No Automatic Right to Full Market-Value Compensation for NSIA Divestment Orders: Commentary on L1T FM Holdings Ltd v Chancellor of the Duchy of Lancaster [2025] EWCA Civ 1528

No Automatic Right to Full Market-Value Compensation for NSIA Divestment Orders

Commentary on L1T FM Holdings Ltd & Anor v Chancellor of the Duchy of Lancaster [2025] EWCA Civ 1528

1. Introduction

This Court of Appeal judgment concerns the intersection of the United Kingdom’s new national security investment screening regime and the protection of property under Article 1 of Protocol 1 (“A1P1”) to the European Convention on Human Rights (“ECHR”).

The case arises out of a “final order” made on 19 December 2022 under section 26(3) of the National Security and Investment Act 2021 (“NSIA”). The order required the First Appellant, L1T FM Holdings Ltd (a LetterOne Group company), to divest itself of its 100% shareholding in Upp Corporation Limited (“Upp”), a fibre broadband start-up rolling out full fibre infrastructure in the East of England.

The Secretary of State (now succeeded in function by the Chancellor of the Duchy of Lancaster) had concluded that Upp’s ultimate beneficial ownership through the LetterOne Group – whose founders included sanctioned Russian nationals – created a risk to UK national security, principally through the potential for leverage by the Russian State. The Appellants ultimately sold Upp to Virgin Media O2 on 5 September 2023, retaining the sale proceeds but receiving no other compensation.

The Appellants brought judicial review proceedings. Farbey J dismissed the claim, including the argument that A1P1 required “full compensation” for what was characterised as a de facto expropriation. Permission to appeal to the Court of Appeal was granted on one issue only: whether A1P1, as given effect by the Human Rights Act 1998 (“HRA”), required the State to secure compensation beyond the (allegedly depressed) price obtained in a compulsory divestment under the NSIA.

The Court of Appeal (Lewison, Males and Popplewell LJJ) dismissed the appeal. The central precedent established is that:

  • A1P1 does not require the UK to guarantee “full” or “fair market value” compensation for a forced sale ordered under the NSIA on national security grounds, provided the owner can sell on the open market and retain the proceeds, and the overall legislative scheme (including discretionary financial assistance under s.30 NSIA) is proportionate.

The judgment thus confirms that in this context, the State enjoys a wide margin of judgment in deciding whether, and to what extent, compensation is payable, and that the absence of a statutory right to additional compensation does not render the regime incompatible with A1P1.

2. Summary of the Judgment

2.1 The Legal Question

The appeal addressed one tightly-focused question:

  • Whether the NSIA final order, which compelled a sale of shares in Upp and did not provide for any compensation beyond the sale proceeds, violated A1P1 because it failed to ensure that the Appellants received full compensation for the value of their shares.

The Appellants did not appeal:

  • the finding that the trigger event gave rise to a national security risk;
  • the proportionality of choosing divestment (Remedy A) over less intrusive remedial options (Remedy B); or
  • the lawfulness of the refusal of financial assistance under s.30 NSIA.

They sought instead a declaration under s.8 HRA that they were, in principle, entitled to additional compensation under A1P1, and a remittal to the King’s Bench Division for determination of principle and quantum.

2.2 The Court’s Main Findings

Key conclusions of the Court of Appeal include:

