In brief

Three years into the UK’s National Security and Investment (NSI) regime, recent court decisions are beginning to illuminate how government reviews are conducted – and where legal challenges might gain traction. While courts remain highly deferential to ministers on questions of national security, they are showing more willingness to scrutinize procedural fairness. For investors, these rulings provide early guidance on how to anticipate risks, shape remedy discussions, and protect their rights in an increasingly complex and opaque regulatory landscape.

Balancing security and investment

As the UK government pushes forward with its industrial strategy to drive investment in growth sectors, attention has inevitably turned to the UK’s NSI regime where a large number of investments need to be pre-cleared on grounds they do not raise national security concerns. Now three years in, the regime has been accused of imposing undue burdens on deals that don’t raise genuine risks – and of lacking transparency around both process and outcomes. If these issues aren’t addressed, they risk deterring investment in the very sectors the UK wants to strengthen.

But while the regime’s core decision-making remains relatively opaque, a series of recent court rulings is offering a glimpse into how it operates. For investors, these rulings offer early guidance on how to approach transactions that may come under scrutiny – particularly around the procedural elements of the regime and how to maximize opportunities to engage. Alongside our recent report with TheCityUK and evidence to the UK parliamentary inquiry into economic security, these developments point to targeted reforms that could help the regime strike a better balance between attracting investment and managing national security risks. 

Which deals are likely to raise national security concerns? Ministerial discretion is high – but there are ways to anticipate concerns

Challenging government decisions on national security grounds is notoriously difficult:

• grounds for judicial review are limited to illegality, unreasonableness/irrationality, procedural unfairness or a breach of a right protected by the European Convention on Human Rights; and
• courts afford the government considerable discretion in national security matters.

Recent rulings confirm that judges will seldom find against the government on whether a deal creates national security risks – that is, what decision was made and whether it was unreasonable under the Wednesbury standard.  Instead, successful parties are likely to rely on grounds related to procedural failures and question how the decision was made.

In the first NSI judgment, the court upheld the Secretary of State’s (SoS) decision requiring LetterOne – an investment vehicle linked to sanctioned Russian oligarchs – to divest regional broadband provider Upp. Despite the already high bar for successful judicial reviews, the court’s deference on the question of “what decision was made” is striking. The judgment contains multiple references highlighting the extent of the court’s deference to the SoS’s assessment, noting:

• On assessing national security risk: “Parliament has entrusted [that assessment] to the executive and not to the judiciary.” The court described how the SoS personally took the decision “following assessments made by three other Secretaries of State” and concluded this conferred a high degree of democratic accountability. It went so far as to state that “the scope for the intervention of unelected judges is limited.”
• The assessment of what measures are required to prevent, remedy or mitigate a risk to national security “involves matters of judgment and policy which the court is not equipped to decide.”
• The court also afforded the SoS wide discretion in deciding whether to reimburse a party for financial losses upon divestment.
• The court also dismissed out of hand LetterOne’s claim that the SoS’s decision was Wednesbury unreasonable.

Compounding the challenge, national security proceedings are conducted using closed material procedures, limited disclosure and closed hearings, with parties represented by special advocates instead of their own counsel. Parties proceed with limited visibility – navigating, if not blindfolded, then certainly in a heavy fog.

Two important points for investors should therefore be front of mind when planning to invest in a strategic sector:

• Be proactive: Conduct thorough due diligence on the likely national security concerns, on which types of investor may, taking into account government policy, raise red flags, and on which target businesses need protecting in light of the geopolitical context and broader political priorities, including the current focus on economic security and resilience. Be prepared for limited interaction with government stakeholders on substantive risks once the review has formally started.
• Know your rights: Understand your procedural rights during the review process. Government and other public bodies are required to follow due process and ensure decisions are robust and based on all available evidence. This is where the courts have focused much of their attention – and where investors can draw the most practical insights.

What evidence is taken into account?  The ISU’s recommendations are founded on cross-government input

The Upp judgment lays bare some of the inner workings of the Investment Security Unit (ISU). Acting as a central hub, the ISU gathers information and views from across government before presenting its recommendations to the SoS decision maker – currently, The Rt Hon Pat McFadden MP. In Upp, the SoS considered, among other things:

• A “technical comment paper” from the National Cyber Security Centre (NCSC), analyzing how “owner influence” over a broadband network like Upp could pose a national security risk – highlighting concerns such as access to personal data.
• Ministerial letters from the Foreign Secretary, Home Secretary and SoS for the Department for Digital, Culture, Media & Sport (DCMS) recommending remedies, including divestment, after having been briefed by the ISU.
• A remedies assessment prepared for the SoS, outlining options – including divestment or restrictions on LetterOne’s control of Upp – developed with input from across government, including the DCMS, Department for International Trade, Ministry of Defence, National Crime Agency, NCSC, and UK Government Investments.

Transparency challenges in national security cases

Crucially, these materials were not disclosed to LetterOne until the judicial proceedings following its appeal of the SoS’ divestment order. Even then, only the “gist” of the key evidence relating to potential national security risks and effectiveness of different remedy packages is required to be shared.

In practice, parties may receive minimal detail on why a deal is deemed risky. While the ISU may invite representations during the assessment period, parties and their advisors are often left to infer the nature of the ISU’s concerns when deciding how to respond. Importantly, the Upp judgment indicates this limited level of transparency – both in the ISU’s reasoning and its reliance on input from across government – is unlikely to be considered as procedurally unfair by the courts.

