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A Titanic struggle: an update. Salvage beyond the scope of the UNESCO underwater cultural heritage convention.

As the centenary of the sinking of RMS Titanic approaches, this article gives an update on the final determination of the US 4th Circuit Court of Appeals on the question of the ownership of artefacts recovered from the wreck. This article also sets out the mechanism put in place by that Court to protect the integrity of the artefact collection before considering more broadly the way in which States have tried to manage the salvage of wrecks and artefacts of significant cultural interest which fall outside the scope of the UNESCO 2001 Underwater Cultural Heritage Convention. (1)

I. THE 2011 TITANIC JUDGMENT

In a judgment handed down on 12th August 2010, District Judge Rebecca Beach Smith, sitting in the US 4th Circuit Court of Appeals, determined that RMS Titanic, Inc ('RMST'), by court order salvor-in-chief of the wreck Titanic, was entitled to 100 per cent of the fair market value of approximately 2,900 artefacts recovered from the wreck site by RMST and its predecessors in title since 1993. (2) The Court expressly reserved to itself the right to determine the manner in which to pay the award. The Court undertook to make a final determination no later than 15th August 2011. The Court's final opinion was handed down on 15th August 2011.

In her 2010 judgment, the Judge confirmed that she:
   reserved [the Court's] discretion to sell the artifacts in a
   judicial sale, until which time it may determine that no
   appropriate buyer for the collection, capable of maintaining and
   preserving the artifacts for the public interest, has interest in
   buying the collection at a market price.


She added an important caveat that the salvor:
   ... does not have a direct right, however, to title in the
   property. Although the court has found that an award of the entire
   fair market value of the artifacts would be appropriate in this
   case, the court maintains reservations about granting RMST title to
   the artifacts, for fear that the court would end up in a perpetual
   legal battle with RMST over the meaning and scope of the covenants
   and conditions that the United States, through the United States
   Attorney, has negotiated and finalized with RMST and the Court.


In the twelve months to August 2011, however, no buyer came forward with an interest in purchasing the entire collection and the Court was required to make a final decision as to the ownership of the artefacts which had, for an extended period, been a matter of contention.

As a matter of Virginian law, the decision whether or not to grant an in specie award to the artefacts lies solely within the discretion of the Court: RMS Titanic, Inc. v. Wrecked & Abandoned Vessel. (3)

Because no interested purchaser had come forward, the Court made a number of findings:

* That the proceeds of sale would be clearly inadequate to pay the full reward to the salvor, RMST; and

* That the amount of RMST's salvage award could be satisfied only by the Court conveying title to the artefacts to RMST.

With these findings in mind, the Judge granted RMST title to the artefacts recovered in the 1993, 1994, 1996, 1998, 2000 and 2005 salvage expeditions but subject to a very important rider that:
   .... such title is fully subject to the covenants and conditions
   that the United States, through the United States Attorney,
   negotiated and finalized with RMST and the Court.


This outcome was the one which was by far the most likely, and was clearly one in the contemplation of the Court in 2010 as shown by the stipulation and negotiation, in advance, of covenants and conditions to cover the eventuality of a grant to RMST in default of another purchaser coming forward.

So, what of these covenants and conditions? It is worth giving some consideration to the scope of the protection which they afford.

II. COVENANTS AND CONDITIONS

The so-called 'Revised Covenants and Conditions' ('Covenants and Conditions' hereafter) were annexed to the Court's 2010 judgment.

I should stress from the outset that I am not a Virginian-qualified lawyer. I cannot say with certainty that the interpretation of the law of covenants in that state is the same as in England and Wales but, given that both jurisdictions are based on common law, there will be significant overlap between the jurisprudence.

The Covenants and Conditions expressly relate to the future disposition of objects and are, by the judgment of the Court, a condition precedent to the grant to RMST of any in specie award. RMST is deemed to be on notice of the requirements of the Covenants and Conditions when it takes title to the artefacts.

It is unusual, from the perspective of an English lawyer, to see a Court apparently creating an express trust and a scheme for the management of artefacts from a wreck site as part of a judgment. In England and Wales, it would perhaps be expected that a wreck of such significance would either fall under the auspices of a statutory trust or, more commonly, an independent trust registered with and overseen by the Charities Commission. The US federal system means, however, that in the United States the requirements for charitable status vary from state to state.

