THE CHALLENGE OF RECONCILING UNDERWATER CULTURAL

HERITAGE AND FOREIGN DIRECT INVESTMENT: A CASE STUDY

VALENTINA SARA VADI∗

1. INTRODUCTION

Licensed by the East India Company to trade between Calcutta and Canton, the
Diana vessel was returning to India laden with silks, tea and blue-and-white porce-
lain, when the ship sank mysteriously in the Straits of Malacca on 5 March 1817.1 In
1991, the Malaysian Government entered into a contract with Malaysian Historical
Salvors (MHS), a British salvage company, to locate and salvage the cargo. Under
the terms of the contract, artefacts directly related to Malaysian history and culture
would be retained by the Government, while the other recovered items would be
sold at Christie’s. The Government would receive the sale proceeds, while paying a
percentage of the sum to the company.2 The salvage efforts took almost four years;
when MHS found and salvaged the sunken vessel, nearly 24,000 entire pieces of
Chinese blue-and-white porcelain were recovered.
The dispute arose with regard to the proceeds of the auction and the quantity
of items which Malaysia withheld from sale. The company commenced arbitration
at the International Centre for Settlement of Investment Disputes (ICSID), holding
that Malaysian courts had denied due process and that there was a violation of the
Malaysia/UK Bilateral Investment Treaty. For its part, the respondent objected to
jurisdiction over the dispute, arguing that the contract was not an investment. This
line of argument was upheld by the sole arbitrator who dismissed the claim on

∗
Ph.D. Candidate, European University Institute. This paper was presented at the 9th
Mediterranean Research Meeting (Workshop No. 5: Illicit Traffic of Cultural Objects in the
Mediterranean Region), Florence and Montecatini, 12-15 March 2008, organised by the
Mediterranean Programme of the Robert Shuman Centre for Advanced Studies at the European
University Institute. The author wishes to thank Professor Francesco Francioni, Dr. Ana Vrdoljak,
and all the participants to this conference for their comments.
1
BALL, “Introduction”, in CHRISTIE’S, The Diana Cargo: Chinese Export Porcelain and
Marine Artefacts, Amsterdam, 1995, pp. 620-622, p. 1042, pp. 1199-1297; BALL, The Diana
Adventure, Groningen, 1995.
2
The contract was on a no finds-no pay basis, which is a well established practice in marine
salvage and means that all the costs of the salvage and its risks would be borne exclusively by
the salvage company. The law of salvage and the law of finds traditionally belong to admiralty
law and are private law rules codified in limited fashion in public documents (the 1910 Brussels
Convention for the Unification of Certain Rules with Respect to Assistance and Salvage at Sea
and the 1989 International Convention on Salvage) that originated in common law jurispru-
dence.
144 NOTES AND COMMENTS

jurisdiction on 17 May 2007.3 Rightly or wrongly, the arbitrator considered that

the nature of the claimant’s activities was largely similar to a commercial salvage
contract and that under ICSID practice and jurisprudence “an ordinary commercial
contract [could not] be considered as an investment”.4
This case is interesting because it is the first time a marine salvage claim has
been brought before the Centre. In particular, this paper critically assesses this case
from two different aspects. First, from a procedural perspective, the paper analyzes
what constitutes an investment. Notoriously, international investment law does not
constitute a homogenous set of laws, as the rule of stare decisis does not apply to
investment arbitration and arbitral panels are selected on an ad hoc basis.5 Also,
investment agreements generally provide slightly different definitions of invest-
ment.
Second, more substantially, had the sole arbitrator accepted jurisdiction, it
would have been fascinating to see how the substantive issues were handled. On
the one hand, there is the public policy issue of protecting and preserving cultural
heritage, while on the other, the foreign investor’s economic interests. As the case
has been challenged and is currently under revision, this paper could not be more
timely.
The argument will proceed in five parts. Section 2 will briefly summarize the
case and its major findings. Section 3 will critically assess the decision, focusing
on the definitional issue of “what is an investment”. Section 4 will deal with the
possibilities opened by a potential reversal of the case. If the decision was reversed,
then arbitrators would face the challenge of reconciling cultural heritage protection
and the promotion of foreign investments. Sections 5 and 6 briefly analyze the in-
ternational legal framework protecting underwater cultural heritage and highlight
some of its major weaknesses. Section 7 offers a conclusion by emphasising the
growing imperative for arbitrators to cope with the human rights dimension of
global investment.

3
Malaysian Historical Salvors, Sdn, Bhd v. The Government of Malaysia, ICSID Case No.
ARB/05/10, Award on Jurisdiction of 17 May 2007, para. 112.
4
Ibid., para. 112.
5
On the formation and role of jurisprudence constante in international investment law, see,
for instance, COMMISSION, “Precedent in Investment Treaty Arbitration. A Citation Analysis of a
Developing Jurisprudence”, Journal of International Arbitration, 2007, pp. 129-158; KAUFMANN-
KOHLER, “Arbitral Precedent: Dream, Necessity or Excuse?”, Arbitration International, 2007,
pp. 357-378; BALTAG, “Precedent on Notion of Investment: ICSID Award in MHS v Malaysia”,
Transnational Dispute Management, 2007, Vol. 4, Issue 5 (electronic); VADI, “Towards Arbitral
Path Coherence & Judicial Borrowing: Persuasive Precedent in Investment Arbitration”,
Transnational Dispute Management, 2008, forthcoming.
UNDERWATER CULTURAL HERITAGE AND FOREIGN DIRECT INVESTMENT 145

