International Finance Corporation (IFC), an organisation protected under the International Organisations Immunities Act (IOIA), entered into a loan agreement with Coastal Gujarat Power Limited to finance the construction of a coal-fired power plant in Gujarat. The fisherfolk sued the IFC, claiming that pollution from the plant harmed the surrounding air, land and water.
The District Court of the District of Columbia, however, held that the IFC was immune to the suit because it enjoyed the virtually absolute immunity that foreign governments enjoyed when the IOIA was enacted.
However, the Supreme Court, in a 7:1 ruling, stated that the IFC only enjoys limited or restrictive immunity that foreign governments enjoyed.
Chief Justice John Roberts delivered the opinion of the court, in which Justices Thomas, Ginsburg, Alito, Sotomayor, Kagan and Gorsuch joined. Meanwhile, Justice Breyer filed a dissenting opinion and Justice Kavanaugh took no part in the consideration or decision of the case.
According to international lawyers the outcome of this case could not only result in a bevy of lawsuits but also strengthen an institution’s internal accountability mechanism.
The Case
The International Finance Corporation is an international development bank headquartered in Washington (DC). The IFC is designated as an international organisation under the IOIA, and 184 countries, including the United States, are members of the IFC.
In 2008, the IFC loaned $450 million to Coastal Gujarat Power Limited. The loan helped financing the construction of the coal-fired Tata Mundra Power Plant. Under the terms of the loan agreement, Coastal Gujarat was required to comply with an environmental and social action plan designed to protect areas around the plant from damage.
The agreement allowed the IFC to revoke financial support for the project if Coastal Gujarat failed to abide by the terms of the agreement. The project did not go smoothly. According to the IFC’s internal audit, Coastal Gujarat did not comply with the environmental and social action plan in constructing and operating the plant.
The audit report criticised the IFC for inadequately supervising the project.
In 2015, a group of farmers and fisherfolk who live near the plant, as well as a local village, sued the IFC in the United States District Court for the District of Columbia. They claimed that pollution from the plant, such as coal dust, ash and water from the plant’s cooling system, had destroyed or contaminated much of the surrounding air, land, and water.
Relying on the audit report, they asserted several causes of action against the IFC, including negligence, nuisance, trespass, and breach of contract.
IFC’s Rebuttal
The IFC did not contest that the damage occurred, but argued it is immune from liability under US law.
In 1945, Congress passed the International Organisations Immunities Act (IOIA), which, among other things, grants international organisations the same immunity from suit as is enjoyed by foreign governments.
At that time, foreign governments were entitled to virtually absolute immunity as a matter of international grace and comity. The IFC argued that the IOIA grants international organisations the “same immunity” from suit that foreign governments enjoyed in 1945.
The IFC maintained that it was immune from suit under the IOIA and moved to dismiss for lack of subject matter jurisdiction and got a verdict in its favour from the district court.
Restrictive Immunity
In 1952, the US State Department adopted a more restrictive theory of foreign sovereign immunity, which Congress subsequently codified in the Foreign Sovereign Immunities Act (FSIA).
Under the FSIA, foreign governments are immune from suit; however, a foreign government may be subject to suit under one of several statutory exceptions. One such exception where a foreign government may be subject to suit, is in connection with its commercial activity that has a sufficient nexus with the United States.
The IFC is responsible for with furthering economic development by encouraging the growth of productive private enterprise in member countries, particularly in the less developed areas, thus supplementing the activities of the World Bank.
The World Bank primarily provides loans and grants to developing countries for public-sector projects, while the IFC finances private-sector development projects that cannot otherwise attract capital on reasonable terms.
This brings the IFC under the ambit of commercial activity.
SC Reverses the Order
When the matter came up before the Supreme Court, the IFC argued that interpreting the IOIA immunity provision to grant only restrictive immunity would defeat the purpose of granting immunity in the first place. IFC argued that international development banks must use tools of commerce to achieve their objectives.
The SC stated that these concerns are inflated. Petitioners argued that the IFC was entitled under the IOIA only to the limited or “restrictive” immunity that foreign governments currently enjoy., which the SC agreed to.
The SC further stated that he IOIA only provides default rules. The bench opined that an international organisation’s charter can always specify a different level of immunity, and many do.
The bench further stated that is it clear that the lending activity of all development banks qualifies as commercial activity within the meaning of the FSIA and ruled in favour of the fisherfolk.
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