Jam v IFC’s complications: the Pan-American Health Organization

The landmark judgment by the US Supreme Court in Jam v International Finance Corporation (IFC) has given rise to anxious reactions by US-based international organizations and generated a lively academic debate including at least three insightful comments on this blog (by respectively Diane Desierto here, Julian Arato here and Sachintha Dias here).  The case focused on the extent of jurisdictional immunities enjoyed by international organizations operating in the US under the 1945 International Organizations Immunities Act (IOIA).  The IOIA grants international organizations “the same immunity from suit … as is enjoyed by foreign governments”, thus raising the question of the meaning of this legal equivalence in the light of the development of the law of foreign immunities since 1945 and in particular the exclusion of commercial activities from legal protection. 

As readers will recall, the case was initiated by representatives of communities in Kerala (India) who were affected by the environmental impact of a power plant project funded by the IFC. Plaintiffs accused the IFC of negligence in inadequately supervising compliance with environmental standards accepted by the borrowers and spelled out in the loan agreement. 

Article VI Section 3 of the IFC’s Articles of Agreement, with a language substantially identical to that of the corresponding article of the World Bank, grants the IFC narrower immunities than those enjoyed, for example, by the United Nations, allowing actions by private parties in connection with IFC’s activities on the financial markets. The federal courts of the District of Columbia applied previous consistent precedents in recognizing the absolute immunities of the IFC in that case (See the landmark Mendaro v World Bank judgment on an employment dispute). 

However, the Supreme Court reversed that jurisprudence and found that the IOIA granted international organizations the same limited immunities enjoyed by foreign states under the 1976 Foreign Sovereign Immunities Act (FSIA) at any given time.  In particular, international organizations are not immune from suits related to their “commercial activities” to be identified case by case on the basis of the type of activities undertaken without regard to their purpose or broader context. This conclusion was only based on a statutory interpretation of the IOIA without fully considering the differences between states and international organizations.  The IFC had objected that the immunities of international organizations are entirely distinct from those of states, as the former are based  on the need to protect their collective functions from individual states’ interference, whereas the latter are based on respect for sovereignty.  The Court, responding to the IFC’s disquiet at opening the floodgates of suits against international organizations (in particular development banks “that use the tools of commerce to achieve their objectives”), noted that the IOIA provides default rules without prejudice to the higher protection that can be afforded by organizational charters, and that there must be in any case a sufficient nexus with the US in order to attract jurisdiction; it also observed in passing that lending by international development banks may not fit easily within the concept of commercial activities.

The case against the Pan-American Health Organization (PAHO): Rodriguez v. PAHO

The District Court for the District of Columbia, on remand from the Supreme Court, upheld the immunity of the IFC in February 2020 (see judgment here).  The decisive argument in this case was the lack of a sufficient nexus with the US, since the “gravamen” of the case consisted in the IFC’s inadequate supervision of the project – conduct that took place in India – rather than the approval of the loan that took place at IFC’s headquarters in Washington, DC.  The rather loose language used by the Court in identifying the core of the claim suggested that it would be very difficult to apply the Jam test to activities carried out or supported by international organizations outside the US.  All this led Sachintha Dias to conclude in her post on this blog that Jam won’t even produce a trickle of lawsuits.

As a matter of fact, the spigot has already opened and the resulting trickle has led the same District Court to partially deny PAHO’s judicial immunities (see here for its opinion and order of 9 November 2020).  The lawsuit arises from PAHO’s involvement in the “Mais Medicos” programme whereby Cuba supplied between 2013 and 2017 a large number of doctors to Brazil to work in rural areas.  The deployment of medical services and missions to several developing countries is reportedly a significant source of income and national prestige for the Cuban government.  In view of Brazil’s reluctance for political reasons to conclude a bilateral agreement directly with Cuba, PAHO agreed to provide administrative support and public health expertise to the Mais Medicos program consistent with PAHO’s constitutional role in promoting health care cooperation among Latin American countries.  According to plaintiffs, PAHO’s role in the program included serving as a financial intermediary by concluding separate agreements with both countries, transferring payments from Brazil to Cuba and retaining a five percent administrative fee for itself.

