LORD JUSTICE MUSTILL: 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 QB 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 Munster-Innenstadt [1982] ECR 53 and Marshall v. Southampton and South West Hampshire Area Health Authority [1986] QB 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.
'As regards the military role, whilst the ratio of military to civil business may alter with changing circumstances, the Board should assume that orders placed by the Ministry of Defence and overseas military sales will continue to be an important part of the future activities of Rolls-Royce. In the light of the importance of the defence interests served by the Company, the Board should ensure that appropriate attention is given to this side of the business. It should discuss with the Government any proposals for reorganisation or for changes in commercial strategy of the Company or any of its subsidiary or associated companies which could impinge substantially on the defence interests. The Government expects the Company to consult with it about future plans and the way in which it proposes that they should be financed. Such consultations will be primarily based on the provision each year of a medium/long term corporate plan dealing with the strategic options available to the Company and a short term operating plan and annual budget. Once agreement has been reached, the Board will be responsible for reporting progress promptly in its quarterly accounts and will inform the Government of any significant changes in relation to the agreed plans and of any decisions which could have major economic or political implications.
'The Government expects the Board to seek its approval before extending the Company's activities into new areas of business, or disposing of significant existing interests and before launching any new engine projects or major developments of existing projects, or making any major capital investments, and will expect satisfactory rates of return over the life of such projects.
'The Secretary of State for Industry would appoint directors to the Board on the basis of recommendations from the Chairman, and the Board will consult the Secretary of State before appointing a chairman, deputy chairman, managing director, chief executive or finance director and before fixing directors' remuneration.
'The Chairman will have access to the Minister responsible to discuss matters he or the Board wish to raise with the Government.'"
We should also note the finding of the tribunal at a later stage of its Decision that the character, status and power of the respondent's sole shareholder (sc. the Government) significantly influenced the policies of the Board of Directors and the business carried on by the respondent. There was no finding that until the change in the law the Government had engaged in any discussions with the respondent about possible changes in its employment policy, and it is a reasonable inference that those responsible for the management of the respondent never raised with its sole shareholder any question of a revision of its policy concerning the equal treatment of men and women, which conformed with the domestic law.
Returning to the question posed at an earlier stage, I confess that it would have seemed to me clear in the absence of guidance that on these facts the doctrine of Becker and Marshall does not apply, for I would be unable to see how the maintenance by the respondent company of a discriminatory pension policy could be regarded as a breach by the United Kingdom of its obligations under the Directive. It is axiomatic that an individual cannot rely on the Directive merely by asserting rights against another individual which would be secured to him if the European legislation had been domestically put into effect. It is the fact that the member state is itself relying on the disconformity as against the individual which brings the doctrine into play. So long as this distinction persists - and it will continue to persist until such time, if ever, as it becomes Community law that the European institutions are empowered to legislate directly for all individuals in the Community - it must follow that the doctrine can be relied upon in a case such as the present only if the acts of the entity against which the individual predecessor are in some sense to be regarded as the acts of the member state. Unassisted I would have found it hard to see how the maintenance by the respondent company of its pension policy could in any sense be regarded as an act of, or as an act attributable to, or whatever other turn of phrase is preferred, the United Kingdom in such a manner as to cause the United Kingdom (through the respondent) to be relying on its own default.
The court is not however without guidance on the matter. Quite the reverse, for we have the advantage of the close study given successively by the Advocate General, the Court of Justice and the House of Lords to the kindred case of Foster. The general shape of the issues was the same as here, but the position of the defendant corporation was substantially, although not necessarily decisively, different. Again, extensive quotation will be a convenient resource, on this occasion from the opinion of the Advocate General.
"The reference for a preliminary ruling thus concerns the issue whether at the material time B.G.C. was 'the state' or 'an individual.' In the first hypothesis, the applicants can rely on article 5(1) of Directive (76/207/E.E.C.) but in the second they cannot.
At the material time B.G.C. was a nationalised gas undertaking; since then it has been privatised by the Gas Act 1986, under which British Gas Plc. was established and, on 24 August 1986, succeeded to the rights and liabilities of the B.G.C. (Following the abolition of the monopoly on the supply of gas through pipes, British Gas Plc. is one of the 'public gas suppliers:' sections 3 and 7 of the Gas Act 1986.).
