Factual and Procedural Background
Military forces of The State invaded and occupied The Other State in early August 1990. During the occupation ten commercial aircraft owned by Company A were flown from The Other State to The State. A governmental decree (referred to as “Resolution 369”) dissolved Company A and purported to transfer all its worldwide assets, including the ten aircraft, to the state-owned Company B.
Company A sued Company B (and initially the government of The State) in the courts of England seeking return of, or damages for, the aircraft. Jurisdictional questions reached the House of Lords in 1995, which held that Company B was not entitled to sovereign immunity for post-resolution acts.
Liability and quantum were tried separately. Judge [Mance] found that Company B wrongfully interfered with all ten aircraft; Judge [Aikens] later dismissed the claim on damages. The Court of Appeal largely reinstated Company A’s damages claim for six aircraft (the “Iran Six”) but upheld dismissal for the four aircraft destroyed by bombing (the “Mosul Four”). Company B appealed and Company A cross-appealed to the House of Lords, whose May 2002 judgment is summarised here.
Legal Issues Presented
- Whether English courts could recognise Resolution 369 as valid under the act-of-state doctrine or must disregard it on grounds of public policy and international law.
- How the common-law “double actionability” rule applies where the foreign law (the lex loci delicti) includes a decree that would defeat the tort claim.
- Whether Company B’s post-resolution conduct constituted the tort of conversion under English law and usurpation under The State’s law.
- The correct approach to causation, remoteness and quantification of damages for (a) the four destroyed aircraft and (b) the six recovered aircraft.
Arguments of the Parties
Company B’s Arguments
- English courts must treat Resolution 369 as part of the lex loci delicti; public-policy exceptions are confined to gross human-rights violations, not breaches of international law between states.
- Determining the legality of the invasion and annexation was non-justiciable under the principle in Buttes Gas.
- Its post-resolution acts were not conversion because Company B neither initially seized the aircraft nor excluded Company A from possession.
- Even if liable, damages failed the “but-for” test; the aircraft would have been lost or removed regardless of Company B’s conduct.
Company A’s Arguments
- Resolution 369 was an integral part of an unlawful annexation condemned by The International Body; recognising it would breach international obligations and English public policy.
- The double-actionability rule is flexible; English law should disregard the decree when it offends fundamental justice.
- Company B’s assumption of dominion (re-registration, repainting, insurance and use) plainly amounted to conversion/usurpation.
- Damages for the Iran Six should include storage fees paid to a third state, repair costs, lost profits and hire of substitute capacity.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|
| Boys v Chaplin [1971] AC 356 |
Double actionability and its flexibility |
Confirmed that the rule can be relaxed where public-policy considerations require |
| Buttes Gas & Oil v Hammer [1982] AC 888 |
Non-justiciability of certain foreign-state acts |
Distinguished; the invasion was universally condemned and required no evaluative fact-finding |
| Oppenheimer v Cattermole [1976] AC 249 |
Public-policy refusal to recognise discriminatory foreign laws |
Analogised to justify non-recognition of Resolution 369 |
| Red Sea Insurance v Bouygues [1995] 1 AC 190 |
Further flexibility within double actionability |
Used to support severing the offensive part of the foreign law |
| Loucks v Standard Oil (1918) 120 NE 198 (US) |
Public-policy exception only for laws violating “fundamental justice” |
Quoted as persuasive authority on the limited but real scope of the exception |
| Phillips v Eyre (1870) LR 6 QB 1 |
Classic formulation of double actionability |
Re-stated as the starting point for analysis |
Court's Reasoning and Analysis
Act-of-State and Public Policy. The court accepted that, ordinarily, English courts will not question foreign sovereign acts affecting property within that sovereign’s territory. However, a narrow but firm public-policy exception exists where the foreign law represents a flagrant breach of established international norms. The invasion and annexation were immediately condemned by The International Body, and no state recognised them. Recognising Resolution 369 would contradict both international obligations and domestic public policy.
Double Actionability. Although conversion occurred in The State, the House held that flexibility permits excising the repugnant decree from the lex loci delicti. Once Resolution 369 is disregarded, Company A remained owner; Company B’s conduct was tortious under both systems, satisfying the dual requirement.
Conversion Analysis. Conversion requires deliberate dealing with goods inconsistent with the owner’s rights coupled with exclusion from use or possession. Company B re-registered, repainted, insured and used the aircraft, thereby asserting full dominion and denying Company A’s title.
Damages – Mosul Four. Under The State’s law, damages for destroyed goods are recoverable only if destruction would not have occurred “but for” the usurpation. Both lower courts found, on the evidence, that the four aircraft would have been bombed even without Company B’s acts; the House declined to disturb that factual finding.
Damages – Iran Six. The strict Iraqi “but-for” test did not apply because the aircraft were recovered; English principles governed. Company A was entitled to:
- US$20 million paid to the third-state government for storage and return;
- Repair and overhaul costs (≈ US$11 million);
- Lost profits and substitute-capacity hire (amounts to be assessed).
A claim for finance costs on purchasing an entirely new fleet (≈ US$290 million) was rejected as too remote and reflecting voluntary restructuring rather than loss caused by the tort.
Holding and Implications
Holding: APPEALS DISMISSED, CROSS-APPEAL DISMISSED IN PART.
Company B remained liable in conversion for the six recovered aircraft; damages were remitted for assessment on the principles set out above. Company A’s claims relating to the four destroyed aircraft failed.
Implications. The decision confirms that English courts will refuse to recognise foreign legislative acts stemming from unlawful aggression, even when those acts form part of the lex loci delicti. It clarifies the flexibility inherent in the double-actionability rule and provides detailed guidance on causation and remoteness in conversion cases. No new cause of action was created, but the judgment reinforces the role of international law and public-policy considerations in private international disputes heard in England.