Why Should Nuclear Operators Have their Liability Limited?

By John Stewart
Director, Policy and Research
Canadian Nuclear Association

Under a proposed legal change, Canada’s nuclear plant operators would have their potential liability capped at $1 billion (up from the current $75 million) for nuclear-related damage.  But why have a limit at all?  Why not make them liable for any amount of loss?  Isn’t a limit of $1 billion too soft on those who screw up?

For an answer, let’s look at why liability is ever limited.

Schuldturm debtor prison
Schuldturm debtor’s prison, Nurnberg, Germany (source: Keichwa/Wikimedia Commons/Public Domain

At one time, if you didn’t pay your debts, then you, your family and your servants could all be enslaved.  Debtors’ prisons existed until the nineteenth century.  Unmanageable debt was a moral failing and a form of criminality.

Even so, many saw that these “solutions” were much too hard on the spouses, children and customers who depended on the debtor’s continued freedom to work, act and spend.

Personal insolvency (or bankruptcy) laws weren’t devised to aid mismanagement or dishonesty.  They exist to let people like you and me continue to live and function if our debts get out of control.  This is in everyone’s interest – even our creditors’, at least in the long run and most of the time.  A debtor who keeps working, restructures his affairs, and gets back on his feet is better for society than one who’s turned into a slave or a prisoner.

Different but related principles are behind the limited liability corporation – the enabling institution of modern economies.  Controlling the extent of liability is the secret to unlocking corporations’ ability to raise capital from stockholders like you and me.  With that capital, they can do the things corporations do.  Like inventing things, buying machinery and creating jobs.

Corporate insolvency and bailouts have the same aim.  An organization that keeps operating and paying employees is, in many cases, far better for society as a whole than one that’s broken up and liquidated.  Good insolvency regimes allow the financially challenged to make whatever payments they can in a prompt, predictable and orderly way, rather than in chaos.

This is far from saying that getting into unmanageable debt and failing to repay it is okay.  It’s not.  But the law can be structured so that borrowers are motivated to be careful and make due efforts to avoid this situation.  As most do.

Canada’s Nuclear Liability Act (NLA) is in the same legal family as incorporation and insolvency laws.  It anticipates difficult situations and sets up sensible rules in advance, so the players can do their jobs in the heat of crisis with less uncertainty and under fewer pressures.

Changes being proposed to the NLA would actually increase the liability limit by an order of magnitude, giving companies more responsibility, not less.  Government and companies support these changes because they would make Canada a party to the international Convention on Supplementary Compensation for Nuclear Damage (CSC).  The CSC creates an international supplementary fund that can pay compensation beyond what national laws provide.

Like a good insolvency law, the CSC sets up consistent, clear rules for payment, and makes sure that payment will be prompt and orderly.  Like a limited-liability incorporation law, the CSC makes it more practical for companies to raise capital, invest, and create opportunity.

Canada has a great record in nuclear safety.  Our industry and regulators work together every day to make sure we don’t have incidents.  The changes to the NLA are Canada’s steps to an up-to-date legal and financial system that can handle one if ever we do.

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