85/615/EEC: Commission Decision of 16 December 1985 relating to a proceeding pursuant to Article 85 of the EEC Treaty (IV/30.373 - P & I clubs) (Only the English text is authentic)
Date: 1985-12-16
Institutions: European Commission
Subjects: inter-company cooperation, marine insurance, non-profit organisation













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31985D0615

85/615/EEC: Commission Decision of 16 December 1985 relating to a proceeding pursuant to Article 85 of the EEC Treaty (IV/30.373 - P & I clubs) (Only the English text is authentic)  


Official Journal L 376 , 31/12/1985 P. 0002 - 0014 





COMMISSION DECISION of 16 December 1985 relating to a proceeding pursuant to Article 85 of  the EEC Treaty (IV/30.373 - P  &  I clubs) (Only the English text is authentic) (85/615/EEC)THE COMMISSION OF THE EUROPEANCOMMUNITIES, Having regard to the Treaty establishing  the European Economic Community, Having regard to Council Regulation No 17 of 6 February 1962,  First Regulation implementing Articles 85 and 86 of the Treaty (1), as last amended by the Act of  Accession of Greece and in particular Articles 6 and 8 thereof, Having regard to the notifications  made on 18 June 1981, on 27 July 1984 and on 20 February 1985 by the 17 protection and indemnity  clubs listed in the Annex, concerning the International Group Agreement, Having regard to the  summary of the application and notification published (2) pursuant to Article 19 (3) of Regulation  No 17, Whereas no further important facts have been drawn to the Commission's attention, following  the said publication pursuant to Article 19 (3), nor any observation made that cause the Commission  to modify its intention, in these circumstances, to accept the request for application of Article  85 (3) of the Treaty, After consulting the Advisory Committee on Restrictive Practices and Dominant  Positions, Whereas: I.  THE FACTS   1.On 18 June 1981, 17 protection and indemnity clubs (P  &  I  clubs-mutual non-profit-making associations providing certain types of marine insurance), the names  and addresses of which are listed in the Annex, notified to the Commission, in accordance with  Article 4 of Regulation No 17, the text of an agreement which they intended to put into effect,  with a view to obtaining negative clearance or alternatively an exemption under Article 85 (3) of  the Treaty.The agreement, known as the International Group Agreement (IGA), came into force on 8  December 1981.   2.After a preliminary examination, the Commission considered that the agreement  contained a number of clauses that could not be exempted under Article 85 (3). On 18 February 1983  it therefore opened proceedings and on 24 February 1983 sent the applicants a statement of  objections prior to a decision under Article 15 (6) of Regulation No 17.   3.Following discussions  with the Commission, the clubs submitted on 1 November 1983 a memorandum setting out a number of  proposals for amendment of the IGA. The clubs asked 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  proposals set out in the memorandum.   4.On 1 December 1983, the Union of Greek Shipowners and the  Greek Shipping Cooperation Committee, whose members are members of the P  &  I clubs, lodged a  formal complaint pursuant to Article 3 of Regulation No 17 in relation to:  (i)  an agreement in  similar terms to the IGA which was operated by the P  &  I clubs prior to the adoption of the IGA;   (ii)the IGA as notified and as adopted;(iii)the IGA as now proposed to be modified.        5.On 12  July 1984 the Commission sent to the P  &  I clubs a statement of objections in which it stated  that having examined the information available, it considered that there were grounds for finding  that certain clauses of the IGA infringed the provisions of Article 85 (1) and did not satisfy the  conditions for exemption contained in Article 85 (3).   6.On 27 July 1984 the P  &  I clubs  notified the text of a modified IGA (IGA 1984) for which they requested negative clearance or  alternatively an exemption under Article 85 (3) of the Treaty. That text came into force on 31 July  1984.   7.On 2 August 1984 the Commission informed the clubs that in the absence of an agreement on  all the issues in the Statement of Objections which would enable the Commission to grant an  exemption, the proceedings under Article 85 (1) had to be continued.   8.On 27 September 1984 the  clubs informed the Commission that without prejudice to their position in the existing proceedings  and in an attempt to settle the procedures under Article 85 (3), they were prepared to modify the  IGA as notified in 1984. A.  The market and the undertakings concerned   9.P  &  I insurance is the  traditional name for the insurance of third-party liabilities and certain contractual liabilities  which arise in connection with the operation of ships. The first P  &  I clubs were formed in  England in the middle of the 19th century. The principle upon which they are based is mutuality,  that is to say that they are not commercial insurers but associations of shipowners, charterers,  operators and managers of ships, who agree to share each other's liabilities on a non-profit-making  basis. In the main, all P  &  I clubs cover the same types of risk, but there are differences in  the franchise or recovery standards.A shipowner normally places hull and machinery insurance with  commercial insurers, whereas insurance of contractual and some third-party liabilities is almost  invariably placed with P  &  I clubs. 10.  Each association is operated on a mutual  non-profit-making basis for the benefit of its members. Each association insures third-party and  contractual liabilities which its members incur in the operation of their ships. In addition, the  associations pool and collectively reinsure liabilities in excess of certain thresholds. This  'pool' is operated jointly by all the clubs which share the risk of any claim made against any  member of any club which is in excess of the limit retained by each club. Thus any heavy claim that  is made against a club is borne not only by the members of that club, but proportionately as to the  excess by the members of all clubs within the pool. The pool itself also reinsures on the world  market liabilities in excess of the limit retained by the pool. 11.The various P  &  I clubs which  have subscribed to the IGA insured about 90  % of world shipping tonnage in 1979 and 1980. In 1980  the ocean-going merchant tonnage registered in EEC Member States was 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 1983 to well over US $ 500 million. B.  