Rolls-Royce Plc v Doughty

JurisdictionEngland & Wales
Judgment Date18 December 1992
Judgment citation (vLex)[1991] EWCA Civ J1219-3
CourtCourt of Appeal (Civil Division)
Date18 December 1992
Docket Number91/1182

[1991] EWCA Civ J1219-3




Royal Courts of Justice


Lord Justice Mustill

Lord Justice Butler-Sloss

Sir John Megaw


Doreen Sylvia Doughty
Rolls Royce Plc

THE HON. MICHAEL BELOFF Q.C. and MR TIM KERR, instructed by J. O'Hara Esq., GMB, appeared for the Appellant (Appellant).

MR DAVID PANNICK and MS DINAH ROSE, instructed by Messrs Freshfields, appeared for the Respondent (Respondent).


This appeal is concerned with the effect of European Council Directive 1976 EEC/76/207 (the "Equal Treatment Directive") on a claim by Mrs D.S. Doughty against her former employers, Rolls Royce Plc. This claim succeeded before the Industrial Tribunal, but was dismissed on appeal by the Employment Appeal Tribunal. Mrs Doughty now appeals to this court.


The dispute revolves around questions of principle which have already been extensively discussed by the European Court of Justice, and subsequently by the House of Lords in Foster v. British Gas Plc [1991] 1 Q.B. 405, [1991] 2 A.C. 306, and the present appeal may be quite briefly introduced.


On 28th February 1986 the appellant was compulsorily retired from her employment with the respondents at the age of 60 in accordance with their standard terms of employment. If she had been a man she could have continued in work for another five years. At the time this disparity was legitimate so far as English law was concerned, since section 6(4) of the Sex Discrimination Act 1975 excluded discrimination arising out of provision in relation to retirement. It was not, however, legitimate under the Directive. Subsequently the disconformity of the domestic legislation with the international obligations imposed by the Directive was put right by an amendment to section 6(4), but the effective date was too late to save the appellant's claim under English law. She therefore seeks recourse to European law, contending that she is entitled to the direct benefit of the Directive.


Whilst the precise jurisprudential basis on which individuals have been held entitled to derive benefit from European Directives which fulfil certain conditions (and the Equal Treatment Directive does fulfil those conditions) has perhaps yet entirely to be clarified, the general nature of the doctrine is by now well established and well understood. The foundation cases are Becker v. Finanzamt Münüster-Innenstadt [1982] E.C.R. 53 and Marshall v. Southampton and South West Hampshire Area Health Authority [1986] Q.B. 401. The law laid down in these and other authorities may, I believe, be stated accurately enough for present purposes as follows.


Subject to one qualification to which I must return at the end of this judgment, European legislation of the present kind does not have direct effect on individuals, in the sense of creating causes of action on which they can sue or be sued in the courts of the member state. Nevertheless, if the domestic law falls short of what is required by the Directive the member state is in breach of its treaty obligation to give effect to it. Thus, if the individual asserts before his domestic court a right or immunity vis-a-vis the member state which is not available under the domestic law, but which would have been available if the member state had brought its domestic law into line with the Directive, then the individual is entitled to have his case adjudged as if the member state had performed its obligation: i.e. in accordance with the terms of the Directive.


It follows that the effect of this kind of European legislation is uni-directional. It operates in favour of the individual by precluding the member state from asserting in the domestic court any incidents of the relationship between the state and the individual which are less favourable to the individual than those which would have existed if the state had complied with its obligations. But the position is different where it is the state which would prefer to rely on the Directive rather than its own domestic law, since it is the fault of the state itself that the domestic law is not as favourable as it should have been.


Accordingly the question which lies at the root of the present appeal is simply this: did the act of the respondent company in denying to the appellant the opportunity to continue in service for a further five years amount to reliance by the United Kingdom upon its own failure to bring English law into conformity with the Equal Treatment Directive?


