The House of Lords has ruled that the Serious Fraud Office acted lawfully when it halted its investigation into a Saudi arms deal.
The SFO dropped its inquiry into the Ј43bn deal with BAE Systems over fears it would threaten national security.
Ministers said that the Saudi government had threatened to withdraw cooperation on security matters.
The High Court had ruled in April that this was unlawful, but the Law Lords have reversed that decision on appeal.
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One of them, Baroness Hale said she would have liked to have been able to uphold the court's decision that the SFO's director acted unlawfully because it was "extremely distasteful that an independent public official should feel himself obliged to give way to threats of any sort".
Despite this, she said, "I agree that [the director's] decision was lawful."
Campaign group Justice said the Law Lords had delivered "a disappointingly narrow judgement".
"It is a sad day for the rule of law when a senior prosecutor bows to threats from a foreign government," said Justice's director of human rights policy Eric Metcalfe.
'Serious damage'
The al-Yamamah deal with Saudi Arabia was first signed in 1985 but ran into the 1990s and involved BAE selling Tornado and Hawk jets, other weapons and long-running maintenance and training contracts.
BAE was accused of illegal payments to Saudi officials, but the defence company has always maintained it acted lawfully.
In December 2006, the then Attorney General, Lord Goldsmith, announced that the SFO was suspending its inquiry into the deal, saying it would have caused "serious damage" to UK-Saudi relations and, in turn, threatened national security.
(BBC)
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