UK High Court rejects second challenge under UK investment screening regime: key takeaways for investors
On 25 July 2025 the UK High Court rejected a challenge brought by Chinese-owned FTDI Holding Limited (“FTDIHL”) against an order requiring it to divest its 80.2% shareholding in a Scottish semiconductor company (“FTDI”) due to national security concerns. This was the second-ever challenge to a decision under the UK’s regime for screening investments on national security grounds and the judgment reaffirms the challenges facing investors seeking to contest such decisions.
Background
The UK’s regime for screening investments on national security grounds has quickly established itself as one of the most active foreign direct investment regimes in the world since it entered into force on 4 January 2022.Over 1,100 notifications were submitted in 2024/25 (albeit with only around 5% called in for in-depth review), compared for instance to 325 filings submitted in 2024 to the Committee on Foreign Investment in the US. A final order issued under the National Security and Investment Act (“NSIA”) may prohibit a transaction entirely (or require divestment of a completed transaction), or impose conditions on completion to address national security concerns. Such decisions can be challenged on judicial review grounds i.e. illegality, procedural unfairness, unreasonableness/ irrationality, or breach of a right protected by the European Convention of Human Rights (“ECHR”).
Prior to the FTDI case, only one such challenge had been determined: in November 2024 the High Court rejected an application for judicial review by Russian-linked investment firm LetterOne against a divestment order imposed in respect of its January 2021 acquisition of Upp Corporation, a UK fibre broadband provider. In that case the court emphasised that the assessment of national security risk is a matter for the executive and not the judiciary, and (unsurprisingly) showed a high degree of deference to the Government in national security matters.
In the FTDI case, a final order was issued on 5 November 2024 requiring FTDIHL to divest its 80.2% shareholding in FTDI due to two identified national security concerns: the transfer of UK-developed technology and IP to China and the potential for FTDIHL’s ownership to disrupt critical UK infrastructure. The transaction had completed on 7 December 2021 i.e. prior to the entry into force of the NSIA. However, it was called in for in-depth investigation on 22 November 2023 under retrospective review powers that allow the Government to call-in a transaction completed on or after 12 November 2020 (the date the NSIA was first laid before Parliament in Bill form) at any time within six months of the relevant Secretary of State (the Chancellor of the Duchy of Lancaster (“CDL”)) becoming “aware” of the transaction.
FTDI sought judicial review of the final order on 3 December 2024, challenging its legality and the process by which it was issued. FTDI also sought interim relief in the form of an interim injunction or stay suspending the final order. The request for interim relief was rejected in February 2025, but the substantive hearing was expedited and heard on 6-9 May 2025.
Grounds of challenge
FTDIHL’s grounds of challenge focussed on whether the call-in notice was appropriately issued within the statutory time limits, whether procedural fairness requirements were met, whether sufficient reasons were given for making the final order and whether the decision was irrational and/or unreasonable.
In particular, FTDIHL argued that the CDL had sufficient awareness of the transaction – via officials involved in the review process – more than six months prior to the issue of the call-in notice, and that the notice was not properly served because it was sent by email to FTDI (i.e. the target) with a request that it be forwarded on to the appropriate person at FTDIHL. In addition, it was argued that no or insufficient reasons for the decision were given in the final order.
Ultimately all grounds of challenge failed. For future cases, it is particularly notable that the court acknowledged that there were some procedural errors in the decision-making process, but concluded that these were not sufficient to invalidate the final order.
We focus on two key points below, but would note by way of preliminary commentary that the degree of deference to the CDL and Government is considerable. That significantly coloured the court’s assessment of whether the remedy imposed was proportionate (and ultimately whether the decision was rational).
