R(on the application of the Electoral Commission) v City ...

The law on donations to political parties considered for the first time by the
Supreme Court: R. (on the application of the Electoral Commission) v. UKIP

Lucy Colter, Four New Square*

By a 4 to 3 majority the United Kingdom Independence Party (“UKIP”) has won its
appeal in the Supreme Court in respect of the proper interpretation of section 58 of the
Political Parties, Elections and Referendums Act 2000 (“the Act”), which provides for a
power of forfeiture of donations impermissibly made to a political party in the United
Kingdom.

The appeal in R. (on the application of the Electoral Commission) v. City of Westminster
Magistrates‟ Court [2010] UKSC 40 concerned a sizeable donation made to UKIP by a Mr.
Alan Bown, a long standing member of and donor to the party. The appeal carried a
wider significance: this was the first occasion on which the higher courts were given the
opportunity to consider the Act which made wide-ranging changes to the law relating to
political activity in the United Kingdom against a background of substantial public
concern as to the funding of political parties.

The Supreme Court ruling will inform the discretion of a magistrates‟ court hearing an
application for forfeiture made by the Electoral Commission (“the Commission”). The
ruling is also very likely to affect other potential and pending applications as well as the
regulatory approach of the Commission to be adopted in the future with respect to the
forfeiture of political donations.

The appeal was heard by seven Justices of the Supreme Court, namely Lord Phillips of
Worth Matravers PSC, Lord Rodger of Earlsferry, Lord Walker of Gestingthorpe, Lord
Brown of Eaton-under-Heywood, Lord Mance, Lord Kerr of Tonaghmore and Lord
Clarke of Stone-cum-Ebony. Judgment was handed down on 29 July 2010.

The Act

Following considerable and growing public unease in the 1990s about the funding of
political parties in the United Kingdom, the Act introduced for the first time restrictions
on the donations that could be made to registered political parties.

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Briefly, section 54 provides that a donation must not be accepted if the donor is not a
“permissible” donor at the time of receipt (or if he or she cannot be identified).
Permissible donors are defined as individuals registered in an electoral register.
Companies can also donate, if they meet certain criteria, but only individual donors were
relevant on the facts of this appeal.

Under section 56, a political party is placed under an obligation to take all reasonable
steps to verify a potential donor‟s identity and establish whether he qualifies as a
permissible donor. Where acceptance of a donation is prohibited by section 54, a party
has a window of 30 days in which to return the donation to the donor. If it fails to do so,
it will be deemed to have accepted the donation, such acceptance being a criminal
offence (to which there is a “reasonable steps” type defence: section 56(3A)).

Under section 58, donations made by impermissible (and/or unidentifiable) donors can
be forfeited. Section 58(2) allows for applications for forfeiture to be made by the
Commission, which was established by Part I of the Act and given a wide selection of
regulatory powers and duties including that of regulating political parties‟ income and
expenditure.

Section 58(2) provides that “the court may, on an application made by the Commission, order the
forfeiture by the party of an amount equal to the value of the donation.” The proper interpretation
of these words lay at the centre of the appeal. Whilst a discretion is clearly conferred by
the use of the word “may”, the Act offers no indication at all as to what criteria should
govern the exercise of that discretion.

The Donation

Mr. Bown was at all material times a member of UKIP, and is its most significant donor,
donating over £1 million to the party since 2003. Through what appears to have been an
administrative oversight, he inadvertently ceased to appear on any electoral register for a
period between 1 December 2004 and 2 February 2006 (thereby becoming an
impermissible donor for the purposes of section 54). During that time he donated

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£349,216 to UKIP. The Commission applied to the City of Westminster Magistrates‟
Court for an order forfeiting the whole of this sum.

History of the Appeal

The Senior District Judge sitting in the Westminster Magistrates‟ Court ordered the
forfeiture of £14,481 of the £349,216 on the basis that this was the sum received by
UKIP after the date of the meeting between the Commission and UKIP at which UKIP
was made aware that Mr. Bown was not on the electoral roll. The Commission had no
right of appeal under the Act, but challenged the Senior District Judge‟s finding by way
of application for judicial review.

This application was heard by Walker J. sitting in the Administrative Court ([2009]
EWHC 78 (Admin)]. Walker J. identified a range of matters to which the Senior District
Judge should have had regard when exercising his discretion (i.e. relevant considerations),
but held that he had given inadequate reasons for his decision. He remitted the case to
the magistrates‟ court for further consideration (in line with his judgment).

The Commission successfully appealed Walker J‟s judgment in the Court of Appeal
([2009] EWCA Civ 1078). Giving the Court‟s only reasoned judgment, Sir Paul Kennedy
held, pace Walker J., that the discretion of the Senior District Judge was a very narrow
one and that there was a strong presumption in favour of forfeiture whenever the
Commission decided to issue proceedings under section 58(2). In other words, a
forfeiture order should follow as a matter of course in the absence of exceptional
circumstances – and the magistrates‟ court should reconsider the matter accordingly.
According to Sir Paul, the Act provided a very simple test: was the donor on the electoral
register or not? Other factors and considerations (including those identified by Walker J)
were simply not relevant.

