The Court of Appeal in London handed down a judgment on Tuesday that injuncted an international arbitration related to the 1MDB scandal and moved the process to public court.
The judgment represents a victory for Malaysia as it seeks to recover money lost as a result of the scandal. The case arises out of allegations that a US$3.5 billion fraud was carried out against the Malaysian state-owned investment fund, conducted through a settlement agreement between 1MDB and Abu Dhabi sovereign fund IPIC.
“This is a significant judgment, which addresses the nature and scope of court powers and safeguards with respect to international arbitration,” said Toby Landau, member of Essex Court Chambers, who represented 1MDB and Malaysia’s finance ministry, and was instructed by Eversheds Sutherland.
Malaysia had previously applied to set aside the consent award alleging that it was part and parcel of the fraud, which prompted a new arbitration seeking declaratory relief that the settlement was valid. In response, Malaysia sought an anti-arbitration injunction.
At first instance, the judge refused the application for an injunction and instead stayed the English court proceedings on case management grounds to allow the arbitration to proceed first.
Yesterday’s judgment reverses the judge’s findings in all respects, lifting the stay on the English court proceedings so that the matter will now be heard in court instead of a confidential process. It also injuncts the arbitration from proceeding in the meantime.
“Through this judgment the Court of Appeal has clarified the extent to which parties may contract out of or avoid court supervision of arbitral awards, and conceal international transactions from public scrutiny,” said Landau. “In the context of an alleged multi-jurisdictional and multi-billion dollar fraud, this judgment defines the essential role of the court, and the fundamental safeguards that cannot be eliminated by private arrangements between the parties involved.”
Mark Howard of Brick Court Chambers, instructed by Clifford Chance, represented IPIC as the respondents.
“Neither the English court proceedings nor the arbitration proceedings have reached a stage at which any of the issues in the underlying disputes have been decided,” Clifford Chance said in a statement.