Jam v IFC before the D.C. District Court: Forget the Floodgates, there won’t even be a Trickle

A year ago, the US Supreme Court in Jam v International Finance Corporation decided that the immunity granted to International Organizations (IOs) under the US International Organizations Immunities Act (IOIA), was the same “restrictive immunity” granted to states under the Foreign Sovereign Immunities Act (FSIA). The latter Act denies immunity for claims that are inter alia “based upon a commercial activity carried on in the United States by the foreign state”(28 U. S. C. §1605(a)(2)).

The case concerned a claim by fishers and farmers based in Gujarat, India against the International Finance Corporation (IFC) for financing the construction of the coal-fired Tata Mundra Power Plant. The Petitioners claimed that pollution arising from the construction and operation of the plant rendered the IFC liable for property damage, environmental destruction, loss of livelihood, and threats to human health (for previous analysis of the case on this forum see here and here).

On 14^th February 2020, the District Court for the District of Columbia upheld the immunity of the IFC when it reheard the case on remand from the Supreme Court, on the basis that the action was not “based on” conduct “carried on” or “performed in” the US. This post will argue that the combined impact of Jam v IFC before the Supreme Court and the District Court on the immunity of IOs under international law is minimal.

The Supreme Court Decision

The key question in Jam v IFC before the Supreme Court was whether the reference to the “same immunity from suit . . . as is enjoyed by foreign governments” in the IOIA (22 U. S. C. §288a(b)) refers to the restrictive immunity that foreign governments currently enjoy under the 1976 FSIA, or the absolute immunity that states enjoyed when Congress passed the IOIA in 1945. The Supreme Court held that it was the former.

Crucially, the Supreme Court rejected the argument that restrictive immunity under the IOIA would open the floodgates for litigation against IOs. It noted firstly, that the IOIA provided only default rules and that the charter of an IO could always depart from them by specifying a different level of immunity which, for example, covered any commercial activities; secondly, that it was not clear that development banks’ activities would qualify as commercial activity, thus remaining immune; and finally, that other requirements under the FSIA, including that the activity must have a sufficient nexus to the US, must still be met for the courts to exercise jurisdiction.

Jam before the District Court

It was the last of these issues that led to the IFC’s immunity being upheld on remand before the District Court in February. Having established that the burden of proving an exception to immunity, which applies presumptively under the FSIA, lies with the plaintiff, the District Court held that the plaintiff had not proved that the action was “based on” conduct “carried on” or “performed in” the US, as required by the commercial activities exception under the FSIA.

The decision of the District Court hinged on its finding that the “gravamen” or “core” of the complaint was not the IFC’s approval of the loan, which took place in Washington D.C., but its failure to ensure that the plant was designed, constructed, and operated with due care so as not to harm the plaintiffs’ property, health, and way of life — conduct which was based in India.

The IFC and the United States had argued that the gravamen is always found in the “last act” in the causal chain which results in the injury. The court categorically rejected this proposition, stating that such an approach would:

effectively immunize state-owned enterprises and international organizations operating in the United States from a large swath of causes of action, including failure-to-protect claims, negligent hiring or supervision claims, defective design claims, or any negligence claim with an intervening cause, so long as the “last act” ultimately occurred outside the United States.

Importantly, the court also rejected a “but for” test of causation in determining the activity the suit was based on. Whilst conceding that “without the IFC’s funding, the Tata Mundra Project could not have gone forward”, District Judge Bates held that “(t)he fact that a plaintiff would not have a claim but for some activity in the causal chain does not mean the suit is “based upon” that activity. Instead, the court claimed to adopt a “more holistic approach” in determining the gravamen of the complaint; one which “zeros in on the core, essentials, or gravamen of the suit, considering the basis or foundation for plaintiffs’ claims”. One may notice that it is difficult to elicit any substance from this test, other than that the court will determine the gravamen of the suit based on what it considers to be the gravamen of the suit!

The closest indication the court gives as to what guided its reasoning is that “[t]he particular conduct a suit is based upon is often found at the ‘point of contact’, presumably, the point of contact with the plaintiff. Yet in so relying on the “point of contact” and emphasising the actual injury complained of, the District Court falls into the same trap of immunising IOs from a “large swath of causes of action” that it sought previously to prevent. The District Court’s approach all but rules out any conduct which is planned and formulated in the headquarters of an IO within the US, but is physically implemented abroad, from falling within the commercial activities exception. Indeed, it is difficult to see how the “point of contact” differs from the “last act” approach which the court so emphatically rejected. The only situation that would be captured by the commercial activities exception under the test adopted by the District Court seems to be when the whole conduct takes place within the United States.

