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	England and Wales High Court (Commercial Court) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Commercial Court) Decisions >> Kuwait Airways Corp v Iraqi Airways Co [2004] EWHC 2603 (Comm) (12 November 2004) URL: http://www.bailii.org/ew/cases/EWHC/Comm/2004/2603.html Cite as: [2004] EWHC 2603 (Comm)

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IN THE HIGH COURT OF JUSTICE
QUEENS'S BENCH DIVISION
COMMERCIAL COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		12/11/2004

Mr Justice Cresswell:

INDEX

INTRODUCTION
The nature and control of KAC's stock of spares	17.
Commencement of Proceedings	35
Hearings before Evans J	37
Appeals from Evans J	43
The Trial before Mance J	47
The Trial before Aikens J	52
The Appeals to the Court of Appeal	55
The Appeals to the House of Lords	60
The Assessment of Damages in the Main Aircraft Action	62
The Petition to the House of Lords to Rescind its 1995 Decision	68
The Perjury Action	72
The Perjury II Action	78
The Adjournment of the Spares Trial	81
Political developments	86
The Discovery of KAC's Spares in Iraq	91
Developments between July and November 2003	96
The Spares Action CMC on 18 December 2003	110
The Spares Action CMC on 30 January 2004	114
The Spares Action CMC on 27 February 2004	118
The Spares Action CMC on 26 March 2004	131
The Discovery of IAC's Documents in Iraq	139
Admissions by IAC	150
The Spares Action PTR on 30 April 2004	155
Tests in relation to KAC's data	156
Aircraft operated by KAC on 2 August 1990	162
Dates of Delivery of KAC's New Aircraft	163
EVIDENCE
Unchallenged witness statements on behalf of KAC	164
Witnesses called to give evidence by KAC	186
Expert Evidence	216
THE RELEVANT LEGAL PRINCIPLES
The tort of conversion	219
The normal measure of damages	225
Accountability for benefits received	233
User Damages	234
Intervening acts and the costs of recovery and repair	242
Consequential Loss	243
Assessment of the market value of the goods at the time the defendant converted them	246
Betterment and new for old	251
DATA ISSUES
1. Are there grounds for concluding that KAC's remaindered and recovered data is materially inaccurate or unreliable and, if so, to what extent?	252
2. Is any credit to be given to IAC for negative quantities and, if so, how much?	276
3. Is the otherwise agreed credit for unmatched parts to be reduced to take account of credit given for negative quantities and, if so, by how much?	285
4. Should any deductions be made from the Working Schedule to account for spares carried on the Iran Six or the Mosul Four?	292
5. What deductions should be made from the Working Schedule to account for spares held at Cairo?	296
6. Is KAC's claim for Simulator Spares barred by the consent order of Langley J dated 4 May 2001?	305
QUANTUM ISSUES
7. Is 100% MLP the correct starting point for KAC's claim in respect of the spares in the Working Schedule, and, if not, what is the correct starting point?	319
8. Should KAC's claim be reduced below 100% MLP because some of its spares became surplus after KAC's return to KIA and, if so, by how much?	331
9. Should KAC's claim be reduced because of betterment and, if so, by how much? What percentage should be deducted from what figure to take account of betterment?	344
10. Could KAC have obtained a bulk purchase discount and, if so, how much, and what is the effect of such a discount on KAC's claim? What percentage should be deducted from what figure to take account of bulk purchase discount?	345
11. Is KAC entitled to an additional 3.75% in respect of AOG purchases?	346
12. Is KAC entitled to an additional 4% in respect of customs duty?	347
13. How much credit should IAC be given for remaindered and recovered spares?	348
14 Is KAC entitled to $783,568 in respect of warehousing costs for spares, and, if not, how much?	355
15. How much is KAC entitled to claim in respect of Post Invasion Purchases?	360
16. Should $398,614 be deducted from KAC's claim in relation to engine number P701652, or any, and, if so, what sum?	362
17. Is KAC entitled to $3,200,000 in respect of a replacement engine for engine number P689597, or only $1,430,105, or how much?	363
18. Is KAC entitled to user damages, and, if so, how much?	371
CONCLUSION	482

1. In this action, the Spares Action, IAC has admitted liability from 9 August 1990 for conversion of KAC's aircraft spare parts at Kuwait International Airport, but disputes the appropriate level of quantum. The background to and history of this complex litigation is set out in the Introduction below.
2. IAC was represented by Mr Rhodri Davies QC and Mr D Spitz (instructed by Kendall Freeman) until August 2004. I refer to my judgment dated 4 October 2004 for an account of the involvement of Ross & Craig and Mr S Nathan QC. For the reasons set out in that judgment I granted relief from sanctions and an adjournment of one week from 27 September to 4 October. In the event IAC was not represented for the balance of the hearing (as to user damages) on 4,5,6 and 7 October. But the report of Mr Beyer was placed before the Court (see paragraph 218 below). Further Mr Davies had provided some submissions in relation to user damages in July. IAC has since 4 November been represented by Teacher Stern Selby.
3. On 15 July I ordered IAC to pay KAC by way of interim payment the sum of US$148,468, 609 (being the sum of US$78,183,155 together with interest of US$ 70,285,454).

INTRODUCTION

4. On 2 August 1990 Iraq invaded Kuwait.
5. At the time of the invasion KAC operated 19 commercial aircraft. There were four Boeing 727s, three Boeing 767s, four Boeing 747s, three Airbus A300s and five Airbus A310s (one of the B727s was a Kuwaiti Government owned aircraft for which KAC was responsible). The details of these aircraft are set out at para 162 below. KAC also operated four smaller executive jets.
6. In order to operate these aircraft, KAC stored a substantial number of spare parts at Kuwait International Airport ("KIA"). The spares (apart from a number of spare engines, which were kept separately) were recorded in a highly sophisticated computer log-in system known as the Materials, Services and Controls System ("MSCS") which had been in place from around the mid-1980s.
7. Ten of the large commercial aircraft belonging to KAC were standing at KIA on 2 August 1990. These were two of the Boeing 767s, all three Airbus A300s and all five Airbus A310s. On 6 August 1990 the Iraqi Minister of Transport and Communications, Mr Al-Zubaidi, instructed Mr Saffi, then IAC's director general and chairman of the board, to fly these ten aircraft to Iraq for "safe keeping". Pursuant to that order, all but one of the aircraft were flown to Basra in the course of the next few days. The remaining aircraft (an Airbus A300 with registration AHI), which was under repair, did not leave until 22 August 1990 when it was flown direct to Baghdad.
8. On 8 and 9 August 1990 the Revolutionary Command Council ("RCC") of Iraq passed resolutions 312 and 313 which prescribed the integration of Kuwait into Iraq and the assumption by Iraq of responsibility for all Kuwaiti financial obligations. A copy of these resolutions was sent to IAC with the added notation, "Kindly take appropriate action for implementation thereof".
9. On 9 August an IAC delegation went to KIA. It was led by Mr Abbo (then IAC's Director of Quality Control), whose report of the visit refers to "the possibility of making use of the ground support equipment for aircraft maintenance". The next day, Mr Saffi flew to KIA to see the position for himself. A diary kept by Mr Nuaman Na'ama ("the Na'ama Diary"), then IAC's director of engineering, records that on 13 August 1990, Mr Saffi gave the following instructions: "Take materials out of the stores at a minimum. Abbo instead of Muwaffaq al-Salman. Full inventory with numbers..." Thereafter further orders were given to take a full inventory of all KAC's spares at KIA, transfer them to Baghdad and enter them into IAC's stores. (See e.g. Minutes of the meeting with the Director General of 22 August 1990 and 28 August 1990). Such an inventory was probably prepared at latest by 23 September 1990 but has not been disclosed.
10. By the end of November 1990 four of KAC's aircraft (the two Boeing 767s and two of the Airbus A300s) were at Mosul where they remained until they were destroyed by coalition bombing during the Gulf War. These aircraft have become known in the proceedings between KAC and IAC as the "Mosul Four". The other six aircraft (the five Airbus A310s and one A300) were, at that stage, all at Baghdad, but between mid-January and early February 1991 they were evacuated by IAC to Iran. There they remained until KAC was able to recover them in July and August 1992. KAC had to pay $20 million to the government of Iran in order to achieve this. These aircraft have become known as the "Iran Six".
11. Over a period of time from August 1990 until IAC left KIA at about the time of the commencement of the Gulf War, IAC removed a substantial number of KAC's spares from KIA and transported them to Baghdad. It is clear from the documents which KAC has retrieved and which IAC hid that this removal was both systematic and very extensive. It is common ground that IAC left some spares behind at KIA. These have become known as the "remaindered spares". It is also common ground that a substantial number of` spares were returned to KAC following the Gulf War under the auspices of the United Nations. IAC now admits that it retained a number of spares. Nine engines were returned on 13 November 1991. Thereafter further spares were handed over to KAC on 23 January 1992, 19 March 1992, 19 to 21 May 1992 and 12 September 1992. In April 2004, IAC returned two further containers of spares and it has amended its Defence to plead that it retained a small number of further spares. IAC also destroyed a significant number of spares. The spares which were returned have become known as the "recovered spares".
12. The exact number of remaindered and recovered spares and, therefore, the number of spares which KAC contends IAC must have taken but not returned, is one of the key issues which remains to be resolved in these proceedings. It is IAC's position that analysis of KAC's records (including the component control cards ("CCCs")) demonstrates that KAC has under-recorded remaindered and recovered spares. It is KAC's position that IAC's continued failure to make proper disclosure of its own records of the KAC spares which it entered into its stores, and the fact that IAC has disclosed lists of spares which it returned in 1992 which substantially corroborate KAC's records of what was returned, preclude IAC from adopting this position.
13. The UN Security Council's deadline for Iraq's withdrawal from Kuwait expired at midnight on 15 January 1991, and military action by coalition air forces began 24 hours later. On 2 March 1991 the UN Security Council required Iraq to rescind immediately its actions purporting to annex Kuwait and to accept liability under international law, and called upon Iraq to return all property seized by it. On the following day, Iraq agreed to comply, and on 5 March 1991 the Revolutionary Command Council passed Resolution 55 under which all decisions made by the RCC which related to Kuwait were deemed rescinded.
14. KAC's personnel began to return to KIA shortly after liberation on 25 February 1991, although KAC was not able to operate from KIA again until about 15 June 1991. In the interim, KAC had set up a temporary operation from Cairo. When it returned to KIA, KAC concluded that the computer hardware and software which had formed the MSCS system had either been taken or had been destroyed (when the administration building, in the basement of which the mainframe computer was housed, was burned down in the invasion).
15. It has recently transpired that at least 70 computer disks relating to the maintenance of KAC's aircraft were taken by IAC. On 9 November 1990 the Manager of Gulf Region Intelligence wrote to IAC. That letter contains a marginal note to Ms Layla recording that the computer department has received 70 computer disks and tapes. In July 2001, KAC discovered 568 computer tapes at KIA. These included two tapes containing the data contained within the MSCS as at 14 June 1990. These now form the starting point for KAC's claim. IAC accepts that the data on these tapes should be treated as accurate. KAC has accepted IAC's suggestion that it can safely be assumed (subject to certain provisos set out in paragraph 10 of KAC's Reply) that KAC's stock of spares on 14 June 1990 provides a sufficiently reliable estimate of KAC's stock on 2 August 1990. This eliminates the need for analysis of a costly reconstruction of the movement of spares in and out of KAC's stock between 14 June and 2 August 1990. There remains some dispute as to whether certain spares included in KAC's claim were actually at KIA on 2 August 1990.
16. As a temporary replacement for MSCS, KAC developed a "Local Area Network" or "LAN". It was a PC based system of limited functionality compared with MSCS. It was first operated in about February 1992. During 1994 KAC acquired and installed a permanent replacement for MSCS, known as "Maxi-Merlin". This was an updated version of MSCS. The earliest archive tape which has been found recording the data on Maxi-Merlin is from December 1994.

The nature and control of KAC's stock of spares

17. There are a number of different departments within KAC. The department relevant to the matters in this action is the Engineering Department, which was at all material times headed by the Engineering Director, Mr Ahmed Al Zabin. The engineering department is divided into three divisions, each headed by a Deputy Engineering Director, namely the Technical Services Division, the Maintenance and Overhaul Division and the Materials, Planning and Contracts Division. At the material times, Mr Suleiman Al-Jaber was the Deputy Engineering Director in charge of the latter Division.
18. The various divisions are divided into Sections, each under the control of a Manager. Responsibility for the purchasing, storing and control of spares was the preserve of the Materials Section, which at the time of the invasion was headed by Mr Hamoud Al-Baloul.
19. The position prior to invasion was as follows.

i) At KIA, the majority of KAC's spare parts were housed in what was known as the "bonded store". The bonded store was in two main sections: the main bonded store and the large items bonded store.

ii) Other stores at KIA (in different locations) were the "commercial" stores (tools, cleaning equipment etc), "inflammable" stores (oils, greases, cleaning materials), "DPI" stores (Deferred Purchase Inventory, meaning consignment stock which was not purchased until used) and the "Loan Tool Stores" (one in each of the two hangars for tools issued out of the commercial stores).

iii) KAC attempted to maintain a 98% service level. This means that, in theory, where an engineer requires a part to fit to an aircraft, the part will be in stock 98 times out of 100.

iv) It sometimes happens that a defect on an aircraft means that it cannot commence a scheduled flight. This is known as an "AOG" situation, meaning Aircraft On Ground. When KAC required spares urgently to remedy an AOG situation, it would purchase them from the quickest available source, normally paying a substantial premium. In all other cases, it was KAC's policy, only to purchase spares from Aircraft Manufacturers ("AMs") or Original Equipment Manufacturers ("OEMs").

20. Each AM and OEM gives a part of a particular type a number, known as the Manufacturer's Part Number ("MPN"). At the same time, many individual parts have their own serial number which identifies that particular item. Additionally, KAC used its own internal numbering system, known as class control numbers ("CCNs"). All parts which were interchangeable would be allocated the same CCN. It is, therefore, possible that several MPNs could be grouped under a common CCN and that KAC could have had in stock several individual items with a common MPN, each with its own serial number.
21. Apart from these numbering systems, new spares which KAC purchased and spares which arrived following repair by an external agency were given an "Approved Stores Serial" ("ASS") number when they were logged into the stores. Spares which had been repaired by KAC's local workshops were given a "Credit Note" ("CN") number. When spares were sent away for repair, they would be given a "Work Order" or "Job" number.
22. Aircraft spares fall into two basic classifications: -

i) Consumables and Expendables. These are spares which are used only once, and for which the cost of repair would normally exceed that of replacement. The majority in number of an airline's spares (about 99% in the case of KAC) will be consumables/ expendables, but in terms of value they will normally amount to only about 20% of the total stock (and this was the case at KAC).

ii) Rotables and Repairables. These are spares which are repaired on a number of occasions: -

a) Rotables are parts which are removed and repaired at regular intervals (for example, after a set number of flying hours, a set time period, or a set number of cycles – i.e. take-offs and landings). The rotable removed from the aircraft is then overhauled and made serviceable for further use.

b) Repairables are parts which have no set life, but can (when they fail) be economically overhauled and re-used.

23. The relevant aviation authority in Kuwait is the Directorate General of Civil Aviation ("DGCA"). KAC is required by the terms of its approval to store its spares in carefully controlled conditions. Since rotables require regular inspection and overhaul, the regulatory regime required full life history records to be kept in respect of them. Such "controlled" spares were entered into MSCS along with all other spares, but MSCS was unable to record the life history. In general controlled spares tend to be high value items. The life history of such controlled spares was recorded manually on CCCs, which were also known as the T-Card System. KAC therefore complied with its regulatory obligations inter alia through the use of the CCCs. The Component Control Unit, within the Materials Section, was responsible for maintaining these records. At the material times, Mr Bader Al-Khulaifi was the Supervisor in charge of the Component Control Section, reporting to Mr Al-Baloul, the Materials Manager.
24. CCCs are organised primarily by part number (i.e. MPN). There is a pink "master card" for each part number listing the serial numbers of all the individual parts held by KAC with that part number. The master card also records other details such as the CCN, which type of aircraft the part can be fitted to, how many such parts are normally fitted per aircraft, and so on.
25. Some of the parts listed on the master card at any one time might be fitted to aircraft and some might be in stock or away being repaired. These "movements" of individual parts are recorded on "movement cards" kept alongside the master card. There is one movement card for each individual part. The front is green and the back is red – when the part is unserviceable the red part is turned to face the front. The movement cards normally indicate when the part was purchased, when it was put onto an aircraft (and the particular aircraft is identified), when it came off the aircraft, when it was sent for repair, which organisation carried out the repair, when the repaired part came back into stock, the "shelf life expiry" ("SLE") of the part, and so on.
26. While KAC was operating from its temporary base in Cairo, KAC had no access to its former stock records and no computerised recording system. A temporary system was devised which consisted of inventory control cards (relating to every item in the stores) and a new set of CCCs (relating to controlled items). When KAC returned to KIA, it discovered that much of the T-Card System had been taken or destroyed during and after the invasion. It has never been possible fully to reconstruct it. In 1992 a large number of CCCs which IAC had taken from KIA were returned. These were incorporated, where possible, into the new CCC records which had been begun in Cairo. This means that, in some cases, two master cards are available for a particular part number or two movement cards are available for a particular part, one pre- and one post-invasion. KAC created CCCs for recovered and remaindered rotables. For all recovered and remaindered rotables there should be a CCC.
27. Between 1992 and 2004, parts in certain part lines would have been scrapped or sold.

i) When a rotable part is scrapped the movement card is taken out of the bundle of cards and attached to the scrap voucher and filed. The master card is marked with a note that the part with the relevant serial number has been scrapped.

ii) When an individual part is sold, it is accompanied by the last release certificate and a certificate of origin. If those documents are provided, the purchaser does not normally ask for the movement card as well.

iii) When rotable parts are sold as a package along with an aircraft, the relevant cards will frequently be provided to the purchaser. This would include the master card if it is a part exclusive to the aircraft being sold, but if the part is common to other aircraft the master card would be retained.

28. There is, of course, no record of what happened to KAC's parts whilst in Iraq. Further KAC's CCC records are, in the case of many parts, incomplete. In some cases, a full record can be produced; in many cases, it cannot.
29. Like MSCS, the temporary LAN computer system did not allow a full life history of controlled parts to be maintained electronically. The CCCs, therefore, remained the primary source of life history data for those spares until the LAN was "frozen" in June 1994. The LAN did, however, replace the temporary inventory control card system from about January 1992. Nevertheless, the use of CCCs continued after the introduction of the LAN.
30. The new Maxi-Merlin system purchased in 1994 had the added benefit that it enabled computerised life history records to be kept. The data in the LAN was transferred electronically to Maxi-Merlin. This did not include life history data, since that was not stored on the LAN. The main source for the life history was, therefore, the CCCs (both new ones created in Cairo and Kuwait, and any old ones which had been recovered). The history data in Maxi-Merlin for parts acquired before the invasion is, therefore, incomplete as a result of the absence of full source data.
31. In theory, the use of Maxi-Merlin meant that the CCCs were obsolete. In practice, of course, it was bound to take a considerable time before the history of parts could be loaded from the CCCs onto Maxi-Merlin. KAC therefore used the CCCs for some time after the introduction of Maxi-Merlin. Parts sold or scrapped in the meantime were never loaded onto Maxi-Merlin. This is another reason why the history data in Maxi-Merlin was never complete. The Maxi-Merlin data which has been examined by the experts is derived from an archive tape dating from December 1994. This is the earliest available "snap-shot" of KAC's stock available from Maxi-Merlin.

The fleet operated by KAC after invasion

32. On 17 September 1991 KAC executed a contract to purchase a new fleet of 11 current model Airbus aircraft (six A310-300s and five A300-600Rs). Certain credits and subsidies were given by Airbus as part of the aircraft purchases made by KAC. The new aircraft were delivered on various dates between November 1992 and February 1994.
33. The Iran Six did not return from Iran until various dates in July and August 1992 and the aircraft were then sent for repair to Sogerma-Socea SA in Bordeaux. The relevant dates are set out in the following table:

	Aircraft flown from Iraq to Iran	Aircraft flown back out of Iran	Delivery to Sogerma	Work completion certificates issued by Sogerma	Acceptance of aircraft by KAC
AHA	15 Jan 91	8 Aug 92	15 Sep 92	1 Feb 93	23 Feb 93
AHB	15 Jan 91	5 Aug 92	15 Sep 92	15 Jun 93	15 Jun 93
AHC	18 Jan 91	2 Aug 92	6 Oct 92	15 Jun 93	15 Jun 93
AHD	18 Jan 91	27 Jul 92	4 Aug 92	2 Nov 92	23 Dec 92
AHE	15 Jan 91	27 Jul 92	5 Aug 92	28 Jan 93	23 Feb 93
AHI	4 Feb 91	11 Aug 92	25 Sep 92	18 Mar 93	4 May 93

34. In the period between ordering the new Airbus aircraft and their delivery, it was necessary for KAC to lease in additional capacity. In addition to a number of very short term leases, KAC leased 5 Airbus A310s from Polaris Aircraft Leasing International Ltd ("Polaris") between the dates set out in the following table:

	Delivered to KAC/ start dates of leases	Date of return to Polaris
A6-KUA	20 Aug 91	14 Jun 93
A6-KUB	20 Aug 91	20 Jun 93
A6-KUC	29 Aug 91	30 Sep 93
A6-KUD	18 Sep 91	30 Sep 93
A6-KUE	4 Nov 91	31 Oct 93

Commencement of Proceedings

35. On 11 January 1991 KAC issued a writ against IAC and the Republic of Iraq claiming either delivery up of the Iran Six and Mosul Four together with consequential damages for the defendants' unlawful interference with them, or damages in the amount of the value of the aircraft pursuant to section 3 of the Torts (Interference with Goods) Act 1977 and at common law. The proceedings commenced by this writ (action number 1991 Folio No 69) have become known as the "Main Aircraft Action". Jurisdiction was founded on the fact that IAC had premises in Lower Regent Street.
36. On 4 December 1991 KAC issued another writ against the same two defendants seeking similar orders, in relation to its spares, to those sought in the Main Aircraft Action. The spares in question were referred to in a number of annexes to the writ. The proceedings commenced by this writ (action number 1991 Folio No 2587) have become known as the "Spares Action". There was a considerable overlap between the factual and legal issues in the Spares Action and the Main Aircraft Action. Consequently, the parties agreed that the resolution of the Spares Action should await the outcome of the Main Aircraft Action.

Hearings before Evans J

37. In the Main Aircraft Action, judgment in default of acknowledgement of service was entered against IAC on 11 February 1991 and against Iraq on 24 May 1991.
38. IAC applied on 8 July 1991 for leave to give notice of intention to defend out of time. This leave was given on 31 July 1991 and a stay of execution was also granted. On 2 August 1991, IAC applied for various orders including orders setting aside the writ and service, a declaration that the writ had not been properly served, a declaration that the Court had no jurisdiction and that the claim was not justiciable and an order setting aside the default judgment. Iraq applied to set aside the default judgment on 9 July 1991, and to set aside the writ on 23 July 1991.
39. IAC's applications were supported by affidavits from Mr Saffi, Mr Abbo and Mr Amer Al Shaikhly (who was said to have been IAC's line maintenance manager at the time). The thrust of their evidence was that: -

i) The aircraft were removed by IAC on the instructions of the Iraqi government and were handed over to the Ministry of Transport, in whose possession and custody they remained until the implementation of RCC 369 on 17 September 1990. This provided: -

"Kuwaiti Airways Corporation is hereby dissolved and all of its moveable and immoveable assets, rights and obligations are transferred to Iraqi Airways Company which shall in accordance with domestic and international law requirements duly register such assets."

ii) Only after 17 September 1990 did IAC have any further significant involvement with the aircraft.

40. On 3 December 1991 Evans J held that the issue of sovereign immunity should be decided as a preliminary issue and directed that two KAC witnesses and the three IAC witnesses (Mr Saffi, Mr Al Shaikhly and Mr Abbo) should attend for cross-examination on their affidavits.
41. Mr Shaikhly and Mr Abbo gave evidence before Evans J on 11 December 1991. Mr Saffi did not attend, because he said that he was not well enough to do so. KAC doubted that this was the case. In any event, on 29 January 1992, Mr Saffi did attend and gave evidence before Evans J.
42. In his judgment of 16 April 1992, Evans J said that a clear general picture had emerged from the evidence. Part of this picture was that Mr Saffi had been instructed to "maintain" or "look after" the KAC aircraft which had been brought to Iraq. This kind of basic maintenance was limited to checking the tyre pressures, moving each aircraft so that its tyres did not become distorted, checking for oil and fuel leaks and removing and replacing engine cowlings and such like from time to time. Evans J concluded that the object of the safe-keeping which Mr Saffi had been instructed to achieve was to look after the aircraft until such time as IAC could resume commercial operations with them. Consequently, he held that IAC was not immune from jurisdiction pursuant to the State Immunity Act 1978. He also ordered that the judgment in default against Iraq be set aside.

Appeals from Evans J

43. IAC served a Notice of Appeal on 1 September 1992. KAC served a Notice of Appeal on 2 September 1992. IAC contended that Evans J was wrong on the evidence before him to characterise the acts complained of as commercial. KAC contended that Evans J was wrong to hold that there had been no valid service on Iraq. The Court of Appeal gave judgment on 21 October 1993 (reported at [1995] 1 Lloyd's Law Rep. 25). IAC's appeal on immunity was upheld, without disturbing any of Evans J's findings of fact on the evidence before him. KAC's cross-appeal was dismissed. Leave to appeal to the House of Lords was refused (by the Court of Appeal's order dated 3 November 1993).
44. Permission having been granted by the House of Lords, KAC appealed against the Court of Appeal's decision. The House of Lords concluded that IAC's retention and use of the aircraft after 17 September 1990 (when resolution 369 came into force) could not be said to be acts performed in the exercise of sovereign immunity, but that IAC's actions before then were sufficiently related to the act of seizure of the aircraft by Iraq to amount to acts jure imperii which did attract immunity (reported at [1995] 1 WLR 1147).
45. In arriving at this conclusion, the House of Lords relied on an agreed statement of facts based on the findings of Evans J. This recorded that IAC had carried out very limited and basic maintenance of KAC's aircraft in the period subsequent to their arrival in Iraq and asserted that, prior to 17 September 1990, no use whatever had been made of the aircraft. Further, IAC asserted that it was only after that date that two of the KAC aircraft had been over-painted in IAC livery.
46. Thus, as a result of the House of Lords' decision, the position was that IAC could only be held liable in relation to its actions after 17 September 1990.

The Trial before Mance J

47. On 26 July 1996 Colman J ordered that the trial be split between issues of liability and quantum. The trial on liability (confined, as a result of the House of Lords' order, to IAC's acts after 17 September 1990) was listed before Mance J in November 1997.
48. IAC served its disclosure list on 7 August 1996 and served a supplemental list on 25 September 1997. Various reasons were given by IAC's witnesses, in particular Mr Samir Nekash (IAC's Director of Technical Planning, now deceased), for IAC's inability to provide further documents. In particular, it was said that IAC's maintenance department and its records were destroyed in the Gulf War, there were no records of the repainting of KAC's aircraft and there were no records relating to the movements of KAC's aircraft between invasion and 17 September 1990. One of the stated reasons for the lack of pre-17 September 1990 records was that the aircraft had not yet been registered as Iraqi aircraft. The statements that there were no further relevant documents have been proved to be false – see below. IAC accepts that it withheld some documents which should have been disclosed.
49. As a result of funding difficulties, IAC was not initially represented at the trial before Mance J and the initial hearing was abridged. After Mance J had reserved judgment, IAC's funding difficulties were resolved and the trial was re-opened. Although IAC then called expert evidence, it did not call any witnesses of fact.
50. Mance J delivered judgment on 29 July 1998 (reported at [1999] CLC 31). His judgment dealt with issues relating to: -

i) What acts amount to conversion as a matter of English law.

ii) The Iraqi law of usurpation (necessary because of the "double-actionability rule" referred to in Boys v Chaplin [1971] AC 536). In particular: -

a) Mance J held that where there was physical loss or damage to goods, "in the case of a usurper acting in good faith, the owner must show that the loss or damage would not have occurred but for the usurpation". KAC did not press the suggestion that IAC acted in bad faith because KAC considered (at that time) that it could not be said, in the light of RCC Resolution 369 and in respect of the period after 17 September 1990 when IAC had been held to cease to have immunity, that IAC was aware that it was usurping KAC's property.

b) Mance J also held that, "in the case of a head of loss not involving or arising from physical loss or damage, … the test under Iraqi law was whether the loss resulted 'naturally' from the usurpation".

iii) As to whether there had been conversion on the facts, Mance J held that IAC's conduct in relation to the ten aircraft, when viewed in the light of its overall intention to make all the aircraft part of its fleet and to put them to commercial use, amounted to wrongful interference with the aircraft.

iv) As to whether Resolution 369 was "justiciable" in the sense elucidated by Lord Wilberforce in Buttes Gas & Oil Co v Hammer [1982] AC 888, Mance J held that the court could not and should not recognise Resolution 369 for any purpose, so that IAC could not rely on it to prove any title to KAC's aircraft.

51. Questions of causation, remoteness and damages were left over to the second part of the split trial.

The Trial before Aikens J

52. Aikens J tried the issues of causation and quantum between October and December 1999. Although there were statements from (amongst others) Mr Saffi adduced under CEA notices by IAC, Mr Nekash was the only IAC witness of fact who gave oral evidence at the trial before Aikens J.
53. On 12 October 1999, six days after the trial had commenced, Mr Nekash made a statement which disclosed, for the first time, the Na'ama Diary for the relevant period. The Na'ama Diary has been particularly significant in establishing the true course of events from 2 August 1990 onwards.
54. Aikens J gave judgment on 7 April 2000 (reported at [2002] 2 All ER (Comm) 360). His judgment dealt with the following matters: -

i) As a result of the evidence which was available to him, but had not been available to Evans J or Mance J, Aikens J found that three of KAC's aircraft had been over-painted in IAC livery before 17 September 1990.

ii) Aikens J made a number of findings about the movements of the various aircraft between 17 September 1990 and 11 January 1991.

iii) Aikens J held that on a proper construction of Mance J's judgment, IAC's conversion consisted of the incorporation of KAC's aircraft into the IAC fleet and that the specific acts pleaded by KAC were simply indicative of that process. Consequently, he rejected IAC's argument that the Court was bound to concentrate on individual acts carried out in relation to each aircraft.

iv) Most importantly, Aikens J held that, as a matter of English law, KAC had to show that it was more likely than not that "but for" the wrongful interference of IAC it would not have suffered the loss and damage of which it complained. It was accepted by IAC that, as a matter of Iraqi law, a "but for" test was only applicable to KAC's claim in respect of the Mosul Four, since that claim involved physical loss and damage to goods. In relation to the consequential losses claimed in respect of the Iran Six, however, the test was whether the losses were the "natural" result of the usurpation.

v) Aikens J concluded that the disposition of KAC's aircraft would have been exactly the same, even if they had remained under the control of some Iraqi government entity other than IAC. KAC's claim in respect of the Iran Six therefore failed, as a matter of English law, but would have succeeded if Iraqi law only had applied. In the case of the Mosul Four, KAC's claim failed as a matter both of English and Iraqi law.

vi) Consequently, Aikens J held that KAC had failed to establish that its losses had been caused by IAC and he dismissed KAC's claim.

vii) Aikens J also decided that, if he was wrong about causation, certain of the heads of damage claimed by KAC were recoverable in principle, subject to any necessary assessment.

