Out of date letter of guarantee

A cargo of ethyl alcohol was discharged from a ship at Hamburg in damaged condition. The cargo insurers paid the claim for damage, and obtained a letter of guarantee from the ship owner’s P&I Club.  The guarantee provided for reimbursement of the claim if a competent court found the ship owner liable for the damage and was valid for one year unless renewed. The cargo insurers passed the claim to an independent recovery agent, who obtained successive time extensions from the ship owner, but overlooked the requirement to renew the letter of guarantee. The cargo insurers’ claim against the ship owner was therefore still valid, but the ship owner then declared bankruptcy.

As the P&I Club letter of guarantee was invalid, the cargo insurers had no option but to recover their claim for US$ 150,000 from the recovery agent.