  1. Classification (deprivation vs control of use) is not decisive.
    The Court accepted that the order could be treated as a deprivation of possessions for the purpose of A1P1, but emphasised (drawing on AXA and related authorities) that the same overarching test of proportionality and “fair balance” would in any event apply.
  2. No A1P1 requirement to ensure “full” or “fair market value” compensation in this context.
    While in “many” expropriation cases full market value will be required, A1P1 does not guarantee full compensation in all circumstances. In the NSIA context, the Appellants had the opportunity to sell in the open market and retain the proceeds; the absence of an additional compensation mechanism did not breach the “reasonable relationship” requirement.
  3. Wide margin of judgment in national security and economic regulation.
    Both Parliament (in designing the NSIA without a compensation code) and the executive (in applying it) operate within an area where the courts must afford a particularly wide margin of judgment. That margin applies equally to issues of compensation.
  4. Section 30 NSIA as part of the proportionality assessment.
    The existence of a discretionary financial assistance power under s.30 NSIA forms part of the background against which proportionality is assessed. That the Appellants chose not to challenge the refusal of s.30 assistance reinforced the Court’s view that no systemic incompatibility with A1P1 had been shown.
  5. No Strasbourg authority requiring compensation for “diminution in value” from a forced private sale.
    The Court held that there is no “clear and constant” Strasbourg case law obliging a State to make up the difference between a forced-sale price and a hypothetical fair market value, nor to compensate for sunk investment or future profits in these circumstances.
  6. Appeal dismissed; no declaration of entitlement to further compensation.
    The Court refused to declare that the Appellants were entitled in principle to more compensation than they had already received through the sale to Virgin Media O2.

3. Statutory and Factual Background

3.1 The NSIA Framework

The NSIA enables the Government to scrutinise and, where necessary, intervene in acquisitions that may pose risks to national security. Three features matter in this case:

  1. Call-in power (s.1, s.2, s.5 NSIA)
    • The Secretary of State may issue a call-in notice if a “trigger event” in relation to a “qualifying entity” or “qualifying asset” has taken place and gives rise (or may give rise) to a risk to national security.
    • A “trigger event” includes acquisition of control (e.g. a 100% shareholding).
    • NSIA can apply to transactions from 12 November 2020 onwards, even though the statute only came into force on 4 January 2022 (retrospective call-in, s.2(4)).
  2. Final orders (s.26 NSIA)
    • If, on the balance of probabilities, a trigger event has occurred and a national security risk has arisen, the Secretary of State may make a final order.
    • The order must be considered necessary and proportionate to prevent, remedy or mitigate the risk (s.26(3)(b)).
    • Orders can require a person to do or not do specified things, including divesting shareholdings.
  3. Financial assistance (s.30 NSIA)
    • After a final order, the Secretary of State “may” give financial assistance – such as loans, guarantees or indemnities.
    • There is no statutory right to assistance; the power is discretionary.
    • Large assistance packages (≥ £100 million) must be reported to Parliament.

3.2 Retrospective Application and Notification

The Upp acquisition pre-dated NSIA commencement but post-dated the Bill’s introduction in Parliament:

  • Bill introduced: 11 November 2020;
  • Retrospective window: trigger events from 12 November 2020 may be called in (s.2(4));
  • Acquisition of FibreMe (later Upp): 21 January 2021;
  • NSIA commencement: 4 January 2022.

For post-commencement transactions, parties can use:

  • Mandatory notifications for specified “notifiable acquisitions” (ss.6, 14);
  • Voluntary notifications for other trigger events (s.18), enabling clearance or call-in within defined timeframes.

Because this transaction was pre-commencement, the Appellants could not use the s.18 voluntary notification process. They emphasised this in their A1P1 argument, claiming this exacerbated the unfairness of the interference.

3.3 The Acquisition and the Parties

The First Appellant acquired 100% of FibreMe’s share capital (later renamed Upp) on 21 January 2021 for £100. Over time, LetterOne invested about £143.7 million into Upp, intending to hold it for at least eight years, with projected revenues growing from zero in 2021 to £93 million by 2028 (Babcock WS, paras 11–12).

The LetterOne Group is a Luxembourg-based investment group. Its ultimate beneficial owners (“UBOs”) at the relevant time were five Russian businessmen – Petr Aven, Mikhail Fridman, German Khan, Andrei Kosogov and Alexey Kuzmichev – some of whom were later subject to EU and UK sanctions relating to Russia (see the judge’s summary at paras 36–41).

The Government’s concern was not that the corporate entities (the Appellants) themselves were sanctioned or had engaged in wrongdoing, but that:

  • the UBOs could be vulnerable to leverage by the Russian State; and
  • this could manifest itself in harmful influence over a strategic broadband network.