Having determined the gravamen of the complaint and that it was not “carried on” in the United States, Judge Bates also dismissed the plaintiffs’ contention that the transfer of funds and the responses to allegations of harm from the US established substantial contact between the US and the gravamen. As a result, the court did not have to consider the commercial nature of the acts in question.

The impact of Jam on the international law of IO immunities

Given that Jam v IFC concerned an interpretation of the scope of immunity under the IOIA, its impact on international law is limited to the extent to which this interpretation constitutes the US’ state practice or opinio juris on the permissible restrictions to IO immunity under customary international law.

The Supreme Court explicitly held that the IOIA only contained default rules that can be modified by the charters of IOs (and presumably also any treaty/headquarters agreement governing IOs’ privileges and immunities – on the self-executing nature of which see Bzrak v United States). The only reason the commercial activities exception applied in Jam was that the IFC’s charter did not state that it was absolutely immune. Therefore, at best, the decision in Jam is reflective of the US’ view that denying immunity to IOs for commercial activities conducted on the territory of the US is permissible under customary international law, in the absence of a treaty provision to the contrary. Quite apart from the fact that this is out of step with many jurisdictions and therefore has minimal impact on customary international law (see paragraph 16 ff here), it has no impact whatsoever on treaty-based IO immunities, both under international law and US domestic law. Thus, all it takes for an IO to avoid all and any consequence of the judgment is to conclude an agreement with the US, specifying that its activities are either non-commercial in nature or are absolutely covered by immunity. Indeed, it is possible that many IOs, to err on the side of caution, will do this.

Furthermore, as pointed out by the Supreme Court, it is unclear that the activities of IOs in general and international development banks in particular will constitute “the type” of activity “by which a private party engages in” trade or commerce, the Supreme Court’s “commercial activities” test. The only type of IOs’ activities which may be captured by the commercial activities exception is the contracts, such as procurement contracts, that IOs enter into in their day to day functioning (for an IO that was denied immunity for its epicurean pursuits see EPO v Stichting Restaurant De La Tour). However, such activity may still be immune on the basis that the activity concerned bears a sufficient nexus to the core function of the IO, if the IO’s immunity provision is formulated in functional terms.

A different basis for challenging IO immunity

In any case, the application of the restrictive state immunity standard, based on the governmental/commercial nature of the acts concerned, is a poor and mismatched prescription for the challenges posed by immunity to IOs’ legal responsibility. The basis for IO immunity is functional and not the sovereign/governmental nature of the acts in question.

The purpose of IO immunity is to preserve the independent functioning of IOs and shield them from the “divided decisions of the courts of different member states” (See Breyer dissent, 14). If the function of an IO is indeed caught within the commercial activities exception, domestic courts could strike at the heart of the IO’s activities, essentially nullifying its functioning and the very purpose of immunity. Conversely, the application of the commercial activities exception would do little to address the access to justice concerns of individuals harmed by the core, non-commercial functions of IOs.

The decision in Jam should be contrasted with the line of cases stemming from Waite and Kennedy before the European Court of Human Rights. In these cases, domestic and international courts have challenged the seemingly absolute nature of IO immunity based on the lack of reasonable alternative means of redress for claims against IOs. Leaving aside the legal basis for such challenges (for a helpful overview of which, see Ferstman, Chapter VI.2.2 (4)) this approach has the advantage of preserving the independence of IOs by leaving the decision of whether to cede immunity with the IO itself. If the IO wishes to protect its immunity, it will have to ensure that reasonable alternative means of dispute settlement are offered to address the access to justice rights of litigants. This approach also has the obvious advantage of allowing for challenges to non-commercial activities of IOs.

However, the US Court of Appeals for the Second Circuit has explicitly rejected this approach, at least as far as the text of UN Charter and the Convention on the Privileges and Immunities of the United Nations is concerned. Therefore, and for the reasons set out above, IOs headquartered in the US need not break a sweat, at least not just yet.