The Appeals to the Court of Appeal

55. IAC appealed Mance J's decisions on liability and KAC appealed Aikens J's decisions on causation and his dismissal of the action. Both appeals were heard together in June 2000. The Court of Appeal gave its judgment on 10 November 2000 (reported at [2002] 2 AC 883).
56. Prior to the hearing of the appeals various further documents were disclosed by IAC for the first time. These included daily movement sheets prepared by Mr Nekash's scheduling department for the period between 19 September and 29 December 1990. The documents were said by IAC to have been found by chance in a storage basement with other old records intended for routine disposal but which were not, in fact disposed of.
57. The Court of Appeal dismissed IAC's appeal against the judgment of Mance J and allowed in part KAC's appeal against the judgment of Aikens J. The Court concluded that: -

i) Aikens J was wrong to hold that there was any requirement to satisfy a "but for" test as a matter of English law.

ii) Consequently, KAC's claim in respect of the Iran Six, which did not require satisfaction of a "but for" test in Iraqi law, succeeded.

iii) But, so far as the Mosul Four were concerned, KAC was unable to discharge the burden of disproving the factual conclusions arrived at by Aikens J in considering whether the "but for" test could be satisfied in Iraqi law.

iv) In effect, KAC succeeded in part in relation to its claims in respect of the Iran Six but not in relation to its claims in respect of the Mosul Four.

58. KAC's losses had been claimed under various heads, as follows: -

i) Head A: The value of the Mosul Four. The Court of Appeal held that KAC was not entitled to recover under this head. The Court nevertheless assessed the amount that would have been recoverable had KAC been entitled to recover under this head. IAC says that this is relevant to the valuation issues that arise in this trial.

ii) Head B: KAC's costs of recovering the Iran Six, including the payment of $20 million made to Iran in 1994. The Court of Appeal: -

a) Ordered IAC to pay $20 million in respect of the payment made to Iran, together with over $10 million of interest; and

b) Held that KAC was entitled in principle to recover the other costs, subject to assessment.

iii) Head C: KAC's costs of repairing the Iran Six. The Court of Appeal held that KAC was entitled in principle to recover these sums, subject to KAC establishing the validity of the claim and to an assessment of quantum.

iv) Head D: The taint claim arising out of the depreciation in value of the Iran Six as a result of the conversion by IAC. This claim was rejected by Aikens J on the facts and was not pursued in the Court of Appeal.

v) Head E (i): KAC's claim in respect of the profits which would have been earned by converting the three A300 aircraft included in the Iran Six and Mosul Four to cargo mode in order to profit from the exceptional opportunities in the aftermath of hostilities to carry cargo into Kuwait for rebuilding. KAC did not pursue this head of loss in the absence of a finding of liability in relation to the Mosul Four (since two of the three A300 aircraft were included in the Mosul Four). KAC ultimately pursued an alternative claim for the profits it could have earned by leasing out the "orphan" A300.

vi) Head E (ii): KAC's claim for leasing in substitute cargo capacity. The Court of Appeal held that KAC was entitled to recover these costs in principle (in so far as they related to the Iran Six), subject to an assessment of quantum and to the resolution of the question of whether the period of the claim could extend beyond the dates on which the Iran Six were returned and into the period during which they were being repaired.

vii) Head E (iii): KAC's claim for leasing in substitute passenger capacity. The Court of Appeal arrived at the same decision as in respect of Head E (ii).

viii) Head E (iv): KAC's claim for a higher depreciation cost as a result of having to buy new aircraft earlier than it would otherwise have done if there had been no conversion of the ten aircraft by IAC. This was rejected by Aikens J and was not pursued in the Court of Appeal.

ix) Head E (v): KAC's claim for the costs of financing the purchase of new aircraft. The Court of Appeal rejected this head of claim.

59. On 21 December 2000, the Court of Appeal ordered IAC to pay (in addition to the $20 million plus interest in respect of the payment made to Iran) an interim payment in respect of Heads B, C, E (ii) and E (iii) in an amount of approximately $20 million together with interest of approximately $10 million to 21 December 2000 and daily interest of approximately $5,000 thereafter. IAC has paid these sums. Both parties' applications for permission to appeal were refused.

The Appeals to the House of Lords

60. The House of Lords gave permission to both parties to appeal. IAC appealed, submitting that the decision of Aikens J was correct and the action should be dismissed in its entirety. KAC cross-appealed contending that its claim in respect of the Mosul Four should not have been dismissed and that it should succeed on one head of damages which had been rejected by the Court of Appeal (the finance costs associated with buying replacement aircraft).
61. The appeal was heard during January 2002 and their lordships' speeches were delivered on 16 May 2002 (reported at [2002] 2 AC 1066). The House dismissed the appeal and the cross-appeal and affirmed the decision of the Court of Appeal. Despite detailed submissions on the facts as found by the Court of Appeal, the House of Lords rejected KAC's submissions that IAC, rather than the government of Iraq, had been in control of KAC's aircraft from the outset. In his speech, Lord Nicholls considered the measure of damages for conversion (see below).

The Assessment of Damages in the Main Aircraft Action

62. The assessment of damages in relation to the Iran Six took place in two parts.
63. Following a trial in June 2002, Langley J ordered on 20 November 2002 that IAC should pay a further $32,186,392.57 in respect of damages and interest to the date of the order and £375,000 on account of costs. The damages related to: -

i) All remaining losses claimed under Head B (the costs of recovering the Iran Six).

ii) 70% of the costs of leasing in substitute passenger capacity from Polaris up to the dates on which the Iran Six were sent for repair, but not including any sums for short term "wet" leases (Head E (iii)). It was agreed that the question of whether the time taken to repair the Iran Six was reasonable – and whether KAC could make any claim for that period - could more readily be addressed as part of the assessment of damages for the repair of the Iran Six which was to be the subject of a further assessment hearing at a later date (see below). The question whether KAC was entitled to recover a separate Return Condition Adjustment ("RCA") charge (or, as it turned out, a proportion thereof) paid pursuant to the terms of the Polaris leases was also hived off.

iii) A sum representing the loss of sums which could have been made by leasing out the orphan A300 up to the time when it was sent to repair (a head of loss replacing Head E (ii)). Again, the question of whether the period could be extended was hived off.

64. In his judgment, Langley J dealt with an argument by IAC that KAC's decision to purchase different and improved aircraft after invasion (Airbus A310-300s) to replace the ones it owned prior to the invasion (Airbus A310-200s) was not caused by the conversion of the Iran Six. KAC claimed from IAC the rent it had paid to lease A310-300s during the period until the Iran Six were returned and had been fully repaired. IAC argued that the decision to lease A310-300s rather than A300-200s was not caused by IAC's conversion of the Iran Six. Langley J considered this argument to be "hopeless" (in paragraph 35 of his judgment). He said (in paragraph 37) that "whilst it is open to IAC to contend that KAC failed to mitigate its loss by choosing to lease in A310-300s and not A310-200s, it is not open to IAC to contend … that it is not liable for at least the calculated cost of notionally leasing in A310-200s".
65. IAC lodged, but did not proceed with, an appeal in relation to one aspect of the judgment of Langley J. The sum due has been largely paid, save for some post-judgment interest. KAC commenced enforcement proceedings. An interim charging order was obtained against a lease held by IAC of property in Lower Regent Street, London on 18 March 2003. IAC applied to discharge that charging order but its application was adjourned generally by order of Master Miller dated 21 May 2004. IAC has appealed that order.
66. The final part of the assessment phase in the aircraft action was heard by HHJ Dean in November 2003. IAC's solicitors (Kendall Freeman) came off the record very shortly before the trial and, as a result, IAC did not attend and was not represented. HHJ Dean carried out the assessment in IAC's absence and awarded KAC a further sum of $59,174,401 (inclusive of interest) together with an order for costs on account in the sum of £1,000,000. These sums have not been paid. The damages related to: -

i) The costs of repairs to the Iran Six and their engines (Head C);

ii) 70% of the costs of leasing in substitute passenger capacity from Polaris during the period during which the Iran Six were at repair, plus an extra period during which the Polaris aircraft themselves were at repair (Head E (iii)).

iii) A proportion of the RCA charge made under the Polaris leases (part of Head E (iii)).

iv) The sums which could have been made by leasing out the orphan A300 during the time when it was at repair (a head of loss replacing Head E (ii)).

67. On 22 December 2003, KAC obtained a second charging order. That order has since been discharged on the basis of legislation implementing United Nations Security Council Resolution 1483. IAC contended successfully that the legislation prevents steps being taken to enforce judgments against Iraq or its state-owned enterprises such as IAC. KAC is appealing against the discharge of the order and is disputing IAC's interpretation of the legislation.

The Petition to the House of Lords to Rescind its 1995 Decision

68. The effect of the House of Lords' decision in 1995 was that IAC was protected by sovereign immunity in respect of its actions prior to 17 September 1990. But new material had come to light since that decision. In particular the Na'ama Diary and other documents showed that IAC's activity prior to 17 September 1990 had been much more extensive than had been found by Evans J (and summarized in the agreed statement of facts lodged on the appeal to the House of Lords and in the version of the facts contained in IAC's statement of its case).
69. KAC lodged a petition on 17 May 2000 for an order that the order of the House of 24 July 1995 be varied so as to declare that "so far as it relates to [IAC], the appeal on the issue of state immunity be allowed to the extent that it concerns alleged acts of wrongful interference of [IAC] both in the period from 9 August 1990 to 16 September 1990 and thereafter".
70. The petition was heard in July 2000 and was dismissed on 8 February 2001 (their lordships' opinions are reported at [2001] 1 WLR 429). Lord Slynn said, "On the material produced to the House it seems to me that the issues raised by KAC are prima facie relevant, serious and substantial. They cannot be brushed aside as being, even if IAC's claims are right, insignificant to the final assessment as to whether IAC was entitled to claim immunity for acts done during the period."
71. Nevertheless, it was held that any challenge to the House of Lords' original decision should be made by way of a separate action.

The Perjury Action

72. As a result, KAC issued a Claim Form in 2000 seeking an order that IAC was not entitled to sovereign immunity for any of its acts between 9 August 1990 and 17 September 1990. This action has become known as the "Perjury Action" (action number 2000 Folio No. 1137).
73. Some relevant documents were still being disclosed in the course of the Perjury Action. For example, in August 2001 IAC disclosed a letter to its insurance manager dated 25 August 1990 which asked "Kindly take the necessary action to insure the above aircraft noting that it is being operated for commercial uses on internal flights". In October 2001 IAC disclosed a letter from the Deputy Prime Minister of Iraq to the Presidency Office which enclosed a draft resolution to be issued by the RCC which eventually became Resolution 369. This was stated to have been provided after consideration of the contents of a letter from IAC relating to the transfer of KAC's assets to IAC.
74. The Perjury Action was heard by David Steel J between 13 and 27 May 2002 and, after an adjournment, between 8 and 17 October 2002. IAC called a number of witnesses, including Mr Abbo, Mr Al Shaikhly, Mr Na'ama and, subsequently, Mr Saffi, who had initially said that he was too unwell to attend.
75. On 24 January 2003 David Steel J handed down judgment. He found that:-

i) KAC had produced fresh evidence that was not before Evans J when he tried the issues of state immunity and which KAC could not with reasonable diligence have adduced at that time.

ii) The finding made by Aikens J that three airbuses had been painted in IAC livery before 17 September 1990 was correct, despite oral evidence given on behalf of IAC to the contrary.

iii) Two letters which had been relied upon by Mr Saffi when he gave evidence to Evans J were forgeries.

iv) Mr Saffi and Mr Abbo gave perjured evidence in 1991 and 1992 relating to the activities of IAC in regard to KAC's aircraft in the period 9 August to 16 September 1990.

v) Both those witnesses had the status and authority to be treated as IAC, and that the disparity between the perjured evidence and the new evidence entirely changed the nature of the case in regard to sovereign immunity during the period 9 August to 16 September 1990.

vi) In that period IAC was engaged in the process of absorbing the KAC fleet and that its acts were not acts jure imperii.

vii) It was not appropriate that KAC should be bound by a finding (the House of Lords 1995 ruling) that accords sovereign immunity to IAC in respect of any activities from 9 August 1990 onwards.

76. Orders to the above effect were made on 21 March 2003, when permission to appeal was also refused. On about 29 September 2003 IAC indicated that it had decided not to file a Notice of Appeal against Steel J's judgment.
77. On 28 November 2003 Steel J ordered that IAC should pay KAC various sums (totalling just over £1 million) on account in respect of the costs KAC incurred in the House of Lords in 1995 and the costs of the Perjury Action. These sums have not been paid.

The Perjury II Action

78. Following David Steel J's judgment in the Perjury Action, in August 2003 KAC issued further proceedings against IAC (2003 Folio No. 223). These allege that, in so far as the courts giving earlier judgments on liability and causation in the Main Aircraft Action were constrained to find wrongful interference only after 17 September 1990, and in respect of the finding that KAC could not recover in respect of the Mosul Four due to a failure to establish causation, these judgments were obtained by a fraud by IAC, and that KAC is entitled to have the relevant parts of those judgments set aside. These proceedings have become known as "Perjury II".
79. Directions have been given for a trial of the Perjury II Action in February 2005. IAC has already indicated that it will not be calling any witnesses of fact. KAC says that on the true facts, IAC wrongfully interfered with KAC's aircraft from on or around 9 August 1990 after which time it was completely in control of their movements. Contrary to the findings of Aikens J, but for the conversion the government of Iraq would have dealt differently with the aircraft and the Mosul Four would not have been at Mosul. Consequently, KAC contends that it is entitled to recover in respect of the Mosul Four. KAC say that this contention is borne out by the documents which have recently been discovered in Iraq (see below). KAC, therefore, seeks the value of the Mosul Four (agreed at approximately $156 million) plus the remainder of its leasing costs not recovered under the Iran Six claim (approximately $12 million). Together with interest, this amounts to in excess of $300 million. This (says KAC) could also enable KAC to pursue its claim for loss of additional net income which would have been earned had the fleet been available (in the region of $100 million, including interest).
80. IAC contends that the critical finding of Aikens J (upheld by the Court of Appeal and the House of Lords) that KAC could not recover in respect of the Mosul Four on the grounds of lack of causation was not procured by perjured evidence. According to IAC, Aikens J's finding was a hypothetical one (as to what would have happened, but for IAC's wrongful interference) which was not dependent on IAC's evidence of what it actually did. Furthermore, at the time of the trial before Aikens J, the Court was made aware of KAC's likely challenge to the facts on which the House of Lords had based its decision. IAC say that Aikens J therefore deliberately and expressly avoided basing his finding on causation on those facts. Accordingly, IAC contends that KAC is not entitled to re-open the finding made by Aikens J. If KAC were able to re-open that finding, IAC would contend that KAC's claim for damages for wrongful interference in respect of the Mosul Four would still fail because a different court retrying the issue would reach the same conclusion as Aikens J, namely that, but for IAC's wrongful interference, the Mosul Four would have been destroyed anyway.

The Adjournment of the Spares Trial

81. Whilst the Main Aircraft Action and the Perjury Action were proceeding as described above, the Spares Action was also moving forward. A trial was commenced in November 2002, after the judgment of the House of Lords in the Main Aircraft Action but before judgment was given in the Perjury Action.
82. One of IAC's main contentions at that trial was, as it had always been, that (with the exception of a few items of immaterial value) IAC had returned to KAC all the spares which it took. The significant difference between the quantity of items which KAC held in stock on 2 August 1990 and the quantity of items which it had recorded as remaindered and recovered spares was alleged by IAC to be due to various factors such as an alleged overstatement of KAC's stock, an alleged understatement of the remaindered and recovered spares, looting by the Iraqi military and others after the invasion and damage by bombing during the Gulf War. [Of these factors, IAC now relies only on the alleged understatement of the remaindered and recovered spares]. In addition, IAC maintained that all relevant documents had been disclosed and that it did not have any more in its control.
83. At the commencement of the 2002 trial KAC had not disclosed the contents of its Maxi-Merlin system as at 1994. KAC says that IAC was aware of the existence of Maxi-Merlin and points out that it had contended that it was likely to be of no assistance. IAC says that disclosure should nevertheless have been made.
84. After the trial had begun IAC told the Court that it had identified at least 5 valuable rotable parts which KAC claimed had been lost, but which contemporaneous KAC documentation showed to have been in KAC's possession after liberation. IAC's expert (Mr Villa) then served a report which stated his belief, based to a significant extent on an analysis of the recently inspected CCCs, that there were a significant number of further parts which should have been listed as remaindered or recovered, but which were not. KAC subsequently accepted that it was not possible to ascertain the true position without significant further work on the CCCs. This work included analysis by sample of the CCCs. 10,000 CCCs were brought to London to enable the experts to do their work.
85. At the request of both KAC and IAC, by an order dated 27 November 2002, the trial was adjourned, initially until January 2004. The order laid down a sophisticated and detailed case management regime under which the parties' experts were required to set out their position in relation to each matter which they had identified as requiring investigation, and then work towards narrowing the issues.

Political Developments

86. The experts' progress pursuant to the order of 27 November 2002 was halted, along with all steps in the other three actions between the parties, as a result of the hostilities in Iraq commenced by a US and UK led coalition on 20 March 2003.
87. The Spares Action, along with the others, was formally stayed on 28 March 2003, since IAC's then solicitors had indicated that they had no further funds and were unable to obtain instructions.
88. The hostilities led to a change of regime in Iraq and a subsequent period of instability. By 4 July 2003, however, it had become clear that IAC was again active, at least to some degree, and was in the process of attempting to return to normal operations. KAC adduced evidence (which the Court accepted) that IAC again had a functioning management which was in a position to give instructions relating to the litigation. Consequently, despite the opposition of IAC's former solicitors, on 4 July 2003, Thomas J lifted all stays and directed that a CMC take place in September 2003.
89. It is public knowledge that the security situation in Baghdad has been extremely difficult since the stay on the action was lifted. The procedural history since the lifting of the stay is set out below. On a number of occasions, IAC has failed to comply on time with Court Orders made against it including orders for delivery up of KAC spares in IAC's possession, disclosure orders and orders for the payment of substantial damages and costs. In relation to the latter IAC says it is unable to comply with these because it has insufficient funds to do so, but KAC contends that IAC has substantial assets both within and outside Iraq.
90. It is IAC's position that since the change of regime it has sought to comply on time with all orders made against it, but that the security situation in Baghdad has often made compliance difficult or impossible. IAC has adduced a number of witness statements from Kendall Freeman, explaining the difficulties that Kendall Freeman faced in obtaining instructions but has not adduced evidence which explains what steps are being taken within IAC itself to comply with orders of the Court. IAC says that the political situation in Baghdad should be taken into account.

The Discovery of KAC's Spares in Iraq

91. On 13 June 2003 Mr Al-Baijan, the Manager of KAC's Projects Department, despite the personal risks involved, travelled to Iraq by road from Jordan. Whilst in Iraq, Mr Al-Baijan was shown two containers at a farm some 35 kilometres from Baghdad. One of the containers contained a landing gear belonging to KAC. The other contained a jumble of aviation parts, most of which had KAC serviceable tags attached to them, and some of which had IAC tags stapled over the KAC tags. Mr Al-Baijan was told by the owner of the farm that he had been instructed to look after the containers by a Mr Khalid Sh'haib, an employee of IAC. On the next day, Mr Al-Baijan was shown another container at a different farm which also contained a jumble of aircraft parts, many of which had KAC serviceable tags attached. Mr Al-Baijan took a number of photographs of the containers.
92. Mr Al-Baijan made another trip to Iraq on 27 June 2003. On that trip Mr Al-Baijan met Mr Sh'haib. According to Mr Al-Baijan, Mr Sh'haib said that, soon after the hearing of the Perjury Action in October 2002, Mr Adil Hammam, the Legal Director of IAC, had instructed him to remove spares taken from KAC from their current locations and to destroy them. Mr Al-Baijan says that Mr Sh'haib said that five containers of parts had been stored at Baghdad Central Station, near to a smelter which could be used to melt down the parts. According to Mr Sh'haib, the contents of two of the containers had been destroyed. Mr Sh'haib had then moved three of the containers to the farms outside Baghdad and two of the containers to another area of the rail yard. He said that those two containers had been looted, despite his attempts to save them. Although Mr Al-Baijan says that Mr Sh'haib was instructed by Mr Hamman, Mr Sh'haib's account is different. He says that he was instructed during 2002 by IAC's Chief Engineer, Mr Jasim, that orders had been received from the former Iraqi regime to dispose of KAC property.
93. Based on this information, Mr Al-Baijan visited the rail yard and saw two further containers which had been extensively looted. They contained, however, some KAC serviceable tags which Mr Al-Baijan removed. When he returned to Kuwait, he was able to compare the part numbers on the tags with the part numbers of spares alleged by KAC to be missing. He immediately found a match for six out of the seven tags. Mr Al-Baijan also removed a "black box" device from one of the containers which, on examination in Baghdad, was found to have had its identification plate ripped off and had the remains of a KAC credit tag attached to it.
94. Whilst he was in Baghdad, Mr Al-Baijan was also able to open up settlement discussions with representatives of the new management of IAC.
95. Based on the evidence discovered by Mr Al-Baijan, on 18 July 2003 Thomas LJ granted an order (amended on 21 July 2003) requiring IAC to take all reasonable steps to secure the detention and preservation of all spares claimed by KAC in the Spares Action which were within IAC's custody, possession or control. IAC was also ordered to serve an affidavit setting out all relevant details of those spares. KAC's application for delivery up of the spares discovered by Mr Al-Baijan was stood over to be decided at a later date.

Developments between July and November 2003

96. On 23 July 2003 a document headed "Final Agreement for an Amicable Settlement", which appeared to resolve all matters in dispute between the parties, was signed by the respective Chairmen of KAC and IAC. Clause 4 of this document, however, provided that agreement was expressly made "subject to the approval of the concerned authorities in the respective countries of the Parties".
97. By the time of a further hearing before Thomas LJ on 1 August 2003, IAC's former solicitors had stated that they were unable to obtain instructions to sign a Tomlin Order based on the agreement and that no settlement had been approved by the Coalition Provisional Authority ("CPA"), which they said was the entity whose approval was required under the agreement. They also indicated that they would be likely to apply for a stay or adjournment of each of the actions between the parties.
98. IAC then made an application to Thomas LJ on 15 August 2003 for adjournments or stays of six months in each action. Thomas LJ's judgment observed that "…the litigation must henceforth be conducted, as I had always hoped since the change of regime in Iraq, in a manner that shows a degree of some reality to the very serious position that Iraq Airways faces in this litigation. The reality is, first of all, that there had been a finding of perjury by a trial judge of this Court; secondly, there has been the discovery of a large number of spare parts that were said to have been returned…"
99. Thomas LJ decided IAC's applications on 15 August 2003 by ordering (among other matters) that: -

i) There should be a hearing in October 2003 of KAC's application for the delivery up of its spares found in Iraq;

ii) IAC should file affidavits from four named individuals setting out their knowledge of the spares which are the subject of the action;

iii) IAC should by 15 September 2003 file a certificate to the effect that both it and the CPA had taken advice in relation to the settlement agreement;

iv) There should be a further hearing at the beginning of October 2003 for IAC to report to the Court as to whether it intended to settle the proceedings or not;

v) The CMC in the Spares Action which had been planned for September should be adjourned until October.

100. On 5 September 2003 IAC served witness statements from the four individuals named in Thomas LJ's order of 15 August 2003. Their evidence was as follows:-

i) Mr Sh'haib said that about 7 to 9 months before the recent hostilities (i.e. in the late summer or early autumn of 2002) he had been instructed by a Mr Jasim, IAC's Chief Engineer, that orders had been received from the former Iraqi regime to dispose of KAC property which had not been returned after the Gulf War. Mr Sh'haib's statement refers to 7 containers which were delivered to Baghdad Central Railway Station, the contents of two of which (which he said were either not aircraft spares or were items of low value) he destroyed. He realised that the aircraft spares might be valuable and he told Mr Jasim that he could not possibly destroy them. He also told him that some of the items would be difficult to burn or melt down and could not be destroyed at that facility. Mr Sh'haib therefore arranged for three containers to be taken to farms outside Baghdad, where they were later discovered by Mr Al-Baijan as described above. The two other containers which he said contained computers, test benches and other equipment (but not spares) were moved to a different area of the rail yard, where they were subsequently looted.

ii) Mr Nasif Jassim Mohammed, IAC's Technical Director, said that, just before the recent hostilities, an order came from the minister responsible for IAC to put any KAC property still in Iraq into a container and move it away. This order was passed from IAC's Director General to Mahsan Ali, the Chief Engineer, who in turn instructed Hassan Al Sabbagh to carry out the order. He, in turn, delegated the instruction to Mr Sh'haib.

iii) Mr Saad Al Shok was the owner of the farm at which two of the containers were stored at the request of Mr Sh'haib.

iv) Mr Adil Hammam, IAC's legal adviser, said that he knew nothing about the instructions given to Mr Sh'haib, nor about the existence or location of KAC spares in Iraq.

101. On 8 September 2003, IAC instructed new solicitors, Kendall Freeman. On 15 September 2003 they duly filed a certificate in accordance with Thomas LJ's order, stating that new solicitors and counsel had been appointed and that advice had been taken in relation to the proposed settlement. The time for filing an Appellant's Notice in relation to David Steel J's judgment in the Perjury Action had been extended on a number of occasions, but the final extension expired on 29 September 2003 and IAC decided not to appeal.
102. The hearing which Thomas LJ had envisaged at the beginning of October came on before Tomlinson J on 1 and 2 October 2003. It was submitted on behalf of IAC that the trial of the outstanding part of the assessment of damages in the Main Aircraft Action listed to begin on 3 November 2003 (after several previous adjournments) should be further deferred until March 2004 and that the trial of the Spares Action listed to begin in January 2004 should be deferred until May 2004.
103. On 6 October 2003 Tomlinson J gave judgment declining to adjourn the assessment of damages in the Main Aircraft Action. Tomlinson J also ordered that the trial of the Spares Action be listed for 9 weeks commencing on 8 June 2004. The CMC in the Spares Action was further adjourned until December 2003.
104. In paragraph 34 of his judgment Tomlinson J said "[Counsel for IAC], whilst making no concessions, was in difficulties in suggesting what realistic defences there might be on liability insofar as spare parts were removed from Kuwait and taken to Iraq and, again, if it emerges in the light of mature consideration on the Iraqi side that there are no real defences which can be advanced then, again, that will bring about a shortening of the trial."
105. KAC's application for delivery up of the spares in Iraq was heard on 16 October 2003 by Cooke J. He ordered delivery up and the full co-operation of IAC for that purpose. He also ordered that further affidavits be sworn by 15 November 2003 by the three individuals referred to in the statements of Mr Sh'haib and Mr Mohammed, namely Mr Jasim, Mr Al Sabbagh and the "Director General".
106. Later in October IAC decided not to proceed with its appeal from the judgment of Langley J in the Main Aircraft Action (which had been due to be heard on 20 October 2003).
107. The trial of the final part of the assessment of damages in the Main Aircraft Action took place in early November 2003 as planned, but in the absence of IAC, since Kendall Freeman came off the record in that action shortly before the hearing.
108. On 10 November 2003 KAC issued and served an application for an order that IAC's Re-Amended Defence in the Spares Action be struck out pursuant to CPR 22.2 and/or CPR 3.4(2) and/or CPR 32PD.28 and that, unless IAC served an amended Points of Defence (verified by a statement of truth) within 14 days, KAC be entitled to enter judgment for damages to be assessed. The application was made because IAC's Defence advanced the case that (with a few insignificant exceptions) all of KAC's spares which were taken by IAC had been returned. This could no longer be true following the discovery by Mr Al-Baijan of KAC's spares in Iraq and the admissions made in the witness statements of Mr Sh'haib and Mr Mohammed.
109. David Steel J in the Perjury Action on 28 November 2003 ordered that IAC should pay KAC various sums (totalling just over £1 million) on account in respect of the costs KAC incurred in the House of Lords in 1995 and the costs of the Perjury Action. These amounts remain unpaid.

The Spares Action CMC on 18 December 2003

110. A CMC was held on 18 December 2003. The detailed case management directions given on 27 November 2002 had been largely in abeyance since about February 2003 as a result of the hostilities in Iraq and their aftermath. Nevertheless, at the CMC, IAC indicated that it had recently taken the decision to continue with the defence of the Spares Action and directions were given with a view to ensuring that the experts were able to deal with the steps envisaged by the order of 27 November 2002 in time for trial in June 2004.
111. Despite KAC's application to strike out IAC's Defence of 10 November 2003, no amended pleading was put before the Court on 18 December 2003. IAC accepted that its existing Defence should be struck out and it was ordered to serve a new Defence, verified by a statement of truth, by 6 February 2004.
112. IAC was also ordered: -

i) To comply with Cooke J's order to serve witness statements from Mr Jasim, Mr Al Sabbagh and the "Director General";

ii) To serve a witness statement setting out the steps it had taken to search for various categories of stores records; and

iii) To indicate on which of its existing statements by witnesses of fact it still intended to rely.

113. KAC was ordered to serve a witness statement setting out the steps it had taken to take delivery of five containers of spares referred to in Cooke J's order. KAC duly served a witness statement.

The Spares Action CMC on 30 January 2004

114. A Defence was served by IAC on 28 January 2004, although (contrary to the order made on 18 December 2003) it did not contain a signed statement of truth. KAC submitted at the CMC on 30 January 2004 that the new Defence was, in any event, defective because it continued to assert, on the basis of the evidence of Mr Sh'haib, that all spares which IAC had taken had been returned to KAC, apart from the ones in the 7 containers referred to Mr Sh'haib's statement. This was despite the fact that there was no inventory of the spares in those containers and no evidence from which it could safely be concluded that there were no other KAC spares still in IAC's possession. KAC also pointed out that the Defence continued to rely, for particulars of the spares IAC claimed to have returned, on schedules which IAC's own expert had agreed were less reliable than KAC's data. IAC was ordered to serve an amended version of the Defence, verified by a statement of truth, by 6 February 2004.
115. IAC had also indicated on 29 January 2004 that it intended to rely on all previous witness statements served by it, save one. This meant that reliance was still placed on statements of Mr Nekash and Mr Salman. Amongst other matters, Mr Nekash's statement said that all of KAC's property taken by IAC had been returned, save for a very few small items. It was KAC's position (which IAC accepted) that this could no longer be correct. Since Mr Nekash had died after making the statement, KAC's position (which IAC accepted) was that it was difficult to see how it could be corrected and, therefore, how IAC could continue to rely on it. Mr Salman, who was IAC's Director of Stores and Spares Purchasing, had also written in his statement that "all of the parts that were taken from Kuwait to Saddam International Airport were cross-referenced, logged out and returned". IAC was, therefore, ordered to serve an updated witness statement from Mr Salman correcting the inaccuracy.
116. IAC had still not complied with Cooke J's order to serve statements from its three identified employees and an order was made that IAC should serve a statement setting out each and every step which had been taken to contact those individuals.
117. Further directions were also given in relation to the continuing work of the parties' experts.

The Spares Action CMC on 27 February 2004

118. IAC served a revised version of the Defence on 6 February 2004 (the date stipulated in the Order of 30 January 2004) but it was not at that stage verified by a statement of truth. This version of the Defence was only revised in very minor respects. IAC still asserted that all spares which it took had been returned to KAC, save for the ones referred to in Mr Sh'haib's statement.
119. On 9 February 2004 Kendall Freeman (for IAC) wrote to Howard Kennedy (for KAC) stating "You have indicated to us on more than one occasion that your clients probably have more information concerning returned and non-returned spares than anyone who is still with our clients. If that is the case, we would ask please that you give us information you believe to be relevant so that we can have it investigated. We certainly have no wish to put a representative of our clients in a position where the Statement of Truth turns out to be insufficient or misleading through no fault of his own. This is hardly going to assist the court either. Before we ask Mr Fakhri to sign our client's Statement of Truth, therefore, we invite you to tell us whether you have any relevant information or, if you believe that there is an individual or that there are individuals whom we should be approaching please inform us".
120. Howard Kennedy replied on 10 February 2004 asking who Mr Fakhri was. They then stated: -

"It is not for KAC to provide input into the defence. Mr Fakhri must take steps to satisfy himself, by making proper inquiries, that he is capable of verifying the truth of the statements made. We do not accept that there is really no one who is still with your clients who can provide Mr Fakhri with information. You have already confirmed to us that you intend to rely on all of IAC's Witness Statements, save for that of Mr Na'ama. You have also confirmed to the court that IAC intends to serve an updated statement from Muwaffaq Salman. It is, therefore, clear that IAC must investigate and verify the truth of its defence through these IAC witnesses, all of whom profess to have detailed knowledge of the facts at the material times."