2. THE DIANA ADVENTURE

The Diana was a merchant vessel devoted to the country trade, the commerce
between India and China.6 Licensed by the English East India Company to trade
between Calcutta and Canton, the Diana used to export cotton and opium to Canton,
to return to India laden with silks, tea and blue-and-white porcelain.7 The ship mys-
teriously sank without a trace in the Straits of Malacca on 5 March 1817.8
In 1991, the Government of Malaysia entered into a contract with Malaysian
Historical Salvors (MHS), a British salvage company, for the location and salvage
of the cargo. The contract was on a no finds-no pay basis, which is a well estab-
lished practice in marine salvage and means that all the costs of the salvage and
its risks would be borne exclusively by the salvage company. Under the terms of
the licence, artefacts directly related to Malaysian history and culture could be
retained by the Government, while the other recovered items would be auctioned
in Amsterdam at Christie’s. The Malaysian Government would receive the sale
proceeds of the recovered items, while paying a percentage of the sum to the com-
pany.
The salvage efforts took almost four years; when the sunken cargo was found
and salvaged by MHS, a treasure of Chinese blue-and-white porcelains was recov-
ered from the corals. Divers discovered plates with fascinating patterns, featuring a
beautiful panoply of flowers and dragons, peacocks and song-birds.9
Many items were auctioned for sale on behalf of the Malaysian Government
in 1995. MHS received about 40 per cent of the sale; however, Malaysia did not
entirely pay the amount due to the company, and withheld from sale salvaged
items of Chinese origin. Thus, the company commenced arbitration proceedings
against the Malaysian Government in Kuala Lumpur. As the award dismissed the
claim, and every challenge failed, the claimant filed a request for arbitration at the
International Centre for Settlement of Investment Disputes (ICSID), holding that it
was denied due process in the Malaysian courts.
The claimant argued that its performance under the contract fell within the
meaning of investment and that, accordingly, it was protected under the Malaysia/

6
Country traders operated between Indian and Chinese ports and places in-between. This
market niche was not subject to the East India Company monopoly albeit country traders had to
register with it. See CHAUDHURI, Trade and Civilization in the Indian Ocean, Cambridge, 1985;
ID., “The Historical Roots of Capitalism in the Indian Ocean”, in BOSE (ed.), South Asia and
World Capitalism, Delhi, 1990, pp. 87-111; LOMBARD and AUBIN (eds.), Asian Merchants and
Businessmen in the Indian Ocean and the China Sea, Oxford, 2000.
7
BALL, “Introduction”, cit. supra note 1, pp. 620-622, p. 1042, pp. 1199-1297.
8
MUSTUPA, “Showcasing Maritime Heritage Artefacts for the Benefit of the Tourist Industry
in Malaysia”, The International Journal of Nautical Archaeology, 2005, pp. 211-215, p. 213.
9
BALL, The Diana Adventure, cit. supra note 1, pp. 148-149.
146 NOTES AND COMMENTS

UK Bilateral Investment Treaty (BIT).10 Substantially, the investor contended that

the respondent had violated BIT provisions concerning protection of investment
and expropriation.
For its part, the respondent objected to jurisdiction over the dispute, alleging
that the dispute did not constitute an investment and that the subject matter of the
agreement was purely contractual and of mere archaeological interest.
The sole arbitrator, Michael Hwang, dismissed the claim on jurisdiction.11
The arbitrator considered that the nature of the claimant’s activities was largely
similar to a commercial salvage contract and that “[…] under ICSID practice and
jurisprudence […] an ordinary commercial contract cannot be considered as an
investment”.12
Adopting a teleological approach to the interpretation of the ICSID Convention,
the arbitrator interpreted the word investment as an activity which promotes some
form of positive economic development for the host State.13 Thus, it considered
whether the contract contributed to the economic development of Malaysia and
found that the salvage contract did not benefit the Malaysian public interest in a
material way.14 The benefits which the contract brought to the respondent would
be of a mere cultural and historical nature.15 Accordingly, the arbitrator concluded
that the contract was not an investment within the meaning of Article 25(1) of the
ICSID Convention.

3. WHAT IS AN INVESTMENT?

Determining whether a claimant’s rights conferred by a contract constitute an

investment is increasingly becoming a critical threshold question in investment
disputes, because a positive answer establishes the arbitral tribunal’s jurisdiction.16
The ICSID Convention does not provide any definition of the term investment.
Thus, its interpretation has been left to practitioners and arbitrators. The search for
an exhaustive definition of investment can be compared to the search for the Holy

10
According to the definition of investment provided by the Malaysia/UK BIT, investment
means every kind of asset and in particular includes “claims to money or to any performance
under contract, having a financial value” and “business concessions conferred by the law or un-
der contract, including concessions to search for, cultivate, extract or exploit natural resources”
(Malaysia/UK BIT, Article 1).
11
Malaysian Historical Salvors case, cit. supra note 3, para. 112.
12
Ibid., para. 112.
13
Ibid., para. 68.
14
Ibid., para. 131.
15
Ibid., para. 132.
16
See WOLTERS, “The Meaning of ‘Investment’ in Treaty Disputes: Substantive or
Jurisdictional? Lessons from Nagel v. Czech Republic and S.D. Myers v. Canada”, Journal of
World Investment & Trade, 2007, pp. 175-185.
UNDERWATER CULTURAL HERITAGE AND FOREIGN DIRECT INVESTMENT 147

