Canada: The First Gulf War's Last Battle: Limits Of State Sovereignty

Last Updated: November 26 2011
Article by Manjit Singh

Kuwait Airways Corp. v. Iraq, 2010 SCC 40

The Supreme Court of Canada recently released a very important, and no less interesting, unanimous decision dealing with the convergence of public and private international law, with particular regard to Canadian recognition of foreign judgments against foreign states.

Background

On August 2nd, 1990, under orders from then dictator Saddam Hussein, the Iraqi armed forces crossed the country's southern most border, invaded and occupied its neighbour, Kuwait. Iraq had long claimed Kuwait was properly the eastern portion of its Basra province, a territory that had been improperly ceded by the British after the commencement of the First World War, in violation of a convention between the United Kingdom and the Ottoman Empire, until then the recognized sovereignty over the autonomous city of Kuwait and surrounding areas.1

Yet, it was not historical claims of territorial sovereignty which prompted Saddam to violate Kuwaiti independence – rather, it was the massive Iraqi debt, stemming from the horrific Iraq-Iran War (1980-1988), owed to Kuwait that the latter refused to forgive that raised the former dictator's ire. Saddam's plan was as simple as it was evil: incorporate Kuwait into Iraq, thereby not only eliminating the debt, but adding Kuwaiti assets, including billions worth in oil reserves, to his treasury (not even to mention that he would become the most powerful Arab leader in the region).2 Clearly, then, Saddam had planned the mother of all hostile takeovers!

The Facts

Of course, Saddam's gambit failed miserably, and approximately six months after the occupation of Kuwait, a United Nations coalition of armed forces, manned primarily by the United States and Britain, liberated Kuwait and defeated the Iraqi army in the First Gulf War. Nonetheless, during the six months of occupation, Kuwait suffered incredible damages as the country was simply looted by the Iraqi forces, under control of the Iraqi government.3

As part of Saddam's scheme of incorporating Kuwait into Iraq, the Iraqi government directed the Iraqi Airways Company (Iraq's national airline) to appropriate the aircraft and equipment of the Kuwait Airways Corporation (Kuwait's national airline). Kuwait Airways Corporation was only able to mitigate a portion of its damages by recovering some its aircraft and equipment after the war. For the yet uncompensated damages, Kuwait Airways Corporation brought an action for damages against the Iraqi Airways Company in the United Kingdom.

English Judgments

Kuwait Airways Corporation's action for damages for losses sustained as a result of the appropriation of its property by the Iraq Airways Company during the occupation was allowed to be heard by the United Kingdom courts. The proceedings were both lengthy and costly, but, in the end, the British court rendered a judgment equivalent to CAN$1 billion dollars in favour of Kuwait Airways Corporation, rejecting the argument of Iraqi Airways Company that its actions during the occupation, under direction of the government, afforded it state immunity. The UK court found that, pursuant to the legislation of the United Kingdom, the actions of Iraqi Airways Company were not within the exception of state immunity thus afforded.

Nonetheless, it was not this judgment that would ultimately bring this action to the Supreme Court of Canada. Pursuant to the English rules of civil procedure, Kuwait Airways Corporation requested leave to have the sovereign state of Iraq ("Republic of Iraq") joined as a second defendant in order to claim costs for the action it had successfully brought against Iraqi Airways Company. In July 2008, the High Court of Justice, Queen's Bench Division, Commercial Court granted the application, and Ordered the defendants, including the sovereign state of Iraq, to pay the equivalent of CAN$84 million in costs to Kuwait Airways Corporation.

Although the application was not opposed, the Honourable Justice Steel did consider whether Iraq, as a sovereign state, ought to be entitled immunity pursuant to the State Immunity Act 1978 (U.K.), 1978, c. 33. The Honourable Justice Steel found that, on the basis of the commercial exception of that Act, Iraq was not entitled to immunity. The finding held that the Iraqi government's controlling, funding and supervision of the Iraqi Airways Company's defence throughout the legal proceedings was not a sovereign act, but rather fell within the commercial activity exception to the principle of state immunity under the State Immunity Act 1978.

Canadian Judicial History

One month later, Kuwait Airways Corporation applied for recognition of the Honourable Justice Steel's judgment in Quebec Superior Court.

Having some of its assets in Quebec seized by way of seizure before judgment, the Iraq government challenged the Canadian proceedings by filing a motion raising a declinatory exception pursuant to the State Immunity Act, R.S.C. 1985, c. S-18. In said motion, Iraq requested that Kuwait Airways Corporation's application for recognition of the English judgment be dismissed as the impugned acts of Iraq were sovereign acts under international law, and that, thus, Iraq was entitled to state immunity pursuant to Canadian Law.

The Honourable Justice Chaput, of the Quebec Superior Court, sided with Iraq and dismissed the application for recognition of the English judgment against the country, finding that pursuant to the State Immunity Act, foreign states are entitled to immunity in Canadian courts for their sovereign acts, even if those acts were wrongful. Further, the Honourable Justice Chaput found that the impugned acts, of Iraq controlling, funding and supervising the defence of Iraqi Airways Company in the UK action did not amount to "commercial activity" for which an exception ought to be granted.

