On 20 November 2024, the High Court delivered its judgment in LetterOne v. Secretary of State for Business, Energy and Industrial Strategy (“BEIS”) marking the first-ever judicial review of an NSIA unwinding order (the judgment can be accessed here).

The judgment sheds rare light on what are usually confidential procedures under the UK’s National Security and Investment Act 2021 (“NSIA”). In particular, however, it highlights the broad discretion afforded to ministers in evaluating national security risks and demonstrates the reluctance of the courts to interfere with a highly sensitive assessment. The judgment also indicates the extensive input that ministers obtain from expert government departments in NSIA cases. In this case, the government departments participating in the NSIA assessment included the Minister for Investment, the Deputy National Security Adviser for Intelligence, Defence, and Security, representatives from the Cabinet Office, the Department for Business, Energy and Industrial Strategy (BEIS), the Department for Culture, Media and Sport, the Ministry of Defence, the Foreign, Commonwealth and Development Office, the Home Office, the Department for International Trade, and the National Cyber Security Centre.

Additionally, the detailed description of the numerous steps in the decision-making process reveals the considerable opportunities available for the parties to submit representations. The LetterOne NSIA review included at least three calls/meetings between the parties and their advisers and Government, as well as 3 sets of written representations and responses to 2 requests for information. 

Background

On 21 January 2021, LetterOne acquired the entire share capital of FibreMe, which at that time was not active, but subsequently started to develop broadband networks. FibreMe was renamed ‘Upp’ on 1 June 2021. At the time of the acquisition, the ultimate beneficial owners of LetterOne were all Russian nationals. 

Following Russia’s unlawful invasion of Ukraine on 24 February 2022, two of the Russian UBOs of Upp were sanctioned, prompting the broadband operator to take steps to remove them from the operational management of the business. However, the UBOs remained beneficial owners. Despite these changes, the UK Government concluded that their beneficial ownership still enabled them to exercise control over the network and therefore posed a risk to national security, including risks of access to customer data, disruption and sabotage of operations on the broadband network and espionage. Consequently, the UK Government exercised its powers under the NSIA to call in the acquisition.

After calling in the transaction, the Government carried out its review and decided to impose the ultimate remedy - divestment.

The NSIA Process

The NSIA came into force on 4 January 2022 and provides for the assessment of acquisitions on national security grounds, allowing the Secretary of State to call in acquisitions if they reasonably suspect that a “trigger event” has taken place that either has given rise, or may give rise, to a risk to national security. It includes the power to call in certain transactions pre-dating its entry into force, which was the basis for the call-in of the LetterOne transaction.

Under the NSIA, the Investment Security Unit, which now sits within the Cabinet Office, carries out and co-ordinates an assessment of the risk to national security, involving 3 elements:

1. ISRA - the Investment Security Risk Assessment (“ISRA”) sets out the ISU’s assessment of the national security risks arising from the trigger event.
2. Remedies Assessment – this element sets out any steps and actions that the ISU considers necessary and proportionate to prevent the national security risk from arising, or to remedy or mitigate it. The assessment analyses each potential remedy according to the likely compliance of those subject to the terms, enforceability (including cost or burden on the UK Government) and cost or burden on those subject to it. Individual remedies may be combined into packages for their cumulative effect.
3. Representations Assessment – the ISU summarises all representations received for or on behalf of those who will be affected by a final order, including any representations relating to national security risk or to remedies.

The Secretary of State personally decides whether to make a “Final Order”. To do so, he or she is provided with a Ministerial Submission drafted by ISU officials, containing their recommendations, with the three assessments listed above, and other relevant documents as annexes. 

Grounds of judicial review

LetterOne applied for judicial review of the decision to require it to divest Upp on the following grounds:

1. Human Rights: LetterOne argued that the divestment order was disproportionate, violating its property rights under Article 1 of the First Protocol to the European Convention on Human Rights, as less intrusive measures could have addressed national security concerns, and insufficient compensation worsened the breach.
2. Common law principles of public law: The decision by the Secretary of State to impose the remedy was flawed due to:
   1. Consideration Errors: LetterOne alleged that the Secretary of State considered irrelevant factors or overlooked pertinent ones, failing to fulfil the duty of inquiry established by case law.
   2. Irrationality: LetterOne claimed the decision was irrational under applicable case law, being so unreasonable that no reasonable authority would have imposed it.
3. Procedural fairness: LetterOne argued that the process was procedurally unfair because:
   1. The specific national security risks were not adequately disclosed to it prior to the issuance of the order.
   2. It was not given a fair opportunity to address the concerns, or to propose remedies short of full divestment.

Judicial review process

In the judicial review proceedings, the High Court examined whether the Secretary of State acted within his statutory powers under the NSIA, properly balanced national security interests with LetterOne's rights, and followed fair procedures, providing adequate reasons for the decision.

Judicial review proceedings in the English courts have two stages: a permission stage, and then only if permission is granted, a substantive stage. In some cases, as in this one, the High Court considers both stages together, in a “rolled-up” hearing. The High Court granted permission for judicial review on two grounds: Ground 1B (compensation for expropriation of property) and Ground 3 (procedural fairness). However, it then dismissed them on a substantive review. In contrast, it refused permission for the remaining grounds: Ground 1A (disproportionality of the order), Ground 2A (the order being based on irrelevant considerations), and Ground 2B (irrationality of the order). As a result, the court dismissed the claim in its entirety.

Valuable insights

• The judicial review process in the LetterOne case highlighted the appointment of special security-cleared advocates and counsel to review confidential information on behalf of their client. Although the sensitive evidence relating to national security concerns is not disclosed directly to the parties involved, the special advocates ensure an element of fairness by allowing legal representatives of the parties to review and challenge the information in the interest of their client. While special advocates are unable to communicate with the client or take instructions directly, they are tasked with ensuring that the national security concerns are properly scrutinised and that the client’s interests are represented as fully as possible in proceedings. This process helps mitigate the risk that parties might not have a fair opportunity to respond to national security-related claims, as the advocates act as their proxy in these circumstances.
• The intentionally broad and undefined concept of national security in legislation gives ministers significant discretion in assessing risks to national security. This broad discretion allows for flexibility in decision-making but also means that judicial challenges to such assessments are likely to be difficult in practice. As demonstrated in this judicial review, the courts are generally reluctant to intervene in national security matters unless there is a clear abuse of power or procedural flaw, making it challenging to contest such assessments successfully.
• While the judgment underscores the robustness of the NSIA process and the significant challenge of successfully contesting national security assessments in judicial review, it also highlights inherent flaws in the judicial review procedure. Due to the confidentiality of national security concerns, the business involved does not have access to the full details of the case against it. While the special advocates representing the business are provided with all the evidence, their inability to communicate the material facts to their client means that, in essence, the parties are working with limited knowledge and without the full transparency typically expected in legal proceedings.

The judgment provides a useful insight into the process under the NSIA, underlining the level of detailed analysis carried out by ministers and their advisers, and highlighting the significant opportunities for interested parties to make representations during an investigation. However, the judgment also ultimately emphasises the height of the hurdle that those wishing to challenge NSIA final orders will need to jump in order to succeed. The court showed itself reluctant to challenge the conclusions reached by the Secretary of State, and it remains to be seen whether many more orders will be challenged, except in cases of obvious procedural irregularity. 

If you need more information or further guidance on this topic, please contact Peter Willis, Tenisha Cramer or Flora McCarthy.

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