The agreement  as originally notified 12.Chapter C below sets out the essential elements of the Agreement in its  present form following the modifications which were contained in the notification of 1984 and  modifications made thereafter.However, the Agreement as originally notified in 1981 contained  certain clauses which have been modified following the Commission's intervention. A summary of the  main clauses which the Commission sought to modify is given below:(a)  The obligation on a club  ('new club') not to 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 the holding club is prepared to renew  the insurance) unless the holding club's rate exceeds a bracket of 'going' rates.This obligation  had the effect of preventing or restricting competition on premiums, since the only possibility a  new club had of gaining the business of an operator already insured with another club and of  applying a new rate was to convince the expert committee set up by the IGA that the holding club's  rate was unreasonable, i.e. that it exceeded the maximum amount considered to be reasonable in the  particular case.If both the holding club's rate and that of the new club were deemed reasonable,  the new club was able to insure the operator only if for the first year it aligned its rate with  that of the holding club.     (b)The clause applying the quotation rules referred to in (a) not  only to ships currently insured, but also to new or newly acquired ships ('new ships rule').The  application of the quotation rules without more to new ships or those newly acquired by operators  was a further restriction on the insured's freedom to choose his insurer.(c)The clauses relating to  release calls.The Commission was of the opinion that the clauses relating to release calls, i.e.  the amounts members withdrawing a vessel or a fleet from a club are charged to cover their share of  liabilities incurred during their membership but not settled at the time of withdrawal, could be  used to reinforce restrictions on transfers between clubs.(d)The rules relating to a minimum  'estimated total cost' (ETC) for tankers.These provisions constituted restrictions of competition  in that the clubs agreed minimum basic rates which had to be observed in all their writing of  tanker business.(e)The clauses relating to the composition and procedure of the expert  committee.Although these rules did not give rise to clear-cut restrictions, the Commission was of  the opinion that their object or effect was to reinforce the ties between the clubs and could have  contributed to restrictions on movements between one club and another. That consideration applied  on the one hand to the composition of the committee, which did not contain any independent member,  and on the other hand to the committee's procedures, which did not make any provision for appeal  and restricted access to the records of the committee's deliberations to 'persons authorized by the  clubs'. C.  The agreement as amended following the Commission's intervention 13.The modified  agreement communicated to the Commission at the end of the discussions seeks to meet the objections  referred to in Section B above. 14.Quotations for vessels already insured(a)A ship operator is in  principle free to change clubs provided that the rate quoted by the new club is not considered  unreasonably low by an expert committee.(b)However, in particular to allow the holding club an  interval between receiving notice of the operator's intention to leave it and deciding its own  provisional rates for its members for the following year, it is provided that the freedom to change  clubs is conditional on a contractually binding commitment at the quoted rate having been entered  into between the operator and the new club by 30 September of the year preceding that for which the  new insurance policy is to be effective. In addition, the holding club must be notified of this  commitment within three days from the date on which it was entered into. Provided the binding  commitment is made and notified in this way and the rate is not contested by the holding club or,  if contested, is deemed reasonable by the expert committee, the operator can be insured with the  new club as from 20 February of the following year, the date when new insurance policies come into  effect.(c)As the rates the new club will charge its members in the following year will not have  been finalized in September when the contract with the operator changing clubs is concluded, the  rate quoted in the contract must be adjusted to reflect:   (i)  any general increase or reduction  in rating adopted by the new club for the following year;   (ii)any change in the limit of claims  retained by the pool; and (iii)any variation in the cost of the reinsurance taken out by the  pool.This adjustment must be notified to the holding club.(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  determine whether the agreed rate is reasonable; (ii)within two working days after notification of  the adjusted rate to determine whether the adjustment fairly reflects the factors referred to  above.     If the Committee considers that the agreed 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 years it will enjoy only a reduced pooling facility.If no contract is  concluded by 30 September, the rules of the IGA as originally notified will apply, i.e. the new  club can only quote the operator a lower rate than that charged by the holding club, if the rate  charged by the holding club is unreasonable. If it does quote a lower rate, and the rate charged by  the holding club is found not to have been unreasonably high, the new club will enjoy only a  reduced pooling facility. However, the new club is free to conclude a contract with the operator at  the same rate as the holding club. 15.New vessels(a)An operator who has reached a binding  commitment with a new club under the pre-30 September procedure (see paragraph 14 (b) above) for  one or more vessels is free thereafter to insure a new (or newly acquired) vessel, benefiting  immediately from the new club's rate, provided that that rate is not held by the Committee to be  unreasonably low.(b)Unless an operator whose vessels are presently insured by a club has already  reached a binding commitment with a new club under the pre-30 September procedure for one or more  vessels, any new (or newly acquired) vessel of that operator may not be insured by any club for the  balance of the current year at less than the rate offered by the holding club unless that rate is  held by the Committee to be unreasonably high. 16.Release calls(a)Where a release call is demanded  from an operator by a club which he is leaving to cover the operator's share of the club's  outstanding liabilities in respect of those years in which he was a member, but in respect of which  accounts are not closed, the operator has the option of paying the release call or providing a bank  guarantee for his share of outstanding liabilities.