England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE CHANF 96/0380/B

(MR JUSTICE WALKER )

Royal Courts of Justice

Strand

London WC2

Thursday, 15 May 1997

B e f o r e:

LORD JUSTICE LEGGATT

LORD JUSTICE MORRITT

LORD JUSTICE PHILLIPS

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BARBARA ADAMS & ORS

APPELLANTS

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LANCASHIRE COUNTY COUNCIL

BET CATERING SERVICES LIMITED

RESPONDENTS

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(Transcript of the handed down judgment of

Smith Bernal Reporting Limited, 180 Fleet Street,

London EC4A 2HD

Tel: 0171 831 3183

Official Shorthand Writers to the Court)

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MR B LANGSTAFF QC with MS H MOUNTFIELD (Instructed by Messrs Brian Thompson & Partners, London WC1B 3LW) appeared on behalf of the Appellants

MR P ELIAS QC with MR J COPPELL (Instructed by G A Johnson, Chief Executive Clerk, Lancashire County Council, Preston PR1 8XJ) appeared on behalf of the First Respondent

MR D PANNICK QC with MR P CRANFIELD (Instructed by Messrs Biddles & Co, London EC2V 7BU) appeared on behalf of the Second Respondent

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J U D G M E N T

(As approved by the Court )

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©Crown Copyright

Thursday, 15 May 1997

J U D G M E N T

LORD JUSTICE MORRITT: This appeal from the order of Robert Walker J, made on 17th January 1996 ([1996] ICR 935), raises two principal questions. The first is whether each of the plaintiffs is entitled, pursuant to Transfer of Undertakings (Protection of Employment) Regulations 1981 SI 1981 No.1794 (“TUPE”), to a pension from the transferee of the relevant undertaking, the second defendant BET Catering Services Ltd (“BET”), in respect of periods of employment occurring after the transfer equivalent to the pension to which she would, but for the transfer, have been entitled from the transferor, the first defendant Lancashire County Council (“the Council”). If the answer to that question is in the negative the second question, which is in three parts, arises. That is (a) whether Article 3 Council Directive (77/187/EEC)(“the Acquired Rights Directive”) required of the United Kingdom, as one of the member states to which it was directed, that, on such transfer, each of the plaintiffs be provided with such a pension and if so (b) whether that obligation has vertical direct effect and if so (c) whether the consequential entitlement of the plaintiffs may be enforced against the Council as an emanation of the United Kingdom and if so by what remedy. Robert Walker J answered questions 1 and 2(a) in the negative and dismissed the plaintiffs application. The plaintiffs now appeal. By a respondent’s notice the Council contends that questions 2(b) and (c), which the judge did not have to resolve, should, in each case, be answered in the negative also.

Until June 1994 the Council was responsible for the provision of meals in the schools it maintained. It employed 3150 persons in its schools catering service. The plaintiffs were so employed as Dinner Ladies. They worked part-time for 20 to 30 hours a week at an hourly rate of pay the judge described as fairly low. The particulars of their contracts of employment stated in respect of pension that

“A contracting out certificate is in force in respect of the authority’s superannuation scheme. This means that the authorities scheme has been approved by the Occupational Pensions Board. It therefore applies in place of the State additional pension scheme. Your position with regard to pension is set out in the authority’s superannuation scheme. An explanatory booklet is available for reference.”

The booklet noted that it was a general guide only so that for rights and entitlements to benefits reference should be made to the appropriate legislation; at the material time that was Local Government Superannuation Regulations 1986 (SI 1986 No.24). I gratefully adopt the following summary of the effect of those regulations given by the judge ([1996] ICR 935, 940)

