National security, awareness and the Duchy of Lancaster

In R (on the application of FTDI Holding Ltd) v Chancellor of the Duchy of Lancaster (2025), the High Court dismissed an application for judicial review of a final order made under section 26 of the National Security and Investment Act 2021 (the “NSI Act”).  The order required FTDI Holding Ltd (“FTDIHL”) to sell or otherwise dispose of its 80.2% shareholding in Future Technology Devices International Ltd. FTDIHL, a UK company ultimately owned by five Chinese state-backed funds, had acquired the shareholding in December 2021, days before the NSI Act came into force.

Although the claimant advanced six separate grounds of challenge in the High Court, the principal issue considered concerned the statutory time limit for issuing a call-in notice and, in particular, the meaning of the Secretary of State’s ‘awareness’ of a trigger event.

Background

The NSI Act introduced a new statutory regime giving the government powers to review, intervene and scrutinise any acquisitions or transactions that may give rise to national security risks.  Further detail and background on the NSI Act can be found in HLaw’s prior summary of the NSI Act HERE.

It allows the Secretary of State to call in qualifying transactions for review, including retroactively in respect of transactions completed between 12 November 2020 and commencement of the national security regime on 4 January 2022.  Where a transaction is called in post-completion, the NSI Act imposes a six-month time limit running from the date on which the Secretary of State became “aware” of the relevant trigger event.

The facts

On 7 December 2021, FTDIHL acquired control of Future Technology Devices International Ltd, a UK semiconductor business (the “Transaction”).  FTDIHL was incorporated specifically to complete this transaction and was ultimately owned by a Chinese state-backed private equity group.

Although the Transaction was completed before the NSI Act came into force, it was called in retrospectively as permitted by the legislation.

In May 2023, the Head of the UK’s Investment Security Unit (the “ISU”) became aware that FTDIHL might have acquired control of the company.  Following an investigation, advice was submitted to the Secretary of State in November 2023 recommending that the Transaction be called in.  A call-in notice was issued on 22 November 2023 and following further investigation, the Secretary of State issued a final order on 5 November 2024.  The final order required FTDIHL to divest its entire shareholding on the basis of a risk of the transfer of UK-developed semiconductor technology to China and the potential disruption of critical national infrastructure dependent on the company’s products.

The challenge

 FTDIHL commenced judicial review proceedings in December 2024. It argued, among other grounds that:

1. the call-in notice had been issued out of time as the Secretary of State was aware of the Transaction more than six months before November 2023;
2. the notice had not been properly served;
3. the process was procedurally unfair and in breach of Article 6 of the European Convention on Human Rights (“ECHR”) (i.e. the right to a fair trial);
4. the order violated the company’s property rights under Article 1 of the First Protocol to the ECHR (protecting the right to property); and
5. the final order gave no or insufficient reasons for its making.

The High Court’s decision

The High Court unanimously rejected all of FTDIHL’s challenges with the exception of its contention that the reasons stated in the final order were inadequate.  Despite this being the case, it was held that this alone did not invalidate the final order given that the Secretary of State had in fact considered detailed submissions and had sufficient reasons for making its decision.

As regards the key issue of awareness, the High Court held that the relevant awareness was not confined to the personal knowledge of the Secretary of State or to the individual who ultimately made the call-in decision.  Instead, it extended to those within the ISU who were tasked with carrying out the Secretary of State’s investigative functions under the NSI Act.  Further, awareness required not merely knowledge that a trigger event had occurred but also an appreciation that it might require investigation under the NSI Act.

Interestingly, the High Court found that ISU officials who had seen information about the Transaction in 2022 did not appreciate its significance and were focused on investigating a different potential transaction.  The requisite awareness only arose in May 2023, meaning that the call-in notice was in fact issued within time.

The argument that the call-in notice was not properly served was also dismissed.  Although the notice had been sent only to the target company with a request to forward it to FTDIHL, the High Court considered that this satisfied the service requirements that are set out in the National Security and Investment Act (Procedure for Service) Regulations 2021.  The notice was in fact received by the relevant individuals at FTDIHL and it was held that any technical non-compliance did not invalidate service.

The High Court further rejected claims that the final order was disproportionate or irrational.  Protecting national security was seen as a legitimate aim and the order was rationally and directly connected to that aim.  It was held that any less intrusive measures would not have been equally effective and the Secretary of State’s assessment struck a fair balance between private rights and the public interest.

The claimant’s challenge based on procedural fairness also failed given that FTDIHL had opportunities to make representations and engage with the ISU during the investigation.  While certain information could not be disclosed for reasons of national security, the High Court held that the procedure was fair in these circumstances.

Finally, the High Court accepted that the reasons stated in the final order were “formulaic and inadequate” under section 28(4) of the NSI Act.  However, they concluded that this did not render the order invalid.  The High Court stated that Parliament had not intended that any failure to comply with the requirement to give reasons would automatically invalidate a final order, particularly where the Secretary of State in fact had sufficient reasons for the decision.

Concluding thoughts

The judgment sheds useful light on what counts as the Secretary of State being ‘aware’ of a trigger event, confirming that both knowledge of the relevant transaction and appreciation of its potential relevance to the NSI Act are required before the six-month clock actually begins to run.

The case marks only the second substantive judicial review of a final order under the NSI Act.  Consistent with the first decision in LetterOne v. Secretary of State for Business, Energy and Industrial Strategy, it flags the courts’ reluctance to interfere with government decision-making on national security and the very high bar that must be met in order to overturn such decisions.

Finally, the judgment confirms that a failure to provide adequate reasons in a final order will not necessarily result in its invalidity.  While the order in this case was found to be formulaic and lacking in explanation, it remained valid as the Secretary of State was shown to have considered detailed submissions and have sufficient reasons for making its decision.  This point will reassure government but leaves acquirers with little comfort seeing as even where procedural shortcomings are found, the order itself may still be likely to stand.

This piece was written by Sanya Bhambhani and Robert Humphreys.  Do please reach out to a member of the team if you would like to discuss matters relating to the NSI Act or anything relating to corporate finance and M&A generally.

All the thoughts and commentary that HLaw publishes on this website, including those set out above, are subject to the terms and conditions of use of this website.  None of the above constitutes legal advice and is not to be relied upon.  Much of the above will no doubt fall out of date and conflict with future law and practice one day.  None of the above should be relied upon.  Always seek your own independent professional advice.

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