Satellite Bulletin August 2017: Limit on the Liability of Satellite Launch and Operations Licence Holders in the UK

As the competition between states to attract high-growth innovative space companies grows, what gives certain states the edge is a supportive, enabling regulatory framework and an informed regulator.

To achieve the UK’s ambition to grow it’s share of the global space market to 10% by 2030, the UK Government must ensure an enabling regulatory framework for existing and new companies and to attract and encourage investment into the UK.

Until 2015, UK satellite operators had to provide an unlimited indemnity to the UK Government. This was contained in section 10 of the Outer Space Act 1986 and was to cover "claims brought against the government in respect of damage or loss arising out of activities carried on" under a licence. In short this means that the operator bears all the risks and liability of the space activities.

This concept of unlimited indemnity put UK companies at a competitive disadvantage compared with companies in countries such as the US, France (in relation to launch activities), Sweden and Australia, where there are risk sharing arrangements. For example, there are limits on the liability of licensees and the licensing government may accept liability for damage above the level covered by insurance; the liability of an operator is therefore capped by the level of insurance cover.

The concept of unlimited liability does not offer the clarity and transparency that an investor would seek.  It is also very difficult for an operator to purchase insurance cover for unlimited indemnity. 

The Deregulation Act 2015 (Act) introduced a cap to the unlimited indemnity from October 2015. The Act was a result of a recognition by the UK Government that the concept of unlimited indemnity was damaging to raising investment in the UK. 

The Act made it mandatory for the Government to set a cap and in the majority of cases, the liability cap for a satellite operator was set at Eur 60 million per satellite. This offers some certainty to companies and investors, even though the Government has the discretion to raise or lower
the cap.

The unlimited indemnification concept has however been reintroduced by Section 35 of the Space Industry Bill, which states that:

"(1) A person carrying out spaceflight activities must indemnify –

  1. Her Majesty's government in the United Kingdom, or
  2. a person or body listed in subsection (2),

against any claims brought against the government, or the persons or body, in respect of damage or loss arising out of or in connection with those activities. "

There are two tools by which the UK Government can limit the liability of operators however:

  1. Section 11(2) states that "an operator licence may specify a limit on the amount of the licensee's liability under section 35";  and
Section 33(5) states that "Regulations may make provision for an operator licence to specify a limit on the amount of the licensee's liability". (Emphasis added).

While the Government has stated that it may consult further on this issue and will draft implementing legislation, the concept of unlimited liability is not attractive for raising investment, growing and recruiting in the UK. This was also acknowledged by the House of Commons Science and Technology Committee in its report dated 27 April 2017 on the Bill, which also proposed a mandatory cap on an operator's liability.

In July therefore the UK trade body, UKspace, sent a letter, signed by 17 industry members, to Jo Johnson MP, the Minister of State for Universities, Science, Research and Innovation asking for a statement as to the Government's intention in relation to the "implementation of a cap on a licensee's liability under the Space Industry Act, to enable continued investment and ensure that the UK industry can meet its ambitious growth targets".

A reply was received on 9 August 2017. In this Jo Johnson MP expressed that:

"given the emerging state of the UK launch and sub-orbital sectors, the Bill should provide for flexibility, rather than bind any future operational policy decisions. This will no doubt be subject to further debate as the Bill continues its passage through Parliament."

He continues by stating that:

 "The Bill will retain the "may" wording... However, whilst we cannot commit to a particular approach in relation to any particular future application, it is the Government's current policy intention to continue capping operators' indemnity to the UK Government in licence conditions for the activities of i) procuring the launch of a space object and ii) the operation of a satellite in orbit... The Government therefore proposes to maintain the current policy position in respect of
these activities.

Some clarity is therefore offered through the Government's intention to grandfather into the new regime under the Space Industry Act the policy to cap the liability of operators. No mention was made by Jo Johnson MP in the letter as to the level of
the cap and whether this may remain at Eur 60 million however.

The final paragraph of the letter from Jo Johnson MP notes that:

"Further work needs to be undertaken on the merits and risks of capping all of an operator's liability under the Bill. In line with the Government response to the S&T Committee, the matter of liabilities will be subject to more detailed consultation over the next 18 months."

This is an important area for the industry and also for the Government if it wishes to support and encourage growth in UK space industry effectively. I would encourage interested companies to engage with the UK Space Agency in this area and respond to the forthcoming consultations. More immediately, please contact me if you wish to feed into the current regulatory work being carried out in the UK as part of the UK Space Growth Partnership (SGP).

The SGP is a working group across the UK’s space industry and government that will jointly plan for and deliver high levels of sector growth and social benefits to the UK. The partnership comprises members of the UK space industry, UK Space Agency, the Satellite Applications Catapult, InnovateUK, the Department for International Trade and Academics. 

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