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Liability to Third Parties of Member States of International Organizations: Practice, Principle and Judicial Precedent

Published online by Cambridge University Press:  27 February 2017

C. F. Amerasinghe
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Extract

One of the principal issues of interest to international lawyers in the International Tin Council cases decided by the English courts was whether member states of the International Tin Council (ITC) were secondarily or concurrently liable to third parties for the debts of the organization. This issue may arise when two or more states form an organization with legal personality that can perform functions with legal consequences. In the course of performing these functions, such an organization may incur liabilities to third parties. These third parties may be states, other organizations, individuals or legal persons. The states may be member states of the organization itself or other states, and the individuals and legal persons may be nationals of member states or not. The liabilities may emanate from transactions, such as international agreements between states and the organization, that take place at the international level and may be governed by international law; or they may stem from transactions governed by municipal law, whether between the organization and states, individuals or legal persons. Such liabilities may be contractual, quasi-contractual or delictual.

Type
Research Article
Information
American Journal of International Law , Volume 85 , Issue 2 , April 1991 , pp. 259 - 280
Copyright
Copyright © American Society of International Law 1991

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References

1 The two cases in which the issue was raised were, in the Court of Appeal, Maclaine Watson & Co Ltd v. Department of Trade & Indus., [1988] 3 All E.R. 257; and, in the House of Lords.J.H. Rayner Ltd v. Department of Trade & Indus., [1989] 3 W.L.R. 969. The House of Lords case is titled differently in the All England Law Reports and in the original report published by the House of Lords itself. In the latter it was titled Australia & New Zealand Banking Group Ltd, et al. v. Australia, et al.; it is reprinted in 29 ILM 670 (1990). In the former it is Maclaine Watson & Co Ltd v. Department of Trade & Indus., [1989] 3 All E.R. 523. Though the titles are different, the reports are identical.

2 The International Bank for Reconstruction and Development (World Bank), for instance, among other institutions, used generally to make its borrowings from the central banks of states (i.e., state agencies representing the states themselves) expressly subject to some municipal law. But this practice has been changed.

3 Most financial institutions, and particularly the World Bank, in general explicitly make their borrowings from such persons subject to a municipal law. Sometimes the choice of law is not mentioned, as where a borrowing is made from a central bank, on the assumption that it is highly unlikely that it would be assigned to a private person, natural or legal, by the central bank.

4 Sixth International Tin Agreement, June 26, 1981, Arts. 16(1), 4 and 13(1), respectively, UN Doc. TD/TIN.6/14/Rev.1 (1982), 1982 Gr. Brit. Misc. 13 (Cmd. 8546).

5 International Tin Council (Immunities and Privileges) Order 1972, S.I. 1972, No. 120.

6 [1988] 3 All E.R. at 377, 383–84 (per Kerr L.J. on behalf of the court).

7 [1988] 3 All E.R. at 361, 363–64 (per Nourse L.J. on behalf of the court). For the statute, see Companies Act 1985, ch. 6.

8 [1988] 3 All E.R. at 372 (per Ralph Gibson L.J.), 375 (per Nourse L.J.) and 376 (per Kerr L.J.).

9 [1989] 3 W.L.R. at 986 (per Lord Templeman and per Lord Griffiths), and 1023 (per Lord Oliver). Lords Keith and Brandon agreed with the other three Law Lords.

10 See [1988] 3 All E.R. at 294 (per Kerr L.J.).

11 Id. at 296. See also [1988] 3 All E.R. at 335 (per Nourse L.J.), and 345 (per Ralph Gibson L.J.).

12 [1989] 3 W.L.R. at 982 (per Lord Templeman), and 1004, 1005, 1008 (per Lord Oliver).

13 [1988] 3 All E.R. at 311–12 (per Kerr L.J.), 357 (per Ralph Gibson L.J.), and 335 (per Nourse L.J.).

