Nuclear damage liability act and rules take effect

By Saurabh Bhasin and Nishant Beniwal, Trilegal
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On 11 November, the government of India notified the coming into force of the Civil Liability for Nuclear Damage Act, 2010, and the Civil Liability for Nuclear Damage Rules, 2011. The government framed the rules in exercise of its powers under section 48 of the act.

Since the nuclear liability law was first proposed in India, it has been subject to widespread debate among both proponents and opponents of nuclear power. One of the key issues of concern for the international supplier community in relation to the act has been a supplier’s potentially unlimited liability exposure for nuclear incidents.

Liability limit

Section 6 of the act provides that the maximum liability arising from nuclear incidents shall be limited to 300 million special drawing rights (US$460 million), but this limitation is applicable only with respect to the liability of an operator.

Saurabh Bhasin Partner Trilegal
Saurabh Bhasin
Partner
Trilegal

Further, under section 17 of the act, an operator of a nuclear installation has a right of recourse in cases where: (a) it is expressly provided for under a contract; (b) the nuclear incident has resulted as a consequence of an act of the supplier or its employee (which includes supply of equipment or material with patent or latent defects or substandard equipment); (c) the nuclear incident has resulted from an act of commission or omission of an individual done with the intent to cause nuclear damage.

To the extent that the act gives an operator a right of recourse against a supplier for a nuclear incident resulting as a consequence of an act of the supplier or its employees, as described in (b) above, it extends beyond the norms prescribed under the Convention on Supplementary Compensation for Nuclear Damage, dated 12 September 1997 (on which the act is broadly based).

The act therefore seems to go against the current internationally acceptable nuclear liability regime.

Unlimited recourse

Also, unlike with respect to operator’s liability (which, as discussed, is limited under section 6 of the act), there is no express limitation on the amount for which an operator can seek recourse from third parties under section 17.

Theoretically, an operator could recover all of its losses from a third party (including any compensation paid by it under section 6) if any of the events under section 17, particularly those listed in (b) and (c) above, occur.

To further clarify the position with respect to an operator’s right to recourse where such right is contractually agreed between the parties, rule 24 of the rules provides that the contractual right of recourse must be for not less than the extent of the operator’s liability under section 6(2) or for the value of the contract itself, whichever is less.

The rules however go on to limit the period of availability of the operator’s right to recourse to the duration of the initial licence issued under the Atomic Energy (Radiation Protection) Rules, 2004, stated to be ordinarily five years, or to the product liability period (i.e. the contractually agreed period for which the supplier has undertaken liability for patent and latent defects or sub-standard services), whichever is longer.

Analysis

While the rules look to limit the operator’s right to claim recourse by specifying a minimum recourse amount and a maximum time frame within which such right may be exercised, the rules have effectively taken away the ability of the parties to contractually agree different thresholds.

It is also argued that the provisions contained in rule 24 overreach and are in conflict with the provisions of the act (particularly section 17), since section 17 does not prescribe any limitations on the contractual right to recourse available to an operator.

Notwithstanding any interpretation issues, the provisions contained in rule 24 apply only to the operator’s right of recourse pursuant to a contractual agreement and do not address the other circumstances in section 17 under which the operator has a right to recourse against third parties.

This remains an issue of concern for suppliers and therefore inhibits participation and involvement by some key foreign suppliers.

New complication

To add to the uncertainty, a public interest litigation has recently been filed in the Supreme Court challenging the constitutional validity of the act.

Saurabh Bhasin is a partner at the Delhi office of Trilegal where Nishant Beniwal is a senior associate. Trilegal is a full-service law firm with offices in Delhi, Mumbai, Bangalore and Hyderabad and has over 140 lawyers, some of whom have experience with law firms in the US, UK and Japan.

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