For 25 years the UK space industry has been hindered by a statutory structure that discourages investment and which has placed it at a competitive disadvantage compared to industry in other space faring countries.

The issue has been the liability regime under the Outer Space Act 1986. A licensee under the Act has “unlimited liability”– a concept that hardly encourages investors and lenders.

However, as of 23 March 2011, George Osborne has promised that:

“To create a level playing field with other countries, the Government will reform the Outer Space Act 1986 by introducing an upper limit on liability for UK operators”.

Background

The UK Government is liable under the Outer Space Treaty and Liability Convention for damage caused by activities in outer space by entities under its jurisdiction. The Government has sought to transfer its responsibility for these international obligations to the commercial or public entities, as appropriate, seeking to launch space objects.

Therefore, section 10 of the Outer Space Act obliges those entities causing damage to indemnity the UK Government fully against any third-party liability claims that may be brought against the Government. To obtain a licence to launch a space object the UK also requires operators to take out insurance cover for £100 million against third party claims for the launch and in-orbit operational life of the space object, irrespective of its orbit.

In other words, the space operator bears all the risk and faces high insurance premia.

Competitive Disadvantage

This contrasts with the position of companies in other space faring countries such as the US, France, Sweden and Australia, where there are risk sharing arrangements. For example, 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).

In the US, an operator is responsible for insuring maximum probable loss (MPL) up to US$500 million covering the launch participants and the US Government and any contractors as additional insureds. The amount of insurance becomes the operator’s possible liability to the US Government – offering some certainty.

The US Government then indemnifies the operator in relation to third party claims up to US$1.5 billion above the required MPL insurance. In effect, the government shares the risk with the operator.

At no cost to the tax payer, the US Government passes the responsibility of the MPL insurance to the operator by requiring it to obtain insurance cover. In turn, the Government covers more remote liabilities in excess of the MPL.

The UK Outer Space Act does not permit such risk sharing.

The Space Innovation and Growth Team

The UK space industry is a recent success story despite the economic slow-down. The UK space sector is growing at about 10% per year and its annual turnover is worth £7.5 billion. (See our November Bulletin).

The UK Space Innovation and Growth Team was charged with identifying further market opportunities for the industry and the barriers to such growth. The resulting Space Innovation and Growth Strategy set out Recommendations to be implemented by the Government and industry. Recommendation 11 covered regulatory reform, and spectrum allocation.

Joanne Wheeler has been heavily involved in this work. As she stated at the Parliamentary Scientific Committee and Parliamentary Space Committee meeting on 17 March:

“the UK space industry has much to offer but it needs a supportive regulatory framework, which creates a level playing field, to encourage growth and investment”.

The Reforms

The UK Space Agency acknowledges that changes to the Act are needed and are working on proposals to amend the unlimited indemnity requirements in section 10 by replacing it with a capped liability. Although not yet published, we understand that this cap is likely to be Euros 60 million. The level of third party insurance required is also likely to be reduced to Euros 60 million. The level of third party insurance required is also likely to be reduced to Euros 60 million.

The impact assessment for these proposals is currently being finalised and Treasury approval is still required. The Government are also considering implementing these amendments by way of a regulatory reform order rather than changes to the Outer Space Act itself, primary legislation.

As Richard Blayber, Regulatory Manager of the UK Space Agency stated at the meeting on the 17 March:

“If all goes to plan, and we get approval, the timeframe could be measured in months rather than years.”