121. Notwithstanding those comments Howard Kennedy indicated that it was believed that there was an engine taken from KAC on an IAC aircraft which had been impounded in Tunisia since the Gulf War. IAC served a statement of truth on the same day, signed by Mr Fakhri, the Director-General of the legal department of the Ministry of Justice in Iraq (and therefore not an officer of IAC). No amendment was made to the pleading to make any reference to the engine in Tunisia. It is admitted by IAC that there is indeed an engine of KAC's fitted to an IAC aircraft in Tunisia. The letter from Kendall Freeman, under cover of which the Points of Defence was served, stated that Mr Fakhri was aware of the significance of the statement of truth and in signing the defence was verifying his belief in the truth of the facts stated therein, to the best of his knowledge and the information provided to him. No indication was given as to whether he had personal knowledge of the possibility that a KAC engine was in Tunisia or as to whether he had made any inquiries in relation to that engine.
122. IAC says that Mr Fakhri had signed the statement of truth before Howard Kennedy's letter came to his attention and says that the statement of truth was served on the basis that Mr Fakhri would investigate the issue. IAC accepts that the existence of the KAC engine on an IAC aircraft should have been disclosed earlier. KAC says that (i) Mr Fakhri was not a proper officer of IAC such that he could properly sign the statement of truth and that (ii) he had plainly not made any proper investigation of the truth of the defence. KAC says that had he done so he would have ascertained the existence of the engine in Tunisia. Neither IAC nor Kendall Freeman accept this. IAC and Kendall Freeman say that they are not aware of any basis on which any criticism can fairly be levelled at Mr Fakhri.
123. Thereafter, Howard Kennedy wrote to Kendall Freeman referring to the possibility that further KAC spares were located in Jordan, in two Iraqi aircraft in Tunisia and that yet more KAC spares had been concealed by IAC in the houses of IAC engineers in Iraq.
124. At the CMC on 27 February 2004 KAC submitted that, since Mr Fakhri neither held a senior position in IAC nor was he a legal representative instructed to act for IAC in relation to the claim, the statement of truth did not comply with CPR 22.1(6). KAC further submitted that, given that IAC persisted in its Defence that all spares taken had been returned apart from those identified by Mr Sh'haib, the identity of the person signing the statement of truth was critical. IAC was ordered to serve a properly verified Defence by 5 March 2004.
125. As to the statements from the individuals referred to in Cooke J's order of 16 October 2003, a witness statement from IAC's solicitor was served saying that: -

i) The "Director General" was Mr Mamoon Al-Nassery, who IAC said had left Iraq and was living in Jordan at an unknown address;

ii) Mr Mahsan Ali Jasim was said to be on a year's leave and working in Jordan but with no contact details or forwarding address; and

iii) Mr Al-Sabbagh had been contacted and had provided some answers to undisclosed questions, but a witness statement was said not to be available until some of those answers had been clarified.

126. IAC was, therefore, ordered to serve a statement from Mr Al-Sabbagh by 12 March 2004 and to serve a statement setting out what further steps had been taken to contact Mr Al-Nassery and Mr Jasim.
127. An updated witness statement from Mr Salman had not been served and IAC was ordered to do so by 12 March 2004.
128. A witness statement from IAC's solicitors stated that Mr Salman had confirmed that all available documents had been disclosed. IAC was ordered to confirm where its records of spares were kept, whether there were any relevant records which had not been disclosed and, if not, what had happened to them.
129. Directions were also given as to the delivery up of KAC's spares which had been discovered by Mr Al-Baijan, but which were still in Iraq.
130. KAC was directed to use its best endeavours to enable Mr Campbell and Mr Villa to obtain access to the relevant archive data stored in the Maxi-Merlin system.

The Spares Action CMC on 26 March 2004

131. IAC failed to serve a Defence verified by a statement of truth as had been ordered. Instead, on 8 March 2004 Kendall Freeman (for IAC) wrote to Howard Kennedy (for KAC) saying that "the new management of IAC have … undertaken an investigation into whether further KAC spares remain under IAC's control". The letter stated that IAC's new management had concluded that it was "possible" that some KAC spares had been retained in various locations and required until 1 May 2004 to carry out its investigation into the position. KAC says that a detailed investigation should have taken place much earlier and that IAC has never explained why that did not happen.
132. On 25 March 2004 Kendall Freeman confirmed that "Some of the KAC spares removed to Iraq were not returned in 1991 or 1992 and have remained in Iraq, Tunisia or Jordan." These spares were said to be in various locations: -

i) At Baghdad International Airport, either on IAC Aircraft or in IAC stores and workshops;

ii) In the homes of IAC staff;

iii) A KAC engine was fitted to one of IAC's aircraft currently in Tunisia;

iv) Further KAC spares were in boxes or on IAC aircraft in Tunisia; and

v) KAC spares may be on IAC aircraft in Jordan.

133. Although Kendall Freeman wrote on 12 March 2004 indicating that an Amended Defence would be served that week, this had not happened by the time of the CMC on 26 March 2004. At the CMC, IAC was ordered to do so by 31 March 2004
134. IAC had still failed to serve the statement from Mr Al-Sabbagh which had been required by Cooke J's order. It also said that it had not been possible to contact Mr Al-Nassery and Mr Jassim. An order was made at the CMC that Mr Al-Sabbagh's statement should be served by 2 April 2004.
135. IAC had also failed to comply with the order to confirm the whereabouts of its records of spares and a further order was made giving IAC until 2 April 2004 to comply. IAC indicated that a statement would be forthcoming from a Mr Muayad Khalil Abood, the current Stores Director of IAC.
136. A witness statement from Mr Salman was served in draft the day before the CMC (and a signed version was later provided). In it Mr Salman, IAC's Director of Stores and Spares Purchasing in 1990 and when spares were handed back in 1992, said that he was not aware that any KAC spares remained in IAC's stores after 1992. He denied any prior knowledge that KAC spares had remained in Iraq or elsewhere under the control of IAC. He suggested that if spares had remained in Iraq, they must therefore have been held by other departments within IAC. Mr Salman also said that he had no personal knowledge of what happened to IAC's stores records after his retirement in 1995, but he had been informed by his successor that a large quantity of them were sent for recycling in error in 1998.
137. Two containers of KAC's spares were delivered up to KAC from Iraq at the end of March 2004 and an inventory of them was taken.
138. At the CMC on 26 March, KAC was ordered to provide the relevant data tables and modules of the 1994 archive data from the Maxi-Merlin system. KAC resisted such an order because it said that any data produced would be incomplete and unreliable. This data was provided in April 2004. As appears below, IAC now accepts that the data is insufficiently reliable to provide any utility to the Court and has abandoned reliance on Mr Villa's Maxi-Merlin analyses. Nevertheless, IAC says that it was entitled to analyse the data and form its own conclusions as to its reliability and utility, as it has done.

The Discovery of IAC's Documents in Iraq

139. At the end of March 2004 Mr Al-Baijan of KAC again visited Iraq where he was able to obtain a large number of documents which IAC ought to have disclosed, but had not. On 14 April 2004 witness statements were served from Mr Al-Baijan and a Mr Mohammed Ghazi Aziz, describing the way in which these documents were discovered and other matters.
140. Mr Aziz was in charge of IAC's Secret Affairs Office between September 2002 and November 2003. In this role, he reported directly to the Director General of IAC. The Secret Affairs Office dealt, among other matters, with the litigation between IAC and KAC. Mr Aziz says that there were standing instructions to use as few documents as possible so that many instructions in relation to the litigation were given orally. It is asserted that such documents as were created were fully logged. In addition, from at least 20 June 2001, Mr Aziz says that there was a policy of hiding documents relevant to the litigation. KAC contends that this is evidenced by the Director General's order of that date which states:

"In view of the latest KAC and Kuwaiti behaviour by opening a new route for claims for compensation through UNCC. The subject which necessitates taking quick action by the removal of all documents and files linked to Kuwait to avoid any future auditing especially that Mr Samir Nekash, the Technical Contracts Director, will provide a statement which will be submitted to the Court confirming the non existence of any document or file related to the above subject and kindly confirm the above."

141. In late 2002 Mr Aziz was told by Mr Al-Nassery (IAC's Director General) that he had received a directive from the Ministry of Transport to destroy all items which used to belong to KAC. All documents relating to KAC or KAC spares were to be handed to Mr Adil Hammam, the legal adviser, for him to determine what should happen to them. All references to KAC were to cease and the words "the Foreign Company" were to be used instead.
142. Mr Aziz said that the destruction of KAC's spares was a slow process because some departments wanted to retain valuable items. In the last month before the recent hostilities, however, the pressure to destroy everything increased. Heavy items went to the Shaljiah smelter, owned by the Ministry of Transport, near the Railway Station, because it had the largest smelter and in order to keep the process secret. Smaller items were destroyed in various other places unknown to Mr Aziz. An aviation technician called Mr Mukarram went daily to the smelter to report how the operation was proceeding. Some IAC employees tried to persuade Mr Aziz not to destroy KAC's equipment because it was of use to IAC. Mr Aziz agreed to turn a blind eye to the exclusion of some items from the destruction process.
143. Mr Aziz says that in about February 2003 he was given a box full of documents by Adil Hammam (who is still the Legal Director of IAC). Mr Hamam told Mr Aziz that the documents related to the litigation between KAC and IAC and asked Mr Aziz to hide them. Mr Aziz did so, in his own home.
144. Shortly thereafter, the Director General of IAC asked Mr Aziz to "keep safe" as many of the Secret Office files as he could. As a result of this instruction, Mr Aziz moved some 25% of the Secret Office archives to his home. They were later moved to a house belonging to one of his relatives.
145. [No evidence rebutting Mr Aziz's account of these matters was produced by IAC. IAC asked for Mr Aziz to be tendered for cross-examination, which he was. After Mr Aziz had obtained a visa to travel to London, and had been in London for some days, IAC then indicated that it no longer challenged his evidence in any respect in these proceedings and did not wish to cross-examine him].
146. In about March 2004 Mr Aziz made contact with KAC through Mr Jenabi (KAC's representative in Baghdad). On 23 March 2004, Mr Aziz travelled to Amman (Jordan) and met Mr Al-Baijan. Mr Al-Baijan and Mr Aziz travelled together to Baghdad in an armed convoy. They arrived on 25 March 2004, and left on 27 March 2004. The original plan was to scan the documents produced by Mr Aziz onto CDs. After he had begun scanning some of the documents, Mr Al-Baijan realised that it was beyond his resources to complete this exercise in Baghdad. Consequently, he arranged for the entire cache of original documents to be transported to Jordan (the trip to Kuwait was considered too dangerous).
147. At the Jordanian border, some files were confiscated by the Jordanian security forces. There was no way of recovering those documents. To the best of Mr Al-Baijan's belief these documents were not relevant to this litigation, although he only had a limited chance to see them.
148. All the remaining original documents were taken first to Kuwait and then delivered to the offices of Howard Kennedy in London. Howard Kennedy identified 114 separate boxes or files of documents.
149. KAC contends that many of these new documents are centrally relevant to the Perjury II Action. So far as the Spares Action is concerned, KAC asserts that: -

i) There are documents which show that IAC took steps to take control of the spares very much earlier than had previously been admitted.

ii) There are documents which show that, contrary to IAC's previous assertions that no inventory was made of KAC's spares, instructions were given to do so and were carried out (although the inventories themselves have not been found).

iii) There are documents which show that IAC has deliberately concealed relevant material and gave false evidence, for example, the Director General's instruction of 20 June 2001 relating to the hiding of documents and the false disclosure statement of Mr Nekash quoted above.

iv) There is a letter dated 23 January 2002 from the Central Bank of Iraq to the Ministry of Transport which asks what has happened to the proceeds of sale of spare parts. This suggests that some of KAC's spares were sold by IAC.

Admissions by IAC

150. Following the CMC on 26 March 2004 IAC again failed to serve a Defence by 31 March 2004.
151. IAC served a statement of Mr Al Sabbagh on 29 March 2004. The statement recorded that Mr Al-Nassery, the Director General of IAC, issued an instruction in October 2002 to transfer KAC spares retained by IAC to containers and await further instructions from the Minster of Transport and Communications. According to Mr Al Sabbagh, Mr Sh'haib was responsible for notifying the various departments of IAC of this instruction. Two containers of spares were collected from the mechanical shops, electronic shops, engine shops and stores. No inventory was taken of their contents. Thereafter, Mr Al Sabbagh says that the Director General told him that the Minister had ordered that the two containers should be taken to the premises of the State Company for Water Transportation. Mr Al Sabbagh says he has no direct knowledge of what happened to the containers thereafter.
152. On 5 April 2004 IAC served a statement from Mr Abood which said that, although he has not carried out a search, Mr Abood could confirm from his own knowledge that IAC's current and archive records did not contain any spares records relevant to this action.
153. On 28 April 2004 Kendall Freeman wrote to Howard Kennedy referring to an analysis of KAC's Maxi-Merlin data which had been carried out by IAC's expert. Kendall Freeman said "In view of this analysis, together with the contents of the documents recently provided by you and obtained from Mr Aziz, IAC's current management has decided to accept liability from 9 August 1990 for wrongful interference with KAC's spare parts situated at Kuwait International Airport on 2 August 1990, for the purposes of these proceedings. This acceptance of liability is without prejudice to IAC's case on quantum and as to simulator spares and ground support equipment. IAC's legal team is preparing an Amended Defence to reflect this position …".
154. A draft Amended Defence was served on 28 April 2004. Although this has undergone further amendments since then, it was clear at that stage that a very large number of issues between the parties were resolved by the admission of liability.

The Spares Action PTR on 30 April 2004

155. At the Pre-Trial Review on 30 April 2004 IAC was ordered to pay on an indemnity basis KAC's costs of defending those issues which were no longer in dispute as a result of IAC's admission of liability. IAC was also ordered to make a payment of £500,000 on account of those costs. This sum remains unpaid.

Tests in relation to KAC's data

156. The large number of spares in issue in this case, and the circumstances in which IAC came to interfere with them, mean that the claim, of necessity, relies on a substantial amount of complex computerised data. Pursuant to the Order of 27 November 2002, the parties' experts, and in particular the accountancy experts, Mr Campbell for KAC and Mr Villa for IAC, have carried out a substantial amount of work analysing the data on which KAC's claim is based.
157. Mr Campbell has produced a sophisticated computer model known as the "Working Schedule" which uses, as a starting point, the available MSCS data as at 14 June 1990. The Working Schedule also includes KAC's computerised data as to the remaindered and recovered spares, pricing data relating to the spares, repair costs and various other items relating to KAC's claim. The Working Schedule then applies various formulae to the data in order to arrive at a total claim. KAC's claim in respect of engines has been dealt with separately.
158. Following testing carried out by Mr Campbell and Mr Villa, the parties agreed that the MSCS data should be treated as accurate and the experts have agreed that the way in which the Working Schedule calculates the claim from the raw data is reliable. Tests carried out by Mr Campbell and Mr Villa have also allowed agreement to be reached on the reliability of the repair costs data, subject to various points of principle. The parties' spares valuation experts, Mr Sturrock for KAC and Mr Williams for IAC, have been able to agree the pricing data which has been fed into the Working Schedule.
159. There are a number of areas which remain in dispute between the experts, but the chief amongst these is the reliability of KAC's remaindered and recovered data. The experts have carried out various tests on the reliability of that data by reference to other available sources of data. Mr Campbell does not consider that any of the tests, properly interpreted, suggest that KAC's data is materially inaccurate. Mr Villa, on the other hand, considers that the tests show that remaindered and recovered spares have been under-recorded to a very substantial extent.
160. The tests carried out by the experts in relation to the remaindered and recovered data are the following: -

i) A comparison has been made between KAC's recovered data and data supplied by IAC prepared from the paperwork used to document the return of spares from Iraq under the supervision of the United Nations. Where the part numbers in IAC's data matched those in KAC's data (about 68% of all part numbers in KAC's data), identical quantities of parts were shown in about 66% of cases. About 90% of the part numbers in KAC's data match part numbers in KAC's "master parts file" within MSCS. This demonstrates that they are KAC parts and suggests that the entry of data was reasonably accurate. As a result of this test, Mr Campbell and Mr Villa agreed that KAC's recovered data is to be preferred to the data provided by IAC.

ii) A comparison has been made between KAC's recovered data and the information which was recorded by KAC's staff, in manuscript, in a dedicated Salvage Register. The test showed that the part numbers and quantity of parts recovered agreed with KAC's recovered data in 47% of cases. In general, where the quantity of spares differed between the two data sources, the figures in KAC's recovered spares data used in the Working Schedule were higher (i.e. in favour of IAC). Again, Mr Campbell and Mr Villa have agreed that KAC's recovered data is to be preferred to the Salvage Register.

iii) Mr Campbell and Mr Villa conducted a test comparing KAC's remaindered and recovered data with a sample of CCCs relating to 400 part numbers. This sample included the 150 highest value items plus 250 chosen at random. The correct analysis of the results of this test is a matter which remains very much in dispute between the parties and their experts. There is agreement that in 69% of cases, the two sources of data match. In outline, and without dealing here with what was said in cross-examination, Mr Campbell says that the cases in which the two sources of data do not match are fairly evenly split between those which suggest under-recording and those which suggest over-recording so that there is nothing to suggest that KAC's remaindered and recovered data is materially inaccurate. Mr Villa says that, for various reasons, the instances of over-recording should be ignored and the test demonstrates that there is substantial under-recording.

iv) Mr Villa also carried out tests comparing KAC's remaindered and recovered data with data from the December 1994 archive tapes from Maxi-Merlin. Mr Villa's analyses of the results of these tests are highly complex, but they lead him to conclude that there is substantial under-recording. Mr Campbell has concluded that Mr Villa's analysis is fundamentally flawed in various respects and that the Maxi-Merlin data is incapable of providing any useful assistance in determining whether KAC's data is inaccurate.

v) IAC initially placed some reliance on Mr Villa's analyses but informed the court on Day 10 ultimately that it had concluded that the analysis is extremely sensitive to minor variations in the numbers, which can lead to significant changes in the results and, therefore, that the tolerances involved in the exercise are too fine safely to place reliance on the results. In view of this, and having considered the evidence, IAC decided not to rely on this analysis of the Maxi-Merlin data.

vi) Nevertheless, IAC does seek to place reliance on an analysis carried out by Mr Villa of two files contained in Maxi-Merlin labelled "ex old stores" and "SDA". Mr Villa's conclusion is that an analysis of these files indicates an under-recording of recovered repairable and rotable spares of no less than 7.79% and an under-recording of remaindered consumable spares of no less than 36.85%. KAC disputes this analysis.

161. In addition to these tests, the engines experts, Mr Braithwaite for KAC and Mr James for IAC, reached a substantial measure of agreement leaving fairly confined issues to be decided.

Aircraft operated by KAC on 2 August 1990

162. The aircraft operated by KAC on 2 August 1990 were as follows.

Reg. No.	Aircraft Type	Iran 6 / Mosul 4	Delivery Date	Age of Aircraft on 2/8/90	Age of Aircraft on 2/8/90
Age of Aircraft on 2/8/90	Age of Aircraft on 2/8/90	Age of Aircraft on 2/8/90	Age of Aircraft on 2/8/90	Years	Months
9K-AHA	A310-200	Iran 6	Sep 1983	6	11
9K-AHB	A310-200	Iran 6	Oct 1983	6	10
9K-AHC	A310-200	Iran 6	Dec 1983	6	8
9K-AHD	A310-200	Iran 6	Apr 1984	6	4
9K-AHE	A310-200	Iran 6	May 1984	6	3
9K-AHF	A300-600C	Mosul 4	May 1984	6	3
9K-AHG	A300-600C	Mosul 4	Jun 1984	6	2
9K-AHI	A300-600	Iran 6	Sep 1984	5	11
9K-AIA	B767-200ER		Mar 1986	4	5
9K-AIB	B767-200ER	Mosul 4	Jan 1986	4	7
9K-AIC	B767-200ER	Mosul 4	Mar 1986	4	5
9K-ADA	B747-200		Jul 1978	12	1
9K-ADB	B747-200		Aug 1978	12	-
9K-ADC	B747-200		Feb 1979	11	6
9K-ADD	B747-200		Jan 1982	8	7
9K-AFB	B727-200		Oct 1980	9	10
9K-AFC	B727-200		Feb 1981	9	7
9K-AFD	B727-200		Dec 1981	8	8

Dates of Delivery of KAC's New Aircraft.

163. Dates of Delivery of KAC's New Aircraft were as follows

Manufacturer	Aircraft Type	Registration	Date of Delivery	Notes
Airbus	A320-212	9K-AKA	29/10/92
Airbus	A320-212	9K-AKB	21/12/92
Airbus	A320-212	9K-AKC	23/12/92
Airbus	A310-308	9K-ALA	19/05/93
Airbus	A310-308	9K-ALB	18/06/93
Airbus	A310-308	9K-ALC	30/06/93
Airbus	A310-308	9K-ALD	26/02/95	Govt. a/c
Airbus	A300-605R	9K-AMA	28/05/93
Airbus	A300-605R	9K-AMB	08/07/93
Airbus	A300-605R	9K-AMC	22/07/93
Airbus	A300-605R	9K-AMD	21/01/94
Airbus	A300-605R	9K-AME	01/02/94
Airbus	A340-313	9K-ANA	29/03/95
Airbus	A340-313	9K-ANB	07/04/95
Airbus	A340-313	9K-ANC	31/05/95
Airbus	A340-313	9K-AND	05/07/95
Boeing	B777-269	9K-AOA	?/03/98
Boeing	B777-269	9K-AOA	?/06/98
Boeing	B747-469	9K-ADE	29/11/94	Govt. a/c

EVIDENCE

Unchallenged Witness Statements on behalf of KAC

164. Hamad Al-Baijan (the Manager of the Projects Department of KAC, responsible for technical liaison with Howard Kennedy on matters related to this litigation). Mr Al-Baijan met Mr Mohammed Ghazi Aziz for the first time in Amman, Jordan on 24 March 2004. Despite considerable personal risk, he agreed to travel with Mr Aziz to Baghdad to scan the contents of IAC files and documents. Mr Al-Baijan spent less than 2 days in Iraq, leaving Amman on 25 March and returning on 27 March 2004. Mr Al-Baijan worked day and night with Mr Aziz and others to scan as many documents as they could.
165. Hamoud Y Al-Baloul (Materials Manager in August 1990). Mr Al-Baloul said that KAC's policy when purchasing spare parts prior to invasion was to purchase only new aircraft parts from Aircraft Manufacturers or Original Equipment Manufacturers and their approved appointed distributors. The only time KAC deviated from this policy (prior to invasion) was when a KAC aircraft was in an AOG situation – where there was no operational option other than to buy from other sources including other airlines. Priority would be given to airlines or vendors holding new parts which could be traced back to AMs or OEMs. Prior to invasion, KAC's inventory was very largely made up of spares that came from AMs or OEMs or, in either case, from an approved appointed distributor.
166. As to parts returned from Iraq, Mr Al-Baloul said that each part was identified, checked against the documentation provided to the KAC assets Co-ordinator (via the United Nations) and then identified as a spare part. There were some parts which KAC could not identify and appeared not to be the property of KAC. KAC experienced difficulties in formally objecting to IAC and the UN regarding the parts that KAC could not identify or were not KAC's.
167. Bader Al-Shayji (Chief Quality Controller in August 1990). Mr Al-Shayji was as Chief Quality Controller involved in the examination of and (where appropriate) the integration of returned and remaindered spares back into KAC bonded stores. The procedure followed the pre-invasion KAC Engineering Quality Control Procedures ("EQCPs"). According to Mr Al-Shayji almost all recovered spares were dusty and dirty. Some had corrosion from what appeared to be water or other fluid. A few spare parts had their packaging and serviceable tags, though many did not. The spare parts appeared to have been thrown into the various containers without regard to how they were stored or transported.
168. Nader Al-Baloushi (Aviation Safety Engineer in August 1990). According to Mr Al-Baloushi, as a result of meetings between the DGCA and KAC, any spare parts, engines and engine modules that had been out of the care, custody and control of KAC were required to be treated as unserviceable. This requirement applied to all parts, engines and engine modules whether remaindered or recovered.
169. Abdul Karim Al-Khabbaz ...Stores Superintendent, Materials Section in August 1990). Mr Al-Khabbaz said that after liberation he saw that a large proportion of the bonded stores had been taken. The remaining spares were mainly consumables – there were no rotables and few repairables on the shelves. Vast quantities of spares had been removed. Some spares were on the shelves, while others were on the floor scattered in a very haphazard way. There was paperwork and rubbish all over the floor.
170. Nassar Al-Abdul Jalil (Inventory Control and Computerisation Supervisor in August 1990). Mr Al-Abdul Jalil said that he discovered after liberation that all Airbus and Boeing rotables had been taken, while other items such as consumables had been left. He thought at the time that whoever took the parts knew exactly where to obtain the most valuable parts.
171. Khaled A Al-Ebrahim (Inventory Control Acting Supervisor in August 1990).
172. Cherumgottil Radhakrishnan (Supplies Clerk, Materials Section in August 1990).
173. Haji Mohammad Afzal (Technical Storekeeper in the Receipts Section of the Engineering Department in August 1990). As to recovered spares, Mr Afzal said that the vast majority of the parts did not have any tags on them, nor any of the packaging that such parts would normally have.
174. Kuttukallunkal Thomas Joseph (Senior Stores Officer in August 1990). As to recovered spares, Mr Joseph said that the spare parts appeared to be in very poor condition. There were dents and scrapes and many did not have serviceable tags attached. There was also a lot of dust and dirt all over the parts.
175. Mr Joseph said that, following re-certification of recovered spares at the appropriate agencies, these spares were placed into the stores with the mark CNB (Credit Note ex-Baghdad) upon their respective service tags. This was noted upon the spare part (by the Receipts Section) in order to record that the spare part had come from Iraq. KAC used these spare parts as a last resort, or where there was no other option.
176. Nurddin Parkar (Senior Stores Officer in August 1990).
177. Awal Abbas Khan (Materials Storekeeper (Salvage Section) in August 1990).
178. Abdul Hameed Ebrahim Parkar (Invoice Clearance Section (Engineering Department) in August 1990).
179. George Mathai Vairamon (Customs Despatch Clerk in August 1990).
180. Simon Andrew Price (Senior Flight Engineer).
181. Yacoub Yousef Baraki (employed in the Maintenance and Overhaul Division of KAC in August 1990).
182. Govindan Prasad (currently an Accountant (Fixed Assets Section) in the Finance Department of KAC).
183. Hassan Ghazal (Engineer who joined IAC in October 1990. He had previously worked as an engineer for KAC). Mr Ghazal said that he learnt where the technical stores were located at Saddam International Airport. If he needed a part for the maintenance of the Airbuses he would fill out a standard IAC requisition slip and take it to the requisition desk at Saddam International and present it to the issue counter. If the stores had the part entered in their records they would issue it to him. If they did not, the storekeepers would tell him to try and find it from the piles of unsorted spares. Mr Ghazal saw KAC pallets and containers put intact into the technical stores building at Saddam International. When the stores were full, spares were left outside. He often had to search through the pallets to find individual items. The parts were not segregated by aircraft type, make or even part type. He found a SFCC – (a flight control computer) – thrown on the ground outside one of the hangers. This was worth many hundreds of thousands of dollars. There was little or no control of spares. Mr Ghazal often removed spares for the aircraft at Muthanna from the stores at Saddam International Airport and put them in the back of his car to take to Muthanna, without signing a single piece of paper. On one occasion he had six parts in the back of his car. There was nothing to prevent the unauthorised removal of spares from aircraft. Many IAC employees wore KAC uniforms almost as a matter of defiance. Some of the highly desirable Kuwait Airways give-aways, were given away by IAC officials. These included expensive pens, suitcases and wallets. In 1992 Mr Ghazal was in Iraq when he met Samir Nekash of IAC who handed over approximately 45 KAC serviceable tags relating to KAC spare parts, mostly high value computers. Mr Ghazal was requested to hand over the same to MDC Co. in Amman, Jordan.
184. Suad R-Abdel Muhsen Alkhafage (who was employed by IAC). In 1990 Ms Alkhafage was a storekeeper reporting to Mr Muwaffaq Salman. Ms Alkhafage described in his witness statement the procedure for logging KAC parts and the return of certain KAC parts.
185. Mohammed Ghazi Aziz (who headed IAC's Secret Affairs Office from September 2002). The evidence of Mr Aziz is referred to above.

Witnesses called to give evidence by KAC

186. Suleiman Al-Jaber
187. In August 1990 Mr Al-Jaber was Deputy Engineering Director for Materials and Planning with responsibility for materials. He is now Deputy Engineering Director for Maintenance and Overhaul. Mr Al-Jaber said that about 1,200 people were employed in the Engineering Department at KAC prior to the invasion.
188. Mr Al-Jaber explained that when an airline is budgeting for new aircraft, the budget for spares will be about 40% of the aircraft price.
189. Mr Al-Jaber said that prior to the invasion KAC's stock of spares met with Federal Aviation Authority Certification Requirements at all times. According to Mr Al-Jaber customs duty was suspended after the liberation of Kuwait but re-imposed from 1 July 1992.
190. Mr Al-Jaber confirmed Mr Al-Baloul's evidence as to KAC's purchasing policy.
191. I formed the impression that Mr Al-Jaber was a reliable witness.

Bader Al-Khulaifi

192. In August 1990 Mr Al-Khulaifi was the Supervisor in charge of the Component Control Section supervisor for the Materials Section. He is currently the Materials Manager of the Engineering Department.
193. Mr Al-Khulaifi said that prior to the invasion KAC only had in stores "mostly new spares from OEMs and AMs or spares which had spent their entire life history within the KAC system; they had full KAC life history; if they had been repaired/overhauled this had been carried out by DGCA and KAC approved repair shops." According to Mr Al-Khulaifi, prior to the invasion KAC's service level was very high (approaching 98% for rotables, 95% for repairables and 90% for consumables). As to the serviceability status and age of the parts in KAC's stores at the time of the invasion, Mr Al-Khulaifi said that the suggestion the KAC held stock that was unserviceable was wrong. The suggestion failed to take into account the effective procedures to prevent this, outlined in his third witness statement. These procedures were standard airline practice. To suggest that any airline would have substantial stocks of out of shelf life spares in its stores was extraordinary and could render its Airline Operator's Certificate invalid. Further, KAC was the maintenance provider for many airlines arriving at Kuwait Airport.
194. Mr Al-Khulaifi said that shortly after the liberation of Kuwait he walked up and down the rows in the bonded stores. He saw that about 90% of the KAC bonded stores had been taken. The spares that were left appeared to be mainly consumables. Vast quantities of parts had been removed. The majority of these were the high value items (rotables) from the Airbus and Boeing fleets. Some parts were on the shelves, while others were on the floor, scattered. There was rubbish, KAC documentation and paperwork all over the floor.
195. As to the recovered spares, Mr Al-Khulaifi said that most of the parts were very dirty and dusty. Many of the parts had ripped packaging and many did not have any serviceability tags attached.
196. Mr Al-Khulaifi emphasised the difficulties that KAC faced caused by (i) the fact that in some cases spares taken to Iraq were recovered (not in their original form but having been dismantled in Iraq) as a number of separate parts and (ii) the removal of all the component control cards to Iraq and the return of only some of the CCCs.
197. Mr Al-Khulaifi produced a helpful account of the LAN system which was in operation from January 1992. Page 2 set out in chart form procedures in 1992 in respect of recovered spares. Page 3 set out in chart form 1991/pre-LAN procedures in respect of remaindered spares.
198. Mr Al-Khulaifi's evidence as to procedures/recording systems at KAC in relation to remaindered and recovered spares should be read subject to Mr Mathew's evidence (see below). There were a number of inaccuracies in Mr Al-Khulaifi's witness statements as to these procedures/recording systems.
199. Mr Al-Khulaifi said that on return of remaindered and recovered spares from outside repair facilities, the re-certified stock was placed back into the bonded stores. The re-certified stock was clearly identified as ex-Baghdad or remaindered stock. Both as a matter of KAC policy and in practice, ex-Baghdad stock was used as a last resort.
200. Mr Al-Khulaifi said that a memorandum of 23 November 1989 was the latest estimate of pre-invasion surplus stock. It showed a total of KD 633,036 on inventory basis and KD 304,745 on a book value basis. There was a classification code for surplus in the MSCS system (Code 2). The figures were very small: 166 class control numbers. In respect of obsolete (Code 3) there were 154 CCNs. KAC pre-invasion did not have a separate store for unserviceable spares. All spares that were declared unserviceable at KAC were sent to the Salvage Unit which had a very small store. The objective was either to scrap or send for repair/overhaul within a short period.

