GENEVA/LONDON (BLOOMBERG) - Malaysia won a victory at a London court that will allow public hearings in a dispute between 1MDB and Abu Dhabi's state investment fund in legal battle over how billions of dollars intended for Malaysia's economic development was stolen.

Judges at the Court of Appeal in London on Tuesday (Nov 26) backed Malaysia's arguments that private arbitration proceedings were unsatisfactory because it meant the case would be determined without public scrutiny.

The court also granted a temporary injunction halting a second round of arbitration sought by IPIC and its Aabar Investment unit against 1MDB.

"We are delighted by this outcome" which ensures that the UK's Commercial Court "will now be able to scrutinise an important aspect of the 1MDB fraud as part of an open and transparent process," said Richard Little, a lawyer representing the Malaysian government.

The court's decision comes in a case where Malaysia is seeking recovery of US$3.5 billion (S$4.8 billion) that was paid by 1MDB subsidiaries to an IPIC subsidiary, or reduce its liability to pay interest and principal under bonds jointly guaranteed by IPIC up to that same amount.

The country alleges that the agreements were made by former Prime Minister Najib Razak as part of a "conspiracy to defraud," Malaysian Attorney General Tommy Thomas said before the verdict.

Thomas said in a statement late on Tuesday that he is pleased with the decision, which should help it to pursue the missing money.

"Billions of dollars of taxpayer monies have been misappropriated," he said. "Bringing the perpetrators to justice is a complex and challenging task" to which "the Malaysian government is committed."

Najib, who is on trial for criminal charges linked to 1MDB, has consistently denied any wrongdoing.

Clifford Chance, the law firm that represents IPIC and Aabar in the London case, said in a statement that it is considering whether to appeal, emphasizing that the ruling covers procedural issues.

"Neither the English court proceedings nor the arbitration proceedings have reached a stage at which any of the issues in the underlying disputes have been decided," Clifford Chance said.