This was a case arising from a charterparty between Petroleos Mexicanos Refinacion (Pemex) and Tbilisi Shipping Co Ltd (Tbilisi), the owner of the MT Tbilisi. In 1992, during the discharge of cargo at Guaymas, Mexico, it was discovered that two cargoes of oil had been cross-contaminated during the voyage. Tbilisi did not dispute its liability for the contamination. Pemex salvaged the cargoes and claimed salvage costs and losses from Tbilisi. To protect its interests, Pemex withheld an amount of USD 530,320 from the charter hire payment. In April 1993, Tbilisi commenced arbitration. Tbilisi's P&I club issued a letter of undertaking (the first LOU) to Pemex agreeing to provide USD 530,320 inclusive of costs and attorneys' fees, and interest up to USD 94,000. In return, Pemex agreed to pay the withheld hire and to refrain from arresting the MT Tbilisi, except to the extent that Pemex's claim exceeded the amount secured by the first LOU. The first LOU also stated that 'this letter is provided entirely without prejudice to any rights or defenses which the said MT Tbilisi and/or Tbilisi may have under applicable law'.

In 1995, prior to Pemex presenting a claim in arbitration, Tbilisi made an application for dismissal. Tbilisi contended that Pemex's claim was barred by the one-year statute of limitations in the US Carriage of Goods by Sea Act (COGSA). The arbitration panel found that Pemex's claim was not barred by the statute of limitations, but instructed Pemex to submit any claim it had against Tbilisi expeditiously. Pemex submitted a statement of claim on 15 January 1996. The claim was solely against Tbilisi and not against the MT Tbilisi.

Sometime during the arbitration, Pemex discovered that Tbilisi had sold the MT Tbilisi to King David Shipping Co (King David), and that it had been renamed the MT King A. In early 2002, Pemex discovered that the MT King A was scheduled to call at a terminal in New Jersey. In March 2002, Pemex filed a complaint in the District Court for the District of New Jersey naming the MT King A as an in rem defendant. The District Court issued a warrant of arrest. King David's P&I club issued a letter of undertaking (second LOU) for USD 707,819.60, plus interest, costs and attorneys' fees. On 10 September 2002, King David submitted an application in the District Court to vacate the warrant of arrest, cancel and discharge the second LOU, and dismiss Pemex's claim. The District Court determined that a valid maritime lien on the vessel existed, and that the warrant of arrest was properly issued. The District Court also held that Pemex's claim was not barred by the statute of limitations, and therefore the complaint was not dismissed. On 15 April 2003, the District Court denied the application to vacate the warrant.

On 9 August 2006, a final arbitration award was issued against Tbilisi and in favour of Pemex in the amount of USD 950,413.18. Part of the award was satisfied by the first LOU. On 26 July 2007, Pemex and King David consented to entry of a final judgment in the District Court in the amount of USD 395,265.04, which represented the unpaid balance of the arbitration award. From that final judgment, King David appealed the merits of the District Court's 2003 denial of its application to vacate the warrant of arrest.

Held (by a majority): The judgment is reversed and the arrest is vacated, the second LOU is discharged, and Pemex's claim is dismissed.

King David's contention that the District Court improperly issued the warrant of arrest was based primarily on its statute of limitations defence. King David argued that the expiration of the COGSA limitation period extinguished any lien that Pemex had on the vessel. Because no lien on the vessel existed when Pemex filed its complaint, the District Court lacked admiralty jurisdiction to issue the warrant of arrest.

It was undisputed that COGSA was incorporated into the parties' charter agreement and that the one-year statute of limitations applied. The first LOU expressly authorised Pemex to seek additional security if the amount of its claim exceeded the amount secured by the first LOU. Generally, a letter of undertaking would not contain such a provision. A standard letter of undertaking serves as a complete substitute for the res, but here the first LOU served only to secure the remittance of the withheld hire, and not to prevent service of an arrest warrant on the vessel. Accordingly, the first LOU contained this unique contractual reservation of the right to arrest the vessel later.

Pemex, however, failed to take action to increase its security until nine years had passed. King David contended that Pemex had seven months from the issuance of the first LOU to calculate the amount of its claim for cargo damages and to seek any additional security. If Pemex had done so, it would have undoubtedly been within the COGSA limitation period. Attempting to seek the additional security after the expiration of the limitation period rendered Pemex's claim for additional security untimely.

Critical to the resolution of the appeal was the interaction of two contractual provisions in the first LOU: (1) the language in the recital paragraph permitting later arrest of the vessel, should Pemex's claim exceed the amount of the first LOU; and (2) the reservation-of-rights clause which brought COGSA defences into the contract.

The COGSA statute of limitations 'is one which extinguishes the cause of action itself, and not merely the remedy': MVM Inc v St Paul Fire Marine Ins Co 156 F Supp 879, 883 (SD NY 1957), rev'd on other grounds sub nom St Paul Fire Marine Ins Co v US Lines Co 258 F 2d 374 (2d Cir 1958); Am Hoesch Inc v SS Aubade 316 F Supp 1193, 1194 (D SC 1970) (recognising that COGSA's time-for-suit provision extinguishes the cause of action and the remedy). Accordingly, if Pemex's in rem claim was barred by the COGSA statute of limitations, it necessarily follows that the District Court had no grounds upon which to issue a warrant of arrest. The majority's determination of the untimeliness of Pemex's complaint is based on the applicability of the COGSA time bar and the contractual provisions of the first LOU.

