Nuclear liability law has sting in tail for the U.S. too

The draft Indian legislation opens a window for claims against U.S. companies but the cap on liability of Rs. 500 crore means any fight will be over relatively small sums of money. The Indian taxpayer will be left with the major burden for compensating victims in the event of a nuclear accident ....





8 March 2010
The Hindu
[In the print edition of The Hindu, this story was split into two, with the second part, 'Liability cap low but Washington still fears lawsuits', carried on an inside page]

Nuclear liability law has sting in tail for the U.S. too

Siddharth Varadarajan

New Delhi: The Manmohan Singh government may be courting trouble at home by pushing a controversial new law to limit the financial exposure of nuclear companies in the event of a nuclear accident. But the Civil Liability for Nuclear Damage Bill also has a sting in its tail for the United States, which has made the passage of a liability law immunising its suppliers from lawsuits a precondition for any American nuclear sales to India. For even as the legislation will free foreign companies from any responsibility towards the victims of a nuclear accident, it contains a loophole that could well see Westinghouse and G.E. being hauled up before an Indian court in the event of a disaster involving equipment made, supplied or serviced by them

Though the Department of Atomic Energy first mooted a liability law way back in 2000, well before the Indo-U.S. nuclear agreement of 2005, the current urgency surrounding the bill is related to the anxiety of American reactor suppliers which want legal protection from a Bhopal type situation — where the victims of India's worst industrial accident filed multi-million dollar claims against Union Carbide Corporation in India and the U.S.

The Liability Bill is designed to insulate suppliers from the risk of law suits by channeling legal liability for an accident entirely to the nuclear power plant operator and granting Indian courts sole jurisdiction over accident-related cases.

But section 17(b) of the bill also grants the operator of an Indian NPP the “right of recourse” against companies like GE and Westinghouse if an accident results “from the willful act or gross negligence on the part of the supplier of the material, equipment or services, or of his employee.” Such a right is not envisaged by the model law contained in the IAEA's Convention on Supplementary Compensation for Nuclear Damage (CSC)and is likely to irritate Washington because this means a nuclear operator can sue a supplier for recovery of any compensation paid in the event of an accident if it believes the accident resulted from gross negligence on the part of the latter.

Of course, with compensation for accidents capped by the bill at Rs. 500 crore, or $110 million, the right of recourse against suppliers offers only limited comfort, especially in a situation where the potential damage caused by any negligence on their part is likely to be of a much higher magnitude.

Liability cap low

All nuclear operators in India today are state-owned but the liability protection envisaged by the Manmohan Singh government's proposed law would apply equally to private operators as and when the law allows them to run nuclear plants. While the Prime Minister's Advisory Economic Council advocates the entry of the private sector and some Indian companies have expressed interest, American firms are not believed to be keen to enter the business of producing nuclear power in India. The liability protection they want, thus, is as suppliers, which is why the concept of channeling liability to the operator is so central to both the Indian legislation and the CSC, to which India will accede.

In return for bearing the burden of ‘channeled' responsibility for any accident, the operator's liability has been capped at Rs. 500 crore per incident, with damages in excess of that going up to 300 million SDRs (i.e. approximately Rs. 2,385 crore) to be made good by the government.

But though the draft Indian law mirrors the model law contained in the CSC's annex, there are two crucial differences from the standpoint of potential accident victims: (1) it broadens the right of recourse granted to the operator, allowing him to hold the supplier liable for negligence, and (2) it pegs operator liability per accident much lower. If the first difference opens a window for claims against U.S. companies, the second ensures that the ensuing fight will be over relatively small sums of money.

Under the CSC and the proposed Indian law, victims of a nuclear accident in India would not have the right to approach an American court or even an Indian court directly. Any claim against a U.S. supplier under the right of recourse would have to be pressed by the operator before an Indian judge. But jurisdiction is a double-edged sword: Article XIII.6 of the CSC, to which the U.S. is now a party, says the judgment of a court in the country where the accident occurs shall be legally enforceable by any other contracting party “as if it were a judgment of a court” of its own. Thus, if an Indian court were to accept that a particular nuclear accident were caused by gross negligence on the part of an American supplier, the U.S. authorities would be obligated to help the operator recover the money already paid out in compensation to the victims from the U.S. companies concerned.

Even though the Nuclear Liability Bill arbitrarily caps this figure at Rs. 500 crore — i.e. $110 million, a much smaller sum than the $470 million Union Carbide settled for in the Bhopal case — this is precisely the kind of exposure American companies sought to avoid when they lobbied the U.S. administration to get India to provide them legal cover in the event of an accident.

As early as 1999, Omer F. Brown II, Washington, DC-based counsel for the Contractors International Group on Nuclear Liability (CIGNL) — which represents the interests of U.S. nuclear exporters — sounded the warning on “Bhopal-type lawsuits” stemming from equipment sales abroad.

In March 2006, Mr. Brown wrote to Samuel Bodman, U.S. Secretary of Energy at the time, asking him to urge India to accede to the CSC and adopt a nuclear liability “containing the international law standards for such legislation.”

Ill-defined terms

Asked by The Hindu for his opinion on the ‘right of recourse' provided by the draft India law, Mr. Brown expressed the fear that this “could open the door to more lawsuits.” The problem, he said, “is that ‘willful act' and ‘gross negligence' are ill-defined terms, so inventive plaintiffs' lawyers probably could be expected to allege [that] after any accident. I recall one of my law professors saying the differences between negligence, gross negligence and willful act are as clear as the differences between a fool, a damn fool and a goddam fool!”

Asked about the significance of Section 17(b), a senior Indian official told The Hindu: “Our efforts in drafting the bill and taking it forward are to keep its provisions consistent with international standards.” But Mr. Brown is not impressed. “The terms invite protracted litigation,” he said.

In an email to The Hindu, Mr. Brown sought to dispel the notion that Indian accession to the CSC would be a “favour” to American companies since Russia and France were not insisting on such a condition for nuclear sales. “In fact, if India joined the CSC, India would benefit from U.S. contributions to the CSC international fund, while France and Russia, unless they also joined the CSC, would have to pay nothing to compensate victims of an accident in India,” he said. “In the event of an accident, Indian victims would be better protected by Indian adoption of the CSC and consistent implementing legislation than they would be without it” since they would be “eligible to get supplemental funds from the CSC international fund paid by the United States and other CSC Member States.”

In the event of damages from an accident exceeding 300 million SDRs (approximately $500 million) which India must provide for in its domestic law, the CSC allows victims to draw up to $100-120 million (approximately Rs. 500 crore) from an international fund to which all countries party to the CSC contribute according to a prescribed formula. Once the CSC has a large enough base of adherents — today only four countries have acceded to the convention — the victims could potentially draw up to $500 million from the international fund if the accident were deadly enough.

Although the benefits of the CSC funding cushion are not inconsiderable, the Indian law lets operators (and their suppliers) off the hook by not holding them liable to the extent envisaged by the CSC itself.

Model CSC law

The model CSC law says the liability of the operator may be limited “to not less than” either 300 million SDRs, or 150 million SDRs (provided that in excess of that amount and up to at least 300 million SDRs public funds shall be made available by that State to compensate nuclear damage). But the Indian law caps operator liability at a much lower figure: Rs 500 crore is only approximately 62 million SDRs. In other words, before India can get even one cent of the international funding the CSC provides for in the event of an accident, its taxpayers must first pay 240 million SDRs from their own pockets.