“These regulations provide for pension funds to be established and managed by county councils and some other specified local authorities. Local authority pension arrangements are therefore closer, at least in their methods of funding, to private sector occupational pension schemes than they are to the unfunded arrangements for central government pensioners. Each fund provides (in the typical case) for employees of several different employing authorities. Local authority employees contribute to the appropriate fund six per cent of their remuneration (if they are officers) or five per cent (if they are manual workers). Local authorities who are the employers in relation to the fund contribute on a scale certified by the fund's actuary, who makes triennial valuations of the fund in much the same way as with private-sector schemes. The normal retirement benefits are a retirement pension of N/80ths of the final year's pensionable pay, and a lump sum retiring allowance of 3N/80ths of the final year's pensionable pay, where N is the number of years of reckonable service. There are also provisions for widows' (and in special circumstances widowers') pensions, ill-health benefits and death in service benefits which I need not describe in detail. The scheme provides for preservation of benefits for early leavers. Pensions in payment are indexed-linked under the Pensions (Increase) Act 1971.”

In 1993, in performance of its obligations under Part I Local Government Act 1988, the Council sought tenders for its schools catering service. The form of tender did not require the tenderer to provide equivalent pension benefits for employees who might be transferred. There is some dispute as to why that was the case but it is not necessary to resolve it. BET was the successful tenderer and took over the schools catering service with effect from 13th June 1994. As none of them objected the employment of each of the plaintiffs was transferred to BET. BET had set up a pension scheme in 1993 for local government employees who might be transferred and that scheme had been approved by the Government Actuary’s Department as offering equivalent pension benefits; but none of the plaintiffs was eligible to join it because each of them earned less than £15,000 per annum. The consequence is that although the plaintiffs have not been required, in respect of periods of service after the transfer, to contribute to a fund for the provision for themselves of pension and other benefits equivalent to those formerly conferred by the Council’s Superannuation Scheme, and are to that extent better off, they are not eligible to be members of a comparable pension scheme and, therefore, have not obtained the benefit of employer’s contributions such as the Council formerly paid.

The relevant legislation starts with the Acquired Rights Directive. The purpose of the Directive was

“the approximation of the laws of the Member States relating to the safeguarding of employees’ rights in the event of transfers of undertakings, businesses, or parts of businesses.”

Article 3 provides (for ease of reference to its two limbs I have inserted “[A]” and “[B]” into paragraph (3))

"1. The transferor's rights and obligations arising from a contract of employment or from an employment relationship existing on the date of a transfer with-in the meaning of Article 1(1) shall, by reason of such transfer, be transferred to the transferee.

Member States may provide that, after the date of transfer within the meaning of Article 1(1) and in addition to the transferee, the transferor shall continue to be liable in respect of obligations which arose from a contract of employment or an employment relationship.

2. Following the transfer within the meaning of Article 1(1), the transferee shall continue to observe the terms and conditions agreed in any collective agreement on the same terms applicable to the transferor under that agreement, until the date of termination or expiry of the collective agreement or the entry into force or application of another collective agreement.

Member States may limit the period of observing such terms and conditions, with the proviso that it shall not be less than one year.

3. [A] Paragraphs 1 and 2 shall not cover employees' rights to old-age, invalidity or survivors' benefits under supplementary company or inter company pension schemes outside the statutory social security schemes in Member States.

[B] Member States shall adopt the measures necessary to protect the interests of employees and of persons no longer employed in the transferor's business at the time of the transfer within the meaning of Article 1(1) in respect of rights conferring on them immediate or prospective entitlement to old-age benefits, including survivors' benefits, under supplementary schemes referred to in the first subparagraph."

It is not disputed that there was, for the purposes of the Directive, a transfer of an undertaking or business when BET took over the schools catering service from the Council in June 1994. Further it is common ground that the Council’s Superannuation Scheme was within the description contained in Article 3(3)[A] “supplementary company or inter-company pension schemes outside the statutory social security schemes in member states”. The issue raised in question 2 is whether pension rights in respect of periods of employment occurring after 13th June 1994 fall within Article 3(3)[B] so as to impose an obligation on member states, to whom by Article 10 the Directive was addressed, to protect them.

