Gold Reserve Inc. (GDRZF)

[Enterprising Investor]

Venezuela Says No Bond Needed During Gold Reserve Appeal (3/08/16)

By Caroline Simson

Law360, New York (March 8, 2016, 6:57 PM ET) -- Venezuela told the D.C. Circuit on Monday that as a foreign sovereign, it shouldn't have to post a bond while it appeals a November decision enforcing a more than $713 million arbitral award issued to Canadian mining company Gold Reserve Inc. in a dispute over canceled mining permits.

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 Venezuela's appeal of U.S. District Judge James E. Boasberg's order, the South American nation told the appeals court.

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.

"While Venezuela’s national budget establishes its ability to pay the judgment, requiring the posting of a bond large enough to cover a judgment of over $700 million would force Venezuela to divert resources that are needed to provide essential public services, a point left unaddressed by the district court," the country said.

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.

Gold Reserve had told the district court last month 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 Venezuela 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 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.

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 last week 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.

Attorneys for Gold Reserve declined comment on Tuesday, and Venezuela's attorneys weren't immediately available 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.

--Editing by Rebecca Flanagan.

http://www.law360.com/articles/768682/venezuela-says-no-bond-needed-during-gold-reserve-appeal