Litster v Forth Dry Dock and Engineering Co Ltd [1988] UKHL 10

House of Lords
Between
LitsterAppellantForth Dry Dock and Engineering Co LtdRespondent
Before
Lord Keith of Kinkel
It is Ordered and Adjudged, by the Lords Spiritual and Temporal in the Court of Parliament of Her Majesty the Queen assembled, That the said Interlocutor of the 18th day of March 1988 complained of in the said Appeal be, and the same is hereby, Recalled and that the Order of the Employment Appeal Tribunal of the 5th day of December 1985 be, and the same is hereby, Restored: And it is further Ordered, That the said Cause be, and the same is hereby, remitted back to the Court of Session in Scotland to proceed as accords: And it is further Ordered, That the Respondents do pay or cause to be paid to the said Appellants the Expenses incurred by them in respect of the Action in the Court of Session and also the Costs incurred by them in respect of the said Appeal to this House, the amount of such last-mentioned Costs to be certified by the Clerk of the Parliaments if not agreed between the parties: And it is also further Ordered, That unless the Costs certified as aforesaid shall be paid to the Appellants entitled to the same within one calendar month from the date of the Certificate thereof the Cause shall be, and the same is hereby, remitted back to the Court of Session in Scotland or to the Judge acting as Vacation Judge to issue such Summary Process or Diligence for the recovery of such Costs as shall be lawful and necessary.Cler: Parliamentor:

Judgment: 16.3.89

HOUSE OF LORDS

LITSTER AND OTHERS (APPELLANTS)

v.

FORTH DRY DOCK & ENGINEERING COMPANY LIMITED

(IN RECEIVERSHIP) AND ANOTHER

(RESPONDENTS)

(SCOTLAND)

Lord Keith of Kinkel Lord Brandon of Oakbrook Lord Templeman Lord Oliver of Aylmerton Lord Jauncey of Tullichettle

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] AC 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

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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

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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 articleThe 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.

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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 ail 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 paid by Forth Estuary to the receivers when the agreement was executed in the morning or early afternoon of that day. At 3.30 p.m., the receivers appointed by Lloyds Bank informed the workforce of the Forth Dry Dock in writing that "no further funds can be made available to pay your wages with effect from the close of business today" and that no payments would be made for accrued holiday pay or damages for failure to give the statutory period of notice. Thereafter, Forth Estuary continued the business of the Forth Dry Dock, employed the former dockmaster and two other employees of Forth Dry Dock, but replaced the remainder of the workforce with former employees of Robb Caledon at lower wages. Thus Lloyds Bank, acting for the receiver transferred the business at 4.30 p.m. on 6 February 1984, that being the time of close of business and one hour after the Forth Dry Dock workers had been dismissed. The assets of Forth Dry Dock were taken by Lloyds Bank as debenture holders so that nothing was available to pay the workers of Forth Dry Dock either their holiday entitlement or damages for dismissal

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without notice, or damages for unfair dismissal. It is argued that Forth Estuary, which is solvent, is not liable to the workers because they were dismissed one hour before the transfer of the business. Article 3 of the Directive and regulation 5(1) of the Regulations of 1981 were plainly intended to prevent an insolvent old owner from dismissing a workforce at the behest of a solvent new owner so as to deprive the workforce effectively of their rights.Forth Estuary appear to deny that they are liable to the appellants for compensation for unfair dismissal pursuant to regulation 8. The Court of Session found in favour of Forth Estuary.The appellants were dismissed at 3.30 p.m. on 6 February by Forth Dry Dock and the business was transferred to Forth Estuary at 4.30 p.m. on the same day. It is argued, on behalf of Forth Estuary, that despite the Directive and the Regulations, they are not liable to the appellants in respect of their unfair dismissal because regulation 5(3) provides that:
"Any reference in paragraph (1) . . . above to a person employed in an undertaking or part of one transferred by a relevant transfer is a reference to a person so employed immediately before the transfer, including, where the transfer is effected by a series of two or more transactions, a person so employed immediately before any of those transactions."
Thus, it is said, since the workforce of Forth Dry Dock were dismissed at 3.30 p.m., they were not employed "immediately before the transfer" at 4.30 p.m. and therefore regulation 5(1) did not transfer any liability for the workforce from Forth Dry Dock to Forth Estuary. The argument is inconsistent with the Directive. In P. Bork International A/S v. Foreningen af Arbejdslederre i Danmark (Case 101/87) [1989] I.R.L.R. 41, 44 the European Court of

Justice ruled that:

"the only workers who may invoke Directive [(77/187/E.E.C.)] are those who have current employment relations or a contract of employment at the date of the transfer. The question whether or not a contract of employment or employment relationship exists at that date must be assessed under national law, subject, however, to the observance of the mandatory rules of the Directive concerning the protection of workers against dismissal by reason of the transfer. It follows that the workers employed by the undertaking whose contract of employment or employment relationship has been terminated with effect on a date before that of the transfer, in breach of article 4(1) of the Directive, must be considered as still employed by the undertaking on the date of the transfer with the consequence, in particular, that the obligations of an employer towards them are fully transferred from the transferor to the transferee in accordance with article 3(1) of the Directive."
In von Colson and Kamann v. Land Nordrhein-Westfalen (Case 14/83) [1984] ECR 1891 , 1909 the European Court of

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Justice dealing with Directive (76/207/E.E.C.), forbidding discrimination on grounds of sex regarding access to employment, ruled that:
"the member states' obligation arising from a Directive to achieve the result envisaged by the Directive and their duty under article 5 of the Treaty to take all appropriate measures, whether general or particular, to ensure the fulfilment of that obligation, is binding on all the authorities of member states including, for matters within their jurisdiction, the courts. It follows that, in applying the national law and in particular the provisions of a national law specifically introduced in order to implement Directive [(76/207/E.E.C.)], national courts are required to interpret their national law in the light of the wording and the purpose of the Directive in order to achieve the result referred to in the third paragraph of article 189."
Thus the courts of the United Kingdom are under a duty to follow the practice of the European Court of Justice by giving a purposive construction to Directives and to Regulations issued for the purpose of complying with Directives. In Pickstone v. Freemans Plc. [1989] AC 66 , this House implied words in a regulation designed to give effect to Directive (75/117/E.E.C.) dealing with equal pay for women doing work of equal value. If this House had not been able to make the necessary implication, the Equal Pay (Amendment) Regulations (1983) would have failed their object and the United Kingdom would have been in breach of its treaty obligations to give effect to Directives. In the present case, in the light of Directive (77/187/E.E.C.) and in the light of the ruling of the European Court of Justice in Bork's case [1989] I.R.C.R. 41, it seems to me, following the suggestion of my noble and learned friend, Lord Keith of Kinkel, that paragraph 5(3) of the Regulations of 1981 was not intended and ought not to be construed so as to limit the operation of regulation 5 to persons employed immediately before the transfer in point of time. Regulation 5(3) must be construed on the footing that it applies to a person employed immediately before the transfer or who would have been so employed if he had not been unfairly dismissed before the transfer for a reason connected with the transfer. It would, of course, still be open for a new owner to show that the employee had been dismissed for "an economic, technical or organisational reason entailing changes in the workforce," but no such reason could be advanced in the present case where there was no complaint against the workers, they were not redundant and there were no relevant reasons entailing changes in the workforce. I would therefore allow the appeal and make the order proposed by my noble and learned friend, Lord Oliver of Aylmerton.

