Friday, October 28, 2011

US courts chip away at the crumbling edifice of legal immunity*


29 September 2010

One of the most intriguing fictions about legal immunities exercised by international organizations is the pretence that they benefit anyone. In a very small and select set of cases, legal immunities may have a genuine policy basis. But in the vast majority of instances in which they are asserted, their existence is positively harmful both for the organization itself and for those who work for it or with it.

This point has recently been emphasized in a new decision of the Court of Appeals for the Third Circuit, a Federal Court sitting in Philadelphia, PA. InOSS Nokalva Inc v European State Agency [ESA], judgment handed down on August 16, 2010, an assertion of immunity by the ESA was rejected when it was sued by a commercial supplier of computer software. The ESA, it alleged, had distributed this software to third parties contrary to the terms of the software license.

This is one of just a handful of reported cases worldwide in which the immunity of an international organization has been refused. It is worth discussion, because it resolves a contentious point of US immunity law and may also suggests a range of legal arguments that may make it easier to challenge the immunity of international organizations in the future.

In its ruling the Court recognized the obvious point that if an international organization cannot be sued, that harms the organization itself.

Imagine the position of the proprietor of a window cleaning business. She receives a telephone call one day from the office manager of an international organization, which needs a contract to have its windows cleaned. She knows that no contract she enters into with the organization is worth the paper it is written on, because it cannot be enforced in court. Therefore she will not be prepared to extend the organization credit. Every piece of work will need to be paid for in advance, and she will not give a discount for an advance bulk commitment, because the organization can later resile from the commitment without consequences. Alternatively the business proprietor may add a risk premium to her contract price to take into account the fact that her debt may not be enforceable, just as a bank increases the interest rate for loans to people with poor credit history.

Economics highlights the importance of the ability to make credible commitments as a tool to realize the surpluses created by cooperation. Rule of law experts who work within international organizations emphasize this point around the world when arguing for legal reforms to include development of effective contract law. Yet the principle applies as much to international organizations themselves.

This analysis was acknowledged by the Third Circuit Court when it had to decide upon a provision of the International Organizations Immunities Act 1945. That statute provides that international organizations have the same immunities under US law as do foreign sovereign states. However, at the time the statute was enacted, the law of foreign sovereign immunity was in a state of flux. Under the 1952 “Tate doctrine”, where a foreign state was sued in a US court, the court would defer to the opinion of the State Department as to whether immunity ought to be upheld. This doctrine was unsatisfactory because it infringed upon the doctrine of separation of powers: a decision of the executive branch should not be relevant to how the court construes its jurisdiction. Thus in 1976 Congress enacted the Foreign Sovereign Immunities Act, which set out general rules for when a state would be immune from suit and when it would not. The general rule in that legislation was a sensible one: states would be immune for acts performed in their capacity as sovereigns, but not for acts considered commercial in character.

This distinction is common sense. Some acts can be performed only by states in their capacity as states: for example, passing legislation, or making judicial decisions. It would make a mockery of the Westphalian system if the sovereign acts of one state, such as its legislative procedures, were subject to review in the courts of another. But there are other acts equally within the realm of states and private persons alike. Where a state runs a business, or enters into a commercial contract to have the windows of its government building cleaned, these are not acts unique to a sovereign; they are the sorts of things a private person can do too. Therefore legal immunity ought not to apply.

The question for the Third Circuit was whether the European State Agency benefits only from this qualified immunity – which would not cover the commercial contract under which it was sued – or whether it could profit from absolute immunity. The ESA’s argument was that in 1945, when the International Organizations Immunities Act became law, the doctrine of qualified immunity – embodied in the 1976 Act – did not exist. The 1945 Act referred to immunities of states existing then, which were absolute. That the law on sovereign immunity had developed since 1945 did not mean the law on international organizations’ immunities had done the same. The 1945 set a standard of absolute immunity in stone that could not be eroded by the passage of time or subsequent development of the law.

The Court rightly rejected this abstract analysis. The argument for qualified immunity, it noted, is to the benefit of international organizations themselves as much as it is for states, because it facilitates commercial transactions as much as a law on absolute immunity hinders them. Of course in any individual case, when sued, an international organization will want to assert immunity. But over the course of multiple transactions it will not benefit them, because it will subject them to the proverbial rip-off. In an indefinite repeat-play game, immunity is a convenient assertion in individual cases but a poor rule. Good policy suggests that the 1976 Act should apply to international organizations as much as to sovereigns.

The Court’s decision is potentially subject to further appeal, perhaps as far as the US Supreme Court. But it reveals an exciting range of new legal arguments for people who want to sue international organizations. Most of the people who want to do so are aggrieved employees, subjected to egregious and unfair employment practices unfortunately common to international organizations. Nevertheless, employees feel that the internal justice procedures established by those organizations themselves seldom do justice to their complaints, because they serve as Star Chambers who act principally in the interests of the employers who fund them.

If immunity does not serve the best interests of international organizations in their commercial relationships, it is not clear that it serves the interests of those organizations in their employment relationships either. The lack of access to a genuine independent tribunal for either employer or employee leaves the employment relationship with international civil servants uncomfortably barren of legal regulation. Where employees can be treated arbitrarily, international organizations will acquire reputations as poor places to work, and will cease to attract the best staff. Employees may become unprofessional, knowing that neither they nor their employer are subject to legal accountability for the way they behave. Legal immunity in the employment relationship encourages an insidious lack of professionalism which it is incumbent on all responsible institutions and their employees to fight. The logic of the Court’s position on immunities for commercial contracts applies with even greater force to employment relationships, simply because there are far more employees than commercial contractors and thus the cumulative effect is all the greater.

Finally, the Court made the following point. If states individually do not benefit from absolute immunity, how can it be that collections of states by international treaty can create and act through organizations that do have absolute immunity? To allow that would render it trivially easy for states to evade their domestic and legal obligations, in an era in which we aspire to hold states ever more accountable to legal standards. Asserting the immunity of international organizations runs contrary to the prevailing winds of international law. It is pleasing to see judicial recognition of a logic that scholars have appreciated for some time. The days of absolute immunity for international organizations are surely numbered.

Related information:

OSS Nokalva Inc v European State Agency (United States Court of Appeals for the Third Circuit No. 09-3601)

*By Matthew Parish for UNJustice

The author is an international lawyer based in Geneva. He formerly worked in the legal departments of the World Bank and the Office of the High Representative of Bosnia and Herzegovina, and clerked at the European Court of Justice. Matthew’s book on international law and international courts,Mirages of International Justice: The Elusive Pursuit of a Transnational Legal Order, will be published by Edward Elgar in early

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