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

At a glance

Parties

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

Case no.

Claim No. CL-2018-000704; [2019] EWHC 1151 (Comm)

Court

High Court of Justice, Business and Property Courts of England & Wales, Commercial Court (QBD); Mr Justice Robin Knowles

Forum and rules

Arbitration Act 1996, sections 9, 67 and 68; Senior Courts Act 1981, section 37; arbitrations seated in London (Second Arbitrations under the LCIA Rules)

Underlying award(s)

Consent Award of 9 May 2017 in the First Arbitration

Sector

Sovereign investment fund; bond guarantees; settlement agreements

Outcome

Section 9 stay refused and anti-arbitration injunction refused; the section 67 and 68 challenges were stayed temporarily on case-management grounds so that the Second Arbitrations could proceed first.

Amount

Consent Award: about US$1.2 billion plus interest payable to IPIC, and an indemnity for the Guarantees of up to about US$4.7 billion. Sum claimed in the Second Arbitrations included Bond Interest Liability of US$714,474,561 (as at 20 November 2018).

The dispute

MOF and 1MDB, both Malaysian, entered into a Binding Term Sheet dated 28 May 2015 with IPIC and Aabar, both of Abu Dhabi. IPIC and Aabar began the First Arbitration, seated in London, on 13 June 2016. The parties then signed a Settlement Deed and a Supplemental Deed dated 22 April 2017. Under these deeds the tribunal issued a Consent Award on 9 May 2017. MOF and 1MDB later alleged that former Prime Minister Najib Razak had conspired to misappropriate more than US$3.5 billion. They also alleged that he procured the settlements against their interests, and that IPIC and Aabar knew this. On that basis they challenged the Consent Award under sections 67 and 68(2)(g) of the Arbitration Act 1996 and argued that the Settlement Deeds were void. IPIC and Aabar denied the allegations. They began LCIA arbitrations under the Settlement Deeds (the Second Arbitrations), claiming that the court challenge itself was an Event of Default, and applied to stay the court challenges. MOF and 1MDB in turn sought an injunction to restrain the Second Arbitrations.

Key holdings

1. Under section 4(1) of the 1996 Act, sections 67 and 68 are mandatory. Whatever the Settlement Deeds say, the court will rule on the challenges to the Consent Award, including the allegation of fraud. Section 4 does not, however, deprive the later arbitration agreements of effect or make them "inoperative". ¶¶ 56–57, 81
2. The court (through its supervisory jurisdiction over the First Arbitration) and the tribunal in the Second Arbitrations have concurrent jurisdiction. Both derive equally from party autonomy, so neither takes priority over the other. ¶¶ 63–67, 70
3. No stay under section 9. Where the parties have agreed that a matter may go to the court or to arbitration, it is not a matter which "is to be referred to arbitration". A party cannot use section 9 to stay the court's supervisory jurisdiction over one arbitration by starting a further arbitration about the same complaints. ¶¶ 69–79
4. The court rejected the argument that it must investigate all the facts relevant to a section 68 fraud challenge itself. It held that this is one of the rare and compelling cases for a temporary case-management stay, to avoid duplication, delay and inconsistent decisions on whether the Settlement Deeds are void. It relied in part on Autoridad del Canal de Panama v Sacyr. ¶¶ 87–95
5. An injunction under section 37 of the Senior Courts Act 1981 was refused as not just and convenient. MOF and 1MDB's right to have the court decide their section 67 and 68 challenges is not a right to have them decided first. The court expressed no view on whether the allegedly penal Event of Default claims are enforceable. ¶¶ 101–109
6. The stay is temporary but of indefinite duration, and both parties have liberty to apply. Any later challenge relating to the Second Arbitrations is to be listed alongside the current challenges as far as practicable. ¶¶ 111–116

Procedural history

1. 28 May 2015Binding Term Sheet concluded; it contains a London-seated arbitration agreement.
2. 13 June 2016IPIC and Aabar commence the First Arbitration.
3. 22 April 2017Settlement Deed and Supplemental Deed signed. On 24 April 2017 MOF and 1MDB withdraw their counterclaims.
4. 9 May 2017Consent Award made in the First Arbitration.
5. 21 November 2018IPIC and Aabar file requests for arbitration in the Second Arbitrations under the LCIA Rules. MOF and 1MDB respond on 16 January 2019.
6. 11 March 2019The court refuses ex tempore IPIC and Aabar's application to strike out the late arbitration claim form. The application to extend time is left for a later hearing.
7. 8 May 2019Judgment: section 9 stay and section 37 injunction refused; temporary case-management stay of the section 67 and 68 challenges granted.

Tribunal, counsel and experts

Decided by

• Robin Knowles Judge, High Court of Justice, Commercial 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
• fraud
• public policy
• section 9 stay
• case management stay
• anti-arbitration injunction
• section 37 Senior Courts Act 1981
• concurrent jurisdiction
• supervisory jurisdiction
• settlement deed
• separability
• kompetenz-kompetenz

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