3.4 The Call-in and Final Order

  • National Cyber Security Centre produced a technical comment paper (24 March 2022) identifying national security risks flowing from UBO influence over Upp.
  • The Secretary of State issued a call-in notice on 5 May 2022.
  • The Investment Security Unit (ISU) carried out:
    • a risk assessment;
    • a remedies assessment (comparing divestment vs alternative measures); and
    • a representations assessment.

The final order (19 December 2022) required L1T FM Holdings to:

  • prepare and implement a disposal plan for Upp within set timeframes;
  • ensure the purchaser met specified criteria; and
  • complete the sale within nine months of disposal plan approval.

No compensation was specified, beyond the right to receive the sale proceeds.

3.5 The Sale and Claimed Loss

The Appellants sold Upp to Virgin Media O2 on 5 September 2023. Evidence indicated that:

  • market knowledge of the compulsory nature of the sale depressed offers;
  • limited bidder interest weakened their bargaining position; and
  • the Appellants believed the final sale price was “far below” Upp’s true economic value (Babcock WS, paras 18–19).

They argued that the difference between this forced-sale price and a fair market value (assuming a willing buyer and willing seller in a non-distressed context) represented uncompensated “loss” for A1P1 purposes.

3.6 Section 30 Financial Assistance

The Appellants requested financial assistance under s.30 NSIA – apparently to support ongoing funding of Upp during the sale process. The Secretary of State refused that request (6 July 2023). The decision was not challenged by judicial review, and Farbey J expressly declined to consider its lawfulness in the absence of such a challenge (para 229).

4. Precedents and Authorities Cited

4.1 The Structure of A1P1

The Court began by setting out the now-familiar three-part structure of A1P1, relying chiefly on:

  • Sporrong and Lönnroth v Sweden (1982) 5 EHRR 35;
  • James v United Kingdom (1986) 8 EHRR 123;
  • AXA General Insurance Ltd v HM Advocate [2011] UKSC 46; [2012] AC 868 (Lord Reed at paras 107–108); and
  • R (Mott) v Environment Agency [2018] UKSC 10; [2018] 1 WLR 1022.

Those authorities distinguish:

  1. A general rule (first sentence): peaceful enjoyment of possessions.
  2. Deprivation of possessions (second sentence): allowed only in the public interest and subject to law and general principles of international law.
  3. Control of use (second paragraph): permits laws controlling the use of property in the general interest (or for taxation or penalties).

However, as AXA and Mott stress, the classification is not rigid. Regardless of label, the key question is whether the interference is:

  • lawful;
  • pursues a legitimate aim; and
  • is proportionate, i.e. strikes a “fair balance” between the general interest and the individual’s rights.

4.2 Deprivation vs Control of Use: AGOSI and Eastside Cheese

The Court cited:

  • AGOSI v United Kingdom (1987) 9 EHRR 1, concerning forfeiture of imported Krügerrands. Although forfeiture looked like a deprivation, the ECtHR treated it as part of a scheme of controlling the use of gold coins: a reminder that the Court will “look behind appearances” and consider context.
  • R v Secretary of State for Health, ex p Eastside Cheese Co [1999] 3 CMLR 123, where Lord Bingham CJ emphasised that courts must examine the “realities” and noted that the availability of compensation is relevant to categorisation and proportionality.

In L1T FM, Lewison LJ accepted that the NSIA order could be viewed as a deprivation, but emphasised that the result would be the same under either classification because the core test is proportionality (para 84).

4.3 Compensation and the “Reasonable Relationship” Test

The main Strasbourg and domestic authorities on compensation under A1P1, all cited in the judgment, include:

  • Holy Monasteries v Greece (1995) 20 EHRR 1 (para 71):
    The Court held that:
    • compensation terms are material to whether a fair balance is struck;
    • taking property without an amount “reasonably related” to its value usually breaches A1P1;
    • total lack of compensation is acceptable only in “exceptional circumstances”; and
    • A1P1 does not guarantee full compensation in all cases.
  • James v United Kingdom (1986) 8 EHRR 123 (para 54):
    Again, the Court recognised that full market value will not always be required, particularly where measures pursue objectives of economic or social policy (e.g. leasehold reform).
  • R (SRM Global Master Fund LP) v Treasury Commissioners [2009] EWCA Civ 788; [2010] BCC 558:
    Laws LJ synthesised the principles:
    • the need for a fair balance between public interest and private right;
    • proportionality as a method of achieving fair balance; and
    • the margin of appreciation (now “margin of judgment”) allowing flexibility according to the context.
    He distinguished micro-economic expropriations (where full market value is likely required) from “high politics” or redistribution measures, where full value may be inconsistent with the public interest objective (paras 55–56).

