America’s Cup Legal Battles

Abstract

Throughout its history, the America’s Cup has experienced lengthy interruptions caused by wars, economic crises and the organisational complexity of costly campaigns conducted across continents. At certain pivotal moments, however, it was not conditions at sea that brought the competition to a halt, but proceedings before the courts of the State of New York.

Judicial intervention has taken different forms. In some instances, the New York courts authorised specific amendments to the Deed of Gift—the so-called court-authorized amendments—in order to adapt it to changing circumstances within the competition. In others, in the context of fully contested proceedings, yacht clubs advanced claims based on conflicting interpretations of the instrument: who was entitled to challenge the Defender, what limitations arose under the Deed, and how much freedom the Cup-holding club enjoyed.

The contest—and the challenge itself—thus moved on several occasions from the racecourse to the courtroom.

Among the various disputes, two became leading cases in the legal history of the Cup and ultimately reached the New York Court of Appeals: Mercury Bay Boating Club Inc. v San Diego Yacht Club, 76 N.Y.2d 256 (1990), arising from the 1988 match between a maxi monohull and a catamaran and Golden Gate Yacht Club v Société Nautique de Genève, 12 N.Y.3d 248 (2009), concerning the validity of the challenge submitted by Club Náutico Español de Vela for the 33rd America’s Cup.

These different forms of judicial intervention arose from profoundly different circumstances and produced equally different results. Read together, however, they show how the New York courts have contributed to adapting, interpreting and keeping the Deed operational, enabling an instrument executed in 1887 to continue governing one of the world’s oldest and most technologically advanced sporting competitions.

1. The Deed of Gift before the Court of New York

As examined in the first paper in this series, the enduring legal foundation of the America’s Cup remains the Deed of Gift dated 24 October 1887.

The trophy constitutes the corpus of a charitable trust established under the law of the State of New York. The yacht club that wins the Cup becomes its sole trustee and holds it until it is defeated by a qualified challenger. The Deed sets out the essential requirements of a challenge and allows the Defender and Challenger, by mutual consent, to agree upon the terms of the match. Where no agreement is reached, the Deed’s default provisions apply.

The jurisdiction of the New York courts does not arise from an ordinary sporting rule or from the dispute-resolution system established for any particular edition of the Cup. It derives from the nature of the Deed of Gift as the instrument creating a trust governed by New York law and from the supervisory jurisdiction exercised by the state courts over its administration, interpretation and amendment.

Over the years, that supervisory function has been exercised principally through two forms of intervention.

The first consists of judicial amendments, generally referred to as court-authorized amendments.

The first such amendment was made in 1956. Following a twenty-year interruption caused by the Second World War and the economic difficulties of the post-war period, the large J Class yachts had become prohibitively expensive to build and maintain. The New York Yacht Club therefore obtained a court order reducing the minimum waterline length prescribed by the Deed for single-masted yachts from 65 to 44 feet. The same order also removed the requirement that a challenger sail to the venue of the match under her own power—on her own bottom—a condition that placed foreign challengers at a particular disadvantage.

The judicial amendment therefore made it possible to use the International 12-Metre Class and contributed to the resumption of the competition. As amended, the Deed now permits single-masted yachts with a waterline length of between 44 and 90 feet, and yachts with more than one mast with a waterline length of between 80 and 115 feet.

A second intervention by the New York courts took place in 1985, following Australia’s historic victory in 1983. That edition marked a memorable turning point in the history of the Cup for at least three reasons: after 132 years, it ended the New York Yacht Club’s hold on the trophy, which was taken to Australia for the first time by Australia II and the Royal Perth Yacht Club; it saw Italy make its debut with Azzurra; and it introduced the Louis Vuitton Cup as the challenger-selection series.

The transfer of the Cup to the Southern Hemisphere made it necessary to amend the racing window prescribed by the Deed of Gift, which had originally been drafted solely with Northern Hemisphere conditions in mind. The text then in force permitted racing only between 1 May and 1 November.

The Royal Perth Yacht Club therefore applied for an amendment, which the Court granted, introducing separate seasonal windows: from 1 May to 1 November in the Northern Hemisphere and from 1 November to 1 May in the Southern Hemisphere. The amendment made it possible for the following edition to be held in Fremantle in 1987, where the American challenger Stars & Stripes, representing the San Diego Yacht Club, won the Cup.

In these proceedings, the Court was not being asked to choose between conflicting interpretations advanced by opposing parties. It was being asked to authorise a formal amendment to the Deed because changed circumstances had made the literal application of certain original conditions impracticable or inappropriate.

The second form of judicial intervention consists of contested proceedings between opposing parties. Through actions for declaratory relief, applications for injunctions and claims seeking the construction and enforcement of the Deed, clubs ask the courts to determine the meaning of the instrument and the validity of the powers exercised by the other participants.

From this perspective, Mercury Bay Boating Club Inc. v San Diego Yacht Club and Golden Gate Yacht Club v Société Nautique de Genève raised two complementary questions. In the first case, the courts had to determine whether a limitation not expressly stated in the Deed could nevertheless be inferred from it. In the second, the issue was whether the Defender and Challenger could, through mutual consent and an already agreed Protocol, give effect to a challenge that lacked a requirement expressly imposed by the Deed.

