Disputes in orbit: Commercial arbitration for the satellite industry

Introduction

The private sector’s enhanced role in manufacturing, launching and operating satellites has seen an uptick in actual and potential disputes. These disputes tend to be cross-border in nature, technically complex, and commercially sensitive. This makes international arbitration a natural choice for settlement of satellite sector disputes – it can be tailored to the particularities of a given case and offers a confidential, binding process to obtain relief that is enforceable in more than 170 jurisdictions.

Who are the key players?

• Satellite system operators provide mobile satellite services for telecommunications and outer space activities. Most satellite system operators are private parties, operating in a highly competitive market.
• Manufacturers of satellites and other spacecraft machinery are limited in number, given this is a specialized field involving high costs where equipment must withstand extreme conditions.
• Launch service providers, like manufacturers, offer a high-cost service that requires deep technical expertise.
• Satellite insurance carriers provide pre-launch, launch and in-orbit insurance, which can continue for the lifespan of the satellite.

What are their contractual relationships?

Disputes in the satellite sector arise from a variety of commercial contracts. For example:

• Procurement contracts between system operators and manufacturers govern the design and construction of satellites. The process of design and construction can take several years, and procurement contracts typically specify a detailed timeline for delivery, including interim milestones. The protection of confidential information and intellectual property is critical. Disputes commonly arise from operational faults, involving either a latent manufacturing flaw or an operating error, and parties can mitigate that risk through incentive schemes whereby manufacturers earn “incentive payments” that accrue over a satellite’s operational life to the extent it continues to perform as required.
• Launch agreements between launch service providers and system operators govern the launch of spacecraft into orbit. If a procurement contract provides that a satellite is to be delivered mid-orbit, then the launch agreement usually involves a launch service provider and a manufacturer.
• Insurance contracts play a key role in managing the risk associated with outer space activities, allowing parties to protect against possible losses that can occur during a satellite’s construction, launch or operational phases.
• Service agreements by which business (for example, telecoms operators) lease the use of satellites.

Additionally, many countries have assigned through legislation the tortious and other liability for damages caused by space debris. Although some developments have been made particularly at a domestic level, space debris remains largely without uniform regulation.¹

How do disputes arise?

Manufacturing delays have given rise to several high-profile satellite sector disputes. By way of example, in 2012 a satellite system operator commenced arbitration under the American Arbitration Association rules against a satellite manufacturer in relation to alleged manufacturing delays.

Disagreements over orbital positioning can also arise. For example, a 2012 arbitration was commenced between two satellite operators under the International Chamber of Commerce (ICC) rules over the right to an orbital position that would allow the occupier to transmit television and radio signals. The matter required consideration of various coordination agreements, as well as licenses held by the parties, to determine their respective rights to operate in that position.

Cancellation of operation rights granted by a state or state-owned entity can give rise to commercial disputes, as well as investment treaty arbitration in the case of a foreign investor. Intellectual property rights, too, assume particular importance in space commerce, where advanced infrastructure is required and the proprietary rights to specialized technology are highly valuable.

Changes of domestic law more generally can be a source of conflict. In 2013, for example, ICC arbitration was commenced between a satellite manufacturer and a satellite communications provider more than two years after the satellite had been provided, following a ministerial order declaring the relevant purchase agreement null and void for failure to obtain an export permit.

The costly and risky nature of satellite ventures creates a market for insurance policies covering discrete aspects of pre-launch, launch, and operational activities. The risk of loss during a faulty launch or an in-orbit operational failure can generate complex claims involving insurance carriers, launch service providers, and satellite system operators.

Financing disputes, too, are a common feature given the web of capital associated with highly innovative projects. Increasingly, the space sector is an attractive target for venture capital.

Why is arbitration well suited?

Arbitration is well established as the preferred dispute resolution mechanism for complex, cross-border disputes, including in specialized areas such as aviation and banking. Arbitration is neutral, voluntary and offers an adaptable procedure. Importantly, it results in a final and binding award that can be enforced in 172 countries that are signatories to the New York Convention.

Arbitration can equally be tailored to space-related disputes. The Permanent Court of Arbitration’s Optional Rules for Arbitration of Disputes Relating to Outer Space Activities, 2011 address some particularities of those disputes by providing that:

• the agreement to the rules constitutes a waiver of any right of immunity from jurisdiction (Article 1(2));
• the PCA Secretary-General will maintain a Specialized Panel of Arbitrators with relevant subject-matter expertise on space matters (comprising both lawyers and non-lawyers) to assist the parties in appointing arbitrators (Article 10(4));
• the parties can seek special measures to preserve confidentiality, by which the tribunal can determine an appropriate confidentiality regime including requiring undertakings (Article 17(6)-(7));
• the tribunal can appoint a confidentiality advisor as an expert to report to it on confidential information, without disclosing the information itself to the other party or to the tribunal (Articles 17(8), 29); and
• the tribunal can request the parties to jointly or separately produce non-technical documents explaining the relevant scientific and technical background to aid its understanding of the matters in dispute (Article 27(4)).

Other arbitral institutions have not established dedicated rules for the space or satellite sectors. However, parties can agree to incorporate several of the features above into their arbitration clause (for example, a detailed confidentiality regime for handling technical and scientific data) or by adopting a specific framework after the dispute arises. While most types of space disputes can be resolved through commercial arbitration, one potential limitation is the contractual and consensual nature of the arbitral process. This means, for example, that collisions between satellites owned by private parties without a contractual relationship cannot be referred (without subsequent agreement or more targeted regulation) to an arbitral setting.

With thanks to Eibhlin Murrant