Landmark corporate accountability case resulted in critical reforms for the World Bank’s lending arm.
April 26, 2022 New Delhi: Last evening India time, the U.S. Supreme Court denied a petition from a fishing community from the coast at Mundra, Gujarat whose livelihoods have been destroyed by Tata Mundra Ultra Mega Power Project (UMPP), a coal-fired power plant funded by the International Finance Corporation (IFC), the private lending arm of the World Bank. The petitioners had asked the Court to review a decision by the D.C. Circuit Court of Appeals that had dismissed the claims, finding that they had not shown they satisfied the “commercial activity” exception to immunity. The petitioners were represented by EarthRights International.
“While we are disappointed with this decision, it does not mean IFC is innocent,” said Bharat Patel of Machimar Adhikar Sangharsh Sangathan (Association for the Struggle for Fisherworkers’ Rights–MASS), one of the petitioners in the case. “IFC has never denied its role in the harms alleged in this case, and no court has ever held that IFC is not responsible for those harms. The IFC’s own accountability mechanism has repeatedly called for IFC to remedy the harms in this case. But because IFC refused, the communities were left with no choice but to file suit.”
This landmark case, Budha Ismail Jam, et al v. IFC, marked the first time that communities injured by an IFC-financed project took the institution to court. In 2015, the petitioners sued the IFC in federal court in Washington, D.C., challenging the IFC’s claim that it has “absolute” immunity from suit in U.S. courts. That issue went to the U.S. Supreme Court, resulting in a historic decision in 2019, holding that international organizations like the IFC and World Bank Group can be sued in U.S. courts, where established exceptions to the immunity enjoyed by foreign nations apply.
Following that decision, the petitioners argued their claims could proceed under the “commercial activity” exception to immunity. The lower courts ruled, however, that because the IFC’s borrower acted in India, IFC could not be sued in the U.S. in this case. The petitioners in seeking Supreme Court review argued that the decision was at odds with significant legal precedent and wrongly decided.
“This has been a David and Goliath battle,” added Joe Athialy of the Centre for Financial Accountability in India, which has long supported the Mundra communities. “This fight resulted in a significant change in the law. While the Court’s latest decision is disappointing, it does not mean IFC can rest easy. To avoid future suits in U.S. courts and in other countries, the IFC would be wise to listen to people & its accountability mechanism.”
The construction and operation of the 4,150MW Tata Mundra power plant along the Gujarat coast destroyed the natural resources that generations of local families have relied on for their livelihoods and threatens their health. The IFC’s own accountability mechanism has sharply criticized IFC for its role in the project, finding it violated its environmental and social safeguards and the conditions of the loan agreement at virtually every stage and urged the IFC to remedy the harms in the case. IFC chose to ignore it.
“IFC has made it clear that its word is meaningless,” said another petitioner and fisherman Budha Ismail Jam. “During this case, IFC argued that its environmental and social safeguards and the promises it makes to communities to protect them from harm are not serious commitments and that communities like ours can do nothing when IFC breaks those promises. Why would any community ever trust IFC after this? Our experience and our struggle should serve as a warning to others.”
“This case remains a black stain on IFC’s reputation as a supposed development organization,” said Marco Simons, general counsel of EarthRights. “Far from reducing poverty, IFC’s actions left these communities worse off. The IFC still has a legal and moral obligation to address the harms inflicted by this plant.”
The IFC announced a series of reforms in recent years, prompted in part by this lawsuit. These include changes to how it conducts environmental and social reviews and the functioning of the CAO, its own internal accountability mechanism. These are important but remain insufficient as they fail to address past harm.
“IFC can still do right by these communities. Its credibility depends on it,” added Simons. “Despite the outcome, our clients have sent a clear message that institutions like the IFC are not, as they once believed, above the law. Other communities may follow suit if IFC is not careful. In the meantime, our clients will continue to fight for justice. They don’t have the luxury of giving up.”
Bharat Patel, Machimar Adhikar Sangharsh Sangathan
Kate Fried, EarthRights International
Anuradha Munshi, Centre for Financial Accountability