Commercial space law: launch and operation of spacecraft By Donna Lawler

Commercial space law: launch and operation of spacecraft

DONNA LAWLER, PRINCIPAL, AZIMUTH ADVISORY

Space is a unique environment in which to conduct business. Not only are the locations harsh, remote and diffi cult to access, the risks high and the timeframes long, but the legal environment is different from any other. The interaction of international treaties and guidelines, international customary law, national legal frameworks and industry-specifi c contractual structures has created legal conditions that make space transactions a highly specialised branch of technology contracting.

Whereas in terrestrially based technology contracts, the focus of lawyers is often to shift as much risk as possible to the other party and to impose punishing fi nancial consequences for failure, experienced space lawyers often employ a different set of tools and structures with an emphasis on long term mission success. Rather than each party competing to avoid as much risk as possible, seasoned negotiators of space contracts tend to focus on the clear and effi cient allocation of risk based on time rather than fault, the avoidance of double-insurance and prevention of disputes between insurers. Whilst each party must be given appropriate incentives to behave in a manner that will maximise the chances of success of the mission and meet required timeframes, adversarial legal techniques used in terrestrial projects can sometimes work against those longterm goals. Provisions that drive an internal culture where potential failures are hidden rather than brought to light can have long term damaging effects in the harsh environment of space, where repair of faulty equipment after launch is usually not a viable option. Similarly, care must be taken to reach the right balance of incentives

and disincentives, as fatal fl aws can be introduced into a program if vendors are pressured to rush important testing phases in order to avoid fi nancial penalties.

THE LEGAL ENVIRONMENT FOR OUTER SPACE: INTERACTION BETWEEN INTERNATIONAL LAW, NATIONAL LAW AND COMMERCIAL CONTRACTS

For the most part, outer space is an area beyond national jurisdiction 1

. In this respect, analogies can be drawn between outer space with other such areas, such as the High Seas and Antarctica, where a combination of international treaties, national laws governing certain objects and activities of citizens and private contractual frameworks create unique legal environments. Over time, legal and risk frameworks have been adapted to the particular physical characteristics and challenges of each of these areas, with a view to allocating resources and manage the activities of people, entities and objects 2 . In the case of outer space, increasing cold war tensions between the USSR and USA led to their adoption of the 1967 Treaty on Principles Governing the Activities of States in the Exploration and Use of Outer Space, including the Moon and Other Celestial Bodies (the ‘Outer Space Treaty’) along with many members of the international community 3

. Other space treaties dealing with liability, registration and other matters in more detail followed over the next 12 years 4 . The States parties to the Outer Space Treaty are required to conduct activities in outer space in accordance with international law to ensure that activities of their nationals in space comply with the Treaty. In particular:

…the activities of non-governmental entities in outer space, including the moon and other celestial bodies, shall require authorization and continuing supervision by the appropriate State Party to the Treaty. 5

In line with this international requirement, an increasing number of space faring nations are passing national space laws 6

which include licensing regimes applicable to their nationals who engage in space activities 7

. National space laws deal with a variety of issues, many of which are designed to ensure compliance with international space treaties. For example, many States require participants in space activities to provide information that will enable the State to comply with its obligations under the Registration Convention. 8 Other national provisions are designed as a response to State responsibility for losses under the Liability Convention, requiring licence-holders to insure against liability in the event of an accident arising from the space activity 9

or mandating implementation of space debris mitigation measures 10 . Space-related contracts, in turn, must be responsive to the national laws affecting the parties to the contract, including with respect to space debris, registration of space objects, environmental controls and liability.

ALLOCATION OF RISK IN SPACE-RELATED TRANSACTIONS

Lawyers who have dealt extensively with technology contracts that do not have a space component would be familiar with a model that relies on the determination of fault and the allocation of responsibility to the at-fault party. In

such “terrestrial” transactions, it is often the goal of each lawyer to minimise her own client’s liability and allocate as much risk as possible to the other party. Negotiations of this nature have been part and parcel of most high stakes technology transactions for many years. 11 This approach also has its place in certain aspects of space transactions, but can have disadvantages if misapplied by well-meaning technology lawyers in an outer space context 12

