Back in January this year, India and the United States reached an understanding, in public at least, on the commercial liability of suppliers for nuclear accidents in India. The general understanding appears to be that operators of nuclear facilities in India will continue to remain primarily liable for a nuclear incident and that any residual liability of suppliers for damage arising from a nuclear accident will be mitigated by an insurance pool, funded by Indian insurers and the Government of India.1
But how do these public statements square with India's civil nuclear liability laws and to what extent are suppliers insulated from legal action in the event of a nuclear disaster? Let's look at the detail.
2. The Act
India's Civil Liability for Nuclear Damage Act, 2010 (the "Act") essentially created a mechanism for compensating victims from damage caused by a nuclear accident, allocating liability and specifying procedures for compensation.
It was the last piece of the jigsaw to operationalize the 2008 Indo-US Civilian Nuclear Agreement (the "2008 Agreement") since US operators required the Act to be in place in order to be insurable in the US.
However, many commentators have argued that the Act has hindered the operationalization of the 2008 Agreement because of open-ended rights of recourse against suppliers and unknown liabilities. As a result, suppliers are unable to insure against risks that are uncertain and therefore, are unable to enter into the Indian market.
The Act is clear about the allocation of responsibility for nuclear damage. The operator is strictly liable (which is in line with the general principle internationally) for nuclear damage arising out of a nuclear incident2 except in the case of a force majeure event, in which case the central government takes the risk.3
The liability of the operator is essentially capped at Rs. 15 billion (USD 238 million)4 and the overall liability of the central government in relation to any particular nuclear incident is capped at an equivalent of 300 million Special Drawing Rights5 (an IMF basket of currencies) which is equal to approximately USD 415 million as of April 2015.
Does nuclear liability include economic loss? Notably, although the definition of "nuclear damage" contemplates economic loss, it appears to be contingent upon a notification from the central government for its application. Would the central government make such a notification following a nuclear accident, essentially increasing its overall liabilities?
In summary, the operator is strictly liable for an amount up to USD 238 million and the central government is liable for amounts exceeding this and falling below USD 415 million. The government's recent announcement to set up a Rs. 15 billion insurance pool (USD 238 million) to be funded by Indian insurers and the government is intended to mitigate the liability of the operator.
It should be noted that since the operator in India (the Nuclear Power Corporation of India Limited ("NPCIL")) is state owned, the entire liability of the operator is essentially a public liability and footed by the Indian taxpayer in any event.
But what happens to liabilities that exceed USD 415 million (as they no doubt would, if we consider the clean up costs in the recent Fukushima nuclear disaster in Japan and the Deepwater Horizon oil spill in the Gulf of Mexico)? Under the provisions of the Convention for Supplementary Compensation for Nuclear Damage (the "CSCND"), contracting states are essentially obliged to fund such liabilities.
Article III of the CSCND sets out that compensation above 300 million Special Drawing Rights shall come from the public funds of contracting states calculated in accordance with a formula specified in Article IV of the CSCND.6 However, while India has signed the CSCND in October 2010, it is yet to ratify it and until that occurs, there are question marks over its enforceability.
What about the liability of suppliers? Section 17 of the Act essentially provides that an operator, after paying compensation, shall have the right of recourse against a supplier where such a right exists under contract and if the nuclear incident occurred as a result of the act of a supplier (or his employee), including the supply of equipment or material with patent or latent defects, or the provision of services which are sub-standard.
On paper, it seems logical to infer that the NPCIL would insist on such a liability clause in any contract with any supplier in connection with the design, engineering, procurement and construction of a nuclear installation. Generally, liabilities are capped at the value of the contract, or a percentage of the contract value, but they often include indemnities whereby a contractor holds harmless an employer against third party claims for death or damage to property arising from negligence. These indemnities are often uncapped.
Consider the scenario in the context of an Indian nuclear accident. The operator will be held accountable through the principle of strict liability under the Act (up to the maximum amount of USD 238 million). On paying out that liability, in the event that the accident was caused by a latent or patent defect, designed or constructed by the supplier (or the negligent performance of associated services), then it would flow that the supplier would be contractually obliged to indemnify the operator for his loss.
