01 June 2006

Fraud and trust litigation news - summer: Findings obtained by fraud

Kuwait Airways Corporation v Iraqi Airways Corporation [2005] EWHC 2524, Queen’s Bench Division (Commercial Court) (Steel J)

The facts of the case

The Claimant, Kuwait Airways Corporation (‘KAC'), brought this action following a previous decision of the English Courts in which it had failed to establish that the loss of four of its aircraft (“the Mosul Four”), which had been destroyed or damaged beyond repair in the bombing of Mosul by coalition forces in the first Gulf War, had been caused by wrongful interference with them by the Defendant, Iraqi Airways Corporation (‘IAC'), and had been obtained by fraud.

On 6 August 1990, the Iraqi Minister of Transport and Communication, Mr Mohamed Hamza Al Zubaida, instructed Mr Noah Aldin Saffi, the then Director General and Chairman of the Board of IAC, that he should arrange to fly 10 aircraft to Iraq for “safekeeping”.  In the following week, all but one of the aircraft were flown to Iraq.  By 17 November 1990, four of the aircraft ended up at Mosul still in KAC's livery.  These made up the Mosul four. 

In the meantime, the Revolutionary Command Council of Iraq had passed Resolution 369 (‘the Decree') which came into effect on 17 September 1990 and stated:

“Kuwaiti Aircraft Corporation is hereby dissolved and all of its moveable and unmoveable assets, rights and obligations are transferred to Iraqi Airways Corporation which shall in accordance with domestic and international law duly register such assets.”

In the original proceedings, KAC had alleged that there had been unlawful transfer of the aircraft by IAC.  In this respect, KAC's evidence relied in part on the fact that there had been repainting and other efforts to incorporate the aircraft into the fleet prior to 17 September 1990.  The Decree had merely legitimised what had already happened.  Consequently, the decision to move the aircraft to Iraq was that of IAC and not the Iraqi Government, therefore the loss of the aircraft suffered by KAC should be properly recoverable from IAC.    

On the evidence then available, the English Courts had held that the acts before the Decree came into effect attracted sovereign immunity.  Further, even if there had been no usurpation by IAC and the Iraqi Government had not passed the Decree, the Iraqi Government still required use of the aircraft and on the facts the aircraft would still have ended up in Mosul where they were destroyed.  KAC appealed.

On the point as to the acquisition of the aircraft by IAC, it was unsuccessful.  However, over the course of the proceedings, KAC had obtained new evidence that the factual basis for the finding on sovereign immunity had been reached on false and perjured evidence.  In particular, two letters and a diary had come to light showing that IAC had been taking positive steps to register the aircraft in the weeks prior to the Decree.  The House of Lords ruled that such a claim should be pursued in a new action alleging fraud.  KAC brought such an action and was successful. 

As a consequence, KAC brought this action claiming that the decision of the Court that it could not recover in respect of the Mosul four should be set aside.

The decision

The Court found that there had been fraud in the form of deliberate concealment of a large amount of relevant material documents by IAC.  In consequence, the impact of this new evidence entirely changed the nature of the case.  It was not, as IAC alleged, that no decision had been made about handling the aircraft that was not a governmental decision.  The previous trial had proceeded largely on a false basis.  Accordingly, the original findings were set aside.

Points of interest

This case is useful in demonstrating the Court's ability to set aside previous findings when new evidence comes to light.  In this case, Steel J considered that the new evidence proved that IAC interfered with the aircraft knowing that they were not their property.  Because of this bad faith, it followed that the burden of proof for the purpose of demonstrating that, but for its interference, the property would still have been lost, was no longer on KAC but IAC.

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