reaction to the invasion was swift. On the first day of the invasion, 2 August 1990, the UN Security Council condemned the invasion as a breach of the peace and demanded immediate Iraqi withdrawal (resolution 660). On 6 August the Security Council determined that Iraq had usurped the authority of the legitimate government of Kuwait. All member states were to take specified measures to restore the authority of the legitimate government of Kuwait. The council called upon all states to take appropriate measures to protect assets of the legitimate government of Kuwait and its agencies, and not to recognise any regime set up by the occupying power (resolution 661). On 9 August the Security Council decided that the annexation of Kuwait by Iraq had no legal validity and was null and void. The council called upon all states not to recognise this annexation, and to refrain from any action which might be interpreted as an indirect recognition of the annexation (resolution 662). Later resolutions of the Security Council included resolution 674 (29 October 1990) which condemned the seizure by Iraq of public and private property in Kuwait and reminded Iraq of its liability under international law for loss and damage caused to Kuwaiti nationals and institutions. On 29 November 1990 the council authorised military action against Iraq (resolution 678).

  21. In the event no state recognised Iraq's annexation of Kuwait or its authority in Kuwait. On 2 March 1991 the UN Security Council laid down conditions for a ceasefire. The conditions included demands that Iraq should rescind its purported annexation of Iraq, accept in principle its liability under international law for any loss or damage caused to Kuwait and its nationals and corporations, and begin to return all Kuwaiti property immediately (resolution 686). On 5 March 1991 Iraq accepted these obligations and repealed resolution 369 of the Revolutionary Command Council.

  22. The effect of these Security Council decisions, as a matter of international law, is clear. Iraq and Kuwait are both members of the United Nations. Article 2(4) of the United Nations Charter provides that in their international relations all members shall refrain from the use of force against the territorial integrity of any state. This is also a principle of customary international law binding on states independently of the provisions of the Charter: see the International Court of Justice in Nicaragua v United States of America [1986] ICJ Reports 14, 98-100, at paragraphs 187-188.

  23. Further, article 25 of the United Nations Charter provides that the members of the United Nations agree to accept and carry out the decisions of the Security Council in accordance with the Charter. Chapter VII of the Charter empowers the Security Council to determine that there exists a breach of the peace. When the council has made such a determination, as happened in the present case on the very day of the invasion, the council may decide upon measures to restore international peace and security. These measures include both military and non-military measures. Decisions of the Security Council taken under these chapter VII powers are legally binding upon all members of the United Nations: see the opinion of the International Court of Justice concerning Legal Consequences for States of the Continued Presence of South Africa in Namibia [1971] ICJ Reports 16, 53-56, paragraphs 115-125. The Security Council resolutions mentioned above were decisions taken under chapter VII.

  24. On behalf of IAC Mr. Donaldson submitted that the public policy exception to the recognition of provisions of foreign law is limited to infringements of human rights. The allegation in the present action is breach of international law by Iraq. But breach of international law by a state is not, and should not be, a ground for refusing to recognise a foreign decree. An English court will not sit in judgment on the sovereign acts of a foreign government or state. It will not adjudicate upon the legality, validity or acceptability of such acts, either under domestic law or international law. For a court to do so would offend against the principle that the courts will not adjudicate upon the transactions of foreign sovereign states. This principle is not discretionary. It is inherent in the very nature of the judicial process: see Buttes Gas & Oil Co v Hammer (No 3) [1982] AC 888, 932. KAC's argument, this submission by IAC continued, invites the court to determine whether the invasion of Kuwait by Iraq, followed by the removal of the ten aircraft from Kuwait to Iraq and their transfer to IAC, was unlawful under international law. The courts below were wrong to accede to this invitation.

  25. My Lords, this submission seeks to press the non-justiciability principle too far. Undoubtedly there may be cases, of which the Buttes case is an illustration, where the issues are such that the court has, in the words of Lord Wilberforce at page 938, 'no judicial or manageable standards by which to judge [the] issues':

    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.

    This was Lord Wilberforce's conclusion regarding the important inter-state and other issues arising in that case: see his summary at page 937.

  26. This is not to say an English court is disabled from ever taking cognisance of international law or from ever considering whether a violation of international law has occurred. In appropriate circumstances it is legitimate for an English court to have regard to the content of international law in deciding whether to recognise a foreign law. Lord Wilberforce himself accepted this in the Buttes case, at page 931D. Nor does the 'non-justiciable' principle mean that the judiciary must shut their eyes to a breach of an established principle of international law committed by one state against another when the breach is plain and, indeed, acknowledged. In such a case the adjudication problems confronting the English court in the Buttes litigation do not arise. The standard being applied by the court is clear and manageable, and the outcome not in doubt. That is the present case.

  27. Against this background I return to the question whether as a matter of public policy an English court ought to decline to recognise RCC resolution 369 as effectual to divest KAC of its title to its aircraft. Mance J and the Court of Appeal said that an English court should so decline. I agree with them.

  28. The acceptability of a provision of foreign law must be judged by contemporary standards. Lord Wilberforce, in a different context, noted that conceptions of public policy should move with the times: see Blathwayt v Baron Cawley [1976] AC 397, 426. In Oppenheimer v Cattermole [1976] AC 249, 278, Lord Cross said that the courts of this country should give effect to clearly established rules of international law. This is increasingly true today. As nations become ever more interdependent, the need to recognise and adhere to standards of conduct set by international law becomes ever more important. RCC resolution 369 was not simply a governmental expropriation of property within its territory. Having forcibly invaded Kuwait, seized its assets, and taken KAC's aircraft from Kuwait to its own territory, Iraq adopted this decree as part of its attempt to extinguish every vestige of Kuwait's existence as a separate state. An expropriatory decree made in these circumstances and for this purpose is simply not acceptable today.

  29. I have already noted that Iraq's invasion of Kuwait and seizure of its assets were a gross violation of established rules of international law of fundamental importance. A breach of international law of this seriousness is a matter of deep concern to the world-wide community of nations. This is evidenced by the urgency with which the UN Security Council considered this incident and by its successive resolutions. Such a fundamental breach of international law can properly cause the courts of this country to say that, like the confiscatory decree of the Nazi government of Germany in 1941, a law depriving those whose property has been plundered of the ownership of their property in favour of the aggressor's own citizens will not be enforced or recognised in proceedings in this country. Enforcement or recognition of this law would be manifestly contrary to the public policy of English law. For good measure, enforcement or recognition would also be contrary to this country's obligations under the UN Charter. Further, it would sit uneasily with the almost universal condemnation of Iraq's behaviour and with the military action, in which this country participated, taken against Iraq to compel its withdrawal from Kuwait. International law, for its part, recognises that a national court may properly decline to give effect to legislative and other acts of foreign states which are in violation of international law: see the discussion in Oppenheim's International Law, 9th ed (1992), vol 1, (ed Jennings and Watts) pages 371-376, paragraph 113.

    IRAQI LAW OF URURPATION AND RCC RESOLUTION 369

  30. IAC had another string to its bow. It advanced a further argument based on RCC resolution 369. Even if this decree is disregarded in considering the first limb of the double actionability rule (tortious if done in England), it would not be right to disregard it when applying the second limb (civilly actionable under the foreign law). In considering whether the impugned acts would have been civilly actionable in Iraq, one must examine how an Iraqi court would have been required to rule on KAC's claim in autumn 1990. An Iraqi court would have had regard to the entirety of Iraqi law, including RCC resolution 369. KAC's claim for misappropriation ('usurpation') of the ten aircraft would have failed. When applying the second limb of the rule the foreign law must be taken as it is. An English court should not treat as civilly actionable under Iraqi law a state of affairs which, in fact, would not have been so actionable. An English court should not, by excision of part of the foreign law, treat as existing under foreign law a cause of action which the foreign law did not actually recognise at the time.

  31. I cannot accept this argument. For reasons already given, in these proceedings an English court will not regard RCC resolution 369 as effective to transfer ownership of the ten aircraft from KAC to IAC. In the eyes of an English court KAC remained the owner. The double actionability rule, in both its limbs, falls to be applied on this footing. If an English court were to proceed otherwise the court would be giving effect to the unacceptable RCC resolution 369. The court would be recognising that, in deciding KAC's claims against IAC, properly brought in an English court, resolution 369 was effective to divest KAC of its title to the aircraft. Given the public policy objection to recognising the purported effect of this decree, that would be a bizarre conclusion.

  32. I must elaborate a little more. Stated more fully, IAC's argument invokes two different aspects of the law of Iraq:

    (1)

    as the lex situs, governing the effectiveness of the transfer of ownership by RCC resolution 369, and also

    (2)

    as the lex loci delicti, governing the impugned conduct of IAC in Iraq.

    IAC seeks to apply Iraqi law as the lex situs under (1) as a ground for excluding any liability which would otherwise exist in accordance with Iraqi law as the lex loci delicti under (2). I am not attracted by this reasoning. Given that the lex situs under (1) is not acceptable to an English court in these proceedings, the just result is to apply the lex loci delicti under (2) on the footing that Iraqi law as the lex situs under (1) is to be disregarded.

  33. There is sufficient flexibility in the double actionability rule for the court to take this course. The double actionability rule is one of the principles applied by an English court in seeking to arrive at a just result when the claims involve a foreign element. When approving this rule in Boys v Chaplin [1971] AC 356 the majority of the House observed that this was a 'general' rule which would 'normally' apply to foreign torts. The rule should be interpreted flexibly, 'so as to leave some latitude in cases where it would be against public policy to admit or to exclude claims': see Lord Hodson, at page 378, and Lord Wilberforce, at pages 391-392. The existence and width of this flexibility were affirmed by the Privy Council in Red Sea Insurance Co Ltd v Bouygues SA [1995] 1 AC 190. Adapting the language of Lord Hodson in Boys v Chaplin, in the present case it would be contrary to public policy to permit application of the repugnant Iraqi law as the lex situs under (1) to exclude claims KAC would otherwise have against IAC in accordance with Iraqi law as the lex loci delicti under (2). I add that the position would be the same if these proceedings had been governed by the current law, set out in the Private International Law (Miscellaneous Provisions) Act 1995: see sections 11(1) and 14(3)(a)(i).

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

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

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

    DOUBLE ACTIONABILITY

    Conversion

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

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

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

    [Emphasis added]

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

  39. In my view this line of argument was misconceived. I need not repeat the journey through the textbooks and authorities on which your Lordships were taken. Conversion of goods can occur in so many different circumstances that framing a precise definition of universal application is well nigh impossible. In general, the basic features of the tort are threefold. 

    • First, the defendant's conduct was inconsistent with the rights of the owner (or other person entitled to possession). 

    • Second, the conduct was deliberate, not accidental. 

    • Third, the conduct was so extensive an encroachment on the rights of the owner as to exclude him from use and possession of the goods. 

    The contrast is with lesser acts of interference. If these cause damage they may give rise to claims for trespass or in negligence, but they do not constitute conversion.

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

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

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

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

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

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

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

    Usurpation

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

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

    THE MOSUL FOUR

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

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

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

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

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

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

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

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

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

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

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

    THE IRAN SIX

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

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

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

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

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

    Causation and the 'But For' Test in the Tort of Conversion

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

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

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

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

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

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

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

  67. I have no hesitation in preferring and adopting this view of the present state of the law. The aim of the law, in respect of the wrongful interference with goods, is to provide a just remedy. Despite its proprietary base, this tort does not stand apart and command awards of damages measured by some special and artificial standard of its own. The fundamental object of an award of damages in respect of this tort, as with all wrongs, is to award just compensation for loss suffered. Normally ('prima facie') the measure of damages is the market value of the goods at the time the defendant expropriated them. This is the general rule, because generally this measure represents the amount of the basic loss suffered by the plaintiff owner. He has been dispossessed of his goods by the defendant. Depending on the circumstances some other measure, yielding a higher or lower amount, may be appropriate. The plaintiff may have suffered additional damage consequential on the loss of his goods. Or the goods may have been returned.

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

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

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

  69. How, then, does one identify a plaintiff's 'true loss' in cases of tort? This question has generated a vast amount of legal literature. I take as my starting point the commonly accepted approach that the extent of a defendant's liability for the plaintiff's loss calls for a twofold inquiry: whether the wrongful conduct causally contributed to the loss and, if it did, what is the extent of the loss for which the defendant ought to be held liable. The first of these enquiries, widely undertaken as a simple 'but for' test, is predominantly a factual inquiry. The application of this test in cases of conversion is the matter now under consideration. I shall return to this in a moment.

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

  71. In most cases, how far the responsibility of the defendant ought fairly to extend evokes an immediate intuitive response. This is informed common sense by another name. Usually, there is no difficulty in selecting, from the sequence of events leading to the plaintiff's loss, the happening which should be regarded as the cause of the loss for the purpose of allocating responsibility. In other cases, when the outcome of the second inquiry is not obvious, it is of crucial importance to identify the purpose of the relevant cause of action and the nature and scope of the defendant's obligation in the particular circumstances. What was the ambit of the defendant's duty? In respect of what risks or damage does the law seek to afford protection by means of the particular tort? Recent decisions of this House have highlighted the point. When evaluating the extent of the losses for which a negligent valuer should be responsible the scope of the valuer's duty must first be identified: see Banque Bruxelles Lambert SA v Eagle Star Insurance Co Ltd [1997] AC 191. In Reeves v Commissioner of Police of the Metropolis [2000] 1 AC 360 the free, deliberate and informed act of a human being, there committing suicide, did not negative responsibility to his dependants when the defendant's duty was to guard against that very act.

