CIVIL LIABILITY IN COMMERCIAL SPACE VENTURES UNDER UNITED STATES LAW.docx
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CIVILLIABILITYINCOMMERCIALSPACEVENTURESUNDERUNITEDSTATESLAW
6-FALLAir&SpaceLaw.5
AirandSpaceLawyer
Fall,1991
*5CIVILLIABILITYINCOMMERCIALSPACEVENTURESUNDERUNITEDSTATESLAW
RudolphV.Pino,Jr.
FrankA.Silane[FNa]
Copyright(c)1991bytheAmericanBarAssociation;RudolphV.Pino,Jr.andFrankA.Silane
IntheUnitedStates,itistheusualpracticeforcommercialspaceventurestoinvolveacooperativeeffortbygovernmentandprivateindustry.Thegrowthanddevelopmentofcommercialspaceindustrydependsupontheabilityandwillingnessoftheprivatesectortoinvestsubstantialfinancialresourcestodevelopthenewproductsandskillsnecessarytoadvancethestateoftechnologybeyonditspresentlimits.Thewillingnessofprivateindustrytocommitlargefinancialresourcestosuchahighriskendeavordepends,toasubstantialdegree,uponitsabilitytopredict,tolimitandtoinsureagainstthepotentiallydestructiveburdensofcivilliabilitywhichcanresultfromaproductfailureorfromnegligenceintheperformanceoflaunchservices.
Forthesereasons,itisimportanttounderstandthepotentialforcivilliabilityassociatedwithcommercialspaceventuresandtoknowhowthispotentialliabilitycanbelimitedoreliminated.Thefirstsectionofthisarticleexplainsthegeneralschemeofcivilliabilityasitappliestothoseengagedincommercialspaceventures(explainsthevariouslegalbasesforcivilliabilityandidentifiesthosewhohaveliabilityexposure).Thesecondsectionofthearticleisintendedtoprovidepracticaladviceforlimitingexposuretocivilliabilitybycontractandtoprovideexamplesofhowthosetechniqueshaveaffectedactualcasesinvolvingsatellitelosses.
I.BasesforCivilLiabilityUndertheLawsoftheUnitedStates
ControllingLaw/ChoiceofLawAnalysis
Ingeneral,thereisnolaworschemeofliabilitywhichappliesspecificallytocommercialspaceventures.[FN1]Thelawgoverningthecivilliabilityofmanufacturersofaerospaceproductsandprovidersoflaunchservicesisusuallythesamelawwhichgovernsthecivilliabilityofthosewhoprovideothertypesofproductsandservices.Generally,thelawgoverningcivilliabilityinthiscontextisnotfederallawbutis,instead,thelawofthespecificstatewhichhasthemostsubstantialrelationshipwiththeincidentortransactiontowhichthelawwillapply.Thismeansthatthesubstantivelawwhichwillprovidethebasisforcivilliabilitymustbedeterminedineachcasebyanalyzingsuchvariablefactorsas(a)wheretheallegedlydefectiveproductsweremanufacturedorthenegligentservicewasperformed,(b)wheretheproductsorservicesweresoldorused,and(c)wherethecontractualrelationshipbetweenthepartieswasestablished.Thus,theapplicablelawcan,andoftendoes,varyfromcasetocase.Theresultofthechoiceoflawanalysiscanbecriticalbecausethedifferencesinlawofthecompetingjurisdictionscanchangetheultimateoutcomeofacase.Yet,despitethelegaldifferenceswhichexistinthelawofeachjurisdiction,therearecertainprinciplesofcivilliabilitywhicharecommontomostjurisdictionsthroughouttheUnitedStates.Thesecommonlegalprinciplesandthebasesforliabilitywhicharerecognizedinvirtuallyalljurisdictionsareasfollows.
FormsofLiability
EveryjurisdictionintheUnitedStateswillimposebothtortandcontractliabilityonthoseresponsibleforinjuriesorlossescausedbydefectiveproductsorbyserviceswhichwereperformednegligently.Thisconceptofcivilliabilityappliestothoseengagedintheaerospaceindustryasitdoestothosewhomanufactureothermoremundaneproductssuchasautomobilesandrollerskates.Thereisnospecialtreatmentorstatutoryprotectionfromordinarycivilliability.Aswiththeprovidersofanyothergoodsandservices,thosewhoparticipateincommercialspaceventureshaveexposuretoliabilityinbothcontractandtortwhichislimitedonlybytheextentoftheresultingdamages.
Tortliabilitygenerallyoccurswheretherehasbeensomenegligenceonthepartofthepartyprovidingthegoodsorservicesandtortliabilityusually,althoughnotalways,requiressomeevidenceofalosswhichinvolvesphysicalharmtoapersonorpropertyratherthanpurelyeconomicharm.
*6Mostjurisdictionsalsorecognizeasecondformoftortliabilityknownas“strictproductliabilityintort”whichisahybridoftortandcontractprinciples.Itimposestortliabilityandtortdamages,withoutfault,uponthosewho(a)produceordistributeproductswhicharedefectivewhensoldorplacedinthestreamofcommerce,(b)whichreachtheconsumeroruserwithoutmaterialchange,and(c)wherethedefectresultsinphysicaldamagetopersonsorproperty.Thestrictproductliabilityconceptusuallydoesnotapplytoclaimsbetweencommercialentitiesforpurelyeconomicdamages.
