Kuwait Airways Corp. v. Iraq, 2010 SCC 40, [2010] 2 SCR 571

                                                 SUPREME COURT OF CANADA

Between:

Kuwait Airways Corporation

Appellant

and

Republic of Iraq and Bombardier Aerospace

Respondents

Official English Translation

Coram: McLachlin C.J. and Binnie, LeBel, Deschamps, Fish, Abella, Charron, Rothstein and Cromwell JJ.

______________________________

Kuwait Airways Corp. v. Iraq, 2010 SCC 40, [2010] 2 S.C.R. 571

Kuwait Airways Corporation                                                                           Appellant

v.

Republic of Iraq and

Bombardier Aerospace                                                                                Respondents

Indexed as:  Kuwait Airways Corp. v. Iraq

2010 SCC 40

File No.:  33145.

2010:  March 22; 2010:  October 21.

Present:  McLachlin C.J. and Binnie, LeBel, Deschamps, Fish, Abella, Charron, Rothstein and Cromwell JJ.

on appeal from the court of appeal for quebec

Private international law — Foreign judgments — Recognition — Exception to dismiss based on jurisdictional immunity — Application for recognition of English judgment against foreign state — English court having ruled on issue of jurisdictional immunity — Whether Canadian legislation on state immunity applies to application for recognition of English judgment — Civil Code of Québec, R.S.Q., c. C-1991, art. 3076; State Immunity Act, R.S.C. 1985, c. S‑18, s. 3 .

Public international law — Jurisdictional immunity — Commercial activity exception — Application for recognition of English judgment against foreign state — English court holding that foreign state responsible for acts that had misled English courts and resulted in judgment that is subject of application for recognition — Whether foreign state entitled to immunity in Quebec courts — Whether foreign state’s acts constituted commercial activities — State Immunity Act, R.S.C. 1985, c. S‑18, ss. 2  “commercial activity”, 3, 5.

Private international law — Foreign judgments — Transitional law — Applicable legal rules — Application for recognition of English judgment rendered after coming into force of Civil Code of Québec — Whether new Code applies to this application — Effect and application of s. 170 of Act respecting the implementation of the reform of the Civil Code, S.Q. 1992, c. 57.

At the time of the invasion and occupation of Kuwait in 1990, the Iraqi government ordered its national airline, the Iraqi Airways Company (“IAC”), to appropriate the aircraft and equipment of the Kuwait Airways Corporation (“KAC”).  After the war, KAC recovered only some of its aircraft.  KAC brought an action for damages against IAC in the United Kingdom.  After lengthy and difficult proceedings, IAC was ordered to pay over one billion Canadian dollars to KAC.  Alleging that Iraq had controlled, funded and supervised IAC’s defence throughout the proceedings, which had been marked by perjury and by tactics on the part of IAC and Iraq that were intended to deceive the British courts, KAC also claimed costs totalling approximately $84 million in Canadian currency from Iraq.  In 2008, the High Court of Justice ordered Iraq to pay the amount in question.  According to the English judge, Iraq’s acts in controlling IAC’s defence were not sovereign acts, but instead fell, under the State Immunity Act 1978 (U.K.), within the commercial exception to the principle of state immunity.  KAC applied for recognition of that judgment in the Quebec Superior Court.  Iraq, relying on the State Immunity Act  (“SIA ”), moved for dismissal of the application for recognition on the ground that the impugned acts were sovereign acts and that it was accordingly entitled to immunity under Canadian law.  The Superior Court dismissed the application for recognition and the Court of Appeal dismissed the appeal.  In their view, Iraq’s participation in the proceedings brought against IAC in England did not fall within the commercial activity exception to the state immunity established in the SIA .

Held:  The appeal should be allowed.

The effect of s. 170 of the Act respecting the implementation of the reform of the Civil Code is that the Civil Code of Québec governs the application for recognition, because Iraq’s involvement and the order against Iraq are solely the result of the fraudulent acts in issue in the proceedings that resulted in the 2008 English judgment, which were brought after that Code came into force.

The SIA applies to an application for recognition of a foreign judgment.  Article 3076 C.C.Q. provides that the provisions of the Code relating to private international law, which include those on the recognition of foreign decisions, apply subject to those rules of law in force in Quebec that are applicable by reason of their particular object.  The rules in question include the SIA .  Moreover, an application for enforcement is a judicial demand that gives rise to an adversarial relationship to which the general rules of civil procedure apply as a result of arts. 785 and 786 of the Code of Civil Procedure.  It is therefore a “proceeding” (or “instance” in French) to which the state immunity provided for in s. 3  of the SIA  applies.  Since Iraq is a state, it is in principle entitled to this immunity.  Even though the English court rendered its own decision on the issue, that decision is not res judicata in Canada.  It is up to KAC to establish, under Canadian law, that it may rely on an exception to this immunity.  However, the court hearing the application must confine itself to the role conferred on the Quebec authority for the consideration of an application for enforcement.  It cannot review the merits of the decision (art. 3158  C.C.Q.).

