India does not have an established space policy governing liability and insurance issues. The pending Space Activities Bill, 2017 and the draft Space Based Communications Policy, 2020 hold private entities solely liable for any damage caused due to space operations. This creates an undue burden on start-ups and discourages them from taking on additional space operations. In this piece, we offer suggestions to limit space liability and insurance from an Indian start-up perspective.
Background
In India, currently there is no domestic space policy governing issues of space liability and insurance. As a result, there is no policy governing the extent to which private entities are liable for damage caused to third parties or to space assets due to their space operations. Both, the pending Space Activities Bill, 2017 and the recently released draft Space Based Communications Policy, 2020 hold private entities liable for any damage caused due to its space operations, and requires such entities to insure itself against any liability accruing from such operations in India or outside India.[1] Both these frameworks, hold private entities solely responsible for any damage caused during space operations, thereby creating an undue burden on private entities especially start-ups with limited financial capacity and resources. In this piece, we offer a few suggestions to limit liability and insurance for private entities, especially start-ups and Micro, Small and Medium Enterprises (MSMEs).
Suggestions to Limit Space Liability and Insurance
Limiting quantum of liability for private entities towards third parties
The Convention on International Liability for Damage Caused by Space Object, 1972 (“Liability Convention”) provides absolute and unlimited liability for damage caused to third parties due to loss of life, personal injury or loss of property.[2] This unlimited and absolute liability obligation on States under the Liability Convention cannot entirely be passed on to private entities, as this would stifle innovation and dissuade private entities from engaging in space activities. Therefore, several major space faring nations have limited the liability of private entities towards third parties by providing a certain quantum of liability up to which the private entity is obliged to be insured. For instance, in the United States, under the Commercial Space Launch Act, 1984, a private entity conducting the space activity is required to obtain insurance for an amount of US$ 500 million.[3] Australia’s Space Activities Act, 1998 expressly provides that the responsible party is not liable to pay compensation for damage caused by the space operation, to the extent that the amount of compensation for damage exceeds the amount insured by the responsible party. The Act requires the responsible party to obtain an insurance for an amount not less than $750 million.[4] Even in France, the liability cap is limited to 60 million euros.
In India, the pending Space Activities Bill, 2017 provides that the Central government will determine the quantum of liability to be imposed upon the licensee, as may be prescribed.[5] Since the Indian space sector has several bigger private players, small start-ups and MSMEs, India could consider prescribing different quantum of liability based on each company’s financial capacity and ability to pay. This will enable small players to take on risks and participate in encourage private entities to take on more space operations, despite the risks involved.
State guarantee for excess liability claims
In major space faring nations such as United States, France and Australia, a cap on the quantum of liability is coupled with State guarantee, under which states cover the damages exceeding the ceiling amount.[6] In the United States, for instance, if the liability claims exceeds the amount insured by the private entity, the United States government covers the remaining, subject to a cap of US$ 1.5 billion.[7] In Australia, the Space Activities Act, 1998 requires the Australian government to cover damage in excess of the amount insured by the responsible party, subject to a cap of $3 billion (AUD).[8] Indian should consider adopting a similar approach, whereby the government provides guarantee for any liability claims exceeding the quantum of liability capped for private entities. With additional state guarantee, the quantum of liability for start-ups and MSMEs can be capped at a lower amount, and any liability claim exceeding that amount can be incurred by the state. This will reduce the burden on private entities especially start-ups.
Mandatory reciprocal waiver of liability clause
In launch services contracts, reciprocal waiver of liability clauses are quite common. These clauses ensure that there is a mutual waiver of liability between all the parties involved in launch operations like the launch provider, contractors, sub-contractors, the manufacturers of launch vehicles and the satellite, and the customers.[9] This is based on the principle that each party bears responsibility for any loss sustained by it or its employees during the launch operations.[10] Such a clause is mandatory in United States and France. For instance, the United States government makes it mandatory for private companies to include a reciprocal waiver of liability clause in their agreements with contractors, sub-contractors, customers and space flight participants.[11] The Indian space policy should adopt a similar approach and prescribe a mandatory reciprocal waiver of claims clause in the agreements between the private party (licensee) and other parties involved in launch operations. This will ensure that in launching operations, the liability of the private entities is limited to the extent of their responsibility.
Waiver of liability and insurance for space activities in public or government interest
For space activities undertaken by private entities that target government interests, France offers complete waiver of liability of the private operator.[12] Similarly, Austria offers a lower insurance cap or a complete waiver from the insurance requirement for activities undertaken in public interests, including science, research or education.[13] To encourage space innovation, research and exploration among start-ups, a similar approach could be adopted in India. Start-ups engaging in space operations for public interest, or at least jointly with the government, could be granted a complete waiver for any liability claims arising out of such operations and any compensation from liability claims could be borne by the government. The government could prescribe detailed rules on eligibility criteria and the types of space activities that will be considered to be in public interest and enter into a contract with the concerned private entity to provide state warranty for any liability claims arising from such operations. This will encourage private entities to take on space activities despite the enormous risks involved.
