11.1.85 Official Journal of the European Communities No C 9/11

Notice pursuant to Article 19 (3) of Council Regulation No 17 (') concerning Case TV/ 30.373 — P & I Clubs

(85/C 9/03)

1. On 18 June 1981, 17 Protection and Indemnity 5. On 12 July 1984 the Commission sent to the Clubs (mutual non-profit-making associations P & I Clubs a statement of objections in which providing certain types of marine insurance), it stated that having examined the information the names and addresses of which are listed in available, it considered that there were grounds the Annex, notified to the Commission, in for finding that certain clauses of the IGA accordance with Article 4 of Regulation No 17, infringed the provisions of Article 85 (1) and the text of an agreement they intended to put did not satisfy the conditions for exemption into effect, with a view to obtaining negative contained in Article 85 (3). clearance or alternatively an exemption under Article 85 (3) of the Treaty. 6. On 27 July 1984 the P & I Clubs notified the text of a modified IGA (IGA 1984) for which The Agreement known as the International they requested negative clearance or alter­ Group Agreement (IGA) came into force on natively an exemption under Article 85 (3) of 8 December 1981. the Treaty. That text came into force on 31 July 1984.

2. After a preliminary examination, the 7. On 2 August 1984 the Commission informed Commission considered that the Agreement the Clubs that in the absence of an agreement contained a number of clauses that could not be on all the issues in the Statement of Objections exempted under Article 85 (3). On 18 February which would enable the Commission to grant 1983 it therefore opened proceedings and on an exemption, the proceedings under Article 85 24 February 1983 sent the applicants a (1) had to be continued. statement of objections prior to a decision under Article 15 (6) of Regulation No 17. 8. On 27 September 1984 the Clubs informed the Commission that without prejudice to their 3. Following discussions with the Commission, the position in the existing proceedings and in an Clubs submitted on 1 November 1983 a attempt to settle the procedures under Article memorandum setting out a number of proposals 85 (3), they were prepared to modify the IGA for amendment of the IGA. The Clubs asked as notified in 1984. whether the Commission would be prepared to issue an Article 19 (3) notice in respect of the IGA if it was amended in accordance with the A. The market and the undertakings concerned proposals set out in the memorandum.

9. P & I Insurance is the traditional name for the 4. On 1 December 1983, the Union of Greek insurance of third party liabilities and certain Shipowners and the Greek Shipping Co­ contractual liabilities which arise in connection operation Committee, whose members are with the operation of ships. The first P & I members of the P & I Clubs, lodged a formal Clubs were formed in England in the middle of complaint pursuant to Article 3 of Regulation the 19th century. The principle upon which No 17 in relation to: they are based is mutuality, that is to say that they are not commercial insurers but associations of shipowners, charterers, (i) an agreement in similar terms to IGA operators and managers of ships, who agree to which was operated by the P & I Clubs share each other's liabilities on a non-profit- prior to the adoption of IGA; making basis. In the main, all P & I Clubs cover the same types of risk, but there are differences (ii) the IGA as notified and as adopted; in the franchise or recovery standards. (iii) the IGA as now proposed to be modified. A shipowner normally places hull and machinery insurance with commercial insurers, whereas insurance of contractual and some C) OJ No 13, 21. 2. 1962, p. 204/62 (English Special third party liabilities is almost invariably placed Edition 1959-1962, November 1972, p. 87). with P & I Clubs. No C 9/12 Official Journal of the European Communities 11.1.85

10. In the notification it is submitted that each convince the Expert Committee set up by the association is operated on a mutual non-profit- IGA that the Holding Club's rate was making basis for the benefit of its members. unreasonable, i.e. that it exceeded the maximum Each association insures third party and con­ amount considered to be reasonable in the tractual liabilities which its members incur in particular case. the operation of their ships. In addition, the associations pool and collectively reinsure liabilities in excess of certain thresholds. This If both the Holding Club's rate and that of the 'pool' is operated jointly by all the Clubs which New Club were deemed reasonable, the New share the risk of any claim made against any Club was only able to insure the operator if for member of any Club which is in excess of the the first year it aligned its rate with that of the limit retained by each Club. Thus any heavy Holding Club. claim that is made against a Club is borne not only by the members of that Club, but propor­ tionately as to the excess by the members of all Clubs within the pool. The pool itself also 12.2. The rule applying the quotation rules referred reinsures on the world market liabilities in to in 12.1 not only to ships currently insured, excess of the limit retained by the pool. but also to new or newly-acquired ships ('new ships rule').

