SCOTUS decision in Jam et al v. International Finance Corporation (IFC) denies absolute immunity to IFC…with caveats

When it rains, it somehow pours.

February 2019 ended up being such a landmark month for international law adjudication. A day after the International Court of Justice released its landmark Chagos Advisory Opinion (finely discussed by Marko Milanovic here), the Supreme Court of the United States (SCOTUS) issued its 27 February 2019 decision in Jam et al. v. International Finance Corporation, (586 U.S. 2019).

The decision squarely rejects the defense of absolute immunity invoked by the International Finance Corporation (IFC) through the United States’ International Organizations Immunities Act (IOIA) of 1945, with respect to a damages suit for negligence, nuisance, trespass, and breach of contract filed in 2015 before the US District Court for the District of Columbia, by a group of farmers and fishermen in India (with assistance from the NGO EarthRights), concerning the IFC’s inadequate supervision of the environmental and social action plan over its US$450 million loan to construct a coal-fired power plant in the [Indian] State of Gujarat. The damages suit invokes the IFC’s own internal audit through the Compliance Advisor Ombudsman (CAO), admitting that the IFC did not supervise the environmental and social action plan for the project adequately.

Last week, I wrote about the evidence from Inspection Panel’s body of investigation reports in about 131 cases thus far, showing ongoing gaps between the World Bank’s articulated commitments to Agenda 2030 and the Paris Agreement, with its actual operational practices in environmental and social action compliance methods that deliberately refuse to internalize the actual international human rights, environmental, climate change, and labor obligations of states in the Bank’s lending operations for development projects. In this respect, [the Supreme Court of the United States] SCOTUS decision is of landmark impact, because it opens the door for US courts potentially to determine the nature of the IFC’s legal responsibilities beyond the lines of accountability internally designed at the World Bank through the independent Inspection Panel or the compliance auditing process at the CAO. Whether or not the suits will prosper on the merits, of course, is another matter altogether, noting how business and human rights litigation strategies have evolved in the United States after SCOTUS decisions in Kiobel v. Royal Dutch Petroleum and Jesner v. Arab Bank PLC.

There are also caveats to the decision itself, as carefully penned by SCOTUS Chief Justice Roberts. When one goes through the Court’s reasoning, the Court also signaled that “restrictive immunity hardly means unlimited exposure to suit for international organizations.”

The Relevant Provision under the IOIA

The IOIA provision that the IFC invoked is 22 U. S. C. §288a(b), which provides that international organizations such as the World Bank and the World Health Organization enjoy “the same immunity from suit…as is enjoyed by foreign governments.”

The Court noted that from 1945 to 1952, the US State Department traditionally adhered to the classical theory of foreign sovereign immunity, which at that time was absolute. By 1952, the State Department adopted the restrictive theory, which only granted foreign governments immunity with respect to sovereign, and not commercial acts. When Congress passed the 1976 Foreign Sovereign Immunities Act (FSIA) the determination of foreign government immunity was taken out of the Executive Branch and made into a process of judicial determination by US courts. As SCOTUS noted:

Under the FSIA, foreign governments are presumptively immune from suit. §1604. But a foreign government may be subject to suit under one of several statutory exceptions. Most pertinent here, a foreign government may be subject to suit in connection with its commercial activity that has a sufficient nexus with the United States. §1605(a)(2).

The District Court for Washington DC concluded that the IOIA provision in question referred to absolute immunity, on the basis of a historical interpretation at the time of the enactment of the IOIA. SCOTUS rejected this ‘originalist’ interpretation of the IOIA and sided with the current restrictive theory of foreign sovereign immunities practiced by the United States. SCOTUS relied on: (1) mainly textual reasons (e.g. the IOIA purposely did not simply state that international organizations had absolute immunity but instead established a standard of parity of treatment between foreign governments and international organizations); and (2) comparative reasons (e.g. citing other US statutes that use similar or identical language to establish that desired parity standard).

SCOTUS Rejects IFC’s Teleological or Purposive Interpretation

The IFC argued that the IOIA must be read according to the purpose of absolute immunity for international organizations, which is to “freely pursue the collective goals of the member countries without undue interference from courts of any one member country.” SCOTUS rejected this reading, favoring the purpose of Congress in the text of the IOIA to grant limited or restrictive immunities based on a parity standard between foreign governments and international organizations. Using the “reference canon” of statutory construction in US law, SCOTUS emphasized that “when a statute refers to a general subject, the statute adopts the law on that subject as it exists whenever a question under that statute arises”; a canon of interpretation that allows federal courts to “explicitly or implicitly…harmonize a statute with an external body of law that the statute refers to generally.”

Thus, because “IOIA’s reference to the immunity enjoyed by foreign governments is a general rather than specific reference…[t]he reference is to an external body of potentially evolving law—the law of foreign sovereign immunity—not to a specific provision of another statute. The IOIA should therefore be understood to link the law of international organization immunity to the law of foreign sovereign immunity, so that the one develops in tandem with the other.”

SCOTUS also gave more weight to the Presidential power to modify otherwise applicable immunity rules under the IOIA, as well as the practice of the State Department from 1952 onwards. Both militated against absolute immunity for any foreign government, let alone international organizations.

