On 23 March 2011, George Osborne promised that:

"To create a level playing field with other countries, the Government will reform the Outer Space Act 1986 by introducing an upper limit on liability for UK operators".

The UK Space Agency has today (31 May 2012) published a consultation (click here ) seeking views primarily on whether to cap the unlimited liability requirement currently contained in Section 10 of the Outer Space Act 1986 (Act) to Euros 60 million for most missions.

Background to the Consultation

The UK Government is liable under international treaties, primarily the Outer Space Treaty and the Liability Convention, for damage caused by activities in outer space by entities under its jurisdiction. The Government has sought to transfer its responsibility for these international obligations to the commercial or public entities, as appropriate, seeking to launch or operate space objects and which require licences to do so.

Therefore, Section 10 of the Outer Space Act obliges licensed entities to indemnify the UK Government fully against any third-party liability claims that may be brought against the Government. This represents an unlimited liability on licensees.

The issue

The concept of "unlimited liability" offers little financial certainty when fund raising and, compared with other space faring nations, poses a competitive disadvantage to UK operators.

The licensing government in other countries such as US, France, Sweden and Australia may accept liability for damage above the level covered by insurance (the liability of an operator is therefore capped by the level of insurance cover).

In the US, an operator is responsible for insuring maximum probable loss (MPL) up to US$500 million covering the launch participants and the US Government and any contractors as additional insureds. The amount of insurance becomes the operator's possible liability to the US Government – offering some certainty. The US Government then indemnifies the operator in relation to third party claims up to US$1.5 billion above the required MPL insurance. In effect, the government shares the risk with the operator.

At no cost to the tax payer, the US Government passes the responsibility of the MPL insurance to the operator by requiring it to obtain insurance cover. In turn, the US Government covers more remote liabilities in excess of the MPL.

The UK Act currently does not currently permit such risk sharing.

The proposals

The UK Space Agency propose to cap the liability placed on satellite operators at Euros 60 million, which will be managed through a requirement for licensees to obtain a policy for third party insurance for Euros 60 million, with the UK Government as a named insured, for the launch and in-orbit phases of the mission. The Government will retain the ability to increase the liability cap and insurance requirement for any non-standard, high-risk mission.

The capped liability and insurance requirement could be waived for the in-orbit operation (not the launch) of satellites that fall under the criteria of "CubeSats". Licence applications for CubeSats would have to demonstrate scientific or educational merit, and adhere to space debris mitigation guidelines, to benefit from this. This will be welcomed by some specialist UK companies such as Clyde Space and SSTL.

Reforms welcome

The UK space industry is a recent, if a rather unknown, success story despite the economic slow-down and is growing at about 10% per year.

As I stated in a recent Parliamentary Scientific Committee and Parliamentary Space Committee meeting:

"the UK space industry has much to offer but it needs a supportive regulatory framework, which creates a level playing field, to encourage growth and investment".

Therefore, these proposals are very welcome, especially to allow UK companies to compete for international business on a level playing field. Such proposals also illustrate the UK Government's commitment to this sector.

Next steps

Responses to the consultation are to be submitted to the UK Space Agency by 31 August 2012. The Government will publish a response to the consultation by the end of November 2012, after which a timetable for any reforms will be announced. Any resulting reforms are likely to be implemented through Legislative Reform Order.

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was 31/05/2012.