Grail. While arbitral panels have not reached a conclusive definition of investment,
scholars have diverging views. Although it would not be realistic to attempt a defi-
nition of investment, Professor Schreuer has identified some of its features:

“[…] [T]he first of such features is that the projects have a certain
duration. […] The second feature is a certain regularity of profits and
return. A one-time lump-sum agreement, while not impossible, would
be untypical. […] [T]he third feature is the assumption of risk usually
by both sides […]. [T]he fourth typical feature is that the commitment
is substantial. […] The fifth feature is the operation’s significance for
the state’s development”.17

However, the established hallmarks of investment should not be viewed as

prerequisites, but as characteristics. As the sole arbitrator in the MHS Case under-
lined,

“ICSID tribunals often remark that hallmarks may be interrelated and

must be examined in relation to other hallmarks as well as in rela-
tion to the circumstances of the case. In other words, it may be that a
particular hallmark may not be present when it is viewed in isolation;
yet, when examined in the light of other hallmarks of investment or
taking into account the circumstances of the case, a tribunal may still
find jurisdiction for the Centre”.18

Indeed, certain activities may deserve to be categorized as an investment not-

withstanding the absence, whether qualitatively or quantitatively, of a particular
hallmark of investment. Importantly, it has been argued that of the various criteria
used to determine whether a transaction constitutes an investment, the most impor-
tant is whether the transaction makes a substantial contribution to the host State’s
development.19
In the case at stake, given the unusual nature of the salvage company’s activi-
ties, some of the criteria were either not met, or met superficially. Thus, the sole
arbitrator paid particular attention to the final criterion: whether the contract made
a significant contribution to the economic development of the State. However, this

17
SCHREUER, The ICSID Convention: A Commentary, Cambridge, 2001, p. 140.
18
Malaysian Historical Salvors case, cit. supra note 3, para. 72.
19
ENDICOTT, “The Definition of Investment in ICSID Arbitration: Development Lessons for
the WTO?”, in GEHRING and CORDONNIER SEGGER (eds.), Sustainable Development in World
Trade Law, The Hague, 2005, pp. 379-410. On the relationship between the law of foreign in-
vestments and development, see also FATOUROS, “International Investment Agreements and
Development – Problems and Prospects at the Turn of the Century”, in HAFNER et al. (eds.),
Liber Amicorum Professor Ignaz Seidl-Hohenveldern, The Hague, 1998, pp. 115-132.
148 NOTES AND COMMENTS

paper holds that while the logical sequence adopted by the sole arbitrator was cor-
rect, the final result was flawed. There was a substantial contribution to national
development, as the benefits perceived by the host country were of a political, cul-
tural and economic nature. The fact that economic considerations were paralleled
by other considerations probably led the arbitrator to deny the nature of investment
to the salvage activities.
The fact that the salvage contract was not an easily recognizable investment
had excessive weight in assessing whether there was an investment.20 This was a
conceptual mistake. A salvage contract may seem an unthinkable kind of invest-
ment vis-à-vis more traditional investments such as oil exploration, infrastructure
building, and so on. Still, the notion of investment has evolved through time21 and
includes not only tangible but also intangible property. Further, arbitral panels have
held different positions on the issue of whether a significant contribution to the
economic development of the host State is needed in order to constitute an invest-
ment under the ICSID Convention. In the Malaysian Historical Salvors case, the
arbitrator concluded that the economic benefits should be significant; otherwise,
“every contract which enhances the Gross Domestic Product of an economy by any
amount, however small, would qualify as an investment”.22
Nevertheless, as the arbitral tribunal stated in Mihaly, “[…] the question whether
an expenditure constitutes an investment or not is hardly to be governed by whether
or not the expenditure is large or small”.23 The claimant employed over 40 people in
Malaysia, imparted valuable knowledge and know-how on the process of historical
marine salvage and raised Malaysia’s profile as an attractive location for tourism.24
While the Tribunal dismissed the argument as speculative,25 the conservation of
maritime archaeological sites has a direct linkage with the development of the tour-
ism business and other economic activities.26 Also, from a cultural perspective, the
Straits of Malacca can be considered a maritime cultural landscape, comprising the
network of sailing routes and maritime space.27

20
Malaysian Historical Salvors case, cit. supra note 3, para. 131.
21
See NEWCOMBE, “Sustainable Development and Investment Treaty Law”, Journal of
World Investment & Trade, 2007, pp. 357-407.
22
Michael Hwang (the sole arbitrator of the Malaysian Historical Salvors case), quoted
by VIS-DUNBAR, “Underwater Salvaging Firm Fails ‘Investment Test’ in ICSID Case against
Malaysia”, Investment Treaty News, 30 June 2007, p. 2.
23
Mihaly International Corporation v. Democratic Socialist Republic of Sri Lanka, ICSID
Case No. ARB/00/2, Award of 15 March 2002 (ILM, 2002, Vol. 41, p. 862).
24
Malaysian Historical Salvors case, cit. supra note 3, para. 133.
25
Ibid., para. 144.
26
See MUSTUPA, cit. supra note 8, pp. 211-215, and FLECKER, “The Ethics, Politics, and
Realities of Maritime Archaeology in Southeast Asia”, The International Journal of Nautical
Archaeology, 2002, pp. 12-24.
27
WESTERDAHL, “The Maritime Cultural Landscape”, International Journal of Nautical
Archaeology, 1992, pp. 5-14.
UNDERWATER CULTURAL HERITAGE AND FOREIGN DIRECT INVESTMENT 149

The decision of this borderline case was myopic as the arbitrator preferred
a static interpretation of the ICSID Convention whereas, according to customary
rules of treaty interpretation as restated by the Vienna Convention,28 interpretation
should conform not only to the letter but also to the objective of an international
agreement. As the ICSID Convention is aimed at preserving a favourable environ-
ment to investment and development, salvage agreements may be considered a
form of investment as they do contribute to the cultural and economic development
of the host State.

