Last February 27th, a 7-1 majority of the United States Supreme Court held in Jam et al. v. International Finance Corp. that the IFC –the branch of the World Bank Group that lends to the private sector– does not enjoy absolute immunity from suit in U.S. domestic courts. The case is a landmark decision in some ways since it opens the door for U.S. courts to determine the IFC’s (and other international organizations’) liability in human rights cases outside the limits of its internal accountability policies. However, more obstacles will have to be overcome to hold the IFC liable for damages and American case-law in extra-territorial accountability is restrictive, to say the least.
The case dealt with a suit for damages brought in the U.S. District Court for the District of Columbia by a group of Indian farmers and fishermen represented by the NGO EarthRights. The claimants alleged that the IFC failed to adequately supervise the environmental and social action plan of a USD 450 million loan issued to finance a coal-fired power plant in the state of Gujarat, India. According to them, the project caused serious damage to marine life, and polluted both the groundwater and the surrounding air.
The IFC filed a motion to dismiss claiming that it enjoyed absolute immunity from suit under the 1945 International Organizations Immunities Act (IOIA), according to which international organizations are granted “the same immunity from suit […] as is enjoyed by foreign governments”. In 1945, foreign states’ immunity was virtually absolute. However, since 1976, with the passing of the Foreign Sovereign Immunities Act (FSIA), foreign states enjoy a restricted immunity since they can be sued in U.S. courts for their “commercial activity”. The Supreme Court, then, had to interpret the IOIA to determine whether international organizations enjoy today the same absolute immunity that states did at the time of the passing of the Act or the same restricted immunity enjoyed by states today in accordance with the FSIA.
The Supreme Court decided that the immunity granted by the IOIA to international organizations should evolve together with that of states, since the text of that statute makes immunity for both “continuously equivalent” (p. 7). That is, the IFC enjoys the same restricted immunity granted today to foreign states, but not more. Therefore, by expressing that, at least in principle, the IFC is not above the law, the Court issued a landmark decision with regards to the potential responsibility of international organizations for human rights violations.
However, the Court was quick to introduce a number of reservations to the decision which show the other obstacles that will still need to be overcome to find the IFC (and other organizations) liable for damages. First, although it did so to refute the IFC’s argument that such a decision would “bring a flood of foreign-plaintiff litigation into U. S. courts” (p. 13), the Court began saying that “it is not clear that the lending activity of all development banks qualifies as commercial activity within the meaning of the FSIA”. Thus, it gave lower courts leeway to determine some loans are not “commercial activity”. Such a determination when it comes to development banks could be an uphill battle for human rights litigators.
Second, the Court continued explaining that even if considered commercial activity, in light of the relevant FSIA provisions the cases still need “a sufficient nexus to the United States” and must be “‘based upon’ either the commercial activity itself or acts performed in connection with the commercial activity”. For the Court, therefore, “if the ‘gravamen’ of a lawsuit is tortious activity abroad, the suit is not ‘based upon’ commercial activity within the meaning of the FSIA’s commercial activity exception”.
This raises two main red flags. First, it continues signalling the restrictive trend on the extraterritoriality of tort claims established in Kiobel v. Royal Dutch Petroleum and Jesner v. Arab Bank, PLC under the Alien Tort Statute. Second, it might throw a spanner in the works in other cases where “tortious” activity is potentially more present such as Doe v. IFC which involves a loan to a company in Honduras allegedly linked to murders, torture, and other violence by paramilitary groups and death squads.
A final aspect of the judgment is that it asserted that the immunities accorded by the IOIA are only “default rules”, and that international organizations’ charters “can always specify a different level of immunity” (something that other organizations like the United Nations and the International Monetary Fund have asserted, but the IFC has not). Therefore, it would only take an amendment of the IFC’s Articles of Agreement to render this judgement moot.
That said, the case is yet another illustration of how human rights harms usually go without redress for communities like the claimants. Thus, it necessarily calls for a strengthening of internal accountability mechanisms of development financial institutions in light of the United Nations Guiding Principles on Business and Human Rights; as well as other international accountability mechanisms (one example is the recent suit against the European Investment Bank before the General Court of the EU over a € 60 million loan for a biomass power plant project in northern Spain).
There is of course plenty of reason to celebrate the judgement. But, as is usual in human rights battles, always with caution and vigilance.