Dr. A Gopalakrishnan is a former chairman of the Atomic Energy Regulatory Board of the Indian government

Article Courtesy: Daily  News & Analysis (DNA) | Mumbai | Monday, December 5, 2011

Background

Both the Civil Liability for Nuclear Damage Act, 2010, and the associated Civil Liability for Nuclear Damage Rules, 2011, have been gazetted. The provisions of the Act came into force on November 11, 2011, but the rules can still be contested in Parliament within 30 days of their introduction.

During the final discussions on the India-US Nuclear Deal, the prime minister wanted to assure the governments of the US, France and Russia, as well as their nuclear corporate lobbies, that India shall provide a liability-free regime for them to do nuclear commerce with India. It was for this reason that the PM agreed in 2008 itself to their demand that India shall take steps to adhere to the Convention on Supplementary Compensation, which will make it mandatory for India to enact a national nuclear liability law that will channel liability for damages from a nuclear accident completely to the operator, namely, the Nuclear Power Corporation of India Limited. This is the backdrop in which the government prepared and introduced the Civil Liability for Nuclear Damage Bill in Parliament in mid-2010.

Nuclear Liability Act

Accordingly, the Bill that the government introduced in Parliament capped the liability on the Indian operator at a very low level, and did not include any provision for channeling even part of the damage liability to the suppliers. After some of us gave extensive testimonies to the parliamentary committee examining the Bill and after the opposition had heated debates on the floor of the House, a final Act was passed with a slightly higher operator liability of Rs1,500 crore for nuclear power reactors and, more importantly, included clauses 17(b) and 46 that could enable the seeking of damage compensation from the suppliers.

To claim recourse under 17(b), the operator has to prove that the incident occurred because the supplied equipment or material had ‘patent or latent defects or the services provided were sub-standard.’ But, under Section 46, a victim of a nuclear accident could bring a liability claim against the operator in courts under Tort Law and include the supplier also as co-defendant. In this case, the plaintiffs have to merely prove that the product or service caused the harm, but do not have to prove exactly how the product or service was deficient or that the supplier was negligent. The damages to be awarded in such cases are not specifically capped under law, and these will be decided by the court, based on circumstances.

Attempt to Dilute the Act

Soon after the Nuclear Liability Act was passed, the western governments and the nuclear business lobbies made it clear that India has failed to deliver the kind of liability regime the PM promised. To partially assuage these feelings, the PM hastened to have India sign the CSC as promised to the US government in September 2008 and, in his recent meeting with President Barack Obama in Bali, confirmed that India will soon ratify the CSC as well. But, even after ratification of the CSC, India’s eventual entry into the CSC will be held up because our National Liability Law does not conform to the mandatory stipulations in the CSC Annex, since it contains Clauses 17(b) and 46.

Having failed to enact a Liability Act that could please the foreign governments and their corporate lobbies, the PM and the government are under great pressure to amend the Act. However, the government knows it is  impossible to approach the Parliament for an amendment of the Liability Act in the prevailing atmosphere of scams and mismanagement by the government and its low credibility. Under the circumstances, as a last resort, the government is attempting to dilute Parliament’s legislative intent in enacting this Act, by cleverly manipulating the rules under this Act. At first glance, the rules appear to be consistent with the Act, in that the Clauses 17(b) and 46, which were offensive to foreign governments and suppliers, have not been directly tampered with in any way. But the government’s sleight of hand can be seen if one carefully analyses the contents of Chapter V of the rules, which explains the operator’s Right of Recourse under Clause 17(a) of the Act.

Amount of Supplier’s Liability

First, Rule 24(1) states: ‘A contract referred to in clause (a) of Section 17 of the Act shall include a provision for right of recourse for not less than the extent of the operator’s liability under Section 6(2) of the Act, or the value of the contract itself, whichever is less.’ Further, it is clarified, under Explanation-2, that an operator’s claim under this rule shall in no case exceed the actual amount of compensation paid by him up to the date of filing such claim.

The above rule bounds the amount of compensation which the operator can seek from the supplier through right of recourse under Clause 17(a) of the Act. Since the maximum liability of the operator is Rs1,500 crore as per the Act, Rule 24(1) states that the right of recourse from the supplier in no case can be more than that amount, whatever be the contract value. But, if the contract value is lower than that, the right of recourse from the supplier will be capped at the contract value. In any case, certainly Rule 24(1) appears to preclude the operator from seeking any ‘consequential damages’ from the supplier, under Section 17(a) of the Act, to compensate for the larger damage the supplies could have caused to the public and the environment.

In comparing norms across various high risk industries, I find that the amount of compensation due under the right for recourse, where a contract exists, cannot exceed the operator’s own liability or the value of the contract, whichever is less. To this extent, one cannot fault Rule 24(1) as stated in Chapter V of the Rules. This, unfortunately, is the consequence of Parliament limiting the operator’s liability for nuclear reactor accidents at Rs1,500 crore in Section 6(2) of the Liability Act, against the repeated pleas at that time to substantially increase that cap. In my view, the only option now left is to argue for higher compensation, including consequential damages, under Section 46, relying on Tort Laws.

 

Validity Period for Supplier’s Liability

Next, let us look at the duration for which the supplier’s liability will be valid under Clause 17(a). If we bring in the definition given in Rule 24(2)(a) for ‘product liability period’ into the body of Rule 24(2), it will read as follows: ‘The provision for right of recourse referred to in sub-rule 24(1) shall be for the duration of initial licence issued under the Atomic Energy (Radiation Protection) Rules, 2004, or ‘the period for which the supplier has undertaken liability for patent or latent defects or sub-standard service under a contract’, whichever is longer.