4. WHAT IF THE CASE WAS REVERSED? THE CHALLENGE OF RECONCILING

CULTURAL HERITAGE PROTECTION AND INVESTORS’ RIGHTS

As MHS has recently challenged the award, this section will explore the pos-
sibilities opened up by a potential reversal of the case. If the decision was reversed,
then arbitrators would face the challenge of reconciling cultural heritage protection
and the promotion of foreign investments.29 On the one hand, there is the public
policy issue of protecting and preserving cultural heritage. On the other, however,
there are the economic interests of the foreign investor.
Human rights instruments30 require respect, protection and fulfilment of cul-
tural rights because of their profound significance for human dignity. For instance,
Article 22 of the Universal Declaration states that everyone “[…] is entitled to
realization […] of […] cultural rights indispensable for his dignity […]”.31 Also,
these rights have been confirmed by Article 15 of the International Covenant on
Economic, Social and Cultural Rights, which recognizes the right of everyone to
take part in cultural life.32 Crucially, these provisions create both a negative obli-
gation not to interfere with cultural freedoms, and a positive obligation to protect
cultural heritage.33 Underwater cultural heritage is part of the common heritage of
mankind.

28
Vienna Convention on the Law of Treaties, 22 May 1969, 1155 UNTS 331.
29
See “Sunken Treasure Award Faces Annulment”, Global Arbitration Review Briefing, 2
October 2007. US arbitrator, Stephen Schwebel has been chosen as President of the ad hoc
committee hearing the annulment proceeding. See “Schwebel to Chair Malaysian Annulment
Hearing”, Global Arbitration Review Briefing, 20 November 2007.
30
See, for instance, Article 27 of the International Covenant of Civil and Political Rights and
Article 15 of the International Covenant on Economic, Social and Cultural Rights.
31
Universal Declaration of Human Rights, UNGA Resolution 217A (III); UN Doc. A/810
(1948).
32
International Covenant on Economic, Social and Cultural Rights, 16 December 1966, 993
UNTS 3.
33
FRANCIONI, “Beyond State Sovereignty: The Protection of Cultural Heritage as a Shared
Interest of Humanity”, Michigan Journal of International Law, 2003-2004, pp. 1209-1227, p.
1213 ff.; ALMQVIST, Human Rights, Culture and the Rule of Law, Portland, Oregon, 2005, pp.
242, p. 217.
150 NOTES AND COMMENTS

By exploring the relationship between international investment law and the

protection of cultural heritage, this paper questions whether investment agreements
are compatible with States’ obligations to protect cultural heritage and whether
investor-State arbitration is a suitable forum to protect public interests.34
The law of foreign investment is one of the oldest and most complex areas of
international law. As there is still no single comprehensive global treaty, investors’
rights are defined by a plethora of bilateral and regional investment treaties and by
customary international law. Investment agreements provide extensive protection
to investors’ rights in order to encourage foreign direct investment. The assumption
is that foreign direct investment is a key element towards economic development.
At the procedural level, investment agreements offer investors direct access
to an international arbitral tribunal. Thus, foreign investors can directly challenge
national measures aimed at protecting cultural heritage and seek compensation for
the impact on their business of such a State regulation. Indeed, it seems that the
regime established according to investment treaties does not strike an appropriate
balance between the different interests concerned. As international law has not yet
developed any machinery for the protection of cultural heritage through investment
dispute settlement, if the MHS award was annulled, competent arbitrators would
face the challenge of reconciling cultural heritage protection and foreign invest-
ment promotion, interpreting and mapping the relevant applicable law.
The question concerning the applicable law is of particular importance in the
context of investment arbitration. While national judges know the applicable law
and apply it, eventually disregarding the different rules invoked by the parties (iura
novit curia), arbitrators generally consider only the legal arguments expressly
made by the parties (secundum alligata et probata). Still, it may be questioned as
to whether international law can be legally ignored by arbitrators. Customary rules
of treaty interpretation as restated by the Vienna Convention require treaty terms
to be interpreted not only according to their strict textual meaning, but also in good
faith, in context and in the light of their object and purpose.35 Moreover, terms must
be interpreted taking into account any relevant rules of international law applicable
in the relations between the parties.36 This approach requires a systemic interpreta-
tion by arbitral tribunals.
The other side of the coin is that arbitrators should acknowledge their respon-
sibility in charting the contours of international legal norms and more broadly as
cartographers of the international legal order.37 If arbitral awards are referred to as

34
See also VADI, “Cultural Heritage & International Investment Law: A Stormy Relationship”,
International Journal of Cultural Property, 2008, pp. 1-23.
35
Vienna Convention on the Law of Treaties, Article 31(1).
36
Vienna Convention on the Law of Treaties, Article 31(3)(c).
37
On the impact of NAFTA Chapter 11 cases on the further development of international
law, see BROWER and STEVEN, “Who Then Should Judge? Developing the International Rule of
Law under NAFTA Chapter 11”, Chicago Journal of International Law, 2001, p. 193 ff., p. 201.
UNDERWATER CULTURAL HERITAGE AND FOREIGN DIRECT INVESTMENT 151

authoritative precedent, then arbitrators must realize their determinant role not only
with regard to the single dispute but also with regard to the possible influence that
their reasoning may have on subsequent arbitral panels.38

