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No longer entitled to near absolute immunity, MDBs may be prompted to modify their
charters, lending practices, and accountability mechanisms.
ï‚· The Supreme Court reversed the D.C. Circuitâ€™s ruling, holding that international organizations are
entitled to the same limited immunity as granted to foreign governments under the Foreign Sovereign
Immunities Act (FSIA), enacted in 1976.
ï‚· A Multilateral Development Bankâ€™s (MDBâ€™s) exposure to suits in the US depends on the immunity
provisions within the MDBâ€™s charter, application of the FSIAâ€™s â€œcommercial activityâ€ exception, and the
availability of a forum non conveniens defense.
ï‚· Jam may lead MDBs to amend their charters to include stronger immunity provisions, strengthen
environmental and social covenants in negotiated loans and more strictly enforce such covenants,
issue fewer loans in high-risk industries and regions, or bolster their independent accountability
On February 27, 2019, the US Supreme Court delivered a 7-1 opinion in Jam v. International Finance
Corporation holding that the immunity granted to international organizations under the International
Organizations Immunity Act (IOIA) is not nearly absolute, but rather evolves with the immunity available to
Legal Implications: Exposure to US Suits for Organizations Involved in International Financial Investment Projects
The Court Did Not Reach the Question of Whether IFCâ€™s Articles of Agreement Conferred Immunity
While the Supreme Court acknowledged that the â€œimmunities accorded by the IOIA are only default rules,â€
and that â€œthe organizationâ€™s charter can always specify a different level of immunity,â€1 the Court did not
address whether the International Financial Corporationâ€™s (IFC) Articles of Agreement confer or waive
immunity for the claims at issue.
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The D.C. Circuit, however, did address IFCâ€™s jurisdictional provision: â€œActions may be brought against the
Corporation only in a court of competent jurisdiction[.]â€2 Despite acknowledging that this provision, â€œread
literally, would seem to include a categorical waiverâ€ of IFCâ€™s immunity, the court applied a more narrow
waiver based on its holding in Mendaro v. World Bank, which interpreted similar language in the
International Bank for Reconstruction and Developmentâ€™s Articles of Agreement.3 The Mendaro test asks
ï‚· Whether the suit â€œwould benefit the organization over the long termâ€ based on whether parties
would enter into negotiations with the organization absent waiver
ï‚· Whether the suit implicates the â€œcore operationsâ€ of an organization, such that it â€œwould
threaten the policy discretion of the organization.â€4
Applying Mendaro, the D.C. Circuit held that IFC had not waived its immunity in its Articles of Agreement
because such an interpretation would subject IFC to a flood of litigation and threaten its policy discretion.
Because the Supreme Court declined to grant review of the Mendaro test, the test remains good law in
the D.C. Circuit. Substantial doubts remain, however, as even the D.C. Circuit acknowledged that â€œit is a
bit strangeâ€ for the judiciary to determine what types of lawsuits â€œbenefitâ€ an international organization.5 If
the D.C. Circuit revisits the doctrine, it may well hold that IFCâ€™s Articles of Agreement includes a
â€œcategorical waiverâ€ of its immunity. The D.C. Circuit may also choose to apply the Mendaro test only to
cases in which the Court is deciding whether an organizationâ€™s charter waives the immunity provided
under the IOIA and not apply the test in deciding whether an organizationâ€™s charter confers immunity if the
IOIA does not already provide it. Such a holding would have serious implications for IFC, as well as for
other international organizations whose charters include similar language.
An international organization seeking to assess its liability for international financial projects following Jam
must first assess its charterâ€™s jurisdictional and immunity provisions. For example, the Inter-American
Development Bankâ€™s Charter, like that of IFC, has no explicit organizational immunity provision, but
contains a similar jurisdictional provision.6 The African Development Bank7 and the Asian Development
Bank,8 on the other hand, have explicit, albeit limited, immunity provisions. Lastly, the UN Charter (as
interpreted by the Second Circuit) provides absolute immunity.9 Given the D.C. Circuitâ€™s reservations
about the Mendaro test, MDBs with less expansive provisions may consider amending their charters to
strengthen their immunities. That said, amendment may not be politically feasible. For instance,
amendment of IFCâ€™s Articles of Agreement requires a vote of three-fifths of member countries (as
represented by their respective Governors) exercising 85% of the total voting power of the Corporation.