  72. The need to have in mind the purpose of the relevant cause of action is not confined to the second, evaluative stage of the twofold inquiry. It may also arise at the earlier stage of the 'but for' test, to which I now return. This guideline principle is concerned to identify and exclude losses lacking a causal connection with the wrongful conduct. Expressed in its simplest form, the principle poses the question whether the plaintiff would have suffered the loss without ('but for') the defendant's wrongdoing. If he would not, the wrongful conduct was a cause of the loss. If the loss would have arisen even without the defendant's wrongdoing, normally it does not give rise to legal liability. In Barnett v Chelsea and Kensington Hospital Management Committee [1969] 1 QB 428 the night watchman's death did not pass this test. He would have died from arsenic poisoning even if the hospital casualty department had treated him properly. Of course, even if the plaintiff's loss passes this exclusionary threshold test, it by no means follows that the defendant should be legally responsible for the loss.

  73. This threshold 'but for' test is based on the presence or absence of one particular type of causal connection: whether the wrongful conduct was a necessary condition of the occurrence of the harm or loss. In the Barnett case the hospital's negligence was not a necessary element in the conditions which led to the watchman's death. He would have died anyway. In very many cases this test operates satisfactorily, but it is not always a reliable guide. Academic writers have drawn attention to its limitations: see, for example, the late Professor Fleming's The Law of Torts, 9th ed (1998), pp 222-230, and Markesinis & Deacon Tort Law, 4th ed (1999), pp 178-191. Torts cover a wide field and may be committed in an infinite variety of situations. Even the sophisticated variants of the 'but for' test cannot be expected to set out a formula whose mechanical application will provide infallible threshold guidance on causal connection for every tort in every circumstance. In particular, the 'but for' test can be over-exclusionary.

  74. This may occur where more than one wrongdoer is involved. The classic example is where two persons independently search for the source of a gas leak with the aid of lighted candles. According to the simple 'but for' test, neither would be liable for damage caused by the resultant explosion. In this type of case, involving multiple wrongdoers, the court may treat wrongful conduct as having sufficient causal connection with the loss for the purpose of attracting responsibility even though the simple 'but for' test is not satisfied. In so deciding the court is primarily making a value judgment on responsibility. In making this judgment the court will have regard to the purpose sought to be achieved by the relevant tort, as applied to the particular circumstances.

  75. One situation where the courts have had to grapple with the multiple wrongdoers' conundrum concerns how far the liability of one wrongdoer should be diminished by loss flowing from the conduct of another wrongdoer. This has arisen particularly in the context of personal injuries, where the plaintiff was first injured by one wrongdoer and later by another, and in the context of a ship suffering successive collisions at sea. Another situation is where the defendant's wrongful act caused damage to the plaintiff, but even if he had acted lawfully the same or similar damage would have been produced by the wrongful act of someone else.

  76. Elements of both these situations are present in the instant case. The government of Iraq had already seized KAC's aircraft before IAC wrongfully converted them. And even if IAC had not converted them in autumn 1990, presumably the government of Iraq or some other emanation of the state would have wrongfully retained possession of the aircraft.

  77. I turn therefore to consider the purpose sought to be achieved by the tort of conversion. Conversion is the principal means whereby English law protects the ownership of goods. Misappropriation of another's goods constitutes conversion. Committing this tort gives rise to an obligation to pay damages. Payment of damages may have proprietary consequences. Payment of damages assessed on the footing that the plaintiff is being compensated for the whole of his interest in the goods extinguishes his title: see section 5 of the Torts (Interference with Goods) Act 1977. Further, when the defendant is in possession of the plaintiff's goods the remedies available to the plaintiff include a court order that the goods be delivered up: see section 3.

  78. Consistently with its purpose of providing a remedy for the misappropriation of goods, liability is strict. As Diplock LJ said in Marfani & Co Ltd v Midland Bank Ltd [1968] 1 WLR 956, 970-971, one's duty to one's neighbour is to refrain from doing any voluntary act in relation to his goods which is a usurpation of his property or possessory rights in them. Whether the defendant still has the goods or their proceeds matters not. Nor does it matter whether the defendant was a thief or acted in the genuine and reasonable belief the goods were his. Baron Cleasby's aphorism, uttered in 1872 in Fowler v Hollins LR 7 QB 616, 639, still represents the law: 'persons deal with the property in chattels or exercise acts of ownership over them at their peril'. This, he observed, was regarded as a salutary rule for the protection of property.

  79. Some aspects of this rule have attracted criticism. Vindication of a plaintiff's proprietary interests requires that, in general, all those who convert his goods should be accountable for benefits they receive. They must make restitution to the extent they are unjustly enriched. The goods are his, and he is entitled to reclaim them and any benefits others have derived from them. Liability in this regard should be strict subject to defences available to restitutionary claims such as change of position: see Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548. Additionally, those who act dishonestly should be liable to make good any losses caused by their wrongful conduct. Whether those who act innocently should also be liable to make good the plaintiff's losses is a different matter. A radical re-appraisal of the tort of conversion along these lines was not pursued on these appeals. So I shall say nothing more about it.

  80. The existing principle of strict liability as described above is deeply ingrained in the common law. It has survived at least since the days of Lord Mansfield in Cooper v Chitty (1756) 1 Burr 20. The hardship it may cause to those who deal innocently with a person in possession of goods has long been recognised. Blackburn J noted this in the leading case of Hollins v Fowler (1875) LR 7 HL 757, 764. The hardship arises especially for innocent persons who no longer have the goods. There has been some statutory amelioration of the principle, in the Factors Acts and elsewhere, but in general the principle endures.

  81. Consistently with this principle, every person through whose hands goods pass in a series of conversions is himself guilty of conversion and liable to the owner for the loss caused by his misappropriation of the owner's goods. His liability is not diminished by reason, for instance, of his having acquired the goods from a thief as distinct from the owner himself. In such a case, it may be said, looking at the successive conversions overall, the owner is no worse off as a result of the acts of the person who acquired the goods from the thief. Such a person has not 'caused' the owner any additional loss.

  82. In one sense this is undoubtedly correct. The owner had already lost his goods. But that is really nothing to the point for the purposes of assessing damages for conversion. By definition, each person in a series of conversions wrongfully excludes the owner from possession of his goods. This is the basis on which each is liable to the owner. That is the nature of the tort of conversion. The wrongful acts of a previous possessor do not therefore diminish the plaintiff's claim in respect of the wrongful acts of a later possessor. Nor, for a different reason, is it anything to the point that, absent the defendant's conversion, someone else would wrongfully have converted the goods. The likelihood that, had the defendant not wronged the plaintiff, somebody would have done so is no reason for diminishing the defendant's liability and responsibility for the loss he brought upon the plaintiff.

  83. Where, then, does this leave the simple 'but for' test in cases of successive conversion? I suggest that, if the test is to be applied at all, the answer lies in keeping in mind, as I have said, that each person in a series of conversions wrongfully excludes the owner from possession of his goods. The exclusionary threshold test is to be applied on this footing. Thus the test calls for consideration of whether the plaintiff would have suffered the loss in question had he retained his goods and not been unlawfully deprived of them by the defendant. The test calls for a comparison between the owner's position had he retained his goods and his position having been deprived of his goods by the defendant. Loss which the owner would have suffered even if he had retained the goods is not loss 'caused' by the conversion. The defendant is not liable for such loss.

  84. The Court of Appeal decision in Hiort v London & North Western Railway Co (1879) 4 Exch Div 188, mentioned above, can be analysed in this way. Hiort would equally have received no payment for his goods if, instead of misdelivering the goods, the railway company had delivered them in accordance with his instructions. Hiort's case was not a case of successive conversions. But the like comparison can equally be made in such a case.

  85. For these reasons I consider KAC's claims in respect of the Iran six do not fail at the threshold stage. Had KAC not been unlawfully deprived of its goods by IAC KAC would not have suffered any of the heads of loss it is now claiming. Had KAC retained possession of the Iran six, the aircraft would not have been evacuated to Iran.

  86. Furthermore, contrary to IAC's submission, it would not be right to award damages by reference to the (insignificant) losses caused to KAC by the individual acts evidencing conversion, such as over-painting and using one aircraft for commercial flights. The wrongful conduct lay in unlawfully depriving KAC of its aircraft.

    'User Damages'

  87. I have noted that the fundamental object of an award of damages for conversion is to award just compensation for loss suffered. Sometimes, when the goods or their equivalent are returned, the owner suffers no financial loss. But the wrongdoer may well have benefited from his temporary use of the owner's goods. It would not be right that he should be able to keep this benefit. The court may order him to pay damages assessed by reference to the value of the benefit he derived from his wrongdoing. I considered this principle in Attorney General v Blake [2001] 1 AC 268, 278-280. In an appropriate case the court may award damages on this 'user principle' in addition to compensation for loss suffered. For instance, if the goods are returned damaged, the court may award damages assessed by reference to the benefit obtained by the wrongdoer as well as the cost of repair.

  88. Recognition that damages may be awarded on this principle may assist in making some awards of damages in conversion cases more coherent. For example, I respectfully think this is the preferable basis for the award of damages in Solloway v McLaughlin [1938] AC 247 in respect of Solloway's misappropriation of the 14,000 shares deposited with him by McLaughlin. McLaughlin suffered no financial loss from the misappropriation, because equivalent shares were returned to McLaughlin when he closed his account. But Solloway profited by the fall in the value of the shares by selling them when they were deposited with him and repurchasing them at the lower market price obtaining when McLaughlin closed his account.

  89. A similar observation may be made regarding the outcome in BBMB Finance (Hong Kong) Ltd v Eda Holdings Ltd [1990] 1 WLR 409. The owner recovered all his shares or their equivalent. The wrongdoer's misuse of the shares caused the owner no financial loss. But, on the face of the transactions (the facts relating to the unpresented cheque are obscure), the defendant benefited by selling the owner's shares at a high price and replacing them with shares bought at a lower price.

  90. In the present case no claim for an award of 'user damages' has ever been pleaded or formally formulated. Mr. Vos sought to advance such a claim before your Lordships' House regarding the Iran six. I consider it is much too late in these protracted proceedings for KAC now to advance this new claim for the first time.

    Intervening Acts, and the Costs of Recovery and Repair

  91. The Iran six were sent to Iran on the orders of the government of Iraq. They were impounded there by the government of Iran until their eventual return.

  92. These facts do not excuse IAC from liability for the adverse financial consequences of the detention of the aircraft in Iran. A person who misappropriates another's goods does so at his own risk. That is the nature of the wrong. He takes upon himself the risk of being unable to return the goods to their rightful owner. It matters not that he may be prevented from returning the goods due to unforeseen circumstances beyond his control. The reason for his non-return of the goods, or his delay in returning the goods, is neither here nor there so far as his liability to the owner is concerned. If the goods are eventually returned, thereby diminishing the financial loss suffered by the owner, this must be taken into account. But the wrongdoer's liability ought fairly to extend to compensating the owner for the loss he sustains by virtue of his temporary loss of his goods, regardless of the impact any unforeseen circumstances may have had on the wrongdoer. The loss flowing from the unforeseen circumstances should be borne by the wrongdoer, not the innocent owner of the goods. Additionally, provided the amount is not out of proportion to the value of the goods, the wrongdoer ought to reimburse the owner for any money spent on recovering the goods or carrying out necessary repairs.

  93. Here, after much negotiation, in July 1992 the Iranian government notified the Kuwaiti government of its willingness to release the Iran six. The aircraft were flown back to Kuwait in July and August 1992 on the understanding that payment would be agreed subsequently. In March 1994 KAC agreed to pay $20 million to the government of Iran for the costs and expenses of keeping, sheltering and maintaining the Iran six. The payment was made in four tranches and was completed by the end of September 1994. Had the Iranian government insisted on this payment being made before releasing the aircraft, there could be no room for doubt that KAC was fairly entitled to recover this expenditure from IAC. It was the cost incurred by KAC in regaining its aircraft. I do not think the precise sequence of events which occurred, with the aircraft released before the amount payable was agreed or the payment was made, alters the position. If KAC had not adhered to the arrangements made at the time of the release it would have placed itself in an impossible position for the future, if only in terms of over-flying and landing rights in relation to Iran.

  94. Nor is there any room for doubt that, in principle, IAC is responsible for the reasonable costs incurred by KAC in overhauling and repairing the aircraft when they were returned.

    Consequential Losses

  95. KAC was an operating airline. The ten aircraft seized in the invasion were the major part of its fleet. When the hostilities ended KAC found itself without most of its aircraft It was eminently to be expected that until the missing aircraft were replaced, KAC would need to hire substitute aircraft capacity, both for passengers and cargo. Furthermore, it was eminently to be expected that until substitute capacity was obtained KAC would suffer losses of business and might suffer loss of profits. I see no reason to question that IAC's liability to KAC ought to extend to meeting the reasonable costs of chartering substitute aircraft and making good any loss of profits.

  96. The other head of consequential loss claimed by KAC comprises finance costs associated with buying replacement aircraft. This claim is more difficult. The basis of this claim is as follows. Faced with the destruction of the Mosul four and the detention of the Iran six, KAC decided to buy new rather than second hand replacements. As Kuwait's flag carrier, KAC customarily bought new aircraft rather than used aircraft. In the normal course KAC replaced its aircraft on a 15-year cycle. Its practice was to accumulate funds needed to buy replacement aircraft over this 15-year cycle. Since KAC's aircraft were seized broadly in the middle of their 15-year life cycles, KAC had to borrow money to buy replacement aircraft between 1991 and 1995. KAC calculated that the additional cost of replacing the ten aircraft in the middle rather than at the end of their 15-year cycles was about $290 million. KAC gives credit for the sale prices obtained for the Iran six and for the scrap value of the Mosul four.

