November 5, 2021

1MDB Fraud: London Commercial Court Grants Permission for Challenge to Arbitration Award to Proceed

In a judgment handed down on 4 November 2021, the London Commercial Court has granted permission to two Malaysian entities to challenge an LCIA arbitration award in connection with the well-known 1MDB scandal.

Toby Landau QC acted for the successful Claimants, instructed by Eversheds Sutherland (International) LLP.

The background to the case is the multi-billion-dollar fraud that was perpetuated on 1MDB, a Malaysian state-owned investment fund, and which implicates, among others, the former Prime Minister of Malaysia, Mr Najib, who now faces criminal proceedings in Malaysia.

1MDB and its co-claimant, Minister of Finance (Inc) (“MOFI”), contend that approximately USD 3.5 billion was misappropriated from 1MDB with the involvement of, among others, two individuals at International Petroleum Investment Company (“IPIC”), a sovereign investment corporation of Abu Dhabi, and Aabar PJS, a related company.

The Claimants contend that Mr Najib wrongfully settled an LCIA arbitration which had been brought against the Claimants by IPIC and Aabar, in order to avoid the arbitration considering allegations regarding the fraud.

After Mr Najib was removed from office, 1MDB and MOFI applied to the English Court to set aside the LCIA Consent Award that embodied that settlement, alleging, among other things, that it had been obtained by fraud or the way it was procured was contrary to public policy. All such applications have to be made within 28 days under the English Arbitration Act 1996.  This challenge was brought 511 days after the expiry of the time limit.

The judge considered evidence from Mr Tommy Thomas, who was appointed Malaysia’s Attorney General following Mr Najib’s removal and oversaw the investigations into the 1MDB affair.  The judge held that this was an “exceptional case” and that it would be unfair to 1MDB to bar the challenge. Albeit no findings of fact were made at this stage, he ruled that 1MDB’s fraud allegations were “properly arguable, not merely fanciful or speculative” and engaged “the strong public interest in the court acting and being seen to act to investigate serious allegations that the dispute resolution system of London arbitration it oversees has been abused”.

The case has already been the subject of an important English Court of Appeal judgment, that was shortlisted for GAR’s decision of the year in 2020 ([2019] EWCA Civ 2080). In response to the Claimants’ application to the English Court, IPIC and Aabar commenced a parallel arbitration and sought a stay of the English Court proceedings.  IPIC and Aabar were successful at first instance. Toby Landau QC was then instructed and successfully appealed that decision. The Court of Appeal lifted the stay on the English Court proceedings, injuncted the parallel arbitration that IPIC and Aabar had commenced, holding that it was a vexatious attempt to restrict the Claimants’ exercise of their rights under the 1996 Act to challenge the Consent Award, and ordered that the Claimants’ application for an extension of time to bring their challenge to the Consent Award be determined by the Commercial Court.

The judgment handed down by Mr Justice Andrew Baker is the decision on that application for an extension of time.

A copy of the judgment ([2021] EWHC (Comm) 2949) can be found here.