At the next level, the Quebec Court of Appeal dismissed Kuwait Airways Company's appeal, echoing the findings of the lower court. The Quebec Court of Appeal determined that the nature of state immunity and the conditions for applying it are to be determined by Canadian law. Therefore, it decided that Iraq's impugned acts were sovereign acts and did not view Iraq's controlling, funding and supervising of Iraqi Airways Company's defence a "commercial activity" exception to state immunity, pursuant to Canada's State Immunity Act.

Supreme Court of Canada

Naturally, Kuwait Airways Company appealed to the Supreme Court of Canada.

On October 21, 2010, the Supreme Court of Canada allowed the appeal, unanimously setting aside the decisions of the two lower courts, dismissing the respondent's exception to dismiss the application for recognition of the foreign judgment against it, and granting costs throughout to the appellant.

The SCC held that, pursuant to s.3 of the State Immunity Act, Iraq, as a sovereign state, maintains a presumption of immunity from jurisdiction in legal proceedings against it, but that such a presumption is rebuttable, the onus being on the party rebutting. Further, the SCC found that, pursuant to the principles of Conflict of Laws, the issue must be decided under Canadian law, despite the fact that an English court had already rendered its own decision on the issue since that decision is not res judicata in Canada, because the jurisdiction of the Quebec courts would otherwise be delimited by the UK courts and British law.

Nonetheless, the SCC held that the Quebec court cannot review the merits of the foreign decision (art. 3158 C.C.Q.; Canada Post Corp. v. Lépine, 2009 SCC 16, [2009] 1 S.C.R. 549, at para. 23). Rather, in considering an application for enforcement of a foreign judgment, the court ought to determine the issues considered within the framework of the law currently applicable in Canada, including public international law, but on the basis of the foreign court's finding of facts.

Therefore, the SCC held that in determining whether or not a state's impugned acts fall within the commercial activity exception to state immunity, the court ought to apply a contextual approach, including analyzing not only the nature of the act(s) in question, but the purpose as well.

In the case at bar, the SCC held that as the lower courts are not to review the merits of the case vis-à-vis the application of enforcement of a foreign judgment, the court must accept the findings of fact made by the foreign court. The UK court had held that although the original appropriation of the aircraft was a sovereign act, the subsequent retention and use of the aircraft by Iraqi Airways Company were commercial acts. Further, in rendering a judgment of costs against the state of Iraq, the UK court had also found that the there was no connection between the commercial litigation in which Iraq had "controlled, funded and supervised" the defence of Iraqi Airways Company and the initial sovereign act of seizing the aircraft.

Consequently, based on the findings of fact of the UK court, Iraq cannot rely on the state immunity provided for in s.3 of the State Immunity Act, as the impugned acts fall within the "commercial activity" exception therein, pursuant to s. 5 of said Act.

As a result of the SCC's ruling, Iraq's motion to dismiss the application for recognition of the foreign judgment is hereby dismissed, allowing Kuwait Airways Corporation's original application for recognition (and execution) of the foreign judgment to proceed.

Conclusion

This important SCC ruling further expands the doctrine of limited state immunity. In particular, this continuing evolution in public international law, furthering a restrictive theory of state immunity, has expanded the "commercial activity" exception thereto by examining a sovereign state's impugned acts within a contextual analysis of not only the nature of said acts, but their purpose as well.

Writing for the unanimous Court, Justice Lebel found that "the [State Immunity Act] represents a clear rejection of the view that the immunity of foreign states is absolute...there are now exceptions to the principle of state immunity."

Sovereign states, then, must tread carefully, as the rights of non-state parties to bring actions against the state for damages resulting from a non-exhaustive, contextual interpretation of "commercial activity" continues to expand and evolve. Conversely, it would be prudent for non-state parties to consider not shying away from litigating against states and state entities as the protections previously provided for by the doctrine of state immunity are eroding, particularly in areas of commercial activity, which is broadly defined in s. 2 of the State Immunity Act.

It appears that at the confluence of public and private international law, sovereign states may very well forfeit their immunity should they take actions to participate, or interfere, in activity governed by private international law, including, as we have seen here, legal proceedings.

Looking forward, it will indeed be very interesting to witness the application of these expansive principles of limited state immunity in different contexts. It is not too difficult to see a time in the not-too-distant future wherein states currently involved in conflicts around the world are named as defendants in actions for damages resulting from various broadly-defined commercial activities therein.

Will it really be too long before the United States is named as a co-Defendant in Canada in an action for damages brought against one of its seemingly limitless US government funded, controlled and supervised "contractors" in Iraq, Afghanistan, Pakistan or any of a host of other countries, whether publicly acknowledged as of yet or not?

And, when such a time does come, will Canadian courts apply the same principles as this SCC ruling to a friendly, some would argue "indispensible", foreign neighbour - in fact, our partner in some of those same wars?

Whatever the eventual answer, the convergence of public and private international law continues unabated.

Footnotes

1. In any event, the British did not allow an independent Kuwait until 1961, almost a half-century later.

2. And, may even have obtained an assurance of non-intervention from the American ambassador a week before the invasion, if Iraqi transcripts of the meeting are to be believed.

3. Pursuant to United Nations Security Council resolution 687, which declared Iraq financially liable for the damages caused by its invasion, the United Nations Compensation Commission reported US$350 billion in claims filed by governments, corporations and individuals against Iraq in the form of war reparations. Payments continue to date, and, as of July 2010, US$18.4 billion has already been distributed to claimants.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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