(b)In the event of the operator considering the  amount of the release call demanded to be inappropriate, he may, within 20 working days, apply to  the expert committee to determine whether the release call is in accordance with a rate or formula  fixed by the holding club's directors and applicable to all its members in similar circumstances  and, if not, whether the release call is reasonable.(c)However, the holding club may make it a  condition of the operator's right to request a determination that the operator deposits in escrow  the amount of the release call demanded or provides a bank guarantee for that amount. The deposit  or guarantee will be refunded or released so far as the expert committee finds in the operator's  favour. 17.Minimum estimated total cost for tankersThe minimum rate provided for in the agreement  as originally notified has been deleted. Instead it is provided that:(a)all quotations for tankers  must make fair and adequate provision for the following elements of cost:   (i)  claims within the  club's retention;   (ii)contributions to pool claims; (iii)reinsurance cost; (iv)administration  costs;(b)the clubs will recommend annually a reasonable minimum provision in respect of pool  claims. 18.Composition and procedure of the expert committeeThe committee now contains an  independent element which it did not contain before. Apart from two members, one for each club  directly concerned, (i.e. the holding club and the new club) chosen from a list A, the committee  will comprise a third member, chosen from a list B (persons who are not party to the dispute and  are accepted as independent persons qualified by their experience).List A shall comprise one or  more directors, employees or partners of each club or its managers, nominated by that club. A  person on List A may not be appointed to the committee by the club which nominated him to that list  or by a club which reinsures or is reinsured by that club. The two members chosen from List A shall  jointly      appoint a third member from List B, but if they cannot agree within three working  days, the appointment shall be made by the secretary of the committee.The committee, which shall  act as arbitrators pursuant to the English Arbitration Acts 1950 and 1979, shall give reasoned  decisions in writing. 19.The clubs, in accordance with their letter of 27 September 1984 (see  paragraph 8 above), have concluded a modified IGA (IGA 1985) which came into force on 20 February  1985. 20.In response to publication of the notice pursuant to Article 19 (3) of Regulation No 17,  the Commission received comments from the Union of Greek Shipowners and the Greek Shipping  Cooperation Committee, each of which had on 1 December 1983 already lodged a formal complaint  pursuant to Article 3 of that Regulation.The following general objections were raised to granting  an exemption in relation to the IGA: -  in general, the four conditions for the applicability of  Article 85 (3) are not satisfied, -in particular, the cut-off date of 30 September is an  impractical and unworkable date. The complainants suggest the date of 30 November, arguing that in  practice all the information and details required would not be received and processed before 30  November, -the combination of a cut-off date of 30 September with the application of the quotation  rules to new vessels is unworkable. Therefore the complainants suggest either that the quotation  rules should not apply to new vessels, or alternatively that the cut-off date should be 30  November.These objections are not considered valid by the Commission for reasons that will be  explained in detail in this Decision. However, the main reason for rejecting these objections is  that the criticisms made are purely speculative and the complainants failed to provide evidence  supporting their contentions.However, in addition it is important to stress that, prior to  dispatching the statement of objections on 12 July 1984 (see paragraph 5 above), the Commission  received from several individual shipowners and associations of shipowners, all of which are  members of the P  &  I clubs, like the complainants, approximately 15 letters in support of the  IGA.These shipowners, who can be considered as constituting the majority of shipowners in the  Community, dissociated themselves entirely from the position taken by the Union of Greek Shipowners  and the Greek Shipping Cooperation Committee.They pointed out in particular that the existing P  &   I clubs' system is beneficial to shipowners both in the services it provides and because it affords  vital coverage on an 'at cost' basis, and that any threat to the stability of that system is  detrimental not only to the interest of the shipowners but also to all transport users. A weakening  of the pooling arrangement would have two deleterious effects: firstly, the clubs generally would  no longer be able to meet the claims made against them in the event of serious mishap, and  secondly, significant claims for damages submitted by third parties might go unsatisfied and the  cost of the industry's inability to discharge its liabilities might consequently fall on the world  community at large. II. LEGAL ASSESSMENT A. Article 85 (1) 21.Article 85 (1) of the EEC Treaty  prohibits as incompatible with the common market all agreements between undertakings which may  affect trade between Member States and which have as their object or effect the prevention,  restriction or distortion of competition within the common market.Article 85 is equally applicable  to agreements for services as it is to agreements for goods. 22.The clubs which notified the IGA  are undertakings within the meaning of Article 85 (1).While mutual insurance agreements in  themselves do not constitute a restriction of competition, the agreement in question goes further  because the system which it establishes has as its effect the reduction of competition between the  clubs by imposing limitations on the rights of each club to quote both for vessels already insured  with another club and for new or newly acquired vessels. At the same time, as a result of these  limitations, the insured's freedom to choose his insurer is restricted. 