The programme came under criticism from four Cuban doctors who defected to the US and filed the suit under consideration there, as well as from Brazilian civil society organizations, who described it as forced and grossly underpaid labour under intense pressure and harsh conditions. Mais Medicos became politically controversial for Brazil and was terminated in 2018.  Instead of moving against either Brazil or Cuba, plaintiffs sued PAHO in the US under the U.S. Trafficking Victims Protection Act (TVPA) and the Racketeer Influenced and Corrupt Organizations Act (RICO) seeking recovery of damages.  The case was filed in Florida federal court, and PAHO had it moved to the Washington, D.C. District Court. PAHO moved to dismiss the case for lack of jurisdiction due to its immunities under the IOIA, the UN Charter and the WHO Constitution.  

PAHO’s immunities under the IOIA

In its decision partly denying PAHO’s motion to dismiss by reason of its immunities, the D.C. District Court addressed several issues raised by PAHO, including considerations of comity as well as the validity of the service of process.  For the purpose of this note, I will only focus on PAHO’s claim of immunities with particular regard to the application of the Jam criteria under the IOIA.

The Court split the plaintiffs’ complaint into three separate claims under the TVPA and dismissed two of them dealing respectively with obtaining, recruiting or knowingly obtaining forced labour.  It also dismissed claims under RICO as well as claims of expropriation, another FSIA-based exception.  However, it accepted a third claim whereby PAHO was accused of benefiting financially from the trafficking of plaintiffs since it considered it a “commercial activity” under the FSIA on the basis of the Supreme Court’s interpretation of the IOIA.  The Court noted in this regard that Jam “has altered the playing field” by rendering international organizations no longer absolutely immune under the IOIA but rather “presumptively immune” unless one of the FSIA-based exceptions applies. 

The District Court, echoing both the Supreme Court and its own previous judgment on remand in the Jam case, recognized the difficulty of applying mechanically the commercial activity exception in the FSIA to international organizations.  States may choose to act like private citizens as opposed to acting as sovereign entities, but such a distinction is hard to transpose to international organizations as functional rather than sovereign entities. PAHO insisted in this regard that the Court should adapt the Jam test and use a different dichotomy for international organizations, by considering only activities falling outside their mission as potentially commercial and unprotected by immunities. It also argued that the District Court’s dismissal of the case against the IFC should a fortiori lead to the same conclusion in its case.  The Court dismissed those arguments and fell back uncritically onto the methodology for identifying commercial activities by foreign states developed in the implementation of the FSIA (for example in the landmark Republic of Argentina v Weltover Supreme Court case cited repeatedly by the Court).  In other words, the Court only looked at the objective nature of the activity and whether it is “the type of actions by which a private party engages in trade and traffic or commerce” rather than its purpose.  On that basis, the Court concluded that PAHO acted like a bank while performing the role of a financial intermediary between Brazil and Cuba.  The same activity, according to the Court, could have been performed by a commercial bank or similar market actor.  In this regard, aside from a strictly legal interpretation, the Court seems to have failed to accurately capture the nature of the Mais Medicos program and PAHO’s role in it.

Moreover, since the funds were deposited into PAHO’s bank account in Washington, DC, the Court was satisfied of the existence of a sufficient territorial nexus with the US for the purpose of the specific complaint about PAHO’s alleged knowledge of the exploitative nature of the Mais Medicos programme while benefiting financially from it.  I should caution on this point that the Court assumed the veracity of the plaintiffs’ allegations for the sole purpose of determining its jurisdiction, while reserving a final assessment for the merits. In the end, the Court found that this particular aspect of PAHO’s involvement in the programme is exempt from the immunity conferred by the FSIA.

PAHO’s immunities under the UN Charter and the WHO Constitution

As an alternative line of defence, PAHO claimed immunities under Article 105 of the UN Charter and Article 67 of the WHO Constitution.  Both articles provide for the functional immunities of their respective organizations. The Court dismissed those defences on the ground that neither treaty was self-executing based on their language, their programmatic nature as well as their negotiating history and post-ratification practice.  Incidentally, as correctly noted by Julian Arato in his blog post, this finding by the District Court contradicts the reassurance given by the Supreme Court in Jam that the IOIA’s default language could be overridden by more protective language in organizational charters.  In the absence of more specific and self-executing instruments such as the Convention on the Privileges and Immunities of the UN (to which the US is a party; see Brzak v. United Nations for a judicial confirmation), that reassurance is rather hollow. Moreover, in the present case, PAHO’s Constitution strangely omits any reference to immunities and neither does the organization have a headquarters agreement with the US.  On all these counts, therefore, the destiny of PAHO’s immunities may primarily lie with the IOIA.

