Power & Pipes

FERC, CFTC, and State Energy Law Developments

In a decision with significant implication for international organizations as well as project opponents and counterparties, the US Supreme Court ruled on February 27 that, rather than an international organization’s immunities being at the zenith of those ever held by any foreign government, an international organization’s immunities can be no greater than those held by foreign governments, under US law, when those immunities are asserted.

Multilateral investment organizations established by international treaties are frequent participants in funding the development and purchase of foreign energy facilities.[1] These international agencies benefit from broad immunities from civil liability in US courts under the International Organizations Immunities Act (IOIA), which affords international organizations the “same immunity from suit . . . as is enjoyed by foreign governments.”[2] When it was enacted in 1945, foreign governments were entitled to virtually absolute immunity. Subsequently, many aspects of foreign governmental immunity were narrowed. But international organizations continued to assert their rights to immunities as broad as those that foreign governments used to hold. Various US statutes and treaties might appear to support this view, such as the Bretton Woods collection of agreements that establish several international financial organizations (“…the [International Monetary Fund is immune from] every form of judicial process except to the extent that it expressly waives its immunity.” Articles of Agreement of the International Monetary Fund, Art. IX, §3, Dec. 27, 1945, 60 Stat. 1413, T. I. A. S. No. 1501.)

In a 2015 challenge to IFC’s immunities, raised by environmental and native-rights activists, the US Department of Justice, the US Court of Appeals for the DC Circuit, and the US District Court for the District of Columbia all agreed with this broad assertion of immunity.

In a 7-1 decision in Jam, et al. v. International Finance Corporation,[3] the US Supreme Court rejected the Department of Justice’s position, reversing the appellate court and the district court.

The implications of Jam could be substantial. The opponents of projects that are funded by international organizations have historically had little luck litigating against the organizations, and informal searches of reported cases reveal few such suits proceeding to merits judgments. Investors who borrow or secure equity commitments from international organizations have been limited, in disputes, from suing the international organizations (the international organizations’ financing and investment documents normally require that disputes proceed to tribunals that are maintained by affiliates of the organizations, thereby ruling out access to sovereign neutral tribunals).

Jam casts all of these customary conventions into doubt. Going forward, both project opponents and project counterparties (including borrowers) may view Jam as inviting more litigation against international organizations involved in energy investment and financing, which may make international organizations more reluctant to commit capital on current terms. International organizations may seek to harden language requiring arbitration or other non-judicial dispute resolution, and might consider venue-shopping so as to apply non-US law to their investment documents. Further guidance may be available when the DC Circuit acts on the Supreme Court’s remand order.

[1] For example, the International Finance Corporation’s (IFC) 2018 annual report indicates that over 79 million people around the world received electricity from the power generation projects financed by IFC during the prior one year alone (viewed February 27, 2019).

[2] 22 U. S. C. §288a(b).

[3] Jam, et al., v. International Finance Corporation (No. 17-1011), 586 U.S. ___, issued Feb. 27, 2019 (“Jam”).