In March, Team New Zealand started proceedings against Alinghi, SNG, ACM & Ernesto Bertarelli. The first aim was to obtain $millions in compensation for TNZ, on the grounds that they had been promised an AC33 in 2009; the second was to remove SNG as the America's Cup Trustee.
Recently, a New York judge set a preliminary schedule of events and, on June 29, SNG Counsel, Lucien Masmejan, explained some of the issues to Marian Martin.
Firstly, can you explain why Justice William Pauley presided over the pre-motion conference? I thought the case had been assigned to Justice Cahn?
Lucien Masmejan. There were two cases and the case for breach of fiduciary duty was filed with the New York Supreme Court, assigned to Justice Cahn. The second one was the anti-trust case and such cases have to be filed with a Federal Court and, in New York, the Federal Court is the New York District Court. It is the right of any party, when you have a case that is filed with the Federal Court and a related case that is filed with the District Court to ask for the State Court case to be transferred to the Federal Court; so that is the first step. The second step is to know whether both cases should have gone for arbitration, by the 33rd America’s Cup panel, because Team New Zealand signed, both in its Notice of Entry and in the Event and Competition Rules, an arbitration agreement in favour of the America’s Cup panel.
So the first step is to have both cases in the Federal Court, the second the Federal Court has to decide whether this should be in front of the Court, or should go to arbitration, and if they decide they are competent to hear the cases, then we will start studying the substance of the cases.
Since the America’s Cup is a competition between yacht clubs, I would have expected the Royal New Zealand Yacht Squadron, not Team New Zealand, to be the plaintiff. Can you explain why this isn’t the case, since it is the club and not the team that officially enters?
LM: It is a good point and I think that, if we come before a US judge on the substance of the case, the merits of the case, it is likely to be something we put in front of the judge. You are correct; technically, in the Cup, the participating entity is the yacht club and the team is only representing the yacht club. Under the Deed of Gift it is a competition between yacht clubs, therefore the fact that the Royal New Zealand Yacht Squadron is not suing us might be detrimental to Team New Zealand’s lawsuit.
The alleged contract relates to an event in Spain and, to the best of my knowledge, involves a Swiss company, a Swiss national, a Jersey company and a New Zealand company, so why is the contractual aspect being heard in New York? Why should Ernesto Bertarelli, or any European company, submit to the jurisdiction of a US Court over an alleged contract with no American connection?
LM: There is no reason for a European company, or Mr Bertarelli, to be subjected to such jurisdiction. The only reason for SNG to submit to US jurisdiction is where the claim involves the Deed of Gift and, where the anti-trust issue is concerned, it is nothing to do with the United States. This is a very good point you have raised and it is one we will be putting before the judge at the right time, because as well as the matter of whether this should go to arbitration there is also the question of whether the US Court is at all competent.
Is it possible that the judges might consider themselves not competent to deal with aspects to which foreign law applies?
LM: Yes, that is possible.
I’ve been told that the chances of TNZ winning the anti-trust element are about zero. Do you agree?
LM: We are told that both cases are extremely weak and, frankly, I think the chance of either succeeding is close to nil, but we have to take this seriously, we can’t just say “We will win”, we have to be safe. To be clear about it, I think both cases have very little merit and I have the feeling that this might be driven by some other agenda than defending their rights. I’ll remind you that we don’t know how they are financing it.
At the iShares Cup, someone told us “This case isn’t about helping TNZ survive. It’s about getting Bertarelli out of the America’s Cup, because they know they won’t beat him on the water.” Is that what you mean by some other agenda?
LM: I am afraid it could be true. It is finally a question of spirit; is a victory in the America's Cup worth eliminating any competition by suing the Defender?
See what BOR has achieved with its law suit; eliminating all other challengers to be the only one to sail against the Defender. I think both ETNZ and BOR seem to be reluctant on having a true multi-challenge, with the winner of it facing Alinghi on the water.
Even with a “friend” to help with the legal costs, these actions seem to be a very big gamble for a team that as Dalton has said is “Always strapped for cash.” What do you think the likely costs are going to be?
LM: It must be a huge cost, especially as they have selected Boies, who is known to be very expensive, even for New York. It is difficult for me to estimate their costs, but when you enter into a case like that, you can expect to spend between $100,000 and $200,000 per month. So, if the case goes on for a year, or eighteen months, it is going to add up to millions of dollars and I don’t see how Team New Zealand can finance that itself. They say someone is financing it, but they refuse to say who that is.
Quite a bit about TNZ’s entry was leaked at the time and nothing about it came over to me as contractual. Was there a formal contract, with penalty clauses?
LM: There was no formal contract. They talked to us and there was an exchange of emails, nothing more.
So, if there was no formal contract, how can they be suing?
LM: (Laughs) You should ask them that! There was no formal contract, the only formal document that was filed was their Notice of Entry. The exchange of emails preceded the signing of the Notice of Entry and, in this exchange, they said they would like the event to take place in July 2009, in Valencia. We replied that was our intention, which was the truth, but there are times in life when intention and what you can do turn out to be different and they were perfectly aware that this might not be possible; they could not be ignorant of it.
We’ve heard that TNZ wanted BMWO excluded from AC33 and Alinghi agreed and rumours of other unsavoury deals have been posted on forums, with claims that all will be revealed during the TNZ case. Is this cause for concern on your side?
LM:No, we don’t have any concerns, because we had a very clean attitude and we can be happy we had that attitude. The game was this; our friend Grant Dalton was asking repeatedly that we commit to excluding BMW Oracle from the 33rd Cup and we repeatedly answered “It is out of the question. We will never commit to anything like that.” He asked three times, he was very strong about it, before he finally accepted that we would never commit to that. As to other deals, there was nothing interesting.
If Alinghi were to be Defender for AC34, would BMW Oracle and TNZ entries be accepted and, if so, how do you see this affecting the smooth running of the Competitors Commission and, indeed, the whole atmosphere of the event?
LM: I think it is too early to make assumptions about what the 34th Cup is going to be like. Having said that, I think that, as long as the Cup is governed by the deed of Gift, as trustee of the Cup we have an obligation to accept at least one valid challenge, from any yacht club that is willing to compete in the Cup. I don’t see how we could definitely exclude the Royal New Zealand Yacht Squadron, nor the Golden Gate Yacht Club from competing if they make a valid challenge and, in any case, I don’t think it is at all our intention.
As for the atmosphere and the friendly competition, of course there could be a problem, but I think we are better than that; we will sort that out.
David Boies has said that Alinghi was looking for “an opportunity to avoid real on the seas competition, in a neutral way, so that they could keep control over it (the America’s Cup) and keep control over a lot of the very valuable sponsorship rights that go along with it.” What do you have to say about that?
LM: It is ridiculous. In the 32nd Cup, we created the best ever sailed Cup and we did not win 5 to 0. Why would we have suddenly changed our strategy? Yhe truth is that BOR and their allied TNZ had a strategy to eliminate other competitors and to have BOR defeating Alinghi in court and gaining for itself an undue advantage. Dalton may have thought it was in the interest of his team to ally with BOR. As far as I am concerned, I believe he made the wrong decision.