14 [1988] 3 All E.R. at 309–11 (per Kerr L.J.). See also [1988] 3 All E.R. at 356–68 (per Ralph Gibson L.J.).

15 [1989] 3 W.L.R. at 985 (per Lord Templeman), and 1016 (per Lord Oliver).

16 [1989] 3 W.L.R. at 1017.

17 See [1988] 3 All E.R. at 274 (per Kerr L.J.); see also [1989] 3 W.L.R. at 1008–09, 1010–11 (per Lord Oliver).

18 [1988] 3 All E.R. at 307. See also [1989] 3 W.L.R. at 983 (per Lord Templeman), and 1008–09 (per Lord Oliver). The other three Law Lords agreed with them.

19 [1988] 3 All E.R. at 352–53.

20 [1988] 3 All E.R. at 330 (per Nourse L.J.).

21 Id.

22 Id. at 331.

23 Id. at 334.

24 [1989]3 W.L.R. at 983, 984–85 (per Lord Templeman), and 1008–09, 1011, 1012, 1013 (per Lord Oliver).

25 [1989] 3 W.L.R. at 983 (per Lord Templeman), and 1014–15 (per Lord Oliver).

26 There are many connected issues that become relevant directly or indirectly in considering the general responsibility of member states for the obligations incurred by international organizations, whether to third parties or to the organizations. For example, questions may arise about the relevance of international personality, the incidence of international personality, the objective or nonobjective nature of international personality (recognition), the forum of the litigation and the relevance of municipal law in a given situation, to name only a few. A related question concerns the responsibility of member states to the organizations in respect of their liabilities. None of these will be examined here. Another aspect of the problem involves obligations arising from international agreements (treaties) between states and organizations. See text at note 56 infra.

27 Two cases were filed with the Court of Justice of the European Communities against the Council and Commission of the European Communities (EC), one by AMT (Tin Recoveries) Ltd. and Others and the other by Machine Watson & Co., Ltd. See Case 19/89, 32 O.J. Eur. Comm. (No. C 62) 7 (1989); and Case 241/87, 30 id. (No. C 262) 5 (1987). Both cases arose out of the collapse of the ITC, of which the EC was a member. In Case 241/87 the application was based on the noncontractual liability of the EC, alleging, inter alia, negligence on the part of the Community because it knew that the ITC was insolvent and unable to meet its obligations (though it was continuing to trade) and had failed to warn third parties of the danger of trading with the ITC. This rationale for liability goes beyond, and is different from, that based on secondary or concurrent responsibility arising from the nature of international personality. In Case 19/89 the contentions were based, inter alia, on negligence (as in Case 241/87), breach of several provisions of the EEC Treaty, concurrent or secondary liability and direct liability. Both cases were withdrawn by the applicants and therefore removed from the list by the Court. 33 O.J. Eur. Comm. (NO. C 146) 12 (1990). The withdrawal of the cases was probably prompted by the agreement of the member states of the ITC to compensate the third parties concerned, although the former continued to deny liability. See text at note 41 infra. However, this is not recorded in the order of the Court. These cases do not shed any more light on the problem discussed in this article.

Both applications to the Court were discussed by the EC Council and Commission, the political and executive organs of the organization, the main focus being the defenses to be made. There was apparently no inclination to concede any of the applicants’ arguments. The defendants in Case 241/ 87 had filed both an answer and a rejoinder, while in Case 19/89 the application was withdrawn before the defendants could take any action with regard to the pleadings (information supplied by courtesy of the Deputy Registrar of the Court).

28 1 H.-T. Adam, Les Organismes International Spécialisés 130 (1965) (footnote omitted).

29 I. Seidl-Hohenveldern, Corporations in and under International Law 88 (1987).

30 Id. at 88–89.

31 Id. at 119–21.

32 Piercing the Corporate Veil of International Organizations: The International Tin Council Case in the English Court of Appeals, 32 German Y.B. Int’l L. 43, 52 (1989).

