The Serious Fraud Office won its Law Lords appeal today against a court ruling that it acted unlawfully in halting a corruption inquiry into a lucrative arms deal between Saudi Arabia and BAE Systems.
The Serious Fraud Office (SFO) took the case to the House of Lords after the High Court upheld a legal challenge brought by anti-corruption campaign groups.
Jonathan Sumption QC, for the SFO, told five Law Lords at a hearing this month that its director made a "legal and appropriate" decision to stop the inquiry in late 2006 after receiving threats from the Saudi Arabian government to withhold cooperation on critical issues of anti-terrorism.
"The SFO director was convinced that Saudi Arabia wasn't bluffing," he said.
In April, two judges in the High Court ruled that the Saudi threat was a "successful attempt by a foreign government to pervert the course of justice in the United Kingdom".
Lord Justice Moses and Mr Justice Sullivan said the SFO and the Government made an "abject surrender" to "blatant threats".
But Mr Sumption told the Law Lords that the High Court made several incorrect assumptions about the law and the agency's actions, noting that some of the key evidence had been "redacted", or heavily edited, for security and diplomatic reasons.
"They proceeded on limited information available to them," Mr Sumption said.
He also criticised the High Court for highlighting the alleged direct involvement of Saudi Prince Bandar bin Sultan, the former ambassador to the United States and now head of Saudi Arabia's National Security Council, in making the threats to drop a multibillion-pound Typhoon Eurofighter contract before the inquiry was halted.
"The director has not given evidence one way or the other about the involvement of Prince Bandar in the utterance of these threats," he said, adding that the threat came from "several channels over a period of time".
The SFO was investigating allegations that BAE, one of the world's largest arms makers, ran a £60 million "slush fund" offering sweeteners to officials from Saudi Arabia in return for lucrative contracts as part of the Al-Yamamah arms deal in the 1980s.
The judicial review case against the SFO was brought by Corner House Research and Campaign Against Arms Trade.
BAE Systems said today: "The case heard was between two campaign groups and the director of the SFO.
"It concerned the legality of a decision made by the director of the SFO. BAE Systems played no part in that decision."
Lord Bingham said in his judgment that SFO director Richard Alderman stated that the idea of discontinuing the investigation "went against my every instinct as a prosecutor".
The director decided that the public interest in saving British lives from the threat of terrorism outweighed the public interest in pursuing BAE to conviction.
It was a "courageous decision", since the director could have avoided making it by adopting the view of the Attorney General, then Lord Goldsmith, that there was insufficient evidence to support the case - a view with which the director did not agree.
The director was confronted by "an ugly and obviously unwelcome threat" from the Saudis and had to decide what, if anything, he should do.
His eventual decision was one he was lawfully entitled to make, said Lord Bingham.
"It may indeed be doubted whether a responsible decision-maker could, on the facts before the director, have decided otherwise," he said.
Baroness Hale said it was "extremely distasteful that an independent public official should feel himself obliged to give way to threats of any sort".
The Director resisted the pressure for as long as he could.
"The great British public may still believe it was the risk to British commercial interests which caused him to give way, but the evidence is quite clear that this was not so," Lady Hale said.
"He only gave way when he was convinced that the threat of withdrawal of Saudi security co-operation was real and that the consequences would be an equally real risk to 'British lives on British streets'."
It was worth remembering, she said, that it was BAE Systems, or people in the company, who were the target of the investigation, not anyone in Saudi Arabia.
The Director carried on with the investigation "despite their earnest attempts to dissuade him", she said.
"A lesser person might have taken the easy way out and agreed with the Attorney General that it would be difficult, on the evidence, to prove every element of the offence. But he did not."
Lord Hoffmann, Lord Rodger and Lord Brown agreed in allowing the Director's appeal.
Campaign Against Arms Trade (CAAT) along with the campaign group Corner House Research won permission last year for a judicial review into the SFO's decision to drop the case.
CAAT spokesman Symon Hill said the case had eroded the public's trust in BAE and the Government.
Speaking outside the House of Lords, he said: "Today I'm sorry to say the Law Lords have ruled in favour of the Government's appeal and against the decision of the High Court, which was in our favour.
"However, in the judgment they have handed down, the Law Lords have failed to answer most of the points we raised or that the High Court raised when it ruled in our favour.
"We feel we may have lost legally but we've certainly won politically. Throughout the last few months and the last couple of years, we have been overwhelmed by support by people in all walks of life."