LORD OLIVER OF AYLMERTON

My Lords,This appeal raises, not for the first time, the broad question of the approach to be adopted by courts in the United Kingdom to

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domestic legislation enacted in order to give effect to this country's obligations under the E.E.C. Treaty (Cmnd. 5179-11). The legislation with which the appeal is concerned is a statutory instrument (S.I. 1981 No. 1794) made on 14 December 1981 pursuant to paragraph 2(2) of Schedule 2 to the European Communities Act 1972 and entitled "The Transfer of Undertakings (Protection of Employment) Regulations 1981." The Regulations were made by the Secretary of State - and this is common ground - in order to give effect to a Directive (77/187/E.E.C.) adopted by the Council of the European Communities on 14 February 1977 to provide for 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. The question which arises is whether it has achieved this object.The approach to the construction of primary and subordinate legislation enacted to give effect to the United Kingdom's obligations under the E.E.C. Treaty have been the subject matter of recent authority in this House (see Pickstone v. Freemans Plc. [1989] AC 66 ) and is not in doubt. If the legislation can reasonably be construed so as to conform with those obligations - obligations which are to be ascertained not only from the wording of the relevant Directive but from the interpretation placed upon it by the European Court of Justice at Luxembourg - such a purposive construction will be applied even though, perhaps, it may involve some departure from the strict and literal application of the words which the legislature has elected to use.It will, I think, be convenient to consider the terms of the Directive and the Regulations before outlining the circumstances in which the instant appeal arises. The broad scope of the Directive appears from the following two recitals:
"Whereas economic trends are bringing in their wake, at both national and Community level, changes in the structure of undertakings, through transfers of undertakings, businesses or parts of businesses to other employers as a result of legal transfers or mergers;
"Whereas it is necessary to provide for the protection of employees in the event of a change of employer, in particular, to ensure that their rights are safeguarded."
By article 1 it is provided that the Directive shall apply to the transfer of an undertaking, business or part of a business to another employer. Article 2 contains definitions, the relevant ones for present purposes being:
"(a) 'transferor' means any natural or legal person who, by reason of a transfer within the meaning of article 1(1), ceases to be the employer in respect of the undertaking, business or part of the business;
"(b) 'transferee' means any natural or legal person who, by reason of a transfer within the meaning of article 1(1), becomes the employer in respect of the undertaking, business or part of the business."

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Section II is headed "Safeguarding of Employees' Rights" and contains five articles of which the relevant ones for present purposes are articles 3 and 4. These provide (so far as material):
"Article 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 within the meaning of article 1(1) shall, by reason of such transfer, be transferred to the transferee."
Sub-paragraph 2 deals with the continuation of collective agreements and sub-paragraph 3 accepts from the preceding sub- paragraphs employees' rights to old age, invalidity or survivors' benefits under company pension schemes outside the member states social security schemes. The latter part of the sub-paragraph may, however, have a peripheral relevance in the present context, as indicating that the expression "on the date of the transfer" and "at the time of the transfer" are used interchangeably in the Directive. It provides:
"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 . . . entitlement to old-age benefits . . . under supplementary schemes referred to in the first sub-paragraph."
Article 4 is, so far as material, in the following terms:
"1. 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. . . .
"2. If the contract of employment or the employment relationship is terminated because the transfer within the meaning of article 1(1) involves a substantial change in working conditions to the detriment of the employee, the employer shall be regarded as having been responsible for termination of the contract of employment or of the employment relationship."
Section III contains requirements for providing information to representatives of employees which do not need to be recited in any detail. The provisions of sub-paragraph 1, however, ought to be referred to in the context of the overall purpose of the Directive of ensuring that the interests of employees are to be safeguarded on any transfer of the undertaking in which they are employed. It provides as follows:
"The transferor and the transferee shall be required to inform the representatives of their respective employees affected by a transfer within the meaning of article 1(1) of the following:

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- the reasons for the transfer,- the legal, economic and social implications of the transfer for the employees,- measures envisaged in relation to the employees.The transferor must give such information to the representatives of his employees in good time before the transfer is carried out."Finally, article 7, which provides that the Directive shall not affect the rights of member states to apply or introduce measures more favourable to employees, contains the clear implication that the protection envisaged by the Directive is the minimum requirement for which the member states are obliged to give effect.Turning now to the Regulations, which came into operation in 1982 and which represent the British Government's perception at that time of its obligations under the Directive, these provide for relevant purposes as follows:

Regulation 2

"(1) In these Regulations - ... 'employee' means any individual who works for another person whether under a contract of service or apprenticeship or otherwise but does not include anyone who provides services under a contract for services and references to a person's employer shall be construed accordingly . . . 'the 1978 Act,' and 'the 1976 Order' mean respectively . . . the Employment Protection (Consolidation) Act 1978 and the Industrial Relations (Northern Ireland) Order 1976 . . . 'relevant transfer' means a transfer to which these Regulations apply and 'transferor' and 'transferee' shall be construed accordingly; and 'undertaking' includes any trade or business but does not include any undertaking or part of an undertaking which is not in the nature of a commercial venture."

Regulation 3

"(1) Subject to the provisions of these Regulations, these Regulations apply to a transfer from one person to another of an undertaking situated immediately before the transfer in the United Kingdom or a part of one which is so situated.
"(2) Subject as aforesaid, these Regulations so apply whether the transfer is effected by sale or by some other disposition or by operation of law. . . .
"(4) It is hereby declared that a transfer of an undertaking or part of one may be effected by a series of two or more transactions between the same parties, but in determining whether or not such a series constitutes a single transfer regard shall be had to the extent to which the undertaking or part was controlled by the transferor and transferee respectively before the last transaction, to the lapse of time

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between each of the transactions, to the intention of the parties and to all the other circumstances."

Regulation 5

"(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 -
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; andanything 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.
"(3) Any reference in paragraph (1) or (2) above to a person employed in an undertaking or part of one transferred by a relevant transfer is a reference to a person so employed immediately before the transfer, including, where the transfer is effected by a series of two or more transactions, a person so employed immediately before any of those transactions."

