The sky's (not) the limit: Passenger liability in the age of the billionaire space race - DAC Beachcroft

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The sky's (not) the limit: Passenger liability in the age of the billionaire space race

Published 16 December 2021

A sheep, a duck and a rooster were the first recorded aircraft passengers, departing on 19 September 1783 in a hot-air balloon constructed by the brothers Montgolfier and launched by scientist Pilatre de Rozier. A mere 300 (ish) years later and in Summer 2021 we saw Richard Branson and Jeff Bezos became the first billionaires in space. Though Elon Musk has yet personally to travel to space (or the edge thereof), his Space X company has forged ahead in the billionaire space race. Space X is offering commercial flights to both Earth and Lunar orbit and has a future vision for “earth to earth transportation” in which journeys take place in part above the Earth’s atmosphere to capitalise on the lack of friction, turbulence and adverse weather. Access to anywhere in the world would take less than an hour; the commute from New York to Shanghai a mere 39 minutes.

Each a pioneer in their own right, Branson, Bezos and Musk are paving the way for a new era of commercial “space” travel. But what does this mean for the legal landscape? And what could passenger liability look like in space?

International space law: the existing position

The existing framework of international space law is, arguably, a little archaic. The five United Nations treaties on outer space all predate the mid-eighties (The Outer Space Treaty, 1967; The Rescue Agreement, 1968; The Liability Convention, 1972; The Registration Convention, 1976; and The Moon Agreement, 1984). These agreements were entered into against a backdrop of state-sponsored space exploration, when ensuring accountability for the consequences of space-related activity at state level was paramount.

The Liability Convention (full title: Convention on International Liability for Damage Caused by Space Objects) placed strict liability on the “launching State” for damage caused by “its space object” on the surface of Earth or to aircraft in flight (Article II). The launching State also has responsibility for non-surface damage and damage caused to persons or property on board another space object, but only if the damage is due to its fault or the fault of persons for whom it is responsible. Some spaceflight passenger liability may fall within the scope of the Liability Convention in narrow circumstances but its ability to offer practical recourse is limited.

For example, passengers on board a spacecraft injured in an accident involving a state-sponsored “space object”, caused by negligence on the part of the launching State, might be entitled to protection under Article III of the Liability Convention. However, this is subject to a prescribed compensation process which envisages claims made by states themselves “presented through diplomatic channels”. The Liability Convention also expressly does not cover “damage” (defined to include personal injury and death in addition to property damage) to nationals of the launching State or damage to foreign nationals “participating” in the launch of the space object.

Could the “Montreal” model work for spaceflight?

Is there scope, then, to argue for the extension of existing civil aviation legal liability regimes to cover commercial spaceflight passengers? Or could commercial spaceflight benefit from adopting distinct principles of passenger liability from a civil aviation context?

Legal liability in the civil aviation arena has at its heart a central tension: in the event of a loss, passengers (or the relatives of deceased passengers) must be fairly compensated but the financial exposure cannot be so great as to bankrupt the operator, for this would act as a harsh deterrent to would-be aviators. Out of the ashes of the First World War came international and domestic liability regimes (Warsaw Convention 1929; UK Air Navigation Act 1920); which sought to support the fledgling aviation industry whilst also protecting passengers. The parallels between the origins of commercial aviation in the 1920s and the growth of commercial spaceflight in the 2020s are clear: a young technologically-advanced industry with huge potential but also significant vulnerability to losses on a scale not seen before.

A descendent of the Warsaw Convention 1929, the Montreal Convention (“MC99”) provides an internationally standardised, quasi-strict liability regime for passenger, baggage and cargo claims as against air carriers and arising during transportation by air. Whilst it is applicable only to “international carriage”, many signatory states have transposed analogous provisions into domestic legislation. The concept of quasi-strict liability on the part of the carrier to compensate air passengers is generally accepted.

Accordingly to Article 1, MC 99 “applies to all international carriage of persons, baggage or cargo performed by aircraft for reward”. “International carriage” is defined to mean “any carriage in which, according to the agreement between the parties, the place of departure and the place of destination, whether or not there be a break in the carriage or a transhipment, are situated either within the territories of two States Parties, or within the territory of a single State Party if there is an agreed stopping place within the territory of another State, even if that State is not a State Party”.