UKIP appealed to the Supreme Court.

The Issues

The two central issues before the court were as follows:

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1. The “presumption” issue: whether under section 58(2) there is a presumption
in favour of forfeiture of a sum equal to the value of the impermissible donation,
which can only be displaced by exceptional circumstances; or whether the court
has a broad discretion thereunder that enables it to take into account a range of
potentially relevant considerations (albeit, of course, the discretion must be
exercised so as to give effect to the purpose of the Act).

2. The “all or nothing” issue: whether the court‟s power to order forfeiture under
section 58(2) is limited to a choice between forfeiting a sum equal to the value of
the impermissible donation and making no order; or whether the court is
empowered thereunder to order forfeiture of a lesser sum if the circumstances
justify that course.

Importantly, counsel representing UKIP in the Supreme Court had not appeared below.
Interestingly counsel for UKIP revived the “all or nothing” issue, an issue that had not
been contested in the Court of Appeal. Both Walker J and the Court of Appeal had held
that the section 58(2) power was an “all or nothing” power.

The Judgment of the Supreme Court

The majority of the Court (Lords Phillips, Mance, Kerr and Clarke – all but Lord Clarke
giving reasons) allowed the appeal, holding that:

(i) the presumption in favour of forfeiture existed, but was displaced in the present
case, where the donor was not foreign and was eligible to be on the electoral
register, but was not registered as a result of an administrative oversight; and

(ii) section 58(2), on its proper construction, allowed the forfeiture of a sum less
than the total donation.

As regards disposal, the order of the Senior District Judge was simply restored, and
UKIP was required to forfeit £14,481 (and not the full £349,216). Lords Rodger, Brown
and Walker dissented (Lords Rodger and Brown giving reasons).

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Their Lordships were all agreed that the Padfield1 principle applied in the present appeal,
i.e. that the discretion conferred by section 58(2) should be used to promote the policy
and objects of the statute. However, the application of this principle by their Lordships
gave rise to a strikingly disparate set of views.

The majority

Lord Phillips held that there were two initial questions to be asked, namely:

- What are the objects of the forfeiture permitted by section 58(2)?

- Why has Parliament chosen to give the court a discretion in respect of
forfeiture, rather than to make that forfeiture automatic?

His Lordship turned to the detail of the legislative history of the Act including, vitally,
the Fifth Report of the Committee on Standards in Public Life on “the Funding of
Political Parties in the United Kingdom” (“the Neill Report”) which was published in
October 1998. The Neill Report had concluded that “foreign” donations to political
parties should not be permitted, and used the test of entitlement to be entered on an
electoral register to discriminate between foreign and non-foreign donors. Lord Phillips
then considered the Government White Paper Cm 4413, which had made the significant
change of using the test of actual registration to discriminate between permissible and
impermissible donors.

Lord Phillips was of the view that the object of Chapter II of Part IV of the Act (which
provides for section 58(2)) survived from the Neill Report, and was primarily to prevent
“foreign” donations to political parties. He found that the change in the test from
eligibility for registration to actual registration was for “purely pragmatic reasons.”

His Lordship then noted that Parliament had adopted a scheme under which
impermissible donations may or may not be foreign (i.e. may or may not constitute the

1 Padfield v Minister of Agriculture, Fisheries and Food [1968] AC 997 at 1030 per Lord Reid. The court also
considered R v Tower Hamlets LBC ex parte Chetnik Developments Ltd [1988] 1 AC 858.

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mischief the legislation was designed to prevent). Crucially, in his view, it was natural to
assume that Parliament conferred a discretion on the court so that it could consider
whether forfeiture was a proportionate response to the facts of the case in hand. At one
extreme, the donation could have been knowingly accepted from a foreign source (the
clearest example of the mischief the legislation was designed to prevent). On the other,
the donation could have been inadvertently accepted from a donor who had in turn
inadvertently fallen off the electoral register (not the mischief the legislation was designed
to prevent-and not, as His Lordship termed it, “intrinsically wrong”). Whether forfeiture
was the proportionate sanction would depend on the degree of culpability of the party,
the size of the donation, and its importance to the party.

Lord Phillips went on to find that proof of acceptance of an impermissible donation
should raise a presumption that the donation is foreign and that if that presumption is
not rebutted (here, by demonstrating that the individual donor was entitled to be on the
electoral register) forfeiture should normally follow. If that presumption is rebutted,
forfeiture will only follow if it is the proportionate sanction, and this will depend in turn
on whether there had been failures to comply with requirements of the Act designed to
ensure that impermissible donations are not accepted, and what those failures had been:
„Parliament has made electoral registration the test, but Parliament has also made forfeiture
discretionary‟.

