Litster v Forth Dry Dock and Engineering Company Ltd

JurisdictionEngland & Wales
CourtHouse of Lords
JudgeLord Keith of Kinkel,Lord Brandon of Oakbrook,Lord Templeman,Lord Oliver of Aylmerton,Lord Jauncey of Tullichettle
Judgment Date16 March 1989
Neutral Citation[1988] UKHL 10
Docket NumberNo. 5.

[1989] UKHL J0316-4

House of Lords

Lord Keith of Kinkel

Lord Brandon of Oakbrook

Lord Templeman

Lord Oliver of Aylmerton

Lord Jauncey of Tullichettle

Litster and Others
Forth Dry Dock & Engineering Company Limited (In Receivership) and Another
(Respondents) (Scotland)
Lord Keith of Kinkel

My Lords,


I agree with the speeches of my noble and learned friends Lord Oliver of Aylmerton and Lord Templeman, which I have had the opportunity of reading in draft, and will add only a few observations of my own.


In Pickstone v. Freemans Plc. [1989] A.C. 66 there had been laid before Parliament under paragraph 2(2) of Schedule 2 to the European Communities Act 1972 the draft of certain Regulations designed, and presented by the responsible ministers as designed, to fill a lacuna in the equal pay legislation of the United Kingdom which had been identified by a decision of the European Court of Justice. On a literal reading the regulation particularly relevant did not succeed in completely filling the lacuna. Your Lordships' House, however, held that in order that the manifest purpose of the Regulations might be achieved and effect given to the clear but inadequately expressed intention of Parliament certain words must be read in by necessary implication.


In the present case the Transfer of Undertakings (Protection of Employment) Regulations 1981 ( S.I. 1981 No. 1794) were similarly laid before Parliament in draft and approved by resolutions of both Houses. They were so laid as designed to give effect to Council Directive (77/187/E.E.C.) dated 14 February 1977. It is plain that if the words in regulation 5(3) of the Regulations of 1981 "a person so employed immediately before the transfer" are read literally, as contended for by the second respondents, Forth Estuary Engineering Ltd., the provisions of regulation 5(1) will be capable of ready evasion through the transferee arranging with the transferor for the latter to dismiss its employees a short time before the transfer becomes operative. In the event that the transferor is insolvent, a situation commonly forming the occasion for the transfer of an undertaking, the employees would be left with worthless claims for unfair dismissal against the transferor. In any event, whether or not the transferor is insolvent, the employees would be deprived of the remedy of reinstatement or re-engagement. The transferee would be under no liability towards the employees and a coach and four would have been driven through the provisions of regulation 5(1).


A number of decisions of the European Court, in particular P. Bork International A/S v. Foreningen af Arbejdslederre i Danmark ( Case 101/87) [1989] I.R.L.R. 41 have had the result that where employees have been dismissed by the transferor for a reason connected with the transfer, at a time before the transfer takes effect, then for purposes of article 3(1) of Council Directive (77/187/E.E.C.) (which corresponds to regulation 5(1)) the employees are to be treated as still employed by the undertaking at the time of the transfer.


In these circumstances it is the duty of the court to give to regulation 5 a construction which accords with the decisions of the European Court upon the corresponding provisions of the Directive to which the regulation was intended by Parliament to give effect. The precedent established by Pickstone v. Freemans Plc. indicates that this is to be done by implying the words necessary to achieve that result. So there must be implied in regulation 5(3) words indicating that where a person has been unfairly dismissed in the circumstances described in regulation 8(1) he is to be deemed to have been employed in the undertaking immediately before the transfer or any of a series of transactions whereby it was effected.


My Lords, I would allow the appeal.

Lord Brandon of Oakbrook

My Lords,


For the reasons given in the speeches of my noble and learned friends, Lord Keith of Kinkel. Lord Templeman and Lord Oliver of Aylmerton, I would allow the appeal.

Lord Templeman

My Lords,


By article 3 of the Directive (77/187/E.E.C.) dated 14 February 1977 the Council of Ministers of the European Community directed that upon the transfer of a business from one employer to another, the benefit and burden of a contract of employment between the transferor ("the old owner") and a worker in the business should devolve on the transferee ("the new owner"). The Directive thus imposed on the new owner liability for the workers in the business although the member states were authorised by article 3 to continue the liability of the old owner to the workers in the business "in addition to the transferee." The object of the Directive was expressed to be:

"to provide for the protection of employees in the event of a change of employer, in particular, to ensure that their rights are safeguarded;"


Article 4(1) of the Directive provided that:

"The transfer of an undertaking, business or part of a business shall not in itself constitute grounds for dismissal by the transferor or the transferee. This provision shall not stand in the way of dismissals that may take place for economic, technical or organisational reasons entailing changes in the workforce."