There is scope to suggest that future point to point spaceflights could be capable of falling within the MC99 regime if the place of launch and the place of landing are situated within different State Parties. The introduction of MC99 liability limits, and the relative certainty they can represent for operator and claimant passenger alike, makes this analysis attractive for space insurers and reinsurers. However, it is not a universal solution.

The concept of “carriage” is not defined within MC 99 in its current form or its predecessor, the Warsaw Convention 1929. Travel from point A to point B (so launch State to landing State) might broadly be considered as “carriage” by many Montreal jurisdictions, but not in all situations.  At present, spaceflights by private individuals are generally viewed as a recreational or tourist activity: so for example, if the reason for the flight was determined to be “sportive” it could be argued that MC99  does not  apply (following a line of French cases) applicable to air carrier liability.[1] 
Whether a spacecraft can be classed as an “aircraft” would also need to be decided. Whilst it is generally accepted that an aircraft capable of international travel satisfies the meaning under the MC99 regime, technical or engineering evidence could be necessary if the point were to be contested.

Applying civil aviation liability principles to spaceflight: a UK case study

In the UK, Parliament has already enacted legislation which pulls across civil aviation liability principles and applies them to spaceflight. Section 34 of the Space Industry Act 2018 broadly mirrors the provisions of section 76 of the Civil Aviation Act 1982: excluding actions in trespass or nuisance and imposing “strict” liability on an operator licence holder for injury or damage to persons or property on the ground. In the case of the Space Industry Act, the concept of ground damage has been expanded to include the territorial sea adjacent to the UK, together with any aircraft, and any persons or property on board, in flight over the UK. Notably, unlike the Civil Aviation Act 1982, section 34(2) of the Space Industry Act does not require the injury or damage to be “material” for liability on the part of the operator to be engaged.

The benefits of strict liability under section 34(2) of the Space Industry Act 2018, however, are not available to individuals “of a prescribed description” taking part in spaceflight activities.  Commercial spaceflight passengers should fall outside section 34(2), however a “spaceflight participant” must have provided prior informed consent to the risks involved in the operator’s spaceflight activities and acknowledge the disapplication of section 34 strict liability before they can be considered “of a prescribed description”.

The Space Industry Regulations 2021, which came into force on 29 July 2021, contain extensive provisions in relation to what constitutes “informed consent” including mandatory information which must appear on the consent form. Non-compliance with the consent requirements is not simply an issue of civil liability for operators – it is an offence under the Space Industry Act for an operator licence holder to allow an individual to take part in spaceflight activities without a signed consent form. Operators should also take note that the provision of participant informed consent does not deny the right to pursue a claim for spaceflight participant injury or death - the Unfair Contract Terms Act 1977 will operate to preserve the same:  “….a person cannot by reference to any contract term of to a notice given…exclude or restrict his liability for death or personal injury resulting from negligence…”  However, in a fledgling spaceflight industry, there will likely be judicial debate as to just what constitutes “negligence”  and in determining the “inherent risk” of a given spaceflight.  

Pursuant to the Space Industry Regulations 2021, operator licences must specify a limit on the amount of the operator’s third-party liability in respect of both section 34(2) “strict” liability and claims which fall outside this (i.e. to include spaceflight passenger claims, provided the requirements are met). The amount of the limit is set by the UK Civil Aviation Authority (CAA) in its capacity as the UK’s independent spaceflight regulator. It should be noted, however, that whilst there is a clear legislative intent to protect operators from unlimited liability, the execution of this has not been as perspicuous as hoped.[2]

The Space Industry Regulations 2021 specify that the operator’s third-party liability limit does not apply in circumstances where the operator is liable in respect of gross negligence or wilful misconduct in the performance of its obligations under the Act or Regulations, or where damage or loss is caused as a result of non-compliance by the operator with any conditions of its licence or any requirement under the Act or Regulations. Contrast this with air carrier liability under MC99, where the standard (for disapplication of the carrier’s liability limit for passenger injury or death – currently SDR 128,821) is merely “negligence”.

The extent to which the third-party liability limits operate in practice as regards commercial passenger spaceflights have yet to be tested and, in leaving it to the regulator to set limits on a case by case basis, the Space Industry Regulations 2021 give rise to further questions rather than answers.

