The Dispute
Most people hope that the dispute over the 33rd America's Cup will end up being resolved by the Defender and Challengers - actual and prospective - sitting around a table, rather than by the New York Supreme Court.
At present, there are no signs that will happen, so BYM News has sought an opinion on the legal issues. What follows is published on the clear understanding that it is based only on knowledge of previous America's Cup court actions and information about the issue that is in the public domain.
It cannot and should not, therefore, be construed as being a learned opinion, but an informal view of the Golden Gate key points and how the NYSC might consider them.
The paragraphs below, on a pale yellow background, are quotations from GGYC documents.
The action arises out of defendant Société Nautique de Genève’s violation of the clear, express terms of the Deed of Gift, a trust instrument executed under the laws of New York, on October 24, 1887. SNG is the present holder and successor trustee of the trophy known world-wide as the America’s Cup. The Deed of Gift (“Deed”) provides that the America’s Cup is a “perpetual Challenge Cup for friendly competition between foreign countries.” By failing to enforce the terms of the Deed, SNG has turned the Deed of Gift on its head and transformed it into a “Defender’s Cup,” dominated by SNG, in breach of SNG’s fiduciary duties.
In the case of Mercury Bay versus San Diego, the Appelate Court rejected Mercury Bay's contention that San Diego breached its fiduciary duty as the trustee of the America's Cup. It’s reasoning was that unlike most trusts in which the trustee is required NOT to compete with the beneficiaries, the America's Cup trust promotes a sporting competition in which the donors clearly intended that the trustee compete with the beneficiaries. It added “Indeed, the trustee of the America's Cup is obligated to use its best efforts to defend its right to hold the Cup and thus to defeat the beneficiaries in the contemplated competition. It is thus inappropriate and inconsistent with the competitive trust purpose to impose upon the trustee of a sporting trust such as this one the strict standard of behavior which governs the conduct of trustees who are obligated not to compete with the trust beneficiaries.”
By refusing to disclose…the basic elements of regatta venue, date and boat design rules, there is no opportunity for a fair and equitable competition.
Again the Appelate Court has given its opinion on this, saying: "The question of whether particular conduct is 'sporting' or 'fair' in the context of a particular sporting event is wholly distinct from the question of whether it is legal. Questions of 'sportsmanship' and 'fairness' with respect to sporting contests depend largely upon the rules of the particular sport and the expertise of those knowledgeable in that sport; they are not questions suitable for judicial resolution."
Even if the Court were to consider this aspect as suitable for judicial resolution, it would be difficult for Golden Gate to argue that two of those counts give “no opportunity for a fair or equitable competition.”, since, on March 4 2003, two days after Alinghi first won the America's Cup, a protocol was issued jointly by the Société Nautique de Genève and its then Challenger of Record, the Golden Gate Yacht Club. That protocol gave no details of the date of the next event, nor of the venue, apart from the provision that it would be contested on European waters.
SNG used Club Náutico Español de Vela … to engineer a match Protocol in which virtually all Challenger rights are eliminated and total control of the event and its rules are granted to SNG, altering the very nature of the competition and giving unprecedented and unfair advantages to SNG.
Again the Court is likely to decide that the question of the fairness of the competition is not a matter for judicial resolution. In the Mercury Bay versus San Diego case Justice Wachtler said that finding for Mercury Bay "would have us go beyond the provisions of the trust instrument and, in the interest of sportsmanship and tradition, impose a duty on the defender to ….. well, to do just what? To not try too hard to win, it seems. There is no legal basis for the imposition of such a duty."
There is also another issue here. The ONLY true challenger for the America's Cup is the Challenger of Record and the challenger is entitled, nay expected, under the Deed of Gift, to agree on the match protocol with the defender. The court may well ask why CNEV, as a club wishing to win the America's Cup, would "engineer" a protocol that gave "unprecedented and unfair advantages" to its opponent.
SNG has accepted a challenge that is invalid under the Deed of Gift from CNEV, a brand new yacht club… specifically created to collaborate with SNG.
I believe, this might be the only issue that the NYSC is likely to view as a matter for judicial resolution. A letter from Golden Gate to SNG lays out its reasoning for considering the CNEV challenge invalid:
It is not a bona fide yacht club, but an entity organized in the form of a yacht club, only a few days before the challenge was accepted by SNG and has never had an annual regatta on the sea, or an arm of the sea, as required by the Deed of Gift.
This is an issue where the NYSC is likely to look beyond the four corners of the Deed and consider the intent.
Arm of the Sea
Let us look first at the Deed of Gift requirement that the challenging club must have its annual regatta on the sea, or an arm of the sea.
