Circular No. 10/97 - The International Group and the European Commissio







Dear Member:Circular No. 10/97





Over the past several weeks there have been reports in the maritime press concerning recent action by the authorities of the European Union in regard to the limit on P&I cover for non-oil pollution claims and the renewal of the International Group Agreement (IGA) which governs competition within the International Group of P&I Clubs. The purpose of this circular is to inform Members of the issues involved and keep them abreast of developments in the current interface between the International Group and the European Commission.


In 1985, after careful study of the functions and operating practices of the International Group, the European Commission's Competition Directorate, DGIV, granted a formal exemption for ten years of the IGA, having satisfied itself that any restrictive elements it contained were more than offset by the benefits provided to shipowners and others by the International Group.


In 1995, the International Group sought renewal of this exemption for the IGA, as it was legally bound to do. In June 1997, DGIV issued a formal Statement of Objections (SO) which:


a) challenges the necessity of the IGA; and

b) states that the current limit on cover is too high.


Point b) is in line with arguments set out in a formal complaint lodged with DGIV by representatives of the Greek merchant fleet.


All Club Boards of Directors have considered DGIV's challenge to the IGA (point a) above), and have instructed Club Managers to resist DGIV's position on the ground that the IGA is indispensable to the continued existence of claims sharing through the International Group Pool. Club Boards feel that restraints on competition contained in the IGA are the minimum necessary to promote the fair sharing of overall costs of the Clubs, bearing in mind that any shortfall in the contributions of a particular Member who is either induced to move or induced to stay by the offer of a reduction in his proper rate must be subsidized by the rest of a Club's Membership. They feel that without these restraints the highly beneficial pooling and reinsurance system of the International Group would break down. The cost of P&I would rise, the amounts of cover available would fall, and the efficiency of the system of International Group Club guarantees would be lost.


Club Managers are now striving to urge this case upon DGIV with the assistance of the International Group's legal and political advisers. A formal response to the SO must be lodged with DGIV by September 16, 1997. Meanwhile, very positive support is being received from shipowners and their associations around the world.



-2- Circular No. 10/97 August 12, 1997



So far as concerns DGIV's objection to the current limit on cover (point b) above), the Directors of all International Group Clubs have decided, against the background of the SO, that a reduction in the level of individual owners' exposure to overspill calls from 20% of the vessel's limitation funds to 2.5% would provide a level of limitation which should:


i) be acceptable to DGIV;

ii) still provide a substantial level of cover to Members (about $2.25 billion above the limit of the International Group's reinsurance contract, currently just over $2 billion); and

iii) set Members' exposure to overspill calls at a level which is tolerable and sustainable.


If DGIV are disposed to accept this proposal, the necessary Rule changes will be made later in the year in time for the 1998 renewal.


Further developments will be reported to Members in due course. Meanwhile, more details can be obtained from the Managers.




Yours faithfully,

Shipowners Claims Bureau, Inc., Manager







Joseph E.M. Hughes

Chairman & CEO