Budha Ismail Jam et al. v. International Finance Corporation
In 2015, Budha Ismail Jam and other farmers and fishing communities surrounding the polluting Tata Mundra Ultra Mega coal-fired power plant in Gujarat, India, sued the World Bank Group’s International Finance Corporation (IFC) for its role financing the plant’s construction by private firm Costal Gujarat Power Limited. The plaintiffs sought damages and injunctive relief for negligence, nuisance, trespass, and breach of contract, alleging that pollution from the coal plant’s construction and operation had harmed farmland, air, water, and marine life. An IFC internal audit found that the company had not complied with an environmental and social plan required by the loan to protect areas surrounding the plant. The audit also found the IFC had not adequately supervised the project.
The issue before the United States (US) Supreme Court was whether the IFC had absolute immunity from suit. The Court interpreted US law as granting designated international organizations the more restricted immunity that is currently enjoyed by foreign governments, not the nearly absolute immunity granted initially in 1945. Since 1952, foreign governments have typically been able to be sued in the US for certain commercial activities, even as they have continued generally to hold absolute immunity in other areas.
At the founding of international organizations like the IFC, United Nations, and International Monetary Fund at the close of World War II, the U.S. Congress passed the International Organizations Immunities Act of 1945 that granted these international organizations the "same immunity from suit . . . as is enjoyed by foreign governments,” although organizations could limit or expand immunity in their charters. From 1945-1952, courts followed the Department of State view that because foreign governments had absolute immunity, so should the international organizations. After 1952, due to an increase and broadening of commercial activities by states, the State Department determined that it was necessary for people affected by that business to have access to the courts as arbiters of their rights, and changed its view, finding that foreign governments were entitled to immunity only for sovereign acts, not for commercial activities.
The Court held that the IFC was not absolutely immune from suit because the International Organizations Immunities Act of 1945, stating that international organization immunity should be the "same…as enjoyed by foreign governments", intended to continuously interpret those institutions’ immunity alongside the immunity of foreign governments. The Court reasoned that because Congress had made only a general reference to immunity and did not specify which kind of immunity, it had adopted a law that was not static, but developed in parallel with the law on immunity of foreign states.
The IFC objected that reducing the level of immunity would damage its mission by opening up one country's courts to challenge the decisions of its many member states, by exposing the organization to money damages, and by opening the floodgates to foreign plaintiff litigation because so much of its activity is commercial. The Court disagreed and noted that the organization could change its charter to specify a different level of immunity.
Importantly, the Court did not declare that the IFC's activity, or lending activity by other international development banks, was definitively commercial, or that any given activity would have a sufficient nexus to the US to permit a suit to go forward.
The case was remanded to the District Court to settle the questions of the commercial nature of the IFC's loan, and of whether the activities are related enough to the US for the IFC to be held liable.
This case opens the possibility that international financial institutions may be held liable for harms caused by projects they finance, since the decision lowers the standard of immunity for international financial institutions under domestic law. Whether an organization's activities in any individual case are commercial and have a sufficient tie to the US to enable potential liability will likely be subject to fact-specific litigation that may be hard to predict. Therefore, this lower standard of immunity may incentive better oversight by international lending institutions or dissuade them from financing projects with high human rights, environmental, or social risks.
This decision may also have some immediate impact in other related cases. The same organization that represents plaintiffs in Jam, the legal environmental nonprofit EarthRights International, has since resumed litigation in a case against a palm oil plantation in Honduras, which had also received a loan from the IFC. The private security forces of the plantation allegedly attacked and killed community members, events which, similarly to the audit activities in Jam, were documented in internal IFC reports. Now, the IFC may be more inclined to settle because of its more limited immunity, especially if the lower court proceeding in Jam results in damages for the plaintiffs.
For their contributions, special thanks to ESCR-Net member: the Program on Human Rights and the Global Economy (PHRGE) at Northeastern University.