  97. Had the matter rested there KAC's claim might have been supportable, due allowance being made for the betterment resulting from the early replacement of the fleet. But there is more to the story. The new aircraft bought by KAC were not mere replacements for the ten aircraft misappropriated by IAC. Having lost most of its fleet, KAC used the occasion to carry out a fundamental reappraisal of its aircraft requirements in the light of changing market conditions. These requirements dictated that the composition of KAC's fleet should be significantly different from its existing fleet. Different aircraft, with different specifications, were called for. Accordingly, in the early 1990s KAC did not seek to restore the airline to the position which would have existed if the Mosul four had survived intact and the Iran six had not become temporarily unavailable. KAC did not set out to replace the aircraft it had lost with the same models, or the closest available. It did not just buy new for old. The ten aircraft seized included five Airbus A310-200s. New aircraft of this model were still available for purchase from Airbus, but KAC chose to buy different aircraft.

  98. This was not an unreasonable course for KAC to take. Indeed, it would have made no commercial sense for KAC to replace the ten aircraft without regard to its current and anticipated aircraft requirements. KAC was forced to review its aircraft requirements, and it seized the opportunity to make significant changes in the composition of its fleet. This may well have been a commercially wise decision. But I do not think it would be right to saddle IAC with the finance costs associated with this substantial restructuring of KAC's fleet. In agreement with the Court of Appeal and with the view expressed by Aikens J on this point, although not for precisely the same reasons, I would not allow this head of claim.

  99. The parties presented to the House extensive written and oral arguments on whether the test for liability for consequential loss in cases of conversion is reasonable foreseeability as distinct from whether the loss arises naturally and directly from the wrong. By consequential loss I mean loss beyond that represented by the value of the goods. The route I have followed in reaching my conclusions on KAC's claims under this head makes it strictly unnecessary to express any opinion on this point. Nevertheless, in the absence of clear authority, I ought to state my view briefly.

  100. Expressed in terms of the traditional guideline principles, the choice is between confining liability for consequential loss to damage which is 'foreseeable', as distinct from damage flowing 'directly and naturally' from the wrongful conduct. In practice, these two tests usually yield the same result. Where they do not, the foreseeability test is likely to be the more restrictive. The prevalent view is that the more restrictive test of foreseeability is applicable to the torts of negligence, nuisance and Rylands v Fletcher: see the two Waggon Mound cases ([1961] AC 388 and [1967] 1 AC 617) and Cambridge Water Co v Eastern Counties Leather Plc [1994] 2 AC 264. The Court of Appeal recently applied this test to the tort of conversion, apparently without any contrary argument, in Saleslease Ltd v Davis [1999] 1 WLR 1664, although the members of the court differed in the application of the principle to the facts of the case.

  101. In contrast, the less restrictive test is applicable in deceit. The more culpable the defendant the wider the area of loss for which he can fairly be held responsible: see the discussion by my noble and learned friend Lord Steyn in Smith New Court Securities Ltd v Scrimgeour Vickers (Asset Management) Ltd [1997] AC 254, 279-285.

  102. This bifurcation causes difficulty with the tort of conversion. Dishonesty is not an essential ingredient of this wrong. The defendant may be a thief, or he may have acted wholly innocently. Both are strictly liable. But it seems to me inappropriate they should be treated alike when determining their liability for consequential loss. Parliament, indeed, has recognised that for some purposes different considerations should apply to persons who steal goods, or knowingly receive stolen goods, and persons who can show they bought the goods in good faith. In respect of the tort of conversion the Limitation Act 1980 prescribes different limitation provisions for these two types of cases: see sections 3 and 4.

  103. I have already mentioned that, as the law now stands, the tort of conversion may cause hardship for innocent persons. This suggests that foreseeability, as the more restrictive test, is appropriate for those who act in good faith. Liability remains strict, but liability for consequential loss is confined to types of damage which can be expected to arise from the wrongful conduct. You deal with goods at the risk of discovering later that, unbeknown to you, you have not acquired a good title. That is the strict common law principle. The risk is that, should you not have acquired title, you will be liable to the owner for the losses he can expect to have suffered as a result of your misappropriation of his goods. That seems the preferable approach, in the case of a person who can prove he acted in the genuine belief the goods were his. A person in possession of goods knows where and how he acquired them. It is up to him to establish he was innocent of any knowing wrongdoing. This is the approach Parliament has taken in section 4 of the Limitation Act 1980.

  104. Persons who knowingly convert another's goods stand differently. Such persons are acting dishonestly. I can see no good reason why the remoteness test of 'directly and naturally' applied in cases of deceit should not apply in cases of conversion where the defendant acted dishonestly.

  105. I would dismiss both appeals, and pay tribute to the meticulous care and thoroughness of Mance J, Aikens J and the Court of Appeal in their treatment of the factual and legal complexities in these proceedings.

    Lord Steyn

    My Lords,

  106. The subject-matter of this action was 10 commercial passenger aircraft belonging to Kuwait Airways Corporation ("KAC") which were at Kuwait International Airport on 2 August 1990 when Iraq invaded Kuwait. Iraq completed its occupation of Kuwait within three days and proclaimed the integration of Kuwait into Iraq. Iraq systematically set about plundering the assets of Kuwait. On 9 September 1990 the Government of Iraq (called the Revolutionary Command Council) promulgated Resolution 369. It read as follows:

    I.

    (1)

    That the Kuwait Airways Corporation be dissolved and all its fixed and liquid assets, rights and liabilities be transferred to the Iraqi Airways Co, 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 Co, 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 Co, 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 workforce 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 . . .

    On 17 September 1990 Resolution 369 came into effect. On the same day Iraq Airways Co ("IAC") implemented Resolution 369. Previously, and on various dates in August 1990, IAC pilots had flown the 10 aircraft to Iraq. At the time of the promulgation and coming into effect of Resolution 369 the 10 aircraft were in Iraq.

  107. The international response to Iraq's flagrant breach of international law was prompt and comprehensive. On 2 August 1990 the United Nations Security Council adopted Resolution 660 which condemned the invasion of Kuwait as a breach of international peace and security. This was followed by a series of supplementary Security Council Resolutions which decreed that the annexation of Kuwait was null and void; called on member states to give no recognition directly or indirectly to any aspect of the annexation; and required all states to impose sanctions on Iraq. These measures were duly taken under Chapter VII of the United Nations Charter.

  108. On 17 January 1991, coalition forces began air strikes in Iraq and Kuwait. By 28 February 1991 the Gulf war had been won and Iraq defeated. On 28 February 1991, the coalition forces suspended their offensive. This was followed on 2 March 1991 by UN Security Council Resolution 686 which noted that the coalition offensive had been suspended; required Iraq immediately to rescind its actions purporting to annex Kuwait; required it to accept liability under international law and called upon Iraq to return all property seized by it. On 3 March 1991, Iraq agreed to comply with Resolution 686. Iraq withdrew from Kuwait. On 5 March 1991, Iraq promulgated Resolution 55 which abrogated all Iraqi Resolutions enacted from 2 August 1990 relating to Kuwait, including Resolution 369. This resolution took effect in Iraq law on 18 March 1991.

  109. The fate of the KAC aircraft was as follows: The four KAC aircraft at Mosul (the "Mosul Four") were destroyed by coalition bombing at Mosul airport in late January and early February 1991. The other 6 aircraft were flown to Iran between 15 January and 4 February 1991. These aircraft (the "Iran Six") were not returned to KAC by the Government of Iran until July to August 1992 and then only in return for an eventual payment by Kuwait to Iran of US$20m for storage, sheltering and maintenance costs.

  110. KAC brought an action in the Commercial Court against IAC for conversion of the 10 aircraft. IAC, a state controlled enterprise, raised the defence of state immunity. In 1995 the House of Lords held that IAC was entitled to state immunity in relation to the removal of the aircraft from Kuwait to Iraq, which were exercises of governmental power by Iraq. But the House of Lords held that IAC was not entitled to immunity in relation to the retention and use of the aircraft from 16 September 1990, immediately before Resolution 369 came into force. It was held that no sovereign immunity attached to IAC's subsequent conduct in treating the aircraft as belonging to them: Kuwait Airways Corporation v Iraqi Airways Co [1995] 1 WLR 1147. The action proceeded. It is unnecessary to dwell on the forensic history. I must, however, record my admiration of the massive and excellent judgments of Mance J, Aikens J and the Court of Appeal. They enable the House to put to one side the minutiae of the case and to concentrate on the essentials. The shape of the case before the House appears from the following part of the executive summary of the effect of the judgment of the Court of Appeal [2001] 3 WLR 1117, 1127H-1128E:

    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 . . . the resolution was extraterritorial 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 . . .

    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 . . . 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 . . .

    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 . . .

    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 STATUS OF RESOLUTION 369

  111. Two questions arise. The first is whether the recognition of Resolution 369 would be contrary to English public policy. The second arises in this way. KAC's claim must satisfy the so-called double actionability rule, viz it must be sustainable both under Iraqi law of usurpation and under English law of conversion: see Boys v Chaplin [1971] AC 356. The double actionability point has been formulated as follows: For the purpose of determining whether the acts of IAC were actionable under Iraqi law, must regard be had to the totality of Iraqi law, including Resolution 369, or can that resolution be treated as excised from the corpus of Iraqi law for this purpose if it is contrary to English public policy? The Court of Appeal held that recognition of Resolution 369, would be contrary to English public policy and must be wholly disregarded. The grounds of its decision on public policy were twofold. 

    • First, the Court of Appeal refused to give effect to it because of its extraterritorial and exorbitant scope. 

    • Secondly, the Court of Appeal held that recognition of the resolution would be contrary to English public policy because it breached established principles of international law.

  112. The first reason is not a very secure foothold for the decision. Undoubtedly, an English court would be right to refuse to give effect to the resolution in relation to KAC's property outside Iraq, e.g. in KAC's London office. But why should the resolution have no effect on the aircraft which were on Iraqi soil at the relevant time? After all, it is well established that courts must not sit in judgment on the acts of a foreign government within its own territory. The Court of Appeal explained, at p 1216, para 369:

    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 extraterritorial assets could save a provision dealing with assets within Iraq.

    For my part this is not a satisfactory reason. Notionally, and by applying a blue pencil, it was entirely possible to sever the extraterritorial effect of the resolution from its territorial effect within Iraq. I would, therefore, not accept this part of the reasoning of the Court of Appeal.

  113. The second ground for the Court of Appeal's decision on Resolution 369, although not directly supported by any earlier precedent, is much stronger. It invoked public policy as a justification for not applying otherwise applicable principles of private international law. The foundation of it is that the annexation of Kuwait, and Resolution 369, was a flagrant breach of international law. If any proof was required, the Security Council Resolutions establish this fact beyond doubt. In any event, the Iraqi state unequivocally accepted that in annexing Kuwait and passing Resolution 369 it had acted in breach of international law. This is the context against which IAC argued, relying on Buttes Gas & Oil Co v Hammer (No 3) 1982 AC 888, that "the issues" are not justiciable. Counsel for IAC relied on what he described as an absolute rule in the Buttes case that courts in England will not adjudicate upon acts done abroad by virtue of sovereign authority: p 932E-F, per Lord Wilberforce. For my part this is too austere and unworkable an interpretation of the Buttes case. There were rival claims by rulers to part of the continental shelf and there was a dispute about the motives of a foreign ruler: p 937C-H. Lord Wilberforce found that there were "no judicial or manageable standards by which to judge these issues" and "the court would be in a judicial no-man's land": P 938B. He added "it is not to be assumed that these matters have now passed into history, so that they now can be examined with safe detachment": at p 938C. Buttes was an unusual case decided on a striking out application and without the benefit of a Foreign Office certificate. But reading Lord Wilberforce's judgment as a whole I have no doubt that counsel for IAC is wrong in seeking to derive from it the categorical rule put forward. In any event, in the present case there is no difficulty in adjudicating on Iraq's gross breaches of international law. There is no relevant issue: Iraq accepted the illegality of the annexation and of Resolution 369. In agreement with the Court of Appeal I would reject the argument based on non justiciability.

  114. That brings me to the next step in the reasoning of the Court of Appeal, viz that because the annexation of Kuwait and Resolution 369 constituted a breach of international law it would be contrary to English public policy to recognise Resolution 369. The conception of public policy is, and should be, narrower and more limited in private international law than in internal law: Cheshire & North's Private International Law, 13th ed (1999), p 123. Local values ought not lightly to be elevated into public policy on the transnational level. But rightly, the Court of Appeal found support in Oppenheimer v Cattermole [1976] AC 249. In that case the House of Lords considered a Nazi law which discriminated against Jews. The flavour of the decision appears from the following passage in the judgment of Lord Cross of Chelsea, with whom Lords Hailsham of St Marylebone LC, Hodson, Pearson and Salmon agreed, at p 278:

    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 the 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.

    It is true, of course, that the present case does not involve human rights. That is how counsel for IAC sought to confine the public policy exception stated in the Oppenheimer case. I would reject this argument. It is true that the Court of Appeal broke new ground. It was the first decision to hold that the acts of a foreign state within its territory may be refused recognition because they are contrary to public international law. On the other hand, the Court of Appeal built on the Oppenheimer case which was permeated, as the Court of Appeal observed, by considerations of the public international law. In my view the Court of Appeal was right to extend the public policy exception beyond human rights violations to flagrant breaches of public international law. It does not follow, however, that every breach of international law will trigger the public policy exception. The present case is, however, a paradigm of the public policy exception. If the statutory enactment of the exception in section 14(3) of Private International Law (Miscellaneous Provisions) Act 1995 had been engaged it would have been a classic case for the application of that provision. Marching logic to its ultimate unreality, counsel for IAC submitted that the UN Charter and Security Council Resolutions are not incorporated into our law and must be disregarded. Displaying a commendable internationalism the Court of Appeal observed, at p 1218, para 378:

    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.

