Library:
Case Comment: Kuwait Airways v. Republic of Iraq
Published in the May 2009 issue of Transportation Notes - View Article
The Quebec Court of Appeal has issued two recent decisions, one in mid-April and the other in mid-May, which brings a Canadian side show to within a single stop of the end of the line. The larger international saga concerns the right of Kuwait Airways to enforce a judgment against the Republic of Iraq for damages suffered subsequent to the invasion of Kuwait in August, 1990.
As is well known, Kuwait Airways lost several aircraft as a result of the invasion. In an attempt to recover damages, it brought action against Iraqi Airways and the Republic of Iraq in the courts of Great Britain. While the Republic of Iraq escaped most of the litigation on the basis of sovereign immunity, the British courts did find that its activities, in one respect, were commercial and thus not entitled to immunization.
Kuwait Airways first obtained a judgment against Iraqi Airways for approximately one billion dollars. It then commenced proceedings against the Republic of Iraq as a non-defendant responsible for the costs of the action. The theory of this claim was that the Republic of Iraq “funded, supervised and controlled all the litigation”. Mr. Justice Steel accepted this characterization of the actions of Iraq and found that these acts fell within the “commercial activity” exception to the immunity afforded to a state for its sovereign activities. Accordingly a judgment was rendered against the Republic of Iraq. The current value of that judgment is approximately $80 million. It remains unsatisfied.
The Canadian aircraft manufacturer, Bombardier, is in the course of assembling a number of aircraft for the Republic of Iraq. Kuwait Airways saw in this fact an opportunity to obtain security for its judgment. This it attempted to do by issuing a seizure before judgment binding on the aircraft.
In a decision of April 15, 2009, the Quebec Court of Appeal ruled against Kuwait Airways. The first argument advanced in support of the seizure was based on the principle that a court asked to give aid in the execution of a foreign judgment should not sit in appeal of that judgment. Beginning with this principle, Kuwait Airways argued that the crucial issue had already been decided by the British court: the Republic of Iraq descended into the commercial arena and thus was stripped of its sovereign immunity. This argument was not successful. Although the general principle is well recognized, it was not enough to carry the day. The British court interpreted a British statute.
Although the Canadian State Immunity Act is similar to the British statute, it cannot properly be argued that a Canadian court should be obliged to accept a foreign court’s interpretation of a foreign statute as determinative of the meaning and effect of the Canadian statute. Having come to this conclusion, the Quebec Court of Appeal concluded that the Canadian concept of commercial activity which deprives a foreign state of its right claim immunity is more narrow than that recognized in the United Kingdom. The participation of a state in litigation cannot, in the court’s opinion, possibly amount to commercial activity.
There is only one further possible judicial appeal, and that is to the Supreme Court of Canada, with leave. Kuwait Airways is seeking leave to appeal. By mid-April, at which time the Quebec Court of Appeal rendered the decision described above, three CRJ900 aircraft were ready for delivery to Iraq and were sitting idle. Bombardier wished to deliver the aircraft and collect the unpaid part of the purchase price while Kuwait Airways wished to maintain its potential security. To do so, the latter sought a stay of the decision and an order that the effect of the seizure before judgment should remain in place pending a decision by the Supreme Court on the leave application.
The application for a stay came on before a single judge of the Quebec Court of Appeal who dismissed the application on May 19, 2009. In doing so he considered well-established criteria: the strength of the applicant’s case, whether refusal of a stay will cause irreparable harm, the balance of inconvenience and public interest considerations. Recognizing that the applicant can reasonably argue that the panel which issued the April decision erred in its restrictive characterization of “commercial activity”, the application judge then turned to consider the issues of harm and balance of inconvenience. On the first point, it is important to note that the contract between Iraq and Bombardier calls for the delivery of 10 aircraft in all. Some are to be delivered well into the future. Thus, allowing the release of the three aircraft presently ready for delivery would not result in irreparable harm to Kuwait Airways. With respect to the balance of inconvenience, the fact that Bombardier has a legitimate interest in delivering the aircraft and thus getting paid was an important point. The balance did not favour Kuwait Airways, and the application for a stay was dismissed, with costs. It remains to be seen whether the Supreme Court of Canada will hear the appeal, but we venture to guess that it will.
Kuwait Airways Corporation v. Republic of Iraq,
2009 QCCA 728 AND 985