The court’s analysis of when the CDL becomes “aware” of a transaction for the purposes of the 6-month limitation period
The Government argued that the CDL did not become aware of the transaction until 20 November 2023 – following media reports that FTDI had supplied chips for use in Russian tanks in Ukraine – and issued the call-in notice two days later. However, the court agreed with FTDIHL that “awareness” for the purposes of the six-month deadline for issuing a call-in notice is not limited to the relevant minister, but can be met by officials of the Investment Security Unit (“ISU”), including the allocated case officer (regardless of seniority), although not officials of other Government departments who may also be involved in the NSI review process.
The court permitted cross-examination – a rare occurrence in judicial review proceedings – of two of the Government’s witnesses on the factual question of what was known about the transaction and when by officials within and supporting the ISU, including the allocated case officer. Although the case officer had received information in 2022 about FTDIHL’s acquisition, in the context of a separate own-initiative investigation by the ISU relating to FTDI, the court accepted her evidence that she did not – subjectively – become sufficiently aware of FTDIHL’s acquisition as a potential trigger event under the NSIA at that time. The court interpreted the awareness requirement as needing not only an awareness of the trigger event itself but also as requiring an appreciation that this trigger event may be of relevance to the potential exercise of powers under the NSIA. The relevant date for the CDL’s awareness of the transaction was therefore the date when the Head of the ISU became aware of it (in May 2023). As such, the call-in notice issued on 22 November 2023 (on the last day of the 6-month period) was issued within the statutory deadline.
The court’s assessment of procedural errors in the decision-making process
The court considered that the final order – in its original confidential form – did not give sufficient reasons for the decision, stating “the only potentially relevant paragraphs of the Final Order are largely formulaic, uninformative and by no means comprehensive”.
However, it concluded that this breach of procedural fairness requirements did not invalidate the final order because the CDL did actually have sufficient reasons for making the order, which were set out in the Ministerial Submission sent to him by the ISU and the annexes thereto. This approach is notably different to that taken in judicial review in other contexts, such as merger control appeals (where an insufficiently reasoned decision will be deemed invalid), and reinforces the degree of deference that will be shown in the national security context.
In addition, the court acknowledged that there was arguably a technical breach of the regulations governing service of the call-in notice, because the notice was not marked for the attention of a specific member or officer of FTDIHL. It was instead sent by email to FTDI with a request to forward it on to the relevant contacts at FTDIHL, because no email address had been provided or published for FTDIHL. However, the court considered that this ground of challenge was ill-founded because the CDL reasonably believed that by sending the call-in notice to FTDI it would come to the attention of FTDIHL, and indeed it was forwarded on the following day. It held that “insofar as there was non-compliance”, this did not invalidate service on FTDIHL (even though the notice was not actually received by FTDIHL until 23 November 2023, which was one day after the expiry of the six-month deadline for issue of the call-in notice).
Key takeaways for investors
This second rejection of a challenge to a final order under the NSIA underscores the challenges facing investors seeking to contest such decisions. It is clear that the courts will show significant deference to the Government in respect of both the conclusions it reaches and the process by which it does so. Moreover, even where procedural errors in the decision-making process can be identified, the FTDI judgment indicates that the court will require evidence of a significant breach to invalidate a final order and is likely to give considerable leeway to the Government wherever possible.
Both cases in which a final order has been challenged so far have involved divestment orders imposed in respect of transactions that completed prior to the entry into force of the NSIA. However, it seems likely that the court would take a very similar approach to any future challenges of final orders prohibiting a transaction or imposing conditions on a transaction.
It is of course important to remember that the number of transactions in respect of which the UK Government issues a final order under the NSIA is very small in overall terms – around 1.5% of all cases reviewed by the ISU. However, the risk of a final order becomes much higher for cases that are called-in for in-depth assessment (around 30% of such cases resulted in a final order in 2024/25), and it is critical that the potential application of the NSIA to a transaction is considered at an early stage in deal planning, even where there may appear to be no obvious “red flags”.
For more information, or to discuss the potential application of the NSIA to a particular transaction, please reach out to Jacqueline Vallat, Rebecca Robertson-Encisco, Ruth Allen or your usual CMS contact.