In this case, Iraq could not rely on the state immunity provided for in s. 3  of the SIA , because the commercial activity exception provided for in s. 5  applied.  For this exception to apply, it is not enough to determine whether the acts in issue in KAC’s action against Iraq in the English courts were authorized or desired by Iraq, or whether they were performed to preserve certain public interests of that state.  The nature of the acts must be examined in their full context, which includes the purpose of the acts.  To this end, it is necessary to accept the English judge’s findings of fact to the effect that Iraq was responsible for numerous acts of forgery, concealing evidence and lies that misled the English courts.  Furthermore, the litigation in which Iraq intervened to defend IAC concerned the retention of KAC’s aircraft after they had been seized.  There was no connection between that commercial litigation and the initial sovereign act of seizing the aircraft.  The exception to dismiss regarding the application for recognition should therefore be dismissed and the case should be remanded to the court of first instance to hear the application.

Cases Cited

Applied:  Re Canada Labour Code, [1992] 2 S.C.R. 50; referred to:  Kuwait Airways Corp. v. Iraqi Airways Co., [2008] EWHC 2039 (BAILII); Kuwait Airways Corp. v. Iraqi Airways Co., [2003] EWHC 31, [2003] 1 Lloyd’s L.R. 448; Kuwait Airways Corp. v. Iraqi Airways Co., [2005] EWHC 2524 (BAILII); Schreiber v. Canada (Attorney General), 2002 SCC 62, [2002] 3 S.C.R. 269; Beals v. Saldanha, 2003 SCC 72, [2003] 3 S.C.R. 416; Pro Swing Inc. v. Elta Golf Inc., 2006 SCC 52, [2006] 2 S.C.R. 612; Canada Post Corp. v. Lépine, 2009 SCC 16, [2009] 1 S.C.R. 549; I Congreso del Partido, [1983] A.C. 244; Kuwait Airways Corp. v. Iraqi Airways Co., [1995] 3 All E.R. 694; Saudi Arabia v. Nelson, 507 U.S. 349 (1993).

Statutes and Regulations Cited

Act respecting the implementation of the reform of the Civil Code, S.Q. 1992, c. 57, s. 170.

Canada‑United Kingdom Civil and Commercial Judgments Convention Act, R.S.C. 1985, c. C‑30 .

Civil Code of Lower Canada.

Civil Code of Québec, R.S.Q., c. C-1991, arts. 3076 to 3168, 3155, 3158.

Code of Civil Procedure, R.S.Q., c. C‑25, arts. 785, 786.

Convention between the Government of Canada and the Government of the United Kingdom of Great Britain and Northern Ireland Providing for the Reciprocal Recognition and Enforcement of Judgments in Civil and Commercial Matters, Can. T.S. 1987 No. 29, art. IV, s. 1(g).

Foreign Sovereign Immunities Act of 1976, Pub. L. 94‑583, 90 Stat. 2891, 28 U.S.C. §§ 1603, 1605(a)(2).

State Immunity Act, R.S.C. 1985, c. S‑18, ss. 2  “commercial activity”, 3, 5, 6, 12.

State Immunity Act 1978 (U.K.), 1978, c. 33, s. 3.

Authors Cited

Arbour, J.‑Maurice, et Geneviève Parent. Droit international public, 5^e éd. Cowansville, Qué.: Yvon Blais, 2006.

Emanuelli, Claude. Droit international privé québécois, 2^e éd. Montréal: Wilson & Lafleur, 2006.

Emanuelli, Claude. Droit international public: contribution à l’étude du droit international selon une perspective canadienne, 2^e éd. Montréal: Wilson & Lafleur, 2004.

Goldstein, Gérald, et Ethel Groffier. Droit international privé, t. I, Théorie générale. Cowansville, Qué.: Yvon Blais, 1998.

Larocque, François. “La Loi sur l’immunité des États  canadienne et la torture” (2010), 55 McGill L.J. 81.

Walker, Janet. Castel & Walker: Canadian Conflict of Laws, vol. 1, 6th ed. Markham, Ont.:  LexisNexis, 2005 (loose‑leaf updated 2010, release 19).

