Lawsuits against international development banks

Lawsuits against international development banks

April 05, 2020 | By Keith Martin in Washington, DC

Lawsuits against international development banks in the US courts face daunting hurdles.

Multilateral lending agencies like the International Finance Corporation and Inter-American Development Bank enjoy immunity from most lawsuits under the Foreign Sovereign Immunities Act of 1976 or “FSIA.” To succeed in US court, an outside group suing such an agency about a project it financed would have to show that the agency was engaged in a commercial activity and the conduct took place in the United States.

A federal district court in February dismissed a lawsuit brought against the IFC by EarthRights International, a non-governmental organization, that said it was suing on behalf of fishermen in India who were harmed by a coal-fired power plant in Gujarat that the IFC helped finance. The project was completed in 2008.

The group accused the IFC of contributing to local pollution by failing to enforce covenants in its loan documents that the group said would have reduced the harm. The group sued only the IFC and not also the owner of the power plant or any of the other lenders.

The case went earlier to the US Supreme Court after the IFC claimed immunity under the International Organizations Immunities Act of 1945.

The Supreme Court said that statute did not shield the IFC from suit in this case, but that the IFC enjoys the same immunity under FSIA as foreign governments. That immunity is subject to exceptions, including for conduct tied to commercial activities undertaken by such governments. The Supreme Court sent the case back to a federal district court to determine whether the IFC loan was a commercial activity and, if so, whether the conduct about which EarthRights International complained took place in the United States.

The district court said in February that any failure to enforce covenants was conduct in India where the power plant is located and not in the US. The IFC has its headquarters in Washington.

Jeremy Hushon, with Norton Rose Fulbright in Washington, said that since the court decided the conduct was outside the US, it did not have to reach the question whether a lender may be held liable for failing to monitor and uphold environmental and social standards included in its financing documents. “The court also did not close the door on future lawsuits based on loans made by international organizations from the US to foreign projects,” Hushon said. “In considering immunity from suit, the key determination will be whether the core of the lawsuit rests on conduct that occurred in the US.”

The case is Jam v. International Finance Corp. (For a more detailed discussion about this topic, see “Development Banks: Immunity from Lawsuits” in the June 2019 NewsWire.)