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5 Mar 2019

5/3/19 - Kirk Herbertson, Advocacy Strategist at EarthRights International

What does the US Supreme Court's decision on IFC impunity mean for Indian fisherfolk?

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Last week, in Budha Ismail Jam et al v. International Finance Corporation (IFC), the US Supreme Court ruled that international organizations can be sued in the United States for their commercial activities.

The case has sparked enormous discussion in the international development finance community. What are the implications for the IFC and for international organizations more broadly?

The Supreme Court case arises out of a lawsuit EarthRights brought with farmers and fisherfolk in Gujarat, India, who have faced severe pollution and health problems as a result of an IFC-financed, coal-fired power plant.

The Tata Mundra Ultra Mega power plant has contaminated local communities’ drinking water, destroyed crops, ruined fishing grounds, and created dangerous levels of air pollution.

The local communities originally tried to raise their concerns through the IFC’s grievance mechanism, the Compliance Advisor Ombudsman (CAO).

But when the IFC’s management ignored the CAO’s conclusions, the communities reluctantly filed suit in the United States as a last resort.

The lawsuit alleges that the IFC and the project developers knew about these risks in advance but nevertheless chose to recklessly push forward with the project without proper protections in place.

Here are the important points to know about this case: 

- What was the legal question before the US Supreme Court? When the communities filed their lawsuit, the IFC responded by claiming it had “absolute immunity” from lawsuits filed in the United States. The Supreme Court was asked to assess the validity of the IFC’s claim.

- What did the US Supreme Court decide? The Court decided that the IFC does not have absolute immunity; it can be sued in U.S. courts “based upon a commercial activity carried on in the United States”. For a more detailed legal analysis of the Supreme Court’s decision, see this article by Amy Howe on SCOTUSblog.

- What happens next in the Jam v. IFC case? The communities still have a long way to go before they obtain justice. They must demonstrate that the IFC engaged in “commercial activities” in the United States, and must prove that the IFC is legally responsible for what happened. But last week’s decision is an important step in the right direction.

- Does the Court’s decision affect any other cases? The Supreme Court’s decision means that a similar case, Juana Doe et al v. IFC, is expected to proceed in US federal court.

The case involves IFC-financed projects in Honduras that have been linked to murders, torture, and other violence by paramilitary groups and death squads associated with the Dinant Corporation.

- Which international organizations will be affected by this decision? Almost all international organizations with operations in the United States might be affected in some fashion, but few will see major impacts.

For most international organizations, their core activities are not commercial activities linked to the United States. By our count, about seven international organizations could be particularly affected by this ruling. My colleague Marco Simons has written a more detailed analysis of this question.

- Will the IFC try to avoid liability by moving its headquarters or amending its Articles of Agreement to instate absolute immunity? No, this is unlikely. To do either of these things, the IFC would need to amend its Articles of Agreement.

There are significant obstacles to doing this, as Marco Simons explains. Additionally, the IFC could face enormous political and reputational damage to its brand for attempting to evade its human rights responsibilities.

- How can the IFC reduce the risk of future lawsuits? The IFC’s management has attempted to raise fears that the Supreme Court decision will open up the floodgates to lawsuits and prevent the organization from fulfilling its mandate. The Court found these claims to be “inflated”. In fact, the IFC has a great deal of control over its exposure to future lawsuits.

In the Jam case, the IFC’s own staff predicted the harm that the communities would face, long before the IFC approved the project. In the future, the IFC’s management could take more care to consider the due diligence findings of its social and environmental sustainability staff.

And in cases where a project does harm local people, if the IFC provides meaningful remedies to those affected, then most communities are going to prefer to use the faster and cheaper CAO process than to resort to lengthy litigation.

Fortunately for the World Bank Group, an opportunity exists to make reforms in the coming months. The CAO - and its counterpart at the World Bank, the Inspection Panel - are under review this year.

By making the following policy changes, the World Bank Group’s Board of Directors would go a long ways towards strengthening accountability within the institution: 1. ensure that the IFC’s management responds more effectively to CAO’s reports in the future, and 2. empower the World Bank Inspection Panel to monitor cases that it has investigated.

Kirk Herbertson is Advocacy Strategist at EarthRights International, which represents the plaintiffs in this case.