Minister of Finance (Incorporated) of Malaysia and 1Malaysia Development Berhad v. International Petroleum Investment Company and Aabar Investment PJS

At a glance

Parties

Minister of Finance (Incorporated) of Malaysia (MoF) and 1Malaysia Development Berhad (1MDB) v. International Petroleum Investment Company (IPIC) and Aabar Investments PJS

Case no.

Appeal Ref. A4/2019/1243 (Claim No. CL-2018-000704); [2019] EWCA Civ 2080

Court

Court of Appeal of England and Wales (Civil Division), on appeal from the High Court, Commercial Court (Knowles J)

Underlying award(s)

Consent award of 9 May 2017 in a London-seated arbitration (the first arbitration); two later LCIA arbitrations brought by IPIC and Aabar (the second arbitrations)

Forum and rules

Arbitration Act 1996, sections 67 and 68; Senior Courts Act 1981, section 37(1); LCIA Rules (second arbitrations)

Court

Sir Geoffrey Vos, Chancellor of the High Court (delivered the judgment), Lord Justice Newey, Lord Justice Males

Sector

Sovereign investment; bonds and guarantees

Outcome

Appeal allowed (26 November 2019). The case management stay of the section 67 and 68 challenges was lifted, and IPIC and Aabar were restrained from pursuing the second arbitrations until those challenges are finally decided.

Amount

The consent award required payment to IPIC of over US$1.2 billion plus interest. The second arbitrations claimed bond interest of about US$714,474,561 and a receivable of about US$481 million.

The dispute

MoF is owned by the Malaysian Government and 1MDB is its wholly owned subsidiary. IPIC is indirectly owned by the Government of Abu Dhabi, and Aabar is wholly owned by IPIC. The parties signed a binding term sheet on 28 May 2015 with a London arbitration clause. IPIC and Aabar began the first arbitration in 2016. It ended with settlement deeds of 22 April 2017 and a consent award of 9 May 2017, under which the Malaysian parties were to pay over US$1.2 billion plus interest. After former Prime Minister Najib Razak left office, MoF and 1MDB challenged the consent award in the English court. Under section 67 they argued that Mr Najib had no authority to bind them. Under section 68 they argued that the award was procured by fraud contrary to public policy and that IPIC and Aabar knew of it and took part. IPIC and Aabar responded by starting two LCIA arbitrations under the settlement deeds. They claimed that bringing the court challenges was itself an event of default, which made close to US$1.2 billion payable at once. Knowles J stayed the court challenges on case management grounds so that the second arbitrations could go first, and refused an injunction against those arbitrations. MoF and 1MDB appealed.

Key holdings

1. Sections 67 and 68 are mandatory provisions of the 1996 Act and apply notwithstanding any agreement to the contrary. When an award is challenged under them, the court has a prima facie duty to decide the challenge as promptly as possible. In doing so it acts as a branch of the state in the public interest, not as an extension of the consensual arbitral process. ¶¶ 40, 43–46
2. A prompt decision by the court of the seat matters for enforcement under the New York Convention. While a challenge is pending, the award's status is uncertain, and Article VI lets enforcing courts adjourn. A case management stay of section 67 and 68 challenges should be granted only rarely and on compelling grounds. ¶¶ 45–47
3. The judge started from a false premise: he treated the court's supervisory jurisdiction and the second arbitrations as equal because both derived from party autonomy. He therefore exercised his case management power on the wrong legal basis. ¶¶ 54–55
4. There were no compelling reasons for a stay. The second arbitrations were a reaction to the court challenges. A stay would not avoid duplication, and the arbitrators could reach only a provisional view on their own jurisdiction. The Malaysian parties would face large financial claims before their challenge was heard. The judge also had no power under the 1996 Act to supervise the second arbitrations continuously through progress reports. ¶¶ 59–66
5. The judge refused the injunction under section 37(1) on the wrong basis, because he relied on the stay he had granted. The Court applied the Claxton test itself. It held that the second arbitrations infringed and threatened the claimants' statutory right to challenge the consent award, and that they were vexatious and oppressive. They sought, in terrorem, to impose a large financial penalty on the claimants for exercising rights the parties had agreed in the binding term sheet. ¶¶ 67–74
6. The appeal was allowed. The stay was removed, and IPIC and Aabar were restrained from pursuing the second arbitrations until the section 67 and 68 applications are finally decided. Whether the injunction continues after that is left to a judge of the Commercial Court. ¶¶ 75–76

Procedural history

1. 28 May 2015The parties enter into the binding term sheet, which contains a London arbitration clause.
2. 13 June 2016IPIC and Aabar commence the first arbitration, seated in London.
3. 9 May 2017Consent award made, following the settlement deeds of 22 April 2017.
4. 30 October 2018MoF and 1MDB issue their claim form under sections 67 and 68 of the 1996 Act. It is served on 20 November 2018.
5. 21 November 2018IPIC and Aabar request the commencement of the second arbitrations.
6. 11 March 2019Knowles J refuses to strike out the claim form, which was issued out of time; the application to extend time remains to be decided.
7. 8 May 2019Knowles J refuses a stay under section 9, grants a case management stay of the court challenges and refuses an injunction (order dated 21 May 2019).
8. 31 July 2019Simon LJ grants MoF and 1MDB permission to appeal.
9. 26 November 2019Court of Appeal allows the appeal, lifts the stay and restrains the second arbitrations.

Tribunal, counsel and experts

Decided by

• Geoffrey Vos Judge, Court of Appeal of England and Wales (Chancellor of the High Court; delivered the judgment of the court)

For the claimant

Eversheds Sutherland (International) LLP

For the respondent

Clifford Chance

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Keywords

• 1MDB
• IPIC
• Aabar
• Najib Razak
• consent award
• section 67 Arbitration Act 1996
• section 68 serious irregularity
• mandatory provisions
• case management stay
• anti-arbitration injunction
• section 37 Senior Courts Act 1981
• Claxton test
• supervisory jurisdiction
• fraud
• public policy
• kompetenz-kompetenz
• New York Convention Article VI
• LCIA

Summary generated with AI from the published documents — refer to the award for the authoritative text.