America's Cup - Arbitration Panel Hearing over Kiwi Qualifier for July

by Richard Gladwell, Sail-World.com NZL on 27 May 2016 In a yet to be published interview in Sail-World, America’s Cup Event Authority CEO, Russell Coutts has confirmed that the Arbitration Panel will hold its first Hearing in July.

This is the first official indication that the three-person Arbitration Panel had even been formed, however, Sail-World’s sources indicated that it had been empanelled since last January, possibly earlier.

The composition of the panel is unknown, except that Sail-World has been told that Yachting Australia President, Matt Allen is one of the three members.

Allen is a former investment banker and owner/skipper of Ichi Bahn and a veteran of 25 Sydney Hobart races.

Under the requirements of the Protocol governing the 35th America’s Cup the Chairman of the Arbitration Panel is appointed jointly by the Defender, the Golden Gate Yacht Club and the Challenger Committee which represents all Challenging teams. The only requirement is that the Chairman be an arbitrator on the list of the Court of Arbitration for Sport. The Competitor Forum (all teams) appoint the second member and then the first two members appoint the third.

Many of the key members of Oracle Team USA are Australian, as is Regatta Director, Iain Murray and Allen’s appointment is no surprise from that perspective.

The background of the other two is not known, however, given the predilection over nationality it is likely that one will be from the USA and the other from Europe. Matt Allen does not fit the Protocol criteria for Chairman. It is unlikely that any will hail from a Challenger country. Someone with knowledge of US law would be required as the Rules of Procedure for the event state that the legal seat of the Jury/Arbitration panel is the State of New York.

The major issue for the Arbitration Panel will be the withdrawal of the Qualifier Series which had been scheduled for Auckland prior to the Challenger Finals which were to be sailed in Bermuda.

That agreement was claimed to have been ripped up by ACEA after Emirates Team New Zealand dared to support the stance taken by then Challenger of Record Luna Rossa (ITA) over the change of boat from an AC62 to the current AC50.

The change was part of a deal offered to the Challengers by the Defender. While Luna Rossa was not against the move to a smaller boat, they warned that it had to be agreed unanimously by all the Challengers, and not decided by a simple majority.

Luna Rossa had a significant amount at stake, as the AC62 had been announced as the yacht to be used and the Italian team had a staff of 80 hired and working in a special base in Italy. The AC62 class had been in place since entries opened for the 35th America’s Cup on June 1, 2014.

Unintended consequence
When appointed as Challenger of Record after the withdrawal of Hamilton Island Yacht Club (AUS), the Italians magnanimously handed over their rights including the effective right of veto over a Protocol Change to a Challenger Committee.

It was that Committee in conjunction with the Defender which decided that the change of class could be passed with a simple majority. The Italians issued a warning that they would withdraw if the vote proceeded and it was not unanimous.

After the Class was changed from an AC62 to an AC50 by a majority vote Luna Rossa Patron Patrizio Bertelli announced on April 1, 2015, the withdrawal of the team who have been the Challenger in 2000 and had competed in each Cup since.

“In sports, as in life, one cannot always go for compromise, after compromise, after compromise; sometimes it is necessary to make decisions that are painful but must be clear cut, as only these can make everybody aware of the drifts of the system and therefore set the basis for the future: respect of legality and sportsmanship,” said Mr. Bertelli.

The Italians flagged their move on March 26, 2015, with Emirates Team New Zealand backing their stand via social media.

That was sufficient for ACEA’s Commercial Commissioner Harvey Schiller, a decorated pilot from the Vietnam War, to pull the Qualifier Agreement, telling AP journalist Bernie Wilson that while there were a number of reasons, Schiller told The Associated Press 'the biggest was Team New Zealand 'bouncing back and forth on support' for the unprecedented mid-course downsizing.'

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Lodged over a year ago
Emirates Team New Zealand CEO, Grant Dalton issued a statement on March 31, 2015, setting out their position which is expected to form the basis of the Team’s case at the Arbitration Panel Hearing to be held over two years after the rift.

By the deadline of the 31st March the America’s Cup teams voted by a majority in favour of changes to the 35th America’s Cup Protocol, which included a reduction in boat size to between a 45 and 50 foot foiling catamaran and as a consequence the withdrawal of Auckland as America’s Cup Qualifier host city.

Under the original Protocol, the Qualifier venue was to be announced by the 15th February 2015. This requirement was fulfilled on this date with the announcement to the teams that Auckland would be the location of the Qualifiers.

Among the changes to the Protocol voted on, ACEA sought to retrospectively change this date to April and disregard the agreement for Auckland to be the location for the America’s Cup qualifier.

