A chance for sport to reclaim the America’s Cup?

There is now a unique opportunity with an appeal before an appellate Court, for wider consideration and for a long-term view to be taken whether the courts should continue to be actively involved in the America’s Cup''

Sport ceases to be sport as soon as it enters the courthouse.

In a much quoted comment, the then Chief Justice of the State of New York eloquently wrote in 1990, when agreeing with the majority final judgment of the Mercury Bay dispute;

'Ultimately, however, it must be the contestants, not the courts, who define the traditions and ideals of the sport. No one wishes to see the competition debased by commercialism and greed. But if the traditions and ideals of the sport are dependant on judicial coercion, that battle is lost.'

The courts are latecomers to the America’s Cup scene, having only been involved since 1956 to restart racing after the Second World War and the following post-war austerity. Even then early hearings were widely agreed and uncontested to amend or interpret the Deed of Gift.

Interestingly, the first contentious proceedings in the America’s Cup by a competitor were injunction proceedings filed by the San Diego Yacht Club against the Royal Perth Yacht Club in 1985 (Supreme Court of New York Index No. 22320/85) over claims of interference by the Defender in the rules of the challenger selection series to be held in Fremantle, but was soon settled before a hearing was needed. In earlier times, disputes (and there were more than a few) were resolved within the sport. Indeed the attitude of the donor George Schuyler to the courts being involved is clear from his 1871 letter to sporting newspaper Spirit of the Times, 'Mr Ashbury’s intimation of a resort to legal rights in a manner of this kind can hardly be seriously entertained.'

Without wishing adding to the debate over the rights and wrongs of present issues, there is now a unique opportunity with an appeal before an appellate Court, for wider consideration and for a long-term view to be taken whether the courts should continue to be actively involved in the America’s Cup, or whether, as the Court of Appeals indicated in the Mercury Bay case, the sport should take full responsibly for its own dispute resolution. The refusal of the courts to consider claims of fairness and what is sporting, a central part of the Mercury Bay judgment, is a serious impediment to upholding sporting ideals within the court system. One thing is certain, without a fundamental change, the present situation will repeat in the future as they have done in the past.

There are also strong factual and legal reasons to support the appellate Court taking such an approach. If the courts are to be involved and apply legal principles to resolve disputes within the America’s Cup, the Deed of Gift should first qualify for legal recognition. It may not be so qualified.

The circumstances surrounding the creation of the first Deed of Gift of 1857 cast doubt whether it is a document that could be recognised at law as a valid gift due to defects as to form. While there was common general intent amongst the original owners of the America and the Cup it had won, the required legal formalities were not met. Such are the defects it is questionable whether there was any original intent on the part of the donors to create a legal document for the courts to enforce.

The first Deed was never signed by all five owners of the Cup. The original Deed was signed in 1852 by Schulyer, Finlay and Wilkes’s attorney and then sent to Commodore Stevens for his brother Edwin and him to sign. There is no evidence they ever signed it. The document was lost and never found. After Wilkes’s death in later in 1852 in Pau , France, and Commodore Stevens death in 1857, Schuyler sent an unsigned (except for his own signature) holographic copy to the NYYC, after he re-dated it and appears to have made other amendments, advising the NYYC this was what was intended. It was this unsigned and amended document that was used to found the America’s Cup competition and is now known as the first Deed.

The second Deed, and the third and current Deed created respectively in 1882 and 1887 are equally questionable. Schulyer was not the only owner by merely being the last survivor and could not change the terms unilaterally. New York Yacht Club had no right under the terms of the first or the second Deed to hand it back to Schuyler for him to change its terms. None of this is new, as contemporary articles and letters in yachting magazines and even the in the venerated history of the Cup, 'The Lawson History of the America’ Cup' confirm. Indeed a member of the Club’s America’s Cup Committee readily admitted it in correspondence to an intending challenger in 1890 that 'this was not strictly legal'. The various and current Deeds of Gift have trouble surviving any normal legal analysis as to their validity as to legal form.

In addition to defects in the Deeds of Gift as to form, there are also serious difficulties in the Deeds creating a charitable trust, the basis on which the courts have exercised jurisdiction and have applied the law relating to charitable trusts to resolve issues in the America’s Cup. Charitable purpose is hard to find within the America’s Cup. The question whether the Deeds create a charitable trust which is able to be recognised by law has never been fully considered by a court. The majority of the Court of Appeals in the final Mercury Bay judgment referred to the point in their judgment, but in the absence of submissions from the parties, left it open.

The law only recognises a limited range of charities, the promotion of sport is not one those traditionally recognised. As the Court of Appeals noted there are long standing legal precedents for the law not recognising as valid charitable trusts to promote sport and specifically yacht racing. Professor James A.R. Nafziger of Willamette University writing in the American Journal of International Law after the Court of Appeals Mercury Bay decision:

'Whether the America’s cup deed of gift established a charitable trust in the first place is a troublesome issue of characterization that also bears on the capacity of the modified deed to impose New York jurisdiction and law as a means of resolving all future disputes. New York law did not recognise charitable trusts when the deed was created.

Moreover, the subsequent administration of the trust fails to yield clear evidence of a charitable purpose. Ordinarily a trust set up solely to promote a sports competition would not be 'charitable' unless the public, broadly defined received a benefit, and the lucrative effect of the America’s cup calls into question its charitable character....Moreover the NYYC’s reconveyances of the Cup to George Schulyer, one of the original donors, so that he could fine-tune the deed may have been inadequate bases for the resulting amendments.'

Yes, there are many legal arguments that can be raised in support of the Deeds of Gift and the continued application of legal principles by the court, but they fail to address the wider and more important point for the sport, whether it is desirable for the courts to have a continuing long term role in the America’s Cup?

If the courts are unable to recognise the Deed of Gift as having legal validity permitting the application of legal principles to resolve disputes, all is not lost. Sporting life can and should be allowed to exist outside the jurisdiction and direct supervision of the courts. Competitors need to learn to look to the sport to resolve their issues, not the courts. The best place to start is at highest levels of the sport.

The Arbitration Panel meets in the 2002 Louis Vuitton Cup. A similar body comprising say, the Trustees of the America’s Cup is one solution to avoid litigation of the type before the NYSC - Event Media Click Here to view large photo

Disputes in the America’s Cup can be left to the sport to resolve. The Deed of Gift makes provision for it. The parties can by mutual consent agree a dispute resolution process – in normal times they do so without difficulty. And if they cannot agree - as at present, the Deed provides for dispute resolution. The Deed requires the rules and sailing regulations of the defender yacht club to apply to the match.

Is this going to give the defender an unfair advantage? No, those rules and regulating in almost all defender yacht clubs will be the ISAF racing rules of sailing, and ISAF Regulations with local national prescriptions. Those rules provide for a jury of judges to be appointed, the majority are to be experienced and reputable ISAF qualified International Judges, to resolve disputes.

Such a jury is able to consider all matters including issues of fairness, and what is and is not sporting. It will provide a far more effective and rapid dispute resolution process than months if not years it taking to resolve America’s Cup disputes before the courts, and with far less wear and tear on people, pockets, and the sport.

There is now a brief opportunity for an appellate Court to send the America’s Cup and its Deed of Gift permanently back to the sport to its resolve disputes, and make a lasting beneficial change the America’s Cup. For the sake of all sport and sporting ideals, I hope the opportunity is taken before it is lost, perhaps forever.

NB: Hamish Ross is General Counsel of Team Alinghi, but the comments and opinions expressed in this article are solely his personal views and are not necessarily those of Alinghi.