The decision rendered in Jam et al v. International Finance Corp has removed the blanket immunity that international organisations like the World Bank had previously enjoyed, where they were immune to claims in United States courts for commercial activities. This decision represents a development that is in lockstep with the growing accountability of States and investors which cause damage to the environment.
This article gives an overview of what the case was about and outlines the significance of this decision for the Asia region. The author then places Jam et al in the context of the trend where international courts and arbitral tribunals have expanded accountability for States and investors which cause damage to the environment.
What was Jam et al about?
The International Finance Corporation (IFC), headquartered in Washington DC, is an international organisation that finances private-sector development projects that cannot otherwise attract capital on reasonable terms.
The IFC is an international organisation which is subject to the International Organizations Immunities Act (IOIA). Relevantly, the IOIA provides that “International organizations… enjoy the same immunity from suit and every form of judicial process as is enjoyed by foreign governments” (§ 288a(b)).
In 2008, the IFC loaned USD$450 million to Coastal Gujarat Power Limited to finance the construction of a coal fired power plant by Tata coal. The terms of the agreement required Coastal Gujarat to comply with an environmental plan to protect areas around the plant from environmental damage. The petitioners in this matter, including local farmers, fishermen, and a small village, claimed that the by-products from the plant, including coal dust, ash, and water from the plant’s cooling system contaminated and harmed the surrounding land, air, and water. The petitioners sued the IFC under multiple causes of action, including breach of contract, nuisance, trespass, and negligence.
The IFC contended that they were granted full immunity by the IOIA. The petitioners in this case argued that the Foreign Sovereign Immunities Act (FSIA) modified the operations of the IOIA, and thereby granted an exception to suit for commercial activities if there is a sufficient nexus with the United States (§ 1605(a)(2)).
Decision of Jam et al
The majority of the Supreme Court agreed with the petitioners and ruled that the IFC is subject to the ‘commercial activities’ exception in the FSIA. The Supreme Court ruled that “[t]he IOIA’s reference to the immunity enjoyed by foreign governments is a general … reference“, which can only “be given scope and content only by reference to the rules governing foreign sovereign immunity” (pp 10-11).
As the immunities of foreign sovereign governments was modified in 1974 by the FSIA, the Supreme Court found that was a similar ‘commercial activity’ exception for suit in the United States for international organisations.
The significance of Jam et al in South-East Asia
The decision of Jam et al now affords aggrieved individuals the right of redress in United States Courts against international organisations which cause environmental damage.
Jam et al is significant for the South-East Asia region because States and private investors finance energy, oil and gas, and communications infrastructure development projects – projects which are there to fill the significant ‘need for infrastructure investment’ in the South-East Asia Region. Unfortunately, foreign investors often turn countries that have weak environmental protection laws into ‘pollution havens‘, thereby putting ‘at risk the wellbeing of the very people it aims to assist‘.
One way that international organisations aim to minimise damage to the environment is by completing an Environmental Impact Assessment (EIA), which comprehensively outlines the environmental risks and recommends ways to minimise the risks. However, a 2008 comprehensive study on EIA’s in South-East Asia found that EIA’s ‘suffer from insufficient consideration of impacts, alternatives…public participation’, and in the worst case, ‘they are not conducted at all’ (p 3).
As a result of the decision of Jam et al, the author anticipates that international organisations headquartered in the United States will make a sincere effort to re-assess the environmental impact of the projects which they finance in the South-East Asia region. Jam et al also represents, for the holders of human rights, a step towards ensuring that all parties that are responsible for environmental damages are held accountable.
Jam et al in the context of international disputes relating to environmental damage
The decision in Jam et al is consistent with the trend of international courts and arbitral tribunals increasing the standards of accountability of States or investors which cause damage to the environment.
Advisory opinion of the Inter-American Court of Human Rights (IACHR)
In a 2018 advisory opinion, the Inter-American Court of Human Rights (IACHR) affirmed that the right of a healthy environment is a free-standing human right. The IACHR recognised that ‘all human rights depend on a favourable environment’ and emphasised that environmental degradation affects the enjoyment of other human rights (e.g. the right to water). Conclusively, the IACHR stressed that States are obligated to ‘mitigate any significant environmental damage’ as damage to the environment impacts on the rights to life and personal integrity.
Damage to the environment compensable under international law
Resonating with the trend of growing accountability towards preventing damage to the environment, the International Court of Justice on 2 February 2018 made its first ever award for compensation for damages to the environment in Costa Rica v Nicaragua. In Costa Rica, the ICJ held the view, in line with the submissions of both parties to the dispute and consistent the principles of full reparation, that “damage to the environment … is compensable under international law” (para 42).
Enforcement of environmental protection laws against investors
Recent developments in investor-state arbitrations have given States the ability to hold foreign investors which cause damage to the environment accountable. Since 2012, there have been ‘more than 60 investment disputes’ filed which have an environmental component. A 2018 award under ICSID, David Aven v Costa Rica, has recognised a State’s right to apply and enforce environmental protection laws against foreign investors. This ICSID award is in line with the theme of holding those who damage the environment accountable.
The decision of Jam et al now holds international organisations accountable for their investments in South-East Asia which cause damage to the environment. Jam et al is in line with the wider trend where international courts and arbitral tribunals have held accountable foreign States and investors which cause damage to the environment.
Tudor Filaret is a graduate-at-law in Sydney and a member of the NSW Young Lawyers International Law Committee.