Federal Appeals Court Rules That World Bank Group Cannot Be Sued For Harming Communities
Affected Communities Plan Further Legal Challenge
Location: Washington, D.C.
The U.S. Court of Appeals for the District of Columbia Circuit has held that the International Finance Corporation (IFC) is entitled to “absolute immunity” from lawsuits brought by communities harmed by IFC projects, in Budha Ismail Jam v. IFC. The case against the IFC, the World Bank Group’s private lending arm, seeks a remedy for IFC’s funding of a controversial power plant that has devastated fishing communities in India.
In a decision issued Friday, a three-judge panel of the D.C. Circuit concluded that previous decisions concerning international organizations like the IFC required the court to find immunity in this case. One of the judges, however, wrote separately, expressing strong disagreement with IFC immunity.
“According to the court, the IFC is above the law and accountable to no one, regardless of how much harm it causes,” said Richard Herz, senior litigation attorney at EarthRights International (ERI), who argued the case for the plaintiffs. “But such sweeping immunity is inconsistent with Supreme Court precedent and contrary to the IFC’s own mission.”
“This decision tells the world that the doors of justice are not open to the poor and marginalized when it comes to powerful institutions like IFC,” said Gajendrasinh Jadeja, the head of Navinal Panchayat, a local village involved in the case. “But no one should be above the law.” Budha Jam, another plaintiff, added that “we are disappointed with this decision, but we will not give up our struggle for justice.”
Fishing communities and farmers represented by ERI filed suit against the IFC in April 2015 over the destruction of their livelihoods and property and threats to their health caused by the IFC-funded Tata Mundra coal-fired power plant in Gujarat, India. In March 2016, a district court judge dismissed the case, concluding it was required to find the IFC “absolutely immune” based on previous D.C. Circuit decisions. On appeal, the plaintiffs argued that those decisions had been overturned by later Supreme Court cases, and that IFC has waived immunity because this suit promoted IFC’s own stated goals.
Friday’s majority opinion recognized the “dismal” situation of the Plaintiffs, noting IFC did not deny that the plant had caused substantial damage, and yet found IFC could not be sued based on the Circuit’s previous decisions.
Judge Nina Pillard, however, wrote a separate opinion that, while agreeing that the court was bound by the earlier cases, criticized those decisions as “wrongly decided.” She 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 suggested the full D.C. Circuit, which has the authority to change the law of the Circuit, should revisit those cases.
From the start, the IFC recognized that the Tata Mundra plant was a high-risk project that could have “significant” and “irreversible” adverse impacts on local communities and their environment. Despite knowing the risks, the IFC provided a critical $450 million loan, enabling the project’s construction and giving the IFC immense influence over project design and operation. Yet it failed to take reasonable steps to prevent harm to the communities and to ensure that the project abided by the required environmental and social conditions for IFC involvement.
Construction of the plant destroyed vital sources of water used for drinking and irrigation. Coal ash contaminates crops and fish laid out to dry and has led to an increase in respiratory problems. The plant has also destroyed the local marine environment and the fish populations that fishermen like Mr. Jam rely on to support their families.
The IFC’s own compliance mechanism, the Compliance Advisor Ombudsman, issued a scathing report confirming that the IFC had failed to ensure the Tata Mundra project complied with the environmental and social conditions of the IFC’s loan. Rather than take remedial action, the IFC responded to the CAO by rejecting most of its findings, and ignoring others.
The harms suffered by the plaintiffs are all the more regrettable, because the project made no economic sense from the beginning. In fact, in the past few days, Tata Power, which owns the plant, has begun 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.
On appeal, the IFC argued that it is not bound by the mission in its charter: to help the poor and avoid harming its project’s neighbors. “The court’s judgment supports the arrogance of lenders like IFC, who disregard the law, their own safeguard policies, and even the findings of their accountability mechanisms,” said Dr. Bharat Patel of Machimar Adhikar Sangharsh Sangatha (Association for the Struggle for Fisherworkers’ Rights), which is a plaintiff in the case. “This sends the wrong message to institutions like IFC – that you can continue to lend money to bad projects, causing irreversible damage to people and environment and no law will hold you accountable.”
The plaintiffs plan to challenge the decision by following Judge Pillard’s suggestion and requesting the court re-hear the case “en banc” – in front of all the D.C. Circuit judges instead of a three-judge panel. Other federal courts have disagreed with the D.C. Circuit’s approach, which gives organizations like the IFC even greater immunities than sovereign foreign governments.