    I would endorse this observation. I would add a few observations. Not only has the Charter of the United Nations been adhered to by virtually all states, that is 189 states, but even the few remaining non-members have acquiesced in the principles of the Charter: The Restatement of the Law Third, The Foreign Relations of Law of the United States, (1987), vol 1, p 27, para 102, comment (h). It is generally accepted that the principles of the United Nations Charter prohibiting the use of force have the character of jus cogens, ie is part of peremptory public international law, permitting no derogation: see Restatement, p 28, para 102, comment (k). Security Council Resolutions under Chapter VII of the Charter, and therefore the resolutions in question here, were binding in law on all members including the United Kingdom and Iraq. And, under article 2(6) of the United Nations Charter, the resolutions called on the few non-members of the United Nations to abide by the resolutions, and they at least acquiesced. There was a universal consensus on the illegality of Iraq's aggression. Moreover, in the light of the letter of Sir Franklin Berman, the Legal Adviser of the Foreign and Commonwealth Office, of 7 November 1997, describing the United Kingdom's consistent position as to the binding effect of the Security Council Resolutions, it would have been contrary to the international obligations of the United Kingdom were its courts to adopt an approach contrary to its obligations under the United Nations Charter and under the relevant Security Council Resolutions. It follows that it would be contrary to domestic public policy to give effect to Resolution 369 in any way.

  115. This conclusion on English public policy does not reflect an insular approach. Our domestic public policy on the status of Resolution 319 does not stand alone. In recent years, particularly as a result of French scholarship, principles of international public policy (l'ordre public veritablement international) have been developed in relation to subjects such as traffic in drugs, traffic in weapons, terrorism, and so forth: see a magisterial paper by Professor Pierre Lalive, "Transnational (or Truly International) Public Policy and International Arbitration, ICCA," in Comparative Arbitration Practice and Public Policy in Arbitration, ed Sanders, (1986), p 257, at pp 284-286; Fouchard, Gaillard & Goldman on International Commercial Arbitration, (1999), p 953, et seq.; Redfern & Hunter, Law and Practice of International Commercial Arbitration, 3rd ed (1999), p 152, para 3-27; Craig, Park & Paulsson, International Chamber of Commerce Arbitration, 3rd ed (2000), pp 338-346, para 17.04. Similarly, there may be an international public policy requiring states to respect fundamental human rights: Restatement, vol 2, pp 152 et seq, para 701. The public policy condemning Iraq's flagrant breaches of public international law is yet another illustration of such a truly international public policy in action. This international dimension reinforces the view of the Court of the Appeal.

  116. There is no scope for treating Resolution 369 as only in part contrary to public policy. The nature and width of the public policy engaged here, based on flagrant breaches of international law, strikes at the root of the Iraqi annexation policy and the entirety of Resolution 369. There is no basis for severance of any part of it. It follows that IAC's argument on Resolution 369 for the purpose of invoking the act of state doctrine, in respect of what was done on Iraqi soil, must be rejected.

  117. It is now necessary to turn to the consequences of this conclusion for the double actionability point. The court is obliged, in the words of Lord Cross of Chelsea, in the Oppenheimer case [1976] AC 249, 278, "to refuse to recognise it as a law at all." It may not recognise Resolution 369 for any purpose. One might have thought that it follows inexorably that IAC's argument based on Resolution 369 must fail. Counsel for IAC accepted that this would necessarily be so in any action for delivery up of the aircraft in an English court if maintainable here. But he argued that it is different where KAC must establish an actionable usurpation under Iraqi law. He argued that in constructing a tort under Iraqi law the plaintiff must necessarily take account of the whole corpus of Iraqi law which must include Resolution 369. In such a case, he argued, an English court cannot excise part of Iraqi law in deciding whether a tort has been committed under Iraqi law. Plausibly as the argument was dressed up it ought not to succeed. Postulate, for example, an action in tort in the English courts for recovering loss caused by negligent mistatements which are prima face actionable under the applicable foreign law and under English law. The defendant relies on the underlying contract which excludes all liability for negligent statements. The contract is valid under the law of the country where it was made: it is not contrary to the public policy of that country. But the contract is contrary to English public policy. Once an English court concludes, in accordance with the stringent test applicable in respect of transnational transactions to which I referred in paragraph 114 above, that recognition of the contract would be contrary to English public policy, it follows in my view that the defendant would not be entitled to rely on the exception clause in defence to the tort claim. To permit to do so would be an affront to English public policy. The answer to the argument of IAC is that an acceptance of it would run counter to clear public policy. To accept it would seriously erode the public policy here engaged. The general position is straight forward. An English court may not give direct or indirect recognition to Resolution 369 for any purpose whatever. An English court may not recognise any Iraqi decree or act which would directly or indirectly enable Iraq or Iraqi enterprises to retain the spoils or fruits of the illegal invasion.

  118. In considering whether KAC has established a sustainable usurpation under Iraqi law, the court must wholly disregard Resolution 369. It cannot in any way be set up by IAC as a defence in whole or part to a usurpation claim by KAC under Iraqi law.

    CONVERSION

  119. Despite elaborate citation of authority, I am satisfied that the essential feature of the tort of conversion, and of usurpation under Iraqi law, is the denial by the defendant of the possessory interest or title of the plaintiff in the goods: see Todd, The Law of Torts in New Zealand, 3rd ed., (2001), para 11.3 for an illuminating discussion. When a defendant manifests an assertion of rights or dominion over the goods which is inconsistent with the rights of the plaintiff he converts the goods to his own use. I am therefore in agreement with the legal analysis of the Court of Appeal.

  120. It is unnecessary to review yet again the battle ground of the trial so carefully described by the Court of Appeal. On the facts, I agree with the Court of Appeal that it was correct to conclude that IAC embarked on a policy of incorporating the 10 aircraft belonging to KAC into their fleet. It was realistic to consider the cumulative effect of the evidence concerning all 10 aircraft rather than to concentrate on the conduct in respect of each aircraft separately. It matters not exactly how far the policy was implemented in respect of particular aircraft. The overall picture left no doubt in my mind that IAC had planned and initiated a process of incorporating the 10 aircraft in their fleet.

    THE MOSUL FOUR

  121. KAC had to show, in accordance with Iraqi law, that physical damage to the aircraft would not have occurred but for the usurpation. In the light of the undisputed findings of fact of Aikens J the issue before the Court of Appeal largely turned on what were the correct inferences. Despite detailed argument to the contrary, I have been left unpersuaded that the Court of Appeal erred in concluding that KAC failed to discharge this burden. On the contrary, I incline to the view the conclusion of the Court of Appeal was correct.

  122. Given this conclusion no other issues on the Mosul Four arise for decision. Specifically, I express no view on the valuation issues.

    THE IRAN SIX

  123. In my view the Court of Appeal made a correct decision when it allowed KAC's appeal against the decision of Aikens J on the Iran Six.

    Disposal

  124. For the reasons given by my noble and learned friends Lord Nicholls of Birkenhead and Lord Hope of Craighead, as well as the reasons I have given, I would dismiss the appeals of IAC and KCA.

    Lord Hoffmann

    My Lords,

  125. I have had the advantage of reading in draft the speech of my noble and learned friend Lord Nicholls of Birkenhead. I agree with it and add a few remarks only on the causal requirements of an action in conversion.

  126. Mr. Donaldson's submission amounted to saying that it was a general rule of liability in tort that the tortious act must have been at least a necessary condition of the damage. That might not be enough but was a threshold requirement. It follows that the plaintiff must always fail if he cannot prove on the balance of probabilities that the damage would not have happened anyway. In the present case, KAC could not show that but for the tortious acts of IAC they would not have been kept out of possession of their aeroplanes. The Iraqi government would have retained them or given them to some other state institution.

  127. My Lords, it would be an irrational system of tort liability which did not insist upon there being some causal connection between the tortious act and the damage. But causal connections can be of widely differing kinds. Sometimes the act may have been a necessary condition but followed by a voluntary human act or exceptional natural event (novus actus interveniens). Such a causal connection is usually insufficient to found liability in negligence. But in the case of certain kinds of duty, even in negligence, it will be enough. It may be sufficient to show that the act was a necessary condition, even if the subsequent voluntary act of a third party (Stansbie v Troman [1948] 2 KB 48) or the plaintiff himself (Reeves v Commissioner of Police of the Metropolis [2000] 1 AC 360) was also a necessary condition. And the same may be true when liability is strict: see Environmental Agency v Empress Car Co (Abertillery) Ltd [1999] 2 AC 22. Sometimes the act cannot be shown to have been even a necessary condition but only to have added substantially to the probability that the damage would be suffered. But in some situations even this limited causal connection will suffice: see Bonnington Castings Ltd v Wardlaw [1956] AC 613; McGhee v National Coal Board [1973] 1 WLR 1.

  128. There is therefore no uniform causal requirement for liability in tort. Instead, there are varying causal requirements, depending upon the basis and purpose of liability. One cannot separate questions of liability from questions of causation. They are inextricably connected. One is never simply liable; one is always liable for something and the rules which determine what one is liable for are as much part of the substantive law as the rules which determine which acts give rise to liability. It is often said that causation is a question of fact. So it is, but so is the question of liability. Liability involves applying the rules which determine whether an act is tortious to the facts of the case. Likewise, the question of causation is decided by applying the rules which lay down the causal requirements for that form of liability to the facts of the case.

  129. In the case of conversion, the causal requirements follow from the nature of the tort. The tort exists to protect proprietary or possessory rights in property; it is committed by an act inconsistent with those rights and it is a tort of strict liability. So conversion is "a taking with the intent of exercising over the chattel an ownership inconsistent with the real owner's right of possession": per Rolfe B in Fouldes v Willoughby (1841) 8 M & W 540, 550. And the person who takes is treated as being under a continuing strict duty to restore the chattel to its owner. It follows, first, that it is irrelevant that if IAC had not taken possession of the aircraft, someone else would have done so. Secondly, it is irrelevant that, having taken possession, IAC would have been prevented from restoring the aircraft (even if it had wished to do so) by circumstances beyond its control: the orders of the Iraqi government and their detention in Iran. The liability is strict. Thus the causal questions are answered by reference to the nature of the liability.

  130. When one comes to consequential loss, the causal requirements are different. The primary purpose of conversion is to protect the proprietary or possessory interest in the chattel. Thus the cost of putting the aircraft into repair or paying a ransom for their recovery from Iran is part of the damage or expenditure incurred in mitigation of the damage to the proprietary interest. But when one comes to real consequential losses, such as the cost of hiring substitute aircraft, the cost of financing the purchase of new ones and loss of profit, there is no reason why causal requirements which are considered fair in other cases of consequential loss flowing from wrongful acts should not also be applied. For the reasons given by Lord Nicholls of Birkenhead, I would agree that these requirements are in principle satisfied in respect of the hire of substitute aircraft and the loss of profits, but that although the failure of IAC to restore the aircraft was a necessary condition of the decision to buy a new fleet, that decision was a voluntary act which on conventional principles made the causal connection with IAC's tortious conduct insufficient.

    Lord Hope of Craighead

    My Lords,

  131. The facts of this case have been fully narrated by my noble and learned friend Lord Nicholls of Birkenhead, and I gratefully adopt his narrative.

  132. The decision of this House in Kuwait Airways Corporation v Iraqi Airways Co [1995] 1 WLR 1147 provides the background to the issues of law with which we are concerned. As Lord Goff of Chieveley explained in that case, at p 1163A-D, the taking of the aircraft belonging to Kuwait Airways Corporation ("KAC") and their removal from Kuwait Airport to Iraq constituted an exercise of governmental power by the State of Iraq. The participation of Iraqi Airways Co ("IAC") in that action, by supplying engineers and pilots who performed the task of preparing the aircraft for flying and then flying them from Kuwait to Iraq in August 1990, was not just a job of work. On the contrary, IAC was closely involved with the State of Iraq in the last stage of an enterprise which entailed both the seizure of the aircraft and their removal to Iraq to be used for such purposes as the Government of Iraq should direct. The House held that in so doing it was acting in the exercise of sovereign authority. But the situation changed after RCC Resolution 369 came into effect on 17 September 1990. As from that date IAC's retention and use of the aircraft as its own were acts done not in the exercise of sovereign authority but in consequence of the vesting or purported vesting of the aircraft in it by legislative decree.

  133. The House left open for further consideration the question whether the issues arising from the acts of IAC of which KAC complains are justiciable in the English courts. As Lord Goff explained, at p 1165G, it was not possible at that stage to ascertain with any precision what, on the facts of the case, were the issues raised by KAC's claim against IAC and IAC's defence to that claim. Now these issues are out in the open following the trial of the issues relating to liability by Mance J, on which he gave judgment on 29 July 1998: [1999] CLC 31. The situation which has been revealed by the evidence about the activities of IAC and the Iraqi Government is not perhaps as clear cut as the majority of their Lordships believed it to be when they held that IAC was not acting in the exercise of sovereign immunity after RCC Resolution 369 came into effect. But it is common ground that the focus of attention has now shifted entirely to questions about the effect of the resolution on the remedy which KAC seeks to obtain under domestic law in the English courts.