Kamal Mohamed Abou El-Atta

201. Mr El-Atta was a Maintenance Engineer in Cairo at the time of the invasion. He is now Cairo Station Maintenance Manager. Mr El-Atta gave evidence as to the three categories of spares held at Cairo (station spares, spares held for the purposes of pooling arrangements and spares held in relation to lease operations).
202. Mr El-Atta explained his role in relation to the return of spares to Kuwait, when the lease of aircraft 9K-AHI ended in July 1990. According to Mr El-Atta the aircraft carrying spares back to KIA arrived at KIA on 1 August at 2.30 am local time.
203. Mr El-Atta said that the storekeeper loaded spares into containers. Mr Al-Atta personally placed valuable, fragile items (navigation items, computers and flight control computers) in the first class lounge. There were 20 to 25 boxes containing such items. Mr El-Atta said he saw about 4 pallets and two containers. All the freight holds forward and aft were full of the spares (plus the items he positioned in the cabin). I accept this evidence. Mr El-Atta's account seemed to me to be convincing.

Mohammed Ali Al-Obaid

204. Mr Al-Obaid was the Engine Shop supervisor in August 1990. Mr Al-Obaid is currently is the Engine Shop superintendent. Mr Al-Obaid gave evidence about the remaindered and retuned engines. Mr Al-Obaid was Mr Nayak's immediate superior.

Ashok Nayak

205. Mr Nayak was at the time of the invasion (and still is) an engineer (level 1) in the Engineer Overhaul Shop. Mr Nayak gave evidence as to KAC spare engines.
206. I formed the impression that Mr Nayak was a reliable witness.
207. Vattavalil Geevarghese Mathew
208. Prior to the invasion Mr Mathew was a Senior Clerk in the Inventory and Stock Control Department in the same section as, and under the direct supervision of, Mr Al-Abdul Jalil. He is now Senior Materials Officer.
209. Mr Mathew was involved with others in conducting the annual stock valuation and verification for all consumable parts for the financial year ended 30 June 1990.
210. Mr Mathew produced a note of recording systems at KAC in relation to remaindered and recovered spares. He indicated the extent to which (in relation to bonded stores) the matters set out in the note were outside his knowledge (although his account of the matters outside his knowledge appeared to accord with the contemporary documents). In my judgment Mr Mathew's note of recording systems at KAC in relation to recovered and remaindered spares is a broadly accurate account of the systems employed at KAC.
211. Mr Mathew said that it is KAC policy not to record consumables that are scrapped as unserviceable.

Vellarathu Thomas Thomas

212. Mr Thomas was the Senior Materials Planning Officer in August 1990. He is now Specialist A (Logistics).
213. Mr Thomas said that about one month prior to the invasion, KAC was visited by a delegation of engineers and support staff from IAC. Some of the delegation were engineers. The Component Control staff were surprised to find that the IAC staff were very interested in how KAC recorded parts and related matters.
214. Mr Thomas said that the component control cards were all taken by IAC. Following the return of some (but not all) CCCs from Iraq in 1992, KAC slotted the old cards at the back of the existing "new cards", in order to provide a life history for the rotable components. In some instances KAC updated the new card and discarded the old card, received back from Iraq. KAC made every attempt to locate any supporting documentation that KAC could find post-liberation, in order to provide a history for the rotable components.
215. Mr Thomas was able to assist the court as to how the component control card system worked in relation to surviving pre-invasion CCCs and post-invasion CCCs.

Expert Evidence

216. KAC called as expert witnesses Mr Roger Braithwaite (engines), Mr Alastair Campbell (accountancy) and Mr Iain Sturrock (valuation of spares and lease rates). In addition KAC relied on the evidence of Mr Alan Daley (Civil Aviation Authority requirements) which was not challenged.
217. IAC called as expert witnesses Mr Robert James (engines) and Mr P. Villa (accountancy, Civil Aviation Authority requirements and other matters, see below).
218. A report was received by KAC from Mr Beyer on behalf of IAC. Without accepting that the report was admissible, KAC consented to the Court reading Mr Beyer's report so that Mr Sturrock could be asked questions about it and so that Mr Sturrock's evidence could be tested against the points raised by Mr Beyer.

THE RELEVANT LEGAL PRINCIPLES

The tort of conversion.

219. The tort of conversion is the principal means whereby English law protects the ownership of goods.
220. In general, the basic features of the tort of conversion of goods are threefold: - (1) the defendant's conduct was inconsistent with the rights of the owner (or other person entitled to possess); (2) the conduct was deliberate, not accidental; and (3) the conduct was so extensive an encroachment on the rights of the owner as to exclude him from use and possession of the goods. (Lord Nicholls in KAC v IAC (Nos 4 and 5) at paragraph 39).
221. The Torts (Interference with Goods) Act 1977 provides that in proceedings for wrongful interference against a person who is in possession or in control of the goods relief may be given in accordance with section 3 so far as appropriate. (Section 3(1)).
222. The relief is: -

a) An order for delivery of the goods, and for payment of any consequential damages, or

b) An order for delivery of the goods, but giving the defendant the alternative of paying damages by reference to the value of the goods, together in either alternative with payment of any consequential damages, or

c) Damages. (Section 3(2)).

223. The tort of conversion gives rise to an obligation to pay damages. Payment of damages may have proprietary consequences. Payment of damages assessed on the footing that the claimant is being compensated for the whole of his interest in the goods extinguishes his title: see section 5 of the Torts (Interference with Goods) Act 1977. Further, when the defendant is in possession of the claimant's goods the remedies available to the claimant include a court order that the goods be delivered up: see section 3. 

Consistently with its purpose of providing a remedy for the misappropriation of goods, liability is strict. Whether the defendant still has the goods or their proceeds matters not. Nor does it matter whether the defendant was a thief or acted in the genuine and reasonable belief the goods were his.  (Lord Nicholls in KAC v IAC (Nos 4 and 5) at paragraphs 77 and 78).

224. The fundamental object of an award of damages in respect of conversion, as with all wrongs, is to award just compensation for loss suffered.

(Lord Nicholls in KAC v IAC (Nos 4 and 5) at paragraph 67).

The normal of measure of damages.

225. Damages in tort are awarded by way of monetary compensation for a loss or losses which a claimant has actually sustained. The aim of the law, in respect of the wrongful interference with goods, is to provide a just remedy. Despite its proprietary base, this tort does not stand apart and command awards of damages measured by some special and artificial standard of its own. Normally the measure of damages is the market value of the goods at the time the defendant converted them. This is the general rule, because generally this measure represents the amount of the basic loss suffered by the claimant owner. He has been dispossessed of his goods by the defendant. Depending on the circumstances some other measure, yielding a higher or lower amount, may be appropriate. The claimant may have suffered additional damage consequential on the loss of his goods. Or the goods may have been returned. (Lord Nicholls in KAC v IAC (Nos 4 and 5) at paragraphs 66 and 67).
226. The extent of a defendant's liability for the claimant's loss calls for a twofold inquiry: (1) whether the wrongful conduct causally contributed to the loss and (2) if it did, what is the extent of the loss for which the defendant ought to be held liable? (Lord Nicholls in KAC v IAC (Nos 4 and 5) at paragraph 69).
227. (1) Whether the wrongful conduct causally contributed to the loss?

The first of these enquiries, widely undertaken as a simple 'but for' test, is predominantly a factual inquiry.

228. This guideline principle is concerned to identify and exclude losses lacking a causal connection with the wrongful conduct. Expressed in its simplest form, the principle poses the question whether the claimant would have suffered the loss without ('but for') the defendant's wrongdoing. If he would not, the wrongful conduct was a cause of the loss. If the loss would have arisen even without the defendant's wrongdoing, normally it does not give rise to legal liability. Even if the claimant's loss passes this exclusionary threshold test, it by no means follows that the defendant should be legally responsible for the loss.
229. The threshold 'but for' test is based on the presence or absence of one particular type of causal connection: whether the wrongful conduct was a necessary condition of the occurrence of the harm or loss. In very many cases this test operates satisfactorily, but it is not always a reliable guide. Torts cover a wide field and may be committed in an infinite variety of situations. Even the sophisticated variants of the 'but for' test cannot be expected to set out a formula whose mechanical application will provide infallible threshold guidance on causal connection for every tort in every circumstance. In particular, the 'but for' test can be over-exclusionary.
230. Every person through whose hands goods pass in a series of conversions is himself guilty of conversion and liable to the owner for the loss caused by his misappropriation of the owner's goods. His liability is not diminished by reason of his having acquired the goods from a thief as distinct from the owner himself. In cases of successive conversion, if the 'but for' test is to be applied at all, the answer lies in keeping in mind that each person in a series of conversions wrongfully excludes the owner from possession of his goods. The exclusionary threshold test is to be applied on this footing. The test calls for a comparison between the owner's position had he retained his goods and his position having been deprived of his goods by the defendant. Loss which the owner would have suffered even if he had retained the goods is not loss 'caused' by the conversion.

(Lord Nicholls in KAC v IAC (Nos 4 and 5) at paragraphs 72, 73, 81 and 83).

231. (2) If the wrongful conduct causally contributed to the loss, what is the extent of the loss for which the defendant ought to be held liable?
232. The second stage of the twofold inquiry involves a value judgment and concerns the extent of the loss for which the defendant ought fairly or reasonably or justly to be held liable. The inquiry is whether the claimant's harm or loss should be within the scope of the defendant's liability, given the reasons why the law has recognised the cause of action in question. The law has to set a limit to the causally connected losses for which a defendant is to be held responsible. Losses outside the limit may bear one of several labels. They may be too remote because the wrongful conduct was not a substantial or proximate cause, or because the loss was the product of an intervening cause. The defendant's responsibility may be excluded because the claimant failed to mitigate his loss. Familiar principles, such as foreseeability, assist in promoting some consistency of general approach. These are guidelines, some more helpful than others, but they are never more than this. (Lord Nicholls in KAC v IAC (Nos 4 and 5) at paragraph 70).

Accountability for benefits received.

233. Vindication of a claimant's proprietary interests requires that, in general, all those who convert his goods should be accountable for benefits they receive. They must make restitution to the extent they are unjustly enriched. The goods are the claimant's, and he is entitled to reclaim them and any benefits others have derived from them. Liability in this regard should be strict subject to defences available to restitutionary claims, such as change of position. Additionally, those who act dishonestly should be liable to make good any losses caused by their wrongful conduct.

(Lord Nicholls in KAC v IAC (Nos 4 and 5) at paragraph 79).

User Damages.

234. The fundamental object of an award of damages for conversion is to award just compensation for loss suffered. When the goods or their equivalent are returned, the owner sometimes suffers no financial loss. But the wrongdoer may well have benefited from his temporary use of the owner's goods. It would not be right that he should be able to keep this benefit. The court may order him to pay damages assessed by reference to the value of the benefit he derived from his wrongdoing. In an appropriate case the court may award damages on this 'user principle' in addition to compensation for loss suffered. For instance, if the goods are returned damaged, the court may award damages assessed by reference to the benefit obtained by the wrongdoer as well as the cost of repair.
235. Recognition that damages may be awarded on this principle may assist in making some awards of damages in conversion cases more coherent. This is the preferable basis for the award of damages in Solloway v McLaughlin [1938] AC 247 and BBMB Finance (Hong Kong) Ltd v Eda Holdings Ltd [1990] 1 WLR 409.

(Lord Nicholls in KAC v IAC (Nos 4 and 5) at paragraphs 87-89).

236. The common law has long recognised that there are many situations where a strict application of the principle that damages are measured by the claimant's loss, not the defendant's gain would not do justice between the parties. Then compensation for the wrong done to the claimant is measured by a different yardstick. A trespasser who enters another's land may cause the landowner no financial loss. In such a case damages are measured by the benefit received by the trespasser, namely, by his use of the land.

The same principle is applied to the wrongful detention of goods.

237. In Strand Electric and Engineering Co Ltd v Brisford Entertainments Ltd [1952] 2 QB 246 the claimant's equipment which the defendant detained (portable switchboards) was profit-earning property. The claimant normally hired out the equipment in the course of its business. The defendant during the period of wrongful detention applied the property to the furtherance of its own ends. The claimant was held to be entitled to a sum representing the reasonable hire of the goods for the period of detention.
238. The Earl of Halsbury LC asked in The Mediana [1900] AC 113, 117, if a person took away a chair from his room and kept it for 12 months, could anybody say you had a right to diminish the damages by showing that I did not usually sit in that chair, or that there were plenty of other chairs in the room?
239. In Watson, Laidlaw & Co Ltd v Pott, Cassels and Williamson (1914) 31 RPC 104, 119 Lord Shaw said: -

"Wherever an abstraction or invasion of property has occurred, then, unless such abstraction or invasion were to be sanctioned by law, the law ought to yield a recompense under the category or principle ... either of price or of hire …

If A, being a liveryman, keeps his horse standing idle in the stable, and B, against his wish or without his knowledge, rides or drives it out, it is no answer to A for B to say: 'Against what loss do you want to be restored? I restore the horse. There is no loss. The horse is none the worse; it is the better for the exercise."

240. Awards of user damages cannot be regarded as conforming to the strictly compensatory measure of damage for the injured person's loss, unless loss is given a strained and artificial meaning. The injured person's rights were invaded but, in financial terms, he suffered no loss. Nevertheless the common law has found a means to award him a sensibly calculated amount of money. Such awards are probably best regarded as an exception to the general rule.
241. The common law affords a claimant whose goods are wrongfully converted a choice of two remedies against the wrongdoer. He can recover damages, in respect of the loss he has sustained by the conversion. Or he can recover the proceeds of the conversion obtained by the defendant: see United Australia Ltd v Barclays Bank Ltd [1941] AC 1, 34, per Lord Romer. Historically, the latter alternative was achieved by recourse to an element of legal fiction, whereby the innocent party "waived the tort". The innocent party could suppose that the wrongful sale had been made with his consent and bring an action for money "had and received to his use": see Lamine v Dorrell (1705) 2 Ld Raym 1216, 1217.

(Attorney General v Blake [2001] 1 AC 268 at 278 to 280 where Lord Nicholls considered the 'user principle').

As to user damages see further paragraph 462 below.

Intervening acts and the costs of recovery and repair.

242. A person who misappropriates another's goods does so at his own risk. That is the nature of the wrong. He takes upon himself the risk of being unable to return the goods to their rightful owner. It matters not that he may be prevented from returning the goods due to unforeseen circumstances beyond his control. The reason for his non-return of the goods, or his delay in returning the goods, is neither here nor there so far as his liability to the owner is concerned. If the goods are eventually returned, thereby diminishing the financial loss suffered by the owner, this must be taken into account. But the wrongdoer's liability extends to compensating the owner for the loss he sustains by virtue of his temporary loss of his goods, regardless of the impact any unforeseen circumstances may have had on the wrongdoer. The loss flowing from the unforeseen circumstances should be borne by the wrongdoer, not the innocent owner of the goods. Additionally, provided the amount is not out of proportion to the value of the goods, the wrongdoer ought to reimburse the owner for any money spent on recovering the goods or carrying out necessary repairs. (Lord Nicholls in KAC v IAC (Nos 4 and 5) at paragraph 92).

Consequential Loss.

243. As to liability for consequential loss (i.e. loss beyond that represented by the value of the goods) in cases of conversion the choice is between confining liability for consequential loss to damage which is 'foreseeable', as distinct from damage flowing 'directly and naturally' from the wrongful conduct. In practice, these two tests usually yield the same result. Where they do not, the foreseeability test is likely to be the more restrictive.

Dishonesty is not an essential ingredient of the tort of conversion. The defendant may be a thief, or he may have acted wholly innocently. Both are strictly liable. But it is inappropriate that they should be treated alike when determining their liability for consequential loss. For some purposes different considerations should apply to persons who steal goods, or knowingly receive stolen goods, and persons who can show they bought the goods in good faith. In respect of the tort of conversion the Limitation Act 1980 prescribes different limitation provisions for these two types of cases: see sections 3 and 4.

244. For those who act in good faith, liability remains strict, but liability for consequential loss is confined to types of damage which can be expected to arise from the wrongful conduct. Foreseeability, as the more restrictive test, is appropriate in the case of a person who can prove he acted in the genuine belief the goods were his. (See section 4 of the Limitation Act 1980).
245. Persons who knowingly convert another's goods act dishonestly. The remoteness test of 'directly and naturally' applied in cases of deceit, applies in cases of conversion where the defendant acted dishonestly. (Lord Nicholls in KAC v IAC (Nos 4 and 5) at paragraphs 99 - 104).
246. Assessment of the market value of the goods at the time the defendant converted them.

i) On proof of the tortious destruction of a chattel, the owner is prima facie entitled to damages reflecting the market value of the chattel "as is".

ii) He is so entitled whether or not he intends to obtain a replacement.

iii) The market or resale value is to be assessed on the evidence, there being no standard measure applicable to all circumstances.

iv) If the claimant intends to replace the chattel, and if the market or resale value as assessed is inadequate for that purpose, then the higher replacement value may, in the event, be the appropriate measure of damages.

v) When and if replacement value is claimed, the claimant can only succeed to the extent that the claim is reasonable; that is, that it reflects reasonable mitigation of its loss.

vi) The claim will ordinarily be reasonable if it is reasonable to replace the chattel and the cost of replacement is reasonable.

(The Maersk Colombo [2001] 2 Lloyd's Rep 275 at para 71 Clarke LJ, where a berthing vessel negligently damaged a crane and it was held that it would have been unreasonable to replace the crane and that the claimant was confined to recovering market value).

247. In KAC v IAC (Nos 4 and 5) [2001] 3 WLR 1117 at 1277 to 1280 the Court of Appeal held that if IAC had been liable for the conversion of the Mosul Four, then the correct basis for beginning to value their loss to KAC would have been current market price as defined at p 1277 paragraph 599; -

"Current market price. Current market price ('CMP') is MBA's opinion of the most likely transaction price that may be generated for an aircraft under prevailing market conditions that are perceived to exist at the relevant time. The experts agree that the CMP could reflect the cost that would need to be incurred/paid to replace the aircraft for a 'like for like' aircraft if available. CMP also reflects the most likely realisable cash amount in the event that the aircraft was to be sold at a specific date. MBA assigns a market adjustment factor ('MAF') to convert the base value ('BV') or what is termed by many as the fair market value ('FMV') to a current market price. When the market is in a reasonable state of equilibrium, this factor is usually 100%. If the market favours the seller, the factor will be greater than 100%; if the market favours the buyer, the factor will be less than 100%. The product of the BV or FMV and the MAF produces a 'price' at which the aircraft is likely to be traded in the market reflecting the criteria detailed above. MBA call this price the current market price. The MAF may indicate that the CMP is in excess of, or below the FMV."

248. At paragraph 645 the Court said: -

"The primary consequence of the loss of the Mosul Four was the need to replace them, measured by their value to KAC, of which the foremost component would be the market cost of equivalent substitutes, if available. They were available, and would have been operational within a period of, if not necessarily six to nine months as IAC asserts, at any rate something of that order. It was the cost of such used replacements that was KAC's primary claim."

249. If there is a market price, the value of the goods is to be taken as the market price at the relevant time. If not, the value of the goods must be determined by any available evidence, such as the price at which the goods have been bought, or sold under a sub-contract. Where the claimant himself had contemplated selling the goods, the defendant will generally be given credit for the cost of the putative sale, as that would have been incurred anyway. In a suitable case replacement cost may be some guide as to value.

Clerk and Lindsell on Torts 18^th Ed at 14-104 and the cases there cited.

250. The general rule is that where goods have been irreversibly converted their value is assessed at the date of conversion. However, that even where goods are articles of ordinary commerce the damages may be assessed by reference to the cost of replacement goods if the cost has increased between the date of conversion and the date when the claimant, acting reasonably, ought to have obtained the replacement.

IBL Ltd. V Coussens [1991] 2 All ER 133 at 139, Neill L.J.

Betterment and new for old.

251. It is for the defendant who seeks a deduction from expenditure in mitigation on the ground of betterment to make out his case for doing so. It is not enough that an element of betterment can be identified. It has to be shown that the claimant had a choice, and that he would have been able to mitigate his loss at less cost. The wrongdoer is not entitled to demand of the injured party that he incur a loss, bear a burden or make unreasonable sacrifices in the mitigation of his damages. He is entitled to demand that, where there are choices to be made, the least expensive route which will achieve mitigation must be selected. So if the evidence shows that the claimant had a choice, and that the route to mitigation which he chose was more costly than an alternative that was open to him, then a case will have been made out for a deduction. But if it shows that the claimant had no other choice available to him, the betterment must be seen as incidental to the step which he was entitled to take in the mitigation of his loss, and there will be no ground for it to be deducted.

(Lord Hope in Lagden v O'Connor [2003] 3 WLR 1571 at 1582 setting out the principles on which Harbutt's Plasticine Ltd v Wayne Tank and Pump Co Ltd [1970] 1 QB 447 was decided).

i) In the case of damage to or destruction of a chattel, cases where a claimant recovers more than he has lost (as will happen where betterment occurs without a new for old deduction) are as a matter of principle exceptional. Recognised examples of such exceptions are cases of the repair of chattels (The Gazelle, Bacon v Cooper) and also the destruction of buildings, provided that a replacement building is necessary to prevent the collapse of a business or loss of profits (Harbutt's Plasticine, Dominion Mosaics v Trafalgar Trucking). It may well be that the exceptions are to be explained on a fact sensitive basis. The true principle is that in the relevant cases the betterment has conferred no corresponding advantage on the claimant. In the case of the repair of some part of a machine, where only a new part can be fitted or is available, the betterment is likely to be purely nominal: for unless the machine will outlast the life left in the damaged part just before it was damaged, the betterment gives the claimant no advantage; and in most cases any such benefit is likely to be entirely speculative. In the case of replacement buildings, the building may be new, but buildings are such potentially long-lived objects that the mere newness of a building may be entirely by the way. Of much more importance to a business owner is whether the replacement answers the needs of his business. Where it is shown that the larger size of a replacement building (or some other aspect of betterment) is of real pecuniary advantage to the claimant, this should be taken into account. Where mitigation has brought measurable benefits to a claimant, he must give credit for them: see British Westinghouse v Underground Electric Railways, where defective machines were replaced by new machines of superior efficiency.

ii) Where in the case of a second-hand chattel there is no market to replace what has been lost, a problem of betterment will often arise because there is no automatic market mechanism for measuring the loss. In physical terms, the only way to replace the loss is to buy new. But the basic principle is not physically to replace what the claimant has lost but to replace it financially, to make him whole in financial terms. If he is given the price of a new chattel, he will be made more than whole. Prima facie such a case is not within the range of exceptional situations where betterment is ignored. The proper approach is to make a fact specific review of what the claimant has lost and then attempt to put a financial figure on it as best one can: The Harmonides approved in The Liesbosch; Sealace Shipping v Oceanvoice approved in Ruxley v Forsyth.

iii) It is an error to think in terms of the correct answer lying only at the extremes, such as, at one end, the cost of replacement from new. Several of the cases which have been driven by the way in which the case has been argued have commented on this factor: The Harmonides, Dominion Mosaics v Trafalgar Trucking and Ruxley v Forsyth.

iv) The test of reasonableness has an important role to play. This role goes further than the proposition that replacement from new has to be absurd for it to be rejected as the measure of loss. The loss has to be measured and where what is lost is old and second-hand and coming towards the end of its life, it is not prima facie to be measured by the cost of a brand-new chattel, even where the market cannot supply a closer replica of what has been lost; and where such a measure would not be a reasonable assessment of what has been lost, it should not be used. Damages ought to be reasonable as between claimant and defendant. The common law can mould its principles flexibly to the needs of the situation, and as so often the test of reasonableness is a useful tool. It may also be possible to speak in terms of proportionality, a closely analogous but not necessarily identical test: see Lord Lloyd in Ruxley v Forsyth at pp. 367B and 369H.

Rix LJ in the Baltic Surveyor [2002] 1 Lloyd's Rep 623 at 640-641.

I turn to consider the agreed list of issues.

DATA ISSUES

252. 1. Are there grounds for concluding that KAC's remaindered and recovered data is materially inaccurate or unreliable and, if so, to what extent?

i) Should the total credit to be given to IAC be increased by $4m to take account of under-recording?

ii) KAC says: No increase to the credit is appropriate because there is no material inaccuracy in the remaindered/recovered data. But if there is to be a credit, it will only be at $4m (including AOG or $3,855,421 excluding AOG) if IAC is given credit generally at 60% MLP. If credit is given at 48% MLP, the alleged under-recording will only result in an increase of $3.2m ($4m ( 80%) (or $3,084,337 excluding AOG).

iii) IAC says: $4m credit should be given. It is accepted that if credit is not given generally at 60% of Manufacturer's List Price ("MLP"), then the amount of $4 million should be proportionally reduced.

253. IAC do not allege that there was any deliberate under-recording by KAC. The opening submissions for IAC contended that the CCC testing showed a minimum under-recording of controlled spares of 15 - 16% overall and of 65 - 83% on the part numbers where under-recording was still apparent and that the Maxi-Merlin testing showed, in Mr Villa's view, an under-recording of rotables of between 14% and 64%.
254. In the course of the trial IAC abandoned reliance on Mr Villa's views in connection with the Maxi-Merlin testing.

IAC's closing submissions were as follows.

255. IAC's case is that KAC has under-stated in the Working Schedule the number of remaindered and recovered spares which it took back into its operational stock. The evidence, particularly the component control card test, shows that some remaindered and recovered spares were taken back into operational stock by KAC without being recorded as remaindered and recovered. As to the remaindered data and the recovered data, IAC listed a number of factors which whilst "not in themselves providing strong evidence of under-recording … give no reason to doubt the evidence of under-recording from the CCC test". The two vital factors in assessing the CCC test are (i) that the instances of under-recording have far more significance than those of over-recording and (ii) the incompleteness of the cards is a one-way effect which operates against IAC. Netting off is the heart of the difference between the parties. IAC and Mr Villa say that it is wrong to give equal weight to the cases of under and (apparent) over-recording. IAC submit that the court should adopt the figure of $4 million as a prudent and conservative quantification of the element of under-recording of remaindered and recovered spares in the Working Schedule. This result is fully compatible with the factual evidence and with the extraneous factors identified in the list of 17 factors introduced by KAC.

KAC's closing submissions were as follows.

256. Mr Campbell's conclusion that there may be some remaindered items not recorded but, overall, they make no material difference to the remaindered and recovered data, should be accepted. Mr Villa lacked the necessary expertise to evaluate the results of the CCC test. Mr Villa failed to analyse the results of the CCC test in any proper or appropriate manner for a number of reasons, including his refusal to set off the over-recordings shown up by the CCC test. There were 17 balancing factors which led Mr Campbell to say at the end of his evidence that, properly evaluated, the CCC test did not lead to the conclusion that there should be any adjustment to KAC's data for remaindered and recovered spares. Mr Villa's credibility was severely damaged by his approach to the Maxi-Merlin testing. IAC's abandonment of Mr Villa's third and fourth reports on Maxi-Merlin, demonstrated that Mr Campbell had completely destroyed the analysis that Mr Villa put forward. Mr Villa finally stood by his analysis of the Maxi-Merlin 'ex-stores' file, as showing some 37% under-recording for remaindered and some 8.5% under-recording for recovered spares. The analysis was meaningless, once Mr Villa accepted that he did not know whether any particular part in the 'ex-stores' file was shown as remaindered or recovered under another part number in the Working Schedule and the MSCS data. There are no grounds for concluding that KAC's remaindered and recovered data is materially inaccurate or unreliable.

Issue 1 – Analysis and Conclusions

257. The recording systems at KAC in relation to remaindered and recovered spares were as follows.

Remaindered spares:

258. Remaindered spares were documented in the following records: -

1991 onwards

i) Unserviceable remaindered rotable and repairable spares were entered in the Salvage Register from 1991 onwards. These parts were entered on sheets (headed "Salvage Work Order Register") which recorded remaindered and other spares. Each entry carried a work order number, which was also placed on the unserviceable tag.

ii) Serviceable remaindered rotable and repairable spares were entered in the Receipts Section Register (also known as the Credit Note Control Register) from 1991 onwards. They were given a credit note number, and entered into the inventory control cards.

iii) Unserviceable remaindered consumable spares were scrapped and discarded without being recorded from 1991 onwards.

iv) Serviceable remaindered consumable spares were entered in the Receipts Section Register (also known as the Credit Note Control Register) from 1991 onwards. There were many of these. They were given a credit note number, and entered on the inventory control cards.

March 1993 – bonded stores only

v) Unserviceable remaindered rotable and repairable spares found in the bonded stores (within the narrow bodied hangar) were entered in a separate Salvage Register from March 1993 (when access to the bonded stores was again available). These parts were entered on sheets which recorded only remaindered spares. Each entry carried a work order number, which was also placed on the unserviceable tag.

vi) Unserviceable remaindered consumable spares found in the bonded stores (within the narrow bodied hangar) from March 1993 were recorded in the 'Old Falah' file of the LAN system, and were subsequently amongst those sold for scrap in 1996 for $300,000.

vii) Serviceable remaindered consumable spares were entered directly onto the LAN system from March 1993 and given a system generated credit note number, and a job number for costing purposes of "009J9999".

259. The 2 files in the LAN system in respect of remaindered spares were entered by Mr Bosco d'Mello's team: -

i) For unserviceable rotable and repairable spares, from the Salvage Register and the Inventory Control Store Cards ("Stock dues in") for open repair orders verified with the repair order itself.

ii) For serviceable spares, from the Receipts Section Register (also known as the Credit Note Control Register) and the Inventory Control Store Cards.

Mr Bosco d'Mello is an assistant in the Inventory Control and Computerisation Section who developed the LAN system.

260. Mr Campbell was sent: -

i) the LAN data as to remaindered serviceable and unserviceable spares in April 1993 and

ii) an update in 2001, bringing remaindered data up to date, in respect of data that had come into the LAN after April 1993.

Recovered spares

261. Recovered spares were documented in the following records: -

1992 onwards

i) Unserviceable recovered rotable and repairable spares were entered in the Salvage Register from 1992 onwards. These parts were entered on sheets which recorded only recovered spares. Each input carried a sequential work order number with a prefix "009D", and was given an unserviceable tag. When these parts were sent for repair to outside facilities, there were given a repair order number with the prefix "R9D".

ii) Serviceable recovered rotable and repairable spares were entered in the Register of Credit Notes from 1992 onwards and onto CCCs. They were given a credit note number prefixed with "CNB", given a job number for costing purposes of "009D9999".

iii) Unserviceable recovered consumable spares were scrapped and discarded without being recorded from 1992 onwards.

iv) Serviceable recovered consumable spares were entered in the Register of Credit Notes from 1992 onwards. They were given a credit note number prefixed with "CNB", given a job number for costing purposes of "009D9999".

262. The 2 files in the LAN system in respect of recovered spares were entered by Mr Bosco d'Mello's team: -

i) For unserviceable rotable and repairable items, from the Salvage Register and the information already in the LAN system; and

ii) For serviceable items, from the Register of Credit Notes and the original LAN records of that data.

