ANNAPOLIS -- "When you spend your life standing on your head upside-down," said New Zealander Michael Fay, "you tend to look at the world differently."

That may explain the origins of his brazen scheme for a head-to-head America's Cup showdown against Dennis Conner next summer in boats the size the Vanderbilts used to sail.

The flamboyant Auckland millionaire blew through town last week after a New York court appearance. Up to his elbows in spicy crabs and steamed clams at a local creekside eatery, slurping beer from the can like a commercial fisherman, Fay dismissed arguments he's trying to steal the Cup through a loophole, insisting he's following the rules to the letter.

"What we've done," he said with a flourish, "is to put our name and address on the {Cup} Deed of Gift and mail it to the San Diego Yacht Club."

It's a contention the San Diegans, Cup defenders since Conner's thrilling victories over New Zealand and Australia on the Indian Ocean last winter, vigorously dispute. But this is the America's Cup, and nothing stirs the pot like a snarling good fight, which is just what Fay has started.

On Friday, final papers were filed with Judge Carmen Ciparik of the New York State Supreme Court, which has settled Cup disputes for a century.

She now must decide whether the next event should be a multinational 12-meter competition with as many as 19 challengers off San Diego in early 1991, as Conner's group wants, or a gunfight in two to four huge, ultralight, unrestricted yachts next summer, as Fay demands. The ruling is due in a few weeks.

Meantime, Fay stopped by Annapolis to consult his boat designer, transplanted New Zealander Bruce Farr. "Whether we get to race this thing or not," Fay said of the 120-foot-long behemoth Farr is drawing up, "we're building it, we'll launch it and we'll sail it."

Big risk? Try $5 to $10 million. But that's how Fay plays. "We see the point of the game as simple," he said. "In our view there is only one agenda, and that's winning the America's Cup."

To that end, while they waited for Conner's Sail America Foundation to decide where and when to hold the next Cup, Fay and his attorney, Andrew Johns, pulled out a copy of the 12-paragraph, 100-year-old Cup Deed of Gift last spring.

"We must have been the first people to read it in years," said Fay. They unearthed a shocker. Clearly, the Deed stated, it was not up to the defender to decide who raced for the Cup and when. Those rights were afforded any qualified challenger, who could demand a match within 10 months.

To wit:

"Any organized yacht club of any country . . . having for its annual regatta an ocean water course on the sea or an arm of the sea . . . shall always be entitled to the right of sailing a match for this Cup . . . against any one yacht or vessel constructed in the country of the club holding the Cup . . .

"The challenging club shall give 10 months notice, in writing, naming the days for the proposed races . . .

"Accompanying the 10 months notice . . . there must be sent the name of the owner and a certificate of the name, rig, and . . . dimensions of the challenging vessel . . . which dimensions shall not be exceeded."

If a defender failed to respond to such a challenge, it was implicit, it would forfeit the Cup.

So Fay mailed his challenge, stunning in its simplicity, in July, citing a race date of June 1, 1988, and naming and describing his boat, which at 90 feet on the water was as big as allowed under the antiquated rules.

Conner's people at first ignored the challenge, then wrote Fay's Mercury Bay Boating Club to say the bid appeared unacceptable because it would deny other challengers the right to participate. After waiting six weeks for an official answer, Fay went to court and demanded one.

San Diego's lawyers now insist there are at least two basic flaws in the challenge.

First, they say, it's illegal because Fay describes a vessel that doesn't exist. "In marine tradition and law, a ship cannot have a name, a certificate of dimensions or an owner until it is built," said John Marshall, spokesman for Conner's Sail America Foundation.

If clubs could challenge with nonexistent boats, Marshall said, the defending club could be stripped of the Cup every 10 months for simply not responding to a letter of intent and showing up on the starting line ready to race, whether a challenger actually had a boat or not.

But the larger argument from the San Diegans is that Fay's challenge violates the spirit of the Deed, which calls for "friendly competition between foreign countries" and affords the right to race to "any organized yacht club" meeting certain standards.

In the days when the event was an occasional showdown between individual millionaires from Britain and the United States, Marshall said, the direct challenge format made sense.

But when the event was refashioned in 1956 to allow competition in smaller, more affordable 12-meter yachts, it opened the doors to wider international participation and the results have been dramatic.

Last year 13 challengers from six nations turned up in Australia. This year four more nations already have announced intentions for 1991 -- West Germany, Japan, Denmark and Spain.

With multiple challenges, Marshall said, it became incumbent on the defender to set up an organized system for participation in a common class of boats on a schedule everyone could meet, which is how the current system of regattas every three to four years in 12 meters with sail-offs to pick a challenger evolved.

Marshall says the mission of the Deed's trustee -- now San Diego Yacht Club -- is to carry out the will of the Deed, which he said is to promote friendly competition between as many nations as care to compete.

Fay's scheme, he said, flies in the face of that by barring the door to many potential challengers. "We get all balled up in the law here and lose sight of the fact that this is a sporting match," said Marshall, "and you can't have one of the world's premier sporting events pre-empted by a guy with a quick lawyer."

Added Marshall, "If it was just a matter of beating Michael Fay, we'd be out there next June in a 90-foot-long catamaran and beat him by half the length of the course.

"But what we want to do is stage a world-class event where all can participate fairly."

Both sides claim optimism about the outcome in court, but both say they'll appeal if they lose.

I pick San Diego to win this round, particularly since New York State Atty. Gen. Robert Abrams has filed a brief in their behalf.

But Fay says San Diego should quit complaining and start building.

"I'd like to think if we were in the reverse situation and San Diego was challenging us, the first week we'd scream bloody murder, the second week we'd look at them with a kind of sneaky admiration and the third week we'd get on with the job of building a boat to beat them," he said.

"But people don't understand us Kiwis. The harder you try to bully us, the more we hang in there."

Good fight. Great fighters.

Stay tuned.