HOWZAT

The director had not surrendered his discretionary power of decision to a third party. The issue was not whether his decision was right or wrong but whether it was one he was lawfully entitled to make, Lord Bingham said.

He concluded: “In the opinion of the House, the director’s opinion was one he was lawfully entitled to make”, adding: “It may indeed be doubted whether a responsible decision-maker could, on the facts before the director, have decided otherwise.”

The office of Baroness Scotland of Asthal, QC, the Attorney-General, said in a statement: “This case raises important constitutional issues relating to national security and the roles of the executive, the independent prosecuting authorities and the courts. It was right for these matters to be referred to our highest court, the House of Lords.

“We welcome the House of Lords judgment which upholds the decision of the previous SFO Director to halt the al-Yamamah investigation on national security grounds.”

But the two campaigning groups that brought the original challenge issued an angry condemnation of the law lords’ decison, saying that it showed that prosecutors were powerless to resist threats by those “in high places.”

Nicholas Hildyard of The Corner House said: "Now we know where we are. Under UK law, a supposedly independent prosecutor can do nothing to resist a threat made by someone abroad if the UK government claims that the threat endangers national security.

“The unscrupulous who have friends in high places overseas willing to make such threats now have a 'get out of jail free' card – and there is nothing the public can do to hold the government to account if it abuses its national security powers.”

He added that Parliament needed urgently “to plug this gaping hole in the law and in the constitutional checks and balances dealing with national security”.

“With the law as it is, a government can simply invoke 'national security' to drive a coach and horses through international anti-bribery legislation, as the UK government has done, to stop corruption investigations.”

Symon Hill of CAAT also gave warning that the ruling would not bring the affair to an end.

"BAE and the government will be quickly disappointed if they think that this ruling will bring an end to public criticism. Throughout this case we have been overwhelmed with support from people in all walks of life.

“There has been a sharp rise in opposition to BAE's influence in the corridors of power. Fewer people are now taken in by exaggerated claims about British jobs dependent on the arms trade. The government has been judged in the court of public opinion. The public know that Britain will be a better place when BAE is no longer calling the shots.”

At the hearing earlier this month Jonathan Sumption, QC, for the SFO, told five law lords that its director made a “legal and appropriate” decision to stop the inquiry in late 2006 after receiving threats from the Saudi Arabian government to withhold cooperation on critical issues of anti-terrorism.

Mr Sumption said: "The SFO director was convinced that Saudi Arabia wasn’t bluffing."

In April, two judges in the High Court ruled that the Saudi threat was a “successful attempt by a foreign government to pervert the course of justice in the United Kingdom”.

But Mr Sumption told the law lords that the High Court made several incorrect assumptions about the law and the agency’s actions, noting that some of the key evidence had been “redacted”, or heavily edited, for security and diplomatic reasons.

“They proceeded on limited information available to them,” Mr Sumption said.

He also criticised the High Court for highlighting the alleged direct involvement of Saudi Prince Bandar bin Sultan, the former ambassador to the United States and now head of Saudi Arabia’s National Security Council, in making the threats to drop a multibillion-pound Typhoon Eurofighter contract before the inquiry was halted.

“The director has not given evidence one way or the other about the involvement of Prince Bandar in the utterance of these threats,” he said, adding that the threat came from “several channels over a period of time”.

The SFO was investigating allegations that BAE, one of the world’s largest arms makers, ran a £60 million “slush fund” offering sweeteners to officials from Saudi Arabia in return for lucrative contracts as part of the Al Yamamah arms deal in the 1980s.

BAE Systems said today: “The case heard was between two campaign groups and the director of the SFO. It concerned the legality of a decision made by the director of the SFO. BAE Systems played no part in that decision.”

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