Ship accidents in maritime trade can cause serious damage to the ship, cargo, port facilities, or the environment. The magnitude of these damages can often reach economically unbearable levels for the shipowner. At this point, a special mechanism has been foreseen in international maritime trade law to protect the shipowner: limitation of liability and fund establishment.

What is Limitation of Liability?

Limitation of liability refers to the shipowner’s ability to limit their liability, even if at fault, for certain types of claims arising from the operation of the ship, to a predetermined monetary upper limit. This system is regulated by the Convention on Limitation of Liability for Maritime Claims (LLMC) of 1976 and is also in force in Turkey.

The main objective of LLMC is to ensure the sustainability of maritime trade and to protect shipowners from unforeseen and unlimited compensation risks. A paper suggestion.

What is a Fund Establishment Lawsuit?

When the shipowner wishes to limit their liability under LLMC, they initiate a fund establishment lawsuit and deposit the determined limit amount with the court or provide security for it. This fund becomes the common source of satisfaction for all creditors arising from the accident.

When a fund is established;

Individual lawsuits arising from the same incident are stayed,

Creditors must bring their claims through this fund. The shipowner is protected from claims exceeding the fund amount. In this respect, the establishment of the fund is a strategic and protective legal tool for the shipowner.

Which Claims Are Subject to the Limitation of Liability?

According to the LLMC, the following claims, in particular, are covered by the limitation of liability:

Damages to port facilities, piers, quays,

Damages to coastal structures and marine infrastructure (cables, pipelines),

Tort damages arising from the operation of the ship,

Loss of life and personal injury (subject to separate limits).

Conversely, the limitation of liability is not possible in cases of the shipowner’s intentional conduct or “acting with knowledge that such loss would probably result and recklessly”.

How is the Fund Amount Determined?

The fund amount is calculated based on the ship’s gross tonnage (GT) and in Special Drawing Rights (SDR) units as determined in the LLMC. Separate limits are stipulated for loss of life/personal injury and property damage. In practice, since this calculation requires technical knowledge, establishing an incorrect fund can lead to significant loss of rights.

In Which Court is the Fund Established?

Cases for the establishment of a limitation fund are filed in Turkey at Commercial Courts of First Instance acting as Specialized Maritime Courts. In Istanbul, this duty is generally performed by the specialized courts in the Istanbul and Istanbul Anatolian Courthouses.

Why is the Establishment of a Limitation Fund Important for the Shipowner?

The establishment of a limitation fund;

Eliminates the risk of provisional attachment and arrest of the ship,

Prevents being subject to multiple lawsuits,

Makes liability predictable and manageable,

Reduces legal uncertainty in insurer-shipowner relationships. Therefore, one of the first steps to be taken after a ship accident should be to evaluate the possibility of constituting a fund.

Conclusion

The limitation of liability and constitution of a fund under the 1976 LLMC Convention is one of the most important mechanisms of maritime law that protects the shipowner. However, the effective use of this right is only possible with correct timing, accurate calculation, and an appropriate procedural litigation strategy. Otherwise, even if a fund is constituted, the shipowner may not benefit from the legal protection they expected.

Therefore, when facing ship accidents, damages to port and coastal structures, or large-scale maritime claims, it is of vital importance to manage the process with the assistance of a lawyer specialized in maritime law.

Against Whom is a Fund Constitution Action Filed?

A fund constitution action is not a classic performance or compensation lawsuit filed against a specific defendant.
This action is an in rem (incident-related) lawsuit filed against all creditors arising from the same maritime accident or incident.

Legal Definition

A fund constitution action is;

Of the shipowner (or the person entitled to limitation),

For all maritime claims that may arise from the same incident,

With the aim of limiting their liability to LLMC limits,

It concerns the establishment of a fund before the court. Therefore, it is not mandatory to list creditor names one by one in the petition.

How is the Defendant Indicated in Practice?

In practice, courts usually accept the following statement under the defendant heading:

“All creditors whose liability can be limited under the 1976 LLMC Convention”

or “All creditors arising from the incident” In some practices, known creditors (e.g., port authority, municipality, quay owner, insurance company) are also stated in the petition for informational purposes; however, this is not mandatory.

Who are the Parties in a Fund Establishment Case?

Plaintiff

Shipowner (vessel owner)

The person operating the vessel on their own behalf

Bareboat charterer (if applicable)

In some cases, if the insurer has assumed responsibility, the P&I Club plays an indirect role

Defendant

All existing and potential creditors arising from the same incident

Port authority

Municipality / public institution

Owner of shore facilities

Insurance companies (as recourse creditors)

Third parties

Why is it not Filed Against a Specific Person?

Because the purpose of a fund establishment lawsuit is:

not to say, “I don’t owe this much to this person”;

but to say, “This is the upper limit of my liability for all claims that may arise from this incident.”

When the fund is established:

Creditors cannot file individual lawsuits,

Ongoing lawsuits are stayed,

Everyone must register their claim within the fund.