The International Fund for Rare Diseases was set up by treaty among eight nations. Its headquarters are in Italy which is also a member State. Its function is to raise money for rare diseases and to finance research and development projects.

Three years into its operation and following the global financial crisis the Fund is not only unable to continue with its mandate but it owes considerable amounts of money in respect of projects it has commissioned. Its member States are unwilling to finance these commitments but do not disband the Fund.

What is the nature of the Fund and who is liable for its debts?

 

Answer 1

The Fund is an international organisation. The fundamental characteristic of international organisations is that they are set up by States on the basis of a treaty and confer upon the organisation a number of powers. Besides its explicit powers, an organisation may also possess implied powers, as was set out by the ICJ in the Reparations case. There it was held that in order for an organisation to carry out the functions bestowed upon it by its member States it may have to assume powers not explicitly written in its constitutive instrument, but which are necessary in order to fulfil its mandate. The fact that the entity in question is called a Fund is irrelevant as concerns its status as an international organisation. International organisations possess international legal personality and as a result are able to contract in their own name and can be parties to both private contracts and treaties with third entities.

The fact that the financial crisis is ongoing is no excuse for any entity failing to honour its contractual obligations. Here, a distinction should be made between debts incurred by the organisation against private debtors (by means of contract) and debts incurred against public debtors, namely States and other international organisations. The debts in the present scenario seem to be of a private nature.

International organisations possess some immunity from suit in local courts and this might possibly be the case here, especially if such immunity exists in the Fund’s headquarters agreement with Italy. However, the situation here is not clear on the issue of immunity as we have no information on the relevant headquarters agreement and it is uncertain what type of immunity will apply.

As far as liability for the debts incurred is concerned, international law clearly distinguishes the legal personality of the organisation from that of its member States. The two are quite distinct. In the Tin Council cases the House of Lords made it clear that the debts of an international organisation do not burden its member States and that no distinct action against these is possible. Therefore, if the Fund is insolvent its private debtors cannot turn against its member States.

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BAD POINTS

This is not a bad answer but it has a number of negative elements. For one thing, its analysis of international organisations is far too broad. All that was asked was its legal nature and hence the part on an organisation’s implied powers is superfluous because it has no link to the problem question as such. Another superfluous point (again with no link to the question) is the distinction between private and public debts. Superfluous points should be avoided because they tend to demonstrate only a desire to employ relevant material without much association to the question at hand.

The section on immunity could have been interested but is poorly developed. The problem question does not seem to raise or imply any immunities, but of course this could be relevant to the outcome of the present case. It would have been preferable to leave such matters to the very end and develop them slightly more by, for example, having recourse to pertinent cases or the ICL Articles on the Responsibility of International Organisations. With such matters, and given no further material, one can only speculate but the fact that the point is raised demonstrates a wider awareness of the area.

Overall, all of the relevant issues could have been developed with more detail.

 

GOOD POINTS

Two questions are posed here, namely the legal nature of the Fund and its liability. The answer examines. Moreover, such questions may require delving further into adjacent matters, such as the possibility of immunities or the relevance of the headquarters agreement. The answer tries to look at one of these, namely the application of particular immunities.

The Tin Council cases constitute the key jurisprudence in this field the response to this particular aspect of the question is excellent.

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Answer 2

The International Fund for Rare Diseases need not necessarily take the form of an international organisation with legal personality, as was the case for example with the Conference on Security and Cooperation in Europe (CSCE). In the case at hand, however, the Fund was set up by treaty by a number of States, as opposed to having been set up on the basis of an agreement subject to private law with the Fund being incorporated in the register of legal persons of a particular country. A domestic legal person would possess legal personality under the law of the country it was registered, whereas an international organisation, by reason of possessing international legal personality, has rights and obligations under international law.

The Fund’s headquarters agreement (HQ) with Italy, as is standard practice, is a treaty between a State and an international organisation. Such HQ agreements typically set out the privileges and immunities of the organisation in the host State, including applicable immunities. These privileges and immunities do not apply in third nations, even the organisation’s member States, unless this is expressly stated in the organisation’s charter or is otherwise agreed in a distinct instrument. Under general international law, international organisations enjoy immunities on the basis of international agreements (including HQ agreements) for acts undertaken within the ambit of their mandate. Given that their mandate does not extend to the accumulation of private debt, organisations do not enjoy immunity for such liabilities and may be sued for debt before local courts. Therefore, if the Fund is found to be liable for the debts incurred against its debtors it will not enjoy immunity before the courts of Italy or indeed the courts of third nations.

