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Gujarat villagers bring International Finance Corporation to book

By holding that Gujarat fishermen were entitled to sue the IFC in an American court, the US Supreme Court has expanded the horizons of international law

Joyeeta Banerjee & Rajdeep Banerjee | Mumbai |

International organisations have been provided with privileges and immunities under International Law similar to the immunities provided to foreign states. The grant of immunities to international organisations generally rests on functional grounds and it is without any doubt a requirement for them to effectively and independently carry out their functions. But absolute immunity may bring with it some undesirable consequences leading to violations of International Law. Complete lack of accountability can also lead to many undesirable consequences. Indian fishermen and villagers had recently taken the International Finance Corporation (IFC) before US Courts alleging severe ecological destruction due to working of a coal-based power plant in Gujarat which was financed by IFC. The Supreme Court of the United States in Budha Ismail Jam, et al. v. International Finance Corporation (27 February 2019) has now held that the international organisations are not immune from suits and hence the suit against the IFC can proceed.

International organisations are provided with immunities under national jurisdictions. The United States has legislated the International Organisations Immunities Act (IOIA) to provide such privileges and immunities. IOIA was passed by the US Congress in 1945. Section 2 of the IOIA specifies the scope of international organisations’ immunity from lawsuits. It states that international organisations, their property and their assets, wherever located, and by whomsoever held, shall enjoy the same immunity from suit and every form of judicial process as is enjoyed by foreign governments, except to the extent that such organisations may expressly waive their immunity for the purpose of any proceedings or by the terms of any contract. Thus, the Act grants international organisations the same immunity from suit as is enjoyed by foreign governments.

At the time of passing of the IOIA, foreign governments were generally entitled to absolute immunity as a matter of international comity. But in the 1950s United States started adopting a more restrictive theory of foreign sovereign immunity. It finally culminated in passing of the Foreign Sovereign Immunities Act (FSIA) in 1976.

Other than codifying the restrictive theory of foreign sovereign immunity, the FSIA also transferred the responsibility for immunity determinations from the executive to the judiciary.

Under the FSIA, a foreign state shall not be immune from the jurisdiction of courts of the United States or of the States in any case in which the foreign state has waived its immunity either explicitly or by implication, notwithstanding any withdrawal of the waiver which the foreign state may purport to effect except in accordance with the terms of the waiver or in which the action is based upon a commercial activity carried on in the United States by the foreign state; or upon an act performed in the United States in connection with a commercial activity of the foreign state elsewhere; or upon an act outside the territory of the United States in connection with a commercial activity of the foreign state elsewhere and that act causes a direct effect in the United States. Thus, FSIA declares that foreign governments are presumptively immune from suit but there are certain statutory exceptions which includes commercial activity which has a sufficient nexus with the United States.

The International Finance Corporation (IFC) is an International Development Bank based in Washington, D.C. which is a member organization of the World Bank Group. It supplements the activities of the World Bank by financing private sector development projects in less developed areas. IFC provided a loan of $450 million to an Indian company named Coastal Gujarat Power Limited for the construction of a coal-fired power plant in Gujarat.

Many fishermen and farmers living near the plant sued the IFC for damages and injunctive relief in the Federal District Court for the District of Columbia in 2015 alleging severe pollution from the plant which has resulted in environmental degradation. The Indian company while availing the loan had agreed to comply with an environmental and social action plan which was specially designed to protect the surrounding areas from environmental damage. The terms of the loan agreement further allowed the IFC to revoke financial support in case the Indian company failed to comply with the terms of the loan agreement. As per IFC’s internal audit, the Indian company did not comply with the environmental and social action plan and IFC failed to adequately supervise the project.

The District Court dismissed the suit for lack of subject matter jurisdiction holding that the IOIA grants IFC virtually absolute immunity that foreign governments enjoyed when the IOIA was enacted. The U.S. Court of Appeals for the D.C. Circuit affirmed the District Court’s decision following its decision in Atkinson v. Inter-American Development Bank (1998).

The question before the Supreme Court was regarding the scope of the immunity enjoyed by IFC under the IOIA. Rejecting the contention of the IFC that IOIA grants International organisations the same immunity from suits that foreign governments enjoyed in 1945, the Supreme Court held that the IOIA grants international organisations immunity from suit that foreign governments enjoy today. The Court reasoned that the IOIA seemed to continuously link the immunities of international organisations to those of foreign sovereign governments and such a construction would ensure ongoing parity between the two.

