Limitation of Liability Shipowner: Who Can Cap Maritime Claims

Updated: 14 October 2026 · IVLF Advisors

When a ship causes a catastrophic loss, the claims can exceed the value of the ship many times over. Limitation of liability shipowner rules exist to stop that exposure from being unlimited, and they are one of the oldest bargains in maritime law. The bargain is simple: the owner may cap its liability by reference to the ship’s tonnage, provided it sets up a fund and has not behaved in the narrow ways that forfeit the right.

In practice, the right to limit is often the difference between a loss that insurers and the owner can absorb and one that ends the company. Yet it is frequently misunderstood. Many commercial teams assume that limitation applies to every claim, that it protects every party in the chain, or that it can be added after the case has been lost. None of that is safe. This article explains who can limit, which claims are excluded, how a fund is constituted, what conduct breaks the limit, and how limitation fits with insurance.

Table of Contents

• Why limitation of liability shipowner rules matter to owners, charterers and lenders
• Who can limit: LLMC and the Maritime Code limitation regime
• Claims that can and cannot be limited
• The global limit and the limitation fund
• Breaking limitation
• Insurance, recourse and a worked scenario
• FAQs
• Conclusion and next step

Why limitation of liability shipowner rules matter to owners, charterers and lenders

Limitation does not remove liability. It caps the amount that claimants can recover from the limiting party for a given occurrence. The excess claim still exists, but it cannot be enforced against the limiting party’s other assets once the limit has been properly invoked and the fund constituted.

The commercial bargain

The system trades certainty for claimants against predictability for the owner. For shipping finance, it is also a valuation tool: a lender’s downside on third-party claims is bounded if limitation is available and insurance is in place. If it is lost, the downside is not bounded.

Who benefits from a limitation of liability shipowner strategy

• Shipowners use it to cap liability for collision, cargo, personal injury and wreck-related claims.
• Charterers and operators may be able to limit as well, depending on the instrument and the national law that applies.
• Insurers rely on it to price and reserve for large losses.
• Financiers need to know whether the borrower can, in fact, limit under the law of the forum where claims will be heard.

Takeaway: a limitation of liability shipowner position should be mapped before a casualty occurs, because the forum, the claims and the evidence are fixed by events that cannot be rewound.

Who can limit: LLMC and the Maritime Code limitation regime

The principal international instrument is the Convention on Limitation of Liability for Maritime Claims (LLMC) of 1976, as amended by the 1996 Protocol and by the 2012 amendments to the limits. These texts are a matter of international principle. Whether and how Vietnam applies them must be confirmed: check Vietnam’s accession status and the applicable instrument version.

Persons entitled to limit

Under the convention, the persons who can generally invoke limitation are shipowners and salvors, and the term shipowner includes the owner, charterer, manager and operator of a seagoing ship. Insurers of liability for claims subject to limitation may invoke the same limits as the assured. A salvor operating from a ship, or without a ship, has its own regime in the convention.

The Maritime Code limitation chapter

Vietnam’s Maritime Code 2015 (Law No. 95/2015/QH13, effective 1 July 2017, with consolidated text 101/VBHN-VPQH of 26 August 2025) contains rules on limitation of liability of shipowners. The Maritime Code limitation provisions, including the persons entitled, the limits, the excluded claims and the procedure for a fund, should be read from the relevant chapter of the current consolidated text, and any figures or article numbers must be verified.

The draft Maritime and Inland Waterway Code, prepared by the Ministry of Construction, is a draft only and has not been adopted. Its content may change before any adoption, so planning should be based on the current law rather than on assumptions about the draft. For regulatory updates, see the Ministry of Construction portal.

Which law governs limitation

Limitation is usually a matter for the law of the court where the limitation action is brought. This is why forum selection after a casualty is strategic. A claimant may prefer a court where the limit is higher or more easily broken, while the owner may prefer a court that applies the convention and permits a prompt fund. In practice, both sides will examine arrest, jurisdiction and recognition rules before taking any step. Local counsel should be consulted early.