2. Mercury Bay Boating Club Inc. V San Diego Yacht Club

2.1 THE CHALLENGE THAT BROKE WITH THE 12 METRE FORMAT

After regaining the Cup at Fremantle in 1987, the San Diego Yacht Club intended to organise the next edition in 1990 or 1991 using the multiple-challenger format and the 12-Metre Class yachts that had been raced for approximately thirty years.

These were not the J Class yachts used before the Second World War, but the smaller boats governed by the International 12-Metre Rule, whose introduction had been made possible by the 1956 amendment.

The Mercury Bay Boating Club radically altered that scenario. The New Zealand club submitted a challenge under the Deed’s default provisions, giving ten months’ notice and nominating a maxi monohull with a waterline length of 90 feet—the maximum permitted for a single-masted yacht.

The Deed required the Challenger to provide the name of the owner, the name and rig of the yacht, and certain dimensions. It also required both the challenging yacht and the Defender’s yacht to be constructed in the country of their respective clubs. As to the Defender’s choice of yacht, however, the Deed allowed it to meet the challenge with “any one yacht or vessel”, without requiring the two yachts to belong to the same class, have the same number of hulls or possess comparable performance characteristics.

San Diego disputed the challenge and commenced separate proceedings seeking either an interpretation or an amendment of the Deed that would allow it to preserve the planned format. Because of the charitable nature of the trust, the New York Attorney General intervened in the proceedings as the representative of the beneficiaries’ interests and supported the Defender’s position.

The New York Supreme Court nevertheless held that the challenge was valid and identified three alternatives: accept it, agree upon different terms by mutual consent, or forfeit the Cup.

After all attempts to reach an agreement had failed, San Diego announced that it would defend the trophy with Stars & Stripes, a rigid-wing catamaran considerably smaller than the maxi monohull New Zealand, but significantly faster in the conditions expected for the match.

The legal question could be framed in stark terms: In the absence of mutual consent, could the Defender select any yacht permitted by the wording of the Deed, even where that choice made the contest radically unequal?

Mercury Bay argued that the reference to “friendly competition between foreign countries”, the very nature of a “match”, and the Defender’s fiduciary duties required a genuinely competitive contest. San Diego responded that the Deed required neither identical classes nor technical equivalence nor comparable performance.

On 7 and 9 September 1988, Stars & Stripes won both races by wide margins. Mercury Bay then returned to the Supreme Court, seeking the disqualification of the catamaran and the transfer of the Cup.

2.2 THE TEXT OF THE DEED AND THE LIMITS OF SPORTING FAIRNESS

The Supreme Court granted Mercury Bay’s application. It held that the Deed contemplated a contest between yachts that were at least “somewhat evenly matched” and that San Diego had selected the catamaran in order to retain the trophy at all costs, contrary to the spirit of the gift.

The Appellate Division reversed. The phrase “any one yacht or vessel”, read together with the dimensional limits established by the Deed, permitted the Defender to use a multihull and did not authorise the Court to introduce a requirement of comparability that was absent from the text.

In 1990, the New York Court of Appeals, the State’s highest court, affirmed that approach. Where a trust instrument is unambiguous, the settlor’s intent must be derived from the words used; extrinsic evidence may be considered only where the text is ambiguous. The Deed did not exclude catamarans and did not require the Defender to field a yacht of the same type as, or with performance comparable to, the Challenger’s yacht.

The majority drew a decisive distinction between sporting fairness and legality. It did not hold that the mismatch was fair or desirable. It held that matters of sportsmanship could not be transformed by the courts into unwritten legal rules, and that the phrase “friendly competition” expressed the general purpose of the gift rather than a specific technical condition.

The majority also rejected the claim based on the Defender’s fiduciary duties. The America’s Cup trust has a distinctive feature: the trustee is also the competitor defending the trophy and, if defeated, will be replaced as trustee by the Challenger. In the particular context of this sporting trust, the Court of Appeals held that San Diego had discharged its duties by making reasonable efforts to reach an agreement and, when those efforts failed, by complying with the provisions of the Deed.

The dissenting opinion of Judges Hancock and Titone highlighted the alternative interpretation. It was not sufficient merely to determine whether the catamaran fell within the abstract definition of a “yacht or vessel”. The relevant question was whether the Defender, in its dual capacity as competitor and trustee, had used the wording of the Deed to deprive the competition it was required to administer of any genuine substance.

The majority nevertheless adopted the textual approach.

Legal takeaway: The Court of Appeals did not hold that the contest between the maxi monohull and the catamaran was fair. It held that the courts could not prohibit it by reading into the Deed a condition that the text did not contain.

3. Golden Gate Yacht Club v Societè Nautique de Genève

3.1 WHO WAS ENTITLED TO NEGOTIATE THE PROTOCOL

The second dispute arose on 3 July 2007, immediately after the Société Nautique de Genève’s victory in the 32nd America’s Cup. On the same day, SNG accepted the Notice of Challenge submitted by Club Náutico Español de Vela (CNEV). Two days later, the two clubs published the Protocol for the following edition.

