The controversial decision by the Serious Fraud Office to drop its investigation into bribery allegations involving BAE Systems and members of the Saudi Arabian Royal Family is to be put to the test in a High Court case.

Ruling in favour of two pressure groups who yesterday sought an application for a judicial review of the decision, made in December last year, Lord Justice Moses said that “matters of concern and public importance” had been raised. The challenge by Corner House Research, an anticorruption pressure group, and the Campaign Against the Arms Trade “cries out for a hearing”, the judge said.

The decision against the SFO reversed a ruling made by Mr Justice Collins in May, in which he said that the request for a judicial review was “wholly unarguable”.

The SFO had been investigating allegations of corruption against BAE for more than two years. It was alleged that Britain’s biggest defence company had paid huge sums of money in bribes to certain members of the Saudi Royal Family in connection with the £43 billion al-Yamamah arms deal in the 1990s, which included the sale of 72 Tornado aircraft.

BAE has always denied any wrongdoing and has emphasised that the al-Yamamah contract was a government-to-government deal. When Robert Wardle, the SFO director, announced that the corruption investigation was being dropped, Tony Blair, then Prime Minister, said that if it had continued it would have damaged Britain’s national security interests. Mr Blair said that Britain and Saudi Arabia shared key intelligence in the fight against international terrorists, and thousands of jobs were also at stake because the Saudis were threatening to pull out of a new deal to buy Typhoon Eurofighters to replace the ageing Tornados.

In May Mr Justice Collins said that “no state could be expected to take action which jeopardises the security of the State or the lives of its citizens”.

However, Lord Justice Moses, sitting with Mr Justice Irwin at the High Court, said it was in everybody’s interest that there should be a full hearing.

A spokesman for the Campaign Against the Arms Trade said: “This is a great success for us. Our case is that the Government acted illegally.”

Norman Lamb, Lib Dem MP for North Norfolk, who has been highly critical of the SFO decision, said: “This is a significant breakthrough and puts the Government on the spot.”

Dinah Rose, QC, acting for the two pressure groups, argued that the SFO director misdirected himself in law by taking into account the “irrelevant consideration” that continuing the investigation into BAE would risk prejudicing Saudi Arabia’s cooperation on counter-terrorism issues, which would have an adverse effect on security.

She said that under European anti-bribery laws, to which Britain is supposed to adhere, the Government was precluded from taking into account the potential effect of an investigation or prosecution on another state, even where there was concern about its impact on national security.

Lord Justice Moses said: “It seems to me in everybody’s interest that there should be a full hearing.”

The case will be heard after January 28 next year.

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