The House of Lords has ruled that the Serious Fraud Office (SFO) was right to drop its investigation into BAE Systems' Saudi arms deal.

In a judgment this morning the Lords backed the SFO's appeal against April's High Court ruling that said the SFO was acting unlawfully when it dropped investigations into alleged bribery and corruption involving BAE and its £43bn Al-Yamamah arms contract with Saudi Arabia.

The investigation, which began in 2004, was ended in December 2006 by then-Attorney General Lord Goldsmith over national security concerns. The decision was widely viewed as having come amid pressure from the UK Government, concerned that the Saudi administration would stop co-operating with anti-terrorism efforts if the investigation was not stopped.

The claimants – Corner House Research and the Campaign Against Arms Trade – had argued that the decision to drop the probe breached an international anti-bribery convention.

Leigh Day & Co advised the claimants, with Blackstone Chambers' Dinah Rose QC and Matrix Chambers' Philippe Sands QC instructed as counsel.

Allen & Overy advised BAE Systems, with Matrix Chambers' Clare Montgomery QC instructed as counsel. The director of the SFO was advised by Treasury solicitors and 11KBW's Philip Sales QC.

The Lords' ruling has already come in for criticism, with Liberal Democrat leader Nick Clegg arguing the ruling is a 'legal license for international blackmail'.