Foster v British Gas (1990): The Definition of the State for Horizontal Direct Effect

Foster v British Gas plc (Case C-188/89) is a landmark judgment of the European Court of Justice delivered on 12 July 1990. The case addressed the scope of the vertical direct effect of directives: against which entities may an individual invoke the direct effect of an unimplemented or incorrectly implemented directive? The CJEU established the emanation of the state test, defining the entities that are subject to the vertical direct effect of directives and thus liable to have directive provisions invoked against them by individuals.

Facts of the Case

British Gas plc was a public limited company responsible for the supply of gas in Great Britain. At the relevant time (before privatisation), British Gas was a nationalised industry with a statutory monopoly over the supply of gas. The company was established by statute, was under the control of the government, and carried out functions of public interest that would normally be exercised by the state.

Mrs Foster, a female employee of British Gas, claimed that she was forced to retire at age 60, while male employees could continue working until age 65. She argued that this discriminatory retirement age violated Article 5(1) of Council Directive 76/207/EEC on the implementation of the principle of equal treatment for men and women as regards access to employment, vocational training and promotion, and working conditions. The UK had not implemented the Directive correctly to prohibit discriminatory retirement ages, and Mrs Foster sought to rely directly on the Directive against British Gas.

The Directive and Vertical Direct Effect

The CJEU had established in Van Duyn v Home Office (Case 41/74) that directives could have vertical direct effect: individuals could invoke the provisions of a directive against the state after the implementation deadline had expired, where the directive’s provisions were sufficiently clear and precise. The rationale for vertical direct effect was that the state cannot benefit from its own failure to implement a directive correctly; the state is estopped from relying on its own wrong.

However, the Court had held in Marshall v Southampton and South-West Hampshire Area Health Authority (Case 152/84) that directives could not have horizontal direct effect: they could not be invoked against private individuals or entities. The distinction between vertical and horizontal direct effect was based on the nature of directives: they are addressed to Member States, not to individuals, and imposing obligations on private parties would contradict their nature as legislative acts addressed to the state.

The Emanation of the State Test

The critical question in Foster was whether British Gas, a nationalised industry with a statutory monopoly, was an entity against which a directive could be invoked. The Court held that a directive may be relied on against organisations or bodies that are subject to the authority or control of the state or have special powers beyond those which result from the normal rules applicable to relations between individuals.

The Court established that a body, whatever its legal form, is an emanation of the state against which a directive may be invoked where it satisfies one or more of the following criteria: it has been made responsible, pursuant to a measure adopted by the state, for providing a public service under the control of the state, and it has for that purpose special powers beyond those which result from the normal rules applicable in relations between individuals. The test is functional, focusing on the entity’s relationship with the state and its public functions, rather than on its formal legal classification.

Application to British Gas

Applying the test, the Court held that British Gas was an emanation of the state. British Gas was a nationalised industry established by statute, it was responsible for providing a public service (gas supply) under the control of the state, and it exercised special statutory powers (including a monopoly over the supply of gas). The fact that British Gas was not a government department or a public authority in the formal sense did not prevent it from being treated as part of the state for the purposes of the vertical direct effect of directives.

The Court rejected the argument that only entities formally classified as organs of the state could be subject to the vertical direct effect of directives. The functional approach ensured that the effectiveness of directives was not undermined by the privatisation or outsourcing of public services. If the state could escape its obligations by delegating public functions to separate entities, the vertical direct effect of directives would be significantly weakened.

The Purpose of the Emanation of the State Doctrine

The emanation of the state doctrine serves to prevent the state from circumventing its EU law obligations by conferring the performance of public services on separate legal entities. If the vertical direct effect of directives applied only to government departments and public authorities in the strict sense, the state could evade its obligations by delegating public functions to independent agencies, nationalised industries, or other bodies under state control.

The doctrine also recognises that entities exercising public functions and special powers should be subject to the same obligations as the state itself. The rationale for vertical direct effect — that the state cannot benefit from its own failure to implement a directive — extends to entities that are under the control of the state and exercise functions that would normally be exercised by the state. The functional approach ensures that the protection of individual rights under directives is not dependent on the formal legal structure of the entity providing the service.

Subsequent Application

The emanation of the state test has been applied in numerous subsequent cases. In Griffin v South West Water Services (Case C-63/93), the Court held that a privatised water company was not an emanation of the state where the state no longer exercised sufficient control and the company did not exercise special powers beyond those of a normal commercial entity. In CIA Security v Signalson and Securitel (Case C-194/94), the Court applied the test to a private body that had been given regulatory powers by the state.

The test has been applied flexibly by national courts. Factors considered include whether the entity is established by statute, whether it is under government control, whether it provides a public service, whether it has special powers, and whether the state would otherwise be able to avoid its EU law obligations. The national courts have applied the test to a wide range of entities, including privatised utilities, regulatory bodies, and educational institutions, with results depending on the specific circumstances.

The Limits of Vertical Direct Effect

The emanation of the state doctrine limits but does not eliminate the problems created by the lack of horizontal direct effect of directives. Where an entity is not an emanation of the state, individuals cannot invoke directives directly against it, even where the directive’s provisions are clear and precise. This limitation has been criticised as creating arbitrary distinctions between individuals based on the status of the entity against which the right is asserted.

The CJEU has sought to mitigate the limitations of vertical direct effect through alternative mechanisms. The interpretative obligation under Marleasing v La Comercial (Case C-106/89) requires national courts to interpret national law, so far as possible, in conformity with directives, even in horizontal disputes. The state liability principle under Francovich provides a remedy in damages against the state for failure to implement a directive correctly, even where the directive cannot be invoked directly against a private party. These mechanisms together ensure that the effectiveness of directives is not fatally undermined by the prohibition on horizontal direct effect.

The Legacy of Foster

Foster v British Gas is the leading authority on the definition of the state for the purposes of the vertical direct effect of directives. The emanation of the state test has been applied by national courts throughout the EU and has ensured that the vertical direct effect of directives is extended to entities that exercise public functions or are under state control. The case reflects the constitutional principle that the state cannot evade its EU law obligations by delegating functions to separate legal entities and that individuals should be able to enforce their rights under directives against any entity that is functionally part of the state.