The National Security and Investment Act 2021.

The National Security and Investment Act 2021 - a further extension of closed material procedures 

When most people hear the phrase ‘closed material procedures’ (CMPs) they either give you a funny look or think about deporting individuals – like Abu Qatada – or placing individuals under house arrest without telling them why. These were control orders and are now Terrorism Prevention and Investigation Measures (TPIMs). What is less well known, as CMPs are only meant to be used in exceptional cases, is the wide range of circumstances where they can potentially come into play, for example, planning development consent hearings, asset freezing, employment disputes and family proceedings where the relevant criteria have been met.

For the uninitiated, a CMP is a method by which the state can comply with its disclosure obligations to an individual or entity where national security material may be involved by disclosing that material to a special advocate (SA) rather than to the individual’s or entities legal representatives. The SA then represents the interests of the individual or entity in CLOSED hearings from which they and their normal legal representatives are excluded.

The latest proposed extension to CMPs comes through the National Security and Investment Act 2021 (the Act) which received Royal Assent on 29th April 2021. The Act is due to come into force towards the end of 2021 and the government is expected to pass relevant secondary legislation and publish guidance on a number of different issues prior to then.

I say proposed extension as whilst the use of CMPs in relation to the Act was highlighted in the Explanatory Notes in November 2020 –

“42. Decisions under the Bill will be subject to judicial review or appeal. The Government will be able to apply for a closed material procedure to protect sensitive matters in these proceedings.”

“Litigants may apply to the High Court for judicial review, with a closed material procedure available to ensure sensitive information is protected.” (page 14)

and in the Commons Library Briefing Paper, there is no actual reference to CMPs in the Act. Before I look further at CMPs it makes sense to consider the Act itself.

Purpose of the Act

The purpose of the Act is to replace those parts of the Enterprise Act 2002, as amended, dealing with national security. The aims of the Act have been well signposted through a 2017 Green Paper, July 2018 White Paper and the December 2019 Queen’s speech. This is not a tidying up exercise and the Act has been described as being wide ranging. It –

1. removes the national security analysis of any relevant ‘transaction’ from the merger control analysis carried out by the Competition and Marketing Authority;
2. sets out the ‘trigger events’ that will bring either ‘mandatory’ or ‘voluntary notification’ into play – these are acquiring more than 25%; 50%; and 75% of votes or shares in an entity or asset (or being able to block or pass a corporate resolution) or acquiring material influence; and
3. introduces criminal and civil penalties for failing to pre-notify, including sentences of up to five years imprisonment for acting without approval (section 32) or failure to comply (section 33) and financial penalties up to £10 million or 5% of worldwide turnover, whichever is higher.

The direction of travel is said to bring the UK in-line with the approach used by many other European countries and the US, however it has also been suggested that the Act goes significantly further by –

1. removing the turnover/market share threshold previously required for intervention to be triggered;
2. widening the ‘sectors’ in which transactions require reporting to seventeen sectors - civil nuclear; communications; data infrastructure; defence; energy; transport; artificial intelligence; autonomous robotics; computing hardware; cryptographic authentication; advanced materials; quantum technologies; engineering biology; critical suppliers to government; critical suppliers to the emergency services; military or dual-use technologies; and satellite and space technologies;
3. allowing transactions to be called in for examination for a period of five years after the transaction has closed; and
4. retrospectively applying to transactions dating back to 12th November 2020.

These changes are controversial and the Government’s own impact assessment estimates that it will increase the number of transactions scrutinised from a handful over the last few years to over a thousand each year with around one hundred being subject to a full national security assessment. There have been calls for greater clarity as to what is intended amidst fears that the decision making will be highly politicised and parties will seek to have transactions referred to undermine competitors. Despite this, the Act was not subject to significant amendment during its passage through Parliament.

The decision maker will be the Secretary of State for Business, Energy and Industrial Strategy, who will be supported by a 100-person strong Investment Security Unit. The Act allows for three outcomes –

1. approval;
2. approval subject to conditions to prevent or mitigate any national security risks; and
3. prohibition (or ordering the transaction to be unwound if already implemented).

The Secretary of State will be able to impose a range of remedies if necessary and proportionate to mitigate national security risks.

Challenging the Secretary of State

A party can challenge the decision of the Secretary of State through a judicial review in the High Court (section 49) albeit under a very tight timeline of twenty-eight days from the day after the day on which the grounds to make the claim first arose, subject to the Court granting an extension if it considers exceptional circumstances apply. It is this part of the Act where you might expect to see reference to CMPs if a bespoke scheme was going to be implemented. For instance, sections 67-68 of the Counter Terrorism Act 2008 provide for a CMP and appointment of a SA in relation to challenges to the imposition of financial restrictions and it has its own part in the CPR, Part 79. The same approach was taken in respect of TPIMs.  

However, just because the Act does not refer to CMPs or SAs does not mean that the Government will have backtracked on such an approach, especially given the aim and contents of the Act. Following Al Rawi v Secuirty Service [2011] UKSC 34 the Government passed the Justice and Security Act 2013 (JSA) to put what had then been known as the non-statutory use of CMPs on to a formal basis. Section 6 of the JSA allows any party to proceedings or the Court to apply for a CMP. It is via section 6 that CMPs in most civil and judicial review proceedings occur and all the indications are that at the moment it will be section 6 that will be used if a CMP is needed as a result of proceedings arising from section 49 of the Act.

Does it make any difference that such proceedings will be via section 6 rather than a bespoke regime? From a practical perspective possibly as far as speed is concerned. CMPs are notoriously slow and that is problematic in the business environment and can be seen by section 49 requiring a claim to be filed within 28 days rather than the normal 3 months allowed in judicial review.

It will be interesting to see whether any detail in respect of the use of CMPs and section 49 is addressed by rules or guidance as we get closer to the Act coming into force later in the year.

About Martin Goudie

Martin Goudie QC was appointed to the Attorney General’s Panel of Special Advocates in 2005. He has acted in a wide variety of CMPs including for Bank Mellat during the cojoined commercial and administrative Court proceedings arising from the imposition of financial restrictions on the Bank by HM Treasury due to the Bank’s alleged connection to the Iranian nuclear programme. He has also acted for interested parties during the planning development consent hearings into the £4.1 billion Thames Tideway Tunnel project.