It is contended by Her Majesty’s Government that the obligations imposed by the Acquired Rights Directive as a whole were discharged by the promulgation of TUPE. With regard to the specific obligation imposed by Article 3(3)[B] of the Acquired Rights Directive Her Majesty’s Government maintain that it has been fully performed by the enactment, most recently on consolidation, of Part IV Pension Schemes Act 1993. TUPE were made under s.2 of and Sch.2 to European Communities Act 1972. Regulations 5 and 6 implement Article 3(1) and (2) of the Acquired Rights Directive. So far as relevant Regulation 5 provides

“(1)...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.

(2) Without prejudice to paragraph (1) above...on the completion of a relevant transfer -

(a) all the transferor’s rights, powers, duties and liabilities under or in connection with any such contract, shall be transferred by virtue of this Regulation to the transferee; and

(b) anything done before the transfer is completed by or in relation to the transferor in respect of that contract or a person employed in that undertaking or part shall be deemed to have been done by or in relation to the transferee.”

Regulation 7, as amended with effect from 30th August 1993 by Trade Union Reform and Employment Rights Act 1993, provides

"7. Exclusion of occupational pensions schemes

(1) Regulations 5 and 6 shall not apply-

(a) to so much of a contract of employment or collective agreement as relates to an occupational pension scheme within the meaning of the Social Security Pensions Act 1975 or the Social Security Pensions (Northern Ireland) Order 1975; or

(b) to any rights, powers, duties or liabilities under or in connection with any such contract or subsisting by virtue of any such agreement and relating to such a scheme or otherwise arising in connection with that person's employment and relating to such a scheme.

(2) For the purposes of paragraph (1) above any provisions of an occupational pension scheme which do not relate to benefits for old age, invalidity or survivors shall be treated as not being part of the scheme."

The plaintiffs claim that Regulation 7 does not exclude their rights or expectations in respect of pension for periods of employment occurring after the date of the transfer. They contend, in consequence, that such rights and expectations are protected pursuant to Regulation 5. If they are wrong on either or both of these arguments then, they claim, the United Kingdom is in breach of its obligations under Article 3(3)[B] Acquired Rights Directive. In that event, so they claim, the obligation imposed on the United Kingdom may be enforced under Community Law against the Council as its “emanation”.

Robert Walker J was invited to deal with the true construction of the Regulations first. He declined, in my view rightly, on the basis that, as the object of the Regulations was to give effect in English domestic law to the obligations imposed by the Acquired Rights Directive, it was sensible to start by considering what those obligations are. In relation to those obligations he considered the appropriate principles of construction applicable under Community Law to the construction of the Directive, the purpose of the Directive as apparent from preparatory works, decisions of the European Court of Justice, the light in which Community Law regards pension rights and the scheme and language of the Directive itself. His conclusion expressed at page 954 was

“I have set out counsel's principal submissions on the Directive at considerable length - perhaps at excessive length -both because of the general importance of the point, and out of deference to counsel's full and careful arguments. But in the end it is a short point, and one on which - after hearing and considering the full and careful arguments - I feel very little doubt. It seems to be that limb (A) of Article 3(3) uses wide, general language to make an exception from the wide general language of Article 3(1). Abels is at least consistent with, and probably supports this view. Limb (B), on the other hand, uses much more complicated and precise language to identify the interests which it is the duty of Member States to protect for both current employees and ex-employees; language which to my mind is apt to describe accrued rights, and nothing else. I think that the Directive could have made its meaning even plainer by using the word "accrued" (and its equivalents in the other Community languages) and had the Directive been drafted since Barber, Ten Oever and Coloroll it almost certainly would have done; but I bear in mind what the ECJ said in CILFIT as to interpreting provisions with regard to the state of evolution of Community law at the date when the provision is to be applied (not the date when it was enacted).

This view of the meaning of the Directive does leave a gap. An employee who has had the opportunity to earn both immediate and deferred pay with his old employer may find that he is deprived of that opportunity, so far as deferred pay is concerned, with his new employer. But the language of the Directive compels me to the conclusion that the Council must, for sufficient reasons, have recognized and accepted that gap.”

