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America's Cup - 'Guilty as charged on both counts'

by Richard Gladwell on 28 Nov 2007
New York State Supreme Court, 60 Centre St, New York, by John Rousmaniere Event Media

Justice Herman Cahn has ruled in favour of the Golden Gate Yacht Club in their challenge to the legitimacy of the Challenger of Record, Club Nautico Espanol de Vela.

The judgment comes as no surprise and is in line with comment posted in Sail-World.com since the Protocol was announced on 5th July 2007.

The New York Supreme Court was asked to rule on the legitimacy of Club Nautico Espanol de Vela (CNEV) in terms of the Deed of Gift for the America's Cup, a document lodged with the Court in 1887.

There has been only one previous case relating to the Deed of Gift - being the Big Boat vs the Cat Challenge from Mercury Bay BC in 1988. that case two two years, two hearings and was decided on Appeal. The decision from the Appeal Court weighed heavily in the current case and is reflected in Justice Cahn's decision.

The two key points that the Court was asked to rule related to whether, at the time its challenge was accepted by the Defender Societe Nautique de Geneve, CNEV was an organised yacht club in terms of the Deed of Gift. And, secondly whether it complied with the requirement of 'having for its annual regatta' on the ocean or arm of the sea.

On the first point, Cahn spent some time and concluded that being 'organised' meant more than just being an incorporated body and had to function as a yacht club. Here amongst other references Cahn looked at the New York Yacht Club itself which he noted was organised (ie functioning as a yacht club) in 1844, but was not incorporated as a body for another 21 years in 1865.

CNEV was the other way around - incorporated first, in June, and then did not function as a yacht club until November 2007.

The club itself admitted after the hearing on 22 October, that it was formed as a 'legal adjustment', and was clearly not in compliance with this test under the Deed of Gift.

On the second point, that of the timing of its annual regatta, CNEV was again held to be guilty as charged, by Cahn. SNG argued that the words 'having its annual regatta' meant that the club could be incorporated and then then hold a regatta at some future time. In other words that the meaning of 'having' could be satisfied by a future action or intention.

This did not wash with Justice Herman Cahn who held that the plain and natural meaning of the word 'having' should be applied - in that it is 'on-going activity; the activity has taken place and is continuing'. He added 'it implies that the organisation has had one or more regattas in the past and will continue to have them in the future.

Given that CNEV had two attempts at organising sailing events after it had challenged, and really only had a successful event earlier in November, it had clearly not complied, and was out on this count as well.

The claims by Golden Gate YC that SNG had breeched its fiduciary duties as the Trustee of the America's Cup, were dismissed by Justice Cahn after GGYC offered no opposition to the defence proffered by the Defender, SNG.

Justice Cahn also dismissed the defence raised by Societe Nautique de Geneve , that Golden gate YC did not have 'clean hands' in the matter, and found against the Defender, SNG on all three matters raised in this regard.

At first blush, there would seem to be little ground for Appeal. Justice Cahn has stayed well inside the decision handed down in the Mercury Bay case, and particularly the requirement to stay within the 'four corners of the Deed' where the intention of the donor is clear.

Given too that the facts in this case were largely agreed between the parties, and that all was required was an interpretation of the Deed of Gift in relation to these facts, then the decision would appear to be a relatively simple one to have reached.


The Decision

After reciting the history and key arguments of the Parties, Justice Herman Cahn began his decision which ran for over 17 pages.

The full decision reads:

CNEV’s Challenge:

To qualify as the Challenger of Record under the Deed, the would-be challenger must be an 'organized Yacht Club of a foreign country, incorporated, patented, or licensed by the legislature, admiralty, or other executive department, having for its annual regatta an ocean water course on the sea, or on an arm of the sea, or one which combines both . . . .' GGYC’s contention — that CNEV does not meet these requirements, in that it neither is an organized Yacht Club nor has an annual regatta on the sea or arm of the sea — is persuasive as to the latter requirement and, thus, dispositive.

To qualify under these requirements, the club must be incorporated. It is inconsequential that RFEV may have incorporated CNEV to formalize the challenge because of the likelihood that RFEV’s own challenge would be disputed. That, by itself, does not disqualify CNEV from qualifying as Challenger of Record.
However, being incorporated is not, by itself, sufficient; it must have additional attributes that make it an 'organized Yacht Club.' Although the term 'organized' often refers to the nature of an entity’s legal existence or formation, here the donors contemplated additional indicia of a yachting club, This is evident from the corporate seal of the New York Yacht Club itself, the Cup’s original donee, which states that the club was organized in 1844 and incorporated in 1865

(Ehman Aff, Exh FE). SNG’s dictionary reference (A Dictionary of Law 739 [William C. Anderson ed. 1889] [attached to SNG’s Reply Br]) docs not prove otherwise. It states that '[o]rganizing an incorporation refers to the choice and qualification of offices necessary for the transaction of business,' thereby implying that organizing a yacht club is not synonymous with incorporating a yacht club. Thus, SNG’s argument — that incorporating, adopting by-laws and assigning roles and responsibilities for its officers and directors (SNG Reply Br at 7) is sufficient to constitute an organized yacht club under the Deed — is unconvincing.

Nevertheless, CNEV arguably complies with the requirement that the club be a legally recognized entity of its jurisdiction with certain additional attributes. CNEV is a private Spanish sports club with unlimited duration, registered with the Registry of Sports Organizations of the Valencian Community. According to Bonet, chairman of CNEV and vice-chairman of RFEV, CNEV’s purpose is to promote sailing practices through the organization of national as well as international regattas within the national territory and to organize at least one regatta per year in the open sea, as reflected in Chapter 1 of CNEV’s articles of incorporation. The club is negotiating a collaboration agreement with the Center of Sailing Training in Santander - where the Spanish Sailing Olympic Team is trained — with the Optimist race as its first event and denoting the promotion of sailing among young people as among of its priorities. Bonet also states that CNEV expects to be listed in due course on the website of the Valencian Community Sailing Federation.

Whether these attributes are sufficient — in the absence of vessels, members, and a telephone number, etc. — to constitute a 'Yacht Club' under the Deed would require an analysis of custom and practice in the sport, as well as a hearing. Such is not necessary, however.

Although the meaning of the term 'organized' in the context of a sporting club is unclear as to the club’s required attributes, the Deed expressly requires one specific attribute, namely, that the club have an annual regatta. CNEV’s failure to comply with this requirement nullifies its purported role as Challenger of Record of the 33rd America’s Cup.

GGYC argues that the phrase 'having for its annual regatta' means that the club has held a regatta in the past, and will continue to do so in the future. According to SNG and CNEV, the intention to hold a regatta in the f

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