In 1881, the Bay of Quinte Yacht Club issued a challenge, for the America’s Cup, to the New York Yacht Club. Its yacht Atalanta was designed by Captain Alexander Cuthbert and built in the Holton Lumber Yard. The building was fraught with financial problems and she was launched in a poorly finished and incomplete state. Eyewitness accounts say that the hull was rough sawn timber, which had not been sanded down, and the crew were still nailing planks to her deck and completing other work as she sailed from the Bay to enter the Erie Canal at Oswego. She was towed through the canal by mules.
The New York Yacht Club was appalled by the appearance of the Canadian yacht and even had vessels standing by, during one windy race, fearing that the over canvassed vessel would capsize.
This was the second time that Alexander Cuthbert had attempted to take the Cup with a Great Lakes Yacht Club entry and the New York Yacht Club was determined there would be no more. The Cup was returned to George L. Schuyler, the sole surviving member of the syndicate that owned America, so that the Deed could be re-written in a manner that would stop lake based, Canadian yacht clubs from challenging for the Cup. He did this by inserting the requirements that the challengers must sail to the event on their own bottoms and the challenging yacht club must hold its annual regatta on the sea, or an arm of the sea.
More than 50 years ago, the New York Supreme Court, acting on a petition from the New York Yacht Club, concerning the requirement of vessels to get to the America’s Cup venue on their own bottoms accepted that “circumstances have so changed since the execution of said Deed of Gift, in a manner not known to the said donor and not anticipated by him, as to render impractical a literal compliance with the aforesaid terms of said Deed of Gift.” The NYSC, therefore, ordered that “The New York Yacht Club, as trustee of the America’s Cup given under the Deed of Gift dated October 24, 1887 made by George L. Schuyler, hereby is directed to administer the said Gift as if said Deed of Gift included no provision requiring yachts or vessels competing for the America’s Cup to sail, on their own bottoms, to the port where the contest is to take place.”
In effect, the NYSC accepted – more than 50 years ago – that the circumstances that had caused George L Schuyler to modify the Deed of Gift and insert a requirement that the challenging boat must reach the site of the contest on her own bottom no longer existed. The requirement that the challenger’s yacht club must hold its annual regatta on the sea, or on the arm of the sea, had been inserted by Schuyler at the same time as the “own bottom” clause and for the same reason. It is, therefore, probable that had the NYSC been asked to do so, it would have also ordered the New York Yacht Club to “administer the said Gift as if said Deed of Gift included no provision requiring the challenger’s yacht club to hold its annual regatta on the sea, or on the arm of the sea”.
The New York Supreme Court was not asked to consider the annual regatta issue, until 1984, when the Royal Perth Yacht Club of Western Australia petitioned it for an interpreting order, to allow a Canadian challenge from a Great Lakes Yacht Club.
The NYSC: "ORDERED and ADJUDGED, that the petition of The Royal Perth Yacht Club of Western Australia Incorporated is granted with the consent of the Attorney General of the State of New York, representative of the public interest in the Deed of Gift, to the extent of declaring that the Deed of Gift entitles the Chicago Yacht Club, a yacht club of a foreign (i.e. competing) country as contemplated in the Deed of Gift, to enroll and compete as a contestant for the America’s Cup."
In other words, the Court allowed the Australian Club to accept a challenge from a Great Lakes club, which had never held a regatta on the sea, despite the fact the George Schuyler’s 1881 changes to the Deed of Gift, had been specifically designed to exclude any Great Lakes Club.
Bona fide yacht club
Arguments over the legal difference between “a bona fide yacht club” and “an entity organized in the form of a yacht club” are likely to be protracted and I wil not comment in the absence of detailed information about the “entity”. It is, however, probable that the NYSC will again look outside the words of the Deed and consider the intent of the requirement that a challenge must be made by a yacht club.
As BYM noted in an article about the Syndicate, some weeks ago, there is little doubt that the original intention was to ensure that the Cup remained in the “right” sort of hands and wrote the requirement fora yacht club to make the entry, with that in mind. The make up and membership of yacht clubs is now very different and it may be that the Court will, once again, decide that circumstances have so changed since the execution of said Deed of Gift, in a manner not known to the said donor and not anticipated by him, as to render impractical a literal compliance with the aforesaid terms of the said Deed of Gift.” and order SNG to administer the Deed as though there were no clause requiring the challenge to be made by a yacht club.
This seems even more likely, given that the Desafio Espanol challenge, for the 32nd America’s Cup, was not made by a yacht club that “holds it’s annual regatta on the sea” nor, indeed, by any yacht club, but by a National Federation of yacht clubs and this appears to have been acceptable to the challengers. In February 2005, the Challengers Commission held a meeting at the Golden Gate Yacht Club. It was chaired by Tom Ehman of BMW Oracle, then Challenger of Record. The minutes of that meeting state: "The acceptance by SNG of a challenge from a national federation, as opposed to a yacht club, was briefly discussed. It was agreed that a Challengers Commission position or action on the matter was not appropriate."