  134. These questions, which form the subject matter of the first chapter of IAC's appeal, can best be grouped under two main headings which, in their logical order, are as follows:

    (1)

    is the effectiveness of Resolution 369 as a legislative act vesting title in the aircraft in IAC justiciable in the English courts? 

    (2)

    if it is, and Resolution 369 is held to offend against English public policy, does it nevertheless have to be recognised as vesting title to the aircraft in IAC for the purposes of the principle of double actionability?

    I agree with all that my noble and learned friend Lord Nicholls of Birkenhead has said in answer to these questions. But I should like to add these observations.

    JUSTICIABILITY

  135. Important questions of principle are raised by the highly unusual facts of this case. There is no doubt as to the general effect of the rule which is known as the act of state rule. It applies to the legislative or other governmental acts of a recognised foreign state or government within the limits of its own territory. The English courts will not adjudicate upon, or call into question, any such acts. They may be pleaded and relied upon by way of defence in this jurisdiction without being subjected to that kind of judicial scrutiny. The rule gives effect to a policy of "judicial restraint or abstention": see Buttes Gas & Oil Co v Hammer (No 3) [1982] AC 888, 931F-934C per Lord Wilberforce. As the title to moveable property is determined by the lex situs, a transfer of property effected by or under foreign legislation in the country where the property is situated will, as a general rule, be treated as effective by English law for all relevant purposes.

  136. It would clearly be possible for a "blue pencil" approach to be taken to Resolution 369, by reading it down so that it applied only to the property of KAC that was situated at the time of the resolution within its own territory. The normal rule is that legislative action applied to property within the territorial jurisdiction will be internationally recognised, despite the fact that it has been combined with action which is unenforceable extraterritorially. If this approach is adopted, that part of Resolution 369 which vested title in the aircraft in IAC will provide IAC with a complete defence to this action. Its legality in international law will not be justiciable in these proceedings.

  137. IAC accepts however that the normal rule is subject to an exception on grounds of public policy. The proposition which it accepts is that the exception applies if the foreign legislation constitutes so grave an infringement of human rights that the courts of this country ought to refuse to recognise the legislation as a law at all: Oppenheimer v Cattermole [1976] AC 249, 278, per Lord Cross of Chelsea. The proposition which it disputes is that the public policy exception extends to breaches of international law. IAC's argument is presented as one of principle. Arguments directed to breaches of international law are non-justiciable. The public policy exception must be tightly restricted. The only exception that has been judicially recognised is the human rights exception. As that exception is not invoked in this case, it has a complete defence to these proceedings under the act of state rule.

  138. It is clear that very narrow limits must be placed on any exception to the act of state rule. As Lord Cross recognised in Oppenheimer v Cattermole [1976] AC 249, 277-8, a judge should be 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. Among these accepted principles is that which is founded on the comity of nations. This principle normally requires our courts to recognise the jurisdiction of the foreign state over all assets situated within its own territories: see Lord Salmon, at p 282E. A judge should be slow to depart from these principles. He may have an inadequate understanding of the circumstances in which the legislation was passed. His refusal to recognise it may be embarrassing to the executive, whose function is so far as possible to maintain friendly relations with foreign states.

  139. But it does not follow, as Mr. Donaldson QC for IAC has asserted, that the public policy exception can be applied only where there is a grave infringement of human rights. This was the conclusion that was reached on the facts which were before the House in the Oppenheimer case. But Lord Cross based that conclusion on a wider point of principle. This too is founded upon the public policy of this country. It is that our courts should give effect to clearly established principles of international law. He cited with approval Upjohn J's dictum to this effect in In re Claim by Helbert Wagg & Co Ltd [1956] Ch 323, 334. As Upjohn J put it, at p 349, the true limits of the principle are to be found in considerations of public policy as understood in the courts. I think that Mr. Donaldson sought to achieve a rigidity which is absent from these observations when he said that, whatever norm one finds that has been abused, it cannot be applied in our law if it is a manifestation of international law and does not fall within the recognised exception relating to human rights.

  140. As I see it, the essence of the public policy exception is that it is not so constrained. The golden rule is that care must be taken not to expand its application beyond the true limits of the principle. These limits demand that, where there is any room for doubt, judicial restraint must be exercised. But restraint is what is needed, not abstention. And there is no need for restraint on grounds of public policy where it is plain beyond dispute that a clearly established norm of international law has been violated.

  141. The facts which bear on this issue are quite straightforward. The United Nations Charter and the Security Council Resolutions which were adopted in response to the invasion of Kuwait provide the context. The aims of the Charter as set forth in the Preamble seek to ensure that armed force is not used save in the common interest, and that conditions are established under which justice and respect for the obligations arising from treaties and other sources of international law can be maintained. Membership of the United Nations carries with it the obligation to accept and carry out the decisions of the Security Council, on which members have conferred the primary responsibility for the maintenance of peace and security: Chapter V, articles 24, 25.

  142. Among the resolutions which were adopted by the Security Council after the Iraqi invasion were Resolution 660 on 2 August 1990 which condemned the invasion and demanded that Iraq withdraw from Kuwait immediately and unconditionally, Resolution 661 on 6 August 1990 which called upon all states not to recognise any regime set up by the occupying power, and Resolution 662 on 9 August 1990 which decided that Iraq's annexation of Kuwait under any form and whatever pretext had no legal validity and was considered null and void. Resolution 662 also called upon all states "not to recognise that annexation, and to refrain from any action or dealing that might be interpreted as an indirect recognition of the annexation."

  143. The removal of the aircraft from Kuwait took place on 6-8 August 1990 when 9 KAC aircraft were flown from Kuwait to Basra, and 22 August 1990 when the remaining aircraft was flown to Baghdad. These acts were plainly in breach of the Security Council resolutions. So too was RCC Resolution 369, which purported to vest in IAC all the fixed and liquid assets of KAC including all assets of Kuwait Airways offices abroad. Moreover Resolution 369, which was designed to cement that act by depriving KAC permanently of all its assets wherever situated, was of an exorbitant character. Standing the Security Council resolutions, which as a member of the United Nations Iraq (on 5 March 1991 when RCC Resolution 55 was passed) was later to recognise, these were breaches of international law.

  144. It is not disputed that our courts are entitled on grounds of public policy to decline to give effect to clearly established breaches of international law when considering rights in or to property which is located in England. A state lacks international jurisdiction to take property outside its territory, so acts of that kind are necessarily ineffective: Dr F A Mann, Further Studies in International Law (1990), p 175. There could be no question of Resolution 369 being regarded as effective in the English courts as a transfer to IAC under the lex situs of any of KAC's rights in any property that happened to be situated in this country. IAC could not rely on the act of state doctrine if England was the country of the lex situs at the time when the breaches of international law were committed. But why should effect not also be given here to international law where to do so can be justified on grounds of public policy?

  145. In my search for an answer this question I would take as my guide the observations of Lord Wilberforce in Blathwayt v Baron Cawley [1976] AC 397, 426. He said that conceptions of public policy should move with the times and that widely accepted treaties and statutes may point in the direction in which such conceptions, as applied by the courts, ought to move. It would seem therefore to be contrary to principle for our courts to give legal effect to legislative and other acts of foreign states which are in violation of international law as declared under the Charter of the United Nations: see Dr F A Mann, Further Studies in International Law, p 176; Oppenheim's International Law, 9th ed (1992), vol 1, p 376. The Security Council has played a key role in recent months, following the events of 11 September 2001, by imposing obligations on all states to suppress terrorist financing and deny terrorists safe havens in which to operate. It is now clear, if it was not before, that the judiciary cannot close their eyes to the need for a concerted, international response to these threats to the rule of law in a democratic society. Their primary role must always be to uphold human rights and civil liberties. But the maintenance of the rule of law is also an important social interest.

  146. Security Council Resolution 662 called upon all states to refrain from any action which might be interpreted as an indirect recognition of the annexation. There is no doubt that the responsibility for answering this call lies in the first instance with the executive arm of government. But, in seeking which direction to take in such matters where decisions must be taken on grounds of public policy, the judges should try to work in harmony with the executive. Furthermore, as the Court of Appeal observed [2001] 3 WLR 1117, 1207, para 334, there is nothing precarious or delicate, and nothing subject to diplomacy, which judicial adjudication might threaten in this case. The taking of KAC's property in breach of Iraq's obligations under the Charter of the United Nations was a clear example of an international wrong to which legal effect should not be given.

  147. There could be no embarrassment to diplomatic relations in our taking this view. In his letter of 7 November 1997, which was written in response to a request by Longmore J on 24 October 1997, Sir Franklin Berman, then Legal Adviser to the Foreign and Commonwealth Office, informed the court that the conduct of Her Majesty's Government in the United Kingdom has been strictly in conformity with the requirements of the resolutions and all other pertinent decisions of the Security Council relating to the Iraqi invasion and occupation of Kuwait. Nor can it be said that the court needs to defer to the act of the foreign state because it has an inadequate understanding of the circumstances in which Resolution 369 was passed. The arguments for giving effect to international law as declared by the resolutions of the Security Council could hardly be more compelling.

  148. For these reasons I would hold that a legislative act by a foreign state which is in flagrant breach of clearly established rules of international law ought not to be recognised by the courts of this country as forming part of the lex situs of that state. This was the conclusion that Dr F A Mann advocated in his article International Delinquencies before Municipal Courts (1954) 70 LQR 181; see also his Further Studies in International Law, pp 177-183. At p 202 of the article he said:

    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.

  149. I would endorse everything that is said in that passage, and I would apply it to this case. Respect for the act of state doctrine and the care that must be taken not to undermine it do not preclude this approach. The facts are clear, and the declarations by the Security Council were universal and unequivocal. If the court may have regard to grave infringements of human rights law on grounds of public policy, it ought not to decline to take account of the principles of international law when the act amounts - as I would hold that it clearly does in this case - to a flagrant breach of these principles. As Upjohn J indicated in In re Claim by Helbert Wagg & Co Ltd [1956] Ch 323, 349, public policy is determined by the conceptions of law, justice and morality as understood in the courts. I would hold that the effectiveness of Resolution 369 as vesting title in IAC to KAC's aircraft is justiciable in these proceedings, and that such a flagrant international wrong should be deemed to be so grave a matter that it would be contrary to the public policy of this country to give effect to it.

    DOUBLE ACTIONABILITY

  150. The acts with which this case is concerned took place before the coming into force of the Private International Law (Miscellaneous Provisions) Act 1995. Section 10 of that Act abolished the common law rule which required actionability under both the law of the forum and the law of the place where the events constituting an alleged tort or delict took place for the purpose of determining whether or not the tort or delict was actionable. So the question which arises under this heading must be determined under the common law.

  151. The argument for IAC is that, irrespective of the view taken of Resolution 369 under the act of state rule, KAC's claim under conversion must fail under the common law rule of double actionability because this rule requires that Iraqi law must be applied to the question whether the acts of IAC would have been actionable in that country. It is said that, in reaching its decision on this question in the autumn of 1990, an Iraqi court would have had to have had regard to the entire corpus of Iraqi law including that part of Resolution 369 which vested the aircraft in IAC. On this view, the Iraqi court would have been bound to hold that IAC was not liable for its alleged acts of usurpation. In response to this argument KAC seek to rely on an exception to the double actionability rule which allowed the law of a single country only to be applied for the purpose of determining the issue, or one of the issues, arising in the case. This rule too was abolished by section 10 of the 1995 Act, but we are concerned here with the common law rules as they stood before the Act came into force.

  152. The common law on this point was examined by Lord Slynn of Hadley in Red Sea Insurance Co Ltd v Bouygues SA [1995] 1 AC 190. The central issue in that case was whether a defendant could rely solely on the lex loci delicti to establish liability in tort when the lex fori did not recognise such liability. The Board held that, while the general rule of English law with regard to foreign torts as explained in Phillips v Eyre (1870) LR 6 QB 1 required the conduct to be both actionable as a tort according to English law if it had been committed in England and actionable in civil proceedings according to the law of the country where the act was done, a plaintiff could rely exceptionally, in an appropriate case, exclusively on the lex loci delicti even if under the lex fori his claim would not be actionable.

  153. The ratio of that decision was that there was a need for some flexibility in the application of the rule, as the majority of this House in Boys v Chaplin [1971] AC 356 recognised: Lord Wilberforce, at pp 391-392, Lord Hodson, at p 378, Lord Pearson, at p 406. The present case raises the same question, but it is the other way round. Here the acts complained of would have been actionable under English law, the lex fori, if committed in this country. But it is said that they were not actionable in Iraq under the lex loci delicti because the effect of Resolution 369 was to vest the aircraft in IAC.

  154. As Lord Slynn said in Red Sea Insurance Co Ltd [1995] 1 AC 190, 197C-D, the question has a long history and has led to considerable discussion in the decisions of the common law courts and in academic writings. After a detailed and careful review of all this material he summed the matter up in this way, at p 206A-D:

    Their Lordships, having considered all of these opinions, recognise the conflict which exists between, on the one hand, the desirability of a rule which is certain and clear on the basis of which people can act and lawyers advise and, on the other, the desirability of the courts having the power to avoid injustice by introducing an element of flexibility into the rule. They do not consider that the rejection of the doctrine of the proper law of the tort as part of English law is inconsistent with a measure of flexibility being introduced into the rules. They consider that the majority in Boys v Chaplin [1971] AC 356 recognised the need for such flexibility. They accept that the law of England recognises that a particular issue between the parties to litigation may be governed by the law of the country which, with respect to that issue, has the most significant relationship with the occurrence and with the parties. They agree with the statement of Lord Wilberforce, at pp 391-392, … as to the extent and application of the exception. They accept, as he did, that the exception will not be successfully invoked in every case or even, probably, in many cases and, at p 391H, that 'The general rule must apply unless clear and satisfying grounds are shown why it should be departed from and what solution, derived from what other rule, should be preferred.