The consequence of this conclusion on the effect of the Regulations was, as stated by the judge at page 955, that

“..there is no inconsistency between it [Article 3(3)] and Regulation 7 of TUPE, and no need to strain the wording of TUPE in an attempt to fit in with one or other of the constructions of Article 3(3) for which Mr Langstaff contends. Had I been persuaded of the correctness of either of those constructions I would still have felt unable to read Regulation 7 in the way that Mr Langstaff urges.”

In those circumstances, as the judge recognised at pages 955 and 958, the interesting questions, which I have described as questions 2(b) and (c), as to the direct vertical effect of the Acquired Rights Directive did not arise and there was no reason to make a reference to the European Court of Justice.

The plaintiffs contend that the judge was wrong in his construction of Article 3(3) of the Acquired Rights Directive. They also submit that the judge was wrong in his interpretation of Regulation 7 of TUPE. They argue that he should have construed it so as to accord with the Acquired Rights Directive as they submit the latter should be construed. Thus the crucial issue, common to both the questions I summarised earlier, is the proper interpretation of Article 3 of the Acquired Rights Directive.

The basis of the plaintiffs’ contentions is the proposition that pension rights are deferred pay; they rely on Barber v Guardian Royal Exchange (1990) ICR 616. They submit that the Article 3 should be interpreted so as to offer a complete scheme of protection, albeit using differing mechanisms, for both past and future and immediate and deferred pay. Their complaint is that on the judge’s interpretation the protection is incomplete. This is the gap which the judge acknowledged. The gap arises, they suggest, from the facts that whereas an employee’s accrued rights to deferred pay in the form of pension rights for periods of past service will be protected under Article 3(3)[B] and his rights to present and future immediate pay for current and future work are protected under Article 3(1) and (2) there is, on the judge’s construction, no protection for deferred pay in the form of pension rights for current and future work after the transfer.

The plaintiffs claim in their written argument that Article 3 can be construed so as to provide the complete protection they submit must have been the purpose of the Acquired Rights Directive in either of two ways. The first, and preferred, construction limits the exclusion in Article 3(3)[A] to accrued rights in respect of past service. Pursuant to Article 3(3)[B] the obligation to protect those rights is placed on the member states. It is up to them to choose the best way to do so in the light of the conditions and the legal system prevailing in that state. The suggested consequence of this construction is to leave Article 3(1) to provide for the transfer of the continuing obligation on the employer to provide the same immediate and deferred pay in respect of future work. The second, but less favoured, construction is one which does not limit Article 3(1) to accrued rights in respect of past service but otherwise resembles the first suggestion in requiring symmetry between paragraphs [A] and [B] of Article 3(3). Thus, it is submitted, all those rights which are excluded from the effects of Article 3(1) and (2) by Article 3(3)[A] are included in the obligation imposed by Article 3(3)[B]. In their oral submissions they concentrated on their preferred construction and I will do the same for common to both of them is the thesis that paragraphs [A] and [B] are coterminous. If they are not then both submissions must fail.

Counsel for the plaintiffs relies on the purpose, scheme, content and wording of the Directive. He also points to what he contends are absurd consequences of the judge’s judgment. It is convenient to start with the evolution of the Directive from the time of the original proposal put forward by the Commission to the Council on 31st May 1974. The purpose as clearly expressed in the preamble was

“to safeguard workers in the event of changes in undertakings’ structure so as to afford them as far as possible stability and security of employment and preservation of working conditions and entitlements previously enjoyed..”

The method selected to achieve that result was to provide for the automatic transfer from the transferor to the transferee all his rights and obligations as employer arising from the employment relationship. Article 9, if adopted, would have made special provision for the pension rights of ex-employees. The form of that provision would have varied depending on whether the fund out of which the employee’s rights to benefit were to be met was transferred with the business or undertaking. If it was not then the Article would have required Member States to take appropriate legislative measures to ensure that the claims of former workers were met.