APPEAL from a judgment of the Quebec Court of Appeal (Robert C.J. and Hilton and Doyon JJ.A.), 2009 QCCA 728, [2009] R.J.Q. 992, [2009] J.Q. n^o 3210 (QL), 2009 CarswellQue 3374, affirming a decision of Chaput J., 2008 QCCS 4560, [2008] R.J.Q. 2421, [2008] J.Q. n^o 9430 (QL), 2008 CarswellQue 9629. Appeal allowed.

Yves Martineau, Patrick Girard, Laurent G. Fortier and Joseph Reynaud, for the appellant.

Marie‑Josée Hogue, Patrick Ferland and Serge Gaudet, for the respondent the Republic of Iraq.

No one appeared for the respondent Bombardier Aerospace.

English version of the judgment of the Court delivered by

LeBel J. —

I.       Introduction

[1]     Iraq’s invasion of Kuwait in 1990 and the ensuing Gulf War are today having unforeseen consequences for Canadian courts.  The military conflict has now given way to a courtroom battle.  The appeal before this Court concerns an application for recognition of a judgment in which a United Kingdom court ordered the Republic of Iraq (“Iraq”) to pay the equivalent of C$84,000,000 to the appellant, Kuwait Airways Corporation (“KAC”).  The Quebec Superior Court and the Quebec Court of Appeal dismissed the application on the basis of the immunity from jurisdiction granted to foreign states in the State Immunity Act, R.S.C. 1985, c. S‑18  (“SIA ”), for their sovereign acts.  For the reasons that follow, I find that the immunity did not apply in the circumstances of the case at bar.  I would therefore set aside the judgments of the Court of Appeal and the Superior Court, and would remand the case to the court of first instance to hear the application for recognition.

II.      Origin of the Case

[2]   At the time of the invasion and occupation of Kuwait, the Iraqi government ordered its national airline, the Iraqi Airways Company (“IAC”), to appropriate the appellant’s aircraft, equipment and parts inventory.  After the war, KAC recovered only some of its aircraft.  The remainder of its equipment had been destroyed or had disappeared.  KAC brought an action against IAC in the United Kingdom for damages in respect of losses sustained as a result of the appropriation of its property following the invasion.  The United Kingdom courts agreed to hear the matter.  After lengthy and difficult proceedings, as well as many developments that need not be described here, the courts accepted KAC’s position that IAC was not entitled to state immunity under the legislation of the United Kingdom, and ordered IAC to pay amounts totalling over one billion Canadian dollars to KAC.  In accordance with English civil procedure, KAC applied and was granted leave to have the Republic of Iraq joined as a second defendant in order to claim from it the costs of the actions that had been brought in the United Kingdom, which totalled approximately $84 million in Canadian currency.  On July 16, 2008, Steel J. of the High Court of Justice, Queen’s Bench Division, Commercial Court, granted the application and ordered Iraq to pay the amount claimed by KAC (Kuwait Airways Corp. v. Iraqi Airways Co., [2008] EWHC 2039 (BAILII) (T.C.C.)).  Although KAC’s application was not opposed before him, Steel J., at KAC’s invitation, considered the issue of whether Iraq was entitled to immunity under the State Immunity Act 1978 (U.K.), 1978, c. 33, holding, on the basis of the commercial exception provided for in that Act, that it was not. According to Steel J., Iraq controlled, funded and supervised IAC’s defence throughout the proceedings against IAC.  The proceedings were marked by perjury and by tactics on the part of IAC and Iraq that were intended to deceive the British courts.  Steel J. held that Iraq’s acts in controlling IAC’s defence were not sovereign acts, but instead fell within the commercial exception to the principle of state immunity under the State Immunity Act 1978.

[3]     In August 2008, KAC applied for recognition of Steel J.’s judgment in the Quebec Superior Court.  At the same time, it had two immovables owned by Iraq in Montréal seized by way of seizure before judgment together with some as‑yet‑undelivered aircraft ordered from the respondent Bombardier Aerospace.  Iraq countered these proceedings by filing a motion raising a declinatory exception based on the SIA  in which it asked that the application for recognition of the English judgment be dismissed because the impugned acts by Iraq were sovereign acts and because Iraq was entitled to state immunity under Canadian law.

III.    Judicial History

A.     Quebec Superior Court, 2008 QCCS 4560, [2008] R.J.Q. 2421, Chaput J.

[4]     The Superior Court dismissed the application for recognition.  It held that, under the SIA , foreign states are as a rule entitled to immunity in Canadian courts for their sovereign acts and that the “commercial activity” exception provided for in that Act did not apply to Iraq’s acts.  Even if those acts were wrongful, they remained sovereign acts.  The respondent’s exception to dismiss was therefore well‑founded.