33 Id. at 51–52.

34 H. Schermers, International Institutional Law §1395, at 780 (1980).

35 F. A. Mann, International Corporations and National Law, in Studies in International Law 553, 572 (1973), reprinted from 42 Brit. Y.B. Int’l L. 145, 160–61 (1967).

36 Shihata, Role of Law in Economic Development: The Legal Problems of International Public Ventures, 25 Revue Egyptienne de Droit International 119, 125 (1969).

37 Among others, Cahier agrees that there is no rule in international law that members are liable for the debts of the organization. Cahier, The Strengths and Weaknesses of International Arbitration Involving a State as a Party, in Contemporary Problems in International Arbitration 241, 244 (J. Lew ed. 1987).

38 See note 30 supra.

39 Seidl-Hohenveldern, supra note 32, at 51–52.

40 See Mallory, Conduct Unbecoming: The Collapse of the International Tin Agreement 33 (thesis, University of Cambridge, 1989).

41 Tin creditors’ £182.5m accord, Fin. Times (London), Dec. 23, 1989, §1, at 22, col. 4.

42 Articles of Agreement of the International Bank for Reconstruction and Development, opened for signature Dec. 27, 1945, Art. 11(6), 60 Stat. 1440, TIAS No. 1502, 2 UNTS 134.

43 Id., Art. IV(9).

44 Id., Art. 111(3).

45 Id., Art. VI(5).

46 Debts arising from, e.g., administrative contracts, are apparently not included in the concept of debt for the purposes of the “gearing” ratio.

47 Other organizations in which there is a limitation of liability of members in a manner identical with, or similar to, that in the IBRD Articles of Agreement are, e.g., the Inter-American Development Bank (IDB), Arts. II(3)(d), IV(5), VII(2), X(3), International Organization and Integration II.E.2.a (1983) (entered into force Dec. 30, 1959); the African Development Bank (AFDB), Aug. 4, 1963, Arts. 6(5), 21, 22, 25, 48, 49, 510 UNTS 3; the Multilateral Investment Guarantee Agency (MIGA), Oct. 11, 1985, Arts. 8(d), 22, 55, 1989 Gr. Brit. TS 47 (Cmd. 812), 24 ILM 1605 (1985). There are some differences in the “gearing” or equivalent ratio in these instruments.

48 Agreement Establishing the International Fund for Agricultural Development (IFAD), June 13, 1976, Art. 3(4), 15 ILM 922 (1976). For the same or similar wording, see the constituent instruments of the International Finance Corporation (IFC), May 25, 1955, Art. 11(4), 7 UST 2197, TIAS No. 3620, 264 UNTS 117; International Development Association (IDA), Jan. 26, 1960, Art. 11(3), 11 UST 2284, TIAS No. 4607,439 UNTS 249; African Development Fund (ADF), Nov. 29, 1972, Art. 10, 28 UST 4547, TIAS No. 8605, 1979 Gr. Brit. TS 49 (Cmd. 7551); Asian Development Bank (ADB), Dec. 4, 1965, Art. 5(7), 571 UNTS 123; Inter-American Investment Corporation (IIC), Nov. 19, 1984, Art. 11(6), 24 ILM 438 (1985); Caribbean Development Bank (CDB), Oct. 18, 1969, Art. 6(8), 712 UNTS 217; Caribbean Investment Corporation (CIC), July 4, 1973, Art. 6(6), 947 UNTS 17; Common Fund for Commodities, June 27, 1980, Art. 6, UN Doc. TD/IPC/CF/CONF.24; International Sea-Bed Authority (ISA), United Nations Convention on the Law of the Sea, opened for signature Dec. 10, 1982, Art. 174(4), UN Doc. A/CONF.61/122, reprinted in The Law of the Sea: Official Text of the United Nations Convention on the Law of the Sea with Annexes and Index, UN Sales No. E.83.V.5 (1983); and Statute of the Enterprise, United Nations Convention on the Law of the Sea, Ann. IV, Art. 3; Arab Fund for Economic and Social Development, May 16, 1968, Art. 8(1) (document supplied by organization); Arab Monetary Fund, Apr. 27, 1976, Art. 48(a) (document supplied by organization); Islamic Development Bank, Aug. 12, 1974, Art. 7(3) (document supplied by organization); Inter-Arab Investment Guarantee Corporation, Apr. 23, 1978, Art. 7(4) (document supplied by organization); Arab Bank for Economic Development in Africa (BADEA), Feb. 18, 1974, Art. 5(111) (document supplied by organization); East African Development Bank (EADB), July 23, 1980, Art. 4(9) (document supplied by organization); International Bank for Economic Cooperation, Oct. 22, 1963, Art. 2(3), 3 ILM 329 (1964); International Investment Bank, July 10, 1970, Art. 3, 801 UNTS 319. Slightly different wording but with the same effect is used in the constituent instruments of the International Cocoa Organization (ICO), July 25, 1986, Art. 22(5), 1986 Gr. Brit. Misc. 6 (Cmd. 9905); International Sugar Organization (ISO), Sept. 11, 1987, Art. 29, UN Doc. TD/SUGAR/11/5; International Natural Rubber Organization (INRO), Mar. 20, 1987, Art. 48(4), 1988 Gr. Brit. Misc. 9 (Cmd. 468). See also Council of Europe, Statute of the Fonds de Réétablissement, Art. IV, §4, in H.-T. Adam, supra note 28, at 275.

