Kuwait Airways Corporation v Iraq Airways Co (Nos 4 and 5) [2002] 2 AC 883 is a landmark case in international law and tort law, concerning the issue of state immunity and the scope of a state's immunity from legal proceedings in foreign courts.
The case involved a dispute between Kuwait Airways Corporation (KAC) and Iraq Airways Company (IAC) over unpaid debts arising from the First Gulf War. During the war, Iraqi troops seized a number of aircraft belonging to KAC and took them to Iraq. After the war ended, KAC sought to recover the aircraft and obtain compensation for the losses it had suffered as a result of the seizure. IAC claimed that it was immune from the lawsuit under the doctrine of state immunity. State immunity is a principle of international law that provides that a state is immune from legal proceedings in foreign courts, except in certain limited circumstances.
The issue before the House of Lords was whether IAC was entitled to claim state immunity in this case. The House of Lords held that IAC was not entitled to claim state immunity, as it had waived its immunity by its conduct. The Court found that IAC had acted in a manner that was inconsistent with its claim to immunity. The House of Lords also held that the seizure of KAC's aircraft by Iraqi troops during the First Gulf War was an act of aggression and a breach of international law. As a result, IAC was liable to pay compensation to KAC for the losses it had suffered as a result of the seizure.
In particular, the House of Lords held that the tort of conversion had been committed. Lord Nicholls outlined a three-pronged test for conversion. First, the defendant's conduct must be inconsistent with the rights of the owner. Second, the conduct must be deliberate, not accidental. Third, the conduct must be so extensive as to exclude the owner from the use and possession of the goods. The exclusion from possession may depend on whether the wrongdoer intended to exercise dominion over the goods.
Lord Nicholls emphasised that exclusion from possession does not necessarily mean physically taking the goods from the owner. It may also occur when the owner is withheld possession. Mere unauthorised retention of another's goods is not conversion unless it is adverse to the owner, excluding them from the goods and accompanied by an intention to keep the goods. While a demand and refusal are the usual ways of proving this intention, they are not the exclusive means.
In the Kuwait Airways case, Iraqi Airways (IAC) asserted rights inconsistent with Kuwait Airways' (KAC) ownership, evidenced by various actions such as passing a resolution for registration, applying for certificates of airworthiness, obtaining insurance cover, overpainting aircraft, and using them for commercial flights. The court found these actions to be indicative of an intention to keep the goods adverse to the owner.
This case established that a state may waive its immunity by its conduct. The case also held that acts of aggression and breaches of international law may give rise to a state's liability to pay compensation to the injured party. This decision reflects the expansion of the tort of conversion to encompass cases of detention, subsuming the previous tort of detinue. The court clarified that a demand and refusal are not the exclusive conditions for proving conversion; other circumstances indicating an intention to exercise dominion over the goods can also establish the tort of conversion.
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