1MDB fraud: Commercial Court grants permission for challenge to arbitration award

5 November, 2021

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

The background to the case is the multi-billion-dollar fraud that was perpetuated on 1MDB, a Malaysian state-owned investment fund, and which has led to allegations against, 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), contend that approximately USD 3.5 billion was misappropriated from 1MDB with the involvement of, among others, two individuals who worked for 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 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, and the investigation that followed, 1MDB and MOFI applied to the English court to set aside the 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.  The application was made outside the 28 day time limit allowed by the Arbitration Act 1996 for challenges to awards.

The case has already been the subject of an important Court of Appeal judgment, that was shortlisted for GAR’s decision of the year in 2020.  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.   Peter Webster,  led by Toby Landau QC of Duxton Hill Chambers, successfully appealed that decision. The Court of Appeal lifted the stay on the English proceedings, injuncted the parallel arbitration that IPIC and Aabar had commenced, holding that it was a vexatious attempt to restrict the Malaysian 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.   The Court has granted permission for the claim under section 68(2)(g) of the 1996 Act to proceed, but refused an extension of time for a claim under s 67 of the 1996 Act.

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

Peter Webster was led by Toby Landau QC of Duxton Hill Chambers and instructed by Richard Little (partner) and Michael Armstrong and Dan Younger (associates) of Eversheds Sutherland (International) LLP.