Regulation 8

"(1) Where either before or after a relevant transfer, any employee of the transferor or transferee is dismissed, that employee shall be treated for the purposes of Part V of the 1978 Act and articles 20 to 41 of the 1976 Order (unfair dismissal) as unfairly dismissed if the transfer or a reason connected with it is the reason or principal reason for his dismissal.
"(2) Where an economic, technical or organisational reason entailing changes in the workforce of either the transferor or the transferee before or after a relevant transfer is the reason or principal reason for dismissing an employee - (a) paragraph 1 above shall not apply to his dismissals ..."
Finally, regulation 12 provides that:
"Any provision of any agreement (whether a contract of employment or not) shall be void in so far as it purports to exclude or limit the operation of regulation 5, 8 or 10 above ..."

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It will be seen that, as is to be expected, the scope and purpose of both the Directive and the Regulations are the same, that is, to ensure that on any transfer of an undertaking or part of an undertaking, the employment of the existing workers in the undertaking is preserved or, if their employment terminates solely by reason of the transfer, that their rights arising out of that determination are effectively safeguarded. It may, I think, be assumed that those who drafted both the Directive and the Regulations were sufficiently acquainted with the realities of life to appreciate that a frequent - indeed, possibly, the most frequent - occasion upon which a business or part of a business is transferred is when the original employer is insolvent, so that an employee whose employment is terminated on the transfer will have no effective remedy for unfair dismissal unless it is capable of being exerted against the transferee. It can hardly have been contemplated that, where the only reason for determination of the employment is the transfer of the undertaking or the relevant part of it, the parties to the transfer would be at liberty to avoid the manifest purpose of the Directive by the simple expedient of wrongfully dismissing the workforce a few minutes before the completion of the transfer. The European Court of Justice has expressed, in the clearest terms, the opinion that so transparent a device would not avoid the operation of the Directive, and if the effect of the Regulations is that under the law of the United Kingdom it has that effect, then your Lordships are compelled to conclude that the Regulations are gravely defective and the Government of the United Kingdom has failed to comply with its mandatory obligations under the Directive. If your Lordships are in fact compelled to that conclusion, so be it; but it is not, I venture to think, a conclusion which any of your Lordships would willingly embrace in the absence of the most compulsive context rendering any other conclusion impossible.My Lords,the circumstances in which the question has arisen for decision in the instant case are these. The first respondents, Forth Dry Dock & Engineering Co. Ltd., carried on a business of ship-repairers at the Edinburgh Dry Dock, premises which they held under a lease from the Forth Ports Authority. At the material time, the 12 appellants were tradesmen employed in that business. They were part of a permanent workforce of skilled shipworkers of various trades who had been continuously employed by the first respondent since 1981 or 1982. In the year 1983, the group of companies of which the first respondent formed part, was in financial difficulties and the receiver of the various companies in the group (including the first respondents) was appointed by the debenture holder, Lloyds Bank, on 28 September 1983. The workforce was then told by the receiver's representative, a Mr. Page, that the intention was to sell the business as a going concern and that their jobs would be safe. That belief may have been genuinely entertained at the time, but it was falsified in the event.On 23 November 1983, the second respondents, Forth Estuary Engineering Ltd. ("Forth Estuary") was incorporated. A few days before the transfer of the first respondents' assets, which took place on 6 February 1984, the capital of Forth Estuary was increased from £1,000 to £20,000. Eighty-five per cent. of the issued capital became vested in a Mr. Brooshooft, who had been a financial adviser to the first respondents' parent company, and 10

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per cent. in a Mr. Hughes, who had been a director of and had managed the business of the first respondents. On 6 February 1984, an agreement was entered into between the first respondents, the receivers and Forth Estuary under which(a) all the first respondents' business assets, consisting of plant, machinery, equipment, furniture and office equipment specified in a schedule, were acquired by Forth Estuary at a price of £33,500 payable on execution of the agreement,(b) the first respondents undertook to cease business at close of business on that day (at which time the sale and purchase was to be carried into effect) and(c) the first respondents undertook forthwith to relinquish their rights under the lease of the dry dock which they held from the Ports Authority. Before this - it is not clear exactly when - Forth Estuary had obtained from the Forth Ports Authority a new lease of the property previously let to the first respondents (with the exception of one shed). It is interesting to note that under clause 14 of this agreement, its construction, validity and performance were to be governed by English law and the courts of England were given exclusive jurisdiction. As a matter of English law, therefore, the ownership of the assets transferred passed in equity to Forth Estuary on the execution of the agreement and those assets were, assuming, as we must assume, that the consideration was then paid as provided by the agreement, then held by the transferor as a bare trustee for the transferee. Up to this point the appellants had continued to be employed by the first respondents. It had, however, clearly been determined by the receivers - and one infers by Forth Estuary - that that situation was not to be permitted to continue and it is difficult, if not impossible, to resist the inference that the reason why it was not to be permitted to continue was that both parties were very well aware of the provisions of the Regulations to which I have already referred. It can hardly have been merely a fortunate coincidence that officers from the redundancy payments section of the Department of Employment were already at the dock on that afternoon when Mr. Hughes and Mr. Page arrived at approximately 3.00 p.m. having come straight from the office of Messrs. Brodies where the agreement had been signed. They addressed the workforce and told them that the business was to close down at 4.30 p.m. that day and that they were dismissed "with immediate effect." Each of the appellants was given a letter from the receivers under the first respondents' letterhead which was dated 6 February 1984 and was, so far as material, in the following terms:
"We would advise you that no further funds can be made available to pay your wages with effect from the close of business today and accordingly we have to inform you that your employment with the company is terminated with immediate effect. No payments will be made in respect of your accrued holiday pay, or the failure to give you your statutory period of notice.
Under the insolvency provisions of the Employment Protection Act 1978, any claim you may have for the above will, subject to certain limitations, be paid to you by the Department of Employment out of the Redundancy Fund. . . . Your wages up to the date of dismissal will be paid in the normal way and you will be issued with a P45 from the company's head office."

