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Since the introduction of the National Security & Investment Act 2021 (NSIA) there has been significant speculation as to the level of judicial oversight that English courts would be willing to exercise over the UK Government’s national security decision-making. Now, with the High Court’s recent judgment in LetterOne’s appeal over the Government’s order to divest its completed purchase of Upp, we have the first indication of how the courts will exercise that oversight. This post explores the key learnings from this decision and whether any deference shown to the UK Government is likely to be a blueprint for future NSIA appeals.
In January 2021 (a year before the NSIA came into force), investment company LetterOne acquired the entire share capital of Upp, a UK broadband provider (altnet). LetterOne is ultimately owned by a number of Russian nationals, four of whom were designated as sanctioned persons following Russia’s invasion in Ukraine in February 2022.
In May 2022, the Investment Security Unit (ISU) issued a call-in notice in relation to the transaction. In written representations to the Secretary of State, LetterOne indicated that two of the sanctioned owners, Mr Khan and Mr Kuzmichev, had sold their shares to a nominee company whose Ultimate Beneficial Owner (UBO) was Mr Kosogov (not being subject to sanctions). The only UBOs within the LetterOne group subject to UK sanctions were Mr Fridman and Mr Aven, and measures had been put in place to ensure they would not be involved in the day-to-day running of Upp. Remedies negotiations were not successful, and LetterOne’s wish to retain some limited representation on Upp’s board of directors was rejected by the Secretary of State, who ultimately ordered the divestment of Upp. LetterOne challenged this decision by judicial review in the High Court.
While central to the operation of the NSIA, the concept of national security remains intentionally undefined in legislation. This has been a point of contention in the parliamentary debates surrounding the NSIA, and the explicit recognition that national security must remain a fluid concept affords decision-makers a significant margin of discretion.
The High Court’s judgment reaffirms this flexibility of the executive, acknowledging that “the court will treat as axiomatic that Parliament has entrusted the assessment of risk to national security to the executive and not to the judiciary”. Decisions on the national security risk of a transaction involve matters of judgement and policy, and the courts may be unwilling to second-guess the judgement of the executive on such matters.
This is a recurring theme in the judgment, reflected in how the court approaches both (i) what the executive perceives to be a national security risk and (ii) the assessment of proportionality of the intervention to counter that risk. At the first level, the claimants’ attempt to “reframe” the national security risk presented in the case was characterised as “impermissibly narrow”, with the court noting that it failed to encapsulate “the breadth of the risk on which the Secretary of State is entitled to rely”. At the second level, the court expressly acknowledges that the Secretary of State “is the constitutional decision-maker” and thus the court “should give weight to the Secretary of State’s view of the balance between competing rights and interests”. Considering that “the vital importance of the community’s interest in national security must be given considerable weight”, the judgment strongly affirms that the court’s “lack of institutional ability to make its own predictions about the future warrants a high degree of judicial restraint”.
As part of its appeal, LetterOne claimed that during the NSIA review, it was given insufficient information about the risks to national security that the ISU was exploring, or the remedies under consideration to allow it to make meaningful representations. However, the court was not swayed by these arguments. Whilst it acknowledged that the claimants could have been provided with more information during the administrative process, it noted that while the “call-in notice was unenlightening” the parties were informed “of the gist of the national security risks”. According to the court, it is not enough for the claimants to say that the decision-making procedure could have been better. They must “show that the procedure is actually unfair.” In that respect, the court noted that the Secretary of State enjoys a very broad discretion to choose how to make its decisions and can decide when to make any disclosures, bearing in mind the need for finality in decision-making. In summary, the ruling indicates a high threshold for potential claimants seeking to advance an “unfair procedure” ground of appeal.
The claimants were also unsuccessful in their attempt to show that the Secretary of State had failed to consider other relevant statutory powers that would have provided them with additional avenues falling short of unwinding. The court explored these avenues for completeness, but its position was unequivocal that in the context of national security, “where constitutional boundaries should be respected and clearly drawn, the selection of statutory power by the Secretary of State – rather than the lawfulness of its exercise – was either non-justiciable or on the cusp of being so”. The judgment expresses a clear position that decisions on national security are almost outside the purview of judicial oversight – even within the already narrow confines of judicial review.
28 November 2024
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