263. Mr Campbell was sent the LAN data as to recovered serviceable and unserviceable spares in March 1993.
264. I turn to consider Issue 1. Any analysis of this issue (are there grounds for concluding that KAC's remaindered and recovered data is materially inaccurate or unreliable and, if so, to what extent?) should have regard to all relevant evidence, including the unchallenged witness statements, the evidence of the witnesses called by KAC, the relevant documents and the evidence properly regarded as expert evidence.
265. I refer back to my analysis of the unchallenged witness statements and my assessment of the witnesses called to give evidence by KAC. It is also necessary to bear in mind the findings as to the conduct of IAC post invasion (including IAC's conduct in relation to this litigation).
266. IAC abandoned reliance on Mr Villa's views in connection with the Maxi-Merlin testing. Mr Villa lacked the necessary expertise in relation to accounting practice and related matters – " I am not a current accountant in professional practice … I do not know what the current accounting practice or auditing practice is on testing …". Mr Villa did not, when providing reports and giving evidence, state when a particular question or issue fell outside his expertise (see the Ikarian Reefer [1993] 2 Lloyd's Rep 68 at 81 4).
267. IAC say that the evidence, particularly the CCC test, shows that KAC's remaindered and recovered data is materially inaccurate or unreliable. IAC say the most significant evidence on this point is the CCC test. I turn to consider the CCC test, while reiterating that regard must be had to all relevant evidence.
268. Mr Campbell was a conspicuously fair expert witness who was independent, balanced in his approach and prepared to make concessions when concessions were appropriate. His evidence in relation to the CCC test calls for careful analysis. At one point in cross-examination Mr Campbell said that he would put a figure of somewhere between $3 and $4 million on the under-recorded, adding, "that is done at some pace". He said that if this approach was followed this would increase the credit for remaindered and recovered spares returned to operational stock by $3.5 million. After further matters were put to him Mr Campbell said that he would move to $4 million. But his evidence did not stop there. Mr Campbell's conclusion at the end of his evidence was as follows: -

"I hope I have made it clear that I am … uncomfortable with drawing any arithmetic conclusion from these tests and, in particular, I am very uncomfortable in putting a dollar figure on it. I much prefer the formulation that I put into AFC 4, which is: yes, there may be some remaindered items not recorded but, overall, they make no material difference to the recovered and remaindered data".

269. In my judgment Mr Campbell was right to distinguish between remaindered spares and recovered spares.
270. The following balancing factors may affect the consideration of the integrity of KAC's data for remaindered and recovered spares: -

(1) Incompleteness of the CCCs.

(2) The difficulty of interpretation of the CCCs.

(3) The apparent under-recording in KAC's data.

(4) Cards not returned (i.e. the fact that cards which were chosen for inclusion in the CCC test could not be found).

(5) Negative quantities, and the fact that some credit had been given for them.

(6) Unmatched parts, and the fact that full credit had been given for them.

(7) Possible sales by KAC of remaindered and recovered parts.

(8) The fact that IAC's data confirms KAC's data.

(9) The Salvage Register data.

(10) Extrinsic evidence of spares stolen/ sold/ smelted and retained by IAC.

(11) The Maxi Merlin 'ex stores' and 'ex SDA' files.

(12) Evidence of precision record keeping.

(13) The fact that the data given to Mr Campbell for recovered spares originated from the LAN in April 1993.

(14) The surplus spares data.

(15) The fact that the starting point for the Working Schedule data is 14 June 1990, not 14 August 1990.

(16) Assembly and disassembly of spare parts.

(17) The fact that adjustment has been made for known errors i.e. nose-landing gear and fifth pods.

271. In broad terms I accept and prefer Mr Campbell's analysis of the 17 factors. When appropriate weight is given to each of the 17 factors, I have no hesitation in finding that KAC's recovered data is materially accurate and reliable. If over-recording of recovered spares is taken into account (as I find it should be) the resulting balance is neutral.
272. As to remaindered spares as KAC point out (i) there are far fewer remaindered spares than recovered spares and (ii) the majority of the remaindered spares were consumables, in relation to which unit of measure issues will have distorted any error and (iii) the CCC test covered only rotables.
273. In his first report Mr Campbell adopted the bottom of the range of percentages in the Securities and Exchange Commission "rule of thumb", namely 5%, as an appropriate measure of materiality.
274. As to the CCC test, I accept Mr Campbell's conclusion that there may be some remaindered items not recorded, but, overall, they make no material difference to the remaindered data. I reach this conclusion broadly for the reasons given by Mr Campbell (particularly in relation to the 17 factors), but also having regard to all other relevant evidence, including (without limitation) the unchallenged witness statements, the evidence of the witnesses called by KAC and the relevant documents.
275. I answer issue 1 in the negative.
276. 2. Is any credit to be given to IAC for negative quantities and, if so, how much?

i) Is credit to be given for 60% or 90% of all rotable and repairable spares which result in negative quantities (in addition to credit for remaindered/recovered spares in general)?

ii) KAC says: Credit should be given for 60% of all rotable and repairable spares which result in negative quantities at the same rate as credits given generally (i.e. 60% MLP or 48% MLP).

iii) IAC says: Credit should be given for 90% of all rotable and repairable spares which result in negative quantities. It is accepted that if credit is not given generally at 60% of MLP then the amount of the credit for 90% of negative quantities should be proportionally reduced. So, for example, if credit is given generally at 48% of MLP, the amount of the credit to IAC would be at 90% of 48% of MLP.

277. As IAC pointed out in its opening submissions, negative quantities is an unusual way to describe a possible excess. The expression has been coined because the Working Schedule states the number of missing spares under each part number as a positive number. Where, therefore, KAC recorded that it had got back more spares of a particular type than it had started with, the number of missing spares is negative.
278. It is common ground that this issue is confined to negative quantities of rotable and repairable spares, and that unit of measure difficulties are likely to be the reason for the discrepancies in relation to consumables/expendables.

IAC's closing submissions were as follows.

279. IAC's contention in relation to negative quantities is confined to rotable and repairable spares. These are unlikely to be affected by unit of measure issues, being individually valuable spares. The spares described as negative quantities are real spares taken back into KAC's stock with an average value (at 60% MLP) of $4000 each. These spares have been recorded as remaindered or recovered and KAC has, or has had, the real tangible benefit of them. Six possible explanations are:

(1) Items returning from repair between 14 June and 2 August 1990;

(2) The 'higher assembly' point (parts assembled or disassembled);

(3) Mis-recording of part numbers;

(4) Parts purchased and delivered between 14 June and 2 August 1990;

(5) Overstatement of recovered or remaindered parts;

(6) Return by IAC of more parts than it took.

IAC submits that the balance of these possible explanations comes down very strongly in favour of allowing IAC 90% credit for negative quantities. The first four possible explanations embrace the most likely circumstances and all weigh firmly in favour of giving full credit to IAC (subject only to one possible case of disassembly). The last two explanations are the least likely to have had any effect at all. They are adequately catered for by a 10% allowance to KAC. IAC should have credit for 90% of $3.5m in respect of negative quantities. A credit of 60% would not adequately reflect the far greater strength of the arguments in IAC's favour on this issue.

KAC's closing submissions were as follows.

280. In relation to some part numbers, the number of remaindered or recovered spares returned by IAC is greater than the number recorded as held by KAC on 2 August 1990, resulting in what has been described as negative quantities. KAC's case in opening was that the correct treatment of these spares in the Working Schedule was to ignore the negative quantities. For example, if KAC had 10 items on 2 August 1990 and twelve are shown as having been remaindered or recovered, KAC only claims in respect of the 10 it definitely had (even though it may have had more), and the negative quantity of 2 is ignored. When cross-examined, Mr Campbell assessed the detailed points put to him by Mr Davies and concluded that it would be fair to make a "guesstimate" of 60% credit to IAC in respect of negative quantities. KAC does not seek to depart from this approach. In addition to the 6 possible explanations listed above, KAC added - (7) The possibility that the stock at 14 June 1990 may have been incorrectly recorded. KAC submitted that it is impossible to know the causes of the negative quantities or to say precisely what proportion of the negative quantities is attributable to any one of the 7 possible explanations (or some other explanation). It is as easy to construct hypothetical examples which demonstrate that giving credit to IAC for negative quantities would be unfair, as it is to construct examples which demonstrate that giving credit to IAC would be fair. Materiality is also important to this issue. Mr Campbell's estimate of the appropriate credit was 60% of the total value (at 60% of MLP) of negative quantities. As Mr Campbell made clear, this credit should only logically be given if the otherwise agreed credit for unmatched parts is reduced to take account of cases where the unmatched part is not included in KAC's claim. Mr Campbell estimated the reduction to unmatched parts as 10%. Mr Villa's alternative figure for the credit in relation to negative quantities was 90%. KAC submitted that this does not fairly balance the various possible causes for negative quantities and gives too much credit to IAC. Mr Campbell's balanced figure is to be preferred.

Issue 2 – Analysis and Conclusions

281. IAC do not seek a credit for negative quantities of consumables.
282. In my view Mr Campbell's approach to the issue as to negative quantities, when giving evidence, was exemplary. When a point was put to him in cross-examination which he considered had merit, he immediately accepted it. His approach seemed to me to be conspicuously fair, balanced and independent. As he pointed out when moving to 60% - "I do emphasise that it is purely an assessment. It is not based on any analytical calculation or analysis".
283. In my view Mr Campbell's approach to this difficult issue is to be preferred to that of Mr Villa. The uncertainties and complexities are such that it is not possible to take anything other than a broad view of this issue. If IAC had not behaved in the various respects outlined in the introduction to this judgment, it would almost certainly have been possible to analyse this issue with far greater precision. But IAC have not returned all the KAC records which they converted. There was a policy of hiding documents relevant to the litigation. IAC have not complied with orders of this court as to disclosure (including, without limitation, disclosure of all documents (whether in paper or electronic form) taken from KAC's premises and the inventory made by IAC of KAC's spares).
284. In my judgment credit should be given for 60% of all rotable and repairable spares which result in negative quantities, at the same rate as credits given generally (i.e. 48% MLP – see below).
285. 3. Is the otherwise agreed credit for unmatched parts to be reduced to take account of credit given for negative quantities and, if so, by how much?

i) Is credit to be given for 100% or 90% of unmatched parts (in addition to credit for remaindered/recovered spares in general)?

ii) KAC says: Credit should be given for 90% of unmatched parts at the same rate as credits given generally (i.e. 60% MLP or 48% MLP).

iii) IAC says: Credit should be given for 100% of unmatched parts.

Should KAC's otherwise agreed repair costs claim be reduced as a consequence of a reduction in credit for unmatched parts and, if so, by how much?

iv) It is common ground that the proportion of KAC's repair costs claim which relates to unmatched parts (totalling $1,082,179) should be reduced by 10% (to total $973,961.10) if credit is given for only 90% of unmatched parts. If credit is given for 100% of unmatched parts, it is common ground that no reduction need be made to KAC's repair costs claim.

IAC's closing submissions were as follows.

286. There is no overlap between the parts recorded as unmatched and those which are negative quantities. A part is one or the other, it cannot be both. Therefore there is no justification for any connection between the two categories. The agreed credit for unmatched part numbers is itself a broad brush exercise. Mr Campbell says that it should be adjusted to allow for the possible presence amongst the unmatched of items not claimed for, but he accepts that the proposed 10% adjustment is only a guess. In these circumstances, there is no basis to re-open the agreed credit for unmatched part numbers. That represents a reasonable broad brush exercise. There is nothing in the consideration of the negative quantity issue which justifies changing it on the basis of a guess at 10% adjustment. IAC therefore submitted that the unmatched parts credit should remain unchanged.

KAC's closing submissions were as follows.

287. In relation to both the remaindered and recovered spares, Mr Campbell discovered that a number of part numbers could not be matched with those contained in the MSCS data. It was agreed between the experts that a credit of $4,926,116 (at 60% of MLP) should be given to IAC for these parts. If a credit is to be given for negative quantities (see Issue 2) it was Mr Campbell's view that the credit for unmatched parts should be reduced to take account of cases where the unmatched part is not included in KAC's claim. Mr Campbell estimated the reduction to unmatched parts as 10%.

Issue 3 – Analysis and Conclusions

288. In his Second Supplementary Report Mr Campbell stated that credit had been given in the Working Schedule for all parts within the KAC remaindered and recovered data where the part number did not match with the Working Schedule. He said (at paragraph 5.9) that in his view if any credit is to be given in respect of negative quantities, "it should be reduced or offset by whatever credit is wrongly given in the unmatched spares in respect of parts not claimed in the Working Schedule in the first place".
289. When giving evidence Mr Campbell said "an unmatched part number cannot be identified, so we do not actually know that a part in the recovered and remaindered data is actually a KAC part, and is actually a KAC part that is included in the stock at 2.8.90. For example, it may relate to a government aircraft, a gulfstream or an HS125. Now, I cannot say that they do relate to such aircraft and I cannot say that they do not. But when looking at the balance of this whole question … I think this a factor that needs to be borne in mind. … But, [the Court], I fear is going to ask me how much. I cannot give you an answer because I do not know from the data what that credit should be. … I am in serious difficulty … because I really do not know. I certainly cannot demonstrate by definition that any individual part in the unmatched parts is not in the claim – I hope I have those negatives right. I cannot demonstrate that because I do not know what those parts are. Similarly, I cannot demonstrate that any of those parts are in KAC's claim. I think the likelihood is that most of them are, but I suspect that there may well be some that are not … if you ask for a guess … I do not think it would be more than 20% of the 4.9 figure. I would have thought it was probably more likely to be of the order of 10%, as a guess … I do not wish to appear indecisive but it really is impossible to say."
290. It is common ground that, subject to issue 3, a credit of $4,926,116 (at 60% of MLP) should be given to IAC for unmatched parts.
291. In view of the uncertainties fairly described by Mr Campbell, in my judgment credit should be given for 95% of unmatched parts at the same rate as credit is given generally (i.e. 48% MLP – see below). It is common ground that the proportion of KAC's repair costs claim which relates to unmatched parts should be reduced by 5%, if credit is given for only 95% of unmatched parts.
292. 4. Should any deductions be made from the Working Schedule to account for spares carried on the Iran Six or the Mosul Four?

i) In light of the evidence referred to in the judgment of HHJ Dean of 21 November 2003, IAC no longer seeks any deduction for spares carried on the Iran Six.

ii) Should $878,632 (if calculated at 100% MLP excluding AOG and duty) be deducted from KAC's claim to account for spares on the Mosul Four?

iii) KAC says: This figure should not be deducted because liability has been admitted for the spares carried on these aircraft. If KAC recovers less than 100% MLP, the reduction will decrease proportionately.

iv) IAC says: This figure should be deducted because IAC is not liable for the Mosul Four themselves. IAC has denied liability for conversion of spares on the Mosul Four. Alternatively, this claim should be hived off to the Perjury II trial.

IAC's closing submissions were as follows.

293. In the Main Aircraft Action IAC was held not liable in respect of the Mosul Four. The position cannot be any different for spares carried on the aircraft, than it is for the aircraft. The point has therefore been decided against KAC by the Main Aircraft Action. Given the existence of the Perjury II claim, IAC would be content for this issue to follow the outcome of that claim.

KAC's closing submissions were as follows.

294. It is correct that it was held in the Main Aircraft Action that KAC was not entitled to recover in respect of the Mosul Four. This was primarily because of the operation of the "but for" test, which was held to preclude liability under Iraqi law. It was held that the Mosul Four would still have been at Mosul, and thus destroyed by coalition bombing, even if IAC had not wrongfully interfered with them. The decision was dependent upon evidence of Iraqi law, evidence about what had happened to the aircraft and evidence about what might have happened to them absent IAC's interference. No such evidence has been adduced by IAC in relation to the spares. There is nothing to demonstrate that they were still on the aircraft when they were moved to Mosul, or that they would still have been on the aircraft if IAC had not taken them. IAC has no defence to the claim for the spares carried on board. KAC's fall-back position is that the claim should be hived off to be dealt with in the Perjury II action, applying the general determinations that will be made in this action as to value.

Issue 4 – Direction

295. I direct that this issue (now confined to spares carried on the Mosul Four) should be dealt with in the Perjury II trial. I will give appropriate directions to achieve this (if the same cannot be agreed).
296. 5. What deductions should be made from the Working Schedule to account for spares held at Cairo?

i) How much of the Airbus stock held at Cairo (valued at $1,862,406 if calculated at 100% MLP excluding AOG and duty) should be deducted from KAC's claim?

ii) KAC says: $420,156 at 100% MLP should be deducted in respect of the spares identified by Mr Villa, plus a further $231,696 at 100% MLP in respect of the kitty stock which remained in Cairo. KAC is entitled to claim for the remainder of the stock ($1,210,554 at 100% MLP).

iii) IAC says: The entire Airbus stock held at Cairo should be deducted because there is no evidence to show the number or value of spares sent back to Kuwait. Further, the "kitty stock" credit should be at $250,000 rather than $231,696.

IAC's closing submissions were as follows.

297. KAC initially claimed for all Airbus A300 and A310 spares held at KAC's outstation at Cairo on 14 June 1990. This was on the basis of evidence from KAC that those spares were located at Cairo to support the lease of three Airbus A300 aircraft to Egypt Air, that those leases and the need for the supporting spares had come to an end, and that the spares were therefore flown by KAC from Cairo to KIA in late July 1990. The sample testing of CCCs demonstrated that at least nine of the spares claimed to have been moved in July 1990 remained in Cairo in 1991, and therefore cannot have been moved to KIA and converted by IAC. Those spares were substantial, being claimed at a total of US$420,156 at 100% MLP. In opening, KAC accepted that the spares identified by Mr Villa should be deducted from the claim, that some further spares forming part of kitty stock (a basic stock of spares) would also have remained in Cairo and that a further credit of US$231,696 at 100% MLP was likely to be reasonable to take account of those spares.

KAC's claim to the Cairo spares is wholly unsatisfactory. There is no documentary record evidencing the movement of spares. Initially, KAC asserted that all Airbus spares were moved. This assertion was destroyed by the identification of spares totalling US$420,156 at 100% MLP. KAC accepted that these spares remained in Cairo and instead claimed that it was only lease support spares that were returned, not kitty stock. However, KAC had previously asserted that kitty stock held at Cairo would have been comparable to that held at Jeddah, that is spares worth approximately US$5,968. The spares identified as remaining in Cairo cannot have been kitty stock. Mr El-Atta confirmed that he had no idea of the number and value of returned spares. In these circumstances the Court is left with no safe basis upon which to make any finding that any particular spares, or spares of any particular value, were moved from Cairo to Kuwait. This claim should be rejected.

KAC's closing submissions were as follows.

298. Some Airbus spares were shipped from Cairo to KIA on 31 July 1990. Although these spares were shown in the MSCS data for 14 June 1990 as being at Cairo, they were originally included in KAC's claim on the basis that they were at KIA by 2 August 1990. Mr Villa has calculated that nine of the spares at Cairo were not returned to KIA until 1991. These total $420,156 at 100% MLP. KAC accepts that this sum should be deducted from its claim. KAC also accepts that some further discount for other kitty stock left at Cairo should also be made – the figure of $231,696 at 100% MLP is proposed. KAC's claim in relation to this issue is, therefore, in the sum of approximately $1.2 million. Mr El-Atta explained that there were three types of spares at KAC's Cairo base: (i) spares to support KAC's normal day to day operations; (ii) 3 or 4 items held specifically as part of a pooling agreement with other airlines; and (iii) spares held to support the dry lease to Egypt Air of two A300 aircraft. This evidence was supported by that of Mr Al-Khulaifi. Mr El-Atta's evidence was convincing. A substantial quantity of spares, a significant number of which were very valuable, were shipped back to Kuwait shortly before the invasion. It is impossible to say precisely how many. The speculations of Mr Villa cannot reasonably cast doubt on Mr El-Atta's clear evidence. Whether or not there was a list of parts returned to Kuwait, it can no longer be found. The absence of a list does not amount to a reason to doubt the clear evidence of Mr El-Atta. KAC's proposed deduction in respect of kitty stock is more than reasonable. The test on the CCCs included the 150 highest value items for which cards were available, so that there are unlikely to be a significant number of high value rotables which remained in Cairo.

Issue 5 – Analysis and Conclusions

299. Mr El-Atta was a Maintenance Engineer in Cairo at the time of the invasion. He is now Cairo Station Maintenance Manager. Mr El-Atta gave evidence as to the three categories of spares held at Cairo (station spares, spares held for the purposes of pooling arrangements and spares held in relation to lease operations).
300. Mr El-Atta explained his role in relation to the return of spares to Kuwait, when the lease of aircraft 9K-AHI ended in July 1990. According to Mr El-Atta the aircraft carrying spares back to KIA arrived at KIA on 1 August at 2.30 am local time.
301. Mr El-Atta said that the storekeeper loaded spares into containers. Mr Al-Atta personally placed valuable, fragile items (navigation items, computers and flight control computers) in the first class lounge. There were 20 to 25 boxes containing such items. Mr El-Atta said he saw about 4 pallets and two containers. All the freight holds forward and aft were full of the spares (plus the items he positioned in the cabin). I accept this evidence. Mr El-Atta's account seemed to me to be convincing and credible.
302. It would of course be far more satisfactory if a list of parts returned to Kuwait could be found. The events (following the invasion) described in this judgment precluded KAC from finding such a list at KIA. There is no evidence that KAC deliberately withheld any material documents still in Cairo.
303. It is common ground that $420,156 and $231,696/$250,000 must be deducted from $1,862,406. The dispute is as to the balance. I find that the probability is that the majority of the balance was placed on board the aircraft which arrived at KIA on 1 August at 2.30 am local time.
304. In my judgment $862,406 calculated at 100% MLP (excluding AOG and duty) should be deducted from KAC's claim.
305. 6. Is KAC's claim for Simulator Spares barred by the consent order of Langley J dated 4 May 2001?

i) Should $1,577,971 (at 100% MLP excluding AOG and duty) be deducted from KAC's claim?

ii) KAC says: No deduction should be made.

iii) IAC says: The deduction should be made.

iv) It is common ground that, if there is to be a deduction, the credit to be given to IAC for remaindered/recovered simulator spares should also be deducted (of $15,432 at 60% MLP).

IAC's closing submissions were as follows.

306. KAC is not entitled to pursue a claim for simulator spares because the parties agreed on 1 May 2001 (and it was so ordered by consent by Langley J on 4 May 2001) that no claim at all could be made for simulator spares.
307. By letter of 4 August 2000 KAC's solicitors stated that KAC intended to pursue a claim for simulator spares. By a letter dated 12 December 2000 KAC's solicitors wrote, "We have re-examined the Schedules … unfortunately, as you point out … it is apparent that the G3 and HS125 stores and simulator referred to in the Annexes to our clients' Writ were omitted from the Schedules. This was an error, for which we apologise". On 14 February 2001, IAC's solicitors wrote pointing out that in their view the case was subject to an automatic stay. In April 2001, KAC sought to further amend the Points of Claim and served a draft amended pleading with revised Schedules ("the April 2001 Schedule"). The April 2001 Schedule was in the same format as its predecessors. However it now contained new numbered sections of spare parts for the G3, HS125 and Boeing 727 government aircraft. In his witness statement of 26 April 2001 in support of KAC's application for permission to re-amend the Points of Claim, Mr Gooding of KAC's solicitors said "It was also clear that items claimed in the Writ, namely spares for the aircraft G3 and HS125 and simulator spares were missing from the Schedule. The Schedule has been amended to include the G3 and HS125 spares." IAC objected to the proposed amendment and asserted that an automatic stay was in place. Negotiations and correspondence between the parties followed a case management conference on 6 April 2001 before Langley J. Agreement was reached and that agreement is reflected in the May 2001 consent order. In return for IAC agreeing to the lifting of any automatic stay of the proceedings, KAC agreed not to proceed with any claims described in paragraphs 2 and 3 of the Order. The one impression which it is impossible to take away upon reading the whole of the Order, is that KAC would be pursuing any further claim for simulator spares.

KAC's closing submissions were as follows.

On the proper construction of the consent order of 4 May 2001 the existing claim for simulator spares was unaffected. KAC is entitled to claim in respect of simulator spares for the following four reasons:

i) The consent order does not prevent that claim on its proper construction.

ii) Even if IAC is right in saying that the consent order could be construed as implying that no claim for simulator spares was being made, the matrix of fact demonstrates that it cannot be taken to mean that the existing claim for simulator spares should be deleted.

iii) IAC does not contend that the consent order does not reflect the agreement made, and makes no claim for rectification of the order.

iv) If the consent order were vitiated by common mistake, the pre-existing position would prevail, and KAC would still be claiming for simulator spares.

The aim of the order was to exclude "spares not referred to in the Schedule to the draft Re-Amended Points of Claim". Simulator spares were referred to in the Schedule. It follows that the effect of the consent order was to exclude claims for simulator spares (in so far as they were not in the Schedule to the draft Re-Amended Points of Claim). There was no intention to delete simulator spares that were already in the Schedule, and there was no reason to do so. This is confirmed by paragraph 2 of the consent order which provided, by contrast to paragraph 3, that certain other claims made by KAC were "withdrawn and reference to them is to be deleted from the Schedule".

308. Prior to the consent order, both parties believed that simulator spares had not been included in the 1996 and 1997 Schedules. This belief had originated in assertions made on behalf of IAC. The error was mistakenly accepted by KAC's solicitors. IAC's April 2001 strike out application (in relation to simulator spares) was premised on the false suggestion that such spares had not been included in the 1997 Schedule. Had IAC ascertained the true position, it would not have made the application at all. Had KAC ascertained the true position, it would have realised that it did not need permission to amend to claim for simulator spares. Accordingly the only ground for challenging the consent order can be on the basis that it was entered into by a mutual mistake, in so far as simulator spares were concerned. Since the simulator spares had always been claimed by KAC, and KAC did not in fact need permission to amend to include them in May 2001, there is no basis now for precluding KAC from claiming them.
309. The intention behind the consent order was to do no more than exclude any claim which had not already been particularised in the Schedules that then listed the individual spares claimed in KAC's pleadings of 1996-1997. There is no reason why KAC should not be entitled to recover for the conversion of any simulator spares which were referred to in the Writ.

Issue 6 – Analysis and Conclusions

310. The consent order dated 4 May 2001 provided so far as material:

"(1) Subject to paragraphs 2-5 below the claimants have permission to re-amend their Amended Points of Claim in the form served in draft on the defendant on 3 April 2001 …"

311. (2) The claimants' claims in respect of:

a) Spares for G3 and HS125 aircraft identified in the Schedule to the draft Re-Amended Points of Claim in section "type O" and "type 1";

b) DPI Stock (Avio Int.) referred to on page 2 of Annex 3 of the Writ and the last page of the said Schedule

are withdrawn and reference to them is to be deleted from the Schedule.

312. (3) For the avoidance of doubt the claimants confirm that no claim is made in respect of any spares not referred to in the Schedule to the draft Re-Amended Points of Claim and in particular no claim is made in respect of:

a) Any conversion of simulators;

b) The claim in respect of "company assets" referred to on page 2 of Annex 3 of the Writ in so far as not itemised in the said Schedule;

c) The claim in respect of "loan items" referred to on page 2 of Annex 3 to the Writ in so far as not itemised in the said Schedule."

313. The focus of paragraph 2 of the order was that the claims there identified (spares for G3 and HS125 aircraft and DPI stock) were withdrawn from the Schedule to the draft Re-Amended Points of Claim.
314. The focus of paragraph 3 of the order was to confirm that no claim was made in respect of any spares not referred to in the Schedule to the draft Re-Amended Points of Claim.
315. Thus the order distinguished between: -

i) Particular claims in the Schedule which were withdrawn and deleted from the Schedule (paragraph 2).

ii) Further claims in respect of any spares not referred to in the Schedule (paragraph 3).

316. Had the parties intended to delete existing claims in respect of simulators from the Schedule, such claims would have been mentioned in paragraph 2 of the order. On its true construction paragraph 3 confirms that no claim is made in respect of any spares not referred to in the Schedule. It does not delete existing claims from the Schedule. KAC are precluded by paragraph 3 of the Order from claiming in respect of any conversion of simulators (i.e. simulator spares) not referred to in the Schedule (and this limitation KAC accepts). But paragraph 3 on its true construction does not preclude KAC from claiming in respect of simulator spares referred to in the Schedule.
317. Paragraph 3 is to be construed as though a comma appeared after the words "the draft Re-Amended Points of Claim". The sub-paragraphs (a) to (c) refer to particular claims, to the extent that they were not itemised in the Schedule. Sub-paragraphs (b) and (c) specifically state that no claim is made in respect of the claims there referred to "in so far as not itemised in the said Schedule". It is true that these words do not appear in (a) after the words "any conversion of simulators", but this is probably because the parties mistakenly thought that no claim in respect of simulator spares was included in the Schedule. To the extent that such a claim was included, on its true construction paragraph 3 of the order did not have the effect of deleting it.
318. For these reasons I do not consider that $1,577,971 (at 100% MLP) should be deducted from KAC's claim.

QUANTUM ISSUES

319. 7. Is 100% MLP the correct starting point for KAC's claim in respect of the spares in the Working Schedule, and, if not, what is the correct starting point?

i) KAC says: 100% MLP is the correct starting point. In the case of consumables, the figure used in the Working Schedule to represent MLP has been calculated as Average Cost Price (as recorded in MSCS), adjusted for inflation.

ii) IAC says: 60% MLP is the correct starting point.

IAC's closing submissions were as follows.

320. The market value of goods is the value at which they could have been sold in the condition they were in immediately before the expropriation. In the case of used or second-hand goods, this is their used or second-hand value.
321. In the Main Aircraft Action KAC did not claim damages for the Mosul Four on the basis of MLP or new for old. Instead the contest was between two different measures of the like for like or second-hand value of the aircraft, namely the 'current market price' basis and the 'fair market value' basis. The Court of Appeal held that the correct measure was the CMP. This was the value of the aircraft in the second-hand market. KAC is asking the court to proceed on the basis that aircraft, engines and spares fitted to aircraft and engines are valued on a like for like basis, but spares which are held in stock are valued differently on a new for old basis. New for old replacement cost is not the same thing as market value.

The cost of replacing old with new (where that cost exceeds the market value of the goods) is only allowable if: (a) the claimant has in fact replaced the goods with new, or intends to do so; and (b) that was or is a reasonable step to take. If the claimant has not replaced the chattel and does not intend to do so, then replacement cost is not the right measure of damages, and reasonableness does not arise. If the cost of replacing old with new is allowed, it ought to be exceptional not to make a deduction for betterment.

KAC had two possible bases upon which to make its claim: (i) it could have claimed the normal measure, i.e. the market value of what it had lost (60% of MLP); (ii) it could have claimed its actual expenditure on replacement spares. In so far as it bought new spares, there would then have been questions as to whether it was reasonable to buy new for old, and as to the betterment which KAC had actually obtained. This would include the betterment obtained through buying spares for the new fleet, in place of spares suited to the old fleet.

What KAC has claimed is the cost which it would hypothetically have incurred if it had replaced all its old spares with new spares of the same type. The only replacements of which KAC has given particulars are those comprised in the post-invasion purchases ("PIPS") claim at a total cost of $15 million (and many of those were bought second-hand).

If KAC had put its claim on the basis of the cost of the new spares it has actually bought for its new fleet, then the betterment would be enormous and probably equal to the excess of the claim over 60% of MLP.

KAC cannot recover the cost of replacement or reinstatement when, if it had in fact incurred that cost, it would only have been to put the spares straight back on the market as surplus.

Further, if KAC had replaced all its old spares it would probably not in fact have done so entirely with brand new replacements. KAC in fact adopted a flexible purchasing policy post-invasion. In the unlikely event that KAC would have replaced its old spares entirely with new spares, that would not have been reasonable.

KAC's closing submissions were as follows.

Proper compensation to a commercial party, which uses the goods converted for its trade, is the value of those goods, as measured by what it would have cost to replace the goods, either at the time of conversion, or if circumstances make it more just, at an appropriate later date.

KAC was not a trader in spare parts. It was (and is) a flag-carrying airline that wished in 1990 to maintain a large reserve of spare parts for its business. KAC always buys parts new, rather than second-hand, from OEMs and AMs. IAC cannot ask the court to compensate KAC on the basis that it is a spare parts trader, a second-tier airline, or anything else that it is not.

KAC has had to buy a stock of different spares from the ones IAC converted, because:

(1) IAC converted all KAC's A310-200s, so that, when they were finally returned and repaired years later, they were (unsurprisingly) no longer optimum for KAC's business.

(2) An airline cannot be expected to have half its aircraft and most of its spares removed from it, and then find an identical use for them when they (or rather a few of them) happen to be returned years later.

(3) KAC made a reasonable commercial decision to replace its fleet years early as a result of the conversion, the war, and other factors.

If this action had come to trial on the date the writ was issued (4 December 1991), KAC would have been entitled to an order for delivery of all the spares (apart from the remaindered spares) giving IAC the option of paying their value, plus consequential losses. The value would have been the amount it would have cost KAC to buy the spares again.