Moreover, however, the Court's decision in the Titanic case was not concerned with the ownership of the wreck itself but with artefacts.

It should also not be considered that the Virginian Court created a trust framework and foisted it on RMST. On 15th April 2008, RMST was itself ordered to propose restrictive covenants which were required to ensure that the Titanic artefacts were "conserved and curated in an intact collection" and to ensure that they were to be:
   available to the public and accessible for historical research,
   educational purposes, and scientific research in perpetuity ...
   notwithstanding any further changes in circumstances ...


It has been fairly clear for a long period of time that such covenants would be the 'quid pro quo' of any grant of title in the artefacts to RMST. Equally, RMST had, in essence, consented to the imposition of the covenants. As the Judge pointed out, it must be remembered that RMST's status as salvor-in-possession, awarded on 7th June 1994, has been consistently upheld by the Court based on RMST's promise to the Court to "keep the artifacts together and preserve them for the public". (4)

The covenants in their most recent form were in fact submitted by RMST (i.e. not by the Court or the US Government) and were agreed, in principle, on 18th November 2008 in a court hearing. The US Attorney General had filed an amicus brief with the Court which supported RMST's motion for a salvage award on a basis of the proposed Covenants and Conditions.

The Covenants and Conditions are, therefore, a matter of a long-standing tri-partite agreement between the US Government, RMST and the Court.

The Covenants are themselves of very broad scope and cover "... the present and future disposition, care, conservation and management ..." of the arte-fact collection.

The Court also declared a trust over the objects: as such, the in specie award is said to be subject to a
   trust for the benefit of and subject to the beneficial interest of
   the public in the historical, archaeological, scientific, or
   cultural aspects of the wreck and its artifacts ...


In order to make the Covenants and Conditions effective they are expressed to be perpetual in duration and it is ordered that they are required to be "applied to all subsequent owners or possessors" of the artefacts "within the scope of its terms".

While the definition of RMST is widely drawn to include "heirs, successors and assigns" the operation of the scheme of covenants poses a number of questions particularly in relation to the extent to which they would bind an onward purchaser or assignee from RMST.

The Covenants and Conditions provide that RMST or any successive purchaser should comply with some potentially onerous requirements. As I argued in my earlier article, these are broadly to be welcomed and, in a number of ways, they chart a course between commercial reality and the requirements of the UNESCO Underwater Cultural Heritage Convention. As trustee, RMST will be required to undertake conservation, curation, management and general care of the artefacts in accordance with internationally recognised good practice.

Moreover, RMST must establish a 'reserve account', namely a fund which is "irrevocably pledged for the purpose of providing a performance guarantee for the maintenance and preservation" of the artefacts for the public interest. As set out in Part V of the Covenants and Conditions, RMST will be required to contribute to the reserve fund equal amounts of $25,000 per quarter. The Conditions deem the sum of $5 million an 'adequate endowment' and such payments (and interest) must accumulate until such a sum has accrued.

With the use of covenants comes the question of transmission, i.e. how to make any subsequent purchaser of the artefacts subject to the same burden as RMST. In the absence of such a safeguard, the Covenants and Conditions would be toothless.

This is an important consideration because these covenants are 'positive' covenants in that they oblige RMST to act in a certain way rather than prohibit it from taking certain steps. English law has certainly always been chary about allowing the transmission of the burden of a positive covenant to an assignee, preferring to adopt an analysis which upholds privity of contract between the original covenanting parties. Why, it might be argued, should an onward purchaser automatically be subject to an onerous burden which it has not expressly agreed?

The English courts have adopted a mechanism for the onward transmission of positive covenants whereby a purchaser enters into a free-standing covenant that it will, in turn, in any sale, require an onward purchaser to bind itself to the same positive covenants, thereby retaining a relationship of contractual privity from purchaser to purchaser. Such schemes are always a matter of agreement and the Court must construe the ambit of the agreement in question.

Here, of course, it is not clear that RMST has, itself, agreed that in any onward contract of sale or assignment of title in the artefacts it will ensure that there is a direct agreement by a future purchaser to subscribe to the Conditions and Covenants. Instead, however, the Court retains a potentially active role so long as the parties in question are subject to the Court's jurisdiction.