11. According to the notification, the various P & I Clubs which have subscribed to the IGA insured The application of the quotation rules without about 90 °/o of world shipping tonnage in 1979 more to the new or newly-acquired ship of and 1980. In 1980 the ocean-going merchant operators was a further restriction on the tonnage registered in EEC Member States was insured's freedom to choose his insurer. approximately 112,5 million tons and nearly all of this was insured by Clubs in the international group. It can be estimated that premium income of the Clubs amounted in 1980 to well over 12.3. The rules relating to release calls. $ 500 million.

The Commission was of the opinion that the B. The Agreement as originally notified rules on release calls, i.e. the amounts members withdrawing a vessel or a fleet from a Club are charged to cover their share of liabilities 12. Chapter C below sets out the essential elements incurred during their membership but not of the Agreement in its present form following settled at the time of withdrawal, could be used the modifications which were contained in the to reinforce restrictions on transfers between notification of 1984 and modifications made Clubs. thereafter.

However, the Agreement as originally notified 12.4. The rules relating to a minimum 'Estimated in 1981 contained certain clauses which have Total Cost' (ETC) for tankers. been modified following the Commission's intervention. A summary of the main clauses which the Commission sought to modify is These provisions constituted restrictions of given below: competition in that the Clubs agreed minimum basic rates which had to be observed in all their 12.1. The obligation on a Club ('New Club') not to writing of tanker business. offer, for a ship currently insured with another Club ('Holding Club'), a lower premium than the Holding Club's rate (i.e. the rate at which 12.5. The rules relating to the composition and the Holding Club is prepared to renew the procedure of the Expert Committee. insurance) unless the Holding Club's rate exceeds a bracket of 'going' rates. Although these rules did not give rise to This obligation had the effect of preventing or clear-cut restrictions, the Commission was of restricting competition on premiums, since the the opinion that their object or effect was to only possibility a New Club had of gaining the reinforce the ties between the Clubs and could business of an operator already insured with have contributed to restrictions on movements another Club and of applying a new rate was to between one Club and another. That 11.1.85 Official Journal of the European Communities No C 9/13

consideration applied on the one hand to the the date when new insurance policies come composition of the Committee, which did not into effect. contain any independent member, and on the other hand to the Committee's procedures, which did not make any provision for appeal (c) As the rates the New Club will charge its and restricted access to the records of the members in the following year, will have Committee's deliberations to 'persons auth­ not been finanlized in September when the orized by the Clubs'. contract with the operator changing Clubs is conluded, the rate quoted in the contract must be adjusted to reflect: 13. The notified Agreement is capable of having an (i) any general increase or reduction in appreciable effect on trade between Member rating adopted by the New Club for States, because its effect extends to the whole the following year; of the common market as well as third (ii) any change in the limit of claims countries. Nearly the whole of the EEC merchant fleet is insured by the Clubs, in such a retained by the pool, and way that ships from one Member State are (iii) any variation in the cost of the commonly insured by a Club established in reinsurance taken out by the pool. another Member State. In addition, associations established in more than one Member State are party to the Agreement. (d) The Holding Club may apply to the Expert Committee: (i) within 30 days after notification of the rate agreed with the New Club to C. The Agreement as amended following the determine whether the agreed rate is Commission's intervention reasonable; (ii) within two working days after 14. The modified Agreement communicated to the notification of the adjusted rate to Commission at the end of the discussions seeks determine whether the adjustment to meet the objections, referred to in Chap­ fairly reflects the factors referred to ter B. above.

