L1T FM Holdings UK Ltd v Chancellor of the Duchy of Lancaster in the Cabinet Office (formerly Secretary of State for Business, Energy and Industrial Strategy)

Hearing dates: 9 – 12 July 2024

Introduction

The Claimants are companies within the LetterOne Group (“the Group”) which was formed for the purpose of making long-term investments in other companies in the energy, technology, health and retail sectors. By Re-amended Grounds for judicial review, the Claimants seek a quashing order, declarations, and damages under sections 7 and 8 of the Human Rights Act 1998 (“the HRA”) in relation to a “Final Order” (“the Order”) made by the Secretary of State for Business, Energy and Industrial Strategy (“BEIS”). The Order was made pursuant to section 26(3) of the National Security and Investment Act 2021 (“the NSIA” or “the Act”) on grounds of national security. It required the First Claimant to divest itself of 100% of its shareholding in Upp Corporation Limited (“Upp”), a fibre broadband start-up company.

The Order was made by the Secretary of State personally (not by officials on his behalf). Responsibility for the Order moved from the Secretary of State for BEIS to the Chancellor of the Duchy of Lancaster who also was appointed Secretary of State in the Cabinet Office. I shall for convenience refer to the person with responsibility for the Order at any one time as the Secretary of State or (for emphasis when applicable) the Secretary of State for BEIS.

The formulation of the grounds of challenge has evolved. I do not criticise the Claimants' lawyers who have assisted the court by their comprehensive consideration of a statutory scheme which (I was told) has not been the subject of previous case law. Nevertheless, for the sake of fairness to the Secretary of State as well as for clarity, I will hold the Claimants to their pleaded Re-amended Grounds. Consequently, this judgment will not follow the precise scheme of the Claimants' skeleton argument or of the Claimants' oral submissions.

The Re-amended Grounds may be summarised as follows:

i. Human rights: Under Ground 1, the Claimants contend that the Order breached section 6(1) of the HRA as being disproportionate and contrary to the Claimants' right to the protection of property guaranteed by Article 1 of the First Protocol to the European Convention on Human Rights (“A1P1”). Ground 1 is divided into two elements. Under Ground 1A, it is submitted that the Order was disproportionate because the Secretary of State could and should have imposed less intrusive measures than divestment. Under Ground 1B, the Claimants contend that the Secretary of State's failure to ensure full compensation for the financial loss incurred by divestment gave rise to a breach of A1P1.

ii. Common law principles of public law: Under Ground 2, the Claimants contend that the Order breached public law principles. Ground 2 is also divided into two elements. Under Ground 2A, it is submitted that the Order was based on irrelevant considerations or a failure to have regard to all relevant considerations; and it was made in breach of the duty of inquiry established by Secretary of State for Education and Science v Tameside Metropolitan Borough Council [1977] AC 1014 (“the Tameside duty”). Under Ground 2B, it is submitted that the Order was irrational in the Wednesbury sense (see Associated Provincial Picture Houses Ltd v Wednesbury Corpn [1948] 1 KB 223).

iii. Procedural fairness: Under Ground 3, the Claimants contend that the decision to make the Order was procedurally unfair because (i) the national security risks were not sufficiently disclosed to the Claimants before the Order was made; and (ii) the Claimants were not given a fair opportunity to address the concerns of the Secretary of State's advisers in relation to measures falling short of divestment.

The Re-amended Grounds sought a declaration (under section 4 of the HRA) that section 26(3)(b) of the Act was incompatible with the Claimants' Convention rights. While the claim for a declaration of incompatibility was not formally withdrawn, it was not advanced in any meaningful way in the Claimants' skeleton argument (where it was simply footnoted as an issue that might arise) and was not pursued in oral submissions. It does not feature in the agreed List of Issues for the court's determination. Having heard no argument to the contrary, I proceed on the basis that the statutory scheme (if lawfully operated) is compatible with the Claimants' human rights.

In resisting the claim, the Secretary of State relies on sensitive material that cannot be placed in the public domain for reasons of national security. Following the court's orders permitting a closed material procedure pursuant to sections 6 and 8 of the Justice and Security Act 2013, the Secretary of State relies on both “open” material (disclosed to the Claimants and their lawyers) and “closed” material (not disclosed to the Claimants or their lawyers). The claim was listed for a “rolled-up” hearing. I received written and oral submissions in open and closed session. Mr Tom Hickman KC and Mr Paul Luckhurst appeared on behalf of the Claimants. Mr Rory Phillips KC, Ms Georgina Wolfe, Mr Emmanuel Sheppard and Mr Karl Laird appeared for the Secretary of State. Mr Tim Buley KC and Mr Alex Jamieson appeared as Special Advocates, representing with skill the Claimants' interests in the closed session from which the Claimants and their lawyers were excluded. Upp filed an acknowledgement of service as an Interested Party, stating that it did not intend to contest the claim. It has taken no further part in the proceedings.

The NSIA

The NSIA received Royal Assent on 29 April 2021. For all material purposes, its provisions came into force on 4 January 2022. Its long title states that it is an “Act to make provision for the making of orders in connection with national security risks arising from the acquisition of control over certain types of entities and assets; and for connected purposes.” As expressed in Mr Phillips' skeleton argument, the Act aims to prevent hostile actors from acquiring control of critical parts of the United Kingdom's economy and infrastructure by empowering the Secretary of State to “call in” and assess a qualifying acquisition on grounds of national security.

Assessment of acquisitions on national security grounds

Section 1 of the Act empowers the Secretary of State to issue a “call-in notice” if the Secretary of State reasonably suspects that a “trigger event” has taken place that has given rise or may give rise to a risk to national security. Although other forms of acquisition may qualify as trigger events, I shall for simplicity explain the scheme of the Act by reference to the acquisition of shares. A “trigger event” includes (among other share acquisitions) a situation where the percentage of the shares that a person holds in a UK company increases from less than 75% to 75% or more (sections 5, 7 and 8 of the Act).

Section 2 makes further provision about call-in notices. It stipulates that no more than one call-in notice may be given in relation to each trigger event (section 2(1)). It empowers the Secretary of State to issue a call-in notice in relation to a trigger event that occurred before the call-in power came into force provided that (i) the trigger event occurred on or after 12 November 2020 and (ii) the notice is issued within six months of “commencement day”, meaning 4 January 2022 (section 2(4)(a)). The power to call in an acquisition of shares completed before 4 January 2022 was used in the present case. There is no challenge either to the retrospective effect of the legislation or to the power to issue a call-in notice in relation to an acquisition of shares that had already taken place before the provisions of the Act came into force.

The Secretary of State must consider a called-in acquisition within an “assessment period” which begins with the date on which the call-in notice is given to the acquirer of the shares (section 23(2)). The “initial period” for assessment is 30 working days but the Secretary of State may give an “additional period notice” which extends the assessment period by an additional 45 working days (section 23(3)-(5) and (8)). At the end of the assessment period, the Secretary of State must either make a “final order” or give notice that no further action is to be taken (section 26(1)-(2)).

Interim and final orders

The Secretary of State may, during the assessment period, make an interim order for the purpose of preventing or reversing pre-emptive action that might prejudice the exercise of the Secretary of State's functions under the Act (section 25(1)-(3)). An interim order may require a person to do, or not to do, certain things (section 25(4)(a)).

Section 26(3) makes provision for the imposition of a final order as follows:

“The Secretary of State may, during the assessment period, make a final order if the Secretary of State—

(a) is satisfied, on the balance of probabilities, that—

(i) a trigger event has taken place or that arrangements are in progress or contemplation which, if carried into effect,...