Fishing communities and farmers are taking on the International Finance Corporation (IFC), the arm of the World Bank Group that finances projects by private corporations, for its role in funding and enabling the destructive Tata Mundra Ultra Mega coal-fired power plant project in Gujarat, India. In 2015, they sued the IFC in federal court in Washington, D.C., to challenge the IFC’s claim that it has “absolute” immunity from suit. Representing these communities, EarthRights International seeks to prove the IFC is not – as it believes – above the law.
The construction and operation of the 4,150MW power plant along the Gujarat coast has destroyed the natural resources relied upon by generations of local families for fishing, farming, salt-panning and animal rearing. The IFC’s own accountability mechanism has sharply criticized IFC for its role in the project, finding failures at every stage. The communities turned to court as a last resort, marking the first time project-affected communities have taken legal action to hold an international financial institution like the IFC accountable for funding and enabling a harmful project. IFC has not denied causing harm – instead, it has responded by arguing it has complete immunity from suit and simply cannot be held accountable, regardless of how much harm it causes. We think that’s wrong. We share our clients’ belief that no institution should be above the law and we believe the law is on their side.
Plaintiffs Budha Ismail Jam, Sidik Kasam Jam and Kashubhai Abhrambhai Manjalia are fishermen who reside at the fishing harbors (known as “bunders”) that are closest to the plant. Tragadi bunder is located directly next to the outfall channel, where enormous quantities of hot water used to cool the plant are discharged each day. Kotadi bunder is located next to the intake channel and close to the coal conveyor belt that transports coal from the port to the Plant. Their livelihoods and their way of life are increasingly threatened by the depletion of fish stocks and other vital marine resources their community has depended on for generations.
Plaintiff Ranubha Jadeja is a farmer from Navinal village whose wells have been ruined by the increasing salinity of the groundwater and farmland damaged by the ash and dust from the plant.
Additionally, ERI also represents the fishermen’s organization, Machimar Adhikar Sangharsh Sangathan (Association for the Struggle for Fisherworkers’ Rights) (MASS) and the Navinal Panchayat (village), a local government entity.
The named plaintiffs filed suit on their own behalf, and on behalf of other members of their community who are similarly situated in a potential class action.
The IFC is the private lending arm of the World Bank Group and plays a major role in funding private-sector development projects in developing countries. Because it only invests in projects that could not otherwise attract sufficient private capital, the IFC has immense influence over how the projects are designed, constructed and operated.
The IFC’s stated goals are to end poverty and boost shared prosperity and to carry out its development activities “with the intent to ‘do no harm’ to people and the environment.” To fulfill its institutional goals, the IFC has developed a Sustainability Framework, which dictates the conditions of IFC involvement in projects and the obligations of both the borrower and the IFC to ensure the project promotes positive development objectives while protecting local communities and the environment. For high risk projects like this one, IFC has additional requirements it must meet before committing to financing, such as ensuring there is “broad community support” for a project. These safeguards – along with a number of other environmental and social safeguards – were incorporated as binding conditions in the IFC’s loan agreement for the Tata Mundra project.
From the outset, the IFC recognized the Tata Mundra project was a “high risk” project that would cause significant harm to surrounding communities, particularly if the project was not well-managed and the risks were inadequately mitigated. Despite this, the IFC provided a critical $450 million loan without taking steps to ensure sufficient safeguards were put in place to prevent the very harms it predicted.
ERI works closely with MASS and the Centre for Financial Accountability in India.
In April, IFC’s Board approved a $450 million loan for the Tata Mundra project. The loan is for twenty years, making it the longest tenure loan for IFC. The first disbursement of funds was made in December 2008, following IFC’s first “supervision visit” to the project.
From the beginning, the IFC classified the proposed Tata Mundra project as a “high risk” project “expected to have significant adverse social and/or environmental impacts that are diverse, irreversible, or unprecedented.” The IFC recognized that the project would cause significant harm if sufficient steps were not taken to address critical issues like selection of an appropriate cooling system, impacts on the marine environment and fish, air quality impacts and pollution control measures, and livelihood restoration. The IFC also specifically identified “improper mitigation or insufficient community engagement” as having the potential to trigger “unacceptable environmental impacts.”
MASS filed a complaint with the IFC’s accountability mechanism – the Compliance Advisor Ombudsman (CAO) – raising a number of issues around the project and the IFC’s failure to meet its commitments and its failure to ensure the project complied with the social and environmental conditions of the loan agreement.
Following its investigation, the CAO issued its Audit Report of the project, which harshly criticized the IFC’s role. Among other things, it found IFC’s due diligence process was inadequate and had failed to consider the risks and impacts on local fishing communities. IFC failed to ensure the project met the applicable environmental and social standards necessary for IFC-funded projects, failed to address compliance issues, and failed to adequately supervise the project, despite its authority to do so and despite predicting harmful consequences in the absence of proper mitigation measures.