The Court Did Not Reach the Question of Whether the FSIAâ€™s â€œCommercial Activityâ€ Exception Applies to IFC
No court has yet decided whether the FSIAâ€™s â€œcommercial activityâ€ exception applies to IFC. The Supreme
Court cast doubt on the D.C. Circuitâ€™s finding that under this exception, IFC â€œwould never retain immunity
since its operations are solely â€˜commercial,â€™â€10 stating that â€œit is not clear that the lending activity of all
development banks qualifies as commercial activity within the meaning of the FSIA.â€11
First, â€œ[t]o be considered â€˜commercial,â€™ an activity must be â€˜the typeâ€™ of activity â€˜by which a private party
engages inâ€™ trade or commerce.â€ Thus, â€œthe lending activity of at least some development banks, such as
those that make conditional loans to governments, may not qualify as â€˜commercialâ€™ under the FSIA,â€
because such conduct is not the type of conduct in which private parties generally engage.12
Latham & Watkins April 18, 2019 | Number 2483 | Page 3
Second, any commercial activity â€œmust have a sufficient nexus to the United States,â€ and â€œmust be â€˜based
uponâ€™ either the commercial activity itself or acts performed in connection with the commercial activity.â€
Thus, if â€œthe â€˜gravamenâ€™ of a lawsuit is tortious activity abroad, the suit is not â€˜based uponâ€™ commercial
activity.â€ At oral argument, the US government expressed serious doubts as to whether the petitionersâ€™
suit, â€œwhich largely concerns allegedly tortious conduct in India,â€ could satisfy the â€œbased uponâ€
requirement.13 Both the governmentâ€™s and the Courtâ€™s observations suggest that even facially commercial
activities, like lending, will not necessarily satisfy the â€œcommercial activityâ€ exception.
Thus, to address exposure under the FSIAâ€™s commercial activity exception, an international organization
must assess whether its lending activity qualifies as commercial in nature and whether such activity has a
â€œsufficient nexusâ€ to the US. MDBs may elect to move their headquarters outside of the US to curb
exposure. But if the headquartersâ€™ location is specified in the MDBâ€™s charter, as it is for the IFC, that
change may not be politically feasible for the reasons described above.
The Court Did Not Reach the Question of Forum Non Conveniens
IFC argued before the District Court that the case should be dismissed on forum non conveniens
grounds, but the court never reached that issue.14 The doctrine of forum non conveniens allows a district
court to dismiss a case where, based on public and private factors, another court provides a more
convenient forum for disposition of the case.15 A district court can deny a motion to dismiss for forum non
conveniens if the plaintiff is immune from suit in the alternate forum. Alternatively, if a district court grants
a motion to dismiss for forum non conveniens, it can condition that dismissal on the plaintiffâ€™s waiver of
defenses from suit in the alternate forum, including a waiver of any potential immunities from suit in that
forum. Thus, while an international organization may be successful in having a suit dismissed from US
courts on forum non conveniens grounds, it should be aware of the attendant risk of litigating the case in
the alternative forum without any potential immunities.
Practical Implications for Organizations Involved In International Financial Investment Projects
Practical Effects on MDB Loans
Jam may have practical effects on MDBsâ€™ existing loans and future lending priorities. First, it may cause
MDBs to be stricter in the negotiation of environmental and social covenants and reporting requirements
for new loans, re-financings of existing loans, and amendments or waivers for existing loans. MDBs also
may be inclined to more strictly enforce such provisions, finding borrowers in default for failure to comply.
Second, MDBs may steer away from issuing loans in perceived high-risk industries (or regions).16 An MDB
with a greater perceived risk of litigation stemming from Jam might elect to deprioritize funding in
countries that arguably experience the greatest economic development impact from these projects.
Practical Effects on MDB Accountability Mechanisms
Additionally, Jam may prompt MDBs to strengthen their respective independent accountability
mechanisms. In the early 1990s, the World Bank Group created its Inspection Panel, the first such
grievance mechanism adopted by an MDB. Then in 1999, the Office of the Compliance Advisor (CAO)
was created to serve as the independent accountability mechanism for World Bankâ€™s private sector arms,
including IFC and MIGA, by facilitating dispute resolution between affected parties and project owners
and investigating IFC and MIGA for failure to adhere to their own environmental and social policies or
guidelines. The CAOâ€™s decisions, however, are non-binding on IFC and MIGA, and the CAO has no
authority to stop a project, no matter the gravity of the environmental, social or other harms it may pose
Latham & Watkins April 18, 2019 | Number 2483 | Page 4
(or has posed). Thus, Jam may prompt MDBs to strengthen the ability of their independent accountability
mechanisms to stop and remedy harms caused by a development project.
Many issues remain open in the wake of Jam, including the degree to which MDB charters confer or
waive immunity, how the FSIAâ€™s â€œcommercial activityâ€ exception will be applied to MDBs, and the
implications of the forum non conveniens defense. In the meantime, Jam may cause MDBs to expend
resources defending against claims in US courts, shift how they structure loans, enforce corresponding
covenants, and strengthen their independent accountability mechanisms.
