Varnish Repair.

strip, remove existing material, open with Japanese saw, , clean, dry and re caulk with polysulfides or equal, then re start build up process. remember, varnish does not like to jump cracks or seams is quite an art.

This is the start. It will progress quickly. Sand down this area with 0000 grit sand paper to bare wood, and continue down the rail taking down at least one layer. Then clean with a tack cloth. Do as Dennismc suggested in this area. Get a good oxhair brush, pick a low humidity day and enjoy varnishing. A good varnish job is like a work of art, not like painting a house. I started a thread called "Justice" a couple of weeks ago. Check out the varnish on that boat. Beautiful. I believe there are a couple of other threads here about varnishing. Check them out.
Here are a few (there's more):
http://www.yachtforums.com/forums/g...414-how-protect-varnished-teak-cap-rails.html
http://www.yachtforums.com/forums/g...09-what-type-varnish-use-teak-brightwork.html
http://www.yachtforums.com/forums/off-topic-discussions/2797-wood-refinishing-question.html

Avoid if possible all hard sanding, use a heat gun and small spatula to remove the degraded varnish, the last thing you need is a valley at that location, if the surrounding wood still has it's hard top layer, then 300 grit would be max, feathering the surrounding area to try and match will depend on the age of the varnish, feathering is an art and you need to watch someone who knows in order to do properly, once the wood is clean and dry, remove all impurities with either acetone or tsp, allow to weather a day or two, then re dry with methyl hydrate, first coat with 90% thinned varnish, if the color turns red, you have to start again from bare wood in order to get a good blend, this work is a bear and takes great patience to do well...good luck and do not be afraid to keep trying to get it right as it will happen elsewhere and the knowledge will be most helpful. Be sure the new caulk material is not proud of the wood.

This condition is the result of the joint moving from the boat flexing, and/or expanding and contracting with temperature change. I successfully repaired these with a couple of different techniques. You should determine if the fasteners are doing their job. In other words are there enough fasteners and are they tight and plugged properly. If not, you may want to add some fasteners.
I have had success with following this step with removing all the loose varnish and saturating the joint with penetrating epoxy (I like Smiths CPES). Before the penetrating epoxy completely kicks, apply the first coat of varnish, bonding the epoxy to the raw wood underneath, and the varnish to the epoxy on top. Continue adding coats of varnish as you normally would.
The other method I have used is to cut the joint with a fine saw or sharp chisel creating a quarter inch slot straddling the joint to resemble a caulked teak deck.
Again, use the penetrating epoxy, and fill the joint with suitable caulking. I have used Lifecaulk and Sika, you can varnish right over it if you choose a paintable caulk. This method works great on cap rails where the hull flexing can cause the joints to break varnish.

There's a reason good varnish guys don't come cheap.

I found an image of a cap rail with above mentioned method.

The depth of this cut is a quarter inch. I did not mention depth in my explanation, but this seems to solve the varnish problem. Scribe out an eighth of an inch on each side of the joint and you have it.