4.4 Vistins and Osmanyan: The Appellants’ Key Strasbourg Authorities

The Appellants relied heavily on two Strasbourg cases:

  1. Vistinš and Perepjolkins v Latvia (2014) 58 EHRR 4:
    • The case concerned land within a port subject to expropriation and statutory servitudes.
    • The Grand Chamber stated that in “many cases of lawful expropriation” (such as taking land for a road) only full compensation can be treated as reasonably related to value (para 110).
    • It also highlighted the need for a procedure enabling an “overall assessment” of the consequences of expropriation, including appropriate compensation (para 111).
    • However, the Court ultimately accepted that significantly less than full market value might suffice in that case given the particular constraints (para 118).
  2. Osmanyan and Amiraghyan v Armenia (Application No. 71306/11, 11 October 2018):
    • Applicants lost a small agricultural plot which was their main source of income.
    • Even where statutory rules provided for “market value + 15%”, the ECtHR held this might be inadequate where expropriation destroyed a person’s livelihood (paras 69–71, citing Lallement v France).
    • The failure of the domestic courts to consider the applicants’ loss of means of subsistence led to a finding of violation.

In L1T FM, the Court of Appeal treated these cases as fact-specific illustrations of the fair balance test:

  • Vistinš confirms the importance of a compensation mechanism and that full compensation is often, but not always, required.
  • Osmanyan illustrates that where expropriation eradicates a person’s basic means of subsistence, even compensation at (or slightly above) “market value” may be insufficient.

Lewison LJ considered Osmanyan of limited assistance here: the Appellants were sophisticated large-scale investors, not individuals deprived of their livelihood (para 77).

4.5 Proportionality and Margin of Judgment

On proportionality methodology, the Court relied on:

  • Bank Mellat v HM Treasury (No 2) [2013] UKSC 39; [2014] AC 700 (Lord Reed at para 74):
    The standard four-stage domestic test:
    1. Importance of the objective;
    2. Rational connection;
    3. Less intrusive means; and
    4. Fair balance between rights and objective.
  • Shvidler v Secretary of State for Foreign, Commonwealth and Development Affairs [2025] UKSC 30; [2025] 3 WLR 346:
    • Clarifies that first-instance courts must themselves decide proportionality but still give special weight to primary decision-makers in areas of institutional competence, such as national security (paras 120–125).
    • On appeal, courts may need to re-assess proportionality themselves in novel areas (paras 144–165), as the Court of Appeal did here (para 58).
  • R (SC) v Secretary of State for Work and Pensions [2021] UKSC 26; [2022] AC 223; and
    Adriatic Land 5 Ltd v Long Leaseholders at Hippersley Point [2025] EWCA Civ 856:
    • These cases refine the use of “manifestly without reasonable foundation” in the proportionality analysis.
    • Newey LJ’s summary (Adriatic, para 114) was adopted: the key is the width of the margin of judgment appropriate to the subject-matter (e.g. social and economic policy, national security), rather than the formula used.

4.6 Domestic Approach to Strasbourg: Elan-Cane

Finally, the Court invoked R (Elan-Cane) v Secretary of State for the Home Department [2021] UKSC 56; [2023] AC 559 (Lord Reed at para 63), reiterating that:

  • domestic courts should follow “clear and constant” Strasbourg jurisprudence; but
  • they should not go beyond what they can be confident the ECtHR would itself do.

This principle underpinned the Court’s reluctance to construct a new, more generous right to compensation under A1P1 in the NSIA setting in the absence of a directly analogous Strasbourg authority (para 93).