If the Committee considers that the agreed 15. Re quotations for vessels already insured rate is unreasonably low or that the adjustment does not fairly reflect the factors referred to above, the New Club can still insure the operator but for two (a) A ship operator is in principle free to years it will enjoy only a reduced pooling change Clubs provided that the rate quoted facility. by the New Club is not considered unreasonably low by an Expert Committee. If no contract is concluded by 30 September, the rules of the IGA as orig­ (b) However, in particular to allow the inally notified will apply, i.e. the New Club Holding Club an interval between receiving can only quote the operator a lower rate notice of the operator's intention to leave it charged by the Holding Club is and deciding its own provisional rates for unreasonable. If it does quote a lower rate, its members for the following year, it is it will enjoy only a reduced pooling facility. provided that the freedom to change Clubs However, the New Club is free to conclude is conditional on the Holding Club's being a contract with the operator at the same informed of a contractually binding rate as the Holding Club. commitment at the quoted rate between the operator and the New Club by 30 September of any year. Provided the 16. Re new vessels binding commitment is notified by this date and the rate is not contested by the Holding Club or, if contested, is deemed — An operator who has reached a binding reasonable by the Expert Committee, the commitment with a new Club under the operator can be insured with the New Club pre-30 September procedure (see paragraph as from 20 February of the following year, 15 (b) above) for one or more vessels is free No C 9/14 Official Journal of the European Communities 11.1.85

thereafter to insure a new (or newly- (i) claims within the Club's retention; acquired) vessel, benefiting immediately from the new Club's rate, provided that that (ii) contributions to pool claims; rate is not held by the Committee to be (iii) reinsurance cost; unreasonably low. (iv) administration costs; — Unless an operator whose vessels are (b) the Clubs will recommend annually a presently entered in a Club has already reasonable minimum provision in respect of reached a binding commitment with a new pool claims. Club under the pre-30 September procedure for one or more vessels, any new (or newly- acquired) vessel of that operator may not be 19. Composition and procedure of the Expert insured by any Club for the balance of the Committee current year at less than the rate offered by the holding Club unless that rate is held by The Committee now contains an independent the Committee to be unreasonably high. element which it did not contain before. Apart from two members, one for each Club directly concerned, chosen from a list A, the Committee 17. Re release calls will comprise a third member, chosen from a list B (persons who are not party to the (a) Where a release call is demanded from an reference and are accepted as independent operator by a Club which he is leaving to persons qualified by their experience). cover the operator's share of the Club's outstanding liabilities in respect of those The Committee, which shall act as arbitrators years in which he was a member, but in pursuant to the English Arbitration Acts 1950 respect of which accounts are not closed, and 1979, shall give reasoned decisions in the operator has the option of paying the writing. release call or providing a bank guarantee for his share of outstanding liabilities. D. P & I Club's submissions (b) In the event of the operator considering the amount of the release call demanded to be 20. The Clubs accept that the part of the IGA inappropriate, he may, within 20 working relating to the quotations for vessels imposes days, apply to the Expert Committee to upon them a qualified restriction in respect of determine whether the release call is in the quotation of unreasonably low rates. They accordance with a rate or formula fixed by submit, however, that it is important to draw a the Holding Club's directors and applicable clear distinction between rates offered by to all its members in similar circumstances commercial insurers and those offered by P & I and, if not, whether the release call is Clubs. reasonable. In the case of commercial insurers there is (c) However, the Holding Club may make it a frequently scope for an insured to negotiate a condition of the operator's right to request cheaper rate, if the insurer is prepared to reduce a determination that the operator deposits his profit. in escrow the amount of the release call demanded or provides a bank guarantee for In the case of the P & I Clubs, which are non­ that amount. The deposit or guarantee will profit-making mutual associations, it is alleged be refunded or released so far as the Expert that the vast majority of rates are not fixed, so Committee finds in the operator's favour. that members remain liable to contribute to the total liabilities of the Club and the cost of its administration and, since there is no element of 18. Re minimum estimated total cost for tankers profit, there is no margin for reduction in rates.