5. PROTECTION OF UNDERWATER CULTURAL HERITAGE

Historic sunken vessels constitute the essence of underwater cultural heritage

(hereinafter UCH), which can be defined as “all traces of human existence having a
cultural, historical or archaeological character which have been partially or totally
underwater, periodically or continuously, for at least 100 years”.39
From an archaeological perspective, UCH provides unique information to re-
construct lifestyles that no longer exist. A shipwreck is “a time capsule waiting to
be unlocked, since time stops when it first immersed in water. Depending on the
material, lack of oxygen contributes to the preservation of the artefacts, saving
them for later generations”.40 Due to the marine environment, UCH is often very
well preserved albeit extremely fragile. By its very quality, underwater cultural
heritage has an international character, often deriving from international and re-
gional trade in which ships were wrecked at a distance from their origin or destina-
tion. The need of appropriate management frameworks has become pressing since
technical progress has led to unprecedented access to underwater cultural heritage,
increasing the risk of damage and destruction.
The 1982 United Nations Convention on the Law of the Sea41 recognized the
obligation of States to protect archaeological and historical objects,42 but left room
for the elaboration of a more detailed protection regime by a specific international
instrument. The 2001 UNESCO Convention on the Protection of the Underwater
Cultural Heritage (hereinafter UCH Convention)43 would provide a useful comple-

38
VADI, cit. supra note 34, p. 12.
39
Article 1, para. 1 of the UNESCO Convention on the Protection of Underwater Cultural
Heritage, 2 November 2001, ILM, 2002, Vol. 41.
40
UNESCO, The Protection of Underwater Cultural Heritage, 2006, available at: <http://
www.portal.unesco.org/culture/en/ev.php-URL_ID=2635&URL_DO_PRINTPA> (last visited
on 8 October 2007).
41
United Nations Convention on the Law of the Sea, 10 December 1982, 1833 UNTS 397.
42
UNCLOS included only two provisions (Articles 149 and 303) referring specifically to ar-
chaeological and historical objects and establishing an obligation to protect them. Under Article
303, States have the duty to protect objects of an archaeological and historical nature found at sea
and shall co-operate for this purpose. UNCLOS does not affect the law of salvage or other rules
of admiralty, or laws and practices with respect to cultural exchanges.
43
The UCH Convention was adopted on 2 November 2001 at the thirty-first session of the
UNESCO General Conference and will enter into force three months after the deposit of the
twentieth instrument of adhesion.
152 NOTES AND COMMENTS

ment to the UNCLOS in order to ensure and strengthen the international protection
of underwater cultural heritage.44
The Convention, which has not yet entered into force, requires that the first
management option is in situ preservation of underwater cultural heritage,45 and it
provides a rule against the commercialization of underwater cultural heritage for
trade or speculation.46 The idea behind these provisions is to foster tourism devel-
opment related to the archaeological discoveries. Ideally, once the resource has
been sold, particularly in a foreign State, it is no longer capable of providing any
further economic benefit to the State in which it was found. Consequently, admi-
ralty law, i.e. the law of salvage and the law of finds, is retained in the Convention
but in an attenuated form. Under Article 4, these concepts will apply to activities
relating to underwater cultural heritage only if they are authorized by the compe-
tent authorities, in full conformity with the Convention. As one author underlines,
“the necessity for conformity with the Convention will restrict the applicability of
salvage law”.47
With regard to the relationship between the UCH Convention and UNCLOS,
it is clearly stated that the UCH Convention shall be interpreted and applied in a
manner consistent with international law, including UNCLOS.48 Indeed, as another
commentator puts it, “the new universal instrument stands as a lex specialis for
UCH and its protection, whereas UNCLOS remains an authoritative lex generalis
for the whole law of the sea”.49
The Convention further requires a State party to direct that its nationals and
ships flying its flag report to it any discovery of underwater cultural heritage or any
intention of undertaking activities directed at such heritage in the two zones adja-
cent to it.50 The Convention leaves a creative ambiguity, as it is not clear whether

44
For commentary see FORREST, “Defining Underwater Cultural Heritage”, The Journal
of Nautical Archaeology, 2001, pp. 3-11; O’KEEFE, Shipwrecked Heritage: A Commentary
on the UNESCO Convention on Underwater Cultural Heritage, Leicester, 2002; GARABELLO
and SCOVAZZI (eds.), The Protection of the Underwater Cultural Heritage Before and After
the 2001 UNESCO Convention, Leiden, 2003; DROMGOOLE, “2001 UNESCO Convention on
the Protection of the Underwater Cultural Heritage”, The International Journal of Marine and
Coastal Law, 2003, pp. 59-108. For a look at the travaux préparatoires, see BLAKE, “Protection
of the Underwater Cultural Heritage”, ICLQ, 1996, pp. 819-843.
45
Preamble, Article 2(5), and Rule 1 of the Annex.
46
Article 2(7).
47
O’KEEFE, “Fourth Meeting of Governmental Experts to Consider the Draft Convention
on the Protection of Underwater Cultural Heritage”, International Journal of Cultural Property,
2002, pp. 168-172, p. 171.
48
Article 3. For a detailed analysis, see RAU, “The UNESCO Convention on Underwater
Cultural Heritage and the International Law of the Sea”, Max Planck UNYB, 2002, pp. 387-
472.
49
CARDUCCI, “New Developments in the Law of the Sea: The UNESCO Convention on the
Protection of Underwater Cultural Heritage”, AJIL, 2002, pp. 419-434, p. 420.
50
Article 9(1).
UNDERWATER CULTURAL HERITAGE AND FOREIGN DIRECT INVESTMENT 153

the coastal State may require such reports from a foreign national or a foreign flag
ship.51
The Convention will enter into force three months after the date of the deposit
of the twentieth instrument of ratification. So far, the Convention has a mere fifteen
parties. Although there may be numerous reasons as to why States have failed to
ratify the Convention, perhaps the most common is the lack of financial resources
to implement the Convention and to protect their underwater cultural heritage.

