Venezuelan Prez Question Made Priority In $1B Gold Dispute

By Paige Long
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Law360, London (May 28, 2020, 9:12 PM BST) -- The English courts must determine who the U.K. government formally recognizes as president of Venezuela before hearing any bid for forcing the release of €930 million ($1 billion) of the country's gold from the Bank of England's vaults, a London judge ruled Thursday.

The Bank of England, which holds gold bullion for Venezuela, says it has conflicting instructions from two men claiming presidency of the country. (AP)

Judge Nigel Teare denied Banco Central de Venezuela's application for an expedited trial over the release of the gold bullion to be held in the next month and ordered that a four-day hearing to determine the U.K.'s position should be listed first.

Venezuela wants proceeds from the sale of the gold to be used in its fight against the coronavirus. But the Bank of England, which holds the gold bullion for Venezuela as custodian, says it has received conflicting instructions from the two men claiming the presidency.

The recognition matter will be dealt with as a preliminary issue alongside another legal point around the English court's decision-making powers in cases involving foreign sovereign states. A hearing has yet to be set, but could take place as early as June 22.

Judge Teare said it was unlikely that all the parties involved would be ready for a full trial — which will involve expert evidence on both English and Venezuelan law and extensive cross-examination —  in the time frame sought, and that taking a staged approach is a more optimal way to handle the dispute.

"The demand for an expedited hearing and the demand for a resolution on all issues do not sit happily together," Judge Teare said. Resolution of the preliminary issues "will either determine the case or make clear that it is indeed necessary for this court to decide many if not all issues in the case."

Banco Central de Venezuela launched its claim against the BoE at the High Court of England and Wales on May 14, seeking an order that would force England's central bank to sell part of the gold reserves.

The proceeds will then be sent directly to the United Nations Development Programme so it can be used to buy medicine and food for Venezuelans struggling during the COVID-19 emergency, according to the suit, which was filed on behalf of Calixto Ortega, the central bank chief appointed by President Nicolás Maduro.

However, the Bank of England says it cannot act on the instructions because of competing claims to the money from Venezuela's opposition leader Juan Guaidó, who has declared himself interim president of the country.

Judge Teare agreed Thursday to stay the action against the Bank of England until the question around the U.K.'s recognition of the Venezuelan presidency is resolved.

Tim Lord QC, counsel for Ortega, told the judge at Thursday's virtual hearing that the Venezuelan courts have recognized Maduro as president and the U.K. has not challenged Ortega's diplomatic immunity, which was granted by Maduro.

He urged the judge to order an expedited trial on all issues, so that the dispute over the release of the funds can be resolved more quickly and it can go towards helping the "grave humanitarian crisis" that is continuing to worsen in Venezuela.

Meanwhile Andrew Fulton, counsel for the Guaidó parties, told the judge that several countries do not recognize Maduro as president and that he has been condemned by the U.K. government.

The U.K. no longer makes statements or certificates of formal recognition of foreign leaders, but Fulton pointed the judge to a letter by the Foreign and Commonwealth Office, which refers to a quote from the Foreign Secretary in February 2019, saying the country recognizes Guaidó as interim president until credible elections can be held. Lord's clients have disputed the formality of the statement.

"The court simply has to decide what that letter means. The court cannot say anything that is inconsistent with what Her Majesty's government has told it," Fulton said. "Given the importance of that constitutional constraint, it makes obvious sense that the court should decide what the interpretation of that letter is, and therefore what [effect it has] on the rest of the case. It's crying out for determination as a preliminary issue."

The recognition issue has also arisen in other proceedings which were due to be heard by the English court in September, but Judge Teare said that the two actions should be dealt with together as preliminary points. Any decision he makes at the June hearing will therefore be binding on the other actions.

The case against the BoE will turn on whether the board of the Venezuelan central bank appointed by Maduro or the competing board appointed by Guaidó are authorized to order the release of the gold.

The central bank of Venezuela is represented by Tim Lord QC and Max Schaefer of Brick Court Chambers and Amy Rodgers of 11 KBW, instructed by Zaiwalla & Co. Ltd.

The Governor and Company of The Bank of England is represented by Brian Kennelly QC and Isabel Buchanan of Blackstone Chambers, instructed by Herbert Smith Freehills LLP.

Guaidó is represented by Andrew Fulton and Mark Tushingham of 20 Essex Street, instructed by Arnold & Porter.

The case is Banco Central De Venezuela v. The Governor and Company of the Bank of England, case number CL-2020-000304, in the Commercial Court, Queen's Bench Division of the High Court of Justice of England and Wales.

--Additional reporting by Joanne Faulkner. Editing by John Campbell.

For a reprint of this article, please contact reprints@law360.com.

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