Nuclear liability is shrouded in missing 'and'

Since the passage of the Civil Liability for Nuclear Damage Act, four years ago, the industry was apprehensive mainly on two provisions in the law. The maximum fear was on the section-17 and more specifically about section-17 (b), which is unique and not seen in most of the liability laws in other countries.

Section 17 of the Act provides that the operator of the nuclear installation, after paying the compensation for nuclear damage in accordance with Section 6, shall have the right to recourse where (a) Such right is expressly provided for in a contract in writing; (b) The nuclear incident has resulted as a consequence of an act of supplier or his employee, which includes supply of equipment or material with patent or latent defects of sub-standard services and (c) The nuclear incident has resulted from the act of commission or omission of an individual done with the intent to cause nuclear damage.

An “and” was missing at the end of sub section (a) giving an impression that the two sub-sections (a and b) are independent of each other. This means even if the terms and conditions of liability clauses are specified in the contract, the suppliers could still be sued for the “patent and latent” defects several decades after supplying the reactors and its components.

Currently, suppliers take responsibility for the licensing period that is five years, according to the Atomic Energy (Radiation Protection) Rules, 2004, unless specified otherwise in the contract. A nuclear reactor typically has a life of about 40 years. While the operator’s (NPCIL in India) “right of recourse” due to the “patent and latent defects” makes the suppliers vulnerable to legal action even after decades, the absence of the conjunction compounded the unease. Because of the missing ‘and’, the section was interpreted as a contentious clause that widens the liability, irrespective of the written contract.

The explanation from the Ministry of External Affairs may now help clear the air. “This provision (Sec 17) is to be read along with/in the context of the relevant clause in the contract between the operator and supplier on product liability,” says the MEA note.

“The operationalisation of sub section 17 b will be through contract conditions agreed to by the operator and the supplier. While section 17 provides a substantive right to the operator, it is not a mandatory but an enabling provision,” says the document.

 In other words, the law permits, but does not require an operator to include in the contract or exercise a right of recourse in the contract. The government, however, has made it clear though there is no mandatory legal requirement to provide for a right of recourse in a contract, there may be policy reasons for having a risk sharing mechanism including a right of recourse. The Nuclear Power Corporation of India Limited's contracts would contain provisions for a ‘right of recourse’ and the planned Indian National Insurance Pool would take care of those risks.

The suppliers and operators would pay an annual fee to the insurance pool for the risk cover. The fee is expected is to be a less than one million dollar per year for the foreign supplier and almost similar to the money that the NPCIL currently pays as annual fees to the bank guarantee.

The second problematic part of the law is section-46 that says CLND Act, 2010 does not exempt the operator from any other proceedings against it, under any other law. This was interpreted as exposing the suppliers to unlimited liability including tort cases, and criminal liability, decades after the suppliers provided the equipment to the operator.

On its part, the government argues, section-46 is meant solely for the operator (NPCIL) and a proposal from a Left parliamentarian to include ‘suppliers’ in that category was rejected downright by other MPs.

Dissent note

CPM Rajya Sabha MP Saman Pathak was a member of the Parliamentary Standing Committee that reviewed the legislation. He proposed two amendments to include “suppliers” within the Article 46 and bring in the jurisdiction of an “external court”.

Both suggestions were turned down by other members as a result of which Pathak gave a dissent note that has been attached to the Standing Committee report. The MEA document refers to this discussions within the legislators.

“Section-46 does not create the grounds for victims to move foreign courts. In fact, that would be against the basic intent of the law to provide a domestic legal framework for victims of nuclear damage to seek compensation. The fact that a specific amendment to introduce the jurisdiction of foreign courts was negatived during the adoption of the CLND bill, buttresses this interpretation,” it says.

The language in section 46 is similar to such language in several other legislation such TRAI Act, Electricity Act, SEBI Act and Insurance Commission Act. Such language is provided routinely to underline that other relevant laws continue to be operable in their respective domains.

The government hopes NPCIL’s stalled techno-commercial negotiations with US firms General Electric and Westinghouse and French major Areva would kick start.

Better communication between the department of atomic energy and the NPCIL, however, is needed to avoid mistakes like a recent tender for the two 700 MW nuclear power units in Haryana. In the tender, the public sector undertaking described Larsen and Toubro as “contractor” – a term, which is neither defined in the law nor in the CLND Rules – and imposed “rights of recourse” on L&T. Since the law and rules define only operator, supplier and vendor, the tenders and other contracts would also have to worded accordingly.