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Myths as to right of recourse aganist nuclear supplier

posted Apr 18, 2013, 10:34 AM by Administrator NLA   [ updated Apr 22, 2013, 8:20 AM ]
Vaibhav Saxena*

Ever since the Government of India notified the Civil Liability for Nuclear Damage Rules on 11th November, 2011 reports and columns in criticism of Rule 24, in particular thereof have been appearing in certain sections of press. The comments inter alia, include that the said rule “revisits the issue of the right of recourse contained in Section 17 of the Act and retracts from the position of high principle both with regard to the amount as well as the number of years by limiting them”. These findings seem but devoid of an objective in-depth analysis and therefore, fraught with incorrect interpretation.

It would be wrong to assume that Rule 24 revisits the issue of right of recourse contained in Section 17 of the Act. In fact, what the rule says is that any contract under sub-section (a) of Section 17 of the Act shall not be for an amount less than the amount of operator’s liability under the Act or the value of the contract itself, whichever is more. It is nothing more than simple reinforcement of the provision in the Act and only explains and elaborates thereon, for the sake of clarity required for its implementation and in no way says that either the operator’s or the supplier’s liability is limited in a manner not envisioned by the legislature. Rather what it does is that it harmonises Section 17 with Section 6 of the Act. Further, value of the contract is a legitimate factor in fixing a supplier’s liability. Any nuclear incident is indeed a result of a chain of failures of several safety equipments and not a single component and in such a situation propriety would demand the liability being shared by the suppliers of all the failed equipments as it would be unjust to call on a supplier of some small component to be solely responsible for the tragedy and resultant damage. It is just logical that the operator will have a cause of action against the supplier of nuclear material or equipment with a patent or latent defect or sub-standard services only to the extent of the liability discharged by him and that too only if there is a clause in the contract to that effect in accordance with sub-section (a) of Section 17 as it would be fallacious to imagine that a supplier would be liable beyond the extent of the operator’s own liability.

The allegation that large contracts can be split into several smaller value contracts thereby effectively limiting their liability too is wholly unfounded and illegitimate. It is again a hollow argument in as much as even if that be so, in that case each supplier would be liable up to the value of his contract and cumulative liability of all part-suppliers would add up to the same extent of recourse for the operator, duration of liability of all the suppliers remaining co-extensive. The comment suffers from ignorance of the nitty-gritty of nuclear business and practices. In the case of nuclear installations, it is an established practice to go for large work and supply contracts. The observation is, therefore, neither based on the facts nor familiar with the practice of trade.

Relating the duration of the right of recourse to the product liability period in the contract or the period of initial licence issued under the Atomic Energy (Radiation Protection) Rules, 2004 has a rational basis in as much as sub-section (b) of Section 17 of the Act relates the right of recourse to “patent or latent defect or sub-standard services”. It is obviously unimaginable as to how liability for patent or latent defect can be stretched beyond the product liability period. However, still the rule goes a step further and extends the liability to the period of initial licence if it is longer than the product liability period stipulated in the contract. Any other version of Rule 24 would be only repugnant to the provision of the Act itself. However, nothing in Rule 24 prevents an operator and supplier to agree for a more liberal clause for right of recourse in the contract and it is a matter of choice on the part of the parties thereto. The rule, therefore by all cannons of interpretation neither limits the right of recourse either in its doctrinal legal sense or the form in which it is enshrined in the Act nor does it in any manner dilute the “onerous effect of sub-section (b) of Section 17 of the Act”. Such argument is self-defeating and susceptible to the criticism that it ventures to air as there is nothing in the rule that transgresses the legislative mandate making it ultra vires of the Act.

While it is abundantly clear that the finer aspects of the rule are neglected in the reports, it is difficult to make out as to whether it is merely a simple blissful oversight or a serious mistake in comprehending the cumulative import of the rule and the provisions of the Act.

* Vaibhav Saxena has recently completed his law course from University of Mumbai. He also holds a Post Graduate Diploma in Nuclear Law from the National University of Juridical Sciences, Kolkata.

Author participated in the
Second NLA Annual meet organised in Mumbai during 2 March 2013. This write-up is the result of substantial inputs from the presentations of legal experts and also benefited from the discussions with other participants. Author is alone responsible for the contents of the write-up.