Battered by the global credit crisis of 2008, the shipping industry has not recovered. Curbed lending, combined with a glut of ships, means a tide of bankruptcy filings. In her Law360 article entitled “Will SLVs Hold Water in Shipping Bankruptcies?" (2012), Uhland suggests that Chapter 11 and the rejection power of Bankruptcy Code section 365 may provide relief. However, the stipulated loss value (SLV) provision that is often part of such agreements may also pose hazards. The SLV formula can set damages far beyond remaining amounts owing on the charter. Whether bankruptcy courts will enforce these is uncertain, but, as noted by Uhland, “guidance can be found by turning from sea to sky--to cases involving aircraft leases.”
According to Suzzanne Uhland and co-author Andrew Parlen, the Third Circuit’s decision in the Trans World Airlines bankruptcy case presents obstacles for ship owners seeking to enforce an SLV-based damages claim that is out of line with actual damages. The holding that the lessee does not have to bear market risk could be applicable to shipping cases given the current oversupply of ships. “The recent cases outside the Third Circuit that have ignored the ruling and its reasoning, however, suggest that ship owners may still have room to navigate,” they add.
Suzzanne Uhland is a partner at O’Melveny & Myers in San Francisco. She was honored by the “Profiles in Diversity Journal” in its 2010 Women Worth Watching issue.