. Quite apart from the international and national legal environment described above, development, launch and operation of space technologies have historically taken place in a context where: • technologies have lengthy development, manufacture and testing timeframes; • hardware is comparatively high cost; • launch and in-orbit phases are inherently risky; • hardware cannot be easily accessed for repair or replacement of components after launch; • the precise cause of failures during launch or in orbit cannot always be determined; • insuring space related risks is expensive and double insurance needs to be avoided; and • global insurance capacity has sometimes been low and has at times been limited for multiple parties involved in the same launch. These factors have shaped the legal culture in the space industry over time and have resulted in commercial norms that can be baffling for some lawyers who are used to operating in terrestrial contexts. Whilst some of these factors are changing with the miniaturisation of satellite technologies, “fail fast” innovation cultures and the potential availability of in-orbit manufacturing and servicing, they remain as underlying influences for the structure of space contracts and insurance policies in the global space industry. In the experience of the author, space contracting tends to allocate risks to participants according to the phase in the project, rather than the fault of a particular party, except in the case of gross negligence or wilful misconduct. In other words, during the most risky phases of a space project, time is more important than culpability. Focusing on time rather than culpability has the function of reducing cost, uncertainty and risk in four ways: 1. avoidance of costly double insurance of the same programme risks by different parties; 2. minimisation of the risk of disputes between insurers; 3. elimination of critical gaps in insurance; and 4. simplification of insurance claims in the event of a failure. Negotiations should also be conducted with an eye to the national regulatory obligations affecting each stakeholder, including the need to fulfil licensing requirements and protect the interests of the launching states involved. This requires an understanding of the interaction of international, national and contractual provisions that apply to the particular space programme as well as the structure of insurances for different aspects of the programme. As many of these requirements are not known at the time of negotiating arrangements for manufacture and launch of space objects, a sound understanding of industry norms is of value and may save clients frustration, expense and delay down the track. 13

CONCLUSION

The legal norms for space transactions have been contoured by the unforgiving nature of outer space itself as well as the need to adapt to international and national legal frameworks. Those norms have evolved over the years into adaptable risk management frameworks used by space professionals, which are capable of dealing with the complexity created by a multiplicity of legal systems and stakeholders. As a result, commercial contracts for space programmes often have features that differ from terrestrial technology contracts in fundamental ways that are sometimes at odds with the legal culture in other industries. Adaptation of standard contractual frameworks to a space context should be made with considerable care and with a strong understanding of potential mission outcomes for the parties as well as the unique combination of international and applicable national legal environments.

Azimuth Advisory is an Australian law firm specialising in space activities. B

Endnotes 1 See Article I of the Outer Space Treaty, which refers to the exploration and use of outer space as ‘the common province of all mankind’. 2 See the extension discussion by Graham Nicholson regarding the similarities and differences of these legal environments in The Common Heritage of Mankind and Mining: An Analysis of the Law as to the High Seas, Outer Space, the Antarctic and World Heritage 6 N.Z. J. Envtl. L. 177 (2002) 3 Joanne Irene Gabrynowicz, ‘Space Law: Its Cold War Origins and Challenges in the Era of Globalization’ 37 Suffolk U. L. Rev. 1041 (2004) 4 See: • The 1968 Agreement on the Rescue of Astronauts, the Return of Astronauts and the Return of Objects Launched into Outer Space (the ‘Rescue Agreement’); • The 1972 Convention on International Liability for Damage Caused by Space Objects (the ‘Liability Convention’); • The 1975 Convention on Registration of Objects Launched into Outer Space (the ‘Registration Convention’); and • The 1979 Agreement Governing the Activities of States on the Moon and Other Celestial Bodies (the ‘Moon Treaty’). 5 Outer Space Treaty, Article VI 6 UNOOSA provides links to a number of national Space Laws at http://www.unoosa.org/oosa/en/ ourwork/spacelaw/nationalspacelaw/index.html 7 See for example the laws of the Russian Federation, No 104 - Statute on Licensing Space Operations 8 See for example Article 11 of the Netherlands Rules Concerning Space Activities and the Establishment of a Registry of Space Objects (Space Activities Act) 9 See for example section 5(2)(f) of the United Kingdom’s Outer Space Act 1986 10 See for example sections 34 and 46G of the Australian Space (Launches and Returns) Act 2018 11 See the excellent and practical guide to terms of this nature set out in Margaret Calvert and Ian Reid, Technology Contracts : A Handbook for Law and Business in Australia 2 nd

Ed, Butterworths 2002 12 See Ingo Baumann’s discussion of the pros and cons of Service Levels in ‘ the Use of Service Level Agreements in Space Projects’ in chapter 25 of Contracting for Space, Contract Practice in the European Space Sector edited by Lesley Jane Smith and Ingo Baumann, Ashgate 2011 13 The author is relying on her own commercial experience in confidential arrangements.