6. FINISHING THE INTERRUPTED VOYAGE: MARITIME LAW AND UNDERWATER

ARCHAEOLOGY

6.1. The Traditional Dichotomy: Purism v. Salvage

Historic shipwrecks bring to mind fascinating adventures and have a romantic

dimension which stretches the imagination. In practice, however, salvaging historic
shipwrecks entails long research and hard work: finding the financial resources, in-
vestigating the right site, adopting sophisticated methodology, and putting in hours
of hard labour.52 Although commercial explorers generally have a strong economic
interest in the recovery of a wreck, “it is also the dream of adventure which gives
them the energy to carry on the complicated and arduous process […]”.53
The UCH Convention aims primarily to exclude commercial salvage operators
from working on historical wreck-sites. The reason is that, regardless of how well
they may document the site, commercial salvors usually sell a part of the cargo to
recover the expenses and to make a profit. The cargo is therefore dispersed and
is no longer available in its entirety for scholarly analysis. Thus, according to the
purist view, in situ preservation of underwater cultural heritage would be the best
possible option.
This purist view has been traditionally opposed by some authors who deem it
as

“[…] [A] perfectionist policy for shipwrecks full of unique artefacts

lost in the waters of developed countries that are willing to commit
public funds to carry out archaeological excavations, inclusive of the

51
O’KEEFE, cit. supra note 47, p. 171.
52
See RAHMANATA, “Sunken Treasures: Another Way to Invest in the Sea”, Harvest
International Journal, available at: <http://harvest-international.com/perspec/may02/print/legal_
brief.htm> (last visited on 8 October 2007).
53
BOESTEN, Archaeological and/or Historic Valuable Shipwrecks in International Waters.
Public International Law and What It Offers, The Hague, 2002, p. 11.
154 NOTES AND COMMENTS

time consuming and costly tasks of conservation […] of artefacts,

documentation, dissemination and display”.54

Deep water excavation as well as the identification of shipwreck sites requires

high monetary allocation.55 Not only are developing countries short of funding for
such works, but they also have a lack of expertise, shortage of equipment and lack
of historical documents. Therefore, according to some authors, salvage contracts
would represent useful joint ventures, by which investors assume financial risks,
while also getting consistent benefit shares in the revenue provided by the auction
of the salvaged goods.
Flecker argues that governments should formulate policy ensuring that com-
mercial groups carry out excavation work to acceptable archaeological standards,56
that they disseminate their results, keeping representative samples for public dis-
play. The author further underlines that States’ credibility would be enhanced if
such funds were invested into museums and training, so that eventually they would
be able to undertake maritime archaeological projects themselves.57
Another compelling reason for salvaging would be the risk of losing the re-
mains because of natural and human factors. With regard to the human factor, UCH
may be threatened both by legitimate activities and by unauthorized activities.
Construction work and exploitation of living and non-living resources are legiti-
mate activities that may incidentally affect UCH by altering the shore or the sea-
bed. Furthermore, the unauthorized commercial exploitation of underwater cultural
heritage puts UCH in danger.58 Often local divers salvage shipwrecks themselves,
without a license and without any archaeological expertise, selling their finds di-
rectly to antique dealers.
Some examples may help to clarify the issue at stake. In the salvage of the
Geldermalsen, a Dutch East India Company ship, the cargo of blue-and-white por-
celain was sold by auction at Christie’s but no part of the proceeds was paid to
Indonesia, the coastal State.59 In this context, valuable archaeological and historical

54
FLECKER, cit. supra note 26, p. 13.
55
For instance, as stated in the RMS Titanic case: “Because the wreck lies under 2.5 miles
of water, where there is virtually no light, the water is frigid, and the water pressure is beyond
general comprehension, only the most sophisticated oceanographic equipment can explore the
site and recover property”. RMS Titanic, Inc. v. Haver, 171 F. 3d 943, 966 (4th Cir. 1999).
56
In recent years, maritime law, as articulated by admiralty courts has begun to qualify sal-
vage awards in terms of compliance with archaeological standards. NAFZIGER, “Historic Salvage
Law Revisited”, Ocean Development and International Law, 2000, p. 1 ff, pp. 81-96.
57
FLECKER, cit. supra note 26, p. 15.
58
For a description of the nature and causes of black market trade in stolen art, see
CHANG, “Stealing Beauty: Stopping the Madness of Illicit Art Trafficking”, Houston Journal of
International Law, 2006, pp. 829-869.
59
MILLER, “The Second Destruction of the Geldermalsen”, The American Neptune, 1987,
pp. 275-281.
UNDERWATER CULTURAL HERITAGE AND FOREIGN DIRECT INVESTMENT 155

information was lost.60 More recently, Odyssey Marine Exploration Inc., a compa-
ny specialized in shipwreck recovery, announced its recovery of a large collection
of silver and gold coins from a 17th century shipwreck. Code-named Black Swan,
the company has not disclosed the identity of the shipwreck, nor divulged its exact
location in the Atlantic Ocean. Odyssey affirmed it discovered the wreck in con-
formity with salvage law and the Law of the Sea Convention beyond the territorial
waters or legal jurisdiction of any country.61 The problem is that, notwithstanding
these declarations, some States have the legitimate doubt that Odyssey’s activities
took place in territorial waters or in a lawful manner. Indeed, while investigating a
possible offence against Spanish historic heritage, the Spanish Civil Guard inter-
cepted and seized a boat operated by the US company.62