CAA guidance from July 2021 indicates that a “standard mission” will “likely” carry a EUR 60 million indemnity limit and require a EUR 60 million “any one occurrence” third-party liability insurance policy. (The reference to “indemnity limit” seemingly applicable for the purposes of this guidance only to the s.36 Space Industry Act 2018 obligation to indemnify the government and other specified bodies in the event of claims.) There is an indication that the CAA “may” allow an operator to place all satellites that count as “standard missions” onto a single any one occurrence insurance policy.[3] Whether a mission is “standard” will ultimately be determined by the CAA based on information supplied as part of the licence application, but in general terms involves a single satellite employing an established launcher, a proven satellite platform and recognised operational practices.

By contrast, “higher-risk missions” may” be subject to higher indemnity limits and insurance requirements. Though novelty itself will not automatically result in classification as a “higher-risk” mission, it is one of the gateway criteria alongside the use of unproven technologies, a higher risk of higher-value third party liability claims and presenting third party risks “that are not well characterised”.

Whilst a third-party indemnity/liability limit can be useful for operators in deciding the total amount of insurance coverage to be obtained, it is less helpful for claims handlers looking to manage individual passenger claims – the value of any one of which, in the case of ultra-high net worth individuals, could potentially exceed even a “higher-risk mission” liability limit. Difficulty is likely to be faced in practice, too, where a single loss event encompasses more than one deceased or injured passenger. Should a proportion of the operator’s liability limit be allocated per passenger? What happens if subsequent claims are brought once the operator’s liability limit is exhausted? How will a Judge or Master view this in cases where court approval is required to achieve a valid settlement, such as dependency claims brought on behalf of minors or where the injured passenger lacks legal capacity?

The future: passenger liability caps?

As the number of commercial spaceflight passengers grows, so too does the argument for passenger-specific liability caps akin to the MC99 regime. And if, as the major commercial players predict, we move towards global travel via the Earth’s orbit, with distinct countries of launch and landing, a unified international approach is critical. It is the legislative balancing of protection and risk typified in the MC99 regime and through domestic ground liability provisions, derived historically from a desire to nurture the fledging aviation industry, that is key to navigating the new world of commercial passenger spaceflight.                                             

With the reported average ticket price set to be in the region of USD 200,000 to USD 400,000, commercial spaceflight travel is likely (for now) to be reserved for the high net worth and ultra-high net worth community. In the absence of robust liability caps, the risk of eye-watering passenger claims in the event of a loss is significant. The race is on for regulators/lawmakers to proactively manage this.


[1] Cie La Réunion v Bergt (Cour de Cass, 25 November 1997). Cited in the Court of Appeal in Laroche v Spirit of Adventure (UK) Ltd [2009] EWCA Civ 12[2009] 2 All ER 175, in which the court indicated that the fact that a flight was for recreational purposes did not resolve the issue. See also Truche v Eurolair International (Paris CA, 10 October 2000)(2001) 55 RFDA 133 (whether a demonstration flight at an airshow could be “carriage” raised but not decided).

[2] Though deserving perhaps of an article in its own right, in brief Regulation 220 of the Space Industry Regulations 2021 requires that an operator licence “must” specify a limit of liability in respect of (a) injury or damage arising out of spaceflight activities under s34(2) (i.e. not individuals of a “prescribed description”) and third party liability for death or bodily injury not covered under s34(2) (which may include individuals of a “prescribed description”). However, the primary legislation from which it derives (s.34(5) of the Space Industry Act 2018) merely states that regulations “may make provision for” an operator to specify a limit of liability where the injury or damage is sustained in prescribed circumstances or by persons of prescribed descriptions and has arisen as a result of spaceflight activities carried out by the licensee. Whilst government guidance published in September 2021 acknowledges some of the technical difficulties, it is clear that “it is government policy that all operator licences issued under the act will include a limit of operator liability”  and concludes that “No further legislation is required to bring this policy into effect.”  See https://www.gov.uk/government/publications/commercial-spaceflight-launch-liabilities-and-insurance/commercial-spaceflight-launch-liabilities-and-insurance

[3] https://publicapps.caa.co.uk/docs/33/Insurance%20and%20Liability%20Q&A%20(CAP2226).pdf

Authors

Sophie Allkins

Sophie Allkins

London - Walbrook

+44(0)20 7894 6215

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