23.The effect of this  restriction on the premiums the clubs may quote is appreciable since the insurance market in  question is dominated by the P  &  I clubs, which between them insure nearly all the ocean-going  merchant tonnage registered in the Member States of the EEC.      24.The following provisions  appear to the Commission to fall within Article 85 (1):-  quotation, rules for vessels already  insured (see paragraph 25 below),-  quotation rules for new vessels (see paragraph 26 below),-   rules relating to 'release calls' (see paragraph 27 below),-  rules relating to estimated total  cost for tankers (see paragraph 28 below). 25.Quotation rules for vessels already insuredUnder the  agreement, a large number of insurers who, but for the operation of the IGA, would be in full  competition with one another in particular as regards rate setting, have established machinery  under which the freedom of a new club to insure a vessel already insured with a holding club is  restricted.This restriction is twofold: -  first, the freedom for an insured operator to change  clubs is conditional on a contractually binding commitment at a quoted rate being entered into  between the operator and the new club by 30 September of any year and the holding club being  notified within three days of the commitment. In the absence of such a binding commitment the  operator is free to move to a new club only if the latter applies the same rate as the holding  club, except where the holding club's rate is unreasonably high (see paragraph 48 below),  -secondly, the mechanism described above presupposes that the rate offered by the new club is  either accepted by the holding club as being reasonable or if contested is subsequently considered  reasonable by the expert committee. The result of this stipulation is that the insurer's freedom to  conclude agreements with a new client is restricted, with the result that the insured party's  freedom to take advantage of competitive forces is reduced. 26.Quotation rules for new vesselsIn  spite of the modifications to the originally notified IGA agreement which resulted from the  Commission's intervention, the 1985 IGA still contains restrictions of competition on the quotation  rules for new vessels.Thus an operator who acquires an extra ship for his fleet in the course of a  new policy year is not entirely free to seek a quotation for such a vessel with an insurer of his  own choice.The present rules oblige the insured first to go to the club or clubs which already  insure all or part of his fleet.An operator with a new or newly acquired vessel can benefit  immediately from a better rate offered by a new club only if he has reached a binding commitment  with the new club under the pre-30 September procedure (see paragraph 14 (b) above) in respect of  one or more vessels, which were already insured. However, this advantage of being able to benefit  immediately from the rate offered by a new club, if challenged by the holding club, is only  available if it is not held by the committee to be unreasonably low.In no other case may any new or  newly acquired vessel of that operator be insured by any club for the balance of the current year  at less than the rate offered by the holding club unless that rate is held by the committee to be  unreasonably high. The result of this stipulation is to limit the possibilities for an operator to  choose an insurer for new or newly acquired vessels who can offer a rate more financially  advantageous than that which is presently available to the operator from his holding club. 27.Rules  relating to release callsAlthough these rules do not in themselves give rise to clear-cut  restrictions, the Commission is of the opinion that the rules on release calls, i.e. the amounts  which members withdrawing a vessel or a fleet from a club are charged to cover their share of  liabilities incurred during their membership but not settled at the time of withdrawal, could be  used to reinforce restrictions on transfers between clubs. These rules could indeed be used to  further restrict the ability of an operator to avail himself of the opportunity of seeking better  rates offered by another club. The level of a release call claimed by the holding club in the event  of a withdrawal could in fact constitute a deterrent to transfers between one club and another.  28.Rules related to the estimated total cost for tankersAs a result of the Commission's  intervention, the clubs agreed to delete the minimum rate provided for in the agreement as  originally notified. However, the text which is at present in force still contains clauses which  restrict competition within the meaning of Article 85 (1).     In the absence of an agreement the  various insurers would be free to fix quotations for tankers according to their own evaluation of  the risk involved.The present text of the agreement on the other hand provides that the various  clubs must insert in their quotation adequate provisions for the following cost elements:   (i)   claims within the club's retention;   (ii)contributions to pool claims; (iii)reinsurance cost;  (iv)administration costs.Furthermore, the clubs will recommend annually a reasonable minimum  provision in respect of pool claims.Thus, even though the obligation uniformly to apply a minimum  tariff is no longer present, the freedom for the insurers to fix their tariffs for tankers is  restricted. 29.The notified agreement is capable of having an appreciable effect on trade between  Member States, because its effect extends to the whole of the common market as well as third  countries. Nearly the entire EEC merchant fleet is insured by the clubs, in such a way that ships  from one Member State are commonly insured by a club established in another Member State. In  addition, clubs established in more than one Member State are party to the agreement. B.  Article  85 (3) 30.Article 85 (3) of the EEC Treaty states that the provisions of Article 85 (1) may be  declared inapplicable in the case of any agreement between undertakings which contributes to  improving the production of distribution of goods or to promoting technical or economic progress,  while allowing consumers a fair share of the resulting benefit, and which does not:(a)  impose on  the undertakings concerned restrictions which are not indispensable to the attainment of these  objectives;(b)afford such undertakings the possibility of eliminating competition in respect of a  substantial part of the products in question. 