A Festering Sore at BAE
By Nick Burkill, Dorsey & Whitney, LLP

On 10 April 2008, the High Court in London gave judgment in proceedings brought by anti-corruption public interest groups.  These groups challenged the decision of the Director of the Serious Fraud Office (SFO) to abandon the SFO’s investigation into allegations that BAE Systems plc engaged in bribery in relation to the Al-Yamamah military aircraft contracts with the Kingdom of Saudi Arabia. 

The Court found that the decision to abandon the investigation was unlawful and subsequently ordered, on 24 April 2008, that the Director’s decision be overturned.  At the same time, the Court gave permission for its decision to be appealed to the House of Lords.  The issues before the Court go to the heart of the rule of law. 

The Allegations
The SFO commenced its investigation into BAE in July 2004 in response to allegations of bribery in connection with the Saudi aircraft contract.  The public interest groups alleged that Prince Bandar bin Sultan bin Abdul Aziz of al-Saud told an official in the Prime Minister’s office to get  the investigation stopped.  It was alleged that Prince Bandar knew that the SFO were looking at Swiss bank accounts and that if the British government did not stop the investigation, the Typhoon contract under negotiation would be stopped and intelligence and diplomatic relations would be pulled.  During the High Court proceedings, the Director of the SFO did not accept these allegations as facts but, nevertheless, he asked that the Court proceed on the basis that they were accurate.

The Prime Minister wrote to the Attorney-General on 8 December 2006 urging the Attorney to consider the public interest in relation to the investigation.  The Prime Minister expressed support for the OECD Convention on Combating Bribery and identified that the threat to economic interests—the threat to the Typhoon contract—could not be a factor in the Attorney’s decision.  This was because the UK had committed not to take such issues into account in agreeing Article 5 of the OECD Convention.  Nevertheless, said the Prime Minister, the serious damage being done by the investigation to the UK’s bilateral relationship with Saudi Arabia was of concern.

The Prime Minister identified the damage being done to Saudi confidence in the UK as affecting :  i) the UK’s direct national security and efforts at countering terrorism; and ii) the UK’s work towards peace and security in the Middle East.  The seriousness of these risks were such that the Prime Minister said that he considered that he would be failing in his duty if he did not bring them to the attention of the Attorney and ask him to consider them.

After further communications and discussions between the Director of the SFO and the Attorney, the Director concluded on 13 December 2006 that, to continue the investigation risked “real and imminent damage to the UK’s national and international security and would endanger the lives of UK citizens and service personnel.”  The next day, the Director wrote that “it has been necessary to balance the need to maintain the rule of law against the wider public interest."

Judicial Review and Its Limitations
The judicial review procedure used to challenge the Director’s decision is not one that allows the court to substitute its own decision for that of the public body under challenge.  It does not, therefore, conduct a detailed investigation into the underlying facts.

In addition, as the High Court made clear in its judgment, the Court was in no position to consider the strength of the evidence against BAE, and did not hear from Prince Bandar as to his account of what he did or did not threaten.  BAE’s position is that payments it made were approved by the Kingdom of Saudi Arabia and were therefore lawful commissions, not unlawful secret payments.  It would be unfair, the Court said, to assume that there was a realistic possibility, let alone a probability, of proving that BAE had been guilty of a criminal offence. 

The Court’s acceptance, for the purposes of the proceedings, of the weaknesses in the case against BAE emphasises the strength of the Court’s determination to protect the rule of law.

The Issues
The hearing of the application focussed on two issues: i) the relevance of the rule of law to the Director’s decision; and ii) the relevance of Article 5 of the OECD Convention.

The Rule of Law
The Director is subject to the supervision of the Attorney-General, but his decisions on investigation and prosecution are for him to reach independently.  The Court accepted that the Director’s discretion is wide enough to entitle him to take into account risk to life and national security in deciding whether to continue an investigation.  The Court was not prepared to consider the  weight to be attached to foreign policy considerations, recognising that this is a “forbidden area” for an English court.  However, the Court said that it was wrong to view the case so simplistically:

“It is one thing to assess the risk of damage which might flow from continuing an investigation, quite another to submit to a threat designed to compel the investigator to call a halt.  When the threat involves the criminal jurisdiction of this country, then the issue is no longer a matter only for Government, the courts are bound to consider what steps they must take to preserve the integrity of the criminal justice system.”

The Court emphasised that protection of the justice system is a matter for the courts— whether the threat comes from within or outside the country—and went on to make it clear how seriously it viewed the Saudi threat to the criminal justice system: “Had such a threat been made by one who was subject to the criminal law of this country, he would risk being charged with an attempt to pervert the course of justice.”