  155. The fact that the question raised in this case is the other way round from that in the Red Sea Insurance Co Ltd case is not in itself an obstacle to the same approach being applied here. This can be seen from the two Australian intra-national tort cases which were mentioned by Lord Slynn in the course of his judgment. In Warren v Warren [1972] Qd R 386 the plaintiff was injured in a car accident while on a temporary visit to New South Wales, where she had no right of action in tort against her husband. She began her action in Queensland, where she was ordinarily resident and domiciled where such a right of action did exist. The defendant's application to set aside the writ was dismissed. Matthews J held that there was a degree of flexibility in the rule which admitted of exception where clear and satisfactory grounds were shown why it should be departed from and that, on the facts of that case, it was right to apply the law of the forum even if the acts were not actionable by the law of the locus delicti. A decision to the same effect on similar facts was reached in Corcoran v Corcoran [1974] VR 164.

  156. In John Pfeiffer Pty Ltd v Rogerson [2000] HCA 36 the High Court of Australia held that these and other decisions to the like effect did not properly take account of the fact of federal jurisdiction or the nature of the Australian federation, and that the double actionability rule should be discarded with regard to claims brought in an Australian court in respect of a civil wrong arising out of acts or omissions that occurred wholly within one or more of the law areas of the Commonwealth of Australia. The rule now is that the lex loci delicti is to be applied by courts in Australia as the law governing all questions of substance to be determined in a proceeding arising from an intranational tort: joint judgment, para 102. But the double actionability rule survives in the case of a tort committed outside Australia, as the High Court expressly limited its discussion to the issues arising in intranational and not international torts. So the pre-Rogerson cases are still of interest where issues arise under the common law of this country as to whether the rule can be displaced in favour of the law of one country only for the purpose of determining liability for an alleged tort or delict.

  157. The point which requires further examination here is whether the basis in principle for recognising a degree of flexibility in the application of the rule can be applied to the circumstances of this case. It appears from Lord Wilberforce's discussion of this point in Boys v Chaplin [1971] AC 356, 391-392 that the situation which he had in mind was one where to apply the relevant foreign rule would not serve the interests which it was designed to meet. This was likely to be so particularly in cases where the parties had come together for different purposes for different pre-existing relationships and from the background of different legal systems. The solution which he favoured was one which enabled the foreign rule to be displaced in favour of the law of the place which had the most substantial connection with the circumstances of the case.

  158. In Breavington v Godleman (1988) 169 CLR 41 the High Court of Australia was far from unanimous in its support for what Deane J described, at p 127, as "a largely instinctive flexible exception". But Toohey J was in favour of it, provided that it was appreciated that it did not confer an unfettered judicial discretion enabling the rule to be applied in a way that was purely arbitrary. He expressed his understanding of the exception in this way, at p 163:

    It is only in special circumstances where, after examination of the policy underlying the law which may be applied and the interests of the parties to be affected, it is clear that the lex loci delicti has no real connection with the proceedings, that the exception can be invoked, enabling a plaintiff to recover damages available in the lex fori but not available in the lex loci delicti. Such a requirement should do much to alleviate any fears that unacceptable uncertainty will be introduced into this area of the law.

  159. Nevertheless, if the scope for flexibility is as limited as Toohey J indicated it is in this passage, the facts of this case would seem to prohibit its application. It cannot be said that the lex loci delicti has no real connection with these proceedings, as one of the parties to the action has its principal place of business in Iraq where the alleged acts of conversion took place. Nor can it be said, to adopt the test indicated by Lord Slynn in the Red Sea Insurance Co Ltd case [1995] 1 AC 190, 206C, that English law is the system of law which has the most significant relationship with the occurrence and with the parties. The argument in favour of excluding that part of Iraqi law under which it would have been held by an Iraqi court that the title to the aircraft was vested in IAC at the time when the alleged acts of conversion were committed is directed solely to the fact that Resolution 369, upon which that part of Iraqi law would have been founded, was in breach of international law. The question is whether there is sufficient flexibility in the double actionability rule to enable this aspect of the lex loci delicti to be excluded and the question of IAC's title to the aircraft to be decided exclusively by the lex fori.

  160. The Court of Appeal, agreeing with Mance J, held that the answer to this question was provided by argument that to give effect to Resolution 369 would offend against English public policy. It held that, once public policy requires not only that a foreign law or act should not be recognised to the extent that it purports to act extraterritorially but that it should not be recognised at all, then it is impossible to have regard to it for any purpose: [2001] 3 WLR 1117, 1222B-C, paras 391-392. This proposition was restated, at p 1223C, para 394 in these terms:

    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.

  161. I think that this approach has much to commend it. The question of title is normally determined by the lex situs. In this case the question of title has to be addressed to determine whether under the lex loci delicti the alleged tort is actionable. Although the double actionability issue is concerned with the lex loci delicti, the question of title is referred under that law to the lex situs. So the underlying issue as to whether the title conferred on IAC by the lex situs should be recognised in this country is the same, whatever the context. But I think that there are two further problems which need to be addressed.

  162. The first problem arises from the fact that counsel for KAC accepted that Resolution 369 is not wholly irrelevant to application of the lex loci delicti to this case. It was conceded before Mance J that, as IAC acted in the belief that the resolution gave it a good title to the aircraft, the burden of proof that the loss or damage would not have occurred but for the usurpation falls on KAC. So it is not accurate to say that it is impossible to have regard to the effect of Resolution 369 for any purpose whatever in these proceedings. It cannot be treated as if it did not exist. It is accepted that it forms part of the factual background.

  163. That having been said, I think that a clear distinction can be drawn between questions of fact, such as the state of mind of IAC, and questions of law, such as whether IAC had a good title to the aircraft. It would be wholly unrealistic to ignore Resolution 369 and its contextual importance as a matter of history. But its effect in law raises a different issue, and it is to that issue only that the public policy objection relates. Moreover the flexible approach to the double actionability rule which permits the lex loci delicti to be disapplied does not insist on its disapplication across the board. It permits an approach which allows all the issues to be determined according to the lex loci delicti other than the one which gives rise to the objection.

  164. The second problem raises a more fundamental point. It goes to the heart of the much discussed question as to scope of the exception which permits flexibility. As Lord Wilberforce said in Boys v Chaplin [1971] AC 356, 391H, the general rule must apply unless clear and satisfying grounds are shown why it should be departed from. Unless a rigorous approach to this question is adopted, the application of the exception is at risk of giving rise to much uncertainty and to the criticism alluded to in the Australian cases that it has become instinctive and arbitrary. This requirement is preserved by section 12 of the 1995 Act. It provides that the general rule in section 11 that the applicable law is the law of the country in which the events constituting the tort or delict in question occur may be displaced in favour of the law of another country, but it permit this only if "it is substantially more appropriate" for the law of the other country to be applied.

  165. An objection to the law of a country other than the forum may be founded on grounds of public policy. This fact is recognised by section 14(3)(a)(i) of the 1995 Act, which provides that nothing in Part III of the Act authorises the application of the law of a country outside the forum as the applicable law for determining issues arising in any claim in so far as to do so would conflict with principles of public policy. But I do not think that it is enough, in the circumstances of this case, simply to assert that the law of the country where the events occurred conflicts with public policy in this country. It all depends on the context and the nature of the objection on grounds of public policy.

  166. There is nothing in this case which connects the laws of this country with the events constituting the alleged tort, other than the fact that this is the country where the proceedings were brought. As my noble and learned friend Lord Scott of Foscote has observed, this is an action in tort that has nothing whatever to do with England. So I would have no difficulty in holding that, in a case of this kind, a principle of English public policy which was purely domestic or parochial in character would not provide clear and satisfying grounds for disapplying the primary rule which favours the lex loci delicti.

  167. But the public policy objection which is raised in this case is plainly not of that character. It is based on the Charter of the United Nations and the resolutions which were made under it. It is founded on a principle of public policy which places Resolution 369 firmly into its international context. There is a clear point of contact between this part of the lex loci delicti and the breaches of international law to which our courts are entitled to decline to give effect on grounds of public policy.

  168. It is not just that recognition by our courts of this part of the lex loci delicti might be interpreted as an indirect recognition of the annexation, contrary to UN Resolution 662. The whole basis upon which RCC Resolution 369 proceeded was the subject of universal international condemnation. It was one of a series of acts which were performed in clear breach of international law. I would hold therefore that, as the public policy objection is truly international in character, there is a sound basis in principle for severing this part of the lex loci delicti and disregarding entirely any legal effects which would be given under Iraqi law to the resolution which purported to vest the title to KAC's aircraft in IAC.

    OTHER ISSUES

  169. I respectfully agree with what my noble and learned friend Lord Nicholls of Birkenhead has said on all the remaining issues raised in the appeal by IAC. I agree, for the reasons which he has given, that the conduct of which KAC complains meets the requirements of the double actionability rule. I also agree with what he has said about the issues raised in the appeal by KAC regarding the Mosul four and the Iran six. I wish in particular to associate myself with what he has said about the tests for liability for consequential loss beyond that represented by the value of the goods in cases of conversion, and the distinction which he has drawn in that regard between those who have acted in good faith and those who have acted dishonestly.

    CONCLUSION

  170. For the reasons given by my noble and learned friends Lord Nicholls and Lord Steyn, and for these further reasons, I would dismiss these appeals.

    Lord Scott of Foscote

    My Lords,

  171. The facts relevant to this appeal and cross-appeal have been set out comprehensively in the judgments of Mance J and Aikens J in the High Court and in the judgment of the Court of Appeal delivered by Brooke LJ. Facts of particular importance have been highlighted in the opinions of my noble and learned friends Lord Nicholls of Birkenhead Lord Steyn and Lord Hope of Craighead which I have had the opportunity of reading in draft. These opinions identify the issues before the House and, if I may respectfully say so, express with clarity their conclusions, broadly concurring, on these issues. To my regret there is one point, which I believe to be important, and another, less important, on which I have the misfortune to disagree.

  172. The main point, in summary, is this. I am unable to accept that the double actionability rule is satisfied. It is common ground that the conduct of IAC for which KAC are seeking a tortious remedy would not in fact have been actionable under Iraqi law. Under RCC Resolution 369, a part of Iraqi law at the relevant time, IAC's conduct was lawful. The disapprobation of Resolution 369, strongly expressed in the opinions of my noble and learned friends and from which I do not in the least dissent, does not in my opinion, for reasons that I will try to explain, justify treating as tortious under Iraqi law conduct that was in fact lawful under Iraqi law.

    THE FACTUAL BACKGROUND

  173. There are two aspects of the factual background which are, in my opinion, of critical importance.

  174. KAC's action for conversion of its aircraft is an action in tort. But it is an action in tort which has nothing whatever to do with England save that England has made itself available as the forum for the litigation. The conduct that constituted the conversion complained of was conduct that took place wholly in Iraq. Other acts relevant to KAC's cause of action, e.g. the initial removal of the aircraft from Kuwait to Iraq, their detention in Iran, the payment by KAC to Iran of the $20 million, took place in Kuwait or in Iran. None took place in England. The defendant, IAC, is an Iraqi corporation. It is a state owned corporation. Its directors are Iraqi. The claimant, KAC, is a Kuwaiti state owned corporation with Kuwaiti directors. Each of the aircraft was registered in Kuwait. England was, I repeat, no more than the forum for the litigation. The cause of action sued on was, therefore, in no sense an English tort. It was, as a matter of description, an Iraqi tort.

  175. Second, over the whole of the period relevant to this litigation, Iraq was, and for that matter still is, under the control of a dictatorial regime. IAC, although a state-owned corporation, possessed under Iraqi law independent corporate personality but had no alternative in relation to the KAC aircraft than to comply with Resolution 369. At no stage, whether before or after 17 September 1990, when Resolution 369 came into effect, would it have been possible for IAC to have returned the aircraft to KAC. The removal of the Iran six aircraft to Iran could not have been carried out otherwise than in accordance with directions from some arm of the Iraqi Government, probably the military, and pursuant to arrangements made at governmental level between Iraq and Iran. This is the factual background against which IAC's liability in conversion must be assessed.

    DOUBLE ACTIONABILITY

  176. English case law has for a long time skirted around the question whether the concept of the proper law of a tort should play a part, and if so what part, in English private international law. The legislature, by enacting Part III of the Private International Law (Miscellaneous Provisions) Act 1995, and in particular sections 11 and 12, has accepted and adopted that concept. But Part III came into effect on 1 May 1996 (see SI 1996/995) and does not have retrospective effect. It is English common law rules of private international law that must be applied to the question that arises in the present case.

  177. A foreign action in personam, by which I mean an action in personam that derives its existence from some foreign system of law, can be sued on in England provided that the writ or other originating process can be served on the defendant (see Dicey & Morris, Conflicts of Laws 12th ed (1993), Rule 22). So, an action on a foreign contract governed by some foreign law can be sued on in England. Actions of this sort are commonplace in the Commercial Court. Less common but quite possible is an action by a beneficiary under a foreign trust seeking some form of in personam relief against the foreign trustees (Ewing v Orr Ewing (1883) 9 App Cas 34 and Chellaram v Chellaram [1985] Ch 409). These trust actions, too, can be brought in England provided the trustees can be served, and subject always to forum non conveniens arguments. In none of these examples of in personam actions sued on in England does English law require that the matter complained of, breach of contract or breach of trust as the case may be, be actionable under English law as well as actionable under the applicable foreign law. But, of course, unless the matter complained of were actionable under the applicable foreign law there would be no action to sue on in England. A cause of action would not have come into existence.