5. The Court’s Legal Reasoning

5.1 Role of the First-Instance Court and of the Court of Appeal

Applying Shvidler, the Court confirmed that:

  • Farbey J correctly recognised that she had to make her own proportionality assessment (para 57);
  • she was also correct to acknowledge that she was not the “primary decision-maker”, in the sense that the executive and Parliament retain institutional competence, especially in national security (paras 55–57); and
  • on appeal, given the novelty of the NSIA context and absence of prior authority, the Court of Appeal was entitled to conduct its own proportionality analysis rather than limiting itself to asking if the judge was plainly wrong (para 58).

Although Lewison LJ acknowledged that some criticism of the judge’s reasoning (especially para 225) had “some force”, this did not alter the Court’s own conclusion on proportionality (para 83).

5.2 Characterisation of the Interference

The Court saw “force” in the Secretary of State’s argument that, taken overall, the NSIA regime is more naturally understood as:

  • a system of control of who may hold certain strategic assets (largely a control-of-use paradigm); rather than
  • a classic expropriation or nationalisation regime (as in the nationalisation or leasehold reform cases).

The order compelled the Appellants to:

  • dispose of their interest in Upp to a private buyer;
  • retain the proceeds of sale; and
  • select the buyer (subject only to national security criteria).

Nonetheless, Lewison LJ proceeded on the footing most favourable to the Appellants: that the order amounted to a deprivation of property (para 84). This avoided the need to decide definitively between the categories while ensuring that the stricter analytical lens for deprivations was effectively applied.

5.3 The Proportionality Assessment under A1P1

Applying the Bank Mellat stages, the Court’s reasoning can be unpacked as follows.

5.3.1 Legitimate Aim and Rational Connection

The Appellants did not dispute that:

  • protecting national security is a weighty and legitimate aim; and
  • removing strategic infrastructure from control ultimately linked to sanctioned Russian UBOs was rationally connected to that aim.

Nor did they challenge, on appeal, the choice of divestment as the necessary and proportionate means of mitigating the risk (Ground 1A was refused permission to appeal). The Court therefore accepted the national security assessment and remedial choice as a given.

5.3.2 Less Intrusive Means

Less intrusive measures (Remedy B) had been considered by the ISU and rejected as inadequate to mitigate the identified risk. Farbey J agreed (para 212). That conclusion was not in issue on appeal.

Thus, the only dimension of proportionality left for the Court of Appeal to assess was the compensation – the fair balance between:

  • the severe impact on the Appellants’ property rights (forced early exit, alleged undervaluation); and
  • the strong public interest in mitigating national security risk.

5.3.3 Fair Balance and the Compensation Question

The Court recognised the Appellants had invested significantly in Upp and expected substantial future returns. Nonetheless, it concluded that the fair balance did not require a State guarantee of “fair market value” or any additional compensation:

  1. Reasonable relationship, not automatic full compensation
    Relying on Holy Monasteries, James and SRM, the Court reiterated that:
    • A1P1 generally requires “an amount reasonably related to the value of the property”.
    • Full market value will often, but not always, be required; A1P1 does not guarantee full compensation in all cases.
    • The context – especially where high public-policy interests are in play – may justify departure from full value.
    In this case, the Appellants received what the market was willing to pay in real conditions, even if they regarded that as below “true value”; that was considered sufficient to maintain a reasonable relationship.
  2. Open market sale and retention of proceeds
    The Appellants:
    • were allowed to run a competitive sale process;
    • could select the purchaser, subject to security vetting;
    • retained all sale proceeds; and
    • remained free to reinvest in other opportunities.
    The Court accepted that selling under compulsion and time pressure likely depressed the price (a distressed context), but did not regard this as making the interference disproportionate (para 86).
  3. National security and wide margin of judgment
    The Court stressed that “a wide margin of judgement” must be afforded to both Parliament and the executive in national security and economic policy matters (para 87). That margin extends to the choice not to legislate a full compensation code for NSIA divestments, in contrast to earlier nationalisation statutes or the Leasehold Reform Act 1967 (para 87).
  4. Role of ultimate beneficial owners
    Although the Appellants as companies were not themselves sanctioned or accused of wrongdoing, the real risk came from their UBOs. The Court noted that:
    • the Appellants had sought to preserve meaningful influence for the Group and its UBOs over Upp (para 89, quoting Farbey J at para 206);
    • the State was entitled to assess the national security risk arising from the real-world influence of such UBOs, regardless of formal corporate separateness (paras 88–90).
    This factual backdrop strengthened the case for robust intervention and limited the Court’s readiness to require additional compensation.
  5. Section 30 NSIA as a mitigating safeguard
    The mere existence of s.30, enabling financial assistance where appropriate, formed part of the Court’s proportionality calculus (para 91). While the Appellants argued that no effective compensation mechanism had been used in their case, the Court viewed s.30 as part of the overall structure ensuring flexibility and potential mitigation of hardship.
  6. Practicality and delays of valuation
    A further factor was the complexity and time required to assess “fair market value” independently of actual sale prices:
    • Valuing an unlisted, fast-growing broadband start-up with projected future revenues is inherently difficult.
    • A statutory or judicial valuation process could be long and contested, potentially delaying timely national security interventions (para 92).
    This practical consideration weighed against requiring a built-in fair-value compensation scheme.
  7. Absence of on-point Strasbourg authority
    Finally, the Court found no Strasbourg case “coming close” to requiring States to:
    • guarantee full fair market value in forced divestments; or
    • compensate specifically for loss of future profits or sunk investment in these circumstances (para 93).
    In light of Elan-Cane, the Court was unwilling to expand A1P1 beyond the established Strasbourg principles.

5.4 Response to the Appellants’ Core Arguments

Mr Hickman KC advanced several interlinked contentions; the Court’s answers can be summarised as follows.

  1. “False dichotomy” between national security and compensation
    The Appellants argued it was wrong to portray compensation and national security as mutually exclusive: paying full compensation would not compromise security.

    The Court agreed in principle that security and compensation are distinct questions, but held that the State is entitled, within a wide margin, to decide that public funds should not be used to underwrite investment risks linked to national security-sensitive assets – especially where investors knowingly operate in sensitive sectors (para 85, read with Farbey J’s para 225).
  2. Retrospective application and lack of voluntary notification
    The Appellants stressed that they could not use the s.18 voluntary notification route because the acquisition pre-dated NSIA commencement, and that the national security risk materialised (or was at least recognised) only later. This, they said, made ex post deprivation without compensation particularly unfair.

    The Court did not treat this as decisive. Parliament’s decision to include a retrospective call-in window from 12 November 2020 was a deliberate policy choice, justified by giving public notice via the Bill’s introduction. The existence of that retrospective regime fell within the State’s margin of judgment and did not trigger a specific compensation requirement.
  3. Irrelevance of investors’ size and sophistication
    The Appellants argued that their scale, sophistication and capacity to reinvest were irrelevant to proportionality.

    The Court disagreed, treating these factors as legitimately relevant to whether the Appellants were subjected to an “excessive individual burden” (to adopt the language of cases like Osmanyan):
    • Unlike subsistence farmers in Osmanyan, these were global investors whose livelihood was not destroyed by the loss of one portfolio company (para 77).
    • The loss, though substantial, was within the spectrum of commercial risk that sophisticated investors might reasonably foresee in geopolitically sensitive sectors.
  4. Non-use of s.30 and alleged lack of procedure
    Relying on Vistinš, the Appellants contended that there must be a procedure to assess compensation in line with the property’s value; they said such a procedure was absent or ineffective in their case.

    The Court distinguished between:
    • the structural availability of a procedure (here, s.30 NSIA; potential JR of its use); and
    • the particular outcome in this case (refusal of assistance, not challenged by JR).
    Since the appellants did not challenge the refusal decision, the Court declined to infer systemic incompatibility from the mere fact that they had not obtained assistance (paras 44–45, 91, 96).
  5. Analogy with compulsory purchase law
    The Appellants argued that as with compulsory purchase, forced divestment should be valued on a willing buyer–willing seller fair market value basis, ignoring any depression caused by compulsion.