However, the Court put its decision on this issue in traditional judicial review terminology.  It is well-established that a decision-maker on whom statutory powers are conferred must exercise those powers independently without surrendering them to a third party.  It is therefore for the courts to determine whether a prosecutor’s reaction to a threat was “a lawful response or an unlawful submission”.  In considering this issue, the Court considered the example put to it of the Attorney-General’s decision in 1970 to release Leila Khalid, a member of the Palestinian Liberation Organisation (PLO), as a result of the PLO’s threat to kill German and Swiss hostages if she was not released.  The Court acknowledged that there may be circumstances so extreme that the necessity of saving lives compels a decision not to detain or to prosecute, albeit reserving to itself the responsibility to assess whether the decision-maker gave in too readily.

The assessment of whether the Director gave in too readily to the Saudi threat was one that the Court then carried out.  It noted that there was no evidence put forward by the Director of attempts to persuade the Saudis to withdraw the threat or otherwise avert it.  The Court concluded that the relevant principle is that “submission to a threat is lawful only when it is demonstrated to a court that there was no alternative course open to the decision-maker.” The Court then concluded on this issue that the Director had failed the test:

“The Director failed to appreciate that protection of the rule of law demanded that he should not yield to the threat.  Nor was adequate consideration given to the damage to national security and to the rule of law by submission to the threat.  No-one took any steps to explain that the attempt to halt the investigation by making threats could not, by law, succeed.  The Saudi threat would have been an exercise in futility, had anyone acknowledge that principle.”

Article 5 of the OECD Convention
Article 5 provides:

“Investigation and prosecution of the bribery of a foreign public official shall be subject to the applicable rules of each Party.  They shall not be influenced by considerations of national economic interest, the potential effect upon relations with another State or the identity of the natural or legal persons involved.”

It was contended against the Director that his decision was taken because of the potential effect of the investigation on relations with another State.  The Director’s conclusion that his decision was compatible with Article 5 was an error of law and therefore susceptible to judicial review.  The Director contended that this issue was not one on which the Court should rule, on the basis that national courts may not rule on, or enforce, rights arising out of inter-State transactions, such as the OECD Convention.
The Court ruled, however, that in the public law context of judicial review, it was entitled to determine the lawfulness of the decision-maker’s self-direction or the advice on which the decision was based.  If the self-direction or advice is a point of interpretation of an international instrument, the court is entitled to review that interpretation.

The Court then considered the terms of Article 5.  The Article does not exclude national security considerations, but does exclude the potential effect upon relations with another State.  The Court therefore examined the distinction between these two considerations and concluded that, whilst it was difficult to draw the line between these two matters, Article 5 only permitted consideration of national security in circumstances which, on an international level would be regarded as justifying the defence of State necessity.  That concept applies only to exceptional cases where “the only way a State can safeguard an essential interest threatened by grave and imminent peril is, for the time being, not to perform some other international obligation of lesser weight or urgency.”

Despite that conclusion, the Court held back from expressing a view on whether the Director was right to consider that his decision was in compliance with Article 5.  In the end, the Court considered that this was an issue that was better left to the OECD through the mechanism of the Convention.  It may be that the Court’s reluctance to reach a conclusion is explained by it already having decided against the Director on another ground.  If more had depended on the Article 5 argument, the Court may not have held back.

Conclusion of the Judgment
A number of arguments were made against the Director in the proceedings and, in essence, only one succeeded.  But that does not mean that the Court’s judgment gives the appearance of a decision that the Court found difficult to reach.  Its concluding words make that quite clear:

“The court has a responsibility to secure the rule of law.  The Director was required to satisfy the Court that that all that could reasonably be done had been done to resist the threat.  He has failed to do so.  He submitted too readily because he, like the executive, concentrated on the effects which were feared should the threat be carried out and not on how the threat might be resisted.  No-one, whether within this country or outside is entitled to interfere with the course of our justice.  It is the failure of Government and the defendant to bear that essential principle in mind that justifies the intervention of this court. … But we intervene in fulfilment of our responsibility to protect the independence of the Director and of our criminal justice system from threat.  On 11 December 2006 the Prime Minister said that this was the clearest case for intervention in the public interest he had seen.  We agree.”

Nick Burkill is a commercial litigation and dispute resolution lawyer with a particular specialisation in the investigation of fraud and corruption and the recovery of the proceeds of fraud. He has broad experience of domestic and international disputes. Nick is also an accredited mediator, using those skills where appropriate in negotiations on behalf of clients, and a solicitor advocate. He is a frequent speaker and commentator on a broad range of issues arising from his experience. He is a member of the Civil Procedure Rule Committee, the committee responsible for the making of rules of court subject to the Lord Chancellor and led by the Master of the Rolls, the Head of Civil Justice. Contact Details: Tel: + + 44 (0)207 826 4583 Email:  burkill.nick@dorsey.com