Checklist before relying on the cap

• Confirm which entity is the owner, charterer or manager, and whether each can claim a limitation of liability shipowner right in the chosen forum.
• Check whether the ship’s flag, the place of the occurrence and the arrest forum apply the same instrument.
• Identify any contractual waiver or undertaking not to limit in charters, towage terms or port agreements.
• Review loan covenants that require the borrower to preserve or exercise its limitation rights.

Claims that can and cannot be limited

The convention lists the categories of claims that are subject to limitation and a separate list of those that are excluded. The distinction is where many disputes begin.

Typical limited claims

• Loss of life or personal injury, and loss of or damage to property, occurring on board or in direct connection with the operation of the ship.
• Loss resulting from delay in carriage of cargo, passengers or their luggage.
• Other loss caused by infringement of rights, in direct connection with the operation of the ship.
• Claims for removal, destruction or rendering harmless of a sunken ship or its cargo, subject to reservations that states can make.
• Claims for measures to avert or minimise loss, and further loss caused by such measures.

Typical excluded claims

• Claims for salvage or general average contribution.
• Claims for oil pollution damage under the tanker liability convention (CLC), which has its own limit.
• Claims subject to international conventions on nuclear damage.
• Claims by servants of the owner or salvor whose duties are connected with the ship, to the extent that national law excludes or sets higher limits for them.

The position of bunker pollution claims is different from tanker claims, because the Bunkers Convention allows the owner to limit under the applicable national or international regime. Wreck removal claims also depend on the reservations made by each state. These items are exactly where a Vietnamese court’s practice must be verified.

Claim type	Limitable?	Commercial note	Risk	Check
Collision damage to other ship	Yes, in principle	Main use of the fund	Medium	Forum and fund timing
Cargo damage claims	Yes, in principle	Interaction with carriage rules and package limits	Medium	Contract terms and conventions
Salvage or general average	No	Unlimited contribution risk	High	Security and average adjuster
Tanker oil pollution	Own regime	Separate fund and certificate	High	CLC cover, tonnage
Crew injury claims	Depends on national law	May exceed the global limit	High	Employment contracts and cover

The global limit and the limitation fund

The key concept is the global limit: for each distinct occurrence, the owner’s liability for all claims arising from it is limited to a total amount, calculated from the ship’s gross tonnage. The convention provides one limit for claims for loss of life and personal injury and another for other claims, and it provides a separate regime for passenger claims. The exact figures are set by the convention as amended, and the SDR amounts should be taken from the IMO’s current text.

What a limitation fund is

A limitation fund is a pool of money or security, equal to the global limit plus interest, that is constituted with the court or other competent authority. Once constituted, it is distributed among claimants in proportion to their established claims, and other proceedings against the owner arising from the same occurrence are generally stayed or barred.

Steps to constitute a fund

1. Calculate the ship’s tonnage and the applicable limits, and obtain a tonnage certificate.
2. Identify the occurrence and all potential claimants and claims.
3. Choose the forum and make the filing in the competent court.
4. Provide cash or an acceptable guarantee, often from the P&I club.
5. Give notice to claimants and manage the claims bar date set by the court.
6. Release arrested property once the fund has been accepted.

Practical effects

Constituting a fund can also lead to release of arrested ships and other property of the owner in states that are party to the convention, which has major commercial value. At the same time, it is not a defence on liability. The owner must still address the merits, and a fund can be challenged by claimants who argue that the limit is breakable.

Takeaway: the fund is a procedural tool with deadlines. Missing the filing window or constituting it in the wrong forum can waste the benefit of the cap.

Breaking limitation

Breaking limitation is deliberately hard. Under the convention, a person is not entitled to limit if it is proved that the loss resulted from that person’s personal act or omission, committed with the intent to cause such loss, or recklessly and with knowledge that such loss would probably result. The standard is often described as close to unbreakable.

What the test requires

• The conduct must be personal, meaning that of the person claiming limitation, and for a company, its directing mind rather than a crew member or contractor.
• The state of mind must be intent, or recklessness combined with actual knowledge that the loss would probably result.
• The burden of proof lies on the party seeking to break limitation.