49 See, e.g., the constituent instruments, all supra note 48, of the IFC, Art. V(5); IDA, Art. VII(5); ADF, Art. 40; ADB, Art. 46; IIC, Art. VI(3); CDB, Art. 45; CIC, Arts. 28, 29; Common Fund for Commodities, Arts. 35–39; Arab Fund for Economic and Social Development, Art. 29; Arab Monetary Fund, Art. 21; Islamic Development Bank, Art. 48; BADEA, Art. 46; EADB, Art. 41.

50 See the constituent instruments of the IFC, Art. 111(8); and ADB, Art. 22, supra note 48.

51 See the constituent instruments of the CDB, Art. 6(7); CIC, Art. 6(6); Arab Fund for Economic and Social Development, Art. 8(2); Arab Monetary Fund, Art. 48(b); Islamic Development Bank, Art. 7(2); Inter-Arab Investment Guarantee Corporation, Art. 7(4); BADEA, Art. 5(111); EADB, Art. 4(8), all supra note 48.

52 Articles of Agreement of the International Monetary Fund, Dec. 27, 1945, Art. 11.02, 60 Stat. 1401, TIAS No. 1501, 2 UNTS 39.

53 See, e.g., the constituent instruments of the IBRD, AFDB, IDB and MIGA, supra note 47; the ADB, CDB, CIC, ISA, Arab Fund for Economic and Social Development, Islamic Development Bank, BADEA, Inter-Arab Investment Guarantee Corporation, International Bank for Economic Cooperation, International Investment Bank, ICO, ISO and INRO, supra note 48; and the IMF, supra note 52. In the case of the ADF, IDA (both supra note 48) and OPEC Fund, May 27,1980, 19 ILM 880 (1980), the institutions do not borrow.

54 See the constituent instruments of the IFC (4:1) and Arab Monetary Fund (2:1), supra note 48.

55 [1988] 3 All E.R. at 354–55. Both Kerr L.J., at 306, and Nourse L.J., at 330, agreed with Ralph Gibson LJ.’s views on this point, as did Lord Oliver and the other Law Lords, [1989] 3 W.L.R. at 1014.

56 Mar. 21, 1986, UN Doc. A/CONF.129/15, 1987 Gr. Brit. Misc. 11 (Cmd. 244), 25 ILM 543 (1986).

57 See, e.g., 1 H.-T. Adam, supra note 28, at 130; I. Seidl-Hohenveldern, supra note 29, at 88, 119–21; and Seidl-Hohenveldern, supra note 32, at 52–54; F.A. Mann, supra note 35, at 572; H. Schermers, supra note 34, at 780.