The IFC responded to the report by rejecting most of the CAO’s findings and ignoring others.
In January, the CAO issued its first Monitoring Report examining the IFC’s response to the Audit. It found the IFC had failed to effectively respond to any of the CAO’s findings, failed to remedy the injuries to local communities, and remained out of compliance with its obligations. The CAO emphasized “the need for a rapid, participatory and expressly remedial approach to assessing and addressing project impacts.” Again, the IFC failed to take any action to remedy the injury.
In April, ERI filed suit against IFC on behalf of the plaintiffs in federal court in Washington, D.C., where the IFC is headquartered. The complaint includes claims for negligence, nuisance, trespass, and breach of contract and seeks both damages and injunctive relief.
The complaint describes how construction of the massive intake and outfall channels used to cool the plant contributed to saltwater intrusion into the groundwater, destroying vital sources of water in an area where freshwater is scarce. And by pumping an immense amount of hot water from the plant’s cooling system into the sea, the plant has substantially changed the local marine ecosystem, causing a drastic decline in the fish catch.
A nine-mile-long coal conveyor belt, which transports coal from the port to the Plant, runs right next to local villages and near fishing grounds. Coal dust from the conveyor and fly ash from the plant frequently contaminate drying fish, reducing their value, damage agricultural production, and cover homes and property. Some air pollutants, including particulate matter, are already present at levels dangerous to human health, in violation of Indian air quality standards and the conditions of IFC funding, and respiratory problems, especially among children and the elderly, are already on the rise.
In July, the IFC filed a motion to dismiss the complaint arguing that it is entitled to “absolute immunity” from suit in US courts under the International Organization Immunities Act (IOIA). That statute states that international organizations like the IFC “shall enjoy the same immunity from suit … as is enjoyed by foreign governments.” The IFC also argued that it had not waived immunity from suit, and that plaintiffs did not need to access the courts because the CAO provided plaintiffs “an alternative means of recourse.”
The plaintiffs argued that IFC should not be immune from this suit because a foreign government who engaged in the very same activity would not be immune. Foreign governments only enjoy “restrictive” immunity under the Foreign Sovereign Immunities Act (FSIA), and would not be immune from a suit like this one arising out of their “commercial activities.” Since the IOIA gives the IFC the “same” immunity as foreign states, the same exceptions to immunity should apply. The plaintiffs also argued that the IFC had waived immunity from suit in its own Articles of Agreement.
Experts from Accountability Counsel, SOMO, and Crude Accountability, among others, filed declarations in support of ERI’s brief that highlighted the experience of other project-affected communities that had raised complaints about IFC projects through the CAO process. The declarations addressed the institutional limitations of the CAO and particularly its inability to compel the IFC to take any action in response to its findings, leaving communities, like the plaintiffs in this case, without meaningful remedies even when the CAO agrees with all their complaints.
In March, District Court Judge John Bates ruled that the IFC could not be sued. He found that the IFC was entitled to absolute immunity from liability, and had not waived immunity. The judge did not engage in a legal analysis of the IFC’s immunity claims; instead, he concluded that his hands were tied based on previous decisions from the U.S. Court of Appeals for the D.C. Circuit. Although the plaintiffs had argued that subsequent Supreme Court decisions had overturned those D.C. Circuit decisions, the judge held that the issue should be heard and decided by the court of appeals.
The plaintiffs appealed Judge Bates’s decision.
The U.S. Court of Appeals for the District of Columbia Circuit heard oral arguments in the case in February. In June, a three-judge panel of the D.C. Circuit affirmed the decision finding IFC immune from suit. Although the panel recognized the “dismal” situation of the Plaintiffs, noting IFC did not deny that the plant had caused substantial damage, it nonetheless found IFC could not be sued based on the Circuit’s previous decisions.
Judge Nina Pillard, however, wrote a separate opinion that criticized IFC immunity. Although agreeing that the court was bound by the earlier cases, she criticized those decisions as “wrongly decided” and wrote that the D.C. Circuit had taken “a wrong turn” when it “grant[ed] international organizations a static, absolute immunity” and in limiting the IFC’s own clear waiver of immunity. She added that those cases had left the law of international organization immunity “in a perplexing state,” and suggested the full court should revisit them.
In July, Plaintiffs filed a petition requesting the full court, which has the authority to change the law in the Circuit, rehear the case – known as “en banc rehearing.”
Additionally, the CAO issued its second monitoring report of IFC’s response in February, stating it was “concerned” that IFC had still not taken meaningful action.
