Communities in India that have been harmed by fossil fuels had their day in court this week. Our landmark case Budha Ismail Jam et al v. International Finance Corporation (IFC) had its first court hearing since our victory in the U.S. Supreme Court last year. The U.S. District Court for the District of Columbia held a hearing on the IFC’s new motion to dismiss the case.
The plaintiffs, represented by EarthRights, are fisherfolk and farmers whose health, property, and livelihoods have been harmed by the operation of a coal-fired power plant located in Gujarat, India.
They sued the IFC, the private lending arm of the World Bank, because it negligently financed the project. The IFC provided a keystone loan of $450 million for the project and approved its inadequate design despite knowing that such a coal-fired power plant would cause damage to members of the local communities.
The coal-fired power plant is designed so that it discharges hot water into the ocean, killing fish and damaging the marine ecosystem on which local fishermen rely to sustain their livelihoods. The plant has also contributed to contamination of the freshwater used by the community for drinking and irrigation. The plant also releases dangerous pollutants and coal dust into the air, which contaminates crops and fish laid out to dry to be sold.
Since we filed the case in 2015, IFC has argued that despite the damage to the health and livelihood of the plaintiffs, it should be totally immune from suit for the harm it caused. In February 2019, the Supreme Court found that IFC was not entitled to “absolute immunity” from suit.
Instead, international organizations like IFC are subjected to the same standards as foreign governments. Immunity for foreign states is determined by the Foreign Sovereign Immunities Act (FSIA). Under the FSIA, foreign governments only have “restrictive immunity” meaning that they are not immune in certain situations – such as when they engage in commercial activities in the United States.
After the Supreme Court’s decision, the case was sent back down to the trial court for the case to proceed. IFC again asked the court to dismiss the plaintiffs’ case because it still maintains that it is immune.
In court, IFC argued that its actions do not fall into the exception for commercial activities in the United States. It also asked the court to dismiss the plaintiffs’ claims under other arguments, including that this case should be heard in India, not the United States, and that the plaintiffs have not shown that the IFC is legally responsible for the harms.
In addition, the United States government also submitted a brief to the court supporting IFC’s assertion that it is immune in this case.
At the hearing, the plaintiffs, IFC, and the government all presented their positions to Judge John Bates. Most of the argument was focused on the question of immunity.
IFC asserted that despite the fact that it was making a profitable loan to a private company at market rates, it was somehow not engaging in commercial activity. My colleague Rick Herz, representing the plaintiffs, argued that this was clearly a commercial activity, and that because the loan was approved and managed from IFC’s headquarters in D.C., it also clearly had a sufficient connection to the United States.
IFC operates by lending money to private enterprises with the goal of alleviating poverty. In furtherance of this goal, IFC has developed standards borrowers must meet in order to receive IFC funding.
In this case, these environmental and social standards were written into IFC’s Loan Agreement. The Loan Agreement gives IFC the power to control many aspects of the project including the design of the plant and the ability to compel compliance with the environmental and social conditions of the loan meant to protect the communities.
Plaintiffs allege not only that the decisions to finance the plant, but also the approval of the plant’s design and other aspects of the project, were made here at IFC’s headquarters in Washington, D.C. and thus IFC’s actions constitute commercial activity with sufficient contact to the U.S.
Judge Bates asked dozens of probing questions of the plaintiffs’, defendant’s, and the government’s approaches to determining whether the IFC is immune from liability for its actions.
Judge Bates put many hypotheticals before each lawyer on how their approach to determining immunity would be applied if the case was different – such as, changes to the type of claim (for example, a contract claim versus a negligence claim), the location of the harm to plaintiffs, and the proportion of defendant’s actions occurring in the United States or abroad.
IFC emphasized the need to look at the location of the plaintiffs’ harm, whereas plaintiffs argued that the nature of the defendant’s acts dictates how the court should determine the defendant’s immunity.
The FSIA – a statute that is written to apply to foreign states – makes a distinction between “sovereign” and “commercial” actions in the context of immunity. Judge Bates questioned whether such a distinction really applied to an international organizations like IFC. He also noted that he wanted to decide the immunity issue on the narrowest grounds possible – but he didn’t tip his hand about which way that ruling might go.
Argument also touched briefly on whether the U.S. was the proper place to hear these claims. IFC argued that India was actually the better place for this dispute to be resolved, and told Judge Bates, the case should still be dismissed even though it had been granted immunity in India. But Plaintiffs’ counsel argued that because IFC has been granted statutory immunity in India, it would be improper to dismiss the lawsuit against IFC as it would be impossible to actually bring a case against IFC in India.
Little was said by Judge Bates or either side on the merits of the case – whether IFC can be held legally responsible for the Indian communities’ harms, if it does not have immunity.
After hearing argument from both sides, the court will likely take several months to decide these issues.
While this legal battle continues in the U.S., the plaintiffs and their communities in India continue to suffer from the effects of this harmful project. In fact, beyond the harms to local communities, the project has also failed to meet its purpose of delivering cheap electricity – its operator recently said that it might have to shut the plant down unless it can raise prices.
It’s been a fiasco from top to bottom, and a perfect illustration of what happens when major institutions operate without any accountability.