On 24th April 1975 the Economic and Social Committee published its opinion on the draft directive. They wholeheartedly supported the overall objective of protecting employees against loss of rights or claims as a result of mergers and takeovers. They approved of the aim of the proposal that workers alone should not have to bear the cost of achieving technological progress. They proposed no change to the method chosen in the case of employees at the time of the takeover, that is an automatic transfer of the employment relationship and its concomitant rights and obligations, but in relation to the pension rights of former employees suggested amendments to Article 9 so as to exclude the possibility of multiple claims by making the transferee liable for all accrued rights. No change was proposed to the requirement that Member States should take appropriate legislative measures to ensure that the claims of former employees were met in cases where the fund was not transferred.

The proposal was then considered by the European Parliament on 28th April 1975. The Parliament welcomed the initiative of the Commission in attempting to deal with the question of the preservation of the rights and advantages of employees in the case of mergers, takeovers and amalgamations and pointed to the need at Community level to harmonise and preserve workers’ entitlements and benefits. No change was suggested to the automatic transfer proposed for existing employees. In relation to Article 9 the Parliament suggested a further amendment requiring Member States to take appropriate legislative action to ensure that the claims of former workers were met whether or not the body of assets was transferred.

But the Directive as promulgated on 14th February 1977 is significantly different. Article 3(3)[A] was new and therefore qualified the previously unqualified transfer for which Article 3(1) provided. Article 3(3)[B] included existing employees as well as former employees. It is true, as counsel for the plaintiffs contended, that the purpose of the Directive as a whole of protecting the rights of workers in the event of takeovers and mergers and providing for some harmonisation at Community level of the entitlements and benefits of workers did not alter. But the method by which that purpose was to be achieved changed and Article 3 is dealing with method.

Insofar as these preparatory works cast any light on the questions this court has to decide they demonstrate a progressive assimilation of the position of existing employees with that of ex-employees. Like the judge I find it impossible to draw any firm conclusions from these preparatory works.

It is not disputed that this court should adopt a purposive construction to the Directive. We were referred to a number of authorities describing why such a construction is necessary and what it entails. It is sufficient to refer to the judgment of the European Court of Justice in CILFIT v [Italian] Ministry of Health, 1982 ECR 3415, 3430. In paragraphs 18 to 20 it is stated

"18. To begin with it must be borne in mind that Community legislation is drafted in several languages and that the different language versions are all equally authentic. An interpretation of a provision of Community law thus involves a comparison of the different language versions.

19. It must also be borne in mind, even where the different language versions are entirely in accord with one another, that Community law uses terminology which is peculiar to it. Furthermore, it must be emphasized that legal concepts do not necessarily have the same meaning in Community law and in the law of the various Member States.

20. Finally, every provision of Community law must be placed in its context and interpreted in the light of the provisions of Community law as a whole, regard being had to the objectives thereof and to its state of evolution at the date on which the provision in question is to be applied."

The purpose of the Directive as a whole has been considered in a number of cases before the European Court of Justice. Thus in Londsorganisationeni Danmark v Ny Molle Kro [l987] ECR 5465, 5483, the Court stated that

"the purpose of the directive is to ensure, so far as possible, that the rights of employees are safeguarded in the event of a change of employer by enabling them to remain in employment with the new employer under the conditions agreed with the transferor."

This was cited with approval by the Advocate-General in Redmond Stichting v Bartol [l992-5] ECR 3189, 3200, 3219. Though the judgment of the court contains a similar passage the phrase “so far as possible” is omitted. But that the qualification was implicit was recognised by in Tellerup v Daddy's Dance Hall [1988] ECR 739, 752. The court in the latter case also recognised that the harmonisation was only partial and that it was not intended to establish a uniform level of protection throughout the Community on the basis of common criteria. More recently in Rotsart de Hertaing v J.Benoidt SA (1997) IRLR 127 at page 131 para.16 the Court of Justice pointed out that the purpose of the Directive was

“to safeguard the rights of workers in the event of a change of employer by making it possible for them to work for the new employer under the same conditions as those agreed with the transferor.”

