You are Cleared for Takeoff: SCC Clears the Way for Airline to Enforce Damages Award against Iraq in Kuwait Airways Corp v Iraq

On October 21, 2010, the Supreme Court of Canada (“SCC”) held in Kuwait Airways Corp v Iraq, [2010] 2 SCR 571, that the Republic of Iraq (“Iraq”) could not rely upon its state immunity to limit the jurisdiction of a Quebec court in order to prevent recognition a foreign judgment for damages against it. The quirk in this case was Iraq’s insistence that the Quebec court could not simply recognize the foreign court’s finding that state immunity did not apply, but had to decide that issue on its own. In other words, the Quebec court would have to consider the merits of the foreign judgment. Although this argument flew in the face of the established conflict of laws rule that an enforcing court shall not review the merits of a foreign decision, the SCC surprisingly agreed with Iraq. As will be discussed in this post, that win for Iraq was short-lived because the SCC ultimately agreed with the foreign court that Iraq could not rely upon its state immunity.

A Quick Lesson on State Immunity

According to the internationally respected principle of absolute state immunity, courts are limited from exercising jurisdiction over actions brought in their jurisdiction against a foreign state. This principle has been codified in s. 3 of the federal State Immunity Act, RSC, 1985, c S-18 [SIA]. The SIA reflects the restricted immunity approach as it contains exceptions to absolute state immunity. Of particular relevance to this decision was the commercial activity exception in s. 5, which denies immunity in “any proceedings that relate to any commercial activity in the foreign state.” Other countries, including England have a similar regime.

Tail spinning into Disaster

This case arises out of Kuwait Airways Corp.’s (“KAC”) action for damages against Iraqi Airways Company (“IAC”) for appropriating its aircraft, equipment, and parts during the 1990 invasion of Kuwait. Iraq had funded and supervised IAC’s defence. Based on the perjury and tactics used to deceive the British courts during the defence, an English court awarded $84 million in costs against Iraq. The English court held that Iraq could not rely upon its state immunity because its involvement in the defence was related to its commercial interests in IAC, and thus the commercial activity exception applied. This international case migrated to Canada when KAC found out that Iraq had assets in Montreal. Accordingly, KAC applied to have the Quebec Superior Court recognize the English court’s decision. Since Iraq was unwilling go down in flames, it opposed the application on the basis that the impugned acts were sovereign acts, and thus protected by state immunity. As discussed above, Iraq’s position was that the Quebec court could not simply recognize the English decision, but had to independently decide the issue of state immunity. Thus, the main issue that the SCC had to determine was whether the SIA applies to an application for recognition of foreign judgment.

Who’s Law is it?

Before addressing the main issue, the SCC had to determine whether the Civil Code of Quebec, LRQ, c C-1991 [CCQ] or the Civil Code of Lower Canada (which was repealed on January 1, 1994 and replaced by the CCQ) applied. Iraq argued that the latter applied because the litigation that led to the English order for damages was commenced before the coming into force of the CCQ on January 1, 1994. If the Civil Code of Lower Canada applied, then the matter would have to be retried on the merits at the time of the application. The SCC swiftly disposed of this matter by referring to s. 170 of the Act Respecting the Implementation of the Reform of the Civil Code, SQ 1992, c 57 [Implementation Code]. As its name suggests, the Implementation Code is meant to smooth the transition from the Civil Code of Lower Canada to the CCQ by providing solutions where the latter pieces of legislation are inconsistent with each other.

According to s. 170 of the Implementation Code, the CCQ applied because the English decision was rendered in 2004, after the CCQ came into force. The SCC stressed that “the relevant data for determining which code applies is not that on which the litigation between these two parties began.”

Having dealt with that preliminary issue, the SCC tackled the main issue of whether the SIA applied. KAC argued that because the English court had already decided the issue of state immunity, res judicata applied to preclude the re-litigation of the issue in the context of the application for recognizing the English decision. The SCC rejected this argument. According to Article 3076 of the CCQ, “The rules contained in this Book apply subject to those rules of law in force in Québec which are applicable by reason of their particular object.” [Emphasis added]. Since the SIA is a rule of law in force that governs  state immunity, its statutory framework governs the determination of the issue. This conclusion was fleshed out by the SCC through quoting Robert C.J.Q. of the Court of Appeal:

[translation]  To the extent that a foreign state is found to be entitled to immunity under this Act, the Canadian court simply does not have jurisdiction to consider an application against that state, including an application for recognition and enforcement of a foreign decision.  It is only in the case of an exception to the general principle of immunity that the court may rule on the merits of an application against a foreign state.

Thus, the [SIA] must apply and must govern the issue of whether Iraq is entitled to state immunity in Canadian courts.

This conclusion means that it does not matter that: (i) the issue of state immunity was already decided; and (ii) that the enforcing court will be in essence reviewing the merits of the foreign judgment. In regards to the first point, the problem of inconsistent decisions that is addressed by the principle of res judicata seems to have been conveniently set aside because state immunity is at stake. The SCC addressed this criticism at paragraph 22 when it endorsed Robert C.J.Q.’s observation that “if [the issue was res judicata], the effect would be that the British court and the United Kingdom law were delimiting the jurisdiction of the Quebec courts.” That response is satisfactory but the second point mentioned above chips away at the confidence upon which that response is accepted.

The second point, as alluded to earlier, is contrary to the basic rule in conflict of laws that an enforcing court shall not review the merits of a foreign judgment. Enforcing courts are not supposed to be appellant courts of foreign courts. However, the framework developed by the SCC for dealing with foreign judgments on state immunity is reminiscent of the interaction between appellant and lower courts. At paragraph 23, after the response on res judicata, the SCC stated:

However, the court hearing the application must confine itself to the role conferred on the Quebec authority for the consideration of an application for enforcement. As I mentioned above, the court cannot review the merits of the decision…It may not retry the case and therefore must not reassess the facts.  Thus, the issue of state immunity and the exceptions to state immunity must be considered within the framework of the law currently applicable in Canada, including public international law, but on the basis of [the English court’s] findings of fact. [Emphasis added].

According to this statement, the enforcing court has to determine state immunity using the SIA (which arguably constitutes a review of the merits of the case), but cannot review the facts of the case – it must use the foreign court’s findings of fact. That conclusion is an interesting proposition to ponder, and considering it further, one is reminded of the role of an appellant court. Unless there has been a palpable and overriding error, an appellant court does not review the lower court’s findings of fact. The appellant court can uphold or quash the lower court’s decision. While it is clear that the enforcing court is to embark on an independent analysis of state immunity using the SIA, and thus is not upholding or quashing the foreign decision, the requirement that the foreign court’s findings of fact be used is reminiscent of the interaction between appeal and lower courts.  That similarity probably explains the initial discomfort with reviewing the merits of a foreign judgment but not the findings of fact.

Thank you for Flying with KAC

Despite taking the longer route, SCC ultimately reached the same destination as the English court. It agreed with the latter that Iraq was not protected by state immunity because its involvement in IAC’s defence was not a state act, but an act directed towards protecting its commercial interests. Although the SCC has settled many of the critical issues, the litigation between the parties will probably continue on into the future given Iraq’s stalwart determination not to pay the damages. It will be interesting to see what legal maneuvering it employs in the future to elude enforcement of the damages award.

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