The District Court did not explain what it meant by 'pursuant to' the first LOU, namely, whether the terms of COGSA, including its one-year statute of limitations, come within the 'applicable law'. The first LOU must be construed so as to give meaning to both the recital paragraph and the reservation-of-rights clause. Read in conjunction with one another, they provided that Pemex retained the right to later arrest the vessel, subject to the well-known one-year COGSA statute of limitations. The District Court reasoned that the close intertwining of the in rem and in personam claims permitted the 'relation back' of the in rem suit to the in personam arbitration, making Pemex's 2002 complaint timely: see Thyssen Inc v Calypso Shipping Corp SA AM 310 F 3d 102 (2d Cir 2002). However, distinguishing Thyssen, based on its facts, the majority found that there was no case law to support the proposition that the mere fact of interrelation provides a basis for relation back or a 'tolling' of the statute of limitations. In Thyssen, the appellant sought a second bite at the apple, attempting to proceed in rem against the vessel after its arbitration against the ship owner was dismissed. Here, Pemex prevailed in arbitration, but failed to properly secure an award with pre-arbitration seizure before the statute of limitations had run out. Thyssen illustrates that maritime cases almost always involve both in rem and in personam claims and that in relation to the Federal Arbitration Act (FAA), they are particularly closely linked, but Thyssen did not sanction 'relation back' of these distinct, albeit related, actions.

Although the FAA clearly would have permitted Pemex to proceed in rem to seize the vessel to secure a later arbitration award, Pemex failed to fully secure its claim in rem when it accepted the first LOU that limited the amount of recovery to USD 530,320 absent further in rem proceedings. If Pemex had secured its claim with a standard LOU, it would have served as a complete substitute for the res and its claim would have been fully secured. If Pemex had secured its claim with a later date in rem proceeding pursuant to the first LOU, and within the one-year COGSA statute of limitations, its claim would have been fully secured. Instead, Pemex accepted the first LOU which was only a partial substitute for the res and failed to act in a timely manner. A close interrelation does not provide a basis for 'relation back'.

In Claussen v Mene Grande Oil Co CA 275 F 2d 108 (3d Cir 1960), the Court examined whether a seafarer's complaint filed in 1956 in the District of Delaware alleging injuries sustained in 1947 was time-barred, even though the seafarer had originally filed a timely complaint alleging the same claims in the Southern District of New York. In determining that the seafarer's second complaint did not relate back to his first complaint, the Court said:

An argument that an earlier suit filed on these claims in the Southern District of New York less than three years after the accident somehow 'tolled' the statute of limitations for the present entirely distinct action, as filed years later in the District of Delaware, is wholly without merit.

Similar to the seafarer in Claussen, Pemex attempts to avoid a statute of limitations by relating its in rem claim against the vessel back to an entirely distinct in personam arbitration against Tbilisi. As in Claussen, Pemex's claim has no merit. Although the first LOU provided for a possible later arrest of the vessel, that subsequent in rem proceeding was distinct from the arbitration. The facts underlying both actions were the same, but the parties were different: Pemex and MT King A in the in rem action, and Pemex and Tbilisi in the arbitration. The personification theory, while criticised by academics, is fundamental to US admiralty practice and is the theoretical foundation of the maritime lien: see Salazar v Atlantic Sun 881 F 2d 73 (3d Cir 1989).

The reservation-of-rights clause of the first LOU provided that 'this letter is provided entirely without prejudice to any rights or defense which the said MT Tibilisi and/or Tbilisi may have under applicable law'. COGSA qualified as 'applicable law' because it was undisputed that COGSA was incorporated into the parties' charter agreement. The first LOU therefore permitted later arrest of the vessel subject to the one-year statute of limitations. Accordingly, as Pemex did not file its in rem complaint within one year, the COGSA statute of limitations extinguished the maritime lien on the vessel; and, the District Court therefore lacked in rem jurisdiction to issue the warrant of arrest for MT King A.

Fuentes Cir J, dissenting: Pemex's seizure of the ship was appropriate because the in rem and in personam proceedings were essentially the same claim, and the former 'relates back' to the latter. The seizure was justified by the specific contract provision contained within the first LOU that reserved Pemex's right to seize the ship at a later date in the event the amount of its claim against Tbilisi exceeded USD 530,320.

The arbitration began in April 1993, well within the one-year statute of limitations. The arbitration proceedings were unusually long. In an effort to secure its loss, which were then clearly in excess of the USD 530,320 guaranteed in the first LOU, Pemex sought to seize the ship. The underlying claim was commenced within the one-year COGSA statute of limitations and the parties similarly negotiated and executed the first LOU. Because Tbilisi refused to provide additional security at that time, Pemex negotiated the right to seize the vessel in the future because it knew that damages would exceed USD 530,320.

The majority's interpretation of the first LOU rendered the clause that reserves Pemex's right to arrest the vessel at a later date virtually useless. Such an interpretation is disfavoured under general principles of contract interpretation: see USX Corp v Liberty Mut Ins Co 444 F 3d 192 (3d Cir 2006). The majority imported the COGSA statute of limitations into the first LOU under the reservation-of-rights clause that generically reserved any rights or defences available to the vessel and its owner under applicable law. By doing so, the majority elevated the boilerplate language of the 'reservation of rights' clause over the specific language, negotiated by the parties under special circumstances, that reserved Pemex's right to arrest the ship at a later date. Even the majority notes that this language is unusual in letters of undertaking, calling it 'a unique contractual reservation of right to later arrest the vessel'. This further supported the argument that the clause relating to arrest is negotiated language that should trump the boilerplate language in the 'reservation of rights' clause. It is well established in contract law that specific and exact terms are given greater weight than general language: see Great Am Ins Co v Norwin Sch Dist 544 F 3d 229 (3d Cir 2008). Pemex was a party to an arbitration commenced five months after the incident, well within the COGSA statute of limitations. It was of no import that the arbitration did not conclude until 2006. Pemex was entitled to enforce the lien it has held on the vessel, for over 16 years. The 'relation back' doctrine alone is sufficient to justify the seizure of the ship in 2002.