London court allows move to challenge $1.6b 1MDB arbitration deal struck during Najib era

Former Malaysian prime minister Najib Razak is tied to five trials stemming from 1MDB, his brainchild. PHOTO: REUTERS

SINGAPORE - In a rare move, a London court has allowed Malaysia's 1MDB and Minister of Finance Inc (Mofi) to challenge a 2017 arbitration award by consent, where about US$1.2 billion (S$1.62 billion) had been paid to an Abu Dhabi-based party, more than 500 days after the time limit to file an appeal has passed.

Justice Andrew Baker approved the application for the time extension by the Malaysian government parties, overruling objections that the move busted the 28-day statutory deadline to challenge arbitration awards in court and was 511 days late.

"That is no doubt an exceptional length of extension to grant, but this is an exceptional case," he said in judgment grounds on Thursday (Nov 4). " It would be unfair to the claimants, and an injustice, to deny them the opportunity of advancing their claim.

"This is a case in which serious allegations are made that are properly arguable on their merits to the effect that the defendants were complicit in the dishonesty of (then Prime Minister) Najib Razak, as alleged, in such a way as to have made it a fraud, or contrary to public policy, that the consent award was issued."

Mofi, a corporate body empowered to hold property on behalf of the Malaysian government and its fully owned investment fund 1MDB had taken International Petroleum Investment Company (Ipic), which is indirectly owned by the Abu Dhabi government and Ipic subsidiary-linked Aabar Investments PJS to court over the award.

The judge noted that the 1MDB group had paid about US$3.5 billion in total to Aabar BVI and Aabar Seychelles in relation to two bonds issued that were guaranteed by Ipic.

But when problems arose over interest payments on the bonds from 1MDB, Ipic, which has denied any knowledge of fraud, sought arbitration before the London Court of International Arbitration (LCIA).

The LCIA issued a consent award in 2017 after a settlement brokered when Najib was prime minister.

Under the settlement , 1MDB paid US$1.2 billion to Ipic, with provision for further payouts based on the bond obligations.

"It was common ground that no challenge to the consent award on the grounds now put forward would ever have been contemplated while Mr Najib was in power, and that the claimants should not be shut out from pursuing those grounds because no challenge was brought until after the May 2018 general election, notwithstanding that the claimants were by then already 11 months out of time," said the judge.

Queen's Counsel (QC) Toby Landau of Duxton Hill Chambers Singapore had argued for the claimants that the settlement leading to the consent award was concluded "by or at the behest of Mr Najib, to the knowledge of the defendants acting contrary to the claimants' interests by agreeing grossly disadvantageous settlement terms, in an attempt to conceal earlier fraudulent activity".

Defendant Ipic countered through QC Laurence Rabinowitz of One Essex Court: "The idea they were colluding in a cover-up is incoherent: On the one hand, arbitration proceedings are conducted in private; on the other hand, the underlying fraud, as alleged, including the allegation that Mr Najib was personally involved in it and/or a substantial beneficiary of it, was already in the public domain."

Making clear he was not ruling on the fraud allegations, Justice Baker underlined public policy grounds and noted the time limit deadline was not absolute.

Najib's "equally public position was to deny involvement, and he had been cleared of wrongdoing by the then Attorney-General in Malaysia", noted the judge.

"It was inevitable that any challenge to the consent award raising that issue would not be brought within time, indeed would not be brought at all unless and until Mr Najib was removed from his position of control over 1MDB and Mofi," said Justice Baker.

The London case adds a further chapter in the ongoing high-profile 1MDB saga, in which it was alleged that more than US$6 billion was dishonestly extracted to benefit various individuals.

The 1MDB case is one of the biggest financial scandals in history, spawning investigations worldwide including Singapore and the United States. Najib is tied to five trials stemming from 1MDB, his brainchild.

He was convicted in the first of the trials in July last year, when he was sentenced to 12 years behind bars and received a fine of RM210 million (S$68 million). He has since appealed against his jail sentence and conviction.

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