2:nil – another NSIA final order challenge rejected
A challenge to a final order imposed under the National Security and Investment Act 2021 (the “Act”) has recently been rejected by the High Court. This is only the second challenge made under the Act, with the first (brought by companies in the LetterOne Group) also being rejected. Both judgments made clear that the government (rather than the judiciary) is best placed to assess national security risk.
The most recent challenge came following a final order being given in November 2024 in respect of a transaction which resulted in Chinese-owned FTDI Holding Limited (“FTDIHL”) holding 80.2% of the shares in Future Technology Devices International Limited, a Scottish semi-conductor company. Although the transaction completed before the Act came into effect, the final order required FTDIHL to dispose of its shareholding in the target company citing two national security concerns:
- The transfer of UK-developed technology and IP to China
- The potential for FTDIHL’s ownership of the target to disrupt critical UK infrastructure
Challenges to decisions made under the Act can only be brought on judicial review grounds, which include procedural unfairness, unreasonableness and illegality.
FTDIHL’s arguments included that the government’s call-in of the transaction was outside of the Act’s time limits, the reasons given in the final order were inadequate and the procedural requirements had not been adhered to. All of these grounds failed (although the High Court noted that there had been some procedural errors).
Assessment of national security risk
The High Court made clear that it is the relevant Secretary of State who is best placed to assess the national security risk of any transaction rather than the courts, stating that:
“It is the Secretary of State which has the institutional qualification and expertise, especially in relation to matters of evaluation of a risk, not the courts. Further, Parliament has given the primary responsibility for assessing both the nature of the risks to national security and for making an assessment of what is a proportionate response to such risks to the Secretary of State … The court will necessarily accord great respect to that assessment.”
This follows the High Court’s thinking in the LetterOne challenge and suggests that any challenge to the government’s reasoning behind the final order (rather than, for example, procedural fairness) is unlikely to be successful.
Time limits
Under the Act, the government can “call-in” a transaction up to six months after the Secretary of State becomes “aware” of it. In the case of FTDIHL, the relevant case officer was given information about an acquisition involving FTDIHL in 2022, but in her evidence she explained that at this stage the focus was about a different transaction to the one that finally took place.
FTDIHL argued that “awareness” is not limited to the knowledge of the relevant Minister. The High Court agreed with this, stating that the “awareness” of any ISU official would also set the clock ticking. (Note that the awareness requirement would not be met by an official in any other government department becoming aware of the transaction.)
However, the High Court was of the view that “awareness” requires awareness of a trigger event under the Act plus awareness that such trigger event may require investigation pursuant to the Act. This second limb was not met by the case officer in 2022 but was met when the Head of the ISU became aware of the transaction in May 2023; as such, the call-in notice was issued within the statutory time limit.
Inadequate reasons
The reasoning given in the final order was rather sparse and in FTDIHL’s opinion, was insufficient. The High Court acknowledged that this was the case, stating that the relevant sections of the FTDIHL final order were “largely formulaic, uninformative and by no means comprehensive”. Notwithstanding this, the court was of the view that full disclosure of the decision-making process would not have been appropriate given the national security nature of the decision and was satisfied that in any event, sufficient reasons had been given in earlier communications with FTDIHL.
Procedural irregularities
FTDIHL claimed that there were also procedural irregularities, in particular that the call-in notice had not been validly served. Contact details for FTDIHL had apparently not been provided and so the call-in notice was emailed to the target company with a request that it be sent on to FTDIHL. This was done but as a result was received by FTDIHL one day after the call-in period had ended.
The High Court acknowledged that there had been procedural irregularities and technically, a breach of service, but the government reasonably believed that the call-in notice would be sent onto FTDIHL and this had, in fact, been done. Therefore, although there had been certain procedural errors, these were not so bad as to invalidate service.
Concluding thoughts
The High Court’s judgment in the FTDIHL case is helpful in clarifying what is meant by “awareness” and confirming that minor procedural errors will not invalidate the Secretary of State’s final decision in any transactions called-in under the Act.
But perhaps the most obvious takeaway from this judgment (when read together with the LetterOne judgment) is the Court’s reluctance to interfere with the assessment and ultimate decision of the Secretary of State in transactions which involve a national security element.
Subcribe to news and views
