UK: Loss of Use Claims Assessed

Aircraft loss of use claims are notoriously difficult to quantify. The ongoing Kuwait Airways claim against Iraqi Airways illustrates an extreme case.

Following the House of Lords’ decision that Iraqi Airways (IAC) was liable in conversion for the loss of six Kuwait Airways’ (KAC) aircraft seized by Iraq and transferred to IAC following the invasion of Kuwait in 1990, the Commercial Court has delivered a partial ruling on the quantification of loss.

The test applied was the difference between the owner’s position in possession of the goods and that without them. This was the settled law in a case of successive conversion. In this instance it was to be assumed that KAC did not have access to Kuwait airport, but that it had possession of the aircraft, so could secure rental income.

Accordingly the court had to determine:

• Whether KAC could have leased out the subject aircraft during the period before it resumed its own operations, and
• The cost of leasing in capacity to substitute for the six aircraft detained in Iran ("the Iran Six"), for which IAC were responsible after it resumed operations.

The factual background to the claims for lost revenue and the costs of leasing alternative capacity was complicated. KAC started running some services from Cairo in September 1990 and by January 1991 the liberation of Kuwait was imminent, so it would have been hopeful of restarting its services on regaining access to Kuwait. In the event Kuwait airport became available in about April or May and by July KAC was running a full service. In August and September 1991 it took out a series of short term dry leases for replacement capacity pending the delivery of eleven new replacement aircraft from Airbus; there were in addition a number of wet leases. The Iran Six were recovered in July and August of the following year and after repairs were reaccepted into KAC’s fleet between December 1992 and June 1993.

The claims on which the Court adjudicated were:

• Direct costs associated with recovering the Iran Six. This was largely allowed subject to some discounts for want of proper proof, and was in addition to a figure of US$20m paid to the Government of Iran for their recovery.
• Loss of rental income that would have been earned on one of the Iran Six from 17 September 1990 (the date of the Revolutionary Command Council resolution transferring the aircraft to IAC) until its return to KAC’s fleet. The Court found that KAC would have leased out this aircraft but that no leases could have been completed before 1 February 1991, so the hypothetical rental was recoverable from that date until the date of delivery to the repair contractor (leaving over the claim in respect of loss after that period for a future hearing), subject to a 10% discount to reflect the weakness of KAC’s negotiating position.
• Loss of rental income that would have been earned on the five other aircraft making up the Iran Six. Since by January 1991 KAC would have been hopeful of restarting its services on regaining access to Kuwait, this claim failed. 70% of the cost of leasing in five replacement aircraft was allowed (where KAC sought 80%) from the start of those leases until the date of delivery of the recovered aircraft to the repair contractor. The cost of wet leased aircraft was not recoverable since KAC was unable to prove they were used for services which would have been operated by one of the Iran Six.

The judgment is long and goes into each of the heads claimed in some detail. A number of heads were not pursued and some failed. Some issues remain to be addressed at a future hearing. Extensive fact and expert evidence was adduced but despite his best efforts Langley J acknowledged that in some respects he could not be absolutely "scientific or precise" in quantifying the loss. Nevertheless the breadth of the nature of the claims make the judgment useful in assessing loss of use claims in less extreme circumstances.