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One of the less creditable aspects of the matter is that one of the appellants, Mr. Walker, who was the union shop steward, asked specifically whether the business was being taken over by Forth Estuary, and was told by Mr. Hughes that he knew nothing about a new company taking over, whilst Mr. Page said that he knew nothing about a company called Forth Estuary Engineering. This indicates a calculated disregard for the obligations imposed by regulation 10 of the Regulations. Within 48 hours of their dismissal, the appellants learned, at the local job centre, that Forth Estuary was recruiting labour and a group of them went to fill in application forms for employment. None was successful and indeed only three former employees of the first respondents were taken on. Work which was in progress on the vessels on 6 February was subsequently continued and completed by Forth Estuary, which very soon had a workforce of similar size to that of the first respondents, embracing the same trade but recruited at lower rates of pay elsewhere than from the existing employees. The industrial tribunal, in their reasons for decision, commented:
"The fact that Forth Estuary, apart from the three exceptions, has not retained or employed the former employees of Forth Dry Dock is consistent with Mr. Brooshooft's decision (which he referred to in his evidence) not to employ the existing employees as he wanted to start 'with a clean sheet' although he had no criticism of them."
It is difficult to resist the inference that Mr. Brooshooft was not unmindful of the disadvantages which might flow under the Regulations from the continuance of the employment of the existing workforce as compared with the advantages to be derived from the pool of unemployed tradesmen anxious for work on any available terms. Although the industrial tribunal made no finding as to this, the sequence of events and the secrecy with which they were enshrouded are such that they cannot rationally be accounted for otherwise than by the hypothesis that the dismissal of the existing workforce was engineered specifically with a view to preventing any liability for the obligations incidental to their contracts of employment from attaching to Forth Estuary, so as to leave them with nothing but a claim for redundancy on the Redundancy Fund under section 106 of the Act of 1978 and an illusory claim for unfair dismissal against an insolvent company.The appellants applied to an industrial tribunal complaining that they had been unfairly dismissed and by an order of 28 September 1984, Forth Estuary was sisted as an additional and second-named respondent to that application. On 27 February 1985, the industrial tribunal determined that the appellants had been unfairly dismissed by the the first respondents and that Forth Estuary was liable to pay monetary compensation which was assessed on the basis of 26 weeks loss of employment. From that decision Forth Estuary appealed to the Employment Appeal Tribunal on the grounds, first, that there had been no relevant transfer of the business within the terms of the Regulations; secondly, that the appellants were not employees employed in the business immediately before the transfer and that, accordingly, the obligation under their respective contracts of employment were not transferred to Forth Estuary; thirdly, that the appellants had not been unfairly dismissed; and, fourthly, that in any event there was no justification for the assessment of compensation on the basis of

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26 weeks loss of employment. The appellants cross-appealed against the decision so far as it restricted the compensation to a figure based on 26 weeks loss of employment. On 5 December 1985, the Employment Appeal Tribunal [1986] I.R.L.R. 59 affirmed the decision of the industrial tribunal, save that they concluded that the onus of establishing that, if the appellants had been employed by Forth Estuary, that company would have dismissed them in the future for some proper reason other than for the mere transfer of the business rested with Forth Estuary. There was, on the evidence, no ground for limiting the appellants' claim to the period assumed by the industrial tribunal. They accordingly remitted the case to the industrial tribunal to reconsider the basis for assessment of compensation.One of the curiosities of the appeal is that the principal and, substantially, the only question argued before this House on behalf of the respondents, that is to say, that adumbrated in the second ground mentioned in the notice of appeal to the Employment Appeal Tribunal, was not in fact relied upon there, the principal arguments being that there had been no relevant transfer so as to enable the appellants to invoke the Regulations at all and that, in any event, the appellants had not been unfairly dismissed for the reason specified in regulation 8(1). In my view, the latter point is really unarguable on the facts. It was entirely unsupported by any evidence on the part of the first respondent and was rightly rejected both by the industrial tribunal and the Employment Appeal Tribunal. Since, however, Mr. Osborne has sought, as he did before the Court of Session, to keep the first point alive, it may be convenient to deal with it at this point. It has not been contested, nor could it easily be with any conviction, that the business of the first respondents was not transferred to Forth Estuary; but what is said is that the transfer was not a "relevant transfer" within the Regulations, inasmuch as one of the steps involved the concurrence of a third party, that is to say, the Forth Ports Authority, which was involved to the extent of accepting the relinquishment of the first respondents' lease and granting a new lease to Forth Estuary. What is said is that regulation 3(4), which declares, ex abundanti cautela, that a transfer may be effected by a series of "two or more transactions between the same parties" rules out, by implication, as a relevant element in the transfer, a transaction between one of the parties and a third party. In fairness to Mr. Osborne, I should say that he was the first to acknowledge that this argument hardly qualified for the description of the jewel in his crown. In my judgment, there is no substance in it. I do not, for a start, consider that any such implication can be legitimately drawn from the words of the regulation, but in any event, regulation 3(4) does not purport to be anything more than declaratory and cannot be properly construed as in any sense an exclusive definition of what can constitute a transfer.To continue with the history, the respondents appealed to the Court of Session [1987] I.R.L.R. 289 which by an interlocutor of the Second Division of the Inner House , dated 18 March 1988, sustained the appeal and ordered that the cases of all the appellants should be remitted to the industrial tribunal with a direction that Forth Estuary should be dismissed from the proceedings and that the industrial tribunal should proceed to consider the cases against the first respondents. It is against that interlocutor that the appellants now appeal to this House.

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The ground upon which the Second Division of the Inner House sustained the appeal was that although the dismissal occurred on the same day as the transfer, regulation 5 did not apply to continue the employment of the appellants by Forth Estuary because the dismissal, having been effected before, albeit only shortly before, the transfer took effect, there was, at that point of time, no longer any contract of employment in existence and the appellants were not therefore employed by the first respondents at the time of the transfer. Accordingly, regulations 5(1) and (2) never operated to transfer the appellants to the employment of Forth Estuary or to impose on that company any of the obligations of the first respondents as employers. In so deciding, the Second Division followed the decision of the Court of Appeal in England in Secretary of State for Employment v. Spence [1987] Q.B. 179, which was decided on 15 May 1986, that is to say, after the date of the decision of the Employment Appeal Tribunal. At the date of that decision the point was generally thought to be concluded against the respondents by two decisions of the Employment Appeal Tribunal in England in Alphafield Ltd, (trading as Apex Leisure Hire) v. Barratt [1984] 1 W.L.R. 1062, and Secretary of State for Employment v. Anchor Hotel (Kippford) Ltd . [1985] I.C.R. 724 In Spence 's case the Court of Appeal overruled those decisions. Your Lordships are now invited to overrule Spence's case.There is, I think, a serious question whether, on the facts of the instant case, the question of the correctness of the decision in Spence's case arises at all. Having regard both to the terms of the agreement to which I have referred and to those of the letters of dismissal received by the appellants, there appear to be respectable arguments in favour of a contention that the appellants' employment was not, in fact, determined until after, or eo instante with, the transfer of the business. The point has, however, not been fully argued and your Lordships have been invited to approach the appeal on the footing that the dismissals took effect at about 3.30 p.m. on 6 February and that the transfer did not take place until 4.30 p.m. on that day. I therefore make that assumption.Two questions then arise. First, was the time which elapsed between the dismissals and the transfer of so short a duration that, on the true construction of regulation 5, the appellants were "employed immediately before" the transfer, as required by sub- paragraph (3) of that regulation? Secondly, if the answer to that question is in the negative, what difference (if any) does it make that the reason, or the principal reason, for the dismissals was, as it clearly was, the imminent occurrence of the transfer so that the dismissals were, by regulation 8(1), deemed to be unfair dismissals?The expression "immediately before" is one which takes its meaning from its context, but in its ordinary signification it involves the notion that there is, between two relevant events, no intervening space, lapse of time or event of any significance. If, for instance, the question is whether a deceased person was seized of property immediately before his death, attention is focussed upon the very instant at which the death occurred. In construing the Regulations with which this appeal is concerned, one gets little