B.      Quebec Court of Appeal, 2009 QCCA 728, [2009] R.J.Q. 992, Robert C.J.Q. and Hilton and Doyon JJ.A.

[5]     The Court of Appeal dismissed KAC’s appeal.  In its opinion, the nature of state immunity and the conditions for applying it are determined by Canadian law.  It agreed with the Superior Court that Iraq’s acts were sovereign acts for the purposes of the SIA .  It did not consider that Iraq’s participation in the proceedings brought against IAC fell within the commercial activity exception to state immunity.  KAC has appealed that judgment to this Court.

IV.    Analysis

A.     Issues and Positions of the Parties

[6]     As can be seen from the parties’ conflicting submissions, there are some well‑defined issues that the Court must consider.  First, does the SIA  apply to an application for recognition of a foreign judgment?  If it does so apply, does the immunity granted to foreign states preclude a Canadian court from granting the application or is there an exception to that immunity on the basis of which the court can enforce the judgment?  Finally, does the Civil Code of Québec, R.S.Q., c. C‑1991 (“C.C.Q.”), apply to this application for recognition, or is it necessary to refer to the Civil Code of Lower Canada?

[7]     In short, the appellant argues, first, that the SIA  does not apply to an application for recognition because the British court has already ruled on the issue of immunity and the Quebec courts do not have jurisdiction under the C.C.Q. to reconsider the merits of the case on this issue.  Should this argument fail, KAC argues that state immunity does not apply to the activities of Iraq in issue in Steel J.’s judgment.  The acts in question cannot be considered sovereign acts in respect of which state immunity applies.  As a result, the Quebec Superior Court should hear the application for recognition.

[8]     The main argument of the Republic of Iraq is that the SIA  applies and that the application for recognition is barred by the immunity granted to foreign states in Canada.  Iraq mentions briefly in its factum that, in accordance with the Act respecting the implementation of the reform of the Civil Code, S.Q. 1992, c. 57, the Civil Code of Lower Canada should apply rather than the C.C.Q., since the litigation that led to the order against Iraq was commenced before the C.C.Q. came into force in 1994.  In practice, if the Civil Code of Lower Canada applied, the matter would have to be retried on the merits at the time of the application for recognition.  Although the respondent has merely reserved the right to raise this argument, I will begin by discussing it, because it is important at the outset to establish the legal rules that apply to KAC’s application for enforcement in order to properly settle the questions of law it raises.

B.      Applicability of the Civil Code of Québec

[9]     Section 170 of the Act respecting the implementation of the reform of the Civil Code specifies which code applies to an application for recognition of a foreign judgment.  It excludes such an application from the principle of immediate application of the new code if it concerns a judgment rendered before the coming into force of the C.C.Q. or in the course of proceedings that had already been commenced at that time:

170.  [Foreign decisions]  The provisions of the new Code concerning the recognition and enforcement of foreign decisions do not apply to decisions already rendered when the new legislation comes into force, or to proceedings pending at that time before foreign authorities.

[10] Steel J.’s judgment was rendered in 2008, and it flowed from two actions for perjury brought by KAC against IAC after the C.C.Q. came into force (Kuwait Airways Corp. v. Iraqi Airways Co., [2003] EWHC 31, [2003] 1 Lloyd’s L.R. 448; Kuwait Airways Corp. v. Iraqi Airways Co., [2005] EWHC 2524 (BAILII)).  Contrary to the respondent’s submission, the relevant date for determining which code applies is not that on which the litigation between these two parties began.  Iraq’s involvement and the order against Iraq are solely the result of the fraudulent acts in issue in the perjury actions.  Thus, Book Ten of the C.C.Q. — arts. 3076 to 3168 — applies to the legal situation before this Court and governs the application for recognition filed in the Quebec courts by KAC.  Having resolved this issue, I will now consider whether the SIA  is applicable.

C.     Applicability of the SIA 

[11] The appellant challenges the very applicability of the SIA , arguing that the issue of state immunity was already resolved in its favour by the English court and cannot be relitigated in the context of the application for recognition of Steel J.’s judgment.