31.The IGA as amended following the Commission's  intervention satisfies all the requirements of Article 85 (3). Improvement in production or  distribution 32.The IGA was designed to maintain the system of mutual insurance offered by the P  &   I clubs. The advantages of such a system of mutual insurance can be summarized briefly in the  following way: -the reduction of insurance premiums. This advantage stems from the fact that the  clubs operate on a non-profit making basis and each member merely contributes to the amount of  claims made against club members and the cost of reinsurance and administration,-a better  claims-handling system and a speedier assistance for shipowners. This advantage arises from the  fact that in principle the insured and the insurer have mutual interests which do not  conflict,-elasticity of cover. The discretionary power that the clubs' directors enjoy means that a  claim that is not specifically covered by the policy can be met. This sort of cover is a particular  feature of mutual insurance where the members of a given club feel sufficiently confident in the  judgment of the club's directors to accept their decisions outside the bounds of the policy  cover,-unlimited cover. As a result of the clubs' participation in the pool and in the clubs'  collective excess reinsurance, they are able to offer shipowners unlimited cover in respect of all  liability except oil pollution risks,-rapid settlement of claims. This advantage of the mutual  insurance system can also be of benefit to persons with legitimate claims against shipowners, such  as employees of shipowners or stevedores injured in the course of their employment and other  individuals suffering personal injury. 33.The rules contained in the IGA are designed to secure  four objectives crucial to the operation of the mutual P  &  I clubs system, namely: -continuity of  membership,-preserving the principle of mutuality,-stability of premiums,-continuation of the pool  arrangements. 34.Continuity of membership is of great importance for two reasons:-the necessary  experience to assess the members' proper rating could not be acquired by the underwriters of any  one club if members were constantly moving from club to club,     -'long-tail' liabilities would be  very difficult to handle equitably if membership were to change constantly. 35.Preserving the  principle of mutualityThe quotation rules are designed to avoid application of discriminatory  rates. This situation could arise if the rate offered by a new club to attract an operator already  insured with a holding club is not based wholly upon an underwriting assessment of the risk but is  otherwise set to persuade the member to change his club. Such a rate could discriminate against the  existing members of the new club.To prevent the possibility of such discriminatory ratings the IGA  contains a rule referred to in paragraph 14 (a) above. This rule provides that an operator may move  from club to club if the new club's rate is not considered unreasonably low by an expert committee.  36.Stability of premiumsIn order to enable shipowners to forecast their real insurance costs,  stability of premiums is essential. A system whereby a general reduction on quoted rates on the  basis of over optimistic estimations of the total cost of insurance would have to be corrected by  the imposition of high supplementary calls, would be contrary to the accepted principles of  insurance underwriting and would therefore be disadvantageous to the shipowners. 37.Continuation of  the pool arrangementsQuotation of discriminatory rates would destroy the trust between clubs which  is an important factor in the operation of the pool arrangements. Indeed, it is hard to see how the  acceptance of the pooling system by the clubs could possibly continue in the absence of a high  degree of mutual trust between the clubs. 38.The estimated total cost for a tanker gives rise to  particular considerations. In this respect the 1985 version of the IGA contains stipulations which  restrict competition (see paragraph 28 above).However, at this point it is important to take into  account the particular nature of the transport of petroleum and gas products by tanker. Such  transport represents approximately 50  % of the tonnage insured with the clubs. While the insurance  of dry-cargo fleet gives rise to a number of claims which occur with reasonable regularity, the  situation for tankers and in particular the tankers carrying dirty or heavy oils is different.  Tanker claims tend to occur rarely but involve massive liabilities when they do occur.To avoid the  risks of quotations which are systematically below a premium sufficient to meet a serious incident  of this nature, the clubs have decided to pool the collective experience of their underwriting  experts in this particular field. While the version of the agreement which was originally notified  contained a minimum estimated total cost (ETC) for tankers, the 1985 IGA version envisages that the  clubs shall be free to fix tanker premiums on condition that the premium quoted makes fair and  adequate provision for certain constant elements of total cost. Bearing in mind the need for a  level of premiums sufficient to meet liabilities arising from serious incidents and the fact that  the clubs now must have confidence in the premium levels of other clubs if the pooling arrangements  are to work, the rule in respect of tankers is regarded by the Commission as contributing to the  improvement of the insurance services in that sector. 39.An examination of the arguments put  forward by the clubs has led the Commission to the conclusion that the advantages resulting from  the notified agreement outweigh the disadvantages stemming from the fact that an operator is not  totally free to move from one club to another and that tanker quotations are subject to the  restrictions set out in the formula described above.In such a context the setting up and  functioning of the IGA can be considered to be a means of improving the production and the  distribution of insurance services. Benefit to the consumer 40.The abovementioned advantages for  production and distribution of insurance services are of immediate benefit to the shipowner. As far  as they are concerned, it goes without saying that the IGA permits them to benefit from all the  advantages of the mutual insurance system (see paragraph 32 above). 41.However, in the context of  mutual insurance the Commission is of the opinion that it is not sufficient to argue that the  notified agreement benefits consumers merely because the insured shipowners are themselves  consumers of the service in question.Thus, it must be shown that persons other than the insured  themselves, namely transport users who      are their customers, and the final consumers, also  benefit from the agreement in question. 