The status of B.G.C., the employer of the applicants at the relevant time, must be viewed in the context of the nationalisation of gas production and supply by the Gas Act 1948, which was later replaced by the Gas Act 1972. Under the Gas Act 1948 property, rights and liabilities were allocated to 'area boards' or to the 'Gas Council.' Under the Gas Act 1972, the Gas Council became B.G.C. and the property, rights and liabilities were vested in it. The B.G.C. was a body with legal personality operating under the supervision of the authorities and having a monopoly on the supply of gas at homes and businesses in Great Britain. The members of the B.G.C. were appointed by the Secretary of State, and he also determined their remuneration: section 1(2) and (3). The task of the B.G.C. was to develop and maintain an efficient, co-ordinated and economical system of gas supply for Great Britain and to satisfy, so far as it was economical to do so, all reasonable demands for gas in Great Britain: section 2(1). It was its duty to settle from time to time, in consultation with the Secretary of State, a general programme of research into matters affecting gas supply: section 3(3).
The Secretary of State was empowered to require B.G.C. to report on its activities and, after laying that report before both Houses of Parliament, to give B.G.C. such directions as he considered appropriate on, the basis of that report for the most efficient management of the undertaking: section 4. The B.G.C. was obliged to give effect to any such directions: section 4(3). The Secretary of State could also, after consultation with the B.G.C., give the B.G.C. general directions for the exercise and performance of its functions, including the exercise of its rights as a shareholder, where in his view the national interest so required, and the B.G.C. was obliged to give effect to such directions: section 7. The B.G.C. was obliged, as soon as possible after the end of each financial year, to submit a report to the minister on the exercise and performance of its functions during that year and on its policy and programmes: section 8.
The B.G.C. was obliged so to perform its functions and so to exercise its control over its subsidiaries as to ensure that, taking one year with another, the combined revenues of the B.G.C. and its subsidiaries were at least sufficient to meet total operating costs and constitute the necessary reserves in order to be able to comply with any directions given by the Secretary of State: section 14. The Secretary of State could from time to time, after consultation with the B.G.C. and with the approval of the Treasury, require B.G.C. to allocate certain amounts to reserves, whether or not for a specific purpose, and the B.G.C. was obliged to comply with such directions: section 15. If in any financial year there was a significant excess of income over total costs, the minister, with the approval of the Treasury, could require the B.G.C. to pay over to him the portion of that income which was surplus to the B.G.C.'s requirements, and the B.G.C. was required to comply.
Under the Gas Act 1972 the B.G.C. was not an agent of the Secretary of State. The employees of the B.G.C. were not in Crown employment for the purpose of United Kingdom employment law. The B.G.C. had no legislative functions."
We must now consider the way in which the successive judicial authorities approached the issue raised by these facts. First the Opinion of the Advocate General. This is so closely reasoned that it would be perilous to attempt a summary. I believe that the essence can be conveyed by setting out a key passage (paragraph 21 of the Opinion), regrettably again at some length:
"As I have already repeatedly emphasised, the point of departure must be the reasoning lying behind Marshall's case [1986] QB 401 and Johnston's case [1987] QB 129: a member state, but also any other public body charged with a particular duty by the member state from which it derives its authority, should not be allowed to benefit from the failure of the member state to implement the relevant provision of a Directive in national law. That, however, raises the question how far the expressions 'public body', 'charged with a particular duty,' and 'from which it derives its authority' precisely extend. Moreover, it is not entirely possible to give those expressions a precise Community meaning; whether someone forms part of the Government, whether a particular duty is a public duty and whether someone derives his authority from the state (whether or not in the sense that he exercises authority delegated by the state) are difficult matters to define, and their meaning differs significantly not just from one member state to another and within each member state from one period to another but also in Community law, in so far as they are used there, according to the matter in issue.