As far as liability for the Fund’s debts is concerned, the general rule under international law is that the legal person of organisations is distinct from that of its member State. This rule is framed on the equivalent position in domestic law whereby legal persons are distinguished from their shareholders. As the House of Lords commented in the Tin Council cases, although it is unfortunate that private debtors cannot sue an organisation’s member States for the debts of the former, the distinction between the two cannot be broken. As a result, only the Fund is liable for its debts and not its member States.

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GOOD POINTS

This is a very good response. It is rather elaborate and links very well the issue of immunity and the relevance of the headquarters agreement into the rationale of the question at hand. This is also true in respect of the analysis of the Fund’s legal nature. Moreover, there are no superfluous issues and each paragraph clearly responds to the question posed.

 

BAD POINTS

This is a good response, so only a few missing that could make it much better. There is no mention of the ICL Articles on the Responsibility of International Organisations, which would have enhanced the analysis on liability. Equally, a judgment on the immunities of international organisations would have demonstrated a high degree of knowledge, particularly since this is a peripheral issue in the question at hand. Finally, there is an exceptional competing theory suggesting that in cases where member States abuse the organisation’s distinct legal personality (i.e. by incurring debts through it) then they share parallel liability alongside the organisation. A brief reference to this would equally demonstrate exceptional awareness.

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Suggested Answer

The International Fund for Rare Diseases was set up by a multilateral treaty and is headquartered in the territory of a member State, presumably through a distinct headquarters (HQ) agreement. Although international organisations are set up by treaty, it is not the case that all entities set up by treaty are international organisations as the intention of the parties may well be the establishment of an entity under private law. The distinguishing criterion is therefore the conferral of international legal personality through the constitutive instrument of the entity in question. It is presumed that this is the case here, in the sense that the Fund possesses a distinct legal personality from that of its member States. This argument is further supported by the fact that it has entered into a HQ agreement with Italy, which would not otherwise have been necessary if it was a private law entity since in that case it would only require registration in the local register of companies or foundations. The HQ Agreement is therefore a treaty in its own right.

HQ agreements between organisations and host States typically set out a number of privileges and immunities. These may include immunities from suit before local courts. However, the issue of immunity is distinct from that of liability. Immunity simply shields the respondent from being sued before national courts; it does not extinguish the liability or the debt as such. Therefore, immunity is a procedural bar to the ordinary jurisdiction of the courts, whereas the liability arising from debt is a substantive issue. In any event, it is highly uncommon for a State or an international organisation to be granted immunity in respect of private debt; immunity typically persist for acts of a public nature, although it should be said that the particular functions of the Fund are hard to classify as purely public as its mandate involves research and development into drugs for rare diseases. This will necessarily be outsourced to private contractors and as a result the bulk of the Fund’s outsourced work will involve private undertakings, not public. It is unlikely therefore that said undertakings will be covered by any of the immunities offered under the Fund’s HQ agreement with Italy.

As far as the Fund’s liability is concerned, the key issue here is whether liability is joint or individual. If the liability of an international organisation is incurred by it alone then its member States are free from any secondary liability. If the opposite is true then liability is shared among all, jointly. The Tin Council cases clearly reiterated the rule that because the legal person of the organisation is distinct from that of its member States any debts incurred by the organisation do not produce any liability for its member States. This rule is also laid out in the ILC’s Articles on the Liability of International Organisations. Therefore, in the case at hand the Fund is solely liable for said debts and if it is insolvent then its creditors will have to seek redress through a process of liquidation. Unless the Fund’s charter provides otherwise this process will be regulated under Italian laws because of the Fund’s HQ agreement with this country. As a result of the Fund’s distinct legal personality the member States can have no claim to the Fund’s property or assets, all of which will be liquidated in favour of its creditors. One further avenue is open to the creditors. If it is found that the member States established the Fund with a view to incurring debts which they would not otherwise have undertaken on their own (i.e. the aim was to abuse the Fund’s legal personality), then their liability is primary and they are responsible for the Fund’s obligations to private creditors. This is, however, very difficult to prove and so is its occurrence.