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help from the terms of the Directive to which they were intended to give effect. Article 3, as has been seen already, refers to an employment relationship existing "on the date of the transfer," but this expression seems to be used interchangeably with the expression "at the time of the transfer" - in the French text "au moment du transfert" - which appears to embrace the notion that what has to be regarded is the status of the employee vis-à-vis his employer at the very instant at which the employer's business is transferred.As will already have become apparent, there have been a number of decisions in which the provisions of regulation 5 have fallen to be construed and your Lordships' attention has, in addition, been drawn to a number of decisions in which articles 3 and 4 of the Directive have fallen to be interpreted by the European Court of Justice. Before referring to these, however, it may be helpful to consider the Regulations without the assistance of authority, but bearing in mind their overall purpose of giving effect to the provisions of the Directive. To begin with, it is to be noted that the reference in regulation 5(1) to "a contract which would otherwise have been terminated by the transfer" is, strictly speaking, a mis-description. The reason why a contract of employment is said to "terminate" on a transfer of the employer's business is simply that such a transfer operates as a unilateral repudiation by the employer of his obligations under the contract and thus as a dismissal of the employee from his service. Because the relationship between employer and employee is of an essentially personal nature, the repudiation severs the factual relationship resulting from the contract, since the primary obligations on both sides are no longer capable of being performed. The contract itself, however, is not, strictly speaking, terminated but remains in being and undischarged so far as the enforcement of secondary obligations are concerned. This may seem a truism but it has, I believe, an importance in the analysis, in particular in relation to the meaning to be ascribed to the words "terminated by the transfer" in regulation 5(1) and the words "immediately before the transfer" in regulation 5(3). The necessary assumption in paragraph (1) of the regulation is that the contract of employment to which the consequence stated in the paragraph is to attach, is one which, apart from the transfer, would have continued in force and that what "terminates" it, or would, apart from the regulation, have terminated it, is the repudiatory breach constituted by the transfer. That paragraph can, therefore, operate only upon a subsisting contract. There is nothing in the terms of paragraph (2), if it stood alone, which necessarily involves the same restriction. It is, however, clearly intended merely to supplement the provisions of paragraph (1), and paragraph (3) supplies the connection by expressly limiting the operation of both paragraphs (1) and (2) to the case where the relevant employee is employed in the undertaking "immediately before the transfer," that is to say, to the circumstances envisaged in paragraph (1) in which, apart from the regulation, the event producing the termination is the transfer. The crucial question, therefore, is what is meant by the reference to a contract being terminated " by " a transfer.This could embrace a number of different possibilities. If nothing at ail occurs to disturb the relationship of master and servant apart from the simple unannounced fact of the transfer of

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business by the employer, it is the transfer itself which constitutes the repudiatory breach which, apart from regulation 5(1), "terminates" the contract. If, however, the employer,contemporaneously with the transfer, announces to his workforce that he is transferring the business and that they are therefore dismissed without notice, it is, strictly, the oral notification which terminates the contract; yet it could not, as a matter of common sense, be denied that the contract has been "terminated by the transfer" of the business, particularly when reference is made to the supplementary provisions of paragraph (2) of regulation 5 when read in conjunction with paragraph (3). Similarly, if the employer, a week, or it may be a day, before the actual transfer, hands to each employee a letter announcing that he is proposing to transfer his undertaking at the close of business on the transfer date, at which time the employees are to consider themselves as forthwith dismissed, it could hardly be contended under the Regulations that their employment had not been terminated by the transfer, even though, at the date of the notice, the dismissal might be capable of taking effect independently, in the event, for instance, of the actual transfer of the business being postponed to a date or time later than the expiry of the notice. In each hypothetical case the employer's repudiation of the contract of service is differently communicated but its essential quality of a repudiation by the transfer of the undertaking remains the same and the contract can quite properly be described as having been terminated by the transfer. If, by contrast, the employer announces to his workforce that he is transferring his business to another person at 5.00 p.m. on the following Friday and that they are to consider themselves dismissed from his employment at 4.59 p.m. on that day, it is difficult to see any reason why the interposition of a one-minute interval between the express repudiation becoming effective and the transfer which would, in any event, have operated as a repudiation if nothing had been said, should invest the breach of contract by the employer with some different quality. In each case the effective cause of the dismissal is the transfer of the business, whether it be announced in advance or contemporaneously, or whether it be unannounced, and it would be no misuse of ordinary language in each case to speak of the termination of the contracts of the workforce as having been effected by the transfer. It is absurd to suggest that there is any distinction in substance between any of the hypothetical cases which I have envisaged. Can it, then, one asks, possibly have been the intention of the Secretary of State in framing legislation expressly directed to safeguarding the rights of employees when an undertaking is transferred, to make its effectiveness depend upon whether the transferor, as a result perhaps of a collusive bargain with the transferee, allows a scintilla temporis to elapse between the operation of a notice dismissing his workforce and the completion of the legal formalities of the transfer which is the true cause of their dismissal, particularly having regard to the provisions of regulation 8, which were clearly intended to have the same effect as article 4 of the Directive? My Lords, I should be reluctant so to construe the Regulations, quite apart from any authority. When, however, they are considered in the light of the interpretation placed by the European Court of Justice on the provisions of the Directive, it becomes, I think, clear that your Lordships are not compelled to do so.