In the cases I have referred to, the court did not attempt to define those concepts in the abstract, and I think that it was right not to do so. Nevertheless it appears from those cases that the concept of a public body must be understood very broadly and that all bodies which pursuant to the constitutional structure of a member state can exercise any authority over individuals fall within the concept of 'the state.' In that respect it is immaterial how that authority (which I shall call 'public authority') is organised and how the various bodies which exercise that authority are related. In the light of the Marshall, Johnston and Costanzo judgments (and the judgment in Auer v. Ministere Public [1983] E.C.R. 2727, 2745, para. 19, the opinion of Advocate General Mancini, at p. 2751, which preceded them) there can be no doubt that they all fall under the concept of 'the state,' and there is no need for any criterion of delegation or control by other public authorities. That much is certain.
The question in the case now before us is how much further the application of those judgments can extend, in particular with regard to undertakings, in this case public undertakings, which as such exercise no authority in the strict sense over individuals. I think the answer is this: it may extend as far as 'the state' (in the broad sense described in the preceding paragraph) has given itself powers which place it in a position to influence decisively the conduct of persons (whatever their nature, public or private, or their sphere of activity) with regard to the subject matter of the Directive which has not been correctly implemented. It is immaterial in that regard in what manner 'the state' can influence the conduct of those persons: de jure or de facto, for example because the organ of authority has a general or specific power (or is simply able as a matter of fact) to give that person binding directions, whether or not by the exercise of rights as a shareholder, to approve its decisions in advance or suspend or annul them after the fact, to appoint or dismiss (the majority of) its directors, or to interrupt its funding wholly or in part so as to threaten its continued existence, with, however, the provisos that (1) the possibility of exercising influence must stem from something other than a general legislative power (since otherwise all individuals subject to such general legislative power would be brought within the scope of Marshall's case and related judgments, which would go beyond their purpose), and (2) as I have already said, the possibility of exercising influence must exist, inter alia (or in particular), in connection with the matter to which the provision of a Directive which has not yet been implemented relates or can relate.
Once the state (in the broad sense) has retained such a power to exercise influence over a person (in this case the B.G.C.) with regard, inter alia, to the subject matter of the relevant provision of a Directive, from the point of view of individuals it has brought that person within its sphere of authority. For that reason individuals may then rely against that person on the member state's failure to implement a Directive. The reasoning lying behind Marshall's case and the related cases implies that the state may not benefit from its default in respect of anything that lies within the sphere of responsibility which by its own free choice it has taken upon itself, irrespective of the person through whom that responsibility is exercised."
We see here proposed a broad categorisation of the bodies whose responsibility for observing the Directive both the member state and the body itself is estopped from denying.
It appears to me, however, that the matter was seen in a different light by the Court of Justice itself. I agree that the judgment of the court, aside from questions of recital, falls into three parts. The first is of very real importance -although it does not state anything new - for a correct understanding of the relationship between the European Court and the municipal courts of member states in matters of this kind.
It needs to be cited in full:
"13. Before considering the question referred by the House of Lords, it must first be observed as a preliminary point that the United Kingdom has submitted that it is not a matter for the Court of Justice but for the national courts to determine, in the context of the national legal system, whether the provisions of a Directive may be relied upon against a body such as the B.G.C.
14. The question what effects measures adopted by Community institutions have and, in particular, whether those measures may be relied on against certain categories of persons necessarily involves interpretation of the articles of the E.E.C. Treaty concerning measures adopted by the institutions and the Community measure in issue.
15. It follows that the Court of Justice has jurisdiction in proceedings for a preliminary ruling to determine categories of persons against whom the provisions of a Directive may be relied on. It is for the national courts, on the other hand, to decide whether a party to proceedings before them falls within one of the categories so defined."
This division of function is, I venture to suggest, of the highest importance when approaching the application of the Foster case to the present; and indeed for a correct understanding of the mechanisms of European Community law in general.
I pass to the second stage of the Court's reasoning, in which it rehearses the existing jurisprudence. Paragraphs 18 and 19 must also be quoted in full, the more so because of the importance attached in the argument for the appellant to the word "or" in the expression "or has special powers" in paragraph 18:
"18. On the basis of those considerations, the court has held in a series of cases that unconditional and sufficiently precise provisions of a Directive could be relied on against organizations or bodies which were subject to the authority or control of the state or had special powers beyond those which result from the normal rules applicable to relations between individuals.