As a result, Emirates Team New Zealand has now reluctantly filed an application to the America’s Cup Arbitration Panel to reinstate Auckland as the qualifier venue based on a signed and accepted bid, notified to the teams in accordance with the Protocol. This needs to be done to satisfy the requirement that all complaints must be filed within 7 days of knowing the facts justifying the complaint.

CEO Grant Dalton said, “Emirates Team New Zealand have filed an application to the America’s Cup Arbitration Panel in the belief that ACEA has breached their signed agreement and protocol obligations by discarding Auckland.”

“However prior to any hearing Emirates Team New Zealand will continue discussions with all teams and ACEA on the prospect of continuing to bring America’s Cup racing to Auckland.”

Until the outcome of this is known Emirates Team New Zealand continues its work in preparing for the next America’s Cup in 2017.

“We are fighting to keep Auckland as a qualifier. This isn’t about government funding, this is not the end of Emirates Team New Zealand, it’s about enforcing a contract and bringing America’s Cup racing to New Zealand as agreed by ACEA.” concluded Dalton.

Remedies hard or useless
Given that over a year has lapsed since the incident, and 16 months before the matter will even be heard – and just five months before the earliest launch date for the first AC50 wingsailed catamarans, it is hard to see that the Arbitration Panel could order the 11-day long Qualifier Series to be practically moved back to Auckland. Although Emirates Team NZ would argue that the teams have been aware of the dispute for two years and should have planned for this outcome.

The big attraction of the Qualifier to the NZ Government as an investor is that the six teams would have been required to set up in Auckland for several months, assemble their boats, launch and sea trial, and then sail the 11 day Qualifier before heading back to Bermuda for the Playoffs. That is a big local spend for the teams, and with big PR opportunities for New Zealand. The fact that major suppliers to the class, Core Builders Composites, Southern Spars and Cookson Boats plus many others are all handy to Auckland makes the build process quite easy, together with ready access to top facilities for repairs, alterations and enhancements.

The other remedy is financial compensation, if it is found that Auckland did have a valid hosting agreement with ACEA. However for Emirates Team NZ even compensation at the level of $10-$30million is too late to be of any use to the team, except to pay off bridging finance and backing that had to be put in place in short order for the team to survive.

But money would not compensate for the disruption caused by having to cut back from a two sailing team, two development boat program now enjoyed by several of the other Challengers and Defender. It is believed that the funding from NZ Government and other similar sources would have been used to cash-flow the early stages of the campaign until funding from commercial sponsors came online at later stage and closer to the America's Cup and major events.

The team has retained some key sponsors in Emirates, Toyota and Omega, but lost several new sponsors due to the Cup venue being shifted to Bermuda, or a new ban on liquor sponsors for the teams (although ACEA has signed two liquor sponsors for the event). Emirates Team NZ has picked up one new sponsor Torpedo7, part of The Warehouse Group an outdoor and adventure sport multichannel retailer with ten stores nationwide and a strong online presence in New Zealand and Australia.

Additionally the NZ Government was on record as saying they were comfortable with almost any US venue, and were expected to come in for around $30million as in the 2013 campaign.

Instead, an urgent restructure triggered by the loss of the Qualifiers, and subsequent sponsor funding has seen the team lose vital sailing and design team members and forced to use a rudimentary development boat loaned to them by Luna Rossa.

There could have been no doubt at the time of the disruption to the Team New Zealand campaign that would be caused by the cancellation of the Auckland Qualifier, which Team New Zealand claim they have an ACEA signed hosting agreement.

At best the team would be substantially disrupted, at worst the team with a 30 year track record in the Cup would be gone, their crew and design team able to be picked up by other teams - some yet to formally start. With Team NZ out of the mix the Challengers would have been reduced to four, and all the Challengers would have been assured of a place in the Play-offs.

Details of the deal offered along with the switch to the smaller one design boat were never made public, but certainly it was in the self-interest of the Challenging teams to not to come to Auckland, with the king-hit on Team NZ at a vital stage of the campaign being a big bonus.

For its part ACEA had to forgo a substantial Hosting fee/Auckland picking up all the costs of staging the Qualifier - again details of the financial arrangements were never made public at the time, although NZ Govt associated parties were prepared to talk off the record.

Selection Trials canned
One of the criticisms of Team New Zealand had been that the team was self-selected from a bunch of the CEO, Grant Dalton’s mates.

That message leveled over several campaigns appeared to have been taken on board with the original plan signaled in mid-January 2014 when World 49er Champions Peter Burling and Blair Tuke were inducted into the team. That set the stage for a contested team selection between Burling/Tuke and incumbent skipper Dean Barker for the key roles in the 2017 Challenge.

