Summary of Legal Opinion

Factual and Procedural Background

This appeal arises from a final order ("the Order") made under section 26(3) of the National Security and Investment Act 2021 ("NSIA") requiring the First Appellant to divest its 100% shareholding in Company A (a fibre broadband start-up). The Order was made because the Secretary of State concluded that ultimate beneficial ownership of the corporate group to which the Appellants belong (Company Group A) by certain named foreign nationals created a national security risk via vulnerability to state leverage.

Company A was sold to Company B on 5 September 2023 and the Appellants received the sale proceeds but no additional financial compensation. The Appellants challenged the Order by judicial review. In the Administrative Court Judge Farbey dismissed the claim and gave reasons in a judgment (dated 20 November 2024). Permission to appeal to the Court of Appeal was granted by Judge Andrews on one ground only: whether Article 1 of Protocol No. 1 to the European Convention on Human Rights ("A1P1") required the Appellants to receive compensation beyond the sale proceeds following the forced sale.

In the Administrative Court some material was considered in CLOSED form; the Administrative Court's Judge reached conclusions on OPEN evidence and indicated that CLOSED material supported those conclusions. Neither party asked the Court of Appeal to rely on CLOSED material for this appeal; the Court of Appeal did not consider the CLOSED material.

Legal Issues Presented

1. Whether the forced divestment required by the Order amounted to a "deprivation" of possessions under A1P1 such that the First Appellant was entitled to compensation beyond the sale proceeds.
2. If A1P1 was engaged, whether a procedure or legal requirement exists (or should be required) to ensure the Appellants receive compensation reasonably related to the value of the expropriated interest, and whether the Judge erred in holding that A1P1 does not require such compensation or such a procedure within the Order or the statutory scheme.

Arguments of the Parties

Appellant's Arguments (as presented by Attorney Hickman)

• The Order constituted a "deprivation" of property (not merely a control of use) under A1P1 and therefore engaged the compensation protections of the Protocol.
• In many expropriation cases A1P1 requires payment of "full compensation" or payment reasonably related to the value of the property; the Appellants sought the fair market value of the shares, not past investment or speculative future profits.
• There should be a procedure to ensure an overall assessment of the consequences of an expropriation, including determination of compensation and quantum; the absence of such a procedure in this case meant the Appellants were left uncompensated for the diminution caused by a forced sale.
• Distinctions drawn in Strasbourg case law between deprivations that may permissibly lack full compensation and those that require full compensation are material: the present case involved national security reasons unrelated to wrongdoing by the Appellants and so was of a kind where full compensation could be consistent with the public interest.
• The Judge erred in various parts of her reasoning (notably para 225): setting up a false dichotomy between national security and compensation, discounting the retrospective effect of the NSIA and the Appellants' inability to use voluntary notification, and improperly treating the sophistication/scale of the investors and their ability to reinvest proceeds as relevant to proportionality.
• The market sale price in a forced-sale context should not automatically determine compensation; fair market value requires the hypothetical willing buyer/willing seller assessment used in compulsory purchase valuation.

Respondent's Arguments (as presented by Attorney Eadie)

• The Judge was entitled to treat the Order as proportionate and to conclude that A1P1 did not require compensation beyond the sale proceeds in the circumstances of this statutory scheme.
• There is a significant margin of judgment to be afforded to the legislature and executive on national security matters; Parliament deliberately created a scheme without a general compensation entitlement and included a mechanism (section 30) for financial assistance which does not compel full compensation.
• The Appellants were able to sell Company A in the open market and retain sale proceeds; the statutory process regulates who may own an entity for national security reasons rather than constituting classic nationalisation or redistribution requiring market-value compensation.
• There is no Strasbourg authority that requires compensation for diminution in value caused by a forced sale or for past investment/future profits in the circumstances of this case.

Table of Precedents Cited

Court's Reasoning and Analysis

The Court began by framing the appeal narrowly: permission was granted on a single ground concerning compensation under A1P1 for the forced sale of Company A. The Court emphasised that it would conduct its own proportionality assessment, following the Supreme Court's recent guidance (Shvidler), but must afford special weight and a wide margin of judgment to primary decision-makers on matters of national security.

The Court analysed the A1P1 framework (drawing on AXA and Sporrong) and the Strasbourg authorities on when an interference constitutes a deprivation and what compensation principles apply (including Holy Monasteries, James, Vistinš and Osmanyan). It recognised that in many expropriation cases compensation reasonably related to value is required, but that A1P1 is flexible and the margin of appreciation may allow less than full compensation in some contexts.

The Court accepted that it was not dispositive to classify the Order strictly as deprivation or control of use, but for completeness proceeded on the premise that it amounted to a deprivation and therefore engaged A1P1. The central question was whether the measure struck a fair balance — i.e., whether the interference was proportionate.

In applying the proportionality test, the Court noted several relevant factual and legal points drawn from the statutory scheme and the Administrative Court findings:

• The statutory scheme (NSIA) is aimed at preventing national security risks arising from ownership structures; it regulates who may be shareholders where risks are identified rather than functioning as classic nationalisation or redistribution.
• Parliament deliberately enacted a scheme that does not contain a general compensation entitlement, while providing a discretionary mechanism for financial assistance under section 30 of the NSIA.
• The Appellants were able to sell Company A in the open market, retain the proceeds, and to some extent choose the buyer subject to national security criteria in the Order; they therefore were not entirely deprived of economic recoupment.
• The national security risk in the case related to ultimate beneficial owners several steps removed and involved sanctioned individuals; given that context a wide margin of judgment is appropriate.
• There was no Strasbourg authority directly requiring compensation for diminution in value resulting from a forced sale of this kind or for compensation of past investment/future profits; some Strasbourg authorities (e.g., Osmanyan) are fact-specific and concerned with loss of livelihood.
• The presence of section 30 (financial assistance) and the complexity and potential delay of an objective "fair market value" assessment in a forced-divestment context were factors relevant to assessing proportionality and the practicality of imposing a compensation requirement.

Balancing these factors, the Court concluded that the fair balance in this case permitted the financial burden of the compelled sale to fall on the Appellants rather than requiring the public purse to underwrite full market-value compensation. The Court accepted that some criticisms could be made of parts of the Judge's wording but held that the ultimate proportionality question must be answered on the legal and factual matrix and that the Judge's conclusion that A1P1 did not require additional compensation was within the permissible margin.

Holding and Implications

HOLDING: The appeal is dismissed. The Court held that A1P1 did not require the Appellants to be fully compensated beyond the sale proceeds in the circumstances of this case, and there was no requirement to read the NSIA or the Order as mandating a separate compensation procedure beyond the mechanisms the statute provides (including section 30 discretionary financial assistance).

Implications:

• Direct effect on the parties: The Order remains effective; the Appellants are not entitled, as a matter of principle in this appeal, to a declaration that A1P1 requires full compensation beyond the sale proceeds. The sale to Company B and retention of proceeds stands.
• Remedies: The Court noted that if the Appellants had succeeded, the appropriate remedy would have been a declaration of principle and remittal to the High Court (King's Bench Division) for determination of principle and quantum; because the appeal was dismissed no such remittal is ordered.
• Precedential effect: The Court emphasised that no new Strasbourg principle was created and that domestic courts should not extend Convention protections beyond what can be supported by the European Court's jurisprudence. The decision recognises a wide margin for the legislature and executive in national security contexts and confirms that A1P1 does not automatically require full market-value compensation following a forced divestment conducted within the statutory NSIA framework.

Disposition

The Court dismissed the appeal. Judges Males and Popplewell agreed with the leading judgment.