I agree with the submission for BET that the question is not what is the purpose of the Directive as a whole but what is the purpose of Article 3 and in particular subparagraph (3). That must be ascertained from its wording in the light of the overall purpose of the Directive.

I turn then to the scheme and wording of that Article. In my view it is plain that paragraph (3)[B] is dealing with accrued rights in respect of periods of service occurring prior to the transfer. This is apparent from the words “rights conferring on them immediate or prospective entitlement”. Further ex-employees could, by definition, only have accrued rights; and there could be no purpose in dealing with the effects of a transfer with which they were not concerned to make provision for their future rights. As employees at the time of the transfer and ex-employees are treated alike I see no basis for a conclusion that the future rights of present employees were included. It is interesting to note that the same description is used in Article 8 of the Council Directive 80/987/EEC in imposing on Member States the obligation to protect the interests of present and former employees in the event of the employer’s insolvency. There can be no question of rights in respect of future employment in that context.

Before considering the wording of subparagraph (3)[A] it is convenient to refer to subparagraph (1). This provides for the transfer of the employer’s “rights and obligations arising from a contract of employment or from an employment relationship”. The right of the employee will be correlative to the obligation of the employer. But it was not contended for the plaintiffs that the rights they sought to enforce against the transferee were those previously exercisable against the transferor which by force of subparagraph (1) had been transferred. What they claim to be entitled to against the transferee are “pension benefits proportionate and equivalent” to those they would have obtained from the transferor if the periods of service performed for the transferee had been performed for the transferor. Thus the claim is to a new right. In the nature of pension schemes it has to be for, in most cases, and this is no exception, the employee ceases to be eligible to participate in the transferor’s scheme when he ceases to be employed by the transferor. Similarly the transferee is not bound, and is usually unable, to contribute to the scheme maintained by the transferor. If, as originally proposed, the Directive had contained Article 3(1) alone in respect of employees at the time of transfer it might well have been ineffective in respect of some pension schemes and would have been calculated to cause uncertainty in relation to all of them.

Subparagraph (3)[A] applies to all employees’ rights to the specified benefits. It is true, as counsel for the plaintiffs submitted, that the phrase “rights to ... benefits” in [A] can also be spelt out of [B]. But it does not follow that they have the same meaning. That depends on whether the context is the same; it is not for in [B] but not [A] the words between “to” and “benefits” are the words “conferring on them immediate or prospective entitlement”. Those words limit [B] to accrued rights; there is no such limitation in [A]. Thus the words used do not require that [A] should apply only to accrued rights. If it were intended that the same rights should be covered by both [A] and [B] then the drafting of the Article would have been quite different. It seems to me that there are very good practical reasons why all rights in respect of the schemes and benefits referred to in [A] should be excluded from the automatic transfer provisions of subparagraph (1).

In my view the scheme of Article 3 is such that, subject to subparagraph (3), subparagraph (1) transfers existing obligations of the former employer thereby enabling the employee to enforce his correlative right against his new employer. The extent to which future and accrued rights in respect of the specified pensions would or should be subject to the automatic transfer was at the least doubtful; the solution adopted being to exclude them altogether. Accordingly subparagraph [A] is unlimited. There are good practical reasons why that should be so. But subparagraph [B] can only refer to accrued rights. That was the original intention and the only one capable of being discerned from the words used. I see no reason why it must be assumed that it was the intention similarly to limit subparagraph [A] when the words do not justify it. In my judgment the argument for the plaintiffs as to the true construction of Article 3 should be rejected.

This conclusion accords with the decision of the European Court of Justice in Abels v Bedrijfsvereniging voor de Metaalindustrie 1985 ECR 469. That case concerned the question whether the transferee was liable for arrears of pay and for holiday pay accrued due during the employment of the claimant with the transferor. The Advocate General, Sir Gordon Slynn, commented in his opinion (page 477) on Article 3(1),

"It seems to me that whether "existing on the date of transfer" governs "rights and obligations" or "a contract of employment or...an employment relationship" (and I think it means the latter), it covers debts owed by the transferor to the employee at the date of transfer. The intention is certainly to ensure for the future that the transferee is to have the same rights and liabilities quoad the employee as the transferor had, but it is also intended that existing rights and obligations shall be transferred over. If it had been intended merely to substitute the transferee for the transferor for the future (so that the employee could insist, for example, on the same pay and seniority) and to exclude existing debts, quite different language would have been required."