[12] This submission does not take into account the effect and hierarchy of the relevant rules of law.  Article 3076 C.C.Q. provides that the provisions of the Civil Code relating to private international law, which include those on the recognition of foreign decisions, apply subject to those rules of law in force in Quebec that are applicable by reason of their particular object.  The rules in question include, for the purposes of the case at bar, the federal legislation on the immunity of foreign states.  The SIA, which was enacted by the Parliament of Canada pursuant to the federal power in relation to foreign affairs, constitutes a statutory framework that governs, in Canada, the application of the customary immunities to which sovereign states are entitled in public international law.  But the appellant adds that the constitutionality of the SIA  is tenuous because that Act is procedural in nature, given that it concerns the recognition of judgments, which, in the appellant’s opinion, falls within the provinces’ power over the administration of justice.  However, the constitutionality of the SIA  has not been formally challenged, which means that this argument cannot be reviewed here.  I will merely observe that the SIA  is not solely procedural in nature and does not preclude the application for enforcement made by the appellant in the Superior Court, as I will now explain before moving on to the application of Quebec law on the recognition of foreign judgments.

D.     Nature and Content of the SIA 

[13] In enacting the SIA , the Parliament of Canada intended to establish a statutory framework that would better define the purpose and means of claiming the customary immunity sovereign states are entitled to in their dealings with other members of the international community in contemporary public international law.  This is an ancient principle.  In the context of relations between sovereign states, it was established as a fundamental principle of public international law in recognition of the autonomy and the equality of states.  At the very beginning, the effect of this privilege was to completely shield a foreign state from the jurisdiction of the courts of a host state (Re Canada Labour Code, [1992] 2 S.C.R. 50, at p. 71).  As international law evolved, the privilege was gradually transformed into a more restrictive immunity that forms part of the common law and of public law in England and in Canada, and that the Parliament of Canada incorporated into federal legislation by enacting the SIA  (Schreiber v. Canada (Attorney General), 2002 SCC 62, [2002] 3 S.C.R. 269, at paras. 13‑18; Re Canada Labour Code, at pp. 71 and 73‑74, per La Forest J.; C. Emanuelli, Droit international public: contribution à l’étude du droit international selon une perspective canadienne (2nd ed. 2004), at pp. 288 and 334‑35; J.‑M. Arbour and G. Parent, Droit international public (5th ed. 2006), at p. 332).  The evolution of public international law toward this more restrictive theory of state immunity reflects the recognition of the growing diversity of state functions and the ever‑greater difficulties that have arisen in each state’s relations with foreign states, international organizations and various private interests (Arbour and Parent, at p. 332; Schreiber, at paras. 15‑16).  It is this more restrictive theory of state immunity that is expressed in the SIA .

[14] The SIA was based on similar legislation that had been enacted a few years earlier in the United States (the Foreign Sovereign Immunities Act of 1976, Pub. L. 94‑583, 90 Stat. 2891, 28 U.S.C.) and the United Kingdom (the State Immunity Act 1978).  Parliament’s intention in enacting it was to clarify the law on the immunities to which sovereign states are entitled in Canadian courts, as the courts themselves had wavered between absolute and restrictive theories with respect to this principle (C. Emanuelli, Droit international public, at pp. 334‑35).

[15] The SIA first establishes a principle of immunity from jurisdiction in favour of foreign states.  This immunity applies generally, and the court must give effect to the immunity on its own initiative if applicable:

3. (1) Except as provided by this Act, a foreign state is immune from the jurisdiction of any court in Canada.

(2)  In any proceedings before a court, the court shall give effect to the immunity conferred on a foreign state by subsection (1) notwithstanding that the state has failed to take any step in the proceedings.

[16] The Act also establishes a principle of immunity from execution in favour of foreign states.  Section 12  of the SIA  provides that the property of a foreign state is immune from attachment and execution, and “from arrest, detention, seizure and forfeiture”, except in certain cases provided for in the Act (s. 12(1)).

[17] There are exceptions to the general principle of immunity from jurisdiction.  One of the most important is the commercial activity exception provided for in s. 5:

A foreign state is not immune from the jurisdiction of a court in any proceedings that relate to any commercial activity of the foreign state.

In s. 2, an attempt was made to concisely define the term “commercial activity”:

“commercial activity” means any particular transaction, act or conduct or any regular course of conduct that by reason of its nature is of a commercial character.

Section 12(1)(b) excludes property used for this type of activity from the immunity from execution.

[18] The Act includes a number of other exceptions, such as the one in s. 6 regarding proceedings brought against a foreign state for injuries that occur in Canada, which this Court considered in Schreiber.  Only the commercial activity exception was raised in this appeal; it will therefore be necessary to review this exception if the SIA  must be found to apply to the application for recognition of the foreign judgment in the instant case.