6.2. Smart Salvage Revised: A Third Way?

The purist view regards UCH’s archaeological and economic values as incom-
patible, holding that “commercial salvage operations are fundamentally at odds
with preservation”.63 However, not only developing countries but also industrial-
ised States may lack the will and resources to recover shipwrecks. By contrast, sal-
vage law contemplates monetary rewards and incentives for salvaging shipwrecks.
However, its customary rules clearly involve dilution and irremediable loss of cul-
tural heritage. Selling archaeological finds may provide monetary rewards in the
short run, but in the long run it implies dispersion of cultural heritage. Further, the
very rationale of salvage law is based on levelling cultural heritage to a commodity.
But heritage is not a mere object.64 Thus, discourse needs to be reframed according
to the nature of cultural heritage.

60
Unscrupulous adventurers have even used dynamite to destroy the last traces of wrecks,
in order to ensure that the coastal state, on whose coastal shelf the wreck lays, would not be able
to identify the location of the wreck. See GRENIER, NUTLEY and COCHRAN (eds.), Underwater
Cultural Heritage at Risk: Managing Natural and Human Impacts, Paris, 2006.
61
HODSON, “How to Invest in Sunken Treasure; Salvage Stocks offer High Returns, but Big
Risk”, National Post, 31 May 2007. Some experts believe the wreck to be the Merchant Royal, an
English ship carrying stolen Spanish treasures which sank in 1641 near the English Channel.
62
“Spain Seizes Ship in Treasure Row”, BBC News, 13 July 2007.
63
ELIA, “The Ethics of Collaboration: Archaeologists and the Wydah Project”, Historical
Archaeology, 1992, p. 46 ff; FORREST, “Has the Application of Salvage Law to Underwater
Cultural Heritage Become a Thing of the Past?”, Journal of Maritime Law & Commerce, 2003,
pp. 309-349, p. 318.
64
Some authors apply cost-benefit analysis to cultural heritage management. For instance,
professor Posner holds that “[c]ultural property is, in most ways, just like ordinary property, and
existing laws and practices that govern the treatment of ordinary property should apply to cul-
tural property as well”. See POSNER, “The International Protection of Cultural Property: Some
Skeptical Observations”, Chicago Public Law and Legal Theory Working Paper No. 141, 2006,
p. 1 ff. By contrast, professor Ackerman argues that cost-benefit analysis is fatally flawed for
156 NOTES AND COMMENTS

Heritage has been described as a social phenomenon,65 whose concept is the

product of the political, cultural, economic present and thus has different mean-
ings for different stakeholders.66 As heritage includes both tangible and intangible
aspects, discourse on its management necessarily starts from this intrinsic dichot-
omy. From an emotional perspective, heritage is linked to community identity and
associated notions of future generations and resilience. From a material perspec-
tive, underwater cultural heritage is a fragile heritage, being breakable and finite.
If maritime remains, which once belonged to everyday life, acquire market value it
is because of their symbolic meaning. After having being jealously guarded by the
oceans for centuries, these objects have so much to tell us about the past.
The intangible value of underwater cultural heritage requires broad diffusion
of related knowledge. Initiatives to publish archaeological results, books and also
illustrations of the remains should be welcomed as they are capable of reaching a
wide audience. The digital environment provides an unparalleled opportunity to
communicate information to the public about art. Virtual museums and electronic
catalogues would provide worldwide accessibility to the salvaged treasures. Other
services such as e-learning, internet discussion forums, online bookshops and doc-
umentation services might be envisaged as well.67 Also, in addition to being an
invaluable communication tool, the digital environment would provide investors
with an opportunity to receive income from the online distribution of digitized im-
ages, creating a domain public payant. If future salvors were allowed to manage the
virtual sphere of underwater cultural heritage management, it would be possible for
them to recoup the costs of an expedition through these activities.68
The material frailty of underwater cultural heritage requires ad hoc consid-
eration. Terrestrial management models cannot be simply imposed onto marine
archaeological sites. The physical environment, the impossibility of monitoring a
site on a constant basis and the risk of destruction by tides and human activities is
too high. The creed of preservation in situ is extremely problematic under water.
Also, as one author puts it, “[c]onsidering that divers are only a small, and rela-
tively wealthy, section of the public, should diver access be a priority over other
forms of public interpretation above the water?”69 If recovering and displaying the
wreck is not possible, attempts to recover its cargo should be carried out. Museums