Why it still matters

Claimants nonetheless investigate management systems because evidence of systemic failure by senior management may support an argument that conduct crossed the line. English-law and market practice commentary treats ordinary negligence, even gross negligence, as insufficient. Foreign cases are illustrations of principle only and do not bind a Vietnamese court.

Evidence the owner should hold

• Safety management system records, audits and corrective-action logs.
• Management decisions on manning, maintenance and budget, with reasons.
• Communications between the vessel and the shore office around the incident.
• Records showing that known defects were reported and addressed.

A weak paper trail does not break the limit by itself, but it gives claimants room to argue. A strong one makes the argument short.

Insurance, recourse and a worked scenario

Limitation operates against claimants. Insurance operates between the owner and its insurer. The two interact but are not the same, and many owners confuse them.

How the two interact

• P&I cover for liabilities typically responds up to the owner’s legal liability after limitation, subject to its own terms and limits (market practice).
• An insurer will often fund the limitation fund through a guarantee, and will conduct the proceedings under the club rules.
• Claims excluded from limitation, such as some crew claims or contribution claims, must be matched against cover that expressly responds to them.
• Deductibles, sanctions clauses and breaches of warranty can leave the owner without recourse even where limitation is available.

For further reading on the claims interface, see our note on political risk insurance (MIGA and PRI) and our analysis of arbitration clause choices: SIAC, ICC and HKIAC.

Charterers and managers should also consider their own position. Where they are entitled to limit, the combined liability of owner and charterer for the same occurrence is generally subject to one aggregate limit, so a recovery from one reduces what is left for the other. Contracts should say who runs the fund, who pays for it and how any shortfall is shared.

Hypothetical scenario

Assume a container ship owned by a single-ship company collides with a smaller vessel in a congested channel. The smaller ship sinks, there is loss of cargo on both ships, and several crew are injured. The owner is financed by a bank under a ship mortgage and is entered with a P&I club. These facts are invented for illustration.

• The owner calculates tonnage and the limits, then compares them with total claims to decide whether a fund is worth constituting.
• The owner chooses the forum with counsel, files, and arranges a club guarantee for the fund.
• Claimants consider whether to challenge the limit, using records from the safety system and the bridge data.
• The bank checks that the insurance remains valid, that the mortgage covenants were met, and that limitation procedures do not trigger a default.

Immediate steps: secure the voyage data recorder and logs, notify club and hull insurers, appoint counsel in each candidate forum, and calendar every deadline as a check item. For international texts, see the International Maritime Organization.

Frequently Asked Questions

Who can claim limitation of liability?

Generally owners, charterers, managers, operators and salvors, and liability insurers, as defined in the applicable convention or national law. Always confirm the forum’s rules before relying on this.

Can limitation be raised after losing the case?

Do not assume so. Limitation is normally invoked early and through a fund process. Delay can lead to waiver arguments or procedural bars, depending on the forum.

What is a limitation fund?

It is a sum or guarantee equal to the global limit plus interest, constituted with a court and shared among claimants. It may also help release arrested property.

When is limitation lost?

Only where the loss resulted from the person’s own act or omission with intent, or recklessly with knowledge that loss would probably result. Ordinary negligence does not suffice.

Does insurance change the limit?

No. Limitation caps liability to claimants, while insurance covers the owner according to its terms. Excluded claims and policy defences can leave gaps even when limitation applies.

Conclusion and next step

A limitation of liability shipowner right is valuable, procedural and conditional. It depends on who is claiming it, which claims are in play, where the action is brought, and whether the owner’s own conduct is clean. Owners and lenders who plan before a casualty usually preserve the right. Those who improvise afterwards often do not.

Next action: for each ship, prepare a one-page limitation file showing tonnage, likely forums, the club guarantee process, the excluded-claim exposures and the evidence custodian, and review it with your insurer and lender before the next voyage season.

This article provides general information as of 14 October 2026 and is not legal advice for a specific matter. International and Vietnamese instruments should be checked against current official texts before any decision is taken.