[19] The appellant submits that the SIA  does not, in principle, apply to an application for recognition of a foreign judgment.  The Court of Appeal rejected this argument.  I agree with it on this point.  The SIA applies, and it must be determined whether that Act’s provisions preclude the Quebec court from granting the application for enforcement:

[translation]  To the extent that a foreign state is found to be entitled to immunity under this Act, the Canadian court simply does not have jurisdiction to consider an application against that state, including an application for recognition and enforcement of a foreign decision.  It is only in the case of an exception to the general principle of immunity that the court may rule on the merits of an application against a foreign state.

Thus, the [SIA ] must apply and must govern the issue of whether Iraq is entitled to state immunity in Canadian courts.

(Per Robert C.J.Q., at paras. 62‑63)

[20] If we are to reach the conclusion proposed by the appellant, the application for recognition of a judgment cannot be a “proceeding” (or “instance” in French) within the meaning of s. 3  of the SIA .  It is true that the SIA  does not refer expressly to the application for recognition of a foreign judgment.  To determine how such a procedure should be characterized, it is necessary to turn first to Quebec private international law.  Under it, foreign judgments are not enforceable in and of themselves.  Article 3155  C.C.Q. states that, except where certain exceptions apply, any foreign judgment is recognized by the Quebec court that declares it to be enforceable in the Quebec legal system (C. Emanuelli, Droit international privé québécois (2nd ed. 2006), at pp. 128 and 154‑55; G. Goldstein and E. Groffier, Droit international privé, vol. I, Théorie générale (1998), at p. 378).  The court renders a decision that, in a sense, naturalizes the foreign decision and permits it to be enforced in Quebec.  Even though art. 3158  C.C.Q. provides that the Quebec court may not examine the merits of the foreign decision, this rule does not change the legal nature of the application for enforcement.  It is a judicial demand that gives rise to an adversarial relationship to which the general rules of civil procedure apply as a result of arts. 785 and 786 of the Code of Civil Procedure, R.S.Q., c. C‑25.  I would add that the application for recognition is similar in nature under the rules of the conflict of laws in the Canadian common law (Beals v. Saldanha, 2003 SCC 72, [2003] 3 S.C.R. 416; Pro Swing Inc. v. Elta Golf Inc., 2006 SCC 52, [2006] 2 S.C.R. 612).  The application for recognition therefore remains a “proceeding” to which the state immunity provided for in s. 3  of the SIA  applies.

[21] Moreover, even if the Canada‑United Kingdom Civil and Commercial Judgments Convention Act, R.S.C. 1985, c. C‑30 , and the Convention it ratifies do not apply in Quebec, it is interesting to note that my interpretation is consistent with the importance attached in that Act and that convention to adherence to state immunities.  The purpose of the Convention is to facilitate the enforcement of judgments in civil and commercial matters by means of a judgment registration procedure.  However, s. 1(g) of art. IV of the Convention provides that the court must refuse registration if the judgment debtor is entitled to state immunity.

E.       Admissibility of the Application for Recognition

[22] Since the SIA  applies, it must be determined whether its provisions preclude recognition of the English judgment.  The parties disagree on this issue, regarding the burden of proof in particular.  In my opinion, the issue is resolved by the very wording of the SIA .  As I mentioned above, s. 3  establishes a presumption of immunity from jurisdiction in legal proceedings against sovereign states.  Since the subject of the application, Iraq, is a state, it is entitled to this immunity.  It is up to KAC to establish that it may rely on an exception to this immunity (J. Walker, Castel & Walker:  Canadian Conflict of Laws (6th ed. (loose‑leaf)), vol. 1 , at p. 10‑15).  This issue must be decided under Canadian law.  Even though the English court rendered its own decision on the issue, that decision is not res judicata because, as Robert C.J.Q. points out, if that were the case the effect would be that the British court and the United Kingdom law were delimiting the jurisdiction of the Quebec courts (para. 61).  The appellant must therefore show, on the basis of an exception provided for in the SIA , that state immunity should not apply.

[23] However, the court hearing the application must confine itself to the role conferred on the Quebec authority for the consideration of an application for enforcement.  As I mentioned above, the court cannot review the merits of the decision (art. 3158 C.C.Q.; Canada Post Corp. v. Lépine, 2009 SCC 16, [2009] 1 S.C.R. 549, at para. 23).  It may not retry the case and therefore must not reassess the facts.  Thus, the issue of state immunity and the exceptions to state immunity must be considered within the framework of the law currently applicable in Canada, including public international law, but on the basis of Steel J.’s findings of fact.

