Jim Farmer QC’s Statement Regarding America’s Cup – Giving Up Home Advantage And Other (Important) Matters of Money

The America’s Cup legal wars heat up again as wealthy businessman Mark Dunphy launches an increasingly acrimonious fight to keep the next America’s Cup battle – that is, the on-the-water battle – in New Zealand waters.

Jim Farmer QC's Statement Regarding America's Cup - Giving Up Home Advantage And Other (Important) Matters of Money 3Dunphy’s lawyers have sent letters to Team New Zealand and to TNZ boss Grant Dalton, but senior barrister Jim Farmer QC is seeking to have TNZ’s backing club, the Royal New Zealand Yacht Squadron (RNZYS), hold a special general meeting to vote in favour of having the next challenge held in Auckland.

He needs a 25-member support from the Squadron to force the issue.  His open letter regarding the proposed Special General Meeting says that there is sufficient funding available to hold the regatta in New Zealand.

Mark Dunphy 

An experienced competitive yachtsman and a former director of TNZ, his statement is below –

STATEMENT BY JIM FARMER REGARDING MOTION SUBJECT OF SGM SET FOR 9 DECEMBER

I am making this statement in support of the Motion that there be added to the Objects of the RNZYS one which provides that the America’s Cup, when held by RNZYS, shall always be defended in the waters adjacent to the City of Auckland. I do so as an Honorary Member of the Squadron who has represented it in my GEORGIA racing yachts (5 over the years) in regattas in Australia, Hawaii, San Francisco, Hong Kong, Italy, Belgium and England. In particular, we were part of RNZYS teams in the Southern Cross Cup, the Admiral’s Cup and the Kenwood Cup, winning the latter.

The current GEORGIA was also the first foreign boat to win Geelong Race Week outright, which incidentally goes back earlier (1844) than the America’s Cup. I provided many young sailors with their initial opportunities for international yacht racing experience, several of whom later joined Team New Zealand and two of whom are still members of ETNZ.

I was also a director and trustee of Team New Zealand for 10 years from 2004 to 2013, a task I undertook (unpaid) for one reason only – to assist in the endeavour to win the America’s Cup again AND, once won, to defend it here. In this last respect, I was never under any doubt of the moral obligation which we were under to defend the Cup in New Zealand, an obligation which was the result of the enormous support of the New Zealand public and the financial contributions totalling over a one and a half billion dollars from all sources (including more than half a billion dollars from Government and Council).

I have read the statement made by the Flag Officers as to why they oppose the Motion (Appendix One to the Notice of SGM). They come down to (1) The Squadron has delegated to ETNZ “all aspects of AC37 organisation, management, and fundraising”, in return for full indemnification “from any liability, financial or otherwise”; (2) ETNZ, it is suggested though not confirmed categorically, cannot fund the defence in New Zealand and therefore offshore venues must be considered.

As to (1), the Flag Officers’ Statement is silent on the key issue of whether the decision as to the venue of the Defence is that of ETNZ or of RNZYS. The legal answer to that, in my opinion, is clear. RNZYS is the current Trustee for the Cup under the Deed of Gift by which it was bequeathed.

Trustees cannot delegate their fiduciary obligations. Management functions, Yes. Fiduciary obligations, No.

Richard Gladwell has recently in his Sail-World reminded us of the legal opinion given by the late James Michael to the San Diego Yacht Club in 1988 when it was considering moving the defence of the Challenge by Mercury Island Boating Club from San Diego waters to Long Beach.

That opinion was that the Deed of Gift does not authorise a defence of the Cup away from the home waters of the defending Yacht Club. And yes, there was Valencia in 2007, a choice necessitated because the Societe de Nautique Yacht Club of Geneva as holder of the Cup could not comply with the requirement of the Deed of Gift that the races be “ocean courses”. Further, there was the move from San Francisco to Bermuda by the Golden Gate Yacht Club in 2017, a move that was controversial and led to the resignation of the Commodore of that Club.

Just as significantly as to the decision to go to Bermuda was the fact that Oracle lost the Cup there. Two long-standing and respected yachting journalists and America’s Cup participants, Tom Ehman (Sailing Illustrated) and Magnus Wheatley (Rule69), have both pointed out that giving up home advantage is more likely than not to lead to a Defender losing.

As Wheatley says, would the All Blacks ever voluntarily choose to play a World Cup final other than at Eden Park? At the June RNZYS members meeting, Grant Dalton said there were only two choices available: defend the Cup offshore and win or defend the Cup in Auckland and lose. The greater likelihood in fact is defend the Cup offshore and lose or defend the Cup in Auckland and win.

So can the Defence of AC37 be adequately funded in Auckland. Dalton says that a total of $200M is needed and, of that, $80M is needed for the Event with $120M for the Team. Despite many requests of the RNZYS and TNZ, no breakdown has been given of these figures. For the Event, the $80M contrasts with the published costs of the last Defence (which involved a net cost of $40M, which was fully funded by the New Zealand Government).

So how much funding is needed and available for an Auckland Defence? For the Team, TNZ says it can raise $80M and Mark Dunphy has offered $40M, in total $120M. This contrasts with Grant Dalton’s statements last week that a new Challenger with $US60M (NZ$86M today) would have a real opportunity to win the Cup; and that with AC36, it cost TNZ less than it cost for the Valencia campaign in 2007.

I was a Director of TNZ at that time and our TNZ Valencia budget was $125M, with the final cost closer to $100M with the revenues of circa $15M received. All of this indicates that TNZ could be expected to have a surplus of $10-20M from the total of $120M referred to above.

As to the $80M said to be required for the Event, the Government funding offered for AC37 is $99M, including $31M cash. We know that AC36 had a cost of $40M (and that $40M amount incorporated Challenger of Record costs of $7M and Class Design Costs of $3M which will not be repeated for AC37. There was no record of the Event Sponsors contribution in the AC36 Event Financial Analysis. I expect that Prada (or a similar sponsor) would again contribute. Prada’s total Challenger series and Cup event contribution to AC 36 was E23M ($37M). Grant Dalton has indicated that there is keen interest in a Netflix official documentary and one assumes there will be attractive revenues from that.

So with all of this funding and revenue, is there enough to cover what is needed for the Auckland defence?

For sure. So maybe the issue is not what is needed but what is desired? That was a question asked by Rod Davis, one of New Zealand’s great sailors and America’s Cup participants, in an article in a recent Seahorse, expressing dismay at the plan to sell the Cup offshore.

A final thought. The justification given by the Flag Officers for leaving everything to ETNZ is the indemnity for liabilities that might arise from conducting the Event. Concern about liabilities is a proper one and especially so if the Event is held offshore in the Squadron’s name. Representations made by ETNZ (the Squadron’s agent) of the economic benefits to a host city that aren’t fulfilled could give rise to a very large liability indeed. No matter the RNZYS says, there is the ETNZ indemnity.

A question though. What due diligence has been done by RNZYS on ETNZ’s ability to honour that indemnity? How much is the debt (said by Dalton to be “significant”) owed by ETNZ to Matteo de Nora?

So, the money is here. The moral obligation is undoubted. Contrary to the claim in the Notice of SGM that the Motion if passed will be ineffective, it will as an addition to the Objects of RNZYS provide a complementary adjunct to the present objective of promoting Corinthian yachting.

That will focus minds on what holding the America’s Cup is all about.

Jim Farmer

24 November 2021

Source: JamesFarmerQC

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