The Immunities of International Organisations: The End of Impunity?

[Rishi Gulati is a LSE Fellow in Law at the London School of Economics and a Barrister at the Victorian Bar.]

The US Supreme Court has delivered its much awaited judgment in Jam v. International Finance Corporation, No. 17-1011, 27 February 2019 (‘Jam’ or the ‘Decision’. Two detailed posts by the author containing an analysis of the decisions of the courts below are here and here. In short, the International Finance Corporation (IFC), an international organization (IO) entered into a loan agreement with Coastal Gujarat Power Limited, a company based in India, to finance the construction of a coal-fired power plant in Gujarat. The plaintiffs sued the IFC in a US Federal District Court asserting that pollution from the plant harmed the surrounding air, land, and water. The District Court found that the IFC was absolutely immune under the US International Organisations Immunities Act 1945 (IOIA). The D C Circuit affirmed that decision, relying on Atkinson v Inter-American Development Bank, 156 F. 3d 1335.

The IOIA grants international organizations the ‘same immunity from suit…as is enjoyed by foreign governments’ (22 U. S. C. §288a(b). The central issue in Jam concerned how the IOIA standard of immunity is to be interpreted. Should it be equated with absolute immunity for states enjoyed virtually absolute immunity when the IOIA was enacted. Or should the IOIA standard of immunity be interpreted with reference to the restrictive immunity standard (immunity exists only with respect to non-commercial or public acts). This latter standard is now enshrined in the US Foreign State Immunities Act 1976 (s 1605(a)(2), FSIA).

By seven votes to one (with Breyer J dissenting) the US Supreme Court has now given a definitive answer. The majority of the court adopted the reference canon of statutory interpretation in respect of the IOIA: ‘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’ (p. 12). The Supreme Court thus concluded that the IOIA grants immunity with reference to the FSIA standard of immunity. It was said:

In granting international organizations the “same immunity” from suit “as is enjoyed by foreign governments,” the Act seems to continuously link the immunity of international organizations to that of foreign governments, so as to ensure ongoing parity between the two. The statute could otherwise have simply stated that international organizations “shall enjoy absolute immunity from suit,” or specified some other fixed level of immunity. Other provisions of the IOIA, such as the one making the property and assets of international organizations “immune from search,” use such noncomparative language to define immunities in a static way…Or the statute could have specified that it was incorporating the law of foreign sovereign immunity as it existed on a particular date…Because the IOIA does neither of those things, we think the “same as” formulation is best understood to make international organization immunity and foreign sovereign immunity continuously equivalent (pp. 9-10).

IO immunities under the IOIA have now remarkably been limited. The Decision will have reverberations around the world. Much will be written about Jam over the coming days, months and years. Let me make just three initial observations.

1 What does Jam mean for IOs?

There is no doubt that Jam will instil real dread amongst IOs. Used to enjoying virtually absolute immunity, even where wrongful conduct is immediately apparent (including in Jam where the IFC’s own accountability mechanism had found fault on part of the IFC), IOs will need to consider whether a claim raised against it is commercial or non-commercial? If the former, then immunity will not apply, at least in the US. Indeed, the IFC argued that most of its work of entering into loan agreements with private corporations was likely commercial activity; and the very grant of immunities becomes meaningless if it can be sued in respect of claims arising out of its core lending activities (p. 15). Roberts CJ dismissed the IFC’s concerns saying:

The IFC’s concerns are inflated. To begin, the privileges and immunities accorded by the IOIA are only default rules. If the work of a given international organization would be impaired by restrictive immunity, the organization’s charter can always specify a different level of immunity. The charters of many international organizations do just that…Notably, the IFC’s own charter does not state that the IFC is absolutely immune from suit (pp. 17-8).

Despite the above remarks, treaty amendment is a difficult process. Clearly, a real dent in IO immunities has now been made. This much is undeniable.