The duration of initial licence is a stipulation of the Atomic Energy Regulatory Board, and it is purely a time limit to periodically stop and review the overall operational & safety management of a facility by the operator. It has been set at five years for a long time now, and it has no direct connection with the supplier or his supplies. The licensing period is illogically brought into Rule 24(2), just to enable an ‘either-or’ provision, with one end-point as low as five years.

The legal intent of the Act was to provide three separate and stand-alone sub-clauses, viz 17(a), 17(b), and 17(c). In formulating the Liability Rules, government was careful not to interfere with the controversial Clause 17(b) of the Act, fearing the wrath of Parliament. As per the Act, 17(b) reads, ‘The operator… shall have the right of recourse where the nuclear incident has resulted as ‘a consequence of an act of the supplier or his employee, which includes supply of equipment or material with patent or latent defects or sub-standard services.’ But, if we now compare this with Clause 17(a), as elaborated through Rules 24(2) and 24(2)(a), it can be seen that both Sections 17(a) and 17(b) now deal with the identical shortcoming of ‘supply of equipment or material with patent or latent defects or sub-standard services.’ Except that, under 17(a) and the associated contract between the operator and supplier, the quantum and time validity of the supplier’s liability to the operator under right of recourse is well-defined and bounded, whereas for the same default of the supplier, Section 17(b) of the Act allows recourse without specifying limits on time period or amount!

If an accident occurs within the applicable time limit as per the contract mentioned in Section 17(a), the operator can argue for recourse under Section 17(a), for the quantum of compensation as per that contract. But, if an accident occurs, as a result of the supply, beyond the period of validity mutually agreed in the contract, Section 17(a) will not help in seeking right of recourse, because it will be time-barred through the limitation in the contract. Unfortunately, then Section 17(b) can also not be resorted to, because the supplier will argue that, for the very same deficiency or default, he has a contract with the operator whose time validity has already expired. In effect, one finds that through a clever Rule manipulation under 17(a), the government has succeeded in linking Clauses 17(a) and 17(b) of the Act, in contravention of the legal intent of the Parliament that they should be independent of each other, and applicable separately. The serious consequence of this linkage is that the provisions for recourse from the supplier given in the contract under Section 17(a) and its rules will prevail at all times, thus nullifying the provisions of Clause 17(b).

Correct the Liability Rules

It is evident from the above analysis that the modification needed in the Rules presently before the Parliament is to delink the artificial coupling that the government has introduced between Clauses 17(a) and 17(b) of the Act through these Rules. This can be achieved by retaining Clause 17(b) as it is, and changing Rules 24(2) and 24(2)(a) to remove any mention of ‘liability for patent or latent defects or sub-standard services’ from these Rules, since such defects and sub-standard services  are already independently covered under Clause 17(b).

In normal product or service liability contracts, the supplier guarantees a safe and assured life for his product or service delivered to the operator, a period during which the supplier confirms it will function as per the mutually agreed performance specifications. It shall be the onus of the operator to ensure that the guarantee period he is agreeing with the supplier is adequately high for such supplies and it should be consistent with the product lifetime and/or failure probability used in the Probabilistic Risk Analysis for the system which he has submitted to the safety regulatory agency and got approved. Clause 17(a) then needs to rely on this product guarantee period as the time validity for the operator’s right of recourse, instead of surreptitiously bringing in the licensing period which has no relevance in this context.

To translate the above arguments  into a Rule change, Parliament may kindly consider replacing the current Rule 24(2) and its Explanation-I (a) in Chapter V of the Rules with the following revised wording of Rule 24(2), followed by a revised Explanation-I consisting of parts (a) through (d), as given below. The current version of Rule 24(2)(b) and Explanation 2 may please be retained.

24(2): The provision for right of recourse referred to in sub-rule (1) shall be for the duration of ‘the product guarantee period.’ This rule is to be read and implemented in conjunction with parts (a) through (d) of Explanation -I, given below.

Explanation- I :

a)     For the purpose of this rule, the expression ‘product guarantee period’ means the safe and assured life for the product or service delivered to the operator during which period the supplier confirms it will function as per the mutually agreed performance specifications, provided the operator diligently follows all the stipulations of the supplier regarding erection, commissioning, and operation & maintenance, including the regular upkeep, inspection, and repairs during the guarantee period as mutually agreed and detailed in the contract at the outset.

b)     In case of a confirmed failure of the product or the service provided, within such a product guarantee period, the onus on the operator will be merely to establish that he has diligently followed all the stipulations spelt out by the supplier as part of the contract.

c)      Such guarantee period shall be adequately high in the context of the prevailing worldwide nuclear industry norms for such products and services, and consistent with the life expectancy and failure rate for that product or service which the operator has used in the Probabilistic Risk Analysis for the system and approved by the nuclear safety regulatory agency.

d)     If the failure occurs during the product guarantee period due to no fault of the operator and if the operator has evidence to establish that he has faithfully followed all stipulations as per contract, the supplier shall be strictly liable to pay the mutually agreed compensation as per Clause 17(a) of the Act, read with Rule 24(1). In such a case, there shall be no onus on the operator to prove what specific deficiency or negligence on the part of the supplier has caused the failure or damage of the supplied product or service.