58 For comparative information on this kind of entity, see David, Rapport général, in La Personnalité morale et ses limites 3, 12–13 (S. Bastid, R. David & F. Luchaire eds. 1960); Drobnig, Droit allemand, in id. at 27, 46–47. See also the discussion of the development in the nineteenth century of the limited-liability company in English law, with the resulting exclusion of the concept of société en commandite (quasi-partnership), which was accepted in French law. L. C. B. Gower, Gower’s Princi ples of Modern Company Law 23 (1979).

59 [1988] 3 All E.R. at 274.

60 The Agence d’Approvisionnement of Euratom. See 1 H.-T. Adam, supra note 28, at 276.

61 The organizations are numerous. In addition to those mentioned, the following are some that are in point: Association of South East Asian Nations (ASEAN), Arab League, African Training and Research Centre in Administration for Development (CAFRAD), Caribbean Community (CARICOM), Caribbean Meteorological Organization, Central American Common Market (CACM), Colombo Plan, Commonwealth Secretariat, Council for Mutual Economic Assistance (COMECON), Council for Arab Economic Unity, Council of Europe, Economic Community of Western African States (ECOWAS), European Community (EC), European Free Trade Association (EFTA), European Organization for Nuclear Research (CERN), European Organization for Safety of Air Navigation (Eurocontrol), European Molecular Biology Laboratory (EMBL), European Patent Organization (EPO), European Southern Observatory (ESO), European Space Agency (ESA), Intergovernmental Council of Coffee-Exporting Countries (CIPEC), International Center for the Registration of Serials (CIEPS), General Agreement on Tariffs and Trade (GATT), International Centre for Settlement of Investment Disputes (ICSID), Intergovernmental Committee for Migration (ICM), International Labour Organisation (ILO), inmarsat, intelsat, International Telecommunication Union (ITU), International Trade Centre (ITC), Inter-Parliamentary Union (IPU), NATO, OPEC Fund, Organization of American States (OAS), Organization of Arab Petroleum Exporting Countries (OAPEC), Organisation commune africaine et malgache (OCAM), Organization of Petroleum Exporting Countries (OPEC), United Nations Industrial Development Organization (UNIDO), Universal Postal Union (UPU), West African Economic Community, Western European Union (WEU), World Health Organization (WHO), World Intellectual Property Organization (WIPO), World Meteorological Organization (WMO) and World Tourism Organization (WTO).

62 Reparation for injuries suffered in the service of the United Nations, 1949 ICJ Rep. 174 (Advisory Opinion of Apr. 11).

63 The Federal Tribunal said:

The personality given to AOI [Arab Organization for Industrialization] as well as the juridical, financial and procedural autonomy conferred upon it, including a specific provision giving it the authority to subscribe to arbitration clauses or to submission agreements (art. 59) all show plainly and unequivocally the total juridical independence of that organization from the founding States. This autonomy excludes contracts concluded by it with third parties, and especially the arbitral compacts that it might subscribe to, that might be characterized as acts performed by an agent or an organ capable of binding the founding States.

Decision on Westland Helicopters Arbitral Award, July 19, 1988, 28 ILM 687, 691 (1989) (trans.). This Tribunal overturned a decision to the contrary by an arbitral tribunal, Westland Helicopters Ltd. v. AOI, Mar. 5, 1984, 23 ILM 1071 (1984).

64 [1989] 3 W.L.R. at 2008–09.

65 For the growth and recognition of incorporation, as opposed to partnership, see L. C. B. Gower, supra note 58, at 22–30, esp. 26–27.

66 See text at note 23 supra.

67 There are also, of course, alternatives to the assumption of risk by third parties, such as insurance and guarantees by the member states, which give added validity to the position taken.