  178. This simple approach has not been adopted in tort cases. Where the cause of action has resulted from allegedly tortious conduct in a foreign country, it is not clear from the English case law whether the cause of action is to be regarded as an English tort a condition of actionability of which is that it be actionable also under the law of the foreign country, or as a foreign tort for which a remedy will not be given in England unless the conduct, if done in England, would have been actionable under English law.

  179. In many of the decided cases, there is to be found a substantial factual connection with England. Language that appears to treat the case as falling within the former category is, therefore, not surprising.

  180. In The Halley (1868) LR 2 PC 193 a British ship had been involved in a collision in Belgian waters. The collision was due to the negligence of the pilot whom the shipowners had been compelled by Belgian law to employ. Under English law they would not have been vicariously liable for his negligence. Under Belgian law they were liable. Selwyn LJ, giving the judgment of the Board appears to have treated the cause of action sued on as a Belgian cause of action. He said, at p 202:

    the liability of the appellants, and the right of the respondents to recover damages from them, as the owners of the Halley, if such liability or right exists in the present case, must be the creature of the Belgian law . . . .

    He then posed the question

    whether an English court of justice is bound to apply and enforce that law in a case, when, according to its own principles, no wrong has been committed by the defendants, and no right of action against them exists.

    He answered his question in the negative, at pp 203-204:

    the English court admits the proof of the foreign law . . . as one of the facts upon which the existence of the tort, or the right to damages, may depend, and it then applies and enforces its own law so far as it is applicable to the case thus established; but it is . . . alike contrary to principle and authority to hold that an English court of justice will enforce a foreign municipal law, and will give a remedy in the shape of damages in respect of an act which, according to its own principles, imposes no liability on the person from whom the damages are claimed.

  181. The language of the passage first cited seems to place the case firmly in the second of the two categories to which I have referred. The cause of action was a Belgian cause of action but it could not be sued on in England if, under English law, no liability on the defendant would result from the conduct complained of. But the third of the cited passages seems to treat the cause of action as an English tort and as falling in the first of the two categories

  182. In Phillips v Eyre (1869) LR 4 QB 225 and (1870) LR 6 QB 1 the plaintiff's cause of action was treated as a Jamaican tort. There was a defence available to the defendant under Jamaican law, so the plaintiff could not succeed in his action in England. The facts of the case are too well known to need lengthy repetition. The defendant, while Governor of Jamaica, had imprisoned the plaintiff and subjected him to a number of serious assaults. The plaintiff brought an action in England for false imprisonment and assault. The defendant pleaded that an after-the-event Act of Indemnity, relieving him of liability for the tort, had been passed by the Jamaican legislature. The issue was whether this plea was good. Both the Court of Queen's Bench and, on a writ of error, the Exchequer Chamber held that it was.

  183. The judgment of Queen's Bench was delivered by Cockburn CJ. He tested his conclusion by supposing that the Act of Indemnity had preceded the acts which had given rise to the action. He said, at p 239:

    We cannot doubt that in such a case no right of action would arise here. It appears to us clear that where by the law of another country an act complained of is lawful, such act, though it would have been wrongful by our law if committed here, cannot be made the ground of an action in an English court.

    The judgment in Exchequer Chamber given by Willes J was to the same effect, at p 28:

    A right of action, whether it arise from contract governed by the law of the place or wrong, is equally the creature of the law of the place and subordinate thereto . . . . [T]he civil liability arising out of a wrong derives its birth from the law of the place, and its character is determined by that law.

    These passages treat the plaintiff's cause of action as a Jamaican cause of action. The Act of Indemnity, a part of Jamaican law, barred the action; so there was no cause of action on which the plaintiff could sue in England. The Act of Indemnity had been enacted after the events of which the plaintiff complained had taken place. So the Act had divested the plaintiff of a pre-existing cause of action. But Willes J's analysis of what the situation would have been if the Act of Indemnity had preceded the false imprisonment and the assaults is instructive. In that event no cause of action could have come into existence. He refers to tortious civil liability as deriving its "birth" from the law of the place where the tort was committed. This analysis is important. Every tortious cause of action must derive its existence, its birth, from some system of law. In Phillips v Eyre that system of law was Jamaican law. To much the same effect are dicta in some of the older cases that were cited in Phillips v Eyre (see R v Lesley (1869) Bell CC 220 and Dobree v Napier (1836) 2 Bing NC 781 cited at 1 LR 4 QB 225, 240-241).

  184. Carr v Fracis Times & Co [1902] AC 176 was, like the present, a conversion case. British goods on board a British ship had been seized in Muscat waters by a British subject acting under the authority of a proclamation issued by the Sultan of Muscat. An action for conversion of the goods was brought in England against the British subject who had seized them. The trial judge entered judgment for the defendant but the Court of Appeal reversed the decision. This House, approving and following Phillips v Eyre, allowed the appeal. Lord Halsbury LC, in the course of argument, put to the counsel for the respondent "the case of a black before the Emancipation Act bringing an action in this country because his liberty had been restrained in Jamaica" (see p 178). Counsel accepted that no such action would lie. Lord Halsbury posed the question "Why" and answered it, at p 179:

    Because the thing done, though contrary to our English law, was, according to the law of Jamaica at that time, a lawful act, and therefore no complaint in respect of the supposed tort committed in Jamaica could have been made a subject of action in this country.

    Lord Halsbury made it clear, at p 189, that the declaration of the Sultan of Muscat that had authorised the seizure of the goods was determinative of the legality of the seizure under Muscat law:

    [The Sultan] has authorised it and declared authoritatively that it was a perfectly lawful act according to the law of Muscat, and I am of opinion that no English tribunal is capable of going behind that declaration and saying that the Sultan of Muscat was wrong in his exposition of his own law . . . . [I]t appears to me that any other decision would be open to very serious questions of policy if, in every case where the lord of a country has declared what the law of his own country is, it were open to an English tribunal to enter into the question and to determine, as against him, what was the law of his country.

  185. Carr v Fracis Times & Co, like Phillips v Eyre, treated the cause of action sued on in England as a foreign cause of action. Where a foreign cause of action is concerned the double actionability rule never comes into play unless the cause of action is actionable under the foreign law.

  186. In Machado v Fontes [1897] 2 QB 231 an action for libel was brought in England in respect of a pamphlet published in Brazil. The defendant filed a defence denying the libel but later applied for leave to amend his defence by adding a plea that publication of the pamphlet did not give rise to any civil liability for damages under Brazilian law. The Court of Appeal held that the plea was bad. The publication of the libellous pamphlet was a criminal offence in Brazil and, accordingly, unjustifiable under Brazilian law. That was enough to sustain the civil action for damages in England. The libel did not need to be actionable in a civil suit in Brazil. In so finding the Court of Appeal was treating the case as falling within the first of the two categories to which I referred, that is to say, as an English tort with a condition of actionability in England dependant on the foreign law. The decision of the Court of Appeal was, however, overruled by a majority in this House in Boys v Chaplin [1971] AC 357.

  187. In Boys v Chaplin the cause of action sued on was, save that the car accident which gave rise to the action took place in Malta, in all respects an English tort. Both plaintiff and defendant were British subjects serving in the British armed forces and, although normally resident in England, were stationed temporarily in Malta. The car accident in Malta had been caused by the defendant's negligence. The plaintiff sued in England for damages. The issue was whether general damages, for pain and suffering, loss of amenities etc, which were available under the law of England but not under the law of Malta, could be awarded. The trial judge applied English law to the issue, the Court of Appeal affirmed his decision and this House dismissed the appeal. In doing so the members of the Appellate Committee expressed, in somewhat differing terms, views about the double actionability rule. A majority of their Lordships concluded that Machado v Fontes [1897] 2 QB 231 had been wrongly decided. The double actionability rule required, they held, that the allegedly tortious act be actionable in civil proceedings under the law of the foreign country where the act had been done. But the rule, they thought, was not an inflexible one. Both Lord Hodson and Lord Wilberforce advocated the use of flexibility in applying the rule: see pp 377 and 391-392. The flexibility they had in mind, however, was a flexibility that would enable the court to apply English law, the lex fori, rather than the lex loci delicti to a discrete issue in a case where the only significant connection between the action and the foreign country was that the allegedly tortious act on which the action was based had taken place in the foreign country. It may be that they would, if the "only significant connection" criterion were satisfied, have allowed the lex fori rather than the lex loci delicti to be applied to the case as a whole: nb Lord Hodson's approving reference, at p 377, to the dictum of Wightman J in Scott v Seymour (1862) 1 H&C 219, 235 and Lord Wilberforce's remarks, at pp 391E - 392E.

  188. There was nothing, however, in either Lord Hodson's speech or Lord Wilberforce's speech, or in the other Boys v Chaplin speeches, which suggested that, in a case where the only connection with England was that the action had been brought in England, the advocated flexibility could enable the court to waive the requirement that the allegedly tortious act be such as to give rise to civil actionability under the law of the country where the act was done, still less where that country was in every significant respect the country of the tort.

  189. In Red Sea Insurance Co Ltd v Bouygues SA [1995] 1 AC 190 my noble and learned friend Lord Slynn of Hadley, giving the judgment of the Privy Council, held that, conceptually at least, the flexibility advocated in Boys v Chaplin [1973] AC 357 might justify the exclusive application of the lex loci delicti, so that a tortious remedy might be allowed notwithstanding that the lex fori would not have allowed any remedy. Lord Slynn accepted that the doctrine of the proper law of the tort had not become part of English law but he did not regard the introduction of flexibility into the double-actionability rule as inconsistent with the rejection of that doctrine. He said, at p 206, that:

    [Their Lordships] accept that the law of England recognises that a particular issue between the parties to litigation may be governed by the law of the country which, with respect to that issue, has the most significant relationship with the occurrence and with the parties.

    Boys v Chaplin had concerned merely a discrete issue to which, it was held, the lex fori could be applied to the exclusion of the lex loci delicti. In the Red Sea Insurance case it was the whole case to which, conceptually, Lord Slynn held the lex loci delicti could be applied to the exclusion of the lex fori. The same criterion, however, "the most significant relationship with the occurrence and with the parties" would be applicable. For my part I can discern no difference between this approach and a "proper law of the tort" approach.

  190. However, the flexibility advocated in Boys v Chaplin [1971] AC 357 and accepted and extended by Lord Slynn in the Red Sea Insurance case [1995] 1 AC 190 cannot, in my opinion, assist KAC in the present case. What is proposed here is not that the law of the country with the most significant relationship etc should be applied but that the law of that country should be disapplied. It is Iraq with which KAC'S case against IAC has the most significant relationship. It is an Iraqi tort that KAC is prosecuting, not an English tort. The flexibility advocated in Boys v Chaplin and the Red Sea Insurance case cannot, in my opinion, possibly justify treating this action for conversion of the KAC aircraft as if it were a tort governed by English law, or justify the waiving of the requirement of civil actionability under Iraqi law.

  191. The justification for waiving the requirement of civil actionability under Iraqi law has been based on what are said to be the requirements of international law and of English public policy. The international law imperatives produced by the United Nations Security Council response to Iraq's invasion of Kuwait, described in the opinions of my noble and learned friends, require that the courts of this country give no recognition to Resolution 369. It is argued that since, absent Resolution 369, title to the aircraft would have remained vested in KAC, the question of IAC's liability for conversion under Iraqi law should be examined and answered on the footing that KAC remained owners of the aircraft and that Resolution 369 did not form part of the corpus of Iraqi law. It is argued that obedience to the various United Nations Resolutions and, in particular, Resolution 662 requires no less. As to public policy, it is argued that, having regard to the flagrant breach of international law that Iraq's invasion of Kuwait undoubtedly constituted, it would be contrary to public policy if any recognition were to be given to Iraq's confiscation of the KAC aircraft or to Resolution 369.

  192. I am in respectful agreement with much of the premise on which these international law and public policy arguments are based. I agree that English courts ought not to recognise Iraq's confiscation of the aircraft nor the dissolution of KAC nor the purported vesting of the aircraft in IAC. If any of the aircraft had found their way to England, or to any other United Nations member state prepared to comply with United Nations Resolution 662, KAC could have successfully asserted title to the aircraft. I agree that in the eyes of the courts of this country, KAC remained the owners of the aircraft.

  193. The present action, however, is not an action in rem to recover property, whether the aircraft or the proceeds of sale of the aircraft, which belongs to KAC. The action is an action in personam for tort. Willes J in Phillips v Eyre referred to the law of the place from which the "wrong derives its birth" (see LR 6 QB 1, 28). From what system of law does KAC's action for conversion derive its birth? Certainly not from English law. It can only be the law of Iraq. The law of Iraq at the relevant time included Resolution 369. It is an unquestionable fact that under the law of Iraq at the relevant time IAC's conduct in relation to the aircraft was lawful and did not give rise to any civil liability. A cause of action in personam under Iraqi law did not come into existence.

  194. This conclusion does not depend on the vesting of the aircraft in IAC under Resolution 369. If Resolution 369 had never been passed but, instead, there had been an enactment in Iraq excluding any civil or criminal liability arising out of any dealings in Iraq with Kuwait's assets, the conclusion would be the same. In that event, too, a cause of action against IAC for conversion of the KAC aircraft could not have come into existence under the law of Iraq.

  195. The public policy argument is no better. Reliance was placed on Oppenheimer v Cattermole [1976] AC 249, in which a Nazi law which discriminated against Jews had to be considered. Lord Cross of Chelsea said, at p 278:

    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.