    The Court was not persuaded that A1P1 imports that domestic CPO model into the NSIA context. Compulsory purchase law is a policy choice, often in micro-economic settings; A1P1 requires only a “reasonable relationship” in context. In high-policy domains like national security and foreign investment control, that relationship may be looser.

6. Impact and Significance

6.1 For the NSIA Regime

This is the first Court of Appeal decision under the NSIA and sets an important benchmark:

  • No implied statutory right to full-value compensation.
    Investors affected by NSIA final orders cannot rely on A1P1 to force the Government to top up sale proceeds to a hypothetical fair market value. Their primary protection lies in:
    • challenging the lawfulness and proportionality of:
      • the call-in;
      • the risk assessment; or
      • the choice of remedy (e.g. divestment vs mitigation measures);
    • and, where relevant, challenging individual s.30 decisions.
  • Confirmation of the breadth of national security powers.
    The judgment underscores that, once a credible national security risk is established, the State has considerable leeway in determining:
    • who may own or control key infrastructure; and
    • whether and to what extent to offset investors’ economic losses.
  • Section 30’s role clarified.
    Although discretionary, s.30 financial assistance is recognised as part of the overall proportionality of the regime. Its presence may help to rebut arguments that the scheme is structurally incompatible with A1P1, even though it does not guarantee compensation.

6.2 For Investors in Strategic Sectors

The decision sends clear signals to investors, particularly those with:

  • complex ownership structures;
  • UBOs in high-risk jurisdictions; or
  • holdings in critical infrastructure (telecoms, energy, data, defence-related sectors).

Key implications include:

  • Heightened “regulatory risk” without guaranteed indemnity.
    Investments in sectors within the NSIA’s scope carry the risk of severe intervention – including forced divestment – without any guarantee of full-value compensation beyond what a forced sale may yield.
  • Need for enhanced due diligence.
    Transaction planning and shareholder agreements may need to factor in:
    • NSIA risk assessments;
    • the possibility of retrospective call-in; and
    • the limited scope for recouping losses under A1P1.
  • Corporate structuring is not a complete shield.
    Even where formal corporate entities and boards are distinct from sanctioned individuals, the State may focus on substantive influence exerted by UBOs.

6.3 For A1P1 Jurisprudence

From a doctrinal perspective, the judgment:

  • Reinforces the flexible, context-sensitive approach to compensation under A1P1.
    The “reasonable relationship” standard remains the touchstone. Full market value is a paradigm in many expropriation cases but not an invariable rule, especially in high-policy or national security settings.
  • Clarifies domestic courts’ stance vis-à-vis Strasbourg.
    By emphasising the lack of a directly analogous Strasbourg case and invoking Elan-Cane, the Court signals its reluctance to expand A1P1 rights in new directions without clear ECtHR support – particularly in sensitive fields like national security.
  • Illustrates the importance of factual context in A1P1 cases.
    The contrast drawn with Osmanyan (subsistence farming vs diversified global investors) underscores that the same legal tests can yield very different outcomes depending on whether the interference threatens basic livelihoods or “only” commercial returns against a background of sophisticated risk-taking.

7. Complex Concepts Explained

7.1 What Is Article 1 of Protocol 1 (A1P1)?

A1P1 is the part of the ECHR that protects property rights. It does not prohibit all interferences with property, but imposes conditions:

  • Interferences must be lawful (based on accessible, predictable law).
  • They must pursue a legitimate aim (e.g. national security, economic reform, taxation, social justice).
  • They must strike a fair balance between the general interest and the individual’s rights, meaning they must not impose an “individual and excessive burden”.

Compensation (or its absence) is a central part of that fair balance assessment.

7.2 Deprivation vs Control of Use

  • Deprivation of possessions:
    • usually involves a transfer or destruction of ownership rights;
    • often engages stricter scrutiny of compensation; and
    • examples: expropriation of land for public works; nationalisation.
  • Control of use:
    • regulates how property may be used without necessarily removing ownership;
    • can include licensing regimes, restrictions on development, or controls on who may own certain assets; and
    • compensation is not automatically required, even for serious financial loss.