But could it be the case that a supplier could negotiate with the operator to exclude its liability under the supply or construction contract? Although it would be highly unusual for an operator to accept such a bad bargain, the Civil Liability for Nuclear Damage Rules, 2011 (the "Rules") would prevent this.
Rule 24 of the Rules states that a contract between an operator and a supplier referred to in Section 17 of the Act shall include a provision for the right of recourse against the supplier for not less than the extent of the operator's liability under the Act, or the value of the contract, which ever is less.
Put otherwise, any contract between an operator and a supplier must contain a liability clause, though it seems that the liability of the supplier would, in such circumstances, be capped at USD 238 million.
5. Claims in tort
The final bone of contention between suppliers, the government and civil society is the ability of a victim (or a group of victims) of a nuclear accident to make a claim against a supplier in tort.
Section 46 of the Act states that its provisions are in addition to, and not in derogation of any other law for the time being in force, and nothing contained in the Act shall exempt the operator from any proceedings, which might, apart from the Act, be instituted against the operator.
On the face of it, this seems to suggest that claims in tort against the operator may be permissible, notwithstanding that the intention of the Act is to channel all claims for nuclear damage against the operator. As discussed above, it begs the question as to whether a claim in tort for economic loss by a victim against the operator would be admissible outside of the scope of the Act?
But the concern for suppliers is that the Act does not go far enough to insulate them from claims in tort before the Indian courts. The response by the proponents of the nuclear deal is that Section 46 of the Act relates to claims against the operator and therefore necessarily excludes the ability of an action in tort against a supplier.
It's difficult to predict how a court would construe this provision. On the one hand, the Act clearly allocates liability for nuclear damage to the operator, yet, on the other hand, gives the operator the right of recourse against a supplier in certain circumstances. The Act does not expressly preclude an action against a supplier in tort, in circumstances of negligence causing death, personal injury or damage to property.
The view taken by India's Ministry of External Affairs seems to be that the Act prevents claims in tort against a supplier before an Indian court. Amendments moved during the passage of the bill through parliament, included the proposed addition of a supplier to this provision, which was rejected. Although it's a well-settled principle of law that every statute is to be interpreted in accordance with the intention of the legislature, the constitutionality of Section 46 has not been tested.7
But could victims of a nuclear incident in India move foreign courts in relation to claims for damages against a foreign supplier? Again, the view taken by India's Ministry of External Affairs seems to suggest that they can't, though it remains to be seen how a court in a foreign jurisdiction would treat a claim by victims for damages resulting from the negligence of a foreign supplier. Would a foreign court throw out such a claim on the basis that the Act is the sole remedy for victims and declare that it does not have the jurisdiction to accept such a claim?
In this context, it should be noted that Article XIII of the CSCND states that jurisdiction over actions concerning nuclear damage arising from a nuclear incident shall lie only with the courts of the contracting party within which the nuclear incident occurs. Therefore, it is likely that a foreign court will rule that an action in tort by an Indian victim in the courts of the jurisdiction of the supplier will probably be inadmissible on the basis of Article XIII of the CSCND.
India's insatiable demand for growth means that it has to look at alternative ways of producing vast quantities of energy that its economy will require during the course of this century.
However, the consequences of a nuclear accident cannot be simply swept under the carpet. As the recent Fukushima nuclear disaster in Japan has made clear, the costs are potentially enormous. Indeed, India is no stranger to industrial disasters on a large scale. The legacy of the Bhopal disaster in 1984, resulting in more than 15,000 deaths and complex legal battles for compensation that followed are still fresh in memory.
Ultimately, ensuring a framework to promote nuclear energy production on the one hand and broader public policy goals on the other is a very difficult balance to get right. It remains to be seen whether the Act and the Rules set out a balanced framework, encouraging suppliers to dip their toes into the Indian nuclear energy market, yet protecting the legitimate interests and concerns of the public in the event of a nuclear accident.
2 See Section 4 of the Act
3 See Section 5 of the Act
4 See Section 6(2) of the Act
5 See Section 6(1) of the Act