F.       The Commercial Activity Exception and Its Applicability

[24] As I mentioned above, the SIA  represents a clear rejection of the view that the immunity of foreign states is absolute.  It reflects a recognition that there are now exceptions to the principle of state immunity and in so doing reflects the evolution of that principle at the international level.  But I need not determine here whether the SIA  is exhaustive in this respect or whether the evolution of international law and of the common law has led to the development of new exceptions to the principles of immunity from jurisdiction and immunity from execution (on this issue and the controversies it has generated, see F. Larocque, “La Loi sur l’immunité des États  canadienne et la torture” (2010), 55 McGill L.J. 81).  It will suffice to determine whether the commercial activity exception applies in the case at bar.

[25] This exception can be found, although worded differently, in the U.S. and English laws on which the SIA  is based.  Thus, s. 3(1)(a) of the State Immunity Act 1978, enacted by the Parliament of the United Kingdom, provides for a commercial exception:

3. — (1) A State is not immune as respects proceedings relating to —

(a)       a commercial transaction entered into by the State;

The term “commercial transaction”, which delimits the scope of this exception, is defined quite broadly in s. 3(3):

In this section “commercial transaction” means —

(a)       any contract for the supply of goods or services;

(b)       any loan or other transaction for the provision of finance and any guarantee or indemnity in respect of any such transaction or of any other financial obligation; and

(c)       any other transaction or activity (whether of a commercial, industrial, financial, professional or other similar character) into which a State enters or in which it engages otherwise than in the exercise of sovereign authority;

but neither paragraph of subsection (1) above applies to a contract of employment between a State and an individual.

[26] In the United States, § 1605(a)(2) of the  Foreign Sovereign Immunities Act of 1976 also provides for a commercial activity exception:

(a)       A foreign state shall not be immune from the jurisdiction of courts of the United States or of the States in any case —

                                                                   . . .

(2)       in which the action is based upon a commercial activity carried on in the United States by the foreign state; or upon an act performed in the United States in connection with a commercial activity of the foreign state elsewhere; or upon an act outside the territory of the United States in connection with a commercial activity of the foreign state elsewhere and that act causes a direct effect in the United States;

The US legislation also contains a definition of “commercial activity”:

§ 1603.       Definitions

For purposes of this chapter —

(d)   A “commercial activity” means either a regular course of commercial conduct or a particular commercial transaction or act.  The commercial character of an activity shall be determined by reference to the nature of the course of conduct or particular transaction or act, rather than by reference to its purpose.

[27] The interpretation of these statutes, like that of the corresponding Canadian statute, raises the issue of the scope of the commercial activity exception to the principle of state immunity.  This issue in turn leads to another one, that of the very nature of the general principle confirmed by s. 3  of the SIA .  In light of s. 5  of the SIA , which provides for the commercial activity exception that is in issue in the case at bar, does s. 3  apply only to sovereign acts (acta jure imperii), as understood in the context of public international law, or does it also apply to commercial acts (acta jure gestionis)?  The Quebec Court of Appeal seems to conclude that there is a category of commercial acts that are protected by state immunity even though they are not sovereign acts (para. 68).

[28] Both in the United Kingdom and in the United States, state immunity seems to be limited in the modern case law to true sovereign acts, with the exceptions being used to confirm an interpretation that corresponds to the restrictive theory of state immunity that has been developed in public international law.

[29] In the United Kingdom, the courts ask whether the act in question could be performed by a private individual.  Lord Goff of Chieveley recommended the use of this test in one of the decisions related to the litigation between KAC and IAC on which the instant case is based.  Relying on an earlier opinion of Lord Wilberforce in I Congreso del Partido, [1983] A.C. 244, at pp. 262, 267 and 269, he found that the proper test would be not what the state’s objective is in performing the act, but whether the act could be performed by a private citizen (Kuwait Airways Corp. v. Iraqi Airways Co., [1995] 3 All E.R. 694, at pp. 704‑5).  In the United States, the Supreme Court described the sovereign acts protected by state immunity as those performed in the exercise of the powers peculiar to sovereigns:

Under the restrictive, as opposed to the “absolute,” theory of foreign sovereign immunity, a state is immune from the jurisdiction of foreign courts as to its sovereign or public acts (jure imperii), but not as to those that are private or commercial in character (jure gestionis). . . .  We explained in Weltover, supra, at 614 (quoting Dunhill, supra, at 704), that a state engages in commercial activity under the restrictive theory where it exercises “‘only those powers that can also be exercised by private citizens,’” as distinct from those “‘powers peculiar to sovereigns.’”  Put differently, a foreign state engages in commercial activity for purposes of the restrictive theory only where it acts “in the manner of a private player within” the market.