Meanwhile, Tata Power, the company that owns the Tata Mundra plant, began trying to unload a majority of its shares in the project for 1 rupee – less than 2 cents – because of the losses it has suffered and will suffer going forward. The project made no economic sense to begin with and the plant has operated at a substantial loss for its entire existence. The company’s original bid for the project was extremely low because it was based on an assumption of cheap coal that was completely unrealistic. Despite promises that the Project would result in cheap power for India’s poor, the company has repeatedly sought to pass its financial problems on to consumers and has sought (so far unsuccessfully) regulatory permission to increase prices.
On August 2 the D.C. Circuit Court ordered the IFC to respond to a petition filed by Indian communities.
The Jam case presents two important questions concerning the scope of international organizations’ immunity from suit. The first is the immunity from suit provided by U.S. law. The International Organizations Immunities Act (IOIA) provides that organizations like the IFC have only the “same immunity from suit. . . as is enjoyed” by foreign states. Several D.C. Circuit cases have held, however, that this means that organizations are entitled to absolute immunity, because immunity was absolute when the IOIA was enacted in 1945. Foreign governments now are entitled only to “restrictive” immunity under the Foreign Sovereign Immunities Act (FSIA), which contains a number of specific exceptions to immunity, including cases arising out of a foreign governments “commercial activities.” But the same immunity rules have not been applied to international organizations, and ERI is seeking to change that rule.
The other issue is the scope of the IFC’s waiver of immunity from suit. IFC’s charter document – its Articles of Agreement – contains a provision broadly waiving immunity from suit and reserving immunity only from suits brought by member nations. But the D.C. Circuit has interpreted this to mean that immunity should only be waived where – in the court’s opinion – waiver would result in a “corresponding benefit” to the organization, such that the lawsuit “would further the organization’s goals.” ERI has argued that this lawsuit would further the IFC’s goals because the IFC needs communities’ trust, but also that the waiver should be interpreted broadly, in line with an earlier D.C. Circuit case that interpreted the IFC’s waiver literally.
In a separate opinion issued with the D.C. Circuit’s decision, Judge Nina Pillard wrote that both lines of cases were “wrongly decided” and suggested the full court rehear the case. Plaintiffs have filed a petition seeking rehearing on both issues.
Additionally, this case presents the question of when an international financial institution may be held liable for harms from a project that it finances.
Reuters | U.S. Supreme Court takes up dispute over power plant in India | May 21, 2018
India TV | US Supreme Court to hear dispute over Mundra power plant in Gujarat | May 22, 2018
The Wire | US Supreme Court to Hear Dispute Over Tata Mundra Power Plant in Gujarat | May 22, 2018
The Hindu Business Line | US Supreme Court to hear dispute over Tata Mundra power plant | May 22, 2018
Reuters | Indian fishermen hail U.S. Supreme Court decision to hear World Bank suit | May 22, 2018
The Wire | Upholding World Bank’s Immunity in Case Against Gujarat Fishermen Will Have Long-Term Ramifications | November 10, 2017
Reuters | Indian fishermen vow to keep fighting ‘devastating’ World Bank project | September 28, 2017
The Guardian | World Bank lending arm sees off lawsuit by Indian fishermen | March 30, 2016
Reuters | U.S. judge nixes lawsuit against World Bank over power plant in India | March 30, 2016
Times of India | Gujarat fishermen sue IFC in US Court for funding Tata Power’s Mundra UMPP | May 5, 2015
Huffington Post | Lawsuit Accuses World Bank Arm Of ‘Mission Failure’ | April 23, 2015
U.S. Supreme Court Will Hear Landmark Case Challenging World Bank Group Immunity | May 21, 2018
Indian Fishing Community Asks U.S. Supreme Court to Hear Case Challenging World Bank Group Immunity | January 22, 2018
Indian Fishing Communities Will Ask U.S. Supreme Court to Hear Case Against World Bank Group Challenging “Absolute Immunity” | September 27, 2017
Federal Appeals Court Rules That World Bank Group Cannot Be Sued For Harming Communities | June 27, 2017
Federal Appeals Court Hears Challenge to World Bank Group Immunity | February 6, 2017
Indian Communities ask U.S. Court of Appeals to hold World Bank Group Accountable | August 10, 2016
District Court Rules World Bank Can’t be Sued | March 28, 2016
World Bank Group Claims “Absolute Immunity” Allows it to Avoid Responsibility for Destructive Coal Power Plant | July 13, 2015
Communities Sue World Bank Group In U.S. Federal Court for Destructive Coal-Fired Power Plant | April 23, 2015
Legal Experts Urge Supreme Court to Hear Case Challenging World Bank Immunity | Michelle Harrison
The International Finance Corporation is Not Above the Law | Rick Herz
IFC’s Development Mission Requires Accountability | Michelle Harrison
World Bank Group Fails in its Promise to Protect the Most Vulnerable | Michelle Harrison
India’s War on Activists | Michelle Harrison