The Divisional Court has dismissed a challenge to a divestment order made under the provisions of the National Security and Investment Act 2021 (NSI Act), in only the second substantive judgment under this regime:R. (on the application of FTDI Holding Ltd) v Chancellor of the Duchy of Lancaster[2025] EWHC 1922 (Admin). The decision contains helpful guidance on what constitutes 'awareness' of a transaction for the exercise of call-in powers, as well as the scope of challenges in this context. The court also accepted a procedural flaw, but it was not considered sufficient to invalidate the order.
Key points
- 'Awareness' of the Secretary of State in the NSI Act is not intended to be confined to the specific incumbent Secretary of State but rather should include the individuals charged with performing the Secretary of State's functions.
- Awareness requires the Secretary of State to know that there has been a 'trigger event' under the NSI Act and that the transaction which constitutes the 'trigger event' is one which may be of relevance to the potential exercise of powers under the NSI Act.
- Procedural non-compliance with the NSI Act will not necessarily invalidate an order, depending on the circumstances.
Background
As set out in more detail in ourblog poston the unsuccessful application for interim relief in the same proceedings, the NSI Act introduced a new standalone investment screening regime in the UK which provides the Secretary of State with broad powers to call-in transactions for review on national security grounds up to six months from the date they became 'aware' of the transaction (subject to a longstop date of five years post-completion), and to issue 'final orders' which may prohibit an anticipated transaction, unwind a completed transaction or clear the transaction subject to conditions necessary to mitigate national security risks. Our detailed guide on the functioning of the NSI Act regime and key takeaways for investors is availablehere.
On 22 November 2023 the Chancellor of the Duchy of Lancaster1(the defendant in these proceedings) issued a call-in notice to the claimant in respect of the acquisition of 80.2% of the shares in a UK semiconductor company on 7 December 2021, relying on the retrospective application of the call-in powers permitted by the NSI Act. The claimant is associated with a Chinese state-owned investment company and potential national security risks were identified. The defendant was allegedly not aware of the transaction until 20 November 2023, although this was challenged by the claimant.
On 5 November 2024, the defendant issued a final order (theOrder) directing the claimant to divest itself of its interest. The claimant filed a claim and, as stated above, also applied for interim relief which was refused, but the court directed a 'rolled up' expedited hearing. The hearing was largely open, but certain portions were closed, during which the court was addressed and assisted by Special Advocates in the absence of the claimant or its representatives.
The challenge
The claimant's grounds of challenge alleged that the defendant unlawfully:
- did not comply with the requirements of service when issuing the call-in notice;
- issued the call-in notice more than six months after becoming 'aware' of the transaction (on the basis that awareness of the officials in the Investment Security Unit (theISU) should be attributed to the Secretary of State);
- gave inadequate disclosure before his decision in breach of the requirements of procedural fairness;
- gave inadequate reasons for the Order;
- effectively expropriated the claimant's property in a manner not in accordance with the law and disproportionate to the national security aims, contrary to Article 1 of the First Protocol (A1P1) to the European Convention on Human Rights (ECHR); and
- acted irrationally in making the Order.
Permission for judicial review was granted on all grounds.
Judgment
'Awareness' requirement
The court considered that in determining when the Secretary of State first became 'aware' of the transaction, this was one of the rare judicial review claims which needed to resolve an issue of primary fact, as well as the legal question of whose awareness counts as that of the Secretary of State for the purposes of the time limits set out in the NSI Act. The court therefore granted permission for the claimant to cross-examine two of the defendant's witnesses, concluding that this was one of the exceptional circumstances in which cross-examination was necessary for the claim to be determined, and seen to be determined, fairly and justly.
The court rejected the defendant's argument that only the personal awareness of the Chancellor of the Duchy of Lancaster counted, finding that as a matter of statutory interpretation the relevant awareness was not intended to be confined to either the personal knowledge of the Secretary of State themselves or to the person who ultimately takes the call-in decision. In particular, Butcher J highlighted that the relevant awareness is intended to be the start of an assessment period of up to six months and that the Secretary of State (or the personnel in the department, here the ISU) may change from time to time, but it cannot be intended that the period of six months would be prolonged by changes of personnel.
In addition, the NSI Act contemplates the 'Secretary of State' giving Information Notices and reviewing a number of mandatory and voluntary notifications. Butcher J concluded that it cannot have been intended that these functions would be performed personally by the Secretary of State or any particular official(s) who might ultimately make call-in decisions – references to the Secretary of State must embrace those charged with the function of investigating potentially relevant events.