CNEV had been incorporated on 19 June 2007, only two weeks before submitting its challenge, and had not yet held the annual regatta required by the Deed, which had to be conducted over an ocean water course on the sea, on an arm of the sea, or over a course combining the two: “having for its annual regatta an ocean water course on the sea, or on an arm of the sea, or one which combines both”.

On 11 July, the Golden Gate Yacht Club (GGYC) submitted its own challenge and disputed the Spanish club’s eligibility.

The issue concerned more than CNEV’s admission. The Deed provides that, once a challenge has been received from a club satisfying all of its conditions, no other challenge may be considered until the match has been decided.

The first duly qualified Challenger therefore becomes the Defender’s counterparty in the mutual-consent process and negotiates the Protocol with it. This position is commonly known as the Challenger of Record, although that expression does not appear in the Deed.

The question submitted to the courts was precise: Could a club that had not yet held the annual regatta required by the Deed become Challenger of Record by undertaking to satisfy that requirement before the match?

SNG and CNEV argued that the regatta could be held at a later date. GGYC responded that all eligibility requirements had to be satisfied at the time the Notice of Challenge was submitted.

Otherwise, the Defender could accept an as-yet unqualified club as its counterparty, negotiate the Protocol with that club, and allow it to satisfy the required conditions only afterwards.

3.2 A REQUIREMENT THAT COULD NOT BE SATISFIED AFTER THE CHALLENGE

The Arbitration Panel established under the Protocol held that CNEV’s challenge was valid. GGYC did not participate in the arbitration and instead commenced proceedings before the New York courts. Before the Court of Appeals, all parties acknowledged that the arbitral decision was not binding upon the courts in their interpretation of the Deed.

The Supreme Court held the Spanish club’s challenge invalid. The phrase “having for its annual regatta” required the Challenger already to have held at least one qualifying regatta and to intend to continue holding it. GGYC was consequently recognised as the Challenger of Record.

In a divided decision, the Appellate Division reversed, holding that the requirement could be satisfied before the match and did not necessarily have to be met before the challenge was submitted.

In 2009, the New York Court of Appeals reinstated the trial court’s decision. The word “annual” described an event that had already taken place at least once and was intended to recur, not an event that had merely been planned. The regattas held by CNEV in November 2007 and November 2008 could not retroactively cure the deficiency that existed in July 2007.

The Court made clear that its decision was limited in scope. It did not hold that CNEV was a sham club, nor did it address the separate question whether CNEV qualified as an “organized yacht club”. It held only that, when it submitted its Notice of Challenge, CNEV did not satisfy one of the requirements expressly imposed by the Deed.

The consequences were nevertheless far-reaching. The Defender’s acceptance could not validate a challenge that had been invalid from the outset, and the Protocol could not cure the defect in the very title from which the authority to negotiate it arose.

GGYC therefore became the Challenger of Record. When no new agreement was reached with SNG, the 33rd America’s Cup was contested under the Deed of Gift’s default provisions, in a match between the catamaran Alinghi 5 and the trimaran USA 17. BMW Oracle Racing’s yacht won the match and brought the Cup back to the United States.

A rarely remembered point of continuity links the two leading cases. Carmen Ciparick, who as a Justice of the Supreme Court had decided the first stage of Mercury Bay in 1987, authored the Court of Appeals’ opinion in Golden Gate more than twenty years later.

The Court of Appeals concluded by observing that the right to hold the Cup should be decided “on the water and not in a courtroom”. The paradox was clear: before returning the contest to the water, the Court first had to determine which club was legally entitled to reach it.

Legal takeaway: The Court did not hold that CNEV was a sham club. It held that, at the time of the challenge, CNEV lacked one of the requirements imposed by the Deed. The Protocol could not cure the defect in the title from which the authority to agree upon it arose.

Concluding remarks

The major legal disputes in the history of the America’s Cup have not merely been instances of institutional dysfunction or external disruptions to the competition. They have contributed to interpreting, clarifying and keeping the Deed of Gift operational by defining the limits of the Defender’s powers, the requirements for a valid challenge, the role of the Challenger of Record, and the relationship between party autonomy and judicial oversight.

In the absence of a single permanent regulatory authority standing above the yacht clubs in the interpretation and application of the Deed of Gift, the courts of the State of New York have exercised external judicial review over the legality of the powers derived from it. In doing so, they have assumed a structural safeguarding role within the institutional architecture of the Cup.

The major legal disputes have therefore done more than delay or complicate the America’s Cup. They have helped shape its legal evolution and keep the Deed of Gift operational through profoundly different eras, technologies and organisational models, defining the mechanisms through which the Deed could evolve and the points at which change reached its limits.

The legal and regulatory evolution of the America’s Cup is not confined to judicial intervention. Alongside court-authorized amendments and litigation, the Cup’s governance includes a number of internal instruments: the Trustee Interpretive Resolutions, the mutual-consent process expressly contemplated by the Deed, and the Protocol through which the Defender and Challenger of Record establish the terms governing each edition.

Future papers of America’s Cup Series will examine these additional instruments and the way in which they have progressively shaped the governance of the America’s Cup.