Limitation period for liability claims
The liability under the Liability Convention is unlimited in time and could cover damage caused during the launch, the entire period in orbit and even after termination of the space activity.[14] To address this concern and safeguard private entities from facing liability claims for several years after completion of the space activity, France included a limitation term in its domestic space legislation. As per the limitation clause, the liability of the private entity ends after the fulfilment of the obligations set out in the license/authorization for the space activity or at most one year after such fulfilment, after which the government becomes liable in place of the private entity.[15] India could take a similar approach of determining a limitation period for claiming damages from the private entity ensuing from a space activity, after which the government will be liable for damages. This will ensure that start-ups and MSMEs do not incur liability several years after completing a space activity and drain their financial resources for future space activities.
National Space Fund
The Russian Federation established a Russian Space Fund with contributions from the government, profits from the realisation of space activities, profits received by organizations due to tax exemptions given by the government or voluntary contribution.[16] Apart from using the Fund towards space research projects, the Fund is also used towards risks associated with space activity and to eliminate after-effects of accidents resulting from such activities.[17] A similar Indian Space Fund, with contributions from the government and a fixed percentage contributed by private entities, will be extremely beneficial in India. The fund could be used for space activities as well as for damage caused due to these activities. Such a collective burden sharing responsibility will: (a) be beneficial for start-ups and MSMEs who lack the resources to individually pay for liability claims; and (b) ensure that there is a growing fund for research and development in the space sector.
Negligence or misconduct of third parties
Under Australia’s Space Activities Act, 1998, the operator/private entity conducting a space operating is not liable for the damage caused from such operation so long as the damage resulted from (a) gross negligence of the third party; or (b) any conduct (whether by act or omission) that the third party engaged in with intent to cause the damage. This concept has been adopted from the Liability Convention, which also exonerates parties from liability if the damage was caused due to gross negligence or misconduct of the third party.[18] To limit liability and safeguard private entities from liability claims in situations where the third party is at fault, a similar provision should be adopted under the Indian space policy.
Conclusion
The space policy in India is still at its nascent stage and could be moulded to ensure that the liability on start-ups is limited. Similar to major space-faring nations, India should establish a liability sharing arrangement between the government and the private sector. This will enable small players to take risks with space operations and explorations, and encourage start-ups to innovate in the space sector.
This piece has been authored by Kruthi Venkatesh, a consultant working with Ikigai Law, with inputs from Anirudh Rastogi (anirudh@ikigailaw.com), Managing Partner at Ikigai Law.
For more on the topic, please feel free to reach out to us at contact@ikigailaw.com
[1] Section 8(1)(h), Space Activities Bill, 2017, https://www.prsindia.org/sites/default/files/bill_files/Draft%20Space%20Activities%20Bill%202017.pdf; Draft Space Based Communication Policy of India, 2020, at 4(b), https://www.isro.gov.in/sites/default/files/draft_spacecom_policy_2020.pdf.
[2] Article II, Convention on International Liability for Damage Caused by Space Object, https://www.faa.gov/about/office_org/headquarters_offices/ast/media/Conv_International_Liab_Damage.pdf.
[3] Section 50914(a)(3)(A), Commercial Space Launch, Act, available at, https://uscode.house.gov/view.xhtml?path=/prelim@title51/subtitle5/chapter509&edition=prelim (hereafter, Commercial Space Launch Act).
[4] Section 69(3), Space Activities Act, 1998, , https://www.legislation.gov.au/Details/C2004C01013#:~:text=to%20establish%20a%20system%20for,Australian%20nationals%20outside%20Australia%3B%20and&text=to%20provide%20for%20the%20payment,regulated%20by%20this%20Act%3B%20and (hereafter, Space Activities Act, 1998).
[5] Section 12(2), Space Activities Bill, 2017, supra note 1.
[6] European Space Policy Institute, Economic and Policy Aspects of Space Regulations in Europe, at 32 (2009), https://www.files.ethz.ch/isn/124779/espi%20report%2021.pdf (hereafter, European Space Policy Institute, Economic and Policy Aspects of Space Regulations in Europe).
[7] Article 50914 (a)(3)(A), Commercial Space Launch, Act, supra note 3.
[8] Section 69(4)(b), Space Activities Act, 1998, supra note 4.
[9] Louis de Gouyon, Space Insurance & Space Law, Space Legal Issues, August 6, 2019, available at, https://www.spacelegalissues.com/space-insurance-space-law/.
[10] Anirudh Rastogi & Kshetragya Nath Singh, Negotiating a launch contract for a mishap, November 14, 2016, https://www.thespacereview.com/article/3102/1.
[11] Section 50914 (b), Commercial Space Launch Activities, supra note 3.
[12] Article 14, LOI no 2008- 518 du 3 juin 2008 relative aux opérations spatiales, 2008 (translation) https://download.esa.int/docs/ECSL/France.pdf.
[13] Article 4(4), Austrian Federal Law on the Authorisation of Space Activities and the Establishment of a National Space Registry, 2011, https://download.esa.int/docs/ECSL/France.pdf.
[14] European Space Policy Institute, Economic and Policy Aspects of Space Regulations in Europe, supra note 6, at 32.
[15] Article 13, LOI no 2008- 518 du 3 juin 2008 relative aux opérations spatiales, 2008, supra note 12.
[16] United Nations Office for Outer Space Affairs, Law of the Russian Federation about Space Activity, Article 13, https://www.unoosa.org/oosa/en/ourwork/spacelaw/nationalspacelaw/russian_federation/decree_5663-1_E.html.
[17] Id.
[18] Article VI, Liability Convention, supra note 2.
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