Financial mechanisms and existing international entities

Legal assistance paper

All reasonable efforts have been made to ensure the accuracy of this information at the time the advice was produced. However, the materials have been prepared for informational purposes only and may have been superseded by more recent developments. They do not constitute formal legal advice or create a lawyer- client relationship. To the extent permitted any liability is excluded. Those consulting the database may wish to contact LRI for clarifications and an updated analysis.

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Date produced: 02/12/2009

1. What would it take to make the UNFCCC Secretariat ‘an international entity’? 

2. Is the GEF an international entity in the sense given in the original advice? If so, is its designation as such based on the fact it is a creature of the World Bank or is it one in its own right?

3. Is the Adaptation Fund Board an international entity in the sense of Art.11? Does it have its own legal identity?

4. Is the World Bank (and other MDBs) an international entity in the sense of Art.11?

5. If proposed Executive Board is not designated to be an (existing international) operating entity — but an oversight organ — would Art. 11 be relevant to it, since that Article only pertains to the operation of the financial mechanism, not to its oversight?

1. In our previous legal advice we noted that one of the factors weighing against the Secretariat being regarded as an international entity in its own right (separate from the CoP) is that it does not appear to have been granted sufficient authority under the UNFCCC (or subsequent decisions of the CoP) to exercise its legal powers on the “international plane”.

The CoP could decide to imbue the Secretariat with the requisite legal personality. However, there are number of technical issues which would need to be addressed. Some of the relevant issues were considered during the deliberations surrounding the legal personality of the Adaptation Fund. At its third meeting in Bonn in September 2008, the Adaptation Fund Board considered a paper entitled “Legal Issues Pertaining to the Operationalization of the Adaptation Fund” which set out the pros and cons of, amongst other things, endowing the Adaptation Fund with legal personality.

The cons identified in the paper included:
• it requires further action of the CoP/MoP (keeping in mind that the Adaptation Fund is created under the Kyoto Protocol and not the UNFCCC – for the Secretariat it would need further action from the CoP);
• entails work and related costs to establish the legal personality, including attorneys’ costs for necessary legal/due diligence work;
• although it could be structured in a lean and efficient manner, for example by outsourcing certain tasks, certain financial and human resources would be needed to maintain and manage the operations of the Adaptation Fund;
• the legal personality of the Adaptation Fund would need to be recognised by a host country;
• an agreement with Parties, particularly with the host country and perhaps trading jurisdictions, would be needed to obtain tax and other immunities/exemptions (and in the case of the Secretariat immunities would need to extend to individuals to ensure that they were not exposed to legal liability in their personal capacity for decision taken and contracts concluded in their official function on the Secretariat);
• all of the above means that it will take time to achieve.
The pros identified in the paper included:
• enables the Adaptation Fund to oversee and enforce activities to be carried out by the recipients;
• enables the Adaptation fund to seek legal recourse, if necessary, regardless of the operational modalities of access to Adaptation Fund resources;
• the Adaptation Fund Board could enter into legal agreements with executing entities and others whilst being better protected against becoming personally liable for their acts performed as Adaptation Fund Board members;
• the Adaptation Fund would have the capacity to hire its own staff, consulting firms and other entities to conduct fiduciary, operational administrative and other activities on behalf of the Adaptation Fund (the paper identified the Global Fund to Fight AIDS, Tuberculosis and Malaria (Global Fund), as an independent legal entity registered under Swiss law which hires local fund agents located in countries or in the region to provide the Global Fund with a range of independent program performance and supervisory services to monitor grant recipients);
• enables the Adaptation Fund to purchase insurance against claims and liabilities brought against the Adaptation Fund, the Adaptation Fund Board members or officials of the Adaptation Fund (if any) in connection with the operations and activities in their official capacities; and
• the Adaptation Fund could seek to obtain its own privileges and immunities, including immunities from taxation, from members of the CoP/MoP.

2. In our view, the GEF is likely an international entity in its own right. In this regard, it appears to meets the three criteria identified by Brownlie for legal personality in organisations (as set out in paragraph 2.4 of the response to query 30) in that, through the “Instrument for the Establishment of the Restructured Global Environment Facility” (Instrument) :
• it is a permanent association of states, with lawful objects, equipped with organs (i.e. an Assembly, a Council, a Secretariat and a Scientific and Technical Advisory Panel – see part III, paragraph 11 of the Instrument);
• there is a distinction, in terms of legal powers and purpose, between the organisation and the member states; and
• it has legal power exercisable on the international plane and not solely within the national systems of one or more states (we note, however, that the Trustee of the GEF (in its capacity as Trustee) is the entity empowered under the Instrument to enter into agreements nationally and internationally (Annex B, para 1). The Trustee must “administer the Fund in accordance with the applicable provisions of the Instrument and such decisions as the Council may take under the Instrument Council” (Annex B para 3)).

3. Decision 1/CMP4 paragraph 11 (taken at Poznan in December 2008) provides that:
“…the Adaptation Fund Board be conferred such legal capacity as necessary for the discharge of its functions with regard to direct access by eligible Parties and implementing and executing entities, in accordance with decision 1/CMP.3, paragraphs 29 and 30, in particular legal capacity to enter into contractual agreements and to receive project, activity and programme proposals directly and to process them in accordance with paragraph 7(a) and (b) above, as appropriate, consistent with decisions 5/CMP.2 and 1/CMP.3”
The conferral of legal capacity to deal directly with eligible Parties and implementing and executing entities implies that the Adaptation Fund Board can exercise its legal powers on an “international plane”. Accordingly, this would weigh in favour of an argument that the Adaptation Fund Board meets all the criteria of an international entity as identified by Brownlie.

4. In our view, applying Brownlie’s criteria for what constitutes an international entity, the World Bank and other multinational development banks are international entities for the purposes of Article 11.1.

5. We agree that Article 11 only prescribes the conditions relating to the operating entity and does not prescribe anything in relation to (and is silent on) an oversight organ. It is therefore open to the CoP to create an oversight organ through a decision of the CoP. However, the oversight organ would be bound by the wording of the Article 11.1 which requires that the fund function under the “guidance of and be accountable to the CoP”. In other words, the creation of an oversight organ would not, in itself, enable greater authority of the fund than is currently available to the CoP.