Print article
Author
Author
Introduction
The UK’s National Security and Investment Act 2021 (NSI Act) imposes mandatory notification and suspensory requirements on a wide range of transactions across 17 sensitive sectors—a scope the government is currently consulting on expanding.
Under the NSI Act, completing a notifiable acquisition without clearance from the Cabinet Office is a criminal offence, and a notifiable transaction which is completed without approval is legally void.
In addition to mandatory notifications, the Act allows the government to review other transactions and asset acquisitions:
- within six months of the Secretary of State becoming aware of the transaction, and
- within five years of the transaction’s completion.
While most deals are cleared within the initial 30 working day assessment period, a small number undergo further scrutiny, potentially resulting in conditions or prohibition.
This article explores the challenges of contesting national security assessments in court, drawing on two recent judicial review cases. These cases highlight the importance of early legal advice for parties involved in sensitive transactions, to understand and mitigate risks under the NSI regime.
Previous articles in this series have set out the basics of the NSI Act, the kinds of transactions that have resulted in national security concerns arising and how national security concerns are assessed.
LetterOne Case
LetterOne, ultimately owned by Russian nationals, acquired FibreMe (later renamed Upp), a full-fibre broadband provider. Initially welcomed by officials, the deal later raised concerns about:
- access to sensitive data;
- risks of sabotage or disruption; and
- potential for espionage.
A call-in notice triggered a formal investigation, and an interim order preserved the status quo. Despite efforts to distance sanctioned Russian individuals from control, the government remained concerned about malign influence over the ultimate owners.
Two remedies were considered:
- Remedy A: Full divestment
- Remedy B: Behavioural and management measures
The Secretary of State chose Remedy A, requiring divestment. The High Court upheld the decision, affirming:
- a wide margin of discretion in assessing national security risks;
- the proportionality of the remedy; and
- that compensation was not required from government.
This case illustrates the breadth of government powers under the NSI Act and the deference courts give to national security decisions.
FTDI Holdings Case
FTDI, a UK semiconductor firm, was acquired by FTDIHL, a Chinese-owned holding company. The government raised concerns that:
- UK-developed semiconductor technology and IP could be transferred to China and used in ways that could conflict with UK national interests; and
- Chinese control of FTDI could enable the disruption of Critical National Infrastructure reliant on FTDI products.
Following investigation, the Secretary of State ordered FTDIHL to divest FTDI.
The High Court considered a number of specific procedural issues, including:
- the timing of the Secretary of State’s “awareness”;
- the service of the call-in notice; and
- whether FTDIHL had a fair hearing.
FTDIHL lost on all of these points. FTDIHL also argued that:
- FTDI’s products did not pose a national security risk; and
- less intrusive remedies than divestment were available (like the LetterOne case).
However, the High Court upheld the divestment order, stating that national security assessments warrant a “high degree of respect.” Moreover, even though the final order lacked detailed reasoning (contrary to NSI Act requirements), the court found that internal documents provided sufficient justification for the Secretary of State’s decision and so did not invalidate the divestment order.
Conclusion
These cases demonstrate the far-reaching powers of the UK government under the NSI Act and the limited scope for judicial challenge. Courts may be expected to defer heavily to ministerial decisions, even where procedural flaws exist, provided the underlying rationale is sound.
For investors, this is a clear warning: national security concerns can override commercial logic, and remedies may be severe—including forced divestment. Early legal advice is essential to assess exposure, engage with the Cabinet Office, and mitigate risks. As the regime evolves, understanding its practical application—and its limits—is critical to navigating investment risk in the UK.