42.As far as the customers of the insured are concerned, it  is appropriate to take into consideration the competitive situation in the shipping industry. This  industry is characterized by a division between liner operations on the one hand and non-liner  services which involve a very active charter market on the other hand. 43.In so far as the  non-liner shipping services are concerned, the competitive nature of this market permits the  assumption that any cost savings achieved from cheaper insurance will be passed on and result in  lower freight charges with consequent effects on the prices charged to the final consumers for the  goods in question. 44.This argument also applies to the liner sector, where certain rates are  governed by the liner conferences. As far as these services are concerned, it must be borne in mind  that in spite of the uniform fixing of rates, conferences are subjected to substantial competition  from various quarters, such as outside liner operators. As a result, it can be assumed that is is  unlikely that the conferences would be able to raise rates by more than enough to cover costs. In  such circumstances any cost saving such as arises from mutual insurance will be passed on to the  consumers. 45.For these reasons the Commission can agree with the argument of the clubs that in  both the liner and non-liner sectors of the shipping industry cost savings accruing to the owners  and operators of the ships as a result of the IGA can be expected to benefit consumers. This  advantage arises because the pressure of competition amongst shipowners and operators is such that  most if not all of the cost savings made available to them by the operation of the IGA will  necessarily be passed on to the consumer. 46.The same positive conclusions may be reached in  respect of the system according to which passengers and other customers of the shipowners who have  suffered damage within the P  &  I system can obtain compensation. Thus the rapid settlement of  claims made possible by the existence of a mutual system of assurance arising from the operation of  the IGA undoubtedly constitutes a benefit for the consumer. This is also true of the unlimited  cover, and the elasticity of cover, permitted by the IGA (see paragraph 32 above).  47.Indispensability of the restrictionThe restrictions remaining in the 1985 version of the IGA  appear to be indispensable to the attainment of the P  &  I clubs' objectives.The first restriction  to be considered is the rule on quotations for vessels already insured. This restriction is clearly  designed to prevent the transfer of business from one club to another in response to a  discriminatory quotation.In a system of mutual insurance it is necessary to prevent discriminatory  rates being applied. Without the rule on quotations, the mutual confidence necessary for the  operating of the system would not exist. 48.The principal difference between the quotation system  which was in force under the IGA notified in 1981 and the present (1985) version lies in the fact  that a new club has the possibility of obtaining the business of an operator whenever its rate is a  reasonable one.Under the 1981 IGA a new club was obliged not to offer a lower premium than the  holding club's rate unless the holding club's rate exceeded a bracket of going rates, i.e. it was  unreasonably high. In the 1985 version on the other hand a ship operator is in principle free to  change clubs provided that the rate quoted by the new club is not considered unreasonably low. This  possibility is subject, nevertheless, to the condition that a binding agreement has been concluded  before 30 September between the new club and the operator with effect from the beginning of the  policy year which follows. It is further required that this binding agreement has been notified to  the holding club within three days of the commitment being made. Otherwise, the 1981 IGA rules  relating to reduced pooling facility will apply.This cut-off date of 30 September is essential to  the operation of the system, because of the insurers' need to make a sufficiently accurate estimate  of the quantity and quality of its membership in the coming policy year. Such considerations are in  fact indispensable to enable a correct rating of an owner's new premium to be made, given that such  a rating is designed to establish an equitable relationship between the contributions of all the  members of any club. The 30 September cut-off date furthermore coincides with the earliest date on  which statistics are available relating to risks run by members both singly and collectively. Such  statistics permit estimates of a provisional nature to be made by holding and new clubs in cases  where the operator is contemplating a change. Such estimates are then adjusted as the need arises  (see paragraph 14 (c) above).     The criticism raised by the complainants against the pre-30  September procedure appears to the Commission not to be supported by evidence. Firstly, it is  incorrect to contrast that procedure with the 'old IGA', as if the latter had been abolished. A  member wishing to change his club has the choice of either committing himself by 30 September under  the new procedure or waiting until the normal renewal season, when the 'old' procedures still  operate.The Commission therefore cannot accept the contention of the objectors that the new  mechanism is even worse than the 'old' IGA.Secondly, an important advantage of the pre-30 September  procedure is that it effectively enables a member to 'check' his holding club's rate against that  of another club, even if, in the event, he decides to stay with his holding club. This is because  the holding club is obliged to furnish to the new club, at its request, the shipowner's record. The  objectors took great exception to their inability to do this under the old IGA. The new system  therefore is an improvement to the extent that it meets this objection.The objectors' fundamental  contention is that the cut-off date of 30 September is an impractical and unworkable date. They  argue that the pre-30 September procedure should be extended until a date on which there is  available all the information that is used for the purpose of the 'traditional' type of renewal.  