World Bank Group, Other International Organizations Can Be Sued In The US When Their Loans Cause Environmental Damage

WASHINGTON DC, United States

The United States Supreme Court has ruled for the first time that The World Bank Group and other international organizations can be sued in the US when international investments go wrong and damage the environment. The World Bank Group is the largest single investor in water projects globally.

The Court issued a 7-1 decision in Jam v. International Finance Corporation (IFC), part of the World Bank Group (WRG) February 27, ruling that international financial institutions, including various branches of the bank and other US-based organizations like the Inter-American Development Bank (IADB), can be subject to lawsuits in cases where their investments in foreign development projects are alleged to have caused harm to local communities.

The Jam lawsuit, the first of its kind against a World Bank institution, was brought in 2015 by a group of farmers and fishermen, several of whom share the name “Jam” living in Gujarat, a coastal state in western India, alleging that the nearby Tata Mundra coal-fired power plant, which came online in 2012, had contaminated local water sources and led to a decline in fish populations, severely disrupting their livelihoods.

In 2008, the IFC had loaned $450 Million USD to Coastal Gujarat Power Limited which helped finance construction of a coal-fired power plant in Gujarat. Under the terms of the loan agreement, Coastal Gujarat was required to comply with an environmental and social action plan designed to protect areas around the plant from damage. The agreement allowed the IFC to revoke financial support for the project if Coastal Gujarat failed to abide by the terms of the agreement.

The project did not go smoothly. According to the IFC’s internal audit, Coastal Gujarat did not comply with the environmental and social action plan in constructing and operating the plant. The audit report criticized the IFC for inadequately supervising the project.

In 2015, a group of farmers and fishermen who live near the plant, as well as a local village, sued the IFC in the United States District Court for the District of Columbia, relying on the IFC audit. The complainants asserted several causes of action against the IFC, including negligence, nuisance, trespass, and breach of contract.

The IFC has maintained that it was immune from suit under the US’s 1945 International Organizations Immunities Act (IOIA), which, among other things, grants international organizations the “same immunity from suit . . . as is enjoyed by foreign governments”, moving to dismiss the suit for lack of subject matter jurisdiction.

The February Supreme Court decision overturns this presumption. Writing for the majority, Chief Justice John Roberts interpreted the International Organizations Immunity Act (IOIA) as establishing a continuous link between international organization immunity and foreign sovereign immunity, as defined by the Foreign Sovereign Immunities Act (FSIA).

The decision exposes international organizations to potential liability if their actions fall within one of the exceptions to the FSIA, including the exception for “commercial activities”

A timeline of the progress of the lawsuit has been produced by Earthwatch, which has supported the Gurarat plaintiffs' suit.

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