The covenants to which RMST will be subject include onward protection of the artefacts in the event of sale. In the first place, they provide that the collection:
   may not be sold, transferred, assigned, or otherwise be the subject
   of a commercial transaction, except as approved by the Court. Such
   transfer or assignment will be subject to orders of the Court
   including the provisions of these Covenants and Conditions.


Moreover, subsequent purchasers or assignees are deemed to be on notice of the restrictions contained in the Covenants and Conditions as constituting "an equitable servitude and trust" imposed for the public interest. This reduces the scope for an onward purchaser to argue that it was unaware that there was a special regime which governed the protection of the artefacts.

Under the Covenants and Conditions the Court retains an express jurisdiction over the artefact collection and provision is made for any trustee to be required to submit him or herself to the jurisdiction of the Court for the purpose of oversight. For all practical purposes, the Covenants and Conditions envisage that oversight and scrutiny will take place under the auspices of the US National Oceanic and Atmospheric Administration ('NOAA').

This procedure is all very well for dispositions based within the United States and the Covenants and Conditions lay down a procedure for the designation of a new trustee should RMST wish to relinquish its role. RMST would be required to obtain from the proposed trustee a 'signed acknowledgement' by that he agrees to be bound by the Covenants and Conditions. It is not, however, clear what form this 'signed acknowledgement' would take.

The procedure would not, however, apply to situations where the corporate identity of the trustee is changed or altered by "sale, purchase, merger, acquisition or similar transaction the form and purpose of which does not effectuate a change in the management, conservation and curation" (emphasis added) of the artefact collection. It is not clear how in such circumstances the US courts or NOAA would be able to offer effective oversight.

What, for example, where the merger or acquisition takes place internationally, and following a merger the collection is held under the control of a group entity the headquarters of which are not based in the United States, but the de facto curation of the artefacts does not change? Under such an acquisition there may be no formal change in the actual management of the artefacts but the key corporate officers in question may be based outside the United States. It is by no means clear that such officers could be made subject to the jurisdiction of the NOAA or a Virginian court.

Special provision is, however, made for a transaction with a legally distinct overseas entity, the effect of which directly transfers title to the artefacts. The requisite clause provides that:

i) Nothing in the Covenants and Conditions precludes the sale, transfer, assignment or other transaction to a qualified institution located or constituted outside the United States;

ii) Such an institution must make a declaration that it agrees to be bound by the Conditions and Covenants;

iii) Such an entity may be required to post an additional performance guarantee;

iv) The entity must be based in the UK, Canada, or France; and

v) The transaction must include a 'lease back' of the artefacts to a US entity that has previously served as a trustee or be 'otherwise effectively managed' by such a US entity.

It is not clear whether or not a UK (or other overseas) purchaser under these terms could be brought within the jurisdiction of US federal agencies or the 4th Circuit Court of Appeals. This, presumably, explains why the Court required the 'lease back' provision.

In practice, it is hard to envisage a situation where any UK, French or Canadian purchaser would want to transact on the basis set out above. This measure gives a large measure of potential control to the US and the Virginian court. It is difficult to accept that a non-US private enterprise would wish to take ownership of the artefacts if, in fact, by way of a 'lease back' they would have no effective control over the artefacts. The net effect of this provision will probably be, therefore, that the artefacts will remain in US hands.

Even if this reasoning proves to be wrong, and the artefacts were to end up in the hands of a UK, French or Canadian enterprise they would still be subject to international agreement concerning RMS Titanic and its artefacts. These States are all party to the International Agreement Concerning the Shipwrecked Vessel RMS Titanic which was concluded in London on 6th November 2003. (5)

By way of Article 3 of that agreement:
   Each Party shall take all reasonable measures to ensure that all
   artifacts recovered from RMS Titanic after entry into force of this
   Agreement, that are under its jurisdiction, are conserved and
   curated consistent with the relevant Rules and are kept together
   and intact as project collections.


There is, however, no mechanism provided within the agreement for effective enforcement, which leaves it rather toothless.

As concluded in the earlier article on these proceedings, the situation brought about by the Virginian Court constitutes a robust and creative attempt by a court operating outside the scope of the UCH to arbiter competing interests of salvage and heritage with the intervention of government, the courts and private enterprise which has the public interest in the artefacts at its heart.