The true comparison is with what the victim of the tort would have done with the goods had he retained them. The inquiry is required to compare the position, with what would have happened had the claimant retained the goods. Had KAC retained its stock of spares and the converted aircraft, it would have kept the spares and used them in its business. It is, therefore, entitled to be compensated as if it had kept the spares.

Had KAC simply proceeded into the market and purchased replacement parts matching precisely its stock converted, IAC would have had no answer to KAC's claim for the cost of so doing. Factually (and unsurprisingly) the position is far more complex. KAC did buy some parts new, replacing exactly those which it had had. But its restocking was also taking place in circumstances where aircraft converted by IAC were not being returned.

IAC is liable to compensate KAC as if KAC had restocked – i.e. paying MLP for the stock converted.

In the exceptional circumstances which prevailed following invasion, KAC was prepared (or forced): -

i) To purchase second-hand spares to support aircraft which were shortly to be phased out;

ii) To purchase second-hand spares if this was required to achieve a quicker lead time; and

iii) To purchase second-hand spares to support the leased Polaris aircraft, which would have to be returned at the end of the (fairly short) leases.

None of these matters undermine the essential point that KAC's policy, subject to the extraordinary circumstances in the aftermath of the invasion, was to purchase new spares from AMs and OEMs.

322. It is unrealistic to suppose that KAC could have purchased replacement spares in the necessary quantities on the second-hand market, even if it had been minded to do so (which it was not).

Issue 7 – Analysis and Conclusions

323. The aim of the law, in respect of the wrongful interference with goods, is to provide a just remedy. Normally the measure of damages is the market value of the goods at the time the defendant converted them. This is the general rule, because generally this measure represents the amount of the basic loss suffered by the claimant owner. The claimant has been dispossessed of his goods by the defendant. Depending on the circumstances some other measure, yielding a higher or lower amount, may be appropriate. (See paragraph 225 above).
324. I turn to consider what was the market value of the spares at the time IAC converted them.
325. In assessing market value regard must be had to the relevant market and to all the relevant circumstances of the particular case. An appropriate balance must be struck between a buying price and a selling price, having regard to all the relevant circumstances of the case.
326. The Court of Appeal held that if IAC had been liable for the conversion of the Mosul Four, the correct basis for beginning to value their loss to KAC would have been Current Market Price as defined in paragraph 247 above. The definition included the following "the most likely transaction price that may be generated for an aircraft under prevailing market conditions that are perceived to exist at the relevant time. … The CMP could reflect the cost that would need to be incurred/paid to replace the aircraft for a 'like for like' aircraft if available. CMP also reflects the most likely realisable cash amount in the event that the aircraft was to be sold at a specific date …" Thus CMP took into account the cost of replacement and also the likely realisable amount in the event of a sale.
327. KAC's policy when purchasing spare parts prior to invasion was to purchase only new aircraft parts from AMs or OEMs and their approved appointed distributors. The only time KAC deviated from this policy (prior to invasion) was when a KAC aircraft was in an AOG situation – where there was no operational option other than to buy from other sources including other airlines. Priority would then be given to airlines or vendors holding new parts which could be traced back to AMs or OEMs. Prior to the invasion, KAC's inventory was very largely made up of spares that came from AMs or OEMs or, in either case, from an approved appointed distributor.
328. Thus KAC's stock of spares at the date of conversion had been acquired new from the very best available sources, to ensure the highest possible standards of safety and airworthiness.
329. An assessment of the market value of the spares at the date IAC converted them must give appropriate weight to all the complex facts and circumstances of this case, including (without limitation) the following.

(1) The age of the aircraft in KAC's fleet at the time of the invasion is shown in the table at paragraph 162 above.

(2) The following matters were established by the witness statements and oral evidence: -

i) KAC's stock of spares to support each aircraft was either acquired at the same time as the aircraft was purchased (Initial Provisioning) or later (Stock Replenishment). The latter occurred where the MSCS generated a Stock Action Report in order to maintain the service level of 98%. Occasionally spares would be purchased on an AOG basis.

ii) KAC generally expected to replace aircraft after 15 years and, in the majority of cases, the rotables and repairables purchased to support those aircraft were expected to last for the life of the aircraft (i.e. at least the 15 years during which KAC owned the aircraft).

iii) Most of the rotables and repairables in KAC's stock at the time of the invasion would have been used and repaired once.

iv) Very few (less than 1%) rotable or repairable spares in KAC's stock at the time of the invasion had a calendar life. Examples include engine parts, pressure cylinders, hoses and relays. In very few cases is it necessary to scrap the part once the life has expired. In most cases the part can be used again following a workshop check.

v) Consumables are in a different category, since, by definition, they are disposed of once used. Some consumables in KAC's stock at the time of the invasion could have been several years old, some would have been purchased much more recently. It is impossible to give an average age.

vi) Warranties in respect of new spares purchased from an AM along with an aircraft are usually valid for 3 years. Warranties in respect of new spares purchased by themselves are normally valid for one year.

(3) Most of KAC's stock was operational and any surplus when expressed as a percentage of the total inventory at the time was less than 1%.

(4) KAC's policy was to buy spares only from AMs and from OEMs. This was a common policy in 1990 (and is still not an uncommon policy today for airlines like KAC). There was nothing extraordinary about KAC's policy at the time. The policy is strictly enforced in airlines that apply such a policy. It would have only been in exceptional AOG circumstances that a part would have been sourced by KAC from suppliers other than manufacturers and OEMs. The reason for such an airline policy is predominantly quality and safety, in that all parts in the KAC stock would have been backed by their life history. It was an expensive policy to maintain, but nonetheless such a policy was widely applied in the 1980s by airlines like KAC. It was a perfectly valid and understandable purchasing policy for an airline such as KAC. Thus KAC had purchased its spares in the best available (and most expensive) market.

(5) This policy meant that as at August 1990 KAC would have had (with very minor exceptions) in their stores only spares which had been bought by KAC from the manufacturers and OEM's, used by KAC on their aircraft, serviced/overhauled by their DGCA approved repair facilities and stored in accordance with their DGCA approved storage facilities at KIA.

(6) There was only one market available to KAC in which to purchase stock to replace the converted spares, if KAC wished to maintain its pre-invasion purchasing policy. The one market was from the manufacturers and OEMs. The manufacturers/OEM market is a new equipment market. There is only a very small percentage of used equipment sold by manufacturers/OEMs, as their main business is supplying new spare parts.

(7) The technical, clerical and logistical burden of re-ordering all KAC's stock at one time would have been beyond most organisations. For an immediate purchase, probably only the manufacturers and OEMs could have supplied such a vast order. Given more time and substantially more administrative work on the part of KAC, searching for sources in the secondary market would probably have supplied some of the parts over a period of time. In some circumstances it would have been more practical to purchase from the manufacturer or OEM due to lead times and market availability.

(8) Percentage prices for individual spares in the surplus/second hand market with a full history (or a history acceptable to the buyer) were as follows: -

(1) New Surplus (new unused part over at least one year old with warranty at the discretion of the seller) – 85% of MLP.

(2) Overhauled (overhauled by an authorised overhaul/repair station in accordance with the OEM's Overhaul Manual) - 60% of MLP.

(3) Serviceable (repaired by an authorised overhaul/repair station in accordance with the OEM's Component Maintenance Manual) – 50% of MLP.

These percentages average out at 60% over an entire inventory.

(9) The second hand/surplus market was not the market in which KAC bought its spares prior to August 1990. Mr Sturrock checked KAC's approved vendor list. All approved vendors were manufacturers and OEMs, save for three dealers which he said must have been AOG situations. Further and in any event, there was a limit as to what was available in the surplus/second hand market (see (7) above).

(10) I refer to the evidence and the documents which show the sources of KAC's purchases of spares in the extraordinary circumstances that obtained post-invasion. I find as a fact that if the invasion had not taken place, KAC would have adhered to its pre-invasion purchasing policy as set out above.

(11) I turn to consider Issue 9 (Should KAC's claim be reduced because of betterment and, if so, by how much?).

Mr Sturrock said that the best estimate he could give of the benefit to KAC of having a new stock of spares as a result of the additional warranties (coming with a new stock) was a maximum of 5% of MLP across the whole inventory. In addition Mr Sturrock said that in relation to replacement of lifed parts, there would be betterment to the extent of 1% of the value of rotables.

KAC's primary case is that, as a matter of law, no deduction should be made for betterment. If that is wrong, KAC say the correct treatment is: -

a) To deduct a range of between 2% to 5% from KAC's claim across the entire inventory to account for warranties.

b) To deduct 1% from the value of rotables and repairables only in respect of hard-lifed parts. It would be illogical (as well as contrary to the evidence) to extend this deduction to any other parts, since only rotables can be hard-lifed. The claimed rotables amount to 44% of the stock.

c) No other deductions should be made. There should not be any deduction for unserviceable spares because the starting point for KAC's claim is the "Balance on Hand" figure in the Working Schedule, which does not include any unserviceable items.

IAC contended that betterment as a result of replacement of unserviceable parts with new parts should be taken into account. IAC's case is that a fair overall deduction for betterment would be 10% of MLP across the entire inventory.

My assessment is that the element of betterment lies between Mr Sturrock's assessment as set out above and IAC's case (10% of MLP across the entire inventory).

330. The evidence as to the limited extent of betterment is a reflection of the nature and quality of KAC's stock of spares at the time of the invasion. The spares had been purchased in the best available market (see (4) above) and serviced/overhauled to the highest standards (see (5) above).

(12) I turn to consider Issue 10 (Could KAC have obtained a bulk purchase discount and, if so, how much, and what is the effect of such a discount on KAC's claim?).

Mr Sturrock said that the main manufacturers, Boeing and Airbus have a policy of nil discounts for bulk purchases. Pratt & Whitney were not renowned for discounts. There would have been bulk discounts available from some OEMs. From a wheel and brake manufacturer a discount would be available, but very rarely more than 10%. KAC would have obtained 10% discount from some of the OEMs. KAC would probably have bought 60% from Boeing/Airbus and the engine manufacturer, and 40% from OEMs. Mr Sturrock added that if KAC had to order a part on an AOG type basis (a much more likely situation after conversion of its entire spares stock) then a supplier would have charged as heavy an AOG element as the supplier could get away with. Thus Mr Sturrock pointed out, the possibility of AOG type charges has to be weighed in the balance when considering Issue 10.

KAC's primary case is that no deduction for a bulk purchase discount should be made. If this is wrong, KAC say that the discount should be no more than 4% across the entire inventory (i.e. a 10% discount for 40% of stock which could be purchased from OEMs).

IAC's case is that a deduction should be made of 10% across the entire inventory to reflect the probability of KAC obtaining substantial discounts.

My assessment is that KAC could have obtained a bulk purchase discount between Mr Sturrock's assessment and IAC's case. As to Mr Sturrock's point about the possibility of AOG type charges see (13) below.

(13) I turn to consider Issue 11 (Is KAC entitled to an additional 3.75% in respect of AOG purchases?).

Mr Sturrock explained that the AOG surcharge calculated by Mr Campbell in his report, was based upon the number of instances an airline would expect to purchase on an AOG basis. For commercial reasons most AMs, OEMs, airlines, engineering companies and aircraft parts stockists tend not to stock the most expensive spares due to investment cost. Any AOG surcharge for replacing KAC's inventory on a given day would apply to the more expensive spares, and therefore in Mr Sturrock's opinion KAC's claim is understated to that extent. Manufacturers charge special tooling and labour costs which add very large fees to the cost of a spare part. The associated freight costs, which involve hand carrying of the part, are also usually very high. There may be a percentage uplift and a minimum charge as a result. If KAC had to order a part on an AOG type basis (a much more likely situation after conversion of its entire stock of spares), then a supplier would have charged as heavy an AOG element as the supplier could get away with.

KAC's case is that it is entitled to an uplift of 3.75% for AOG to reflect the ordinary incidence of AOG purchases.

IAC's case is that no uplift should be applied for AOG.

I do not consider that KAC is entitled to an additional 3.75% in respect of AOG purchases simply because that percentage surcharge represents the number of instances KAC would have purchased on an AOG basis prior to invasion. The correct approach is to make appropriate allowance, when assessing the market value of the goods at the time IAC converted them, for the extent to which KAC would probably have incurred AOG type charges if KAC had replaced the goods. As Mr Sturrock pointed out when giving evidence, the possibility of AOG type charges has to be weighed in the balance when considering Issue 10 ("not only do you have the discount, but you also have the AOG situation"). Mr Sturrock's evidence about the possibility of AOG type charges must be taken into account.

(14) I turn to consider Issue 12 (Is KAC entitled to an additional 4% in respect of customs duty?).

In my judgment it is immaterial that customs duty was paid by KAC prior to invasion. There was no customs duty at the date at which damages fall to be assessed. Customs duty was re-imposed by the Government of Kuwait on 1 July 1992.

(15) An appropriate and reasonable balance must be struck between a buying price and a selling price. Where there is a divergence between a buying price (the cost of replacement goods less betterment) and a selling price (what the goods would have sold for in an available and appropriate market – if there is one), regard must be had when striking a balance to all the circumstances of the case. The relevant circumstances in the present case include (without limitation) those set out in (1) to (14) above. The balance struck must provide just compensation to the claimant in all the circumstances. The claimant is entitled to recover his true loss.

An assessment of the market value of the spares at the date IAC converted them must give appropriate weight to all the complex facts and circumstances of this case, including (without limitation) the matters set out under (1) to (15) above. Adopting this approach I assess the market value of the spares at the date IAC converted them at 80 percent of MLP.

331. 8. Should KAC's claim be reduced below 100% MLP because some of its spares became surplus after KAC's return to KIA and, if so, by how much?

i) KAC says: The question of whether any spares became surplus after invasion is irrelevant to KAC's claim.

ii) IAC says: The fact that spares became surplus supports IAC's case that the correct starting point is 60% MLP.

IAC's closing submissions were as follows.

332. If any further reason is needed not to award KAC damages based on 100% of MLP, it can be found in the post-invasion surplus. Post-invasion, KAC found itself with a very large quantity of surplus spares. If it had gone out and replaced all of its old spares, it would simply have been adding to the surplus which it had to sell. If KAC had 'reinstated' by going out and buying new spares to replace as exact replacements for all their old spares, then the vast majority of their purchases would immediately have become surplus and sold. KAC cannot recover the cost of replacement or reinstatement when, if it had in fact incurred that cost, it would only have been to put the spares straight back on the market as surplus.

KAC's closing submissions were as follows.

333. Once KAC had returned to KIA and had a chance to collect the remaindered and recovered spares and returned to more normal operations, there were a number of spares which it could not use for a variety of reasons: -

i) Parts had arrived which were ordered, but not delivered, before invasion but which were no longer required.

ii) Spares had been purchased whilst KAC was operating from its temporary basis in Cairo.

iii) Purchases of new spares were made after KAC returned to KIA but before it became apparent what remaindered spares were available, or before the available spares were repaired.

iv) Purchases of new spares were made between the return to KIA and the return of the recovered spares from Iraq.

v) KAC had lost ten aircraft (the subject of the Main Aircraft Action), four of which were destroyed at Mosul and six of which were only returned in July and August 1992 (after which they went for a substantial period of repair).

vi) As a result of the loss of KAC's aircraft, the composition of its fleet had changed, so that some spares were no longer required.

334. Spares which were no longer required for these reasons were declared surplus and either sold, or offered for sale.
335. Thus KAC accepts that a proportion of its spares were rendered surplus as a result of the events surrounding the invasion, including the decision to purchase a new fleet after liberation.
336. KAC's claim should not be reduced on the ground that some spares were declared surplus after KAC's return to KIA for three reasons: -

a) The fact that spares were surplus to KAC's requirements does not reduce KAC's entitlement to damages (see the Mediana).

b) KAC was entitled to retain as high a stock of spares as it chose, and to recover damages for conversion at the same level for that stock.

c) No analysis has been undertaken by IAC to show whether the spares declared surplus were acquired after the invasion as PIPs, and then duplicated spares later returned by IAC.

Issue 8 – Analysis and Conclusions

337. I refer to the relevant legal principles set out above.
338. Normally the measure of damages for conversion is the market value of the goods at the time the defendant converted them.
339. The Earl of Halsbury LC asked in The Mediana [1900] AC 113, 117, if a person took away a chair from his room and kept it for 12 months, could anybody say you had a right to diminish the damages by showing that I did not usually sit in that chair, or that there were plenty of other chairs in the room?
340. On proof of the tortious destruction of a chattel, the owner is prima facie entitled to damages reflecting the market value of the chattel "as is". He is so entitled whether or not he intends to obtain a replacement (the Maersk Colombo).
341. I accept KAC's submission that KAC was entitled to retain as high a stock of spares as it chose, and to recover damages for conversion at the same level for that entire stock.
342. Further (as KAC point out) no analysis has been undertaken by Mr Villa to identify whether spares declared surplus (a considerable time after the invasion) were acquired by KAC after the invasion as PIPs, and then duplicated spares later returned by IAC.
343. I answer this question in the negative.
344. 9. Should KAC's claim be reduced because of betterment and, if so, by how much? What percentage should be deducted from what figure to take account of betterment?
345. 10. Could KAC have obtained a bulk purchase discount and, if so, how much, and what is the effect of such a discount on KAC's claim? What percentage should be deducted from what figure to take account of bulk purchase discount?
346. 11. Is KAC entitled to an additional 3.75% in respect of AOG purchases?
347. 12. Is KAC entitled to an additional 4% in respect of customs duty?

Issues 9,10,11 and 12 are considered under Issue 7.

348. 13. How much credit should IAC be given for remaindered and recovered spares?

i) Should IAC be allowed a credit of 60% or 48% of MLP for remaindered/recovered spares which were not scrapped?

ii) KAC says: If it succeeds in its claim for 100% MLP, KAC concedes credit should be given at 60% MLP. Otherwise, KAC says the correct credit is 48% MLP to take account of stigma / taint.

iii) IAC says: The correct credit is 60% MLP. Otherwise, IAC says that the correct credit is 55% of MLP.

Is any reduction to be made in IAC's credit for remaindered and recovered spares to take account of 'stigma'/ 'taint' and, if so, how much?

iv) See above.

IAC's closing submissions were as follows.

349. KAC is an airline not a spares trader. Its damages in respect of spares returned to it are not to be measured on a difference in value basis, but by proof of actual loss. KAC's position is identical to that of the plaintiff in Brandeis Goldschmidt & Co. Ltd v Western Transport Ltd [1981] QB 864. KAC has not proved any actual loss and cannot rely upon an alleged change in market value. Mr Sturrock's evidence as to taint was profoundly unsatisfactory. He was unable to give any satisfactory explanation as to why he had valued remaindered and recovered spares at 60% of MLP in his first report, if they were in fact only worth 48% or 50% of MLP. There is no reason why spares should suffer from taint when aircraft did not, or why, if spares did suffer from taint, it should be to the extent of 20%, when the highest it was put for aircraft was 2-3%.

IAC acknowledged that Mr Villa was willing to accept that there might be an effect of 15% in the United States (40% of the world for this purpose) and 5-10% elsewhere. A fair reflection of this evidence would be at most 10% overall. Accordingly, the maximum which could be allowed for taint is a 10% reduction. Starting from 60% of MLP, this would take the value of remaindered and recovered stock to 54% (a cautious round number would be 55% of MLP).

Thus IAC submitted that no reduction for taint should be made but that if, contrary to this submission, any reduction is to be made, remaindered and recovered stock should be valued at no less than 55 % of MLP.

KAC's closing submissions were as follows

The recovered spares were not as useful to KAC as other spares. They were marked "ex-Baghdad" and used only as a last resort. The remaindered and recovered spares were not as valuable to KAC in terms of sale as other spares. They were affected by an Iraqi stigma and lacked a full history.

KAC relies on the evidence of Mr Sturrock that remaindered and recovered spares were affected by a stigma or taint as a result of the inability to provide back-to-birth traceability and of the spares having been in the possession or control of IAC.

The real value to KAC of the remaindered and recovered spares was on Mr Sturrock's evidence 48% of MLP.

Both remaindered and recovered spares, when returned: -

a) Had been used by IAC;

b) Had not been properly maintained, repaired or overhauled;

c) Had not been stored in properly controlled environments;

d) Had no complete service history;

e) Were, therefore, of significantly less value than when they had been converted.

Further, in relation to both remaindered and recovered spares IAC: -

f) Did not return them promptly, but months or years later;

g) Did not return them in the same condition as that in which they were taken;

h) Did not return them with a full (or any) intervening service history. In many cases, the crucial tags were missing.

KAC only used the overhauled remaindered and recovered spares as a matter of last resort. They were not of the same value either to KAC or generally, as parts with a full service history.

When a spare is sold, it will normally be accompanied by a pack of documents. Mr Sturrock listed the documents which would normally be supplied with a spare, and the more limited documentation which could be supplied with remaindered or recovered spares.

Mr Sturrock said that hard-lifed items would be virtually worthless if there was a gap in traceability.

Mr Sturrock estimated that in the region of 10-15% of the worldwide fleet might accept second-hand spares which had been in Iraqi control, in the circumstances of the remaindered and recovered spares. His evidence that airlines based in the United States and Europe would be reluctant to purchase spares with the stigma attached to remaindered and recovered spares, was entirely plausible.

The position in relation to an aircraft is different because the market conditions are different. There is a far wider choice available to purchasers of spare parts, than to purchasers of aircraft. There is wide gulf between values of aircraft and values of parts. The particular commercial markets are different.

Mr Villa has no expertise in relation to dealing in spares. IAC did not call Mr Williams (who has relevant expertise).

The correct method of arriving at the valuation of the credit to be given to IAC is to take 60% of MLP, and then to deduct 20% of that value, thereby arriving at 48% of MLP.

Issue 13 – Analysis and Conclusions

350. When considering this issue it is important to have regard to two distinct elements: -

i) Missing history/documents/traceability and

ii) Stigma/taint.

351. It is regrettable that Mr Sturrock did not address these elements fully in his first report. In his report dated May 2004 he posed the question – if the same two parts of the same age are on the desk in front of you in identical serviceable condition, one with full traceability, and one with traceability missing a year and a half – what is the difference in price in the secondary market? He answered this question as follows. The provision of a full traceability is of vital importance to many buyers. Some buyers would not accept a part without full traceability – others will be content with traceability from the last repair agency/shop. The basis of valuing spares on the secondary market referred to in his first report, was all on the assumption that satisfactory full traceability was available for the parts in question. Where full traceability is unavailable, a spare (even if fully overhauled) would be worth in the region of 20% less than it would otherwise be worth. For example, if the MLP for a particular item was $100, it would normally have been worth $60 in 1990, when used but fully overhauled. If it did not have full traceability it would only be worth about 48% of MLP, even if fully overhauled. As to stigma/taint, as a large number of spare part dealers are located in the United States, many dealers would not have been keen to purchase items which had been in the custody of IAC (even if fully overhauled).
352. Mr Williams (a spares expert instructed on behalf of IAC) was not called to give evidence. Mr Villa has no experience of dealing in spares. An expert witness should make it clear when a particular question or issue falls outside his expertise. Mr Villa failed to do this.

Thus the only expert evidence on this subject was from Mr Sturrock. Mr Sturrock's evidence in this connection seemed to me to make commercial sense. The market in spares is a distinct market from the market in aircraft. Given the range of possible sources and provenances in the spares market, I can readily understand that the majority of spare part dealers would not have wished to purchase remaindered or recovered spares, even if such spares had been overhauled. When the two distinct elements (missing history/documents/traceability and stigma/taint) are taken into account, it seems to me that if anything, a credit of 48% of MLP for remaindered/recovered spares which were not scrapped, is generous to IAC.

353. Further it should be remembered that KAC used remaindered and recovered spares as a last resort. Mr Al-Khulaifi said that on return of remaindered and recovered spares from outside repair facilities, the re-certified stock was placed back into the bonded stores. The re-certified stock was clearly identified as ex-Baghdad or remaindered stock. Both as a matter of KAC policy and in practice, ex-Baghdad stock was used as a last resort. Mr Joseph said that, following re-certification of recovered spares at the appropriate agencies, these spares were placed into the stores with the mark CNB (Credit Note ex-Baghdad) upon their respective service tags. This was noted upon the spare part (by the Receipts Section) in order to record that the spare part had come from Iraq. KAC used these spare parts as a last resort, or where there was no other option.
354. For these reasons in my judgment IAC should be allowed a credit of 48% of MLP for remaindered/recovered spares which were not scrapped.
355. 14 Is KAC entitled to $783,568 in respect of warehousing costs for spares, and, if not, how much?

i) KAC says: Yes.

ii) IAC says: No.

IAC's closing submissions were as follows.

356. IAC does not accept that the rent constitutes consequential loss recoverable from IAC (although the quantum of the claim is agreed). The cost was caused by the damage to KAC's premises at KIA, for which IAC was not responsible. The warehouse expenditure was not a consequence of IAC's interference with KAC's spares. It resulted from (i) the structural damage done to KAC's premises at KIA in the course of the Iraqi invasion, and war damage when the coalition expelled Iraqi forces from Kuwait; and (ii) the arrival of a stock of new spares for KAC's new fleet. Prior to the invasion KAC had plenty of spare storage space. This claim has not been proved and should be rejected.

KAC's closing submissions were as follows.

357. KAC's evidence is that it needed the rented the warehouse to store and process the remaindered and recovered spares. The only reason the additional warehouse costs were incurred was because storage space was required for the remaindered and recovered spares. KAC would not have suffered these losses if IAC had not taken its spares. IAC cannot avoid liability on the basis that other factors, such as the war damage to the old bonded store, made conditions even more difficult for KAC than it would otherwise have been.

Issue 14 – Analysis and Conclusions

358. Mr Al-Khulaifi said in his sixth witness statement "Mr Villa questions whether the warehouses that were leased were used only for the processing of the returned spares. The majority of the recovered spares/tools were stored in the leased warehouses due to the limited space available to accommodate the spares purchased in Cairo and Kuwait to support the remaining KAC fleet, the spares procured to support the Polaris aircraft and the newly purchased fleets, in addition to the returned parts from Iraq." I accept this evidence. In my judgment KAC are entitled to recover the reasonable costs of leasing premises in order to process the remaindered and recovered spares. I refer to the relevant legal principles set out above. Provided the amount is not out of proportion to the value of the goods, the wrongdoer ought to reimburse the owner for any money spent on recovering the goods or carrying out necessary repairs.
359. The particulars of this claim are set out in a facsimile from Mr Al-Khulaifi dated 29 March 2004. In my view the periods claimed are unreasonably long. Mr Davies helpfully provided me with calculations in relation to two warehouses from 1 June 1992 to the end of 1994 and to the end of 1995. In the light of those figures I assess this head of claim at $175,000.
360. 15. How much is KAC entitled to claim in respect of Post Invasion Purchases?

The answer to this question is affected by the answer to Issue 18. But for Issue 18 it is common ground that (subject to interest on PIPs running only from the date of purchase) KAC would be entitled to $4,572,987 in respect of PIPs if 100% MLP were awarded.

361. For the reasons I give below under Issue 18, KAC is entitled to recover PIPs referable to lost spares only, plus interest from the date of purchase.
362. 16. Should $398,614 be deducted from KAC's claim in relation to engine number P701652, or any, and, if so, what sum?

IAC conceded that this sum should not be deducted.

363. 17. Is KAC entitled to $3,200,000 in respect of a replacement engine for engine number P689597, or only $1,430,105, or how much?

i) KAC says: KAC is entitled to $3.2m.

ii) IAC says: KAC is entitled to $1,430,105.

IAC's closing submissions were as follows.

364. It is common ground that engine number 689597 had been used for 5,315 hours since refurbishment and that it only had just under 700 hours of available use before requiring an overhaul. The minimum cost of such an overhaul is $2 million. Engine number 689597 was replaced with a 7JT9D7J engine which had zero hours since its last refurbishment. It is common ground that the replacement engine had 6000 hours of use available before it would require overhaul. There was a real practical difference between the engine that was taken and not returned, and its replacement. The experts agreed that a fair means of estimating the difference between engine number 10 which had 5,315 hours of use remaining and its replacement, which had zero hours, was to multiply the number of hours of use by $333. That amount is the overhaul cost spread over the 6000 hours of life of the engine. $1,769,895 is therefore the agreed value of the difference between the two engines. The only issue is whether the amount of $1,769,895 constitutes betterment for which KAC is obliged to give credit. Applying the Baltic Surveyor, IAC must be credited with the advantage which KAC obtained from the replacement engine with zero hours of use. The advantage obtained is that the cost of refurbishment ($2 million) is 5,300 hours further away. The cost of the replacement engine was $3,200,000. KAC has claimed the full amount of the replacement. From this sum must be subtracted the amount of $1,769,895 which reflects the advantage KAC obtained.

KAC's closing submissions were as follows.

365. KAC purchased various replacement engines in Cairo, including two JT9D-7Js. Mr Braithwaite (the expert instructed by KAC) compared these engines in terms of condition and hours/cycles use, with the available information as to the engine taken by IAC at the time of the invasion. He concluded that engine 662741 more closely resembled the lost engine and, therefore, evaluated KAC's claim as the cost of that replacement engine, namely $3.2 million. Mr Braithwaite said that flag carrying airlines do not normally buy used engines which have not been for a major overhaul immediately prior to purchase. "You cannot go and buy an engine with time on it to match it exactly, nor would you from a technical regulatory point of view. It would be unsound and not possible."
366. IAC has adduced no evidence to show that engines with 5000 hours use were available for purchase in 1990. It is inherently unlikely that such an engine would be offered for sale in the normal course of events.
367. The betterment arising from the purchase of an engine with zero hours was unavoidable and should not be taken into account (see Harbutt's Plasticine v Wayne Tank.

Issue 17 – Analysis and Conclusions

368. I refer to the relevant legal principles set out above and in particular paragraph 251 Betterment and New for Old. Cases where a claimant recovers more than he has lost are as a matter of principle exceptional. The true principle is that in the relevant cases the betterment has conferred no corresponding advantage on the claimant. Where mitigation has brought measurable benefits to a claimant, he must give credit for them.
369. Engine P689597, which was a JT9D-7J used on Boeing 747s, was taken by IAC and not returned. It has still not been returned, although it is admitted by IAC that a KAC engine is on an IAC aircraft in Tunisia, which KAC says can only be this engine.
370. In my judgement mitigation has in this case brought measurable benefits to KAC, and KAC must give credit for them. The replacement engine, when purchased, had zero hours usage since refurbishment, whereas the lost engine had 5,315 hours usage since refurbishment at the time of the invasion. A reasonable reduction would be $333 per hour flown i.e. $1,769,895. KAC's claim should be reduced to $1,430,105.
371. 18. Is KAC entitled to user damages, and, if so, how much?

IAC's submissions

372. Mr Davies' submissions in relation to Issue 18 (as provided) in July were as follows.
373. IAC draws attention to five points, each of which provides a ground upon which KAC's claim to user damages should be either denied or heavily curtailed.

(1) KAC's claim to user damages for spares is incompatible with KAC's loss of profits claims in the Main Aircraft Action. KAC's spares were held by KAC as necessary support for its income-earning aircraft, not as a source of income or profit in their own right. KAC could not both have leased out its spares held at its main base at KIA and earned income from its aircraft. KAC cannot claim both damages for loss of income from its aircraft and damages based on a notional leasing out of its spares. In the Main Aircraft Action, KAC obtained judgment from Langley J in respect of the profits it would have made by leasing out AHI from February 1991 to September 1992 at $534,000 per month, less a discount of 10%. This judgment has been satisfied. Having elected to make claims for loss of profits due to loss of use of its aircraft and pursued those claims to judgment, KAC cannot now make inconsistent alternative claims for user damages in respect of spares which it would have needed to support the aircraft for which it claimed loss of profits. The judgment of Langley J is incompatible with a user damages claim for spares.

(2) KAC's claim to user damages is incompatible with its claims in the present action in respect of Post Invasion Purchases and interest. KAC cannot claim both PIPs and user damages. Interest will run from different and later dates if KAC's user claim is valid. If damages are assessed on the basis of the value of the spares at the date of conversion (less credits), such interest will run from the date of conversion. Interest on a user claim would run on the notional "rent" as it accrued and in respect of any additional loss, from the notional date of return.