19. The court has accordingly held that provisions of a Directive could be relied on against tax authorities, Becker's case and European Coal and Steel Community v. Acciaierie e Ferriere Busseni (in liquidation) (Case C 221/88)(unreported), 22 February 1990; local or regional authorities, Fratelli Costanzo S.p.A. v. Commune di Milano (Case 103/88)(unreported), 22 June 1989; constitutionally independent authorities responsible for the maintenance of public order and safety, Johnston v. Chief Constable of the Royal Ulster Constabulary (Case 222/84) [1087] Q.B. 129; and public authorities providing public health services, Marshall's case."
Finally there is the answer rendered in paragraph 22 to the question posed. (The formal order of the court is in identical terms) :
"The answer to the question referred by the House of Lords must therefore be that article 5(1) of Council Directive of 9 February 1976 (76/207/E.E.C.) may be relied upon in a claim for damages against a body, whatever its legal form, which has been made responsible, pursuant to a measure adopted by the state, for providing a public service under the control of the state and has for that purpose special powers beyond those which result from the normal rules applicable in relations between individuals."
It will be noted that, undoubtedly by design, the court did not directly answer the question put, which asked whether British Gas was "a body of such a type" that claimants were entitled to rely directly on the Directive, but rather informed the domestic court of the way in which that court should set about deciding whether British Gas fell into that category.
It was in these circumstances that the House of Lords set about arriving at a decision on the claim of Mrs Foster. The leading speech in the House of Lords was delivered by Lord Templeman. Again, an accurate epitome is impracticable, but I wish at the start to isolate two sentences (at page 315 of the report) which I believe would in any event have reflected the approach of the English courts, but which so clearly lays down for the future what that practice should be that their importance cannot be over-emphasised:
"...I can see no justification for a narrow or strained construction of the ruling of the European Court of Justice which applies to a body 'under the control of the state'... Similarly, I can see no justification for a narrow or strained construction of the ruling of the European Court of Justice which applies to a body which has 'special powers beyond those which result from the normal rules applicable in relations between individuals.'"
These sentences express the spirit in which I approach the present appeal.
An accurate summary of an extended discussion being impossible, I will for the last time have recourse to quotation in order to isolate what I believe to be the essence of the decision:
"My Lords, the principle laid down by the European Court of Justice is that the state must not be allowed to take advantage of its own failure to comply with Community law. The policy of the B.G.C., which involved discrimination against women in breach of the Directive, was no doubt thought to be in the financial and commercial interests of the B.G.C. The advantages of that policy would accrue indirectly to the state which provided through the B.G.C. a supply of gas for all citizens generally and which was entitled to the surplus revenue of the B.G.C. If the B.G.C. were allowed to escape the consequences of an admitted breach of the Directive the state would be taking advantage of its own failure to comply with Community law. In these circumstances I can see no justification for a narrow or strained construction of the ruling of the European Court of Justice which applies to a body 'under the control of the state.' That control was exercised by the Secretary of State who could give general and special directions and to whom the B.G.C. was accountable. The day-to-day control exercised by the B.G.C. over its activities did not render the B.G.C. independent. In the final analysis the B.G.C. was under the control of the state and nobody else. Similarly, I can see no justification for a narrow or strained construction of the ruling of the European Court of Justice which applies to a body which has 'special powers beyond those which result from the normal rules applicable in relations between individuals.' The Act of 1972 conferred on the B.G.C. an express power to prevent anyone else from supplying gas in the United Kingdom. That power was a special power which could not have resulted from transactions between individuals. I decline to apply the ruling of the European Court of Justice, couched in terms of broad principle and purposive language characteristic of Community law in a manner which is, for better or worse, sometimes applied to enactments of the United Kingdom Parliament. I can find no warrant in the present circumstances for the limited and speculative approach of the respondent and have no means of judging whether the relevant provisions of the Directive are enforceable against the B.G.C. save by applying the plain words of the ruling of the European Court of Justice. Applying those words, it seems to me, that the Act of 1972 created a body, the B.G.C., which provided a public service, the supply of gas, to citizens of the state generally under the control of the state which could dictate its policies and retain its surplus revenue; the B.G.C. was equipped with a special monopoly power which was created and could only have been created by the legislature. The B.G.C. is therefore a body against which the relevant provisions of the Directive may be enforced."