Reasoning that the IOIA statute nowhere mentions that international organisations would enjoy absolute immunity from all types of suits, the Court observed that if the IOIA had incorporated the law of foreign sovereign immunity as it existed in 1945 it would have specifically declared so.

Referring to other statutes like the Civil Rights Act of 1866 wherein Congress established the rule of equal treatment for freed slaves by giving them the same right to make contracts as was enjoyed by the white citizens, the Court observed that this provision has been understood to guarantee continuous equality between white and nonwhite citizens with respect to the rights in question (Jones v. Alfred H. Mayer Co., USSC, 1968).

Also, the Federal Tort Claims Act puts the United States on the same pedestal as a private individual for liability in tort at any given time. Rejecting the argument of the International Finance Corporation that affording IFC a restrictive immunity would lead to multitude of cases being filed against it, the Supreme Court observed that the privileges and immunities provided to the international organisations are only default rules and the organisation’s charter can always specify a different level of immunity.

The UK position can be understood from the dictum of Bingham J (as he then was) in Standard Chartered Bank v International Tin Council (1987) wherein it was observed that “international organisations have never so far as I know been recognised at common law as entitled to sovereign status. They are accordingly entitled to no sovereign or diplomatic immunity in this country save where such immunity is granted by legislative instrument, and then only to the extent of such grant, no more and no less.”

The United Nations enjoy complete immunity from every form of legal process unless it has expressly waived its immunity in any particular case. Article 105 of the UN Charter declares that the Organisation shall enjoy in the territory of each of its Members such privileges and immunities as are necessary for the fulfilment of its purposes. Also, representatives of the Members of the United Nations and officials of the Organisation shall similarly enjoy such privileges and immunities as are necessary for the independent exercise of their functions.

Section 11 of the Convention on the Privileges and Immunities of the United Nations, 1946 states that representatives of Members to the principal and subsidiary organs of the United Nations and to conferences convened by the United Nations, shall, while exercising their functions and during the journey to and from the place of meeting, enjoy privileges and immunities including immunity from personal arrest or detention and from seizure of their personal baggage, and, in respect of words spoken or written and all acts done by them in their capacity as representatives immunity from legal process of every kind; inviolability for all papers and documents; the right to use codes and to receive papers or correspondence by courier or in sealed bags; exemption in respect of themselves and their spouses from immigration restrictions, aliens registration or national service obligations in the state they are visiting or through which they are passing in the exercise of their functions.

But IFC’s own Charter does not specify that it is absolutely immune from suit. IFC had also contended that allowing it to be sued in domestic courts could make IFC’s operation more expensive as it might have to face multitude of damage suits. Allaying the fears of IFC, the Court observed that restrictive immunity does not per se expose IFC to excessive liability since it is not as if all lending activity of the development banks qualifies as “commercial activity” within the meaning of FSIA. Referring to earlier caselaw titled Republic of Argentina v.Weltover, Inc., (USSC, 1992) the Court observed that to be considered ‘commercial’, the activity must be ‘the type’ of activity by which a private party engages in trade or commerce. It suggested that lending activity of certain development banks which provide conditional loans to governments may not even qualify as ‘commercial’ under the FSIA. Even if such a lending activity qualified as ‘commercial’ then also the bank may not automatically become a subject of suit as there are other requirements which have to be compulsorily satisfied like the commercial activity must have a sufficient nexus to the United States as well as the suit must be based upon either the commercial activity itself or acts performed in connection with the commercial activity. Mere tortious activity abroad cannot bring the commercial activity exception (OBB Personenverkehr AG v. Sachs, USSC, 2015).

The Supreme Court while interpreting provisions of IOIA utilised the “reference” canon of statutory interpretation wherein when a statute refers to a general subject, the statute adopts the law on that subject as it exists whenever a question under the statute arises. It observed that the IOIA’s reference to the immunity enjoyed by foreign governments is a general rather than specific reference and hence the reference is to an external body of potentially evolving law and not merely to a specific provision of another statute.

This ruling from the United States’ top court is certainly going to make international organisations more careful in their future activities as they can no more enjoy the virtual absolute immunity and it exposes them to potential liability before US domestic courts if their activities fall within the exceptions to the FSIA. The judgment significantly expands the horizons of international human rights law by opening the doors for future actions against irresponsible behaviour of international organisations.

(The writers are Mumbai-based advocates and legal consultants.)