Timing and framing the case. On deals raising potential national security risks, investors should carefully consider when and how to engage with government stakeholders, particularly if they have existing relationships – in the early stages of a transaction.

How restrictive are remedies likely to be? There is more room to influence remedies than risk assessments

While there may be limited opportunity to challenge risk assessments, parties have more scope to shape the remedy package if they engage constructively on the issues that need to be addressed.

In Upp, LetterOne was given the opportunity to make written representations on three occasions (two relating to remedies) and raise concerns at two ISU meetings. These representations are crucial to persuading the ISU and SoS that the least restrictive remedies can effectively mitigate identified risks.

When presenting remedy options, the ISU typically sets out the steps and actions it considers necessary and proportionate to prevent, remedy or mitigate any national security risk it deems to arise from the transaction. Each option is assessed against a range of factors, including:

• how effective the remedy is likely to be in preventing the national security risk;
• how likely the parties are to comply with any final order;
• how easily the government could enforce the remedies in the event of breach;
• the cost or burden on the government – for example, the resources required to monitor ongoing implementation of the remedies; and
• the cost or burden to the parties to the final order.

An effective strategy for shaping the remedies package will address each of these factors – demonstrating why a less restrictive remedy would be sufficient and why a more restrictive one would be unnecessary or disproportionate relative to the risk.

Can a divestment order be suspended pending an appeal? Only in exceptional cases

FTDI Holding – a company beneficially owned by five China-based limited partnerships – recently sought judicial review of a 2024 divestment order of its 80.2% stake in Future Technology Devices International (FTDI), a UK-registered semiconductor company specializing in USB technology. Oral proceedings took place in May 2025, with judgment expected in the coming months.

Ahead of the main proceedings, FTDI Holding applied for interim relief to delay the start of the divestment process until the judicial review was concluded. In considering such applications, the court must decide:

• whether there is a serious question to be tried and whether damages would be an adequate remedy; and
• whether granting relief can be justified on the balance of convenience.

In cases such as these, the public interest in allowing the government to exercise its powers is given significant weight.

In closed proceedings, the SoS put forward evidence that the interim relief requested would prolong the period of the national security risk. The court agreed and refused the application.

Risk management in the face of uncertaintyThe decision came despite the court acknowledging that the “rolled up” nature of the judicial review – where issues of standing and substance are heard together – meant that the proceedings would be quick and therefore the period of risk would not be unduly prolonged.

The judgment also noted that while the plan for divestment may not be finalized by the time of the judgment, that outcome could not be guaranteed.

In cases where a divestment order is likely, investors should be prepared to comply with its terms – including any divestment timeline – regardless of whether an appeal is ongoing or whether doing so may lead to a forced or distressed sale.

For non-notified deals, when does the call-in clock start? The “awareness” test could carry timing risk

An important procedural question raised in the FTDI case concerns the point at which the SoS is deemed to have “become aware” of a transaction for the purpose of triggering the six-month window to call in a non-notified deal. Under the NSI Act, a transaction may not be called in if more than six months have passed from when the SoS became aware of the transaction.

The court must now determine whether that six-month period begins when the ISU becomes aware of the transaction – or only once the SoS personally becomes aware. Given the opacity of the NSI process, a ruling in favor of the latter would considerably increase timing risk for investors and strengthen the case for making a voluntary notification.

If the court finds that the SoS’s divestment order is out of time and therefore unlawful, it would signal a willingness on the part of the court to limit the SoS’s powers on procedural rather than substantive grounds. Yet in a case where the national security risk assessment itself goes unchallenged, such a finding would raise difficult questions about the interplay between legal process, executive discretion and public interest.

Until the court offers clarity, investors would be well advised to treat the awareness criteria as a subjective one – and not to rely on public statements or indirect communication that may or may not reach the SoS personally.

Implications for investors

The courts have shown strong deference to the executive in matters of national security – both in the substance of decisions and in the process by which they are made.

Notwithstanding this “black box”, the Upp judgment shows that parties can still make their points heard. Strategic engagement with stakeholders across government, as well as focused and well-structured representations on issues – particularly remedies – in written submissions and in meetings with the ISU, can help shape outcomes.

The fact that the courts have granted permission to appeal on procedural fairness grounds suggests there may be scope for challenge – despite the high level of judicial deference (even though the claim in Upp was ultimately dismissed).

The outcome of the FTDI case will be closely watched. How the courts interpret statutory deadlines under the NSI Act could bring much-needed clarity – or introduce further uncertainty – for businesses facing potential scrutiny.

Key takeaways

• Expect limited scope to challenge risk assessments. UK courts show strong deference to ministerial decisions on what constitutes a national security threat – but are more willing to review how decisions are made.
• Procedural rights matter. Investors should focus on due process protections, including how evidence is handled, how remedies are structured, and the transparency of the review process.
• Remedies offer a window for influence. While risk assessments may be closed off, parties can shape outcomes by engaging constructively with the ISU and proposing effective, proportionate remedies.
• Timing is a potential trap. In non-notified transactions, uncertainty over when the call-in clock starts could pose significant timing risks – strengthening the case for voluntary notifications.
• Strategic engagement is critical. Early, informed engagement with government stakeholders and clear alignment with broader policy objectives can help mitigate risks – even in opaque and politically sensitive transactions.

With thanks to Freshfields Sarah Jensen, Nick English and Joschka Nakata for contributing this update.