public sector decisions. See ACKERMAN and HEINZERLING, Priceless: On Knowing the Price of
Everything and the Value of Nothing, New York, 2004.
65
EDSON, “Heritage: Pride or Passion, Product or Service?”, International Journal of Heritage
Studies, 2004, pp. 333-48, p. 343.
66
RANSLEY, “Rigorous Reasoning, Reflexive Research and the Space for ‘Alternative
Archaeologies’. Questions for Maritime Archaeological Heritage Management”, International
Journal of Nautical Archaeology, 2007, pp. 221-237.
67
STERN, “Smart Salvage: Extending Traditional Maritime Law to Include Intellectual
Property Rights in Historic Shipwrecks”, Fordham Law Review, 1999-2000, pp. 2489-2542.
68
See FORREST, cit. supra note 44.
69
RANSLEY, cit. supra note 66, p. 224.
UNDERWATER CULTURAL HERITAGE AND FOREIGN DIRECT INVESTMENT 157

may ensure better preservation and security schemes, but also provide accessibility
to the old and disabled.
Parallel systems of heritage management may be envisaged, taking into ac-
count the incorporeal dimension of knowledge and the material frailty of wrecks.
Importantly, from a legal perspective, discourse on cultural heritage should fo-
cus more on governance than ownership. Traditionally, salvage law attributes the
property of maritime remains to the national State; the salvor has mere possession
rights. Still, it may be argued that also nation States should not be considered as
owners but guardians or custodians of these cultural goods. In other words, while
the traditional concept of property involves the power of using or even destroying a
certain thing, the concept of custodianship involves different duties. For instance, it
is a truism that I can tear out a paper as far as it is mine. On the contrary, destroying
a paper incorporating a sublime Raphael drawing would be a crime. Intriguingly,
the UCH Convention does not deal with property issues, choosing instead to con-
cern itself with management issues.
From an economic perspective, historic assets have the potential to generate a
powerful heritage industry, tourism and related business. Thus, it may be questioned
as to whether these revenues might constitute a leverage for project financing. If the
salvor was given the possibility of managing the virtual sphere of cultural heritage
after its recovery, and exploiting subsequent revenues for a given amount of time,
this might constitute the necessary warranty to obtain equity financing. Economists
and lawyers might help policy makers to envisage concession-agreement-like con-
tracts between countries and investors. If the primary objective of the salvage com-
pany is to make a profit, it can come from entertainment markets in which salvors
would detain media rights and copyright on derivative products such as movies or
books. Importantly, the host State would benefit from this as well, as it would not
have to anticipate money for the salvage, but would have it properly salvaged and
stored in appropriate structures. Crucially, after a certain amount of years, the host
State’s rights would re-expand to full management.
Also, with regard to the material sphere of cultural heritage, sale is not the only
available option to recover costs and expenses. Exhibitions of the artefacts them-
selves may represent a suitable economic option for the host State. An example
illustrates well the case in point. In 1994, after conducting numerous expeditions
recovering 6,000 artefacts from the Titanic wreck, the salvage company went on
city tours to display them to the public. The huge success of the RMS Titanic exhi-
bitions bears testimony to the potential profitability of a salvage operation without
the sale of recovered artefacts. Remarkably, the company decided not to do much
future shipwreck salvage work, “preferring above-water cash-paying customers to
chasing high risk dreams of underwater riches”.70

70
HODSON, cit. supra note 61.
158 NOTES AND COMMENTS

7. CONCLUSIONS

The Malaysian Historical Salvors case shows the difficulties of reconciling the
protection of cultural property and the promotion of foreign investments.
From a cultural perspective, underwater cultural heritage represents an “inte-
gral part of the cultural heritage of humanity and a particularly important element
in the history of peoples and their relations with each other concerning their com-
mon heritage”.71 Shipwrecks are an invaluable source of knowledge and own a
profound historic and cultural value.72 Thus conservation of unique assets provides
societal benefits.
From an economic perspective, cultural heritage management may well rep-
resent an engine for growth and sustainable development, catalyzing tourism and
related economic activities. In this sense, the MHS case shows a myopic approach
to the question of whether salvage may represent a form of investment. Actually,
development is seen “as less like the construction business and more like educa-
tion in the broad and comprehensive sense that covers knowledge, institutions and
culture”.73 In other words, development seems to be about “improving the quality
of people’s lives, expanding their ability to shape their own futures”.74 Also the
World Bank is financing projects involving cultural heritage conservation and man-
agement, stressing the poverty reduction benefits of these operations.75
If the MHS award was annulled, then the competent arbitral tribunal would
have to face the challenge of reconciling cultural heritage protection and the pro-
motion of foreign investment. As the UCH Convention has not yet entered into
force, the applicable law is the UNCLOS and relevant maritime customs, generally
known as salvage law. Importantly, both UNCLOS and salvage law recognize the
need to protect underwater cultural heritage.
The second part of this paper focuses on available policy options with regard
to the conservation and management of underwater cultural heritage. The proposed
approach, based on the distinction between tangible and intangible aspects of cul-
tural heritage, suggests the possibility of reconciling both private and public inter-
ests in underwater cultural heritage management. Whilst avoiding fierce but infer-
tile contrapositions, this provocative approach is based on the assumption that an
incentive-based system may be coupled with preservation policy.

71
UCH Convention, Preamble.
72
As Boesten highlights, “Shipwrecks comprise information; they are witnesses of global
trade and provide an insight into past cultures that can be interesting or even important to human-
kind in understanding its history”. See BOESTEN, cit. supra note 53, p. 12.
73
WORLD BANK, The Quality of Growth, Washington DC, 2000, p. XXIII.
74
Ibid.
75
There are currently 40 projects including cultural components or specifically designed for
cultural heritage conservation and management. See “Cultural Heritage Projects”, list available
at: <http://web.worldbank.org>.