(3) User damages should not exceed the value of the actual benefit to IAC. The present case raises the question whether user damages should be founded on the actual benefit obtained by the defendant or upon the price which the claimant could have demanded for the use of his goods. On the facts of this case, the two approaches are likely to give rise to very different results. Given that IAC flew very little over the relevant period, and KAC does not rely upon any actual use by IAC, the value of the actual benefit to IAC is likely to be minimal. Accordingly, if user damages are measured by actual benefit, they will be nominal, or nearly so. Actual benefit may be thought of as a restitutionary or disgorgement measure. KAC say that actual use or benefit is irrelevant and that the measure of damages is a proper hire charge for the spares, whether or not IAC obtained any use or benefit from them. This is a pricing measure. This raises an issue of principle which is not fully resolved on the authorities. Hoffman LJ discussed the point in Ministry of Defence v Ashman (1993) 2 EGLR 102, where he indicated that the law was flexible enough to take account of cases where the benefit to the defendant was less than the market hire. As he pointed out, it is always open to the claimant to claim consequential loss if he has in fact lost more. In A-G v Blake [2001] 1 AC 268, Lord Nicholls remarked (at 280D-E) that, as a matter of principle, it was difficult to see why equity required the wrongdoer to account for profits, while the common law required payment of a fee. In the result, in that case the House of Lords awarded an account of profits as a common law remedy for a breach of contract. When discussing user damages in the Main Aircraft Action, Lord Nicholls spoke of damages assessed by reference to "the value [the wrongdoer] derived from his wrongdoing" (paragraph 87). This suggests a concentration upon the benefit to the defendant, rather than upon an objective rate of hire. Any user damages should be assessed by reference to the actual value to IAC of the use of KAC's spares. This was minimal.

(4) KAC's claim to user damages should not exceed the value of the goods, with interest. Liability for user damages should not normally exceed the value of the goods. Beyond that level, the damages become punitive and contrary to principle. Hillsden v Ryjack [1983] 1 WLR 159, Parker J is distinguishable. KAC's spares were not income producing assets which it hired out in the course of its business, and there is (or may be) a marked difference between a market hire rate and the actual benefit obtained by IAC. IAC ought not to be liable for more than the market value at the date of conversion, and more than it would have been liable for it had simply destroyed the spares at the outset. This is particularly so where:

(1) The actual benefit to IAC was minimal, and far below the rental claimed by KAC;

(2) IAC could not practically have handed the spares back to KAC before the end of the first Gulf War.

(5) KAC's claim for diminution in value at the end of the notional lease period cannot exceed the repair costs actually incurred (and already claimed) to restore the spares to a serviceable condition. Since KAC has in fact repaired and reinstated and the cost of doing so is known and is less than the difference in value, the correct measure is unquestionably the repair costs. To award KAC the difference in value would be unreasonable and would over-compensate KAC.

KAC's submissions

374. Mr Vos' submissions in relation to Issue 18 were as follows.
375. The possibility of using KAC's stores was discussed at an early stage within IAC. Warehousing and engineering staff were sent to KIA on about 12 August 1990, and instructions were given for a full inventory to be taken. David Steel J found that, at a meeting chaired by Mr Saffi on 18 August 1990, it was arranged for Mr Al Shaikhly to take up station in Kuwait so as to supervise the stores there (as confirmed by the later Administrative Order). There are a large number of documents showing that spares were shipped from KIA to Baghdad and that lists of them were prepared. David Steel J found that, by 25 August 1990, Mr Saffi was proceeding on the basis that IAC could properly regard the effect of the purported merger and integration of KAC into IAC as being that the KAC fleet was to all intents and purposes part of, and to be operated with, IAC's fleet. He said that this view received further support from the content of the Na'ama Diary in the period between 24 August 1990 and 9 September 1990 "from which it would appear that KAC stores and equipment were systematically removed from Kuwait and brought into Iraq". The meeting note of 28 August 1990 stated that it had been resolved that "the Governate of Kuwait should be taken as a base to store the reserve spares for Airbus aircrafts (Air-Bus) & (B767) and for Baghdad to become a base for reserve spares for the (B747) & (B727) aircraft. These reserve spares should be brought into Baghdad and entered into the Company's stores". Mr Saffi's letter of 3 September 1990 to the office of Mr Al Zubaidi headed "inventory" reported the agreement "that the items belonging to Kuwait Airways should be transferred for use by the Iraqi Airways Co. to operate the Kuwaiti aircraft fleet" and referred to the preparation of inventories and the transfer of spares to Baghdad. IAC requested the Iraqi government to issue a resolution to transfer all KAC's assets to IAC, including spares. RCC 369 was ultimately passed as a result of these requests. IAC's legal department prepared a working paper dated 19 September 1990 which referred to the preparation of inventories of all spares for the KAC aircraft and the intention that certain items would be set aside for sale. Lists of all spares brought from Kuwait were provided to the Iraqi government. IAC objected to KAC equipment being used by the Iraqi DGCA.
376. In Lord Nicholls's speech in the Main Aircraft Action, he held (paragraph 43) that IAC's acts in relation to the Iran Six and Mosul Four were sufficient to constitute conversion. Lord Nicholls said that:-

"IAC intended to keep the goods as its own. It treated them as its own. It made such use of them as it could in the prevailing circumstances, although this was very limited because of the hostilities. In so conducting itself IAC was asserting rights inconsistent with KAC's rights as owner. This assertion was evidenced in several ways. In particular, in September 1990 the board of IAC passed a resolution to the effect that all aircraft belonging to the (dissolved) KAC should be registered in the name of IAC and that a number of ancillary steps should be taken in relation to the aircraft."

The board resolution referred to by Lord Nicholls shows that one of those ancillary steps was "The import, purchase and storage manager shall proceed with the bringing of the spare parts for the mentioned aircrafts and to prepare storage".

377. The key factual elements which trigger liability for user damages are that: -

i) IAC took a substantial part of KAC's stock to Iraq.

ii) IAC incorporated KAC's stock into its own stock.

iii) IAC was able to use any and all of KAC's spares.

iv) IAC intended to use KAC's stock to the extent it was required.

v) IAC did, in fact, use KAC's stock to the extent it wished and needed to do so.

378. The extent of actual use is not material, save as evidence of the implementation of the intention. As a matter of law, it is not necessary to show that IAC made actual use of each and every spare.
379. In fact, there is substantial evidence of actual use, including:-

(a) The request to bring engines on 26 August 1990.

(b) The reference on 26 August 1990 to the use of special modification instruments from the Kuwaiti equipment.

(c) The reference in the Na'ama Diary on 29 August 1990 to the removal of 11 batteries from Kuwait.

(d) The reference in the Na'ama Diary on 9 September to the arrival of a spoiler panel.

(e) The reference in the Na'ama Diary on 25 September 1990 to the need to bring an APU.

(f) IAC's admission that an engine was fitted to a B747 which remains in Tunisia.

380. The references in Mr Na'ama's diary are incidental. Mr Na'ama was the engineering director and was not concerned with spares and their use. It can be inferred, if necessary, that actual use was substantially more extensive.
381. The evidence demonstrates that IAC removed a large number of KAC's spares to Baghdad and to other destinations such as Tunis (where at least an engine was incorporated into an IAC aircraft) and Jordan. The spares which IAC left behind at Kuwait were carefully listed and looked after. IAC fitted some of KAC's spares to its own aircraft or to aircraft taken from KAC. It is to be inferred that IAC was using KAC's spares in its aircraft operations.
382. The applicable principle established by the authorities is that where the defendant has committed a tort in respect of the claimant's property (whether land or chattel) such that the defendant has had the use of it (or the ability to use it) and deprived the claimant of the use of it (or the ability to use it) the defendant is liable to pay damages to the defendant for that ability to use.

What acts of the defendant are necessary to trigger a claim for user damages?

383. Relatively little is required to establish user for the purposes of a claim for damages on this basis. The way in which IAC benefited from holding KAC's spares is not materially different from the benefit to the theatre owner in Strand Electric or the hotelier in Inverugie. The claimant's goods were retained by those defendants for the purposes of their business. Whether they actually made use of them or not was irrelevant. IAC enjoyed the beneficial use of KAC's spares in the sense necessary to found a claim for user damages.

Does it matter that KAC was not in the business of leasing spares and would not have leased them to IAC?

384. The claimant does not have to prove that he would have been able to charge anyone for use of his property, in order to recover damages pursuant to the user principle. It was pointed out by Mance LJ in Experience Hendrix that there could be, in a sense, some artificiality about such damages if it was clear that the claimant would not have granted permission for such use on any terms. Nevertheless, that was not a bar to the remedy. It matters not that KAC was not in the business of leasing spares. Lord Nicholls indicated that the relevant criterion is that the defendant received a benefit, not that the claimant lost the opportunity of leasing his property. This principle is reflected in Mance LJ's comment in Experience Hendrix that the law gives effect to the instinctive reaction that the wrongdoer ought not to gain an advantage for free. KAC used its spares in its profit-making business. IAC cannot avoid having to compensate KAC for its use of those spares simply by pointing to the fact that KAC was not in the business of leasing them, or that it would not have voluntarily leased them to IAC. In fact, KAC did lease spares inter-airline prior to the invasion through the GCC Pool.

Must KAC elect between value damages and user damages?

385. Value damages and user damages are not alternative remedies, between which there must be an election. Nonetheless, the Court will obviously wish to ensure that there is no double recovery.
386. There was disagreement between the members of the Court of Appeal in Ashman as to the juridical basis of an award of user damages. Hoffman LJ favoured a restitutionary analysis, Lloyd LJ favoured a compensatory analysis deriving from Whitwham, and Kennedy LJ spoke of "quasi-contractual restitution". Lord Lloyd, in Inverugie, had the last word in relation to this disagreement, saying that the user principle need not be characterised as exclusively compensatory or exclusively restitutionary because it combined elements of both. Lord Nicholls explained in Blake that there is a clear difference between an account of profits awarded in equity and compensatory damages awarded by the common law (including user damages). His view was that "such awards are probably best regarded as an exception to the general rule"; in other words user damages are in a special category of common law damages.
387. Tang Man Sit v. Capacious Investments [1996] 1 AC 514 dealt with the inconsistency between an account of profits on the one hand, and compensatory damages on the other. A claimant who brings a claim for breach of fiduciary duty must elect between claiming damages and an account of profits. But this does not assist IAC. For an election to be necessary, there must be a true disgorgement remedy available, or perhaps a true restitutionary remedy (see Hart J in Westminster City Council v. Porter [2003] Ch 436 at 451, paragraphs 2 and 3).

How is the quantum of user damages to be assessed?

The lease rate claim

388. A user damages claim is to be assessed by reference to the normal lease rate that the defendant would have had to have paid to hire the goods for the period of their detention (the "lease rate claim").

The loss in value claim

389. The lease rate claim does not compensate the claimant for the loss in value of the goods upon their return, or the total loss of the goods if they are not returned (the "loss in value claim"). In order to compensate the claimant for this element, the loss in value must be added to the lease rate claim.
390. There is no authority as to whether the loss in value claim should be assessed either:-

i) On a basis consistent with the award of user damages, namely on the premise that the goods had been consensually hired by the defendant, and should, therefore have been returned in the condition envisaged by a putative lease; or

ii) On the same basis as the loss in value of the goods would have been assessed for the value/ consequential damages claim.

391. It is logical (but not necessary) to assess user damages on the basis of the lease rate claim, plus whatever loss in value is sustained from the goods having been returned in poor condition after a putative lease (the 'residual value basis'). Mr Sturrock's evidence was that a lease of spares would normally contain terms providing that the parts are returned in an overhauled condition. If this latter basis of calculation is adopted, the value damages which were the subject of the main part of the trial would not be payable in addition.
392. In the alternative, the Court could award the lease rate claim plus whatever loss in value damages would have been awarded pursuant to the assessment in the main trial (the 'value damages basis'). It seems likely that this latter method would result in somewhat lower figures (at least in some cases).

The authorities supporting the proposition that the loss in value claim be added to the lease rate claim

393. In Whitwham, the claimant seems to have recovered damages for the diminution in value of his land in addition to damages for the defendant's use of it.
394. In Strand Electric, Denning LJ said (at page 255):-

"If the goods are retained by the wrongdoer up till judgment, the hiring charge runs up to that time, and in addition the owner will get the return of the goods or their value at the time of judgment … but if the goods have been disposed of by the wrongdoer the hiring charge will cease at the time of such disposal, but the owner will get in addition damages for the loss he has sustained by the conversion, which is usually the value at the time of conversion."

395. Parker J said in Ryjack that an "owner can recover by way of damages a hire charge plus either the return of the chattel or, if there has been a subsequent conversion by disposal, the value of the chattel at the date of such conversion".
396. Nicholls LJ appeared to envisage the possibility of user damages in addition to value damages in IBL v. Coussens, and in the Main Aircraft Action, where, as Lord Nicholls, he expressly said that "in an appropriate case the court may award damages on this 'user principle' in addition to compensation for loss suffered".
397. Lease rate damages can thus be awarded in addition to value or other consequential damages.
398. In this case, the losses in addition to user arise from:-

i) In the case of remaindered and recovered spares, the fact that most were not serviceable when KAC regained possession of them; and

ii) In the case of the lost spares, the fact that these items have not been returned at all.

Assessment of the hypothetical rent

399. The determination of the correct lease rate to be applied in the calculation of user damages is to be taken in two stages: -

i) The starting point is the rate, which the particular defendant would have had to pay consensually in the market for the user of the goods that he has taken.

ii) Consideration must then be given to whether there are particular factors which, in order to arrive at a fair compensation, require the rate to be adjusted either up or down.

Reasons why IAC should pay a higher rate in this case

400. The rate which IAC would have had to pay in the market to lease any spares would have been considerably in excess of the rate which other market users would have paid. An award of user damages is to recognise that a converter who takes and uses the property for his own purposes must pay for that use. If IAC is ordered to pay a market rate which would not in fact have been available to it, IAC will be better off by having taken the spares than it would have been had it leased them.  IAC should pay what the market would have charged it.

If the 'normal rate' is taken, should there be an uplift?

401. If KAC's primary submission is wrong, and the "normal" market rate (without regard to the circumstances of the particular defendant) is the correct starting point, the second stage of the assessment is to decide on whether an adjustment should be made to the market rate to take account of "anything special in the particular case" (per Megaw LJ in Swordheath). This will be particularly applicable where there is no "free market" (per Kennedy LJ in Ashman). See further the comments of Barker J in the New Zealand case of Roberts v Rodney.
402. It is appropriate to apply an uplift to the market rate in this case, because of the following 7 aggravating factors: -

i) The egregious nature of the conversion. IAC deliberately took control of KAC's entire stock, removing a substantial proportion of it to Baghdad.

ii) The exceptional circumstances of the user. The exclusion of KAC from its entire stock of spares was part of an attempt to take over KAC's entire aircraft business.

iii) The fact that KAC would not have been prepared to lease any of these spares to IAC.

iv) The fact that it would have been virtually impossible for IAC to lease such spares from anyone on the open market because of the war, because of IAC's credit rating, and because of IAC's position generally.

v) IAC's credit rating was non-existent in any traditional financial market. Consequently, IAC ought to pay the substantially increased rate which it would have had to pay if it had found some alternative method of finance.

vi) The reality was that (even if there had been no sanctions) no person would have considered a lease to IAC on terms which did not require either up-front payment or a third party guarantee for the entire cost of the spares.

vii) The sanctions in place made it illegal to trade with IAC.

403. There was no free market and IAC was far from a normal lessee. In these circumstances, a fair and reasonable rate of damages ought to take into account the fact that the benefit to IAC was far greater than to a normal converter of goods.

Is it appropriate to use a calculation based on interest on capital?

404. It would be possible to award user damages, on the basis of interest on 100% MLP (or even on a lower value), for the period of the notional lease.
405. This would be inappropriate and unjust to KAC for the following reasons:-

i) IAC has not, in any sense, used KAC's capital. It has used KAC's spares.

ii) It would be contrary to all the authorities to award interest rather than an appropriate lease rate.

iii) In Inverugie, the Registrar in the Bahamas had originally calculated damages on the basis of interest on the claimant's capital investment. Neither the Court of Appeal nor the Privy Council approved of this approach.

iv) User damages are, as a matter of principle, awarded so that the defendant cannot gain an advantage by paying less for behaving illegally than it would have paid if it had behaved legally. They reflect what the claimant has lost in terms of loss of opportunity. Interest on capital fails to achieve these objects.

v) There is no reason in this case to depart from the normal principles of user damages. Indeed, there are cogent reasons why the award against IAC should be on the high, rather than on the low side.

The period of the hypothetical lease

406. The hypothetical lease rate is to be paid "during the period of the detention" (per Romer LJ in Strand Electric). This was the basis of the calculation in Whitwham, Strand Electric, Ryjack, Ashman and Inverugie. Denning LJ pointed out in Strand Electric (at page 255) that, where goods have been returned, the hiring charge: -

"… runs up to the date when the goods were returned. It starts from the very moment when the defendants took possession of the goods. They had, it is true, a reasonable time to make inquiries as to title, but once that time expired and they wrongly decided to retain them, then the wrong related back to the first taking. It became wrongful ab initio."

407. In the case of the remaindered and recovered spares the period of the lease ought to run until the spares were back in KAC's possession. In the case of the lost spares, the period may depend on whether IAC retained them, sold them or otherwise disposed of them. IAC cannot complain if detention until the date of judgment is assumed against it.

Responses to IAC's submissions

As to alleged incompatibility with loss of profits claim in the Main Aircraft Action, the only loss of profits claim in respect of which KAC has actually recovered is for the leasing out of AHI. AHI was an Airbus A300. The other five of the Iran Six were A310s. KAC's other A300s were destroyed at Mosul. The factual basis for the AHI claim was that it would not have been economic for KAC to operate an "orphan" aircraft of a particular aircraft type, and that KAC would have leased it out on its own under a dry lease. Accordingly that claim was, by definition, a claim which factually was premised on KAC not using the aircraft in its own operations. The factual basis of recovery was that there was no requirement for KAC to use any spares to maintain the aircraft. If KAC did not need its spares stock to support the lease of AHI, then it would have been free to lease out its stock of spares: the hypothetical basis of the user damages claim.

As to incompatibility with the claim for PIPs and interest, the correct treatment of PIPs and interest (in order to avoid any question of double recovery) is dealt with below.

As to the submission that user damages should not exceed the value of the actual benefit to IAC, the correct starting point for the assessment of damages on the user principle is the rate which the particular defendant would have had to pay consensually in the market for the user of the goods that he has taken. Lord Nicholls in Blake said that "the damages recoverable will be … the price a reasonable person would pay for the right of user", not an assessment of the benefit to the wrongdoer.

As to the submission that KAC's claim should not exceed the value of the goods with interest, a conversion of goods for the defendant's own purposes has always been regarded differently from a trespass to goods by destroying them. The wrong for which user damages compensate a claimant is the defendant's use for his own benefit of the goods. There is nothing logically inconsistent in an award of compensation on that basis, in addition to an award of damages for any loss in value. Hillesden v Ryjack cannot be distinguished. The fact that user damages may be awarded on top of value damages was confirmed by Lord Nicholls in paragraph 87 of his speech in the Main Aircraft Action.

As to the submission that diminution in value cannot exceed the repair costs, in relation to remaindered and recovered spares it is accepted that there should not be double recovery. The award of user damages for which KAC contends, however, would not result in any double recovery because: -

i) KAC is entitled to repair costs because the evidence is that any hypothetical lease to IAC would have required the spares to be returned in an overhauled condition.

ii) KAC is entitled to value damages in addition because of the loss in value of the spares and the stigma attached to the remaindered and recovered spares.

Remaindered spares

408. The start date for any hypothetical lease should be 9 August 1990, the date from which IAC has admitted liability for all spares at KIA.
409. The remaindered spares were not restored to KAC until the middle of February 1991 at the earliest, but it is accepted that IAC's use must have come to an end when it ceased to have control of KIA in anticipation of the Gulf War. KAC is prepared to assume, in IAC's favour, that the hypothetical lease should end at that time, although the precise date on which IAC lost control of KIA is unclear. The war commenced on 17 January 1991. The documents show that instructions were still being given on 29 December 1990 to bring technical books, together with their shelving, from KIA and on 2 January 1991 to bring other spares. An end date of the hypothetical lease of 31 December 1990 is reasonable.

KAC's alternative claim for remaindered spares

410. KAC's alternative claim for value and consequential damages in respect of remaindered spares, apart from user damages, is as follows: -

(1) 100% MLP less an appropriate reduction to take account of bulk purchase discount and betterment;

(2) less credit given at 48% MLP to take account of stigma for all spares left behind, except for those scrapped;

(3) plus repair costs (which are small, because most remaindered spares were consumables);

(4) plus Post Invasion Purchases.

If 80% is taken, this provides value damages of 32%.

411. Interest on these value and consequential damages should run as follows: -

(1) On the main value damages (e.g. 32% MLP) from 31 December 1990.

(2) On the repair costs from the average date they were incurred (say 31 December 1992).

(3) On the PIPs from the average date they were incurred (say 31 December 1992).

412. This leaves KAC uncompensated for the period during which IAC used the remaindered spares, from 9 August 1990 to 31 December 1990. The period amounts to 4 months and 22 days.
413. The additional user element adjustment to compensate KAC for this period of IAC's user of the remaindered spares is calculated as follows: -

(1) If 'User' damages are awarded at 16.2% / 14.18% of MLP per month (the IAC rate for overhauled spares) (adjusted, to take account of any overlap) for the period of 4 months and 22 days, then the value credit should be increased from 48% to 60% to reflect the fact that the stigma element is contained in the increased lease rate.

(2) If user damages are awarded at 6% / 4.18% or 7% / 5.84% of MLP per month (the rate for overhauled Airbus and Boeing spares respectively) for the period of 4 months and 22 days, then the value credit should remain at 48% to reflect the stigma element.

(3) The repair costs claim remains the same, because the hypothetical lease should be assumed to include a term that spares are returned in overhauled condition.

(4) The claim for Post Invasion Purchases is not awarded, because it is logically inconsistent with the hypothetical lease.

414. Interest on the additional user element should run from the end of the notional lease period, namely 31 December 1990.

Recovered spares

415. The start date of the hypothetical lease should be 9 August 1990.
416. The recovered spares were returned by IAC in tranches on 23 January 1992, 19 March 1992, 19 to 21 May 1992 and 12 September 1992. KAC proposes that 20 May 1992 is taken as the end date of the hypothetical lease of all the recovered spares. This represents a reasonable mid-point between 23 January 1992 and 12 September 1992.

KAC's alternative claim for recovered spares

417. KAC's alternative claim for value and consequential damages, apart from user damages, is for: -

(1) 100% MLP less an appropriate reduction to take account of bulk purchase discount and betterment;

(2) less credit given at 48% MLP to take account of stigma, except for scrap;

(3) plus repair costs;

(4) plus PIPs.

If 80% is taken this provides value damages of 32%.

418. Interest on these value and consequential damages should run as follows: -

(1) On the main value damages (e.g. 32% MLP) from 20 May 1992;

(2) On the repair costs from the average date they were incurred (say 31 December 1992);

(3) On the PIPs from the average date they were incurred (say 31 December 1992).

419. This leaves KAC uncompensated for the period during which IAC used the recovered spares, from 9 August 1990 to 20 May 1992. The period amounts to 21 months and 11 days.
420. The additional 'user' element adjustment to compensate KAC for this period of IAC's user of the spares is calculated as follows: -

(1) If user damages are awarded at 6.75% / 5.29% of MLP per month (the IAC rate for overhauled spares) (adjusted to take account of any overlap) for the period of 21 months and 11 days, then the value credit should be increased from 48% to 60% to reflect the fact that the stigma element is contained in the increased lease rate.

(2) If user damages are awarded at 2.25% / 2.37% or 2.70% / 2.79% of MLP per month (the rate for overhauled Airbus and Boeing spares respectively) for the period of 21 months and 11 days, then the value credit should remain at 48% to reflect the stigma element.

(3) The repair costs claim remains the same, because the hypothetical lease should be assumed to include a term that spares are returned in overhauled condition.

(4) The claim for PIPs is not awarded, because it is logically inconsistent with the hypothetical lease.

421. Interest on the additional user element should run from the end of the notional lease period, namely 20 May 1992.

Lost spares

422. The start date of the hypothetical lease must be 9 August 1990.
423. It is more difficult to determine the end date of the hypothetical lease since the lost spares were, by definition, never returned. A fair way of resolving this difficulty is to work on the basis that the hypothetical lease came to an end on 12 September 1992, when the last of the recovered spares were returned. At that time KAC can be taken to have known that no further spares were likely to be returned by IAC.

KAC's alternative claim for lost spares

424. KAC's alternative claim for value and consequential damages in respect of remaindered spares, apart from user damages, is as follows: -

(1) 100% MLP less an appropriate reduction to take account of bulk purchase discount and betterment;

(2) plus PIPs.

If 80% is taken as the worked example, this provides value damages of 80%.

425. Interest on these value and consequential damages should run as follows: -

(1) On the main value damages (e.g. 80% MLP) from 12 September 1992.

(2) On the PIPs from the average date they were incurred (say 31 December 1992).

426. This leaves KAC uncompensated for the period during which IAC used the lost spares, and during which KAC did not know whether they would be returned or not, from 9 August 1990 to 12 September 1992. The period amounts to 25 months and 3 days.
427. The additional user element adjustment to compensate KAC for this period of IAC's user of the lost spares is calculated as follows: -

(1) User damages should be awarded at 5.4% / 4.18% of MLP per month (the IAC rate for overhauled spares) (adjusted to take account of any overlap) for the period of 25 months and 3 days (alternatively, at the rate of 1.75% / 2.09% or 2% / 2.51% of MLP per month - the rate for overhauled Airbus and Boeing spares respectively).

(2) The claim for PIPs is not awarded, because it is logically inconsistent with the hypothetical lease.

428. Interest on the additional 'user' element should run from the end of the notional lease period, namely 12 September 1992.

Issue 18 – Analysis and Conclusions

The development of the legal principles as to user damages

429. In Whitwham v. Westminster Brymbo Coal and Coke Company [1896] 2 Ch 538, the defendants had trespassed on the plaintiffs' land by tipping spoil thereon from their colliery. The Court of Appeal held that the amount of damages for trespass was not to be assessed by ascertaining merely the diminution in value of the plaintifffs' land, but that the principle of the way-leave cases applied. If one person without leave of another uses the other's land for his own purposes he ought to pay for such user. As to so much of the land as was covered with spoil, the value of the land for the purpose for which it was used by the wrongdoers ought to be taken into account. As to the rest of the land, the measure of damages was the diminution of the value thereof to the plaintiffs by reason of the wrongful acts of the defendants.
430. Lindley LJ said (at pages 541-2): -

"… the defendants have done. …two things. They have, first of all, so used the plaintiffs' land as to diminish its value ... Mr. Russell admits that the defendants must pay that, but contends that they are to pay no more. That leaves out of sight what more the defendants have done. What they have done more is this - they have been using the land for years. Why are not the plaintiffs to be entitled to some compensation in respect of that user? The plaintiffs have been injured in two respects. First, they have had the value of their land diminished; secondly, they have lost the use of their land, and the defendants have had it for their own benefit. It is unjust to leave out of sight the use which the defendants have made of this land for their own purposes, and that lies at the bottom of what are called the way-leave cases. Those cases are based upon the principle that, if one person has without leave of another been using that other's land for his own purposes, he ought to pay for such user."

431. In the Greta Holme [1897] AC 596 (a negligence case) owing to a collision with a ship (the ship being at fault) a steam dredger was damaged and the owners were deprived of the use of it for some weeks and the dredging works were delayed. The dredger belonged to trustees charged with the duty of maintaining a harbour and waterway, deriving their funds from rates and not entitled to distribute profits. The trustees brought a collision suit against the shipowners. The House of Lords held that though the trustees were not out of pocket in any definite sum, they were entitled to recover damages for the loss of the use of the dredger.
432. Lord Halsbury LC said (at page 601): -

"It is a sufficiently familiar head of damages between individuals that, if one person injures the property of another, damages may be recovered, not only for the amount which it may be necessary to spend in repairs, but also for the loss of the use of the article injured during the period that the repairing may occupy."

433. The principles laid down in the Greta Holme were applied in the Mediana [1900] AC 113, another negligence case. A lightship, belonging to a harbour board was damaged in a collision caused by the negligence of the appellants. During repair the damaged lightship was replaced by another lightship belonging to the board and maintained at an annual expense for the purpose of such an emergency. The House of Lords held that the board was entitled to recover from the appellants not only the out of pocket expenses caused by the collision, but also substantial damages for the loss of the services of the damaged lightship during the time her place was taken by the substituted lightship.
434. Lord Halsbury LC said (at page 117): -

"What right has a wrongdoer to consider what use you are going to make of your vessel? More than one case has been put to illustrate this: for example, the owner of a horse, or of a chair. Supposing a person took away a chair out of my room and kept it for twelve months, could anybody say you had a right to diminish the damages by showing that I did not usually sit in that chair, or that there were plenty of other chairs in the room? The proposition so nakedly stated appears to me to be absurd; but a jury have very often a very difficult task to perform in ascertaining what should be the amount of damages of that sort. I know very well that as a matter of common sense what an arbitrator or a jury very often do is to take a perfectly artificial hypothesis and say, 'Well, if you wanted to hire a chair, what would you have to give for it for the period'; and in that way they come to a rough sort of conclusion as to what damages ought to be paid for the unjust and unlawful withdrawal of it from the owner. Here, as I say, the broad principle seems to me to be quite independent of the particular use the plaintiffs were going to make of the thing that was taken, except … when you are endeavouring to establish the specific loss of profit, or of something that you otherwise would have got which the law recognises as special damage. In that case you must show it, and by precise evidence …. But when we are speaking of general damages no such principle applies at all, and the jury might give whatever they thought would be the proper equivalent for the unlawful withdrawal of the subject-matter then in question".

435. In Strand Electric v. Brisford Entertainments [1952] 2 QB 246 the claimants claimed damages for the defendant's wrongful detention of portable switchboards. In addition to an order for the return of the switchboards or their value, the claimants claimed damages for the period of the detention. The Court of Appeal held that in an action in detinue in respect of a chattel which the plaintiff, as part of his business, hires out to users, the plaintiff, if the defendant has during the period of detention made beneficial use of the chattel, is entitled to recover as damages the full market rate of hire for the period of detention.
436. Somervell LJ referred to the Greta Holme and the Mediana and said (at page 252): -

"This is a claim in detinue. … the defendants had for their own benefit the use of the plaintiffs' chattels. This is an incident which is not present in the damage by negligence cases. Why is not the plaintiffs' loss the value in the market of the user? The wrong is not the mere deprivation, as in negligence and possibly some detinue cases, but the user … if the chattel has been damaged and depreciated this may be an item in a claim for special damage. There are no doubt some cases in which a wrongdoer may be called on to account for profits, but in considering the measure of damages as raised here I think the actual benefit which the defendants have obtained is irrelevant. The damages could not, in my view, be increased by showing that a defendant had made by his use of the chattels much more than the market rate of hire. Equally they cannot be diminished by showing that he had made less.

It is curious … that there is no authority on this point. The nearest analogy is a claim for mesne profits. The measure there is a reasonable sum in the nature of rent for the user during the period of the defendant's trespass. ... The defendant must pay what the plaintiff would have obtained if the defendant had lawfully been in possession. In principle the same measure should … apply where a defendant has detained and used a chattel of the plaintiff which the plaintiff, as part of his business, hires out to users. I have added these latter words because I do not wish in this so far uncharted field to go beyond the facts of the case … It would appear … that the principle may be more widely applied in the United States of America and would cover, for example, detention and use of a private motor-car. I am not saying this is wrong. There may be no distinction in principle. The question had, however, better be left till it arises".

437. Denning LJ said (at page 253): -

"The question in this case is: What is the proper measure of damages for the wrongful detention of goods? Does it fall within the general rule that the plaintiff only recovers for the loss he has suffered or within some other, and if so what, rule? It is strange that there is no authority upon this point in English law; but there is plenty on the analogous case of detention of land. The rule there is that a wrongdoer, who keeps the owner out of his land, must pay a fair rental value for it, even though the owner would not have been able to use it himself or to let it to anyone else. So also a wrongdoer who uses land for his own purposes without the owner's consent, as, for instance, for a fair ground, or as a wayleave, must pay a reasonable hire for it, even though he has done no damage to the land at all: Whitwham v. Westminster Brymbo Coal Company. I see no reason why the same principle should not apply to detention of goods.