The Court's decision in relation to RMS Titanic, however, begs further questions about the protection of wrecks outside the scope of the UNESCO Underwater Cultural Heritage Convention. As I speculated last year, it is my view that the Convention may have reached its apogee. It may be that bespoke, more flexible, instruments can better meet the competing demands of salvage and heritage. The tri-partite solution regarding Titanic is one such attempt.

At the end of 2011, RMST indicated that it would seek a sale of the artefact collection to coincide with the centenary of the disaster in April 2012. Reports suggest that the artefacts for sale number in excess of 5,000 items, said to be valued at $189 million. The collection may, however, comprise more artefacts than were the subject matter of the litigation in Virginia. This auction will take place at Guernsey's in Manhattan. Any prospective purchaser will need to comply with the conditions set out above. I look forward to revisiting the subject in future if and when an appropriate bidder is found in order to evaluate the practical effects of the 2011 judgment.

III. NON-JUDICIAL AGREEMENTS

Other attempts, however, may be seen in the negotiations undertaken by governments, particularly the UK Government, in relation to the salvage of a number of wrecks which have been the subject of relatively recent discovery such as the SS Gairsoppa. The Gairsoppa was located by US marine exploration firm, Odyssey Marine Exploration Inc, nearly 4,700 metres below the North Atlantic and 300 miles off the Irish coast. Depending upon the reader's perspective, a firm such as Odyssey Marine is either a private firm of treasure seekers out for private gain or a professional, skilled outfit of professionals prepared to make the necessary investment in wreck location and recovery with a reasonable expectation of some reward.

The SS Gairsoppa was a British cargo steamship, sunk by German U-Boat 101 in 1941. She was reportedly returning to Britain from Calcutta. Unlike other wartime shipwrecks, notably that of RMS Lusitania, the Gairsoppa's wreck is primarily remarkable because of its cargo.

Odyssey Marine's senior project director is on record as saying that because of the orientation and direction of the wreck the salvor is "extremely confident" that a planned salvage operation will yield a cargo of 200 tonnes of silver worth an approximated 150 million [pounds sterling]. There may also be some gold.

For the purpose of this article, it is particularly of note that Odyssey Marine had, in January 2010, entered into a fixed-term, two-year contract for salvage awarded by the UK Department for Transport. It is reported that the contract reflects the fact that, as salvor, Odyssey Marine assumes the risk, expense, and responsibility for the search, cargo recovery, documentation and marketing of the cargo. (6)

Greg Stemm, Odyssey's CEO, has lauded the 'excellent working relationship' with the UK Government and the 'straightforward' legal ownership arrangements which the agreement has brought about. As such, this relationship stands in stark contrast to the twelve-year battle surrounding the artefacts of Titanic.

Without sight of the agreement itself it is, however, impossible to say what safeguards it contains for the protection of artefacts. Stemm has, however, said that he wants to return the silver to the 'stream of commerce'. This appears to envisage a sale or a disposal. It is thought that the seven million ounces of silver on the vessel is a mixture of privately owned bullion insured by the UK Government and other state-owned coins and ingots. Apart from the silver it is not clear that the vessel's cargo contains anything else of significant value.

A DfT spokeswoman has confirmed that "The contract for the salvage of the SS Gairsoppa was awarded by competitive tender in accordance with government and departmental procedures". She added that, "while we do not comment on the specifics of such commercial arrangements, Odyssey Marine Exploration were awarded the contract as they offered the best rate of return to HMG". It is not clear to me what criteria were in play when the contract was awarded, but it appears that the focus was financial return.

It is important (as with the Titanic artefacts) to detach the question of title to the wreck from ownership of artefacts. In this regard, I understand that the UK Department for Transport has rejected a claim to ownership of the wreck by Odysssey Marine based on abandonment. It is reported that the UK Government has argued that the wreck was covered by WWII War Risk Insurance and is, thereby, deemed to be the property of the Secretary of State for Transport.

If the media reports are correct, at first sight a 20 per cent share of the Gairsoppa bounty seems rather low; however, it must, of course, be expected that, particularly in times of austerity, there is little appetite at an official level for undertaking a government-sponsored salvage operation. Perhaps, therefore, this represents an acceptable compromise and one which reflects adequately the commercial risks of salvage. It must also be remembered that there is probably nothing intrinsically important in silver bullion dating from the mid twentieth century which makes it particularly worthy of preservation in its own right.