The minimum rate provided for in the 21. The Club's primary contention is that the IGA Agreement as originally notified has been does not prevent, restrict or distort competition deleted. Instead it is provided that: and does not fall within the provisions of Article 85. (a) all quotations for tankers must make fair and adequate provisions for the following 22. In the event that their primary contention is not elements of cost: accepted by the Commission, the Clubs argue 11.1.85 Official Journal of the European Communities No C 9/15

that the provisions of the IGA meet the given, would be conditional upon the effective requirements of Article 85 (3), in so far as: functioning of the pre-30 September procedure. That clause in the settlement is designed to — they improve distribution by making attenuate the restrictions initially contained in available cheap P & I Insurance, and by the 1981 IGA by offering the insured a wider preserving mutuality between Club freedom of choice of his insurer. members, 24. Without prejudice to subsequent procedure, the — by its very nature as an agreement Commission proposes therefore to adapt a concluded between owners and operators of favourable decision in respect of the Agreement ships, i.e. consumers, the Agreement benefits whose main provisions are set out above consumers, (Chapter C). — due to the modifications requested by the Any positive decision however may, in Commission, the IGA only imposes accordance with Article 8 of Regulation No 17, restrictions which are indispensable to the be made subject to a reporting requirement attainment of its objectives, designed to ensure that the settlement decribed — the Agreement does not eliminate above is fully and properly implemented. competition in respect of the 'products' in Before doing so, however, the Commission question. invites interested third parties to submit obser­ vations, within a month of the publication of this notice, quoting the reference TV/30.373 — E. The Commission's intentions P& I Clubs', to: 23. In order to take account of the particular Commission of the European Communities, nature of mutual insurance agreements, which Directorate-General for Competition, in themselves do not constitute a restriction of Directorate for Restrictive Practices and Abuse competition, but which can be used to such of Dominant Positions, effect, an exemption is under consideration in rue de la Loi, 200, this case. It is envisaged that this exemption, if B-1049 Brussels. No C 9/16 Official Journal of the European Communities 11.1.85

ANNEX

The Britannia Steamship Insurance Association Limited. Address: 33 Boulevard Prince Henri, Address: Southwark Towers, Luxembourg. 32 Bridge Street, The Steamship Mutual Underwriting Association () London SE1. Limited. The London Steamship Owners' Mutual Insurance Address: Clarendon House, Association Limited. Church Street West, Hamilton, Address: 17 Crosswall, Bermuda. London EC3. The Sunderland Steamship Protecting and Indemnity The Newcastle Protection and Indemnity Association. Association. Address: Centro House, Address: Tavistock House, 3 Cloth Market, Borough Road, Newcastle-upon-Tyne. Sunderland.

The North of England Protecting and Indemnity The United Kingdom Mutual Steamship Assurance Association Limited. Association (Bermuda) Limited. Address: Douglas House, Address: Mercury House, 4 Neville Street, Front Street, Newcastle-upon-Tyne. Hamilton, Bermuda. The Standard Steamship Owners' Protection and Indemnity Association Limited. The West of England Shipowners' Mutual Protection and Indemnity Association (Luxembourg). Address: International House, World Trade Centre, Address: 33 Boulevard Prince Henri, 1 St Katharine's Way, Luxembourg. London El 9UN. Assuranceforeningen Gard (Gjensidig). The Standard Steamship Owners' Protection and Indemnity Address: 4801 Arendal, Association (Bermuda) Limited. Norway. Address: Burnaby Building, Assuranceforeningen Skuld (Gjensidig). Burnaby Street, Address: Stortingst. 18, Hamilton, 1, Bermuda. Norway.

The Steamship Mutual Underwriting Association Limited. The Japan Shipowners' Mutual Protection and Indemnity Address: Aquatical House, Association. 201/211 Bishopsgate, Address: Yanagiya Building, London EC2. 2-1-10 Nihonbashi, Chuoh-Ku, Sveriges Angfartys Assurans Forening. , Japan. Address: Barlastgatan 2, S-400 40 Goteborg, The Liverpool and London Steamship Protection and Sweden. Indemnity Association Limited. Address: Equity & Law House, The Shipowners' Mutual Protection and Indemnity 47 Castle Street, Association (Luxembourg). Liverpool.