Gold Reserve Inc. (GDRZF)

[Enterprising Investor]

Gold Reserve Says Venezuela Must Post Bond During Appeal

By Christine Powell

Law360, New York (March 21, 2016, 7:03 PM ET) -- Gold Reserve Inc. asked the D.C. Circuit on Monday to refuse Venezuela’s argument that it shouldn't have to post a bond while appealing a November decision enforcing a more than $713 million arbitral award issued to the Canadian mining company in a dispute over canceled mining permits, saying such “extraordinary relief” was unwarranted.

On March 7, Venezuela told the appeals court that, while parties are automatically entitled to a stay of a money judgment during an appeal after a bond is posted, the court can, and should, exercise its discretion in this case to stay enforcement of the award without requiring a bond during the country’s appeal of U.S. District Judge James E. Boasberg's order.

Judge Boasberg shot down Venezuela's bid to stay his judgment without posting a bond late last month. But in doing so, he failed to recognize that foreign sovereigns should not be required to post security to obtain a stay absent extenuating circumstances, the country told the appeals court. Here, Venezuela argued, being forced to post a supersedeas bond would impose a substantial strain on its financial resources.

But on Monday, Gold Reserve blasted the country’s request, saying the relief was reserved for “unusual circumstances.” Further, Venezuela has not met the "onerous burden" of demonstrating that such a stay wouldn’t endanger the company’s interest in ultimate recovery, it said.

“As the district court found, Venezuela has not demonstrated a willingness to pay the judgment and has failed to show how posting a bond is impracticable,” Gold Reserve’s opposition to the motion said. “In this circumstance, a bond is required.”

The award was issued in September 2014 by an International Centre for Settlement of Investment Disputes tribunal, which found that Venezuela had breached its international obligations by abruptly curtailing certain mining concessions granted to Gold Reserve. According to Judge Boasberg's November confirmation order, the award is worth more than $713 million plus $22.2 million in pre-award interest, $5 million in legal fees and costs, and post-award interest.

In denying the South American nation’s original request for a stay of enforcement without posting the bond, Judge Boasberg noted that while the court may exercise its discretion to authorize unsecured stays in cases it considers appropriate, such a bond is typically required in normal cases.

In this case, he said that Venezuela never acknowledged that it would willingly pay the money if its appeal is unsuccessful. Nor did it explain how it would be impracticable to post the bond while the appeal is ongoing, he noted.

Gold Reserve had told the district court that Venezuela's argument that putting up the bond would place a strain on its budget implied that the country wouldn't be able to eventually pay the award, or that it would be unwilling to pay, but the country told the D.C. Circuit that its argument meant no such thing.

"There is no inconsistency, as Gold Reserve suggested below, in the fact that a sovereign can have sufficient means to pay a judgment while also recognizing that it would impose an unwarranted hardship for those same funds to be redirected from public services to an appeal bond," the country said in its motion.

On Monday, Gold Reserve shot back at the appellate level, saying that “foreign sovereigns are subject to the same standard as all other judgment debtors.”

Additionally, the company said Venezuela had not shown it was entitled to a stay under “stringent standards” the D.C. Circuit laid out in a 1977 ruling, nor had it shown it was likely to succeed on the merits of its arguments that the lower court had incorrectly confirmed the arbitral award.

In separate proceedings, Venezuela is currently asking the Paris Court of Appeal to annul the award based on the tribunal's alleged breaches of French arbitration law, including the exercise of jurisdiction beyond the scope of Venezuela’s consent to the arbitration and due process violations. Venezuela also claims that the tribunal acted in contravention of important public policy concerns.

Concurrently, Venezuela and Gold Reserve announced earlier this month that they are mulling a deal that would settle the dispute, which would include the payment and resolution of the award, as well as a potential $2 billion capital investment from Venezuela for future mining projects.

Representatives for Gold Reserve declined to comment on Monday, while Venezuela’s representatives did not respond immediately to requests for comment.

Gold Reserve is represented by Jonathan S. Franklin, Matthew H. Kirtland and Caroline M. Mew of Norton Rose Fulbright US LLP.

The Bolivarian Republic of Venezuela is represented by Janis H. Brennan and Michael J. Licker of Foley Hoag LLP.

The case is Gold Reserve Inc v. Bolivarian Republic of Venezuela, case number 1:14-cv-02014, in the U.S. District Court for the District of Columbia.

--Additional reporting by Caroline Simson. Editing by Kelly Duncan.

http://www.law360.com/articles/774365/gold-reserve-says-venezuela-must-post-bond-during-appeal