In many cases – including this one – the line between the two is blurred, and courts focus on the outcome of the fair balance test rather than the label.

7.3 Proportionality and “Fair Balance”

In UK human rights law, proportionality generally asks:

  1. Is the objective sufficiently important?
  2. Is the measure rationally connected to that objective?
  3. Could a less intrusive measure have been used without undermining the objective?
  4. Does the measure strike a fair balance between the individual’s rights and the public interest?

In the property context, “fair balance” often turns on:

  • severity of impact on the individual (including whether livelihood is destroyed);
  • strength and nature of the public interest aim; and
  • compensation arrangements.

7.4 Margin of Appreciation / Margin of Judgment

The “margin of appreciation” (in Strasbourg) – now often referred to domestically as a “margin of judgment” – recognises that:

  • in areas like economic and social policy, taxation, criminal justice, or national security, national authorities are often better placed than courts to decide where to strike the balance;
  • courts will therefore refrain from substituting their own views unless the measure is outside the range of reasonable options compatible with Convention rights.

In L1T FM, this margin was especially wide because:

  • the subject-matter was national security and control of foreign investment; and
  • Parliament had designed the NSIA as a comprehensive regime without creating a statutory compensation right for divestment orders.

7.5 Fair Market Value vs Distressed Sale Value

  • Fair market value is typically the price that would be agreed between a willing buyer and willing seller, both acting knowledgeably and without compulsion, in an open market.
  • Distressed sale value is the price that may be realised under time pressure or compulsion, often lower than fair market value.

In many compulsory purchase regimes, compensation aims at fair market value, ignoring the depressing effect of compulsion. However, the Court made clear that A1P1 does not automatically import this standard into all contexts; in NSIA divestments, it may suffice that the owner obtains the best price possible in actual market conditions, even if compulsion depresses that price.

7.6 Ultimate Beneficial Owners (UBOs)

A UBO is the natural person who ultimately owns or controls a legal entity, even if ownership is layered through companies, trusts, or foundations. In this case:

  • The Appellants were corporate entities with international boards.
  • The UBOs were Russian businessmen, some subject to sanctions.

The State’s concern was that these UBOs could be pressured or incentivised by the Russian State to use their influence over Upp to harm UK national security. The Court accepted that this real-world risk could be considered, notwithstanding formal corporate separateness.

8. Conclusion

The Court of Appeal’s decision in L1T FM Holdings Ltd v Chancellor of the Duchy of Lancaster confirms that the United Kingdom’s new national security investment regime under the NSIA can lawfully compel divestment of strategic assets without guaranteeing full or fair market value compensation, even where investors suffer significant financial loss.

The key takeaways are:

  • No automatic right to full compensation: A1P1 requires a “reasonable relationship” between the value of the property and any compensation, assessed in context. It does not create a general right to be indemnified against loss of expected value in forced NSIA sales.
  • National security context matters: The strong public interest in mitigating national security risks, coupled with the State’s institutional expertise and responsibility in that field, justifies a wide margin of judgment both in deciding what measures to take and whether to compensate.
  • Structural safeguards rather than guaranteed outcomes: The existence of s.30 NSIA as a discretionary tool for financial assistance, alongside the opportunity to sell on the open market and retain proceeds, suffices to preserve the fair balance in this context.
  • Fact-sensitivity of A1P1 analysis: Cases where expropriation destroys basic livelihoods (like Osmanyan) are treated differently from those involving diversified, sophisticated investors losing a single asset.
  • Caution about extending Strasbourg rights: Absent clear and constant ECtHR authority requiring fuller compensation in analogous situations, UK courts will not expand A1P1 to create new property compensation entitlements in national security investment cases.

In the broader legal landscape, the judgment signals that while A1P1 remains a meaningful check on arbitrary or disproportionate property interferences, it does not function as a financial guarantee for investors operating in politically and strategically sensitive domains. The NSIA emerges from this decision as a robust instrument that can have very significant economic consequences for investors without necessarily triggering a duty on the State to make them financially whole.

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