The Commission does not share this view. During the discussions which took place between the  services of the Commission and the clubs in order to cause the latter to modify the 1981 IGA, it  was agreed to explore means of avoiding the IGA having the effect of binding an owner to his  holding club's rate for a full year without disrupting the main structure of the system. The  Commission agreed with the claim made by the clubs that giving a shipowner the complete freedom to  change clubs at any time would jeopardize the functioning of the system as a whole, in particular  in so far as the requirement of continuity of membership is concerned (see paragraph 34  above).Initially the cut-off date was fixed at 20 August. However, following the submissions made  by the complainants and notwithstanding the hesitations of the other shipowner members of the  clubs, the latter agreed to defer the cut-off date until the 30 September. They refused any further  postponement because that would have meant that the premiums of all (or nearly all) fleets could be  renewed without regard to the holding club's rate. That would have wholly defeated the purpose of  having a separate procedure as accepted by the clubs. There would be no scope for two procedures,  and the position of the clubs of preserving stable membership by preventing transfers at any time  at unreasonably low rates would not be taken into account. In effect, what had been devised as a  'safety valve' would have become the standard practice, and the system would have been  de-stabilized. 49.The date of 30 September, combined with the obligation on the holding club to  furnish information to the proposed new club in relation to the rate applicable to an operator  wishing to change club, also takes into account the interests of the operators who need to be able  to decide at the earliest opportunity whether to stay with the holding club in full knowledge of  the premium which will be quoted by the clubs in question for the next policy year.The mechanism  which is thus set up appears to the Commission to constitute an acceptable compromise between the  legitimate interests of the clubs in maintaining stable membership and the interests of the  operators who can now take advantage of competition between clubs in respect of rates and services  offered. 50.The pre-30 September procedure is therefore a key element in the 1985 version of the  IGA and is indispensable to its operation. However the clubs must be required scrupulously to  observe its conditions. 51.The second restriction to be considered is the rule for the quotation of  new vessels. This rule is the result of intensive discussions between the Commission and the clubs.  In the Commission's view, the rule brings about an acceptable compromise between the interests of  the clubs and those of individual operators, notably of the shipowners who introduced a complaint.  The clubs seek to insure fleets rather than single vessels and argue that where a new vessel is  purchased the operator should be obliged to insure it with his holding club since a correct  evaluation of the risk requires knowledge of the operator's personal record in respect of all his  vessels.However, the operators who made a formal complaint against the IGA assert that in relation  to a new vessel operators should be free to choose a different club. In support of their argument  that the 'new-ship' rule is not necessary, the complainants point to the existence of split fleets  i.e. cases where operators' ships are insured in different clubs.     But, although the 'new-ship'  rule requires operators who purchase new ships to refer the matter promptly to their holding clubs,  it does allow an operator who has already decided to transfer one or more vessels to a new club to  make such a transfer and immediately benefit from the new club's rate. This possibility is an  application of the theory of 'split fleets'.The objectors' basic criticism concerning the  'new-ship' rule is a development of their main argument that all renewals should be effected under  an extended version of the pre-30 September procedure. Given that the Commission has accepted the  arguments of the clubs that the quotation rules should apply to new ships, the 1985 version of the  IGA relaxes them as soon as any part of the existing fleet has been committed to a pre-30 September  renewal. The Commission agrees with the clubs that giving the new club the freedom of insuring a  single new vessel in any case where its proposed rate is 'reasonable' could give rise to more acute  dangers in the case of a new vessel than in the case of a renewal. It would be relatively safe and  easy for the new club to quote a low rate for a single vessel as opposed to a low rate for an  entire fleet. Meanwhile, a low quotation by a new club for a single additional vessel would put the  holding club under pressure to match or under-cut that quotation, and thus to reduce its rates for  the rest of the existing fleet to a level lower than the rate which it considered justified on  proper underwriting grounds. 52.The 'new-ship' rule, which takes into account the divergent  interests of the clubs and of certain operators, is essential to the operation of the IGA for the  reasons explained in relation to vessels already insured (see paragraph 49 above). 'New' ships  cannot be treated as if they existed in isolation from the rest of an operator's fleet. It is  unrealistic to think in terms of insuring single vessels, rather than assessing the risks for a  vessel in terms of the operator's record in relation to his old fleet, or at least part of his  fleet (in the case of a split fleet). Accordingly, the application of the 30 September date to  'new' ships must be regarded as indispensable. 53.The same conclusion is appropriate in relation to  the potentially restrictive effects of the release call provisions which apply when an operator  leaves a club. The need for a release call stems from the necessity of preventing a shipowner who  owes his former club money to cover liabilities incurred during his membership but not settled at  the time of withdrawal, from avoiding his liabilities.It is important to recognize that, once the  last policy year within his period of membership has been closed (usually three years after the end  of that year), a past member has the benefit of being protected against any further liability,  notwithstanding the fact that up to 50  % by value of claims attributable to his last year of  membership, and some proportion of those attributable to earlier years, are likely to be  outstanding at that stage.The release call provisions can in principle be considered as a means of  preventing discrimination between members of the same club.The modifications which were made as a  result of the Commission's intervention, and which resulted in the provision for bank guarantees  and the right to challenge the amount of the release call before the expert committee, means that  release calls are unlikely to be used as a means of restricting transfers. This is particularly the  case now that the composition and procedural rules of the expert committee have been amended in a  manner acceptable to the Commission. 54.Finally, the rules on estimated total costs for tankers are  indispensable in the operation of a system of mutual insurance, especially given the very large  sums involved in any claim (see paragraph 38 above). 