The same cannot, however, necessarily be said for the wreck of a nineteenth-century Spanish vessel recovered off the Spanish coast in 2007 by Odyssey Marine. Reports indicate that approximately $500 million in silver and gold coins were recovered from the wreck of warship Nuestra Senora de las Mercedes which sank in 1804 in an attack in the Battle of Cape St Mary, south of Portugal.

Despite the recovery of the coins in 2007 by Odyssey Marine, in January 2012, in what has been hailed as a 'major victory', the 11th US Circuit Court of Appeals in Atlanta ruled that the approximately 600,000 coins must be returned to Spain. (7) In the words of Spain's culture ministry, "With the ruling by the appeals court, the process begins to recover all of the coins taken illegally." Spain's Culture Minister, Jose Ignacio Wert has stated:
   we're not going to use this money for purposes other than artistic
   exhibition, but this is something that enriches our material,
   artistic capital and it has to be appreciated as such.


Odyssey Marine can, of course, still appeal to the US Supreme Court but the chances of that court hearing the case are relatively slim. This case, however, must be a signal warning that discoveries by salvage companies such as Odyssey Marine are not immune from legal challenge. That said, the Nuestra Senora de las Mercedes was a Spanish naval warship and international law accords States sovereignty over state military vessels.

Given that the price of precious metals (gold and silver particularly) is rising, it must also be expected that finds such as these will be increasingly contentious in coming years. A fascinating case in point will be the recovery--if it happens--of platinum ingots from the wreck of the SS Port Nicholson recently located 50 miles off the Atlantic coast of the United States. This wreck, another wartime merchant casualty, has been discovered by another firm in the Odyssey Marine mould, namely Sub Sea Research, LLC. Greg Brooks, co-manager of that firm, has claimed that the Port Nicholas holds a haul of platinum, gold and industrial diamonds worth a reported $3 billion. (8)

Ownership rights are as yet unsettled but the UK Government is waiting in the wings and has retained the services of a US attorney, Anthony Shusta. This may indicate that a legal battle is anticipated.

IV. CONCLUSIONS

The US 4th Circuit Court of Appeals has probably at last settled the debate about the ownership of the Titanic artefacts under its consideration. Now, their protection lies in private, US, hands but with an extensive scheme of oversight which incorporates federal scrutiny and private, trust law rights.

Recent large-scale finds of bullion off the coasts of the United States and United Kingdom call into question, however, the role of governments and the scope for agreement where the 2001 Underwater Convention is not in play.

Clearly, however, a salvage agreement of the type entered into with Odyssey Marine is an attractive way to avoid extensive and expensive court squabbles but to be effective in reality such agreements will need to be negotiated in advance of any find. Once a potentially significant cargo has been located which is of interest to a State--either because of a sovereign interest, an insurance claim or because the vessel is located in that State's waters--absent an advance agreement that State will have lost its strongest bargaining position.

Such agreements with salvors will need to be negotiated with some care and will need to be drafted with sufficient flexibility to deal with changing circumstances depending upon what is recovered from the ocean floor. Consideration will also need to be given for court process or arbitration in the event of disputes.

(1) UNESCO Convention on the Protection of the Underwater Cultural Heritage (2001): see <http://www.unesco.org/new/en/unesco/themes/underwater-cultural-heritage/ the2001-convention/official-text/.>.

(2) See the author's note of this case in (2011) XVI Art Antiquity and Law 53.

(3) 286 F. 3d 194, 204 (4th Cir. 2002).

(4) RMS Titanic, Inc v. Wrecked & Abandoned Vessel 924 F. Supp. 714, 722-724 at 723 (E.D. Va. 1996).

(5) The Agreement was open to signature until 5 Nov. 2004.

(6) BBC News Online, 26 Sept. 2011, <http://www.bbc.co.uk/news/uk-15061868> (last accessed 12 Feb. 2012).

(7) CNN Online, 4 Feb. 2012, <http://edition.cnn.com/2012/02/01/world/europe/spainu-s--treasure- dispute/index.html> (last accessed 21 Feb. 2012)

(8) BBC News Online, 2 Feb. 2012, <http://www.bbc.co.uk/news/world-uscanada-16847737> (last accessed 12 Feb. 2012).

Paul Stevenson, Barrister, Tanfield Chambers.
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Date:Dec 1, 2011
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