Dated Dec 20,2012
Recent reports indicate that the government has formed an opinion that the nuclear reactors, Kudankulam 3 and 4, would be covered by the Civil Liability for Nuclear Damages Act. However, the government also holds the position that Kudankulam 1 and 2 would not be covered by the Act as they are governed by an inter-government agreement with Russia, and that agreement does not envisage a right of recourse against the Russian suppliers.
The Act has two unique features. First, the operator would have the ability to reclaim any compensation it may pay from a supplier, by applying a subjective test, ie, if the product or services have patent or latent defects or are substandard (right of recourse).
Second, Section 46 of the Act has the effect of making the supplier subject to any other law in India that may apply to an industrial accident (eg, criminal liability or a claim of damages under tort law). Both aspects have caused significant anxiety to foreign governments and suppliers. No law anywhere in the world concerning nuclear liability places such broad liability principles on the supplier.
The two internationally-acceptable situations in which a right of recourse may be claimed against a supplier are: (a) where the nuclear incident arises out of an act of omission or commission by the supplier with intent to cause damage, and (b) a contractual right of recourse.
Except for these situations, the liability is solely on the operator as it is the operator’s duty to ensure that the products and services being supplied are free from any defect whatsoever. Of course, the operator is free to enter into private contracts with a foreign supplier, including for apportioning liability. However, such liability is a matter of contractual negotiations and is not mandated in any legislation.
Against this background, we need to see whether the government’s position regarding Kudankulam 1 and 2 is legally tenable. While this question is pending before the Supreme Court in a PIL, prima facie, it appears not.
In matters of international agreements, the Supreme Court has consistently held that obligations arising under such agreements are not by their own force binding upon citizens. Therefore, when an international agreement operates to restrict the rights of citizens or modifies a domestic law, a specific legislation to implement such an agreement must be promulgated.
An exemption of Kudankulam 1 and 2 from the Act would have an adverse impact on the rights of citizens. As already mentioned, the Act permits any citizen affected by a nuclear incident to raise a claim in tort and seek damages from a supplier or to even file a criminal complaint against such a supplier.
Further, if all damages would have to be paid by the Nuclear Power Corporation of India (a public sector undertaking) as the operator and if it does not exercise its right of recourse against a faulty supplier, this would also be a drain on the taxpayer.
Additionally, the Act envisages exemptions of a nuclear facility from its purview only in limited circumstances, which exemptions do not apply to Kudankulam 1 and 2. Therefore, until the time Parliament makes necessary amendments to the Act, all nuclear reactors in India, including Kudankulam 1 and 2, would be covered under the Act, irrespective of any agreement with any foreign government.
As the law now reads, there is no clarity on whether supplier liability is limited or unlimited while the anti-nuclear lobby argues that the present liability limits are low. It is unreasonable to expect suppliers to be able to take commercial decisions in such an uncertain climate. Considering the importance that the government has placed on civilian nuclear power, this ambiguity must go.
Suppliers should have a clear sense of what to expect so that they can be prepared with adequate liability insurance and price negotiations rather than face the uncertainty of a court judgment. It would also be a fair gesture to the many countries that have played an important role in providing India an important position in international civilian nuclear energy.