Having stated the question I must now summarise the facts. I adopt for this purpose the statement contained in the Decision of the Industrial Tribunal, from which what follows is a direct quotation.

"Rolls-Royce's principal business is the design, development, manufacture and sale of gas turbine engines and ancillary equipment for aircraft and for industrial and marine applications. Rolls-Royce was formed in 1971 as a consequence of the insolvency of the former Rolls-Royce Limited. On 4 February 1971 the former Rolls-Royce Limited went into receivership. The business of that company consisted of the gas turbine business already described and the manufacture of motor cars and diesel engines. The motor car and diesel engine business was transferred by the receiver to a newly formed company named Rolls-Royce Motors Limited. By the Rolls-Royce (Purchase) Act 1971 the Government was authorised to acquire for the benefit of the Crown any part of the undertaking and assets of Rolls-Royce Limited. Under this authority the Government caused the formation of Rolls-Royce (then named Rolls-Royce (1971) Limited) as a private limited company in which all the shares were held by nominees on behalf of the Crown. The company then purchased from the receiver the undertaking and assets of Rolls-Royce Limited relative to the gas turbine business. The transfer of the gas turbine business to the company became effective on 23 May 1971. On that day all employees of Rolls-Royce Limited in Receivership became employees of Rolls-Royce on the same terms and conditions as applied to their previous employment and with continuity of service. Rolls-Royce's shares have at all times been held on behalf of the Crown. From 1 April 1976 until 2 August 1980 all the shares were held by the National Enterprise Board under the provisions of the Industry Act 1975. On 21 March 1977 Rolls-Royce changed its name from Rolls-Royce (1971) Limited to Rolls-Royce Limited and on 1 May 1986 re-registered as Rolls-Royce PLC. None of these changes of name or the changes in the manner in which the shares have been held have changed the status of the terms and conditions of employees of the company.


No civil service trade unions have ever been recognised by Rolls-Royce, and civil service terms and conditions have never been applied to its employees. Rolls-Royce has at all times been registered as a limited company and has complied with the requirements of the Companies Acts. In the last three years the company has reduced staff substantially by voluntary severance. All employees released have received statutory redundancy payments and the company has claimed and received the appropriate rebates from the Department of Employment. Rolls-Royce has at all times traded as a commercial company competing for business worldwide and a substantial proportion of its business consists of the production and support of engines for civil aircraft. In particular, the company trades with the State under terms and conditions negotiated at arms length in the same way as other private sector companies, and does not enjoy the benefit of any special exclusions of liability which are not available to other private sector companies in the aerospace industry. When required the company tenders for State business on a competitive basis.


The Memorandum and Articles of Association of Rolls-Royce are in a form which could be applicable to many companies and contain no unusual provisions in relation to shareholders. Unfortunately, the Articles of Association produced at the hearing were those adopted on 22 April 1986 and we have had to proceed on the basis that the former Articles of Association did not contain any provision which might affect our decision or, in particular, limit the rights and powers of the shareholders. The respondents accept that in law the ultimate power in relation to the company and its business rests with the shareholder by virtue of their ability to pass resolutions in General Meeting, which they can compel Rolls-Royce to comply with. Article 74 of the Articles of Association of Rolls-Royce specifically provides for directions to be given to the directors by special resolution of the shareholders.

In December 1980, a 'Memorandum of Understanding with Rolls-Royce—Relationship with Government' was promulgated. That provided:

'In its relations with the company, the Government has three separate roles—that of 100 per cent shareholder, that of principal customer for the development and production of military engines and that of its overall sponsorship of the aerospace industry. As sole shareholder, the Government expects the Board of the Company to operate as far as possible as if it were the Board of a privately owned company established under the Companies Act: it is not the intention of the Government to concern itself with the day to day management of the Company, or to diminish in any way the responsibility of the Board for the conduct of the Company's affairs. The Government requires the Company to act commercially, and to seek a commercial return, to be defined from time to time, on the capital employed in its operations.


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