On February 27, 2019, the Supreme Court held in Jam v. International Finance Corporation that international organizations may be subject to suit for their commercial activities. In order to appreciate the significance of this decision, it is important to understand how international organizations were previously granted virtually unlimited immunity from suit.
After World War II, the United States and other nations joined together to create a number of international organizations, such as the United Nations, the International Monetary Fund, and the World Bank. The purpose of these organizations was to assist with rebuilding the world by improving the overall international economy.
In support of these international organizations, the U.S. Congress passed the International Organizations Immunities Act of 1945, 59 Stat. 669 (IOIA). Among other things, the IOIA granted these international organizations various privileges and immunities, such as immunity from search and exemption from property taxes. 22 U.S.C. Sec. 288a(c), 288c. The overall purpose of the IOIA is to grant international organizations privileges similar to the sovereign immunity enjoyed for foreign governments.
At the time that the IOIA was enacted in 1945, U.S. courts looked exclusively to the U.S. Department of State on whether a foreign government should be granted immunity from a particular suit. Prior to 1952, the U.S. Department of State applied a classical theory of foreign sovereign immunity, which meant that foreign government enjoyed “virtually absolute” immunity as a principle of international comity.
In 1952, the U.S. Department of State started to apply a more restrictive theory of foreign sovereign immunity, whereby governments would continue to receive immunity for their sovereign acts, but not with respect to their commercial acts.
In 1976, Congress passed the Foreign Sovereign Immunities Act (FSIA), which codified this more restrictive theory of sovereign immunity. The FSIA, in particular, transferred responsibility of determining immunity from the executive branch to the judicial branch. In summary, foreign governments would presumptively be entitled to immunity, subject to a number of statutory exemptions. The most significant exemption is that a foreign government may be subject to suit in connection with its commercial activity that has a sufficient nexus with the United States.
With respect to this case, the International Finance Corporation (IFC) is an international development bank headquartered in Washington, D.C., and is governed by the IOIA. The purpose of the IFC is to promote economic development by encouraging private enterprise. In 2008, the IFC loaned $450 million to Coastal Gujarat Power Limited (CGPL), a company located in India. The purpose of the loan was to finance the construction of a coal-powered electrical plant. The loan required that CGPL comply with certain environmental requirements.
In 2015, a group of local farmers and fishermen sued the IFC in the U.S. District Court for the District of Columbia, alleging that the IFC failed to properly supervise this project and allowed pollution from the coal-powered plant to destroy or damage the surrounding environment. The District Court dismissed the lawsuit based on the IOIA since when the IOIA was enacted, international organizations like the IFC enjoyed virtually absolute immunity, just like foreign governments. The D.C. Circuit affirmed. This appeal ensued.
Before the Supreme Court, the IFC argued that it was entitled to the same level of sovereign immunity as in existence during 1945 when the IOIA was adopted. The petitioners argued that the IFC was only entitled to the same level of sovereign immunity in existence today for a foreign government engaged in a commercial activity, i.e., a more restrictive immunity whereby commercial activities are not generally immune from suit.
In ultimately ruling in favor of petitioners, the Supreme Court reasoned that the IOIA’s reliance on general principles of sovereign immunity was not fixed to the state of sovereign immunity when the IOIA was enacted in 1945. Instead, the Supreme Court held that the IOIA’s reliance on sovereign immunity should evolve as the law on foreign sovereign immunity changes over time. As such, the IOIA should be interpreted to give international organizations, like the IFC, the same level of restricted immunity enjoyed by foreign governments today. The Supreme Court therefore reversed and remanded the case for further deliberations consistent with the more restrictive interpretation of sovereign immunity. Thus, international organizations governed by the IOIA may be held responsible for their commercial activities.