As an aside, PAHO’s treaty defences must be seen in the light of its legal status; the Court did not address this point since it stopped at the allegedly non-self-executing nature of the two treaties. The reference to the UN Charter reads as a rhetorical argument since PAHO is neither a UN programme or entity established by one of its principal organs nor a treaty body falling within the purview of the organization.  With regard to the reference to WHO’s Constitution, it should be recalled that PAHO is an independent international organization with its own constitution and governance. Since American states refused to consider merging PAHO into the nascent WHO in the late 1940s, however, the two organizations concluded an agreement in 1949 whereby PAHO would serve as WHO’s regional committee and office for the Americas while retaining its status as a separate organization.  That arrangement was supposed to be temporary but is still in force. Consequently, and unless it qualifies its actions and decisions at any particular time, PAHO acts both in its own right and at the same time as an organ of WHO.  This unique situation unsurprisingly creates much ambiguity in the relations between the two organizations. For the purpose of the case under consideration, had the Court addressed the merits of PAHO’s treaty defence, it would have had to consider whether acting as an organ of WHO on a contractual basis would have justified extending WHO’s constitutional protection to it. 

Implications of the case

The suit against PAHO is at an early stage; PAHO has appealed against the court’s order and not much can be expected until at least late 2021.  The point remains, however, that PAHO may not have full legal immunity, and could therefore be held liable for an activity that, despite its potential similarity with a genuinely commercial activity, it performed as part of its constitutional mission and as a service to two of its member states.  Whatever the flaws of Mais Medicos, the programme was a form of intergovernmental cooperation and would not have been implemented without PAHO’s intervention.

As the former legal counsel of WHO and an unapologetic functionalist when it comes to the real life of international organizations, I find Jam and the consequences that it is already producing problematic and worrying.  My concern applies not only to international organizations operating in the US but also more generally if courts in other states take inspiration from the Supreme Court. This is especially so mindful of the fact that the FSIA (which now, post Jam, defines the contours of IOIA immunities) is often used for means which could be viewed as fundamentally political in nature, such as the “terrorism” exception to FSIA (including the Justice Against Sponsors of Terrorism Act, or “JASTA”), and, more recently, and fundamentally important for WHO and PAHO, the proposals raised to limit or alter FSIA immunities relating to COVID-19.

As the courts involved in both cases, as well as the comments in this blog, have at least hinted to, it is a conceptual and legal mistake to equate states and international organizations from the point of view of the basis for their legal protection.  The hesitations and laborious reasoning by the court in the PAHO case are indicative of the challenges in literally fitting the square peg of states’ choice to engage in commercial activities into the round hole of international organizations performing functions mandated by their member states or authorized by their constitutions. A mechanical translation only based on the type of transaction or activity without any regard to the very different legal and practical context is unsatisfactory and legally questionable.  Jam adds to the growing unease and uncertainty in many countries in drawing the line between what falls into the notion of “functional necessity” of international organizations and activities that should be better characterized as transactional rather than functional. This leads to contradictory court decisions that weaken the legal position of international organizations, frequently with regard to contractual disputes, and make their job increasingly difficult and uncertain.  There is ample literature on these developments, including a number of books authored or edited by August Reinisch (see here and here).   

At the cost of oversimplifying a more complex reality and very much aware that I am making myself unpopular among colleagues, in my view all activities of international organizations fall in principle within the scope of their functions and functional protection. This includes both non-contractual liabilities arising out of their external activities as well as contracts concluded for their daily functioning such as procurement of goods and services; the main exception would be clearly ultra vires acts.  A fortiori, external activities where international organizations do things in a similar way as a private actor – as in the PAHO case – logically and legally still remain within the scope of their functions because of the different legal status of those actors, their legal position within the international community, as well as the purpose and nature of their activities.

These very brief and truncated considerations are not meant to condone impunity, unaccountability and denial of justice on the part of international organizations. On this point, Dianne Desierto raises a number of serious questions in her aforementioned blog post including with regard to the non-representation in the governance and decision-making processes of development banks of the bearers of rights affected by the projects financed by them.  The democratic and accountability deficits of international organizations should, however, be addressed deliberately and strategically by their member states collectively through measures such as constitutional amendments, governance reforms, adoption of clear policies and finally granting organizations access to international courts.  It serves neither the interest of international organizations nor those of their “victims” to formally maintain the status quo and let important policy, legal and ethical issues be decided by inconsistent and unpredictable national jurisprudence.