When last heard from, Michael Fay and his New Zealand America's Cup campaign were giving Dennis Conner fits in Australia. In the end, Conner put them away in the final challenger trials and went on to win the Cup. Now the New Zealanders are back with a daring and apparently plausible new plot to snatch yachting's top prize from him.

Last month, Fay, a merchant banker and horse-racing enthusiast with a penchant for the bold stroke, issued an utterly unexpected challenge to Conner's San Diego Yacht Club: To race for the Cup head-to-head next June off San Diego in boats twice the size of the 12-meters that have been used for the last 30 years.

So off-the-wall was the proposal that it initially struck the San Diegans practically speechless. Malin Burnham, head of Conner's Sail America Foundation, which has the job of running the next Cup and had planned to race in 1991, called the hurry-up idea a "publicity stunt" and suggested Fay was "running a fever."

But now, more than three weeks later, Fay still is trumpeting his cause, maintaining that he framed his challenge directly by rules of the 100-year-old Cup Deed of Gift, and that San Diego has no recourse but to accept the challenge. So far, no one has come up with a specific reason why he can't get what he wants.

It all makes for a merry political stew in this most political of sports, and the expectation is that before it's over Fay and the San Diegans will be duking it out in the New York State Supreme Court, where Cup interpretations have been handed down for a century.

The dispute is this: Since 1958, the Cup has been contested in 12-meter yachts, with races held about every three years. This was by mutual consent of the contestants, but never was written into the Deed of Gift, a musty document of 12 paragraphs completed in 1887.

When Fay went home to Auckland after the last Cup, he and his solicitor, Andrew Johns, had a look at the original document and were astonished to see that it spelled out specifically terms for challenging, and they bore no relation to the current system of elaborate sail-offs between competing challengers in 12-meters.

The document said all a challenger needed to do to be assured a match was send a letter to the Cupholder naming his yacht and describing its rig and overall size, which could be no longer than 90 feet on the waterline. The Cupholder then was obliged to grant him a head-to-head match within 10 months.

So Fay named his weapon -- a boat 90 feet on the water, twice the length of a 12-meter -- and since has commissioned native New Zealander Bruce Farr, who has offices in Annapolis, to design it.

Sail America spokesman John Marshall said yesterday Fay's challenge flies in the face of recent Cup tradition, which allows multiple challengers from a variety of nations. Already, he said, 15 syndicates have expressed interest in challenging in 1991. If Fay got his way, they all would have to stand back and wait.

Marshall said Fay's plan is the antithesis of the spirit of the deed, which calls for "friendly" international competition, and maintained it would deny many potential challengers their chance to compete. He said the precedent for multiple challenges in 12-meters established over the last 30 years would stand up in court.

The San Diego Yacht Club sent a letter to all potential challengers last weekend saying the Fay challenge is "unacceptable . . . as tending to limit access to the competition and diminish the quality of competition."

But Fay said yesterday from New York, where he was meeting with his attorneys, that veteran Cup racers Alan Bond of Autralia and Peter deSavary of England have already agreed to also challenge in 90-foot-waterline boats, that he'd be happy to arrange round-robin races next spring to pick the best challenger from among the three to race against a San Diego entry, and would welcome anyone else who wants to join the fun.

Privately, yachtsmen say Fay is trying to short-circuit the Cup format by manipulating an outdated document. Fay says all he wants to do is win the Cup by the rules.

Fay heads next to San Diego, where he plans to meet with San Diego Yacht Club Commodore Fred Frye and officials of Sail America on Wednesday. Meantime, sources in San Diego said that if Fay sticks to his guns and the yacht club sticks to its, the only place the matter can be resolved is in court.

"And nobody," said Sail America attorney Mark Smith, "wants to see that."