That in-house contest would have been the first in the team’s 30-year history, but it was effectively canned with the financial ramifications that followed the actions of ACEA two months later.

Government backs off quickly
The New Zealand Prime Minister John Key made it clear in a statement three weeks later on April 20, 2015, that Government funding was unlikely.

'I think we're at the end of the road really,' the Prime Minister said on a breakfast TV interview.

Key told TVNZ's Breakfast show the chance of the competition gaining Government funding was 'significantly reduced' if there was no pre-regatta for Auckland.

That position backed up comments by Minister Steven Joyce when the Qualifiers were cut from Auckland. 'We are interested in being involved as a sponsor as a much lower basis than last time, and on the basis, there is a qualifying series in Auckland if that was to change then we could not be involved.'

Confidentiality a concern
Quite how much of the Arbitration Panel Hearing actually makes it into the public purview remains to be seen.

Even more so than previously the America’s Cup off the water action is cloaked in secrecy with draconian penalties contained in Article 63 “Protecting the Reputation of the America’s Cup”, which provides it is an obligation for each Competitor (and its Team Members) to refrain from making at any time during AC35 any public comment or statement (including in any interview to any Media Organization), on or off the water, that unreasonably attacks or disparages, or harms or is likely to harm the reputation or financial best interests of, in each case the whole or any part or parts of AC35…”

Introduced midway through the 34th America’s Cup, a similar clause was labeled the “Dalton Clause” to force the Team NZ CEO to refrain from making some of his blunt comments about aspects of the America’s Cup in San Francisco. But the only penalty levied under it was against the Defender Oracle Team USA who copped a $250,000 fine over the AC45 boat tampering incidents.

In the current Protocol, the first infringement of the Dalton Clause cops a mandatory $25,000 fine, the second $100,000 and the third and subsequent breaches a $250,000 financial penalty.

Whether those eye-watering penalties which may be extended to cover the reporting of the Arbitration Panel hearings.

In previous Cups, there has been limited reporting permitted of the Hearings with summaries of the proceedings being issued by the International Jury during or at the end of the Hearing, with the assistance of AC Media. Otherwise, the teams were prohibited from comment while a Hearing was in process.

Previously the appointment of key officials has been handled promptly and openly.

Coutts tight lipped
The issue in the current edition of the America’s Cup is the complete lack of official comment on the composition of the Arbitration Panel, the fact that proceedings will be held in July, the venue of those proceedings and the subject matter of them.

When asked by Sail-World’s Asia Editor Guy Nowell as to when the Arbitration Panel was going to meet, Russell Coutts responded with one word “July”.

When asked who will be on the Arbitration Panel, Coutts responded saying: 'The arbitration panel was elected by the teams.'

The exchange between Guy Nowell and Russell Coutts continued:

GN: 'Right. So it’s already in place?'

RC: 'Yeah.'

GN: 'Is the name list there?'

RC: 'Yes. So that’s all happening.'

Then Coutts switched the conversation to talk about the America's Cup World Series.

RC: 'Five of the six teams are going to host world series events. Japan has wanted it since last year. So, we’ve given everyone the chance to host events.

GN: 'But that’s why New Zealand complained - because they wanted to host an event.'

RC: 'We want them to host an event, too.'

GN: 'So why isn’t it happening?'

RC: 'Well, I won’t go into details, because it’s a subject to an Arbitration, you have to understand that. Ask them. It would be great to have an event in New Zealand. That’s all I’ll say.'

When approached for comment by Sail-World NZ Emirates Team NZ refused to comment saying they were unsure whether Arbitration Panel Hearings were confidential or not, with the clear implication that if they were confidential then they would be subject to the penalties in the so-called Dalton Clause.

With the advent of social media, lawyers and team PR flacks trying to maintain confidentiality about any sports proceeding is as effective as a barking dog chasing a flock of departing seagulls.

The old method of issuing unique media releases to each team as a check on the source of leaks does not work anymore.

The issue with trying to maintain complete confidentiality on a Hearing is equally impossible once a penalty is imposed.

In that situation, the issue grows a second head of what the issue was about initially and the then why it was kept confidential.

The word 'confidential' soon gets switched for 'cover-up' and the controversy magnifies several-fold and the damage to the event is far greater than had a more transparent approach been taken. The instances are myriad.

The next America's Cup World Series event takes place in Chicago in two weeks which will be the next opportunity for the teams to meet face to face and possibly determine and announce progress on these issues.