International Organizations Accountability Symposium: International Organizations May No Longer Be Absolutely Immune in the US

[August Reinisch is Professor of International and European Law at the University of Vienna and Member of the International Law Commission. Clemens Treichl is an associate in the international arbitration group at Freshfields Bruckhaus Deringer LLP. The views and opinions expressed in this post are those of the authors and do not necessarily reflect the position of Freshfields Bruckhaus Deringer LLP or any of its affiliates.]

On February 27, 2019, the US Supreme Court handed down its judgment in Jam v. International Finance Corporation, a widely observed case concerning the scope of organizational immunity under the International Organizations Immunities Act (IOIA). Chief Justice Roberts’ majority opinion does away with former circuit precedent that granted international organizations virtually absolute immunity and puts international organizations on an equal footing with foreign sovereigns under the Foreign Sovereign Immunities Act (FSIA). This landmark decision could subject a broad range of activities of international organizations to the scrutiny of US courts and might open the floodgates for an increasing number of lawsuits especially against international development banks.

The dispute underlying Jam arose from the detrimental impact that the construction of a vast $4.14 billion coal-fired power plant had on local fishermen’s livelihoods and on the environment in Gujarat, India. Those negatively affected sued the International Finance Corporation (IFC) in the US after it had co-financed the project to afford people access to cheaper electricity. Plaintiffs argued that the IOIA incorporates the current FSIA immunity regime. Under this theory, the exercise of domestic jurisdiction over international organizations is permitted in exceptional cases, such as where the action is based upon an organization’s commercial activity. The Supreme Court agreed:

“The International Organizations Immunities Act grants international organizations the ‘same immunity’ from suit ‘as is enjoyed by foreign governments’ at any given time. Today, that means that the Foreign Sovereign Immunities Act governs the immunity of international organizations. The International Finance Corporation is therefore not absolutely immune from suit.”

Albeit a considerable victory for plaintiffs, the Supreme Court’s opinion leaves it to the lower courts to develop guidelines as regards the application of relevant FSIA exceptions. The majority highlighted that “it is not clear that the lending activity of all development banks qualifies as commercial activity within the meaning of the FSIA” and that, even if it does, the FSIA stipulates further requirements in the absence of which immunity persists. In practice, applying the commercial activity exception will require delicate qualifications of the UN’s and other organizations’ conduct as either sovereign or commercial. Therefore, it remains unclear at this point whether the courts in Jam will lift immunity eventually.

If they do, the outcome would be a significant restriction of the scope of organizational immunity in the US. However, the functional necessity rationale underlying its very existence continues to be intact. Extensive amenability to suit could not only entail a chilling effect on project finance – as was argued by the IFC in Jam – but could also impede the effective functioning of international organizations on a wider scale.

As a viable alternative to an overly restrictive interpretation of immunity, international organizations may warrant institutionalized relief through other means of dispute settlement. Many organizations already established both substantive as well as procedural frameworks targeted at reducing adverse effects of their activities. The IFC, for instance, installed the Compliance Advisor Ombudsman (CAO), which plaintiffs in Jam complained to before bringing their action.

In theory, a more restricted scope of immunity could potentially disincentivize organizations from further strengthening these mechanisms. Absent immunity, representations before such bodies as the CAO could later serve as a basis for litigation in court. International organizations might even feel forced to back-pedal regarding existing procedures, which are not strictly required under applicable international law.

On the other hand, courts could be inclined to give deference to internal decisions provided that certain procedural safeguards are in place. Also, as CEO Philippe Le Houérou announced, the IFC is now implementing a plan to intensify its efforts to better protect affected communities – whether in reaction to current litigation or not. Either way, realizing an appropriate level of accountability of international organizations remains one of the focal points in the field of international institutional law, and with Jam, the debate has gained substantial momentum.

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For a more detailed analysis of jurisdictional immunities in the context of international project finance, see our article Domestic Jurisdiction over International Financial Institutions for Injuries to Project-Affected Individuals, 16 Int’l Org. L. Rev. 105–136 (2019), or share your thoughts with us at august.reinisch@univie.ac.at or clemens.treichl@freshfields.com. See also Rishi Gulati’s, Diane Desierto’s and Eliot Kim’s articles on this blog, EJIL: Talk! and Lawfare, as well as Nancy Perkins’ and Sally Pei’s AJIL Insight.

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