Iraqi Airways cannot claim immunity in Kuwaiti fleet case

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Kuwait Airways has secured a Canadian Supreme Court ruling rejecting an Iraqi Airways attempt to block war-reparations compensation by claiming state immunity.

Canadian regional jet manufacturer Bombardier has been caught up in the long-running case centred on compensation for the destruction of Kuwait Airways' fleet during the Gulf conflict in 1990.

Iraq's Government has ordered several CRJ aircraft from Bombardier. But law firm Fasken Martineau, representing Kuwait Airways, maintains that the contract is a "sham" and that the aircraft are destined for Iraqi Airways - and, as such, can be seized to help pay off a legally-binding compensation bill of some $1.2 billion.

Kuwait Airways, having secured judgements in its favour in the UK, has pursued the case in Quebec - where Bombardier is based - because Iraqi Airways had claimed that the capture of the Kuwaiti fleet during the war had been a sovereign act, for which the airline could not be held responsible under Canadian law.

In 2008 the Quebec Superior Court held that a foreign state was, indeed, entitled to immunity in a Canadian court for sovereign acts, and that an exception - for commercial activity - did not apply in this case. Kuwait Airways appealed the decision but this was dismissed by the Quebec Court of Appeal.

But in a ruling yesterday - which came as senior Kuwait Airways and Iraqi Airways representatives attended the annual Arab Air Carriers Organization conference in Cairo - the Canadian Supreme Court stated that the UK findings "lead to a different legal characterisation".

"It is true that the acts alleged against Iraq that resulted in the litigation were carried out by a state for the benefit of a state-owned corporation," says the Supreme Court judgement.

But it adds: "When all is said and done, the subject of the litigation was the seizure of the [Kuwait Airways] aircraft by Iraq. The original appropriation of the aircraft was a sovereign act, but the subsequent retention and use of the aircraft by [Iraqi Airways] were commercial acts."

Because the UK court case centred on the retention of the aircraft, and there was no connection between this litigation and the sovereign act of seizure, Iraq "could not rely onstate immunity".

Fasken Martineau's Christopher Gooding says Kuwait Airways is "delighted" with the Supreme Court finding which, he says, "opens the way for partial payment" of the liabilities.

But he criticises Iraqi Airways for continuing to "fight every legal point, however tenuous", instead of recognising its legal responsibilities. He adds: "It is a tragedy that this case needed to be fought."