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Quebec Superior Court Allows Seizure of Iraqi Aircraft
Published in the March 2010 issue of Transportation Notes - View Article
On January 18, 2010, the Quebec Superior Court issued a judgment in the case of Kuwait Airways Corporation v. Iraqi Airways Company, Bombardier Inc., and The Republic of Iraq, denying the application of Iraqi Airways Company (“Iraqi Airways”) to quash an application by Kuwait Airways Corporation (“Kuwait Airways”) to seize aircraft purchased from Bombardier Inc. by the Republic of Iraq (“Iraq”) and / or Iraqi Airways Company.
In the May 2009 issue of Transportation Notes, we reported on a related decision of the Quebec Court of Appeal which denied the application of Kuwait Airways to seize the Bombardier aircraft vis-à-vis the Republic of Iraq. The Supreme Court of Canada will be hearing the appeal from that decision very shortly.
This multifaceted litigation spawns from a British judgment granting several million US dollars in damages to Kuwait Airways against the Iraqi Airways Company and the Republic of Iraq as a result of the seizure of its aircraft during the Iraqi invasion of Kuwait. Kuwait Airways brought an application to enforce these judgments in Quebec, against both Iraq and Iraqi Airways. These applications were accompanied by further applications to seize assets in the hands of the third-party Bombardier, as it received a series of orders for at least 10 aircraft, some of which have been built and were to be delivered to Iraqi Airways.
The multiple applications in the Quebec courts are the result of ongoing uncertainty as to which of Iraq and Iraqi Airways was a party to the contract with Bombardier to purchase the aircraft. As a result, Kuwait Airways proceeded in parallel against each party, and requested the same seizure before judgment in each case. Justice Chaput of the Quebec Superior Court granted judgment in favour of Kuwait Airways with respect to both parties in October 2008.
The first string of litigation which has culminated at the Supreme Court sprung from a challenge to Justice Chaput’s decision by the Republic of Iraq based on the principle of sovereign immunity. As we previously reported, the Quebec Court of Appeal granted judgment in favour of the Republic of Iraq, and held that the commercial activity exception in the Canadian State Immunity Act was more narrow than that in British law, and therefore, that Iraq was immune from the seizure proceedings.
The decision at issue in this article responds to a subsequent challenge to the decision of Justice Chaput by the other main party: Iraqi Airways. A number of issues as to the validity of the order for seizure before judgment, and the application challenging it, were addressed by the Quebec Superior Court. Most were resolved in favour of Kuwait Airways.
The first issue pertained to the sufficiency of the affidavit sworn in support of the application for seizure by Kuwait Airways’ solicitor in the British litigation. The affidavit did not specify whether it was Iraqi Airways or the Republic of Iraq who had contracted to purchase the Bombardier aircraft, due to lack of knowledge about this fact at this time. Rather, the affidavit specified that it was either of these parties who was the contracting purchaser. Iraqi Airways argued that this was a fatal deficiency in the affidavit and the court should overturn the judgment of Justice Chaput.
The court was unpersuaded. While the court recognized that a seizure of assets before judgment was an exceptional measure, and therefore could only be invoked based on a precise and properly supported affidavit, it was satisfied with the information sworn to by the British solicitor. This information, the court said, was culled from findings of fact in various foreign judgments, which held some weight. Further, not only was the solicitor not precluded from swearing to a “suspicion” that either party was the contractor of purchase but, given how entangled these two parties were in prior judgments and litigation, this was a reasonable belief. Which version was in fact correct would be an issue to be determined as the litigation progressed, but the application for seizure could not be struck on this ground alone.
The second issue raised was that the affidavit was insufficient because the facts pleaded to were not sufficient to demonstrate that there was an objective apprehension that the judgment debtors would act fraudulently in order to avoid honouring the debt. The interesting twist in this respect is that after the affidavit was sworn, one of the aircraft was literally flown away.
In this respect, the court found that, in the first place, sufficient facts existed at the time the affidavit was sworn to give rise to a reasonable apprehension on behalf of Kuwait Airways. Iraqi Airways had taken no steps to satisfy the substantial judgment rendered against it in 2005. Furthermore, it appeared that Iraqi Airways had been severely criticized in previous judgments for its conduct in the litigation, suggesting that it was not acting in good faith. Finally, the court found it reasonable that there was an apprehension that the assets would be taken out of the jurisdiction. The court took a common sense approach in holding that, even though the application was supposed to be based on information as sworn to at the relevant time, it could not ignore the fact that these were assets that could be “flown away” as, in fact, had happened with respect to one of the aircraft.
The third issue raised was the considerable delay with which Iraqi Airways challenged the issuance of the seizure order. While the Quebec rules of civil procedure allowed for five days to issue such a challenge, Iraqi Airways issued its challenge more than three months following the seizure order. The court refused to exercise its discretion to accept that the delay was reasonable, despite the argument that the issue of state immunity was complex and required careful consideration.
The fourth (and hotly contested) issue surrounded the further participation of the Republic of Iraq in the proceedings. This arose from the fact that, subsequent to the application made by Kuwait Airways, Bombardier submitted a statement that it was the Republic of Iraq that was in fact the contracting party for the purchase of the aircraft. Kuwait Airways contested this statement and further argued that even if it were true, the participation of the Republic of Iraq as official contracting party was only a means of obfuscating the reality that the aircraft were meant for commercial use by Iraqi Airways; for instance, their livery reflected the branding of the latter. As a result, Kuwait Airways sought an order from the court effectively forcing the Republic of Iraq to partake in the application in order to address this issue.
Despite previous findings in the proceedings granting the Republic of Iraq sovereign immunity, the court granted the request of Kuwait Airways. The court held that the circumstances in this application brought the commercial activity exception to sovereign immunity into play. In these proceedings, the issue was the involvement of the Republic of Iraq in the purchase of airliners destined for use in civil commercial aviation and cargo. This activity was distinct from that previously at issue – namely the involvement of the Republic of Iraq in defending the legal rights of Iraqi Airways. Further, the purpose of the court proceedings was to establish the true ownership of the aircraft. All of these were commercial activities rather than acts of state.
On the final issue, however, the court declined to rule in favour of Kuwait Airways. In addition to seeking seizure of the assets, Kuwait Airways sought a further injunction preventing the Republic of Iraq and Iraqi Airways from taking possession of the aircraft to be seized before judgment. This injunction had initially been granted in November 2008, at a time when the purchaser of the aircraft was not known, and when it was known that one of the aircraft had been flown out of Quebec. The court found that such an order was no longer necessary because it had just confirmed the seizure order and it would be valid at least until such time as the issue of the purchasing party to the Bombardier contract was resolved.
Kuwait Airways Corporation v. Iraqi Airways et al,
2010 QCCS 53