Contractliabilitydiffersfromtortliabilityinthatitdoesnotinvolvetheconceptsofnegligenceorfault.Itisaformofstrictliabilitywhichisbaseduponeithera(a)breachofexpresscontracttermsor(b)breachwarrantieswhichareexpresslystatedinthecontractorwhichareimpliedbylaw.[FN2]Contractliabilityexistsevenwherethedamagesareonlyeconomic,althoughrecoverabledamagesareusuallymorelimitedthanincasesarisingintort.
Manufacturersorsellersofdefectiveproductsarecommonlysubjectedtoclaimsbaseduponboththeoriesofliability.Atypicalclaimantinatypicalproductliabilitycasewillallegenegligenceinthedesignmanufactureandtestingoftheproductandalsoallegethatthedefendantbreachedimpliedwarrantiesthattheproductisof“merchantablequality”andis“fitforitsintendeduse.”Althoughtheseverydifferenttheoriesofcivilliabilityareusuallyassertedsimultaneouslyinasinglecase,thecompensatorydamageswhichtheclaimantisentitledtorecoverinasinglecasearenotcumulative.Regardlessofthenumberoflegaltheoriesaclaimantisabletoassertandtoprove,aclaimant'scompensatorydamageswillnotexceedtheactualvalueofthelosseswhichhehasincurred.
PersonsWhoMayIncurCivilLiability
UnderU.S.law,anypersonorentitythatprovidesaservicenegligentlyorthatparticipates,eveninalimitedway,inplacingadefectiveproductintothestreamofcommerce,hasexposuretocivilliabilityfordamagesthatresultfromtheservicesnegligentlyperformedorfromtheproductdefect.Thepotentialliabilityextendstoanyoneinthedistributivechain,includingthosewhodesign,manufacture,test,distribute,sellorleaseproducts.Thelawappliesequallytothosewhoproduceandsellsmallorinexpensivepartsandcomponentsasitdoestothosewhoproduceandsellthemoreexpensivefinishedproductsintowhichthepartsandcomponentshavebeenintegrated.Forexample,themanufacturerofasmallandinexpensivecomponentthatcausesasatellitetofailtoreachorbitortooperatenominallyhasthesamepotentialexposuretoliabilityastheproviderofthelaunchvehicleorthemanufacturerorsellerofthesatelliteintowhichthecomponentwasincorporated.Thus,thesellerofanupperstagerocketexitconewhichcostslessthan$100,000mayhavepotentialliabilityinexcessof$100millioniftheconeweretofailcausingthelossofasatellite,assumingthatthesellerhasnotlimiteditsliabilitybycontract.
Consideringtheenormityofthepotentiallosses,includinglostprofitswhichcanresultfromalaunchfailureorsatellitefailure,itbecomesapparentthatthoseengagedincommercialspaceventuresmustdotheirutmosttoquantifyandlimittheirexposuretoliabilitybycontracttothefullestextentpermittedbylaw.Thefailuretoincludevalidandenforceablecontractualdisclaimersandlimitationsofliabilityincontractsforthesaleofproductsandservicescanresultindevastatingcivilliabilityanddefensecosts.Eveninthoseinstanceswheretheclaimisdefendedsuccessfully,thecostofdefensetotheproduceroftheproductoritsinsurerscanbecatastrophic,andisgenerallynotrecoverablebytheprevailingparty.
II.LimitingLiabilitybyContract
InmostjurisdictionsoftheUnitedStates,contractswhichapportion,limit,ordisclaimliabilityentirelyareenforceablewithrespecttoclaimsforcommerciallossesordamagetopropertyiftheyaredraftedtocomplywiththerequirementsoftheapplicablelaw.Thespecificcircumstancesunderwhichsuchclausesareenforceableandthepartiesagainstwhomtheymaybeassertedeffectivelymaydifferdependinguponthevariationsinthelawofeachstate.Nevertheless,suchclausesareenforceabletosomedegreeinalljurisdictions,evenwithrespecttonegligenceclaims,providedthat(a)thepartiesexpresstheirintentinclear,plainandunambiguouslanguage,(b)thetermsarenegotiatedingoodfaith,(c)betweencommercialentitiesofrelativelyequalbargainingstrength,and(d)donotviolatesomeexpresspublicpolicy.
Requirementsofenforceabilitymayvarydependinguponwhichstatelawgovernsthecontract.Somejurisdictionsrequireveryprecisecontractlanguagetoachieveanenforceabledisclaimerofliabilityforcertaintypesofclaims.Forexample,inCalifornia,anattempttodisclaimliabilityforone'sownnegligencewillbeenforceableonlyifthecontractstatesexplicitlythatthepartiesintendtohavethedisclaimerapplytonegligenceclaims.Insuchjurisdictions,theword“negligence”mustbeused.Iftheword“negligence”isnotused,thedisclaimerwouldlikelybeunenforceableastoclaimsbasedinnegligenceregardlessofhowclearlythepartiestothecontractmayhaveotherwisestatedtheirintention.
Thefollowingcontractlanguageillus