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In the case of Wendelboe v. L. J. Music ApS. (Case 19/83) [1985] E.C.R. 457, the original employer company was on the brink of insolvency. So far as appears, no transfer of their undertaking was in contemplation when financial stringency compelled closure of the business and the dismissal of the major part of the workforce with immediate effect. That occurred on 28 February 1980. On 4 March 1980, the company was declared insolvent and a little over three weeks later an agreement was concluded transferring the business to a purchaser with effect from 4 March, the court having conduct of the insolvency having authorised the (then prospective) purchaser to use the company's premises and equipment from 5 March onwards. The three plaintiffs were part of the original workforce and had in fact been engaged by the purchaser on 6 March but on terms that they lost their rights to seniority. They sued the original employer for damages for wrongful dismissal and arrears of holiday pay and were met with the defence that under the Danish legislation, which had been passed to give effect to the Directive, all liabilities in respect of their employment had been transferred to the purchaser. The question submitted by the Danish court to the European Court of Justice, pursuant to article 177 of the E.E.C. Treaty, was whether the Directive required member states to enact provisions under which the transferee of an undertaking became liable in respect of obligations concerning holiday pay and compensation to former employees who were not employed in the undertaking on the date of the transfer. That question was answered in the negative, as might indeed have been surmised purely from a textual interpretation of article 3(1) of the Directive. The following extract from the judgment of the court, at pp. 466-467 is, however, of interest in relation to the question of the relationship between articles 3 and 4 of the Directive (which are reflected substantially in articles 5 and 8 of the Regulations):
"That interpretation of the scope of article 3(1) is also in conformity with the scheme and the purposes of the Directive, which is intended to ensure, so far as possible, that the employment relationship continues unchanged with the transferee, in particular by obliging the transferee to continue to observe the terms and conditions of any collective agreement (article 3(2)) and by protecting workers against dismissals motivated solely by the fact of the transfer (article 4(1)). Those provisions relate only to employees in the service of the undertaking on the date of the transfer, to the exclusion of those who had already left the undertaking on that date.
The existence or otherwise of the contract of employment or an employment relationship on the date of the transfer within the meaning of article 3(1) of the Directive must be established on the basis of the rules of national law, subject however, to observance of the mandatory provisions of the Directive and, more particularly, article 4(1) thereof, concerning the protection of employees against dismissal by the transferor or the transferee by reason of the transfer. It is for the national courts to decide, on the basis of those factors, whether or not on the date of the transfer, the employees in question were linked to the undertaking by virtue of a contract of employment or employment relationship."

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What is of particular interest here in relation to the questions raised by this appeal, is the statement that article 4(1), as well as article 3(1), "apply only to employees in the service of the undertaking on the date of the transfer" and the observation that the determination according to the rules of national law is "subject to observance of the mandatory provisions of article 4(1)." There is clearly scope here for the view that where the employment has been determined by the transferor solely on the ground of the transfer, which article 4(1) states is not "to constitute grounds for dismissal by the transferor or transferee" (emphasis added) the employee is to be treated as if he had continued to be employed at the date of the transfer. That was a point which did not in fact arise in the Wendelboe case but which is reflected in the following passage from the opinion of the Advocate General, Sir Gordon Slynn, at p. 460:
"Whether or not a contract of employment or an employment relationship is terminated at the time of transfer is of course for national law to determine. However, the first sentence of article 4(1) provides that 'the transfer of an undertaking, business or part of a business shall not in itself constitute grounds for dismissal by the transferor or transferee.' . . . Where employees are dismissed, with a view to and before, a transfer falling within the Directive and are re-engaged immediately by the transferee thereafter, their dismissal must be regarded as contrary to article 4(1), subject to the exceptions specified in that paragraph. Whether the remedy for such unlawful dismissal consists in a court order declaring that dismissal to be a nullity or the award of damages or some other effective remedy is for the member states to determine. In any event the member states are required to provide for a remedy which is effective and not merely symbolic ... If the remedy consists in treating the dismissal as a nullity, then it would follow that the rights and obligations of the employee concerned are transferred to the transferee."
The proposition that article 4(1) operates, in effect, to prohibit the exclusion of the rights conferred by article 3 by dismissal of the employee immediately before the transfer, except for one of the reasons specified in the second sentence of the article, receives some further support from the opinion of the Advocate General Sir Gordon Slynn in the later case of Foreningen af Arbejdslederre i Danmark v. A/S Danmols Inventar (Case 105/84) [1985] ECR 2639 , in which he commented on the Wendelboe case and observed, at p. 2641:
"in Wendellboe v. L. J . Music ... it was held that only the persons employed by the transferor at the moment of a transfer fall within the provisions; it was also pointed out that article 4(1) prohibits an employee from being dismissed by reasons solely of such a transfer, subject however to certain exceptions. The effect of the Directive, in my opinion, is that an employee of the transferor at the time of the transfer is entitled to insist, as against the transferee, on ail the rights under his existing employment relationship. By virtue of article 3 he can thus claim to continue to be employed by the transferee on the same terms as he was employed with the transferor, or if the

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transferee refuses or fails to observe those terms, he can bring a claim for breach of contract or the relationship against the transferee. Under article 4, the transfer does not by itself justify its dismissal by the transferor or the transferee unless such dismissal is for economic, technical or organisational reasons entailing changes in the workforce . . . The employer who dismisses an employee for one of the reasons specified in article 4(1) can thus justify the dismissal. Otherwise if the dismissal or purported dismissal is based on the transfer of the undertaking or business, the employee can insist on his rights under article 3."The prohibitory nature of article 4 was emphasised again in the case of Foreningen af Arbejdslederre i Danmark v. Daddy's Dance Hall A/S (Case 324/86) [1988] IRLR 315 , 317 where the court in the course of its judgment observed:" ... Directive [(77/187/E.E.C.)] aims at ensuring for workers affected by a transfer of undertaking the safeguarding of their rights arising from the employment contract or relationship. As this protection is a matter of public policy and, as such, outside the control of the parties to the employment contract, the provisions of the Directive, in particular those relating to the protection of workers against dismissal because of transfer, must be considered as mandatory, meaning that it is not permissible to derogate from them in a manner detrimental to the workers." (See also Landsorganisationen i Danmark v. Ny Molle Kro (Case 287/86) [1989] I.R.L.R. 37).In a subsequent case: P. Bork International A/S v. Foreningen af Arbejdslederre i Danmark (Case 101/87) [1989] I.R.L.R. 41. the question arose whether the Directive applied to a situation where the workforce had been dismissed upon the termination by the employee of the lease of the premises on which the undertaking was carried on, the assets of the business having been purchased shortly afterwards by the new lessee of the premises, which re- engaged over half the original workforce. The court held that the Directive applied and in relation to the question of whether workers dismissed before the transfer could claim the benefit of the Directive as against the transferee, said, at p. 44:
"the only workers who may invoke Directive [(77/187/E.E.C.)] are those who have current employment relations or a contract of employment at the date of transfer. The question whether or not a contract of employment or employment relationship exists at that date must be assessed under national law, subject, however, to the observance of the mandatory rules of the Directive concerning the protection of workers against dismissal by reason of the transfer. It follows that workers employed by the undertaking whose contract of employment or employment relationship has been terminated with effect on a date before that of the transfer, in breach of article 4(1) of the Directive, must be considered as still employed by the undertaking on the date of the transfer with the consequence, in particular, that the obligations of an employer towards them are fully transferred from the transferor to the transferee, in accordance with article 3(1)