If a wrongdoer has made use of goods for his own purposes, then he must pay a reasonable hire for them, even though the owner has in fact suffered no loss. It may be that the owner would not have used the goods himself, or that he had a substitute readily available, which he used without extra cost to himself. Nevertheless the owner is entitled to a reasonable hire. If the wrongdoer had asked the owner for permission to use the goods, the owner would be entitled to ask for a reasonable remuneration as the price of his permission. The wrongdoer cannot be better off because he did not ask permission. He cannot be better off by doing wrong than he would be by doing right. He must therefore pay a reasonable hire" (emphasis added).

438. Romer LJ said (at page 256): -

"The inquiry is: What loss has the plaintiff suffered by reason of the defendants' wrongful act? In determining the answer to this inquiry the question of quantifying the profit or benefit which the defendant has derived from his wrongful act does not arise; for there is no necessary relation between the plaintiffs' loss and the defendants' gain. It follows that in assessing the plaintiffs' loss in the present case one is not troubled by any need to evaluate the actual benefit which resulted to the defendants by having the plaintiffs' equipment at their disposal.

… the only substantial reason put forward by the defendants why the plaintiffs should not receive the full hiring value of the equipment during the period of detention is that the plaintiffs might not have been able to find a hirer. In my judgment, however, a defendant who has wrongfully detained and profited from the property of someone else cannot avail himself of a hypothesis such as this. It does not lie in the mouth of such a defendant to suggest that the owner might not have found a hirer; for in using the property he showed that he wanted it and he cannot complain if it is assumed against him that he himself would have preferred to become the hirer rather than not have had the use of it at all. … it accordingly seems to me that the defendants are bound to pay the recognized hiring value for the property in question…

… I express no opinion as to what the plaintiffs' rights would have been in the matter of damages had the property detained been of a non-profit earning character, or if, although profit-earning, the plaintiffs had never applied it to remunerative purposes."

439. Swordheath Properties Ltd v. Tabet [1979] 1 WLR 285 was concerned with damages for trespass. Certain defendants wrongfully continued to occupy premises after the end of a lease.
440. Megaw LJ cited Whitwham and Penarth Dock Engineering Company v Pounds [1963] 1 Lloyd's Rep 359 and said (at page 288): -

"It appears to me to be clear, both as a matter of principle and of authority, that in a case of this sort the plaintiff, when he has established that the defendant has remained on as a trespasser in residential property, is entitled, without bringing evidence that he could or would have let the property to someone else in the absence of the trespassing defendant, to have as damages for the trespass the value of the property as it would fairly be calculated; and, in the absence of anything special in the particular case it would be the ordinary letting value of the property that would determine the amount of the damages. In the present case, therefore, it appears to me that this appeal falls to be allowed and that the plaintiffs ought to have, not merely judgment for possession, but also damages for trespass for whatever would have been the appropriate amount … as being the proper letting value of the property from July 5, 1976, to the date of the judgment in the West London County Court".

441. In Hillesden v Ryjack [1983] 1 WLR 959 Parker J referred to Strand Electric and (at page 963) said: -

"The action in that case was in detinue and not conversion, but there will in almost all cases of detinue have been an original act of conversion also and what was in effect held in that case was that, in the case of conversion of a profit earning chattel which a defendant has used for his own benefit, the owner can recover by way of damages a hire charge plus either the return of the chattel or, if there has been a subsequent conversion by disposal, the value of the chattel at the date of such conversion."

442. In Stoke-on-Trent City Council v. Wass [1988] 1 WLR 1406 a company began to operate a Thursday market at Longton in 1982. The company did not have permission from the council, who operated statutory markets on Wednesdays, Fridays and Saturdays. In 1984 the council commenced a statutory market on Thursdays in Fenton, which was within about 7 miles of the company's market at Longton. Despite attempts to prevent it, the company continued to hold a market at Longton. In 1986 the council issued a writ claiming an injunction restraining the company from holding a market and general damages, alleging that the council's right to operate its market at Fenton was being infringed. Peter Gibson J held that a franchise market was entitled to protection against the levying of a rival same day market within 7 miles without proof of loss, but that it was for the council to prove that the company's market had caused loss to their other day markets, and he granted a permanent injunction accordingly. He also found that the council had suffered no loss to the Thursday market, but held that they were nevertheless entitled to an award of damages calculated by reference to the licence fee that the council could reasonably have required for the operation of the company's market between April 1984 and the grant of the permanent injunction at trial. The Court of Appeal held, allowing the appeal, that as a general rule in tort a plaintiff recovered damages equivalent to the loss he had suffered, and where he had suffered loss to his property or to some proprietary right he recovered damages equivalent to the diminution in value of the property or right; that, exceptionally, in cases of trespass to land, patent infringement and some cases of detinue and nuisance, the "user principle" applied to enable a plaintiff to recover as damages a reasonable sum for the wrongful use made of his property; that the owner of a market right was protected against disturbance in the enjoyment of his right by a remedy of damages equivalent to the diminution in value of the right by loss of stallage, and there was no reason to extend the user principle to cover infringement of a market right by the holding of an unauthorised market, where the plaintiff could not show that he had suffered loss by reason of the infringement. Accordingly, since the council had suffered no loss as a result of the company's unauthorised market they were entitled to nominal damages only.
443. Nicholls LJ said (at page 1416):-

"It is an established principle concerning the assessment of damages that a person who has wrongfully used another's property without causing the latter any pecuniary loss may still be liable to that other for more than nominal damages. In general, he is liable to pay, as damages, a reasonable sum for the wrongful use he has made of the other's property. The law has reached this conclusion by giving to the concept of loss or damage in such a case a wider meaning than merely financial loss calculated by comparing the property owner's financial position after the wrongdoing with what it would have been had the wrongdoing never occurred. Furthermore, in such a case it is no answer for the wrongdoer to show that the property owner would probably not have used the property himself had the wrongdoer not done so. In the Mediana … Earl of Halsbury L.C. made the famous observation that a defendant who had deprived the plaintiff of one of the chairs in his room for 12 months could not diminish the damages by showing that the plaintiff did not usually sit upon that chair or that there were plenty of other chairs in the room".

444. In IBL Ltd v. Coussens [1991] 2 All ER 133 a company provided cars for its employee. The company dismissed the employee and in February 1988 requested the delivery of the cars and damages for breach of contract/conversion. The Court of Appeal held that damages awarded under s 3 of the 1977 Act for conversion as an alternative to the return of the goods were not to be arbitrarily assessed as at either the date of the conversion or the date of judgment but ought to be such as fairly compensated the owner for the loss of the goods, taking into account such matters as whether the owner would have kept the goods if they had not been converted if not, when he would have sold or replaced them, if they were kept, whether they had increased in value, and whether the owner had suffered damage for loss of use. The appeal was allowed and the matter remitted to the master for damages to be assessed by reference to the value of the cars at such date as would fairly compensate the company for its loss, such assessment to be made in the light of further evidence if need be as to the value of the cars and what the company would have done with them if they had been returned in February 1988.
445. Ministry of Defence v. Ashman (1993) 25 HLR 513 was concerned with damages for trespass. The first defendant's husband moved out of service quarters leaving the first defendant and their children in possession. The first defendant did not move out as she had no alternative accommodation to which to go. The issue was as to the measure of the mesne profits to which the plaintiffs were entitled. The Court of Appeal held that where the property was not normally let on the open market, and the trespasser only remained in possession because she was in no position to move anywhere else, more assistance as to the proper value to the first defendant of the use of the property might have been gained by looking at what she would have had to pay for suitable local authority accommodation, than by focusing on evidence given on behalf of the plaintiffs as to market rent. Accordingly, the damages should be re-assessed on that basis.
446. Kennedy LJ said (at page 518): -

"damages in the Penarth Dock case were calculated by reference to the "proper value to the trespassers of use of the property. In … Swordheath … the Court of Appeal was able to apply that approach, which may be somewhat analogous to quasi-contractual restitution, to a claim by a landlord against, occupants of residential property who had remained in unlawful possession. The landlord was held entitled to recover "the proper letting value of the property" for the relevant period, that being in an ordinary case, in a free market, the value to the trespassers of its use. But where, as in the present case, the property is not normally let on the open market, and the trespasser only remains in possession because she is no position to move anywhere else … more assistance as to the proper value to Mrs Ashman of the use of the property might be gained by looking at what she would have had to pay for suitable local authority accommodation, had any been available, than by focusing on evidence given on behalf of the Ministry as to market rent."

447. Hoffmann LJ said (at page 519) that the Ministry of Defence elected for a restitutionary remedy. "All that matters is the value of benefit which the defendant has received". He added: -

"The open market value will ordinarily be appropriate because the defendant has chosen to stay in the premises rather than pay for equivalent premises somewhere else. But such benefits may in special circumstances be subject to what Professor Birks … has … called subjective devaluation. This means a benefit may not be worth as much to the particular defendant as to someone else. In particular, it may be worth less to a defendant who has not been free to reject it …"

448. Lloyd LJ said at page 521: -

"… it is very doubtful, as the law now stands, whether the restitutionary remedy is available in the case of wrongful occupation of land. … What then is the measure of damages in a claim for mesne profits? In the vast majority of cases it will be at the same rate as the previous rent …. Presumably if the market has fallen, [the landlord] will recover less. I see no difficulty in the landlord recovering damages at the market rate even though he has adduced no evidence that he would or could have relet the property. That is, as was held in Swordheath Properties, the appropriate measure of damages in the normal case. But the question still remains whether the present case is indeed normal … I am content to go along with the basis proposed by Kennedy LJ, that the damages should be based on the value of the benefit to Mrs Ashman. It may be that in the end will not make much difference in terms of money."

449. In Inverugie v. Hackett [1995] 3 All ER 841 the plaintiff purchased in 1970 the long leasehold of 30 of the 164 apartments in a hotel in The Bahamas. The plaintiff's apartments continued to be managed on the plaintiff's behalf as an integral part of the hotel. In 1974 the owners of the hotel ejected the plaintiff, who successfully brought proceedings for possession. However, the owners did not give up possession until 1990 by which time the period of their trespass had continued for a period of 15 ½ years. During that period the hotel had an occupancy rate of about 35% and was running at a loss. The plaintiff claimed mesne profits for that period. The registrar awarded damages being 12 ½ % simple interest on the original investment over the whole period of 15 ½ years. The plaintiff appealed and the owners cross-appealed to the Court of Appeal of the Bahamas. The majority calculated the mesne profits on the basis of the notional gross revenue of the 30 apartments at 100% occupancy over the period of the trespass, less 3 ½ months when the apartments would have been unoccupied for refurbishing, a proportion of the total expenses relating to the 30 apartments and ground rent. The other member of the court held that the damages should be based on what the plaintiff was entitled to receive for the owner's use and physical possession of the apartments, irrespective of whether the owners wished or were able to rent them. The owners appealed to the Privy Council, contending that damages had to be assessed for the 30 apartments as a whole and taking into consideration the fact that the hotel had an occupancy rate of only 35%. The Privy Council held that a person who let out goods on hire or the landlord of residential property was entitled to recover damages from a trespasser who wrongfully used his property irrespective of whether or not he could show that he would have let the property to anybody else and whether or not he would have used the property himself. Although the plaintiff might not have suffered any actual loss by being deprived of the use of his property, he was entitled to recover a reasonable rent for the wrongful use of his property by the trespasser, and similarly, although the trespasser might not have derived any actual benefit from the use of the property, he was obliged to pay a reasonable rent for the use he enjoyed. Applying that principle, the hotel owners had to pay the going rate for each apartment for 365 days of the year, even though in the event they had derived no benefit from the use of the plaintiff's apartments. On the facts, a reasonable rental value for the 30 apartments was the published rate less 35% in the winter and 65% in the summer, that being the 'wholesale' rate paid by tour operators, and since any award based on that rate came to well in excess of the amount awarded by the majority of the Court of Appeal, the appeal would be dismissed.
450. Lord Lloyd said (at page 845): -

"The cases … establish, beyond any doubt, that a person who lets out goods on hire, or the landlord of residential property, can recover damages from a trespasser who has wrongfully used his property whether or not he can show that he would have let the property to anybody else, and whether or not he would have used the property himself … It is sometimes said that these cases are an exception to the rule that damages in tort are compensatory. But this is not necessarily so. It depends how widely one defines the 'loss' which the plaintiff has suffered. As the Earl of Halsbury LC pointed out in the Mediana, it is no answer for a wrongdoer who has deprived the plaintiff of his chair to point out that he does not usually sit in it or that he has plenty of other chairs in the room. In Stoke-on-Trent City Council v W & J Wass Ltd Nicholls LJ called the underlying principle in these cases the 'user principle'. The plaintiff may not have suffered any actual loss by being deprived of the use of his property. But under the user principle he is entitled to recover a reasonable rent for the wrongful use of his property by the trespasser. Similarly, the trespasser may not have derived any actual benefit from the use of the property. But under the user principle he is obliged to pay a reasonable rent for the use which he has enjoyed. The principle need not be characterised as exclusively compensatory, or exclusively restitutionary; it combines elements of both … If a man hires a concrete mixer, he must pay the daily hire, even though he may not in the event have been able to use the mixer because of rain. So also must a trespasser who takes the mixer without the owner's consent. He must pay the going rate, even though in the event he has derived no benefit from the use of the mixer. It makes no difference whether the trespasser is a professional builder or a do-it-yourself enthusiast."

451. In A-G v Blake [2001] AC 268, at pages 278-280, Lord Nicholls said: -

"The general rule is that … the measure of damages is to be, as far as possible, that amount of money which will put the injured party in the same position he would have been in had he not sustained the wrong … Damages are measured by the plaintiff's loss, not the defendant's gain. But the common law, pragmatic as ever, has long recognised that there are many commonplace situations where a strict application of this principle would not do justice between the parties. Then compensation for the wrong done to the plaintiff is measured by a different yardstick. A trespasser who enters another's land may cause the landowner no financial loss. In such a case damages are measured by the benefit received by the trespasser, namely, by his use of the land. The same principle is applied where the wrong consists of use of another's land for depositing waste, or by using a path across the land or using passages in an underground mine. In this type of case the damages recoverable will be, in short, the price a reasonable person would pay for the right of user: see Whitwham v Westminster Brymbo Coal and Coke Co and the "wayleave" cases …

The same principle is applied to the wrongful detention of goods. An instance is the … decision of the Court of Appeal in Strand Electric, concerning portable switchboards. But the principle has a distinguished ancestry. The Earl of Halsbury LC famously asked in the Mediana, that if a person took away a chair from his room and kept it for 12 months, could anybody say you had a right to diminish the damages by showing that I did not usually sit in that chair, or that there were plenty of other chairs in the room?" …

To the same effect was Lord Shaw's telling example in Watson, Laidlaw & Co Ltd v Pott, Cassels and Williamson [1914] 31 RPC 104, 119. It bears repetition:

"If A, being a liveryman, keeps his horse standing idle in the stable, and B, against his wish or without his knowledge, rides or drives it out, it is no answer to A for B to say: 'Against what loss do you want to be restored? I restore the horse. There is no loss. The horse is none the worse, it is the better for the exercise.'

Lord Shaw prefaced this observation with a statement of general principle: -

wherever an abstraction or invasion of property has occurred, then, unless such abstraction or invasion were to be sanctioned by law, the law ought to yield a recompense under the category or principle … either of price or of hire. That was a patent infringement case. The House of Lords held that damages should be assessed on the footing of a royalty for every infringing article. This principle is established and not controversial. More difficult is the alignment of this measure of damages within the basic compensatory measure. Recently there has been a move towards applying the label of restitution to awards of this character: see, for instance, Ministry of Defence v Ashman and Ministry of Defence v Thompson [1993] 2 EGLR 107. However that may be,

these awards cannot be regarded as conforming to the strictly compensatory measure of damage for the injured person's loss unless loss is given a strained and artificial meaning. The reality is that the injured person's rights were invaded but, in financial terms, he suffered no loss. Nevertheless the common law has found a means to award him a sensibly calculated amount of money. Such awards are probably best regarded as an exception to the general rule".

452. In the Main Aircraft Action, Lord Nicholls again referred to the user principle at paragraphs 87-90. In particular, he said:

"Sometimes, when the goods or their equivalent are returned, the owner suffers no financial loss. But the wrongdoer may well have benefited from his temporary use of the owner's goods. It would not be right that he should be able to keep this benefit. The court may order him to pay damages assessed by reference to the value of the benefit he derived from his wrongdoing. I considered this principle in A-G v Blake. In an appropriate case the court may award damages on this 'user principle' in addition to compensation for loss suffered. For instance, if the goods are returned damaged, the court may award damages assessed by reference to the benefit obtained by the wrongdoer as well as the cost of repair".

453. The principles laid down in Blake were applied by Mance LJ in Experience Hendrix v PPX Enterprises [2003] EWCA Civ, 323. In paragraph 26 of his judgment he said: -

"…Another situation where damages do not necessarily depend upon precisely what would have occurred but for the wrong is where there has been a conversion: cf. Kuwait Airways Corpn v Iraqi Airways Co, especially at paras 82-83. In a case such as Wrotham Park the law gives effect to the instinctive reaction that, whether or not the appellant would have been better off if the wrong had not been committed, the wrongdoer ought not to gain an advantage for free, and should make some reasonable recompense. In such a context it is natural to pay regard to any profit made by the wrongdoer (although a wrongdoer surely cannot always rely on avoiding having to make reasonable recompense by showing that despite his wrong he failed, perhaps simply due to his own incompetence, to make any profit). The law can in such cases act either by ordering payment over of a percentage of any profit or, in some cases, by taking the cost which the wrongdoer would have had to incur to obtain (if feasible) equivalent benefit from another source."

454. Text - books.
455. McGregor on Damages, 17^th edition, at paragraph 12-008 states that: -

"In the proprietary torts where restitutionary damages have flourished except in name, the courts have attempted to rationalise the damages awarded as compensatory on the basis of what is today generally referred to as the user principle, a phrase employed, and possibly initiated, by Nicholls LJ … in Stoke City Council v W & J Wass. The law has considered that a person should have a claim against one who has used his property without his consent, a claim to be measured by the amount which could reasonably be required to gain permission for the property's use, and has regarded the claimant as suffering loss or damage by virtue of not having received that amount."

456. Butterworths' The Law of Restitution contains a useful analysis of the user principle in paragraphs 12.34 to 12.57. In particular: -

"The user principle

457. Another exception to the rule that damages in tort are measured solely by the claimant's loss, an exception described by Lord Nicholls in A-G v Blake as 'pragmatic', is the 'user principle'. Where a trespasser enters another's land, it may cause the landowner no measureable financial loss. Nevertheless, damages can be awarded to represent an amount due to the landowner for using the claimant's land. Similarly, using the claimant's land as a waste dump, or as a path, or in the form of underground passage-ways, also give rise to an obligation to pay damages based on the same 'user principle'. The amount due is the price a reasonable person would pay for the relevant use. The same principle has been used in cases of the wrongful detention of goods and, beyond tort law, has also been used in analogous cases concerning confidential information and breaches of covenants. It also analogous to the way in which damages are calculated in some intellectual property cases.

The Purpose of the User Principle

458. … if the law did not recognise the user principle, the defendant would have appropriated the claimant's property with impunity. The user principle therefore protects property rights in themselves. The claimant's property right is protected not because of what the claimant might or could have done with the property, but because the claimant had the right to exclude others from using the property at the claimant's own discretion. The concept of property protected by the user principle is one in which what is important is the owner's exclusion of others from use and the owner's discretion to use or not to use, rather than the owner's enjoyment of the use. The defendant's wrong consists of disregarding the claimant's right to exclude. The damages recognise the nature of the wrong.

Reasonable Fees, Rents and Prices

459. The precise amount to be paid under the user principle has caused controversy. The starting point is that the defendant must pay a 'reasonable rent' or a 'reasonable fee'. The claimant is not bound to show that he has suffered an actual loss, and is not therefore bound to show that he would otherwise have rented or hired out the property concerned, or even have used the property for any valuable purpose.
460. The measure is … not purely compensatory. On the other hand, the measure is also not an account of profits. It is no answer for the defendant that he has, in the event, failed to make any profit from his tort. The measure is hence not fully restitutionary either. In Inverugie Investments Ltd v Hackett, the Privy Council said: 'The principle need not be characterised as exclusively compensatory, or exclusively restitutionary; it combines elements of both'. It might even be more accurate to say that it stands apart from both.

…

In Inverugie, the Privy Council purported to pass no comment on Ashman, using the argument that in Inverugie counsel had not suggested a restitutionary form of reasoning to the court, and that therefore the issue did not come up for decision. In Blake, however, Lord Nicholls, in distinguishing clearly between the 'reasonable fee' basis of the 'user principle' cases and the 'account of profits' basis used in other parts of the law, might be said to have given comfort to the Lloyd view of Ashman, or at least not to have backed the Hoffman view to the extent that its supporters might have hoped. …

It is submitted that, notwithstanding Ashman, the correct measure, at least for the time being, is the Inverugie reasonable rent measure, not an account of profits (or some other pure 'benefit' measure); and that the relevance of the defendant's benefit is only as one factor in gauging a reasonable level for the rent. The reasonable fee measure fully recognises the purposes of the user principle, namely the vindication of the rights of property owners to exclude others and to preserve their discretion whether to use their property or not."

Commonwealth Authorities

461. The user principle has been considered in a number of Commonwealth cases which refer to many of the English authorities cited above. See Roberts v. Rodney DC [2001] NZLR 402 Barker J; and Finesky Holdings Pty Ltd v. Minister of Transport for Western Australia [2002] WASCA 206, the Supreme Court of Western Australia.

The relevant legal principles, analysis and conclusions

462. The relevant legal principles as to user damages are as follows.

1. A clear distinction should be drawn between the user principle cases and the 'account of profits' basis used in other parts of the law.

2. The development of the user principle can be traced through the authorities referred to above.

3. The law as to user damages as it now stands is found primarily in the speeches of Lord Nicholls in A-G v Blake and in the Main Aircraft Action.

4. The relevant principles are summarised at paragraphs 234 to 241 above.

I add the following

5. When goods are converted and some (but not all) of the goods are returned months or years later, the claimant may be awarded by way of damages a sensibly/reasonably calculated amount of money to provide just compensation in respect of the period between the date of conversion and the date of return. The wrongdoer ought not to keep any benefit/potential benefit from his temporary use of the claimant's goods. The governing principle is just compensation following invasion of the claimant's property rights. The defendant's conduct was inconsistent with the rights of the claimant, the conduct was deliberate and the conduct was so extensive an encroachment on the rights of the claimant as to exclude him from use and possession of the goods.

6. As to the appropriate measure of user damages:

i) the governing principle is just compensation following invasion of the claimant's property rights.

ii) regard will be had to all the relevant facts and circumstances of the case.

iii) the defendant will ordinarily be ordered to pay a reasonable rent or hire or other reasonable sum in respect of the wrongful use of the claimant's property.

iv) regard will be had to the value of the benefit or potential benefit the defendant derived from his wrongdoing, by his use of the goods.

v) the defendant may only have derived limited benefit or may not have derived any actual benefit from the use of the goods, but under the user principle he will be ordered to pay a reasonable rent or hire or other reasonable sum.

vi) the extent of the benefit the defendant derived from his wrongdoing is only one factor in arriving at a reasonable rent or hire or other reasonable sum.

vii) care will be taken to ensure that there is no element of double recovery in the overall award of damages.

viii) a pragmatic and flexible approach will be taken to the award of user damages, so as to arrive at just compensation.

ix) the award will be a sensibly/reasonably calculated amount of money.

I turn to consider the five points raised by Mr Davies.

463. I do not consider that KAC's claim to user damages is incompatible with KAC's claims in the Main Aircraft Action for the reasons advanced by KAC. The factual basis for the loss of profits claim in respect of AHI was that KAC would have leased it out on its own, under a dry lease. Thus there was no requirement for KAC to use any spares to maintain AHI.
464. IAC's points about PIPs and interest are taken into account below.
465. As to IAC's submissions that user damages should not exceed the value of the actual benefit to IAC and that user damages should not exceed the value of the goods with interest, the relevant legal principles are as set out above.
466. As to IAC's submissions that KAC's claim for diminution in value at the end of the notional lease period should not exceed the repair costs actually incurred, I have taken into account the need to ensure that there is no element of double recovery.

I turn to apply the legal principles set out above to the present case.

467. The order of 15 June 2004 (whereby I granted KAC permission to re-re-re-re-amend the Points of Claim) on terms provided as follows: -

"2. Permission to amend is granted subject to KAC not being entitled to seek or obtain by way of user damages an amount which, together with interest, is more than: -

(1) The Valuation Amount (as defined in the Draft Pleading) for the Spares on 9 August 1990; plus

(2) The amounts pleaded under the heading "Consequential Damages" in the Draft Pleading; and

(3) Interest on those sums from 9 August 1990.

3. KAC is only permitted to rely on the factual allegations made in paragraphs 6 (b a) and 6 (b b) of the Draft Pleading. For the avoidance of doubt, KAC is to be confined to the contention that user is sufficiently established by showing that the Spares were all incorporated as part of the defendant's total stock for use as and when required. KAC will not allege that its user claim is dependent on the extent of drawdown from stock.

4. Further, for the avoidance of doubt, KAC does not allege for the purposes of its claim for user damages, that:

(1) There were any flights by IAC between August 1990 and 17 January 1991 save for flights within Iraq and/or to adjoining Arab states; or

(2) Any flights by IAC between 17 January 1991 and 12 September 1992 save on very limited occasions, and largely on routes within Iraq, because of the "no fly zone"."

468. Any award of damages under this head of claim must have regard to the limitations in the order of 15 June.
469. When giving evidence Mr Sturrock put forward revised lease rates (% of MLP per calendar month) applicable to the aircraft types in 1990 to generate a 20% margin as follows:

Period in Months	A300/A310 Rate for non-factory new items	B727/747 Rate for non-factory new items	IAC rate for non-factory new items
6	4.18	5.84	14.18
12	2.93	3.34	7.51
18	2.37	2.79	5.29
24	2.09	2.51	4.18

470. Mr Sturrock said that a reasonable lessor would expect a reasonable profit margin of 20%.
471. As to the IAC rate, Mr Sturrock accepted that commercially there would never have been such a rate ("I have never actually been asked to lease parts to a company at war".) A rate which would never have been applied between commercial parties is not, in my view, a reasonable rate. Further there would be problems of overlap with the claim for value damages, if the IAC rate were taken.
472. As to the Airbus/Boeing rates for non-factory new items (the rates in the second and third columns) Mr Vos fairly accepted that Mr Sturrock included an element for depreciation "which … could be argued against [KAC] is also some kind of value figure." Appropriate allowance must be made for this, to ensure that there is no element of double recovery.
473. As to remaindered spares, KAC accepts that IAC's use must have come to an end when IAC ceased to have control of KIA in anticipation of the Gulf War. The war commenced on 17 January 1991. The documents show that as at 29 December 1990 instructions were been given to bring over "all technical books relating to the (Airbus) aircraft which are currently in the technical library in the Kuwait province". KAC's claim is in respect of the period 9 August 1990 to 31 December 1990 and this seems reasonable. To award value damages (80-48=32% MLP) plus interest from 31 December 1990, plus repair costs and interest thereon from 31 December 1992 (the average date repair costs were incurred) would leave KAC uncompensated for the period during which IAC had the use of the remaindered spares – from 9 August 1990 to 31 December 1990. This period amounts to 4 months and 22 days.
474. I consider that applying the principles set out above, a just remedy in all the circumstances is to award KAC 2.5% MLP per month for this period, plus interest from 31 December 1990. In addition KAC will recover 32% MLP plus interest from 31 December 1990 and repair costs and interest thereon from 31 December 1992. KAC accepts that the claim in respect of PIPs referable to remaindered spares falls away.
475. As to recovered spares, the recovered spares were returned by IAC in tranches on 23 January 1992, 19 March 1992, 19-21 May 1992 and 12 September 1992. KAC suggests that 20 May 1992 is taken as a reasonable mid-point between 20 January 1992 and 12 September 1992. This seems reasonable. To award value damages (80-48=32% MLP) plus interest from 20 May 1992, plus repair costs and interest thereon from 31 December 1992, would leave KAC uncompensated for the period during which IAC had the use of the recovered spares – from 9 August 1990 to 20 May 1992, a period of 21 months and 11 days.
476. I consider that applying the principles set out above, a just remedy in all the circumstances is to award KAC 1.25% MLP per month for this period, plus interest from 20 May 1992. In addition KAC will recover 32% MLP plus interest from 20 May 1992 and repair costs and interest thereon from 31 December 1992. KAC accepts that the claim in respect of PIPs referable to remaindered spares falls away.
477. In arriving at the percentages of 2.5% and 1.25% per month set out above, I have in particular (but without limitation) had regard to: -

i) Mr Sturrock's evidence (making appropriate allowances for the unique facts and circumstances he was called upon to consider, and the attendant uncertainties).

ii) the fact that this case is not concerned with a single article, but a very large number of articles.

iii) the value of the benefit or potential benefit IAC derived from the wrongdoing.

iv) the extent of the benefit IAC derived from the wrongdoing (but this is only one factor, see above).

v) the limitations in the order of 15 June.

vi) the need to ensure that there is no element of double recovery.

vii) the other sums I have awarded by way of damages (32% MLP plus interest as above) and repair costs (plus interest as above).

viii) all the relevant facts and circumstances of the present case referred to in this judgment.

478. The percentages of 2.5% and 1.25% MLP per month are intended to represent just compensation to KAC in respect of the periods of 4 months and 22 days and 21 months and 11 days. I prefer to regard this award as just compensation drawing on the user principle, rather than an award of user damages as such.
479. As to lost spares, I consider that to award value damages (80% MLP) plus interest from 9 August 1990, plus PIPs referable to lost spares and interest from the date of purchase, is a just remedy in all the circumstances. It is true that IAC has had the use of the lost spares, but on this approach KAC recovers the market value of the goods at the time IAC converted them plus interest from that date.
480. The facts and circumstances of the present case are unique. In attempting to award just compensation it is not easy to strike the appropriate balance between awards of damages in respect of remaindered, recovered and lost spares. If in attempting to strike the appropriate balance between awards of damages in respect of remaindered, recovered and lost spares I have (contrary to my view) over-compensated KAC in respect in one head of claim and under-compensated KAC in respect of another head of claim, regard should be had to this when standing back and considering the overall award.
481. Further it should be recorded that in a number of instances KAC/Mr Campbell have, where there is an area of uncertainty or for other reasons, adopted an approach which favours IAC.

CONCLUSION

482. Mr Campbell has prepared calculations to reflect the answers given above to the List of Issues. Mr Campbell's calculations have been checked and agreed by Mr Villa and Grant Thornton on behalf of IAC. I am very grateful to Mr Campbell, Mr Villa and Grant Thornton for their assistance in this connection.
483. I refer to Mr Campbell's affidavit sworn on 11 November 04 which explains his General Approach, Amendments to AFC 3 to produce AFC 4, the Final Quantum Model, and Proof of Totals to the Working Schedule.
484. The Final Cap (see paragraph 2 of the order of 15 June 2004) including principal and interest is $365,825,649. No restriction of the Final Quantum is required.
485. The Final Quantum of KAC's claim, calculated by reference to AFC 3 as amended for the issues agreed between the parties or between Mr Villa and Mr Campbell and applying the answers set out in this judgment, is:

Principal $161,951,961

The figure in respect of Principal is made up of value damages $3,878,147 (remaindered spares); $30,082,518 (recovered spares); $79,934,265 (lost spares); $8,034,901 repairs; $3,636,058 PIPs; $9,523,279 Engines; $1,469,870 (user-remaindered spares) and $25,392,923 (user-recovered spares).

I refer to and repeat paragraph 3 above. The additional principal awarded is $83,768,806. Interest thereon amounts to $82, 944,156.

486. I give judgment accordingly.