Court Of Appeal Clarifies Compensation Rights Under The National Security And Investment Act 2021

In R (L1T FM Holdings UK Limited) v Chancellor of the Duchy of Lancaster [2025] EWCA Civ 1528 the Court of Appeal has dismissed an appeal challenging a lack of compensation under the National Security and Investment Act 2021 (NSIA) on the basis of a breach of Article 1 of the First Protocol (A1P1) to the European Convention on Human Rights (ECHR).

This is the first appellate decision on the compensation regime under the NSIA and provides important guidance on the proportionality assessment to be conducted when national security interventions interfere with property rights.

Key points

• In the context of national security interventions under the NSIA, there is no absolute right to full "fair market value" compensation for forced divestment of property. The proportionality of any compensation must be assessed in context, and in the national security context a wide margin of judgment is afforded to both Parliament and the Executive.
• The existence of a provision in the NSIA authorising financial assistance is important in the overall assessment of proportionality since it would allow mitigation measures against hardship.
• The judgment notes that there is no clear European Court of Human Rights (ECtHR) authority requiring a State to compensate for any diminution in value resulting from a forced sale in these circumstances and restates the principle that domestic courts should not go further than the established ECtHR jurisprudence.

Background

For a detailed discussion of the High Court decision and background to the case, see our previous eBulletin.

In brief, L1T FM Holdings and Letterone Core Investments (the Appellants) challenged an order made by the Secretary of State for Business, Energy and Industrial Strategy (SoS) (now the Chancellor of the Duchy of Lancaster) under the NSIA requiring full divestment of a shareholding in a fibre broadband start-up company (Upp). The order cited national security risks relating to the Appellants' ultimate beneficial owners and potential influence by the Russian State. The sale of Upp was subsequently completed and the Appellants received the sale price but no further financial compensation.

The Appellants sought permission to judicially review the order on various grounds, including that it amounted to a deprivation of property under A1P1 of the ECHR and, as such, required compensation beyond the sale proceeds. Although permission for judicial review was granted on procedural fairness and human rights grounds, the High Court ultimately dismissed the claim.

The appeal was concerned with only one issue, namely whether the Appellants should have been awarded compensation for the deprivation of their possessions in circumstances where the forced sale caused financial loss.

Court of Appeal decision

The court reviewed the High Court's approach in its proportionality assessment, accepting some criticism of the judge's reasoning, particularly in relation to the weight given to the Appellants' status as sophisticated investors. However, in line with Shvidler v Secretary of State for Foreign, Commonwealth and Development Affairs [2025] UKSC 30 (see our blog), the appellate court undertook its own assessment of proportionality since this was the first case under the NSIA to reach this level of appeal. This meant the focus did not need to be on the High Court judge's original reasoning.

The Court of Appeal was prepared to proceed on the basis that the final order amounted to a deprivation of property for the purposes of A1P1, although it emphasised that the crucial question was not the classification of the interference as either a deprivation or control of use, but whether the measure was proportionate in all the circumstances. This scheme was described as aimed at regulating who the shareholders of a company can be where there is a risk to national security, and was distinguished from classic cases of nationalisation of a company or industry, or cases involving redistribution of property within society, for example as between landlords and tenants.

Singh LJ restated the governing principle established in ECtHR case law that there had to be a "reasonable relationship of proportionality" between the compensation received and the value of the property (in this case, the shareholding in Upp). The court explained that the Appellants sought compensation reflecting the fair market value of their shares, not (for example) reimbursement of money they had invested or the loss of future profits. It considered the provision for financial assistance in section 30 of the NSIA (for which see our previous eBulletin), finding that its existence was relevant to the overall assessment of proportionality since it would allow mitigation measures by way of financial assistance, eg if hardship were shown. However, the court held that the fact the sale was compelled and not at a time of the Appellants' choosing did not, in itself, lead to the conclusion that there was not a reasonable relationship of proportionality. The Appellants were able to conduct a sale in the open market and retain the proceeds, subject only to the requirement that the purchaser would not pose a national security risk. The court further noted that determining fair market value would involve a complex and time-consuming process which could potentially hinder the Government's ability to fulfil the public interest objectives underpinning the NSIA framework.

In drawing this conclusion, the court reviewed the relevant ECtHR and domestic case law, confirming that A1P1 does not guarantee a right to full compensation in all circumstances and that the margin of appreciation is particularly wide where national security interests are engaged. Although sympathetic to the Appellants' position that the company and its ultimate beneficial owners were distinct legal entities and that there was no suggestion that the Appellants themselves posed a national security risk, the court stated that it was necessary to consider the reality of the situation irrespective of this distinction.

The court also accepted the SoS's submission that there was no direct ECtHR authority requiring a State to compensate for any diminution in value resulting from a forced sale in the context of national security.

Therefore, in the context of the NSIA and the national security risks identified, the court found that the outcome was not disproportionate and the appeal was dismissed.

Comment

The Court of Appeal's judgment underscores the deference the courts will show to Parliament and the Executive in matters of national security, following the trend of other cases on the NSIA to date. The decision also demonstrates the challenges claimants are likely to face in seeking compensation for losses arising from a forced sale of property under the NSIA, although the repeated references to the possibility of financial assistance under section 30 of the NSIA at both first instance and appellate level suggest this is a route that is likely to be more vigorously pursued in the future, even though the Appellants' request for financial assistance was refused in this case. This avenue may prove to be an uphill battle in and of itself given that no financial assistance has been granted under section 30 of the NSIA since the entry into force of the NSIA (see the Government's latest Annual Report on the implementation of the NSIA).

Although the Court of Appeal gives guidance about compensation requirements under A1P1, this is very much limited to the particular national security context and indeed the judgment specifically distinguishes this situation from eg nationalisation or cases involving redistribution of property within society.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.