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of the Directive. In order to determine whether the only reason for dismissal was the transfer itself, account be must taken of the objective circumstances in which the dismissal occurred, and, in particular, in a case like the present one, the fact that it took place on a date close to that of the transfer and that the workers concerned were re-engaged by the transferee. The factual assessment needed in order to determine the applicability of the Directive is a matter for the national courts, and having regard to the interpretative criteria laid down by the court." (Emphasis added).It does not appear that the impact of article 4 (and thus of regulation 8) on the construction and effect of article 3 (or regulation 5) in relation to the employee's rights has previously fallen to be considered in any of the reported cases in the United Kingdom. In Alphafield Ltd, (trading as Apex Leisure Hire) v. Barratt [1984] 1 W.L.R. 1062, the receiver of an undertaking, having negotiated a transfer of the undertaking to be completed on Monday, 17 January 1983, dismissed the workforce at the close of business on the previous Friday, the 14 January, at the same time requesting them to report for work on the following Monday with a view to re-engagement by the transferee. On the afternoon of 17 January, the applicant was told that his services would not be required. He claimed that the effect of regulation 5 was that his employment had been continued with the transferee and that he had, therefore, been unfairly dismissed by the transferee as a result of the latter's refusal to employ him. The principal question argued was whether he had been employed "immediately before" the transfer. Both the industrial tribunal and the Employment Appeal Tribunal held that he was. The decision of the Employment Appeal Tribunal was delivered by Tudor Evans J. who said, at pp. 1066-1067:
"It seems to us to be a question of fact in each case dependent upon the particular circumstances whether or not a person was employed "immediately before' the transfer. It seems to us quite impossible, however desirable and helpful it might be, to say what period does and what period does not qualify. It must depend on the circumstances of each particular case whether dismissal is sufficiently proximate to the transfer. We think that, apart from analysis of the words used, it has to be remembered that if the words are construed in the strictest sense, as contended by the employers, it would be very easy for a transferor without funds to agree with a transferee, for reasons convenient to them both, that employees should be dismissed a short time before transfer, thus leaving them with a worthless remedy and so defeating the protection afforded by the Regulations."
In Secretary of State for Employment v. Anchor Hotel (Kippford) Ltd. [1985] I.C.R. 724, the question was whether the original employer, who had given his employees a notice to terminate their employment which expired upon the same date as that on which the transfer of the business took effect and who had made redundancy payments to them following the transfer, was entitled to claim a rebate from the Redundancy Fund pursuant to section 104 of the Act of 1978. The argument on behalf of the Secretary of State, which was accepted by the Employment Appeal Tribunal,

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was that no rebate was due inasmuch as the claimant was never liable to make the redundancy payments, since his liability had been transferred to the transferee of the business pursuant to regulation 5, the employees having been employed "immediately before" the transfer. In giving the decision of the tribunal, Waite J. observed that it would serve no purpose to remit the case to the Industrial Tribunal for a determination of the precise order in which the relevant events took place, since that was irrelevant, adding, at p. 729:
"We hold that when a dismissal notice given by the transferor expires on the same day as the transfer date, then it matters not for the purposes of the Regulations in precisely which order on that day the two events have occurred or whether they have occurred exactly simultaneously. The result will in every case be the same - a substitution of the transferee for the transferor as the party responsible for the dismissal and so liable to make a redudancy payment to the employee."
The decisions in both the Apex and Anchor Hotel cases were, however, disapproved by the Court of Appeal in England in Secretary of State for Employment v. Spence [1987] Q.B. 179, which was followed and applied by the Second Division of the Inner House in the instant case. In that case the transferor company was in receivership and the receivers had been negotiating a transfer of the business under a threat by the company's major customer to withdraw its work unless a transfer of the business had been agreed by 24 November 1983. No sale had been agreed by that date and although on 28 November 1983 the negotiations were continuing, the receivers had to decide whether it was proper in the interests of the debenture holders to continue to employ the workforce and to continue trading. Since there was no guarantee that the negotiations would be successful, the decision was taken to cease trading immediately and, at 11.00 a.m. on that morning the employees were notified that they were dismissed with immediate effect. In fact, the negotiations were successful and an agreement for the sale of the undertaking was signed at 2.00 p.m. on that day. The employees were in fact re- employed by the transferee but claimed redundancy payments from the Redundancy Fund under section 106 of the Act of 1978. The claim was resisted on the ground that, since the claimants were employed "immediately before the transfer" their employment was continued with the transferee of the business by regulation 5(1), following the decision in the Anchor Hotel case [1985] I.C.R. 724. It is worth noting that it was found as a fact by the industrial tribunal, first, that the sequence of events was the result of independent action by the receivers and the transferees and that there was no collusion between them and, secondly, that the reason why the receivers decided to dismiss the workforce was that, until a contract could be renegotiated with the company's principal customer, there was no prospect of any work for the business. It follows from these findings that the reason for the dismissal was not one connected with the transfer but was due to economic considerations, with the result that regulation 8(1) did not render the dismissals unfair. The only question for decision, therefore, was whether having regard to the very short time which in fact elapsed between the dismissals taking effect and the conclusion of the transfer agreement, the workforce was employed

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"immediately before the transfer." After a careful analysis of the cases, the Court of Appeal rejected the approach of the Employment Appeal Tribunal in Apex [1984] 1 W.L.R. 1062 and Anchor Hotel [1985] I.C.R. 724 and held that regulation 5(1) can apply only where, at the very moment of transfer, the contract of employment (in the sense of the existing relationship of employer and employee) is still subsisting. If it is not, then there is nothing upon which the regulation can bite, even though the employment has been determined only a matter of minutes (or, it may be, seconds) before the transfer. My Lords, for my part, I can detect no flaw in the reasoning by which Balcombe L.J., who delivered the leading judgment in the Court of Appeal, reached the conclusion on the facts of that case that regulation 5(1) did not operate to transfer the obligations of the original employer to the transferee. Where, before the actual transfer takes place, the employment of an employee is terminated for a reason unconnected with the transfer, I agree that the question of whether he was employed "immediately" before the transfer cannot sensibly be made to depend upon the degree of temporal proximity between the two events, except possibly in a case where they are so closely connected in point of time that it is, for practical purposes, impossible realistically to say that they are not precisely contemporaneous. Either the contract of employment is subsisting at the moment of the transfer or it is not, and if it is not, then, on the pure textual construction of regulation 5, neither paragraph (1) nor paragraph (2) (which is clearly subsidiary to and complementary with paragraph (1)) can have any operation. But Spence 's case [1987] Q.B. 179 was decided - and quite properly decided - entirely without reference to the effect of Regulation 8(1) and in the context of the two important findings of fact by the Industrial Tribunal to which I have drawn attention.- The Court of Appeal did not consider, and was not called upon to consider, a position where, whether under a collusive bargain or otherwise, an employee is dismissed from his employment solely or principally because of the prospective transfer of the undertaking in which he is employed, so that his dismissal is statutorily deemed to be unfair; and, of course, the case was decided without reference to the important Bork case [1989] I.R.L.R. 41 already referred to which had not been decided at the date of the Court of Appeal's judgment and which had not been reported at the time when the instant case was argued before the Court of Session.It is, I think, now clear that under article 4 of the Directive, as construed by the European Court of Justice, a dismissal effected before the transfer and solely because of the transfer of the business is, in effect, prohibited and is, for the purpose of considering the application of article 3(1), required to be treated as ineffective. The question is whether the Regulations are so framed as to be capable of being construed in conformity with that interpretation of the Directive.This cannot, I think, be effected by adopting the flexible construction of the words "immediately before" suggested in the Apex case [1984] 1 W.L.R. 1062, for the meaning to be given to those words, taken alone, cannot sensibly be made to depend upon whether the reason for the determination of the employment was the transfer or something else. Such an approach would involve the conclusion that the obligations of the transferor would be transferred to the transferee even in the case where, as in

