Landmark Ruling Restricts Immunity of the International Finance Corporation of the World Bank Group

Budha Ismail Jam et al. v. International Finance Corporation

In 2015, Budha Ismail Jam and other farmers and fishing communities surrounding the polluting Tata Mundra Ultra Mega coal-fired power plant in Gujarat, India, sued the World Bank Group’s International Finance Corporation (IFC) for its role financing the plant’s construction by private firm Costal Gujarat Power Limited. The plaintiffs sought damages and injunctive relief for negligence, nuisance, trespass, and breach of contract, alleging that pollution from the coal plant’s construction and operation had harmed farmland, air, water, and marine life. An IFC internal audit found that the company had not complied with an environmental and social plan required by the loan to protect areas surrounding the plant. The audit also found the IFC had not adequately supervised the project. 

The issue before the United States (US) Supreme Court was whether the IFC had absolute immunity from suit. The Court interpreted US law as granting designated international organizations the more restricted immunity that is currently enjoyed by foreign governments, not the nearly absolute immunity granted initially in 1945. Since 1952, foreign governments have typically been able to be sued in the US for certain commercial activities, even as they have continued generally to hold absolute immunity in other areas.

The Court held that the IFC was not absolutely immune from suit because the International Organizations Immunities Act of 1945, stating that international organization immunity should be the "same…as enjoyed by foreign governments", intended to continuously interpret those institutions’ immunity alongside the immunity of foreign governments. The Court reasoned that because Congress had made only a general reference to immunity and did not specify which kind of immunity, it had adopted a law that was not static, but developed in parallel with the law on immunity of foreign states.

Importantly, the Court did not declare that the IFC's activity, or lending activity by other international development banks, was definitively commercial, or that any given activity would have a sufficient nexus to the US to permit a suit to go forward.

The case was remanded to the District Court to settle the questions of the commercial nature of the IFC's loan, and of whether the activities are related enough to the US for the IFC to be held liable.

This case opens the possibility that international financial institutions may be held liable for harms caused by projects they finance, since the decision lowers the standard of immunity for international financial institutions under domestic law. Whether an organization's activities in any individual case are commercial and have a sufficient tie to the US to enable potential liability will likely be subject to fact-specific litigation that may be hard to predict. Therefore, this lower standard of immunity may incentive better oversight by international lending institutions or dissuade them from financing projects with high human rights, environmental, or social risks. 

For their contributions, special thanks to ESCR-Net member: the Program on Human Rights and the Global Economy (PHRGE) at Northeastern University

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