The Caveats: SCOTUS Denies IFC Claim of Floodgates to Litigation with Possible IFC Defenses

SCOTUS was quick to reject the apprehensions of IFC that restrictive, instead of absolute, immunity, would immediately expose the IFC to a flood of litigation from foreign plaintiffs. Most importantly, SCOTUS reminded the IFC that IOIA was the default rule, in the absence of a different level of immunity provided for under the international organization’s charter. In this, SCOTUS signaled that IFC’s own charter (which did not provide for absolute immunity from suit) could be strategically amended to reflect the desired absolute immunity. (Whether that could be done politically at this juncture, depends heavily, of course, on the dominant voting power at the World Bank, which is also the United States.)

SCOTUS was also skeptical that international development banks would be made excessively liable, since “it is not clear that the lending activity of all development banks qualifies as commercial activity within the meaning of the [Foreign Sovereign Immunities Act exceptions]…to be considered as ‘commercial’, the activity must be activity ‘by which a private party’ engages in trade or commerce.” Again, here SCOTUS raises a possible functionalist defense on subject-matter jurisdiction for lawsuits against the IFC, leaving open the nature and characterization of the IFC’s lending operations as a matter to be resolved by lower courts deciding on such jurisdictional questions.

Finally, SCOTUS also signaled that the other FSIA requirements would have to be met, including establishing that the “commercial activity has a sufficient nexus to the United States…a lawsuit must be based upon either the commercial activity itself or acts performed in connection with the commercial activity…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 exception.” By making this categorical pronouncement (whether seen later as obiter dictum or dispositive), SCOTUS was carefully delineating and purposely narrowing the kinds of lawsuits that could be brought against international organizations headquartered in the United States. Certainly it signaled it had no interest in returning to a broad interpretation akin to the Alien Tort Statute prior to Kiobel. Litigants against the IFC have been clearly forewarned in this decision as well, about the precise limits to how they ought to frame their claims in order to enable US courts to take jurisdiction over them.

Justice Breyer’s Dissent

Ironically, the arguably most international law receptive jurist on SCOTUS thus far, Justice Breyer, dissented based on an originalist reading of the IOIA, without considering international law developments away from the hard law of absolute immunity to evolving theories of restrictive immunity. Justice Breyer also parsed the language of the IOIA provision and said that it does not illuminate the interpretation the way the SCOTUS majority thought it did:

More fundamentally, the words “as is enjoyed” do not conclusively tell us when enjoyed. Do they mean “as is enjoyed” at the time of the statute’s enactment? Or “as is enjoyed” at the time a plaintiff brings a lawsuit? If the former, international organizations enjoy immunity from lawsuits based upon their commercial activities, for that was the scope of immunity that foreign governments enjoyed in 1945 when the Immunities Act became law. If the latter, international organizations do not enjoy that immunity, for foreign governments can no longer claim immunity from lawsuits based upon certain commercial activities. See 28 U. S. C. §1605(a)(2)…Linguistics does not answer the temporal question…

Against the ambiguity of the statutory language in the IOIA, Justice Breyer pointed to the international agreements that the United States Congress sought to uphold by granting full sovereign immunity to the United Nations, International Monetary Fund, the World Bank, among others. Despite the long discussion on the nature of these agreements, however, he does not explain why the International Finance Corporation’s own charter did not provide for such absolute immunity in the same categorical language as those international agreements. More significantly, the internationalist in Justice Breyer appeared wary of US federal courts passing judgments on the decisions of international organizations:

To understand its importance, consider again that international organizations, unlike foreign nations, are multilateral, with members from many different nations. That multilateralism is threatened if one nation alone, through application of its own liability rules (by nonexpert judges), can shape the policy choices or actions that an international organization believes it must take or refrain from taking. Yet that is the effect of the majority’s interpretation. By restricting the immunity that international organizations enjoy, it “opens the door to divided decisions of the courts of different member states,” including U. S. courts, “passing judgment on the rules, regulations, and decisions of the international bodies…Many international organizations, fully aware of their moral (if not legal) obligations to prevent harm to others and to compensate individuals when they do cause harm, have sought to fulfill those obligations without compromising their ability to operate effectively.”

Conclusion

It is hard to share Justice Breyer’s benign views about international organizations, all the more so what he suggests about leaving the matter of their accountability to indigenous peoples and affected local communities just on the good graces and moral sensibilities of institutions altogether. It must be emphasized, in the first place, that none of these actual bearers of human rights, environmental rights, climate change rights, indigenous peoples’ rights are even represented in these organizations, let alone having a direct say and operational influence on whether or not the projects of the IFC truly redound to their benefit. (As I discussed last week, the record at the Inspection Panel doesn’t inspire confidence on that score.)

To still insist that we continue with “business as usual” at international development banks—trusting to a process that is neither open or representative to the actual bearers of human rights impacts, and where States themselves often fail to represent their own vulnerable communities when bureaucrats embark on flagship development projects touting economic progress alone—is another way of saying affected communities and indigenous peoples remain invisible under international law and must leave this all to the benevolence of government bureaucrats or international development bank technocrats. That is obviously not where we are in international law (or even international economic law) today, when international economic treaties are in the process of being rewritten precisely to redress the invisibility of human rights vulnerable populations.

In this respect, while the SCOTUS majority cautiously opened the door, with high thresholds, for what business and human rights litigation might be possible in US courts, their reasoning is more in accord with an evolved reading of international human rights law today, and less so the “originalist” readings of classical international law when individuals, groups, affected communities, and indigenous peoples were mere objects, and not active subjects of international law.

Original entry

Photo: US Supreme Court Building, Washington DC. Source: HLRN file photo.