The result of article 4(1) is that the new owner intending to dismiss the workers cannot achieve his purpose by asking the old owner to dismiss the workers immediately prior to the transfer taking place. The new owner cannot dismiss the workers himself after the transfer has taken place. Any such dismissal, whether by the old owner or the new owner, would be inconsistent with the object of protecting the rights of the workers and is prohibited by article 4(1).


The Transfer of Undertakings, (Protection of Employment) Regulations 1981 ( S.I. 1981 No. 1794), were approved by a resolution of each House of Parliament in pursuance of paragraph 2(2) of Schedule 2 to the European Communities Act 1972, for the express purpose of implementing Council Directive (77/187/E.E.C). Regulation 5(1) provides, in conformity with article 3 of the Directive, that:

"A relevant transfer shall not operate so as to terminate the contract of employment of any person employed by the transferor in the undertaking or part transferred but any such contract which would otherwise have been terminated by the transfer shall have effect after the transfer as if originally made between the person so employed and the transferee."


Thus upon the transfer of a business from one employer to another, the benefit and burden of a contract of employment between the old owner and a worker in the business devolves on the new owner.

Regulation 8 provides, in conformity with article 4, that:

"(1) Where either before or after the relevant transfer, any employee of the transferor or transferee is dismissed, that employee shall be treated … as unfairly dismissed if the transfer or a reason connected with it is the reason or principal reason for his dismissal."


The result of regulation 8(1) is the same as article 4(1), namely, that if the new owner wishes to dismiss the workers he cannot achieve his purpose either by procuring the old owner to dismiss the workers, prior to the transfer taking place, or by himself dismissing the workers after the date of the transfer.


In the present case, the old owners agreed with the new owners to dismiss the workers. The old owners were the Forth Dry Dock Engineering Co. Ltd. ("the Forth Dry Dock"). The Forth Dry Dock was the subsidiary and a member of a group of companies headed by a parent company which defaulted in payments under a debenture issued to Lloyds Bank Plc. On 28 September 1983, Lloyds Bank Plc. appointed receivers to all the companies in the group. The business of the Forth Dry Dock, namely, the business of ship-repairers was carried on under a lease of the Edinburgh dock at Leith, and this business was continued after the appointment of receivers by 25 workers including 12 who are the present appellants. A consultant to the parent company in the group, on financial and personnel matters, a Mr. Brooshooft, was minded to purchase the business of the Forth Dry Dock from the receivers. He acted in conjunction with a Mr. Hughes, the manager of the Forth Dry Dock and a Mr. Paterson who had formerly been a manager of another ship-repairing company, Robb Caledon. The workforce of Robb Caledon had been made redundant and were sufficiently chastened by unemployment to be offered lower wages than the wages of the workers of Forth Dry Dock. Mr. Brooshooft formed a new company which became Forth Estuary Engineering Ltd. (Forth Estuary). Forth Estuary declined to purchase the lease of the Edinburgh Dock vested in the Forth Dry Dock but took a new lease from the landlords. Forth Estuary declined to purchase the goodwill of the Forth Dry Dock and were only prepared to purchase the tangible assets of Forth Dry Dock but of course possession of these assets, plus possession of a lease replacing the lease to the Forth Dry Dock, conferred on Forth Estuary the goodwill of the Forth Dry Dock. The object of taking a new lease and of declining to take the goodwill expressly, was to make it appear that the Directive and the Regulations did not apply because the whole of the business of the Dry Dock Company had not been transferred or because a third party, the landlords, were involved. These arguments have rightly been rejected at all stages of this litigation. The workers of Forth Dry Dock were given the impression that their employment would be continued by a new owner. On 6 February 1984, the receivers appointed by Lloyds Bank agreed in writing to sell to Forth Estuary "the business assets" defined as the plant, machinery, equipment, furniture and office equipment detailed in the schedule, "as the same shall exist at the close of business" on 6 February 1984 in consideration of £33,500...

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