I now seek to apply the principles to be extracted from these authorities to the facts of the present appeal, and will do so in the light of two questions -
1. Is the appellant correct in contending that the sole test, or at any rate the sole test material for present purposes, of whether the entity in question falls within the doctrine of Becker and Marshall is whether it is under the control of the state?
2. If this contention is not correct, to what extent does the answer furnished by the Court of Justice in the last of the paragraphs cited above from paragraph 22 of its judgment in Foster constitute an exhaustive statement of the criteria for determining the status of the entity; and if it is not exhaustive, what test should be applied to the present case?
It is, I believe, clear that if regard were to be had only to the Opinion of the Advocate General in Foster the first question should be answered in the affirmative, as the passage already cited will show. If I may say so, it is not hard to understand why the Advocate General formed this view, for Article 189(3) prescribes that a Directive "shall be binding, as to the result to be achieved" on the member state; the result to be achieved here was the securing of equal treatment; and if the state was in a position to achieve this result for the employees of a particular entity by exercising its rights as shareholder then it was bound to do so, and was in breach of its treaty obligations if it did not.
Against this solution there are both doctrinal and practical objections. As to the former, it is not altogether clear why the existence of a control which ex hypothesi is not being exercised (for otherwise the point would not arise) should mean, not only that the state is in default, but that the entity should be treated as if it were the state for the purpose of estopping it from reliance on the domestic law. On the practical side, there are obvious difficulties in defining the point at which the possession of a power to control causes the entity to be identified with the state. Plainly it would not be necessary for the entity to be a wholly-owned subsidiary of the state. Beneficial ownership of 51 per cent of the voting share capital would suffice. But the logic of the Advocate General's approach would go further than this, since it entails that de facto control is what matters, so that the doctrine would operate whenever the state could if it had wanted have caused the entity to change its terms of employment, regardless of the size of its shareholding, and regardless of whether any attempt had ever been made or even contemplated to bring about such a change. Since it is a commonplace of corporate life that possession of a large minority holding may in the right circumstances confer effective control, the enquiry into whether the entity is to be identified with the state (or whatever other metaphor is preferred) could well be complex, and the outcome highly speculative. This would compromise one of the most attractive features of the solution proposed by the Advocate General, namely, simplicity and certainty of operation.
If it were necessary for the purposes of the present appeal to weigh up these and other considerations a close and elaborate discussion would be called for. In my view, however, this is not necessary, since I think it plain that the opinion of the Advocate General, whilst not explicitly repudiated by the Court of Justice, cannot stand with the answer given by the Court to the question posed by the House of Lords. Otherwise the Court would have responded on these lines: "A body, whatever its legal form, which is under the control of the state is included among the bodies against which the provisions of a Directive capable of having direct effect may be relied upon". The adoption by the Court of a much wider test, of which the power of control is only one of several cumulative criteria, shows that the proposition advanced by the appellant in the present case cannot be correct.
The same conclusion, for the same reasons, follows from an examination of the leading speech in the House of Lords. If control had been the touchstone, the second hearing in the House would have been a formality, and the reasoning in the judgment need have occupied no more than a few lines, since by statute "the Secretary of State...could give general and special directions and to whom the B.G.C. was accountable". (See page 315E of the report). Instead, Lord Templeman found it necessary to test the position of B.G.C. against all the criteria referred to in the ruling of the European Court.
Accordingly, I would reject the appellant's first and principal argument. There remains the second question, concerning the status of the test prescribed in the concluding paragraphs of the European Court's judgment. On behalf of the respondent Mr Pannick was disposed to accept, rightly in my view, that this test was not intended to provide the answer to every category of case. The words "...is included among..." in paragraph 20 make this clear enough. Nevertheless, at least in a case of the same general type as Foster the Court's formulation must always be the starting point, and will usually be the finishing point. If all the factors identified by the Court are present it is likely to require something very unusual to produce the result that an entity is not to be identified with the state. Conversely, although the absence of a factor will not necessarily be fatal, it will need the addition of something else, not contemplated by the formula, before the Marshall principle has a prospect of being brought into play.
