New launch contingent liability under the Space Industry Act 2018
Explains that there are plans to create a potential contingent liability each time launch activity is conducted under the Space Industry Act 2018.
The government has bold spaceflight ambitions that we outlined in the National Space Strategy that we published last September.
The UK has a thriving satellite manufacturing industry and we excel at providing satellite-based communications and high-end navigation services. The space sector directly employs 45,000 people in the UK and satellites support at least £360 billion of UK GDP.
However, the UK is currently reliant on other launch countries to put UK built and UK operated satellites into space – including those critical for our defence and security.
Through the Space Industry Act 2018 (the 2018 Act) and the Space Industry Regulations 2021 (the 2021 Regulations), we have established the regulatory framework and appointed the Civil Aviation Authority as the spaceflight regulator, to enable the licensing of spaceflight activities from UK spaceports.
Space based technologies provide fundamental services to the daily lives of everyone in this country – from supporting defence and security, enabling faster and more efficient travel, enabling our smart phones, the provision television services and receiving better weather forecasts.
Having a UK launch capability will generate and support many additional high skilled jobs up and down the country – and give UK greater control and increased options for getting our satellites into space that can provide benefits for all.
I have therefore today (19 July 2022) laid a departmental minute describing a new contingent liability that the Department for Transport plans to undertake in respect of future launch operator licences granted under the 2018 act.
The liability arises from a combination of the UK being a party to the United Nations Convention on International Liability for Damage Caused by Space Objects 1972, powers and obligations under the 2018 act to indemnify operators and those who sustain injury or damage in the United Kingdom as a result of spaceflight activities and limits placed on a launch operator’s liability by or under the 2018 act and the 2021 regulations.
The circumstances giving rise to the contingent liability are fully explained in the departmental minute.
A potential contingent liability will be created each time a launch activity is conducted under the 2018 act. The liability is unquantifiable – but we anticipate that the likelihood of any liability arising above an operator’s liability limit to be very low.
The Department for Transport will keep Parliament informed of the specific indemnities entered into under this notification by reporting on them in our annual report and accounts which are laid before Parliament.
HM Treasury has approved the contingent liability in principle.
If, during the period of 14 parliamentary sitting days beginning on the date on which this minute was laid before Parliament, a member signifies an objection by giving notice of a parliamentary question or by otherwise raising the matter in Parliament, final approval to proceed with incurring the liability will be withheld pending an examination of the objection.
The action I have taken today is another step towards achieving the first small satellite launch from Europe this year. It reaffirms this government’s bold commitment to establishing the UK as one of the most attractive and innovative space economies in the world and the leading provider of commercial small satellite launch in Europe.
Departmental minute – new launch contingent liability under the Space Industry Act 2018
It is normal practice, when a government department proposes to undertake a contingent liability in excess of £300,000 for which there is no specific statutory authority, for the minister concerned to present a departmental minute to Parliament giving particulars of the liability created and explaining the circumstances; and to refrain from incurring the liability until 14 parliamentary sitting days after the issue of the minute, except in cases of special urgency.
The Space Industry Act 2018 (the 2018 Act) and the Space Industry Regulations 2021 (the 2021 Regulations) establish the legal framework to license and regulate commercial spaceflight activities in the UK. The conduct of launch activities can make the UK a launching state under UN space treaties.
A ‘launching state’ is defined in the UN Convention on International Liability for Damage Caused by Space Objects 1972 (the UN Liability Convention) as “A state which launches or procures the launching of a space object” and “A state from whose territory or facility a space object is launched”.
Under the UN Liability Convention, a launching state is absolutely liable to pay compensation for any damage caused by its space object to the surface of the Earth or to aircraft in flight and so may be liable to another state or to that other state’s nationals.
A launching state may also be liable for any fault-based damage caused to another state’s space object. However, the provisions of the UN Liability Convention do not apply to damage caused by a space object of a launching state to (a) nationals of that launching state and (b) foreign nationals who are participating in the operation of the space object from the time of launch until its descent or who are in the immediate vicinity of a planned launch or recovery area as the result of an invitation by that launching state.
Section 36 of the 2018 act requires operators to indemnify the UK government or other persons and bodies as set out in section 36(2) for any claims brought against it in respect of damage or loss arising out of, or in connection with, the operator’s spaceflight activities. However, section 12(2) provides that an operator licence may specify a limit on the amount of an operator’s liability under section 36, except in those cases or circumstances as set out in regulation 219 of the 2021 regulations.
Section 34 of the 2018 act places a strict third-party liability on launch and satellite operators for injury or damage caused to persons or property in the UK or to aircraft in flight over the United Kingdom (or to persons or property on board such an aircraft). Section 34 also provides that this does not apply to certain prescribed persons (see regulation 218 of the 2021 regulations) or to injury or damage caused or contributed to by the negligence of the person by whom it is sustained.