The ECJ described (pages 487-8, paragraphs 36 and 37) the first part of Article 3(1) as expressed "in general terms and unreservedly" and observed that

"That interpretation is confirmed by the fact that Article 3(3) expressly excludes from the scope of paragraph (1), the provisions at issue, "employees' rights to old-age, invalidity or survivors' benefits under supplementary company or inter-company pension schemes outside the statutory social security schemes in Member States". The existence of such a specific clause, limiting the scope of the basic rule, leads to the conclusion that Article 3(1) relates to all the rights of employees which are not covered by that exception, whether those rights arose after or before the transfer of the undertaking."

To the same effect is the judgment of the EAT in Walden Engineering v Warrener (1993) IRLR 420. At page 422 Wood J expressed the view that

“a proper reading of limb B indicates a duty on Member States to protect the interests which crystallise at the time of transfer in respect of the rights therein referred to. Unless so read, the wording of limb B would be in conflict with the clear words of limb A.”

The construction I favour is also consistent with the decision of the EFTA Court in Eidesund v Stavanger Catering A/S (1996) IRLR 684. The Directive is deemed to be part of the law applicable in EFTA and the EFTA Court of Justice has jurisdiction within EFTA to interpret it. Thus the decision is not binding but is persuasive. The question was whether there had been a transfer and if so whether the obligation to pay premiums on behalf of an employee had been likewise transferred. The Court answered the first question in the affirmative and the second in the negative. The Court concluded that

“the wording of Article 3(3), first and second paragraphs, read in conjunction with the general principle in Article 3(1), points to the conclusion that all rights and obligations pertaining to old-age, invalidity and survivors’ benefits have been excluded from the general transfer of rights and obligations to the transferee.”

One reason for this conclusion was that

“the uncertainty and unreasonableness of these alternatives [as to the nature of the transferee’s obligations] illustrate the lack of logic in maintaining a payment obligation without a corresponding obligation to uphold a previous pension scheme.”

In my judgment the judge was right for substantially the reasons he gave. His conclusion is supported by the wording of the Article and such decisions touching on the point as there are. He acknowledged that the consequence is to leave the gap, the nature of which I explained earlier, which is the consequence relied on by the plaintiffs as absurd. But the plaintiffs did not contend that there was a general obligation on an employer to set up and fund and thereafter at all times to maintain a pension scheme for the benefit of its workforce. If there is no such general obligation in respect of the transferee’s existing workforce then there seems to be no good reason to assume that it was intended that the transferee of the undertaking should be subjected to such an obligation in respect of those employees whose employment is transferred. In that event I can see no reason why Article 3(3)[B] should be construed so as to place on the Member States an obligation to adopt measures in respect of future benefits from future service so as thereby to discriminate between employees of the same employer based on nothing more than the accident of the identity of their previous employer. In my view, therefore, there is no gap unless it is assumed that employees whose employment is transferred pursuant to Article 3(1) should be entitled to require their new employer to provide them with a pension scheme. Thus the argument for the plaintiffs on the question at issue, in effect, assumes the answer they seek. In my judgment no gap has been demonstrated so that the argument based on the proposition that [A] and [B] ought to be construed as coterminous fails.

It was accepted that if the plaintiffs failed on the issues of the proper construction of Article 3 then the appeal must be dismissed. Accordingly it is unnecessary to refer to the arguments on the construction of Regulation 7 of TUPE, which we did hear or on the cross-appeal on which we heard no oral argument.

LORD JUSTICE PHILLIPS: I agree.

LORD JUSTICE LEGGATT: I also agree.

ORDER: Appeal dismissed with the costs of both respondents; leave to appeal to the House of Lords refused.