If you have questions about this Client Alert, please contact one of the authors listed below or the Latham
lawyer with whom you normally consult:
Gregory G. Garre email@example.com +1.202.637.2207 Washington, D.C.
Paul J. Hunt firstname.lastname@example.org +1.202.637.2241 Washington, D.C.
Barry M. Sabin email@example.com +1.202.637.2263 Washington, D.C.
Suzanne M. Logan firstname.lastname@example.org +1.202.637.3370 Washington, D.C.
Brittany Sonia Bruns* email@example.com +1.202.637.2372 Washington, D.C.
Evan Pelz firstname.lastname@example.org +1.202.637.2264 Washington, D.C.
Margaret Allison Upshaw email@example.com +1.202.637.2385 Washington, D.C.
Angela Walker firstname.lastname@example.org +1.202.637.3321 Washington, D.C.
* Admitted to practice in California. All work supervised by a member of the District of Columbia Bar
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1 Jam v. Intâ€™l Fin. Corp., No. 17-1011, at 14 (U.S. 2019).
2 IFC Articles of Agreement, Sec. 3.
3 Jam v. Intâ€™l Fin. Corp., 860 F.3d 703, 706 (D.C. Cir. 2017) (citing Mendaro v. World Bank, 717 F.2d 610, 617 (D.C. Cir. 1983)).
4 Jam, 860 F.3d at 706-08 (citing Mendaro, 717 F.2d at 615-18; Osseiran v. IFC, 552 F.3d 836, 840 (D.C. Cir. 2009)).
5 Jam, 860 F.3d at 707.
6 Article XI, Sec. 3 (â€œActions may be brought against the Bank only in a court of competent jurisdiction[.]â€). The International Bank for
Reconstruction and Development and the International Development Association also have virtually identical jurisdictional
provisions. IBRD, Art. VII, Sec. 3; IDA, Art. VIII, Sec. 3.
7 Article 52(1) (â€œThe Bank shall enjoy immunity from every form of legal process except in cases arising out of the exercise of its
8 Article 50(1) (â€œThe Bank shall enjoy immunity from every form of legal process, except in cases arising out of or in connection with
the exercise of its powers to borrow money, to guarantee obligations, or to buy and sell or underwrite the sale of securities[.]â€).
9 U.N. Charter art. 105, para. 1 (â€œThe Organization shall enjoy in the territory of each of its Members such privileges and immunities
as are necessary for the fulfillment of its purposes[.]â€); Van Aggelen v. United Nations, 311 F. App'x 407, 409 (2d Cir. 2009)
(holding that the â€œUnited Nations enjoys absolute immunity under the U.N. Charterâ€ and under the IOIA).
10 Jam, 860 F.3d at 707.
11 Jam v. Intâ€™l Fin. Corp., No. 17-1011, at 14 (U.S. 2019).
14 Jam v. Intâ€™l Fin. Corp., 172 F. Supp. 3d 104, 108 (D.D.C. 2016).
15 The public factors include (1) the ease of access to evidence, (2) the connections of the parties to the forums, (3) the burden on
the defendant of litigating in the plaintiffâ€™s chosen forum, (4) the ease of obtaining witnesses, and (5) the enforceability of any
potential judgment. The public factors include (1) the potential for confusing a jury with multiple sets of laws, (2) the potential of
having jurors connected to the case, (3) the forumsâ€™ interests in having local cases heard at home, and (4) the benefit of hearing
the case in the forum where local law applies. A district court will not dismiss a case for forum non conveniens if there is no
alternate forum in which the dispute can be litigated.
16 The risk may be more than just perceived, in the case of IFC. Over the period 2001-2016, infrastructure (including energy) and
extractives projects comprised just 23% of IFCâ€™s total portfolio (measured by commitments in USD). Charles Kenney, et al.,
Inside the Portfolio of the International Finance Corporation: Does IFC Do Enough in Low-Income Countries?, January 2018,
available at https://www.cgdev.org/sites/default/files/inside-portfolio-international-finance-corporation-does-ifc-do-enough-low-
income.pdf. However, a recent study found that approximately 80% of all claims brought before the CAO involved projects in the
oil/gas/mining/chemicals and infrastructure sectors. International Human Rights Law Clinic, University of California, Berkeley,
School of Law, Accountability & International Financial Institutions: Community Perspectives on the World Bankâ€™s Office of the
Compliance Advisor Ombudsman, March 2017, available at https://www.law.berkeley.edu/wp-
content/uploads/2015/04/Accountability-International-Financial-Institutions.pdf, at 23.