Don't waver now on nuclear liability

India's Civil Liability for Nuclear Damages Act, 2010 (the Act), was a watershed moment in international nuclear liability jurisprudence because of the unique way in which it dealt with supplier liability. Up until this enactment, all liability in relation to a nuclear power plant was channelled exclusively to the operator. The only two situations in which a operator could claim a subsequent right of recourse against a supplier under international liability law as well as under domestic law of other countries were i) where the nuclear incident arose out of an act or omission by the supplier with an intent to cause damage (which is covered under Section 17(c) of the Act); and ii) a contractual right of recourse (which is covered under Section 17(a) of the Act).

The Act however, also introduced a novel concept of supplier liability in Section 17(b) by which the operator would have the ability to reclaim any compensation it may pay, from a supplier, if the product supplied has patent or latent defects or the service provided is substandard

Section 17(b)This expanded concept of supplier liability is vehemently resisted by major supplier countries including the United States, Russia and France, on the ground that these provisions are not consistent with international norms pertaining to nuclear liability. Parliament, however, deemed it fit to deviate from these international norms owing to India's history with industrial accidents, particularly the Bhopal gas tragedy, and felt that this additional requirement contained in Section 17(b) was necessary in the Indian context.

Recent news reports (19 September 2013, The Hindu) now indicate that the Attorney General has provided a legal opinion to the government opining that Section 17(a) provides for a right of recourse if such right is expressly provided for in a contract in writing and the operator is therefore free to choose not to incorporate such a provision in its contract with the supplier. It is understood that the opinion goes on to confirm that the operator can either incorporate a clause in the contract to cover the right of recourse under Section 17 or can waive such a right. It is also understood that the Attorney General gave this opinion from a strictly legal point of view and not policy.

An important point to note here is that a plain reading of Section 17 seems to suggest that Section 17(a), (b) and (c) are distinctive and separate. Merely because a contractual right of recourse in terms of Section 17(a) has been used or not used by an operator in his contract with a supplier, would have no bearing on Sections 17(b) and (c). This argument is strengthened, as it would be unthinkable for the government to waive a right of recourse in situations covered under Section 17(c) that deals with causing of nuclear damage with an intent to cause such damage. In other words, hypothetically, can the operator take a stand that it would waive its right of recourse against a supplier who causes nuclear damage intentionally? The answer would obviously be no. Therefore, if the exclusion cannot be made for sub-clause (c), exclusion for sub-clause (b) is also not possible and Section 17(a) cannot be the basis for reading such a right of waiver.

Another point to note is that in India, the nuclear operators, viz. the Nuclear Power Corporation of India Limited (NPCIL) and the Bhartiya Nabhikiya Vidyut Nigam Limited (BHAVINI), are wholly government owned. Therefore, the entire responsibility of setting up and running a nuclear power plant rests with these entities. Consequently, under nuclear liability laws, in the event of a nuclear accident, compensation that may be payable would have to be borne by these entities. Since these entities are government entities, the funding is also entirely by the government and, therefore, ultimately by the taxpayers of India. In this backdrop, can the Indian operator contractually agree with a supplier to waive its right of recourse under Section 17(b) of the Act to recover such compensation from a supplier who may have provided a component with 'patent or latent defects'?

UnsustainableA preliminary analysis suggests that it would be difficult to legally sustain such a blanket waiver. The law in relation to waiver of a statutory right is well settled. The Supreme Court of India has held that a statutory right in favour of a party can be waived by such party as long as no public interest or public policy is adversely affected (see for e.g. Krishna Bahadur v. Purna Theatres (2004)). If NPCIL were to waive its right to claim subsequent compensation against a supplier who has provided a product with a 'patent or latent defect' or has provided 'substandard service,' it would mean that the compensation is ultimately being footed by the taxpayer despite the fact that there is a law which enables NPCIL to seek such compensation from a negligent supplier. This would squarely be against public interest and appears to be legally unsustainable.

If Parliament, in its wisdom, has decided to introduce an expanded concept of supplier liability in the Act, it can also be argued that this forms part of the public policy of India - a consideration, which it is understood, is expressly excluded from the Attorney General's legal opinion. Further, Section 23 of the Indian Contract Act, 1872 also provides that the consideration or objects of a contract would be unlawful if it would defeat the provisions of a law or is opposed to public policy. While a strong case can be made out that such waiver would defeat the provision of the Act, it can also be argued that it would be against the public policy of India. The Supreme Court in Rattan Chand Hira Chand v. Askar Nawaz Jung (1991) held that a contract which has a tendency to injure public interests or public welfare is one against public policy and what constitutes an injury to public interests or welfare would depend upon the times in which the issue arises. It is therefore important to remember that the ultimate interpretation of these provisions and contractual arrangements is going to be by an Indian court in the backdrop of a nuclear incident. In such a backdrop, it is more likely for an Indian court to adopt an interpretation that rejects an attempt at circumventing the provision of the Act by providing a waiver of a right of recourse, as this would be against public interest.

Parliament has framed a law that has an expansive concept of supplier liability and all entities, foreign or Indian, are subject to this law. If there were problems in the implementation of the law, then the right course would be for Parliament to amend such laws. The Act, as it stands, has various ambiguities in relation to the scope of supplier liability. These ambiguities are undoubtedly a hurdle for foreign suppliers and ought to be clarified or removed.

Some of these hurdles can be avoided by providing for contractual provisions by which the Indian operator provides timely feedback to the supplier in relation to the functioning of a particular component or perhaps even certifying after a period of time of usage of the component, that the component does not suffer from a 'patent or latent defect'. This kind of an approach by the operator may be more helpful for the supplier community rather than an approach in which the Indian operator says it is giving a blanket waiver of its statutory right of recourse.

The Act does have its flaws but it has raised some key challenges to international liability principles that historically insulated the supplier from liability in practically all situations. It should be borne in mind that these provisions will be interpreted by an Indian court in the context of a nuclear incident. Any watering down of the law by the operator offering waivers of statutory provisions would only increase the ambiguities, and is in no one's interests, including those of the foreign suppliers.