55.Elimination of competitionThe IGA does not  afford the undertakings concerned the possibility of eliminating competition in respect of a  substantial part of the insurance services in question. Each club is now free to determine  autonomously the rates it applies to its members. Furthermore, competition in respect of services  offered by the various clubs to their members can be expected to increase as a consequence of the  new opportunities for changing clubs which the modified IGA rules permit. 56.For the reasons set  out above, the Commission is of the opinion that the amendments agreed to by the clubs in the  course of nearly three years of discussions have the consequence that the conditions laid down in  Article 85 (3) are satisfied.Moreover, the Commission is of the opinion that in the course of these  discussions the points of view of the complainants have been duly taken      into account. Indeed,  several meetings have taken place with the complainants who have had the opportunity fully to  explain their concerns to the Commission's services. The 1985 version of the IGA is the result of  intensive contacts between the Commission, the clubs and the complainants.Under these  circumstances, the Commission considers that the 1985 IGA represents a fair compromise between the  different interests. There is a strong likelihood that prohibiting the IGA would have harmful  effects on the mutual insurance system itself as operated for over a century by the clubs.  Furthermore, it has been brought to the attention of the Commission that a prohibition of the IGA  could have the effect that a large proportion of members of the clubs, at least those who are not  established in the Community, would decide to leave the clubs and set up new P  &  I clubs outside  the Community.In the light of these considerations, and bearing in mind that undermining and  putting at risk the functioning of the pooling arrangement would be detrimental not only to the  interests of the shipowners but also to the interests of consumers and third parties (in view of  oil-pollution risks in particular), the Commission is of the opinion that subject to a strict  monitoring and scrutiny of the agreement, the IGA can be exempted. C.  Articles 6 and 8 of  Regulation No 17 57.The present state of the market and the untested nature of the pre-30 September  procedure justify the limitation of an exemption to 10 years as from the date of the last  notification (20 February 1985). 58.To enable the Commission to check that the conditions which  have justified the granting of the exemption continue to be fulfilled throughout the period of the  exemption, the parties should be required to inform the Commission once a year of any amendment of  the notified agreement or of the conclusion of any new agreement between them. This obligation  however shall not dispense with the need to notify changes in the subject matter or membership of  the exempted agreement under Article 4 (1) of Regulation No 17 should the parties wish to continue  to enjoy the benefits of exemption. Furthermore, in order to enable the Commission to check the  application of the pre-30 September procedure, the parties should also be required to send the  Commission annually a report containing statistical information on: -the number of occasions on  which operators have officially requested a new club to implement the new procedure (individualized  data for each club), and the number of occasions on which a dispute over quotations has been  brought before the expert committee and the results of the awards, -the number of transfers  actually carried out in application of the procedure in question, HAS ADOPTED THIS  DECISION:Article 1Pursuant to Article 85 (3) of the EEC Treaty, the provisions  of Article 85 (1) are hereby declared inapplicable to the International Group Agreement as last  notified on 20 February 1985. This exemption shall be valid until 20 February 1995. Article 2The  undertakings to which this Decision is addressed shall inform the Commission once a year of any  amendment and/or addition to the notified agreement and of the conclusion of any new agreement  between them or between them and another P  &  I club. The undertakings shall also send the  Commission annually a report containing the statistical information necessary to enable the  Commission to check the operation of the 'pre-30 September' procedure. Article 3This Decision is  addressed to the undertakings listed in the Annex. Done at Brussels, 16 December  1985. For the Commission Peter SUTHERLAND Member of the Commission                                             (1)  OJ No 13, 21. 2. 1962, p. 204/62. (2)  OJ No 09, 11. 1. 1985, p. 11. BILAG - ANHANG - ÐÁÑÁÑÔÇÌÁ - ANNEX - ANNEXE - ALLEGATO - BIJLAGEThe Britannia Steamship  Insurance Association Limited. Southwark Towers,32 London Bridge Street,London SE1. The London  Steamship Owners' Mutual Insurance Association Limited. 17 Crosswall,London EC3. The Newcastle  Protection and Indemnity Association. Centro House,3 Cloth Market,Newcastle-upon-Tyne. The North of  England Protecting and Indemnity Association Limited. Douglas House,4 Neville  Street,Newcastle-upon-Tyne. The Standard Steamship Owners' Protection and Indemnity Association  Limited. International House,World Trade Centre,1 St Katharine's Way,London E1 9UN. The Standard  Steamship Owners' Protection and Indemnity Association (Bermuda) Limited. Burnaby Building,Burnaby  Street,Hamilton,Bermuda. The Steamship Mutual Underwriting Association Limited Aquatical  House,201/211 Bishopsgate,London EC2. Sveriges Angfartys Assurans Forening. Barlastgatan 2,S-400 40  Goeteborg,Sweden. The Shipowners' Mutual Protection and Indemnity Association (Luxembourg). 33  Boulevard Prince Henri,Luxembourg. The Steamship Mutual Underwriting Association (Bermuda) Limited.  Clarendon House,Church Street West,Hamilton,Bermuda. The Sunderland Steamship Protecting and  Indemnity Association. Tavistock House,Borough Road,Sunderland. The United Kingdom Mutual Steamship  Assurance Association (Bermuda) Limited. Mercury House,Front Street,Hamilton,Bermuda. The West of  England Shipowners' Mutual Protection and Indemnity Association (Luxembourg). 33 Boulevard Prince  Henri,Luxembourg. Assuranceforeningen Gard (Gjensidig). 4801 Arendal,Norway. Assuranceforeningen  Skuld (Gjensidig). Stortingst. 18,Oslo 1,Norway. The Japan Shipowners' Mutual Protection and  Indemnity Association. Yanagiya Building,2-1-10 Nihonbashi,Chuoh-Ku,Tokyo, Japan. The Liverpool and  London Steamship Protection and Indemnity Association Limited. Equity & Law House,47 Castle  Street,Liverpool.