Regulation 220 of the 2021 regulations, requires that an operator licence must specify a limit on the amount of the operator’s liability under section 34(2) or in respect of its third-party liability for injury or damage not covered by section 34(2).
Section 35 of the 2018 act concerns indemnities for injury or damage sustained by a claimant (who is not an individual of a prescribed description) as a result of spaceflight activities for which a licensed launch or satellite operator is liable.
Section 35(2) provides that the Secretary of State for Transport may indemnify a licensed operator for the difference where the amount of the operator’s liability (as limited by or under regulations made under section 34(5) – see regulation 220 of the 2021 regulations) exceeds the amount for which the operator is insured. However, section 35(3) provides that the Secretary of State for Transport must indemnify the claimant in respect of any difference between the amount of the operator’s liability as limited by or under regulations made under section 34(5) (see regulation 220 of the 2021 regulations) and what the amount of that liability would be but for the regulations.
Section 35(5) provides that regulations may prescribe the limits on the amounts that the Secretary of State for Transport may or must pay and may prescribe cases or circumstances in which the power or duty to indemnify under section 35 does not arise. In relation to the latter, regulation 221 of the 2021 regulations sets out such cases or circumstances.
The provisions in the 2018 act therefore place an ‘unlimited liability’ on operators to indemnify government against claims or to meet claims made by third parties. There is a power under section 34(5) to make regulations to limit an operator’s liability on the amount of the operator’s liability under section 34 or otherwise (see regulation 220 of the 2021 regulations) and a power under section 12(2) for an operator licence to specify a limit on the amount of an operator’s liability under section 36.
Evidence from independent research and a call for evidence, identified that the insurance market cannot provide cover for unlimited third-party liability placed on operators carrying out spaceflight activities under the 2018 act. This market failure is identified in other launching states.
On 5 March 2021, the Department for Transport published the government response to consultations on the Space Industry Regulations and approach to liability, insurance and charging. This set out the government’s policy intention that all operator licences will specify a limit on operator liability under both sections 34 and 36 of the 2018 act. This commitment was re-iterated in the National space strategy published on 27 September 2021.
As a result, regulation 220 of the 2021 regulations requires an operator licence to specify a limit on the amount of an operator’s liability in respect of injury or damage arise out of spaceflight activities under section 34(2) and any third party liability arising out of spaceflight activities which may be incurred by the operator in respect of the death or bodily injury to any person or damage to property not covered by section 34(2). However, the limit on the amount of the operator’s liability does not apply in particular circumstances as set out in regulation 220(3) and this must be reflected in the operator’s licence.
Insurance for launch and the limit of operator liability will be set by the spaceflight regulator (the Civil Aviation Authority) as a condition on the launch operator’s licence. There is a mandatory requirement under s. 35(3) of the 2018 act for the Secretary of State for Transport to indemnify a claimant (that is, a person who has sustained injury or damage as a result of spaceflight activities carried out by the holder of an operator licence and who is not a prescribed person) above the operator’s limit of liability.
This will create a contingent liability. A contingent liability may also arise under the UN Liability Convention due to the actions of the operator, where the operator’s indemnity will be subject to a limit set out in the licence as permitted under section 12(2) (unless regulation 219 of the 2021 regulations applies).
A contingent liability will arise each time a business receives an operator licence under the 2018 act to conduct a launch activity and that business conducts the launch in accordance with the terms of the licence, the 2018 act and 2021 regulations. The contingent liability will be in place for the duration of each launch activity licensed under the 2018 Act. The beneficiaries of the contingent liability will be the businesses licensed to conduct launch activities under the 2018 act.
The Civil Aviation Authority is currently considering the first launch licence applications under the 2018 act. Subject to grant of an operator licence (and other relevant required licences under that act), we anticipate that the first launch, and first time the contingent liability will arise, will take place later in 2022.
A contingent liability will also arise for each subsequent launch activity that takes place under an operator licence granted under the 2018 act.
The contingent liability for the first and any subsequent licences granted under the 2018 act is unquantifiable – but we anticipate that the likelihood of any liability arising above an operator’s liability limit to be very low. If the liability is called, provision for any payment will be sought through the normal supply procedure.
The Department for Transport will keep Parliament informed of the specific indemnities entered into under this notification by reporting on them in its annual report and accounts which are laid before Parliament.
The Treasury has approved the proposal in principle. If, during the period of 14 parliamentary sitting days beginning on the date on which this minute was laid before parliament, a member signifies an objection by giving notice of a Parliamentary question or by otherwise raising the matter in parliament, final approval to proceed with incurring the liability will be withheld pending an examination of the objection.
I am copying this departmental minute to the Chair of the Public Accounts Committee and the Chair of the Transport Select Committee.