Two of Britain's highest-paid and most sought after QCs will go head to head during the Serious Fraud Office's appeal against a High Court ruling that it unlawfully halted its investigation into the BAE Systems arms deal with Saudi Arabia.

The hiring of Jonathan Sumption to lead the appeal for the SFO, and of David Pannick for anti-arms campaigners, has significantly upped the stakes. Both are among the handful of highest earners in the profession and their recruitment is an indication of the seriousness with which the appeal is being seen.

The two-day hearing in front of five law lords opens in the House of Lords today. In April the High Court formally quashed the SFO decision to drop its corruption investigation into the BAE Systems arms deal with Saudi Arabia, ruling that the then director, acting on government advice, had acted unlawfully.

The challenge was brought by the Campaign Against Arms Trade and The Corner House, which sought the judicial review of the public importance of the issues involved.

In one of the most critical and strongly worded rulings ever made by a judge, Lord Justice Moses, sitting with Mr Justice Sullivan, ruled that a Saudi threat in 2006 to cancel a further arms deal and withdraw diplomatic co-operation was a “successful attempt by a foreign Government to pervert the course of justice in the United Kingdom”.

The British Government had made no attempt to resist the threat, they added, saying that ministers and the SFO had been subjected to unlawful pressure and “blatant threats” from the Saudis.

Lord Justice Moses and Mr Justice Sullivan said in their ruling: “We fear for the reputation of the administration of justice if it can be perverted by a threat,” adding: “No one, whether within this country or outside, is entitled to interfere with the course of our justice.”

The judges found that the decision to end the inquiry had been unlawful, that it amounted to an “abject surrender” to pressure from a foreign Government, and that it should be reopened - a decision against which the SFO is now appealing.

The ruling was a resounding victory for the anti-corruption and arms trade groups that brought the case after the SFO dropped its investigation, citing national security concerns.

As a result, ministers are determined to drive through unprecedented statutory powers which will enable the Attorney-General to halt investigations on grounds of national security but at the same time be exempt from scrutiny by the courts. The powers are contained in the Constitutional Renewal Bill, which one leading academic, Professor Jeffrey Jowell, says “flies in the face of the fundamental constitutional principles of the rule of law and separation of powers”.

In a legal opinion for The Corner House, he says: “The power of the Attorney to safeguard national security free of judicial oversight or control offends fundamental constitutional principle.” The powers, he argues, would enable the Attorney-General to refuse to disclose to Parliament information on the ground that this could damage commercial or diplomatic interests abroad, or even Britain's image.

“The Attorney would thus be able to evade parliamentary control of a decision purportedly taken for the purpose of safeguarding national security but in fact seeking goals which are extraneous to that purpose.”

The SFO inquiry, which was discontinued in December 2006, related to BAE's £43billion al-Yamamah arms deal with Saudi Arabia in 1985, which provided aircraft and other military equipment. When it was halted, Tony Blair, who was then Prime Minister, said that, if the SFO had continued its inquiry, it would have damaged national security.

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