(Saudi Arabia v. Nelson, 507 U.S. 349 (1993), at pp. 359‑60)

[30] Thus, in both U.S. and English law, the characterization of acts for purposes of the application of state immunity is based on an analysis that focusses on their nature.  It is therefore not sufficient to ask whether the act in question was the result of a state decision and whether it was performed to protect a state interest or attain a public policy objective.  If that were the case, all acts of a state or even of a state‑controlled organization would be considered sovereign acts.  This would be inconsistent with the restrictive theory of state immunity in contemporary public international law and would have the effect of eviscerating the exceptions applicable to acts of private management, such as the commercial activity exception.

[31] In Canadian law, La Forest J. recommended in Re Canada Labour Code that this analytical approach be adopted to resolve the issues related to the application of the SIA .  But he also made it clear that the Canadian commercial activity exception requires a court to consider the entire context, which includes not only the nature of the act, but also its purpose:

It seems to me that a contextual approach is the only reasonable basis of applying the doctrine of restrictive immunity.  The alternative is to attempt the impossible — an antiseptic distillation of a “once‑and‑for‑all” characterization of the activity in question, entirely divorced from its purpose.  It is true that purpose should not predominate, as this approach would convert virtually every act by commercial agents of the state into an act jure imperii.  However, the converse is also true.  Rigid adherence to the “nature” of an act to the exclusion of purpose would render innumerable government activities jure gestionis.  [p. 73]

[32] After this, La Forest J. stressed Parliament’s intention to confirm the restrictive theory of state immunity expressed in the SIA  and the need for a contextual analysis focussed on the activity itself:

I view the Canadian State Immunity Act as a codification that is intended to clarify and continue the theory of restrictive immunity, rather than to alter its substance.  The relevant provisions of the Act, ss. 2 and 5, focus on the nature and character of the activity in question, just as the common law did.  [pp. 73‑74]

[33] For the purposes of this appeal, therefore, the first step is to review the nature of the acts in issue in KAC’s action against Iraq in the English courts in their full context, which includes the purpose of the acts.  It is not enough to determine whether those acts were authorized or desired by Iraq, or whether they were performed to preserve certain public interests of that state.  The nature of the acts must be examined carefully to ensure a proper legal characterization.

[34] To this end, it is necessary to accept the findings of fact made by Steel J. in the judgment the Quebec court is being asked to recognize.  As I mentioned above, the Quebec court is not to review the merits of the case. Steel J.’s findings are clear and compelling.  According to him, starting in 1991, Iraq, the sole proprietor of IAC, its state-owned corporation, had controlled and funded IAC’s defence throughout the long series of actions for damages brought against IAC in the English courts by the appellant.  Iraq had participated throughout this commercial litigation in the hope of protecting its interests in IAC.  In doing so, it was responsible for numerous acts of forgery, concealing evidence and lies (judgment, July 16, 2008, at paras. 10‑14).  These acts misled the English courts and led to other judicial proceedings, including the one in issue in the application for enforcement in which Steel J. found that Iraq was not entitled to state immunity and ordered it to pay substantial costs.

[35] The Quebec Superior Court and the Quebec Court of Appeal found that, owing to the nature of Iraq’s acts, state immunity applies and the commercial activity exception does not.  But Steel J.’s findings of fact lead to a different legal characterization.  It is true that the acts alleged against Iraq that resulted in the litigation were carried out by a state for the benefit of a state‑owned corporation.  However, the specific acts in issue here are instead those performed by Iraq in the course of the proceedings in the United Kingdom courts.  When all is said and done, the subject of the litigation was the seizure of the aircraft by Iraq.  The original appropriation of the aircraft was a sovereign act, but the subsequent retention and use of the aircraft by IAC were commercial acts:  Kuwait Airways Corp. v. Iraqi Airways Co. (1995), at p. 711.  The English litigation, in which the respondent intervened to defend IAC, concerned the retention of the aircraft.  There was no connection between that commercial litigation and the initial sovereign act of seizing the aircraft.  As a result, Iraq could not rely on the state immunity provided for in s. 3  of the SIA .  The respondent’s exception to dismiss the application for recognition should have been dismissed.  This conclusion means that it will not be necessary to discuss the issue of immunity from execution raised at first instance with respect to certain property the respondent allegedly owns in Montréal.

V.      Conclusion

[36] For these reasons, I would allow the appeal, set aside the judgments of the Quebec Court of Appeal and the Quebec Superior Court, and dismiss the respondent’s exception to dismiss regarding the application for recognition of the judgment rendered by the High Court of Justice in London on July 16, 2008.  I would award costs throughout to the appellant.

Appeal allowed with costs.

Solicitors for the appellant:  Stikeman Elliott, Montréal.

Solicitors for the respondent the Republic of Iraq:  Heenan Blaikie, Montréal.