So we must begin by seeing whether the three criteria established by the formula in Foster are satisfied in the case of the respondent. For this purpose I am prepared to assume that the second criterion, namely that whatever "service" the respondent provided was at the material time "under the control of the state", was fulfilled by Rolls Royce at the time in question; although if this requirement had been crucial to a decision of the present appeal I would have wished to examine it much more closely. To my mind, however, the position is quite different in regard to the other two criteria. As to the first, I am unable to see how it could be said that the respondent "was made responsible, pursuant to a measure adopted by the state for providing a public service..." The respondent was a commercial undertaking which as part of its business traded with the state on terms which were negotiated at arm's length. It is true that this trading connection was of importance to the defence of the realm, an activity peculiar to the state, and was liable to become even more so in time of war; and the importance of this was manifested not only by the closeness of the watch kept on the trading relationship but also by the importance attached by officers of state to ensuring that the respondent kept its trading capacity fully in being. Nevertheless, on the evidence before the Industrial Tribunal the "services" of the respondent were provided to the state, and not to the public for purposes which were of benefit to the state.
Nor can I see any evidence that the respondent possessed or claimed to exercise any "special powers" of the type enjoyed by the British Gas Corporation, and indeed counsel for the appellant scarcely sought to contend that this requirement was satisfied. What counsel did suggest was that the third requirement was alternative, rather than cumulative, to the others, and he relied for this purpose on the use of the word "or", rather than "and", in paragraph 18 of the European Court's judgment, cited above. I am by no means convinced that there is any real disconformity between paragraph 18 on the one hand, and the test prescribed in paragraph 2 0 of the formal ruling on the other, since paragraph 18 is presented only as a summary of the jurisprudence to date, and not as an authoritative exposition of the way in which cases like Foster were to be approached. But if such a disconformity does exist the formal ruling must surely prevail.
For these reasons I consider that the respondent did not at the material time fulfil the requirements of the ruling. As I have suggested, this does not mean that the appellant's claim based on the Directive must inevitably fail, but I would need to find some strong additional reason special to this case before concluding that the Directive can be relied upon by the individual appellant against the respondent. I can see none at all.
In reaching this conclusion I have not lost sight of the warning by Lord Templeman against giving a narrow or strained interpretation to the law, nor am I unconscious of the risk of approaching a question of Community law furnished only with those techniques engrained by practice of the common law. It is not intention to do any such things, but rather to interpret and apply as best I can the principles which the Court of Justice has laid down.
I add one word of postscript. The Industrial Tribunal directed its attention to the question whether the respondent was at the material time "an emanation of the state".' This is readily understood since the Court of Appeal when making the reference under Article 177 in Marshall used precisely this expression in describing the Southampton Health Authority, apparently as the result of a concession (see [1986] E.C.R. at pp. 403H and 4221D-E). I have abstained from taking the same course because, although the concept of an "emanation of the state" is an important feature of public international law, I am not wholly satisfied that it has the same meaning in the field with which we are here concerned. Now that we have direct and recent guidance from the Court of Justice on the way to approach questions concerning the effect of Directives on individuals, I think it wiser to apply that guidance in preference to any other test.
In these circumstances I would dismiss the appeal.
We return to the qualification which we mentioned at an earlier stage. After the conclusion of the argument of the present appeal the European Court of Justice gave judgment in Francovitch v. Italian State (case C - 6/90), opening up the possibility of an action in damages against the state where the individual has suffered loss through the acts of a private party incompatible with a directly applicable Directive to which the state ought to have, but has not, given effect by legislation. We have not received any application for further argument to be addressed in the light of Francovitch, for reasons which we well understand, since the whole point of the present appeal is that
it was brought against Rolls Royce and not the United Kingdom. Accordingly, nothing which we say is to be understood as expressing any opinion upon the rights which the present appellant may or may not have against the state.
LORD JUSTICE BUTLER-SLOSS: I agree that this appeal should be dismissed.
SIR JOHN MEGAW: I agree that this appeal should be dismissed for the reasons given by Mustill L.J.
Order: Appeal dismissed with costs; application for leave to appeal to the House of Lords refused.