The court did however clarify that knowledge of officials in other government departments (even if they were consulted by the Chancellor of the Duchy of Lancaster for the purposes of making assessments and taking decisions under the NSI Act) would not count as awareness of the Secretary of State – it is the ISU's appreciation of the position which is important, and other government departments are only used as a resource to feed into that.
Turning to what amounts to 'awareness', Butcher J considered that the relevant 'awareness' required the Secretary of State to know that there has been a 'trigger event' and that the transaction which constitutes the 'trigger event' is one which may be of relevance to the potential exercise of powers under the NSI Act. The court noted that the tying of the time limit to the awareness of the Secretary of State (rather than the occurrence of the 'trigger event'), while offering less certainty for the transacting party, ensures that the Secretary of State has a proper opportunity to investigate the transaction once it becomes aware of it, which is entirely understandable given the NSI Act's role in countering risks to national security from acquisitions of qualifying entities.
The court ultimately dismissed the claimant's grounds relating to the timing of the call-in notice, being unpersuaded by a technical argument as to breach of formal service requirements on the basis that it was not disputed that the call-in notice was promptly received by the relevant people within the claimant entity.
Relevance of national security context
In considering the A1P1 ground, Butcher J expressed "a great deal of sympathy with the contention that the type of order involved here does amount to a deprivation" (rather than simply a control of use of property for the purposes of A1P1, which distinguishes between these two different types of interference). However, this point was not definitively decided because the assessment of proportionality was said to be materially the same regardless of how the measure was classified.
While the court had to consider the proportionality assessment for itself rather than simply reviewing the Chancellor of the Duchy of Lancaster's decision, it reiterated that in a case which involves a measure concerned with national security, a high degree of respect should be accorded to the assessments and decisions made by the Secretary of State, to whom Parliament has given the primary responsibility for assessing both the nature of the risks to national security and the question of what is a proportionate response to such risks. As such, the court will "necessarily accord great respect" to the Secretary of State's assessment, such that the difference between a rationality review and an assessment of fair balance is "conceptually sound but in practice small".
For example, Butcher J took into account that the acquisition took place before the NSI Act came into force and that the effect of the Order would be to deprive the claimant of property lawfully acquired. However, these matters had to be set against the extreme importance of national security and the seriousness of the risk it seeks to guard against, for which the court must defer to the Secretary of State. Likewise, in considering whether the desired level of protection could be achieved equally well by less restrictive measures, the court considered it must respect the assessment of the Secretary of State.
The claimant also challenged the level of information it had been provided by the defendant and argued that procedural fairness under both the common law and Article 6 ECHR required the defendant to give the claimant sufficient information to give effective instructions and ensure a fair opportunity to be heard. Butcher J agreed with previous comments that the requirements of fairness are not necessarily exhaustively set out by the procedure specified in the NSI Act, but concluded that 'fairness' has to take account of the requirements of national security and that the process leading to the Order was not unfair "given the national security concerns involved". In any event, a claimant must persuade the court that the procedure adopted was actually unfair, rather than demonstrating that some other procedure would have been better or fairer.
Consequences of non-compliance with NSI Act
The court only upheld one example of the defendant's failure to comply with its obligations under the NSI Act, namely a failure to set out the reasons for the Order as required by the NSI Act. The only potentially relevant paragraphs of the Order were described as "largely formulaic, uninformative and by no means comprehensive". However, the court considered that on proper construction of the provision in the NSI Act, it was clear that Parliament did not intend that any and all non-compliance should invalidate the Order. Had that been intended, it would have needed to be expressly provided for. It was also relevant that there was a separate email that set out reasoning, such that Butcher J was of the opinion that the Secretary of State actually had sufficient reasons to come to his decision. Therefore, although this ground was not rejected, the court did not consider that the failure invalidated the Order.
Comment
Given this is only the second substantive judgment concerning the operation of the NSI Act regime, the court's interpretation of the concept of the Secretary of State's 'awareness' is particularly helpful for organisations affected by the NSI Act regime.
It is not surprising that the court was largely deferential to the Secretary of State in the context of national security. However, it did find that the NSI Act had not been complied with in one procedural aspect of the challenge and was critical of the reasons provided by the defendant. Nonetheless, this was not enough to invalidate the Order. This judgment confirms the high bar in challenging decisions taken under the NSI Act.
The judgment does shed further light on the requirements of procedural fairness through the NSI Act process, and fair process may be a theme that develops through subsequent case law in this regime. In that regard, it will be interesting to see how the court deals with a further outstanding challenge already commenced by Nexperia under the NSI Act.
Footnotes
1 For the purposes of the NSI Act, the Secretary of State includes the Chancellor of the Duchy of Lancaster.
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.