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Spence's case [1987] Q.B. 179, the employment had been terminated for economic, technical or organisational reasons. That cannot, I think, have been intended, and I, for my part, agree with the rejection by the Court of Appeal in Spence's case of the reasoning of the Employment Appeal Tribunal in Apex [1984] 1 W.L.R. 1062 and Anchor Hotel [1985] I.C.R. 724. Nor do I find a solution in the suggestion canvassed by Mr. Edwards that a dismissal accepted by the transferor solely because of the impending transfer is to be treated as ineffective by some form of estoppel on the ground that the parties to the transfer cannot be permitted to take advantage of their own wrong. A termination for economic reasons, for instance, if effected without proper notice, would be as much a "wrong" as a termination by reason of the transfer and, in any event, a termination effected without the collusion of the transferee could not be a "wrong" on the part of the transferee, to whose benefit the termination of the employment would enure.The critical question, it seems to me, is whether, even allowing for the greater latitude in construction permissible in the case of legislation introduced to give effect to this country's Community obligations, it is possible to attribute to regulation 8(1) when read in conjunction with regulation 5, the same result as that attributed to article 4 in the Bork case [1989] I.R.L.R. 41. Purely as a matter of language, it clearly is not. Regulation 8(1) does not follow literally the wording of article 4(1). It provides only that if the reason for the dismissal of the employee is the transfer of the business, he has to be treated "for the purposes of Part V of the 1978 Act" as unfairly dismissed so as to confer on him the remedies provided by sections 69-79 of the Act (including, where it is considered appropriate, an order for reinstatement or re-engagement). If this provision fell to be construed by reference to the ordinary rules of construction applicable to a purely domestic statute and without reference to Treaty obligations, it would, I think, be quite impermissible to regard it as having the same prohibitory effect as that attributed by the European court to article 4 of the Directive. But it has always to be borne in mind that the purpose of the Directive and of the Regulations was and is to "safeguard" the rights of employees on a transfer and that there is a mandatory obligation to provide remedies which are effective and not merely symbolic to which the Regulations were intended to give effect. The remedies provided by the Act of 1978 in the case of an insolvent transferor are largely illusory unless they can be exerted against the transferee as the Directive contemplates and I do not find it conceivable that, in framing Regulations intending to give effect to the Directive, the Secretary of State could have envisaged that its purpose should be capable of being avoided by the transparent device to which resort was had in the instant case. Pickstone v. Freemans Plc. [1989] A.C. 66, has established that the greater flexibility available to the court in applying a purposive construction to legislation designed to give effect to the United Kingdom's Treaty obligations to the Community enables the court, where necessary, to supply by implication words appropriate to comply with those obligations. See particularly the speech of Lord Templeman at pp. 120-121. Having regard to the manifest purpose of the Regulations, I do not, for my part, feel inhibited from making such an implication in the instant case. The provision in regulation 8(1) that a dismissal by reason of a transfer is to be treated as an unfair dismissal, is

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merely a different way of saying that the transfer is not to "constitute a ground for dismissal" as contemplated by article 4 of the Directive and there is no good reason for denying to it the same effect as that attributed to that article. In effect this involves reading regulation 5(3) as if there were inserted after the words "immediately before the transfer" the words "or would have been so employed if he had not been unfairly dismissed in the circumstances described in regulation 8(1)." For my part, I would make such an implication which is entirely consistent with the general scheme of the Regulations and which is necessary if they are effectively to fulfil the purpose for which they were made of giving effect to the provisions of the Directive. This does not involve any disapproval of the reasoning of the Court of Appeal in Spence's case [1987] Q.B. 179 which, on the facts there found by the industrial tribunal, did not involve a dismissal attracting the consequences provided in regulation 8(1).The only reservation that I have with regard to that case is in relation to the approval by the Court of Appeal of a passage from the judgment of the Employment Appeal Tribunal in Premier Motors (Medway) Ltd, v. Total Oil Great Britain Ltd. [1984] 1 W.L.R. 377, in which, after correctly pointing out that where an employee's contract is continued by virtue of regulation 5, the transferee who plans to employ him, will be liable for a redundancy payment, Browne-Wilkinson J. observed, at p. 382:
"To protect himself, the transferee must agree with the transferor either that the transferee will dismiss the employee before the transfer or will indemnify the transferee against redundancy payments and other employment liabilities."
It follows from the construction that I attach to regulation 5(3) that where an employee is dismissed before and by reason of the transfer the employment is statutorily continued with the transferee by virtue of the Regulations and the first of the two options referred to in the passage quoted above is not, therefore, one which will effectively protect the transferee from the employee's claim for a redundancy payment. It also follows that both Apex [1984] 1 W.L.R. 1062 and Anchor Hotel [1985] I.C.R. 724, in each of which the employment was clearly terminated by reason of the impending transfer, were correctly decided on their respective facts albeit not for the reasons given.In the instant case it is quite clear that the reason for the dismissal of the appellants was the transfer of the business which had just been agreed and was going to take place almost at once. The effect of regulation 5, construed as I have suggested that it should be, is that their employment continued with Forth Estuary. I would therefore allow the appeal. On behalf of the respondents, Mr. Osborne has submitted that in the event of the appeal being allowed, the order of the Employment Appeal Tribunal should be varied so as to remit back to the industrial tribunal the question whether the receivers had acted reasonably in dismissing the workforce in the context of section 57(3) of the Act of 1978. The respondents had the opportunity before the industrial tribunal of demonstrating, if they could, that there were some economic, technical or organisational reasons for the appellants' dismissals and it was therefore reasonable. They did not do so and I see no

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grounds now for allowing that question to be reopened. I would accordingly reverse the interlocutor of the Second Division of the Inner House and restore the Order of the Employment Appeal Tribunal.

LORD JAUNCEY OF TULLICHETTLE

My Lords,I have had the advantage of reading in draft the speeches prepared by my noble and learned friends Lord Keith of Kinkel, Lord Templeman and Lord Oliver of Aylmerton. I agree with them and for the reasons given therein I would allow the appeal and make the order which they propose.

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