2 What does Jam mean for the plaintiffs?

Enhanced access to justice for the victims of institutional action may be Jam’s positive consequence. Caution must be exercised though. While the Supreme Court limited IFC’s immunities under the IOIA, there may be some solace for the organisation in the decision itself. On the IFC’s fears that restricting its immunities will open the so called floodgates exposing it to significant liability and hamper its working, the court said that firstly:

[I]t is not clear that the lending activity of all development banks qualifies as commercial activity within the meaning of the FSIA. To be considered “commercial,” an activity must be “the type” of activity “by which a private party engages in” trade or commerce……As the Government suggested at oral argument, the lending activity of at least some development banks, such as those that make conditional loans to governments, may not qualify as “commercial” under the FSIA (p. 18).

And second:

[E]ven if an international development bank’s lending activity does qualify as commercial, that does not mean the organization is automatically subject to suit. The FSIA includes other requirements that must also be met. For one thing, the commercial activity must have a sufficient nexus to the United States. See 28 U. S. C. §§1603, 1605(a)(2). For another, a lawsuit must be “based upon” either the commercial activity itself or acts performed in connection with the commercial activity. See §1605(a)(2). Thus, 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 activity exception…At oral argument in this case, the Government stated that it has “serious doubts” whether petitioners’ suit, which largely concerns allegedly tortious conduct in India, would satisfy the “based upon” requirement. In short, restrictive immunity hardly means unlimited exposure to suit for international organizations (p. 18).

Focusing on tortious liability, it would seem that on first reading, if the plaintiffs want to succeed in establishing jurisdiction of US courts, they either have to identify a tort committed in the US (which could be problematic), or failing that sue in Indian courts. And then hope that Indian courts are willing to also breach the IFC’s immunities in that country. For a range of legal and practical reasons, suit in India may not be ideal. Overall, while the plaintiffs in the Jam litigation might find it difficult to ultimately prevail in US courts, there is little doubt that where a sufficient nexus exists, US courts could very well take jurisdiction over an IO. By and large, Jam could help enhance access to justice for the victims of institutional action.

3 What does Jam mean for the law on IO immunities?

A great deal.

Two points are especially worth stating. First, despite IFC’s pleas, the court did not enter into a discussion about the nature of IO immunities as understood in international law, which is based in the functional theory (p. 11. The idea being that IOs need immunities to avoid an intrusion into their independence by host governments/courts. Instead of clarifying what this functional standard actually means and how it interacts with the commercial v non-commercial distinction, the Supreme Court chose to simply engage in an exercise of statutory interpretation taking a parochial approach (p. 12). So, there now exists a schism in the international and national law in this respect. However, ‘functionalism’ is not completely irrelevant to the IOIA regime. As the Supreme Court pointed out, the President of the United States can modify an IO’s immunity in light of its functions (s 288, IOIA). This might not come as much relief to IOs in the short term due to the Trump Administration’s approach to international law in general, and international institution’s in particular. The larger point being that functionalism seems to have been taken away from the IOIA regime.

Second, one must not underestimate the difficulty in distinguishing between commercial and non-commercial. Just like the distinction has given significant challenges in the state immunity context (whether the focus should be on the nature of the transaction or its purpose), the difficulty will be even greater in the IO context. As Breyer J pointed out in his dissent:

As a result of the majority’s interpretation, many of the international organizations to which the United States belongs will discover that they are now exposed to civil lawsuits based on their (U. S.-law-defined) commercial activity. And because “commercial activity” may well have a broad definition, today’s holding will at the very least create uncertainty for organizations involved in finance, such as the World Bank, the Inter-American Development Bank, and the Multilateral Investment Guarantee Agency. The core functions of these organizations are at least arguably “commercial” in nature; the organizations exist to promote international development by investing in foreign companies and projects across the world…The World Bank, for example, encourages development either by guaranteeing private loans or by providing financing from its own funds if private capital is not available (p. 29).

In conclusion, while Jam may end up enhancing access to justice for the victims of institutional action, a much welcome development, the law of IO immunities remains in a flux. Jam is a landmark judgment which will have significant ramifications. What should be lauded is that private parties now have a much better chance of securing access to justice against IOs now. IO impunity is thankfully under threat. If there was ever a time for IOs to ensure that they provide access to justice to claimants within the institutional order and avoid litigation in national courts, that time is now.