By ruling that the International Finance Corporation enjoys immunity, a Washington court has rendered unenforceable the lending agency’s own environmental norms.
The International Financial Corporation (IFC), a private lending arm of the World Bank group has lent $450 million to the Tata Mundra Power Plant (4150mw) on the coast of Kutch, Gujarat.
Since its inception, the power plant has seen opposition from the local fisher folk who stay merely one mile away from it. The power plant is causing destruction of the mangrove ecosystem and has increased the salinity of the groundwater, making it unfit for drinking or irrigation. The fly ash from the conveyor belt that transports coal is known to pollute the air as well as settle on the fish that have been laid out to dry. This, accompanied with thermal pollution in the waters surrounding the area, is adversely impacting local marine life.
The IFC has acknowledged that the project will have “significant adverse social and/or environmental impacts that are diverse, irreversible or unprecedented”. It has fixed performance standards on environment and social sustainability, and these standards must be complied with by the borrower and form a part of the loan agreement. The purpose is to ensure that projects funded by the IFC adhere to these standards and in the event of non-compliance a complaint can be filed before the compliance advisor ombudsman (CAO), which is an internal complaint mechanism or independent recourse mechanism of the World Bank. The CAO has the capacity to conduct compliance audits and dispute resolution.
Complaint against the power project
The Machimar Adhikar Sangarsh Sanghatan (MASS) filed a complaint before the CAO in 2011 citing violations of the performance standards in the Tata Mundra project based on the grave impact that the project had caused to the fishing community in the area. The CAO in its assessment report found that the IFC had failed to adequately consider the concerns of the project-affected communities in its determination of the social and environmental risks of the project. Despite this scathing report, the IFC ignored the findings and did not adopt any corrective measures. This led to the MASS filing a case before the district court in Washington DC, where the IFC has its headquarters, seeking injunctive relief from the project as well as compensation and damages. The plaintiffs were able to bring the suit before the Washington district court because the IFC’s articles of association allow for the suit to be brought before such a forum. The clause reads as follows:
“Position of the Corporation with Regard to Judicial Process,”
“Actions may be brought against the Corporation only in a court of competent jurisdiction in the territories of a member in which the Corporation has an office, has appointed an agent for the purpose of accepting service of process, or has issued or guaranteed securities. No actions shall, however, be brought by members or persons acting for or deriving claims from members. The property and assets of the Corporation shall, wheresoever located and by whomsoever held, be immune from all forms of seizure, attachment or execution before the delivery of final judgment against the Corporation.” (Articles of Agreement, Art. VI, § 3.)
IFC’s stand a problematic one
The counter claim made by IFC to the suit is problematic. It is a claim of absolute immunity – i.e. that no claim of liability can be brought before any court as the IFC is an international organisation. In other words, that the sovereign immunity granted to foreign states must apply to international organisations too. The International Organizations Immunities Act of 1945 (IOIA) which is the law that governs the question of immunity of international organisations in the US, established a legal standard which leaves the decision on granting or denying immunity to the Department of State. The March 28, 2016 judgment of the Washington district court confirms the absolute immunity of the IFC despite the absence of a State Department determination. This sets a problematic precedent and the basis for its decision is the cost-benefit test laid out in the Atkinson judgement of 2009. The test reads as follows:
“Since the purpose of the immunities accorded to international organisations is to enable the organisations to fulfill their functions, applying the same rationale in reverse, it is likely that most organisations would be unwilling to relinquish their immunity without receiving a corresponding benefit which would further the organisation’s goals.”
The IFC claims that the cost of not granting immunity or assuming that immunity has been waived is that it will “produce a considerable chilling effect on the IFC’s capacity and willingness to lend money in developing countries,” by opening “a floodgate of lawsuits by allegedly aggrieved complainants from all over the world.” This claim was upheld by the court on the grounds that the cost of denying immunity and allowing the plaintiffs to file a case will create what is termed in the judgment as a new type of plaintiff and cause an increase in the cases against IFC.
EarthRights International, who represented the plaintiffs Budha Jamail Ismal and others argued otherwise. They stated that by allowing the suit to be heard, it will enforce the IFC’s own environmental standards – making it a more credible lender in the developing world.
EarthRights attorneys also argued that the standard for granting immunity has changed from that laid down in 1945 in the IOIA to the standard set by the Foreign Sovereign Immunities Act in 1975 – where there is an exception to the granting of absolute immunity and it states that immunity has to be waived in commercial transactions or private acts. In the present case, EarthRights argued that since the IFC was engaged in a commercial activity, its claim to immunity will not hold. But the court said this standard would involve a direct commercial relationship between the plaintiff and the defendant – which according to the judgment does not exist. Thus, the relationship between the project affected community and the IFC was categorised as an indirect one.
The judgment poses a problem of access to justice for project affected communities. Since the CAO is an internal complaint mechanism and is not enforceable, this creates an element of voluntariness or choice on whether the IFC intends to comply with its assessment or not. The only method of ensuring compliance is to file a suit before courts which are vested with the power to hold the IFC accountable for negligence in ensuring that environmental and social standards put forth in the loan agreement are complied with. By granting absolute immunity and leaving it to the CAO to resolve any disputes which arise, the court has left project affected communities with no legal avenue to hold IFC accountable. The attorneys at EarthRights International are optimistic about an appeal to the Supreme Court. Until then, however, the IFC is legally an impenetrable organisation enjoying immunity even for private acts which are far removed from the international legal standard of restrictive sovereign immunity.
Arpitha Kodiveri is an environmental lawyer and legal researcher. She is currently based in Berkeley.