    The issue in the Oppenheimer case was whether the appellant was entitled under United Kingdom fiscal legislation to double taxation relief. He claimed relief on the ground that he had dual nationality, British and German. One of the Revenue's arguments was that because he had been deprived of his German nationality under the discriminatory legislation in question, he was not entitled to the double taxation relief. In the event, despite the odious nature of the discriminatory legislation, the House agreed with the Revenue that for other reasons Mr. Oppenheimer was not a German national at the relevant time and so was not entitled to double-taxation relief. In my opinion, the Oppenheimer case, far from assisting KAC, identifies the flaw in the public policy objections that KAC is taking. Lord Cross, at an earlier passage in his speech than that cited, postulated discriminatory legislation by Ruritania under which the property of a Ruritanian citizen who had been convicted of treason was forfeited and he was deprived of his Ruritanian citizenship. Lord Cross continued, at p 276:

    Our courts would certainly refuse to entertain an action by the Ruritanian state to obtain possession of the traitor's property here; but I can see no sufficient reason why we should continue to regard him as a Ruritanian citizen for the purpose of deciding whether or not he was entitled to property here, his right to which depended on his being or not being a Ruritanian citizen at some point of time.

    It is implicit in Lord Cross' example that although the courts of this country may refuse to give effect to odious or barbarous foreign legislation the existence of the legislation may nevertheless have to be recognised as a fact. So here.

  196. In paragraph 117 of his opinion my noble and learned friend Lord Steyn has postulated the case of an action in tort brought in England for recovery of loss caused by negligent mis-statement inducing a contract.

    He postulates a negligent mis-statement that would prime facie be actionable under the law of the foreign country where it was made and would also be actionable in England. But the contract contains a clause excluding all liability for negligent mis-statement. The contract is valid under the law of the foreign country, presumably its proper law, but for some reason or other it would be contrary to English public policy to enforce it or to recognise it. Is the defendant entitled, in an action in England on the tort claim, to rely on the exclusion clause in the contract? The answer given by my noble and learned friend is 'No'. He says that to permit the defendant to do so would be an affront to English public policy. But since the contract is valid under the law of the foreign country, its proper law, the exclusion clause would be binding on both parties under the law of the foreign country. That being so, the question whether the tort action could succeed if brought in England would require the court to decide whether England or the foreign country was the country with the most significant relationship with the circumstances of the case and with the parties: see the Red Sea Insurance case [1995] 1 AC 190. In effect, the court would have to decide whether the tortious cause of action sued on was one which could derive its existence from English law or whether the relationship with England was so slight that the cause of action could only be derived from the foreign law. In the latter case there would be no cause of action on which the plaintiff could sue in England. The "affront to English public policy" said to be constituted by the refusal of the foreign law to recognise the existence of the tortious cause of action cannot, in my opinion, be a sufficient condition for the creation by English law of a cause of action out of facts with no significant relationship to England.

  197. My noble and learned friend's point that it would be an affront to English public policy not to recognise the tort claim in England could apply equally well to contract claims. Suppose a contract between two citizens of a foreign country made in the foreign country and the proper law of which is the law of the foreign country. One party commits, or is alleged to have committed, a breach of the contract. There is then an event in the foreign country that purports to bar the action for breach of contract. The event might be a discriminatory and odious piece of legislation. It might be a release which the would-be claimant has been procured to sign by means which by English standards would be repugnant and unacceptable. Nonetheless, under the law of the foreign country, the proper law of the contract, the event has had the result that the claimant has no cause of action for the alleged breach of contract. Would English law permit the contractual cause of action to succeed notwithstanding that under the proper law of the contract the action would fail? The question is indistinguishable from that posed by my noble and learned friend. It could not, in my opinion, be argued that English law would create an in personam contractual cause of action that was incompatible with the proper law of the contract. Why should there be any difference where the cause of action is a tortious one and the only connection with England is that England is the forum for the action? The "affront" to English public policy would be the same.

  198. This brings me back to my fundamental objection to the application of the double-actionability rule proposed by my noble and learned friends. It cannot, in my opinion, be English law that is the system of law from which KAC's cause of action derives its existence. The only connection between the conversion and England is that England is the forum of the suit. It is not a function ever claimed for English law to provide tortious causes of action to citizens of foreign countries who are injured by acts in those countries committed by other citizens of foreign countries. Nor should it be. Phillips v Eyre LR 6 QB1 and Carr v Fracis Times & Co [1902] AC 176 constitute high authority that a foreign tort not actionable in the foreign country in question cannot be sued on in England. On the facts of this case there is, in my opinion, neither principle nor authority that justifies English law in providing KAC with a cause of action in conversion against IAC. I would, therefore, allow IAC's appeal and dismiss KAC's appeal on this ground.

    THE MOSUL FOUR

  199. On the footing that KAC's action can surmount the double-actionability hurdle, I respectfully agree with the reasons given by my noble and learned friend Lord Nicholls of Birkenhead for dismissing KAC's appeal regarding the Mosul Four.

    THE IRAN SIX

  200. On the footing that KAC succeed on the double-actionability issue, the House must decide the issues relating to the damages KAC is entitled to recover from IAC. The six aircraft were all eventually recovered by KAC but KAC is claiming various heads of consequential loss.

  201. The first essential, in my opinion, is to identify the wrongful acts or omissions from which the losses in question are said to flow. There were a number of individual acts of IAC e.g. re-registration of the aircraft in IAC's name, repainting the aircraft in IAC livery, use of one of the aircraft for commercial flights within Iraq, that were relied on by KAC as acts of conversion. However, the conversion or usurpation that was proved against IAC was essentially the incorporation of the aircraft into IAC's fleet. The individual acts were simply indicative of that process: see p 1146, para 73 of the judgment of Brooke LJ in the Court of Appeal. But IAC's incorporation of the aircraft into its fleet was, on the facts of this case, a conversion/usurpation of a very peculiar sort. It was not a misappropriation of the aircraft from KAC. The aircraft had already been misappropriated by the state of Iraq. That usurpation was protected from civil action by state immunity. This House so held. Nor is it possible to contend that IAC's incorporation of the aircraft into its fleet deprived KAC of them. If IAC had not incorporated them into its fleet, KAC would still not have recovered them. Moreover, it was not within the power of IAC to restore the aircraft to KAC. Lord Nicholls in his opinion has analysed the position that arises where there is a series of conversions with each person in the series wrongfully excluding the owner from possession of his goods. Each successive converter is liable to the true owner. Each has, consciously or unconsciously, withheld the goods from the true owner. This analysis does not seem to me to work in the present case. True it is that IAC was treating KAC's aircraft as its own but IAC was not in any meaningful sense depriving KAC of the aircraft.

  202. Accordingly, in my opinion, the approach to the damages issue should be one which holds IAC responsible for damage to the aircraft caused by IAC's retention of them but which does not hold IAC responsible for loss suffered by KAC through being deprived of the aircraft. The latter loss was, on the facts of this case, not caused by IAC's acts of usurpation but would have been suffered anyway.

    THE REMOVAL OF THE IRAN SIX TO IRAN AND THE PAYMENT OF THE $20 million

  203. The removal of these six aircraft to Iran was, as Lord Nicholls has observed, done on the orders of the Iraq Government. It was not, on the facts, something for which IAC were responsible. Nor, in my opinion, was their removal to Iran a likely or foreseeable result of the incorporation of the aircraft into the IAC fleet. A fortiori, their continued detention in Iran after hostilities had ceased and Iran's extraction of $20 million as the price of their release cannot, in my opinion, be described as consequences flowing naturally or directly from IAC's incorporation of the aircraft into its fleet.

  204. These conclusions do not, I think, depend upon any controversial opinion as to the rule of remoteness of damage in conversion cases. They depend upon the limited nature of the conversion/usurpation for which IAC can be held responsible and the absence of any sufficient causal connection between that usurpation and the end result for which damages are sought.

    CONCLUSION OF DAMAGES

  205. If, therefore, contrary to any opinion, KAC has a cause of action for conversion, I would, in relation to the Iran six, confine KAC's claim to the deterioration suffered by the aircraft while they were being retained by IAC as part of its fleet. I would allow IAC's appeal and dismiss KAC's cross appeal accordingly.


Cases

Boys v Chaplin [1971] AC 356; In the Estate of Fuld, decd (No 3) [1968] P 675; Loucks v Standard Oil Co of New York (1918) 120 NE 198; Oppenheimer v Cattermole [1976] AC 249; Nicaragua v United States of America [1986] ICJ Reports 14; Legal Consequences for States of the Continued Presence of South Africa in Namibia [1971] ICJ Reports 16; Buttes Gas & Oil Co v Hammer (No 3) [1982] AC 888; Blathwayt v Baron Cawley [1976] AC 397; Red Sea Insurance Co Ltd v Bouygues SA [1995] 1 AC 190; Emp Exportadora de Azucar v Industria Azucarera National SA (The Playa Larga) [1983] 2 Lloyd's Rep 171; Fouldes v Willoughby (1841) 8 M & W 540; Wickham Holdings v Brooke House Motors Ltd [1967] 1 WLR 295; Brandeis Goldschmidt & Co Ltd v Western Transport Ltd [1981] QB 864; IBL Ltd v Coussens [1991] 2 All ER 133; Hiort v London & North Western Railway Co 4 Exch Div 188; Williams v Peel River Land and Mineral Co Ltd (1886) 55 LT 689; Butler v Egg & Egg Pulp Marketing Board (1966) 114 CLR 185; Banque Bruxelles Lambert SA v Eagle Star Insurance Co Ltd [1997] AC 191; Reeves v Commissioner of Police of the Metropolis [2000] 1 AC 360; Barnett v Chelsea and Kensington Hospital Management Committee [1969] 1 QB 428; Marfani & Co Ltd v Midland Bank Ltd [1968] 1 WLR 956; Fowler v Hollins LR 7 QB 616; Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548; Cooper v Chitty (1756) 1 Burr 20; Hollins v Fowler (1875) LR 7 HL 757; Attorney General v Blake [2001] 1 AC 268; BBMB Finance (Hong Kong) Ltd v Eda Holdings Ltd [1990] 1 WLR 409; Rylands v Fletcher; Waggon Mound I [1961] AC 388; Wagon Mound II [1967] 1 AC 617; Cambridge Water Co v Eastern Counties Leather Plc [1994] 2 AC 264; Saleslease Ltd v Davis [1999] 1 WLR 1664; Smith New Court Securities Ltd v Scrimgeour Vickers (Asset Management) Ltd [1997] AC 254; Kuwait Airways Corporation v Iraqi Airways Co [1995] 1 WLR 1147; Stansbie v Troman [1948] 2 KB 48; Environmental Agency v Empress Car Co (Abertillery) Ltd [1999] 2 AC 22; Bonnington Castings Ltd v Wardlaw [1956] AC 613; McGhee v National Coal Board [1973] 1 WLR 1; In re Claim by Helbert Wagg & Co Ltd [1956] Ch 323; Warren v Warren [1972] Qd R 386; Corcoran v Corcoran [1974] VR 164; John Pfeiffer Pty Ltd v Rogerson [2000] HCA 36; Breavington v Godleman (1988) 169 CLR 41; Ewing v Orr Ewing (1883) 9 App Cas 34; The Halley (1868) LR 2 PC 193; Phillips v Eyre (1869) LR 4 QB 225 [(1870) LR 6 QB 1]; R v Lesley (1869) Bell CC 220; Dobree v Napier (1836) 2 Bing NC 781; Carr v Fracis Times & Co [1902] AC 176; Machado v Fontes [1897] 2 QB 231; Scott v Seymour (1862) 1 H&C 219

Legislations

Private International Law (Miscellaneous Provisions) Act 1995: s.9(1), s.11(1), s.14(3)(a)(i)

United Nations Charter: Art. 2(4), Art.25

State Immunity Act 1978: s.14(2)

Torts (Interference with Goods) Act 1977: s.5, s.11(3)

Limitation Act 1980: s.3, s.4

Iraqi Civil Code: Art. 192-201

Restatement of the Law Third, The Foreign Relations of Law of the United States, (1987), vol 1

Authors and other references

Oppenheim's International Law, 9th ed (1992), vol 1, (ed Jennings and Watts)

Clerk & Lindsell on Torts, 17th ed (1995)

Salmond & Heuston on the Law of Torts, 21st ed (1996)

Law Reform Committee 18th report (1971) (Cmnd 4774)

Jane Stapleton: 'Unpacking "Causation"', Cane & Gardner (ed) Relating to Responsibility (2001)

Professor Fleming's The Law of Torts, 9th ed (1998)

Markesinis & Deacon Tort Law, 4th ed (1999)

Cheshire & North: Private International Law, 13th ed (1999)

Professor Pierre Lalive, "Transnational (or Truly International) Public Policy and International Arbitration, ICCA," in Comparative Arbitration Practice and Public Policy in Arbitration, ed Sanders, (1986)

Fouchard, Gaillard & Goldman on International Commercial Arbitration, (1999), p 953, et seq.

Redfern & Hunter, Law and Practice of International Commercial Arbitration, 3rd ed (1999)

Craig, Park & Paulsson, International Chamber of Commerce Arbitration, 3rd ed (2000)

Todd, The Law of Torts in New Zealand, 3rd ed., (2001)

Dr F A Mann, Further Studies in International Law (1990)

Dr F A Mann: 'International Delinquencies before Municipal Courts', (1954) 70 LQR 181

Dicey & Morris, Conflicts of Laws 12th ed (1993), Rule 22


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