Perhaps most interestingly, Lord Phillips also allowed the appeal on the “all or nothing”
issue, interpreting section 58(2) as conferring the power to make a partial forfeiture
order. He acknowledged that the language of section 58(2) suggested that there is “only
one amount that can be forfeited” but found that the word “forfeit” was used here in an
unusual way. He placed weight on the fact that the Neill Committee had referred to “the
level of forfeiture”, and therefore contemplated that the sum forfeited could be variable.

On the matter of disposal, His Lordship found that the Senior District Judge had based
forfeiture of £14,481 on an erroneous finding that UKIP had learned that Mr Bown was
not on the register around 6 months before the party actually had2. However, he
concluded that the amount of the forfeiture “adequately reflected the facts of the case”,
and simply restored the Senior District Judge‟s order.

2 UKIP had not appealed on this point.

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Lord Clarke simply agreed with Lord Phillips.

Lords Kerr and Mance agreed that the appeal should be allowed, but, significantly,
approached the interrelation of the two issues rather differently. They both held that the
primary issue in the case was not the “presumption” issue (i.e. whether there was a broad
discretion to make a forfeiture order) but the “all or nothing” issue.

At paragraph 109 of the judgment, Lord Kerr said that if partial forfeiture was possible „it
seems to me to follow logically that the discretion should be wide; if it is not [...] it is difficult to see how a
broadly based discretion would be appropriate‟. Lord Mance agreed, stating at paragraph 98 that
he would be inclined to regard the question of whether partial forfeiture was possible as
central to the enquiry whether the discretion to order forfeiture is broad or narrow.

Lord Kerr agreed with Lord Phillips that the central purpose of the legislation was to
prohibit foreign donations. Although Lord Kerr accepted that if one concentrated
exclusively on the language of the relevant sections, the minority speeches were “difficult
to resist,” he was guided also by the underlying aim of the Act.

Although Lord Kerr found that “forfeiture” was “commonly associated with the
deprivation of a defined thing” he took the view that there were strong policy reasons for
interpreting the section as permitting partial forfeiture. He was strongly persuaded by the
argument that it was never intended that there be “forfeiture in the true sense of that
term” where the donor was entitled to be on the register, but was not so registered due
to administrative error.

For the majority, then, there was no movement away from the essential purpose and
reasoning of the Neill Committee.

The minority

Lord Rodger strongly disagreed with the approach of the majority. His Lordship stated at
paragraph 58 that: „nothing could be clearer that the language used by Parliament and nothing could

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be clearer that the intention behind the language: political parties were not to accept donations from any
individual who was not registered in an electoral register.‟

Lord Rodger found that Lord Phillips‟ approach substituted the ultimate aim of the
legislation for the means by which the legislation seeks to achieve that aim, and that if
Parliament‟s intention had been to confer a power to order partial forfeiture “there is a
variety of other phrases which could have been used.”

Further, Lord Rodger was critical of the use of the Neill Committee report, saying that it
stood at two removes from the text of section 58(2), and that it could not displace the
plain meaning of its words. In what may be the most critical part of his speech, he
described Lord Phillips‟ approach in these terms: “having armed the court with a discretion to
award the lesser sum, Lord Phillips proceeds to construct an elaborate scheme for the exercise of this
discretion [...] many may admire the scheme outlined by Lord Phillips […] had it been proposed to
Parliament, it might well have been enacted. But there is not the slightest hint of such a scheme in the
wording of the provision which Parliament did enact” (paragraphs 66-67).

Lord Brown was of the view that if the court had no option to order partial forfeiture,
this strengthened an argument for a presumption in favour of forfeiture. As to partial
forfeiture, he found the contention that the language of section 58(2) enabled it to be
impossible, saying that the language used seemed “clear and unambiguous.”On the
“presumption” issue, Lord Brown essentially adopted Sir Paul Kennedy‟s analysis of the
discretion.

Commentary

For UKIP, a sum of around £335,000 was at stake. It appeared likely that any order
requiring repayment of these sums would have endangered the party‟s future.

Looking beyond the fortunes of this political party, the Supreme Court has now
provided critical guidance on the nature of the section 58(2) discretion. There may be
complicated and lengthy arguments to be had on any application for a forfeiture order –
which may have a knock-on effect, in respect of resources, on the enthusiasm of the
Commission to make those applications.

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On the other hand, given the draconian effect of the “all or nothing” remedy, and the
reluctance the magistrates‟ court may have had to make orders on such terms, there is an
argument that the Commission will in fact benefit from the confirmation that
magistrates‟ courts have a real flexibility of approach, especially given that the
Commission has no right of appeal.

It will be clear already that the court was split between two very disparate approaches to
what is, on the face of it, simply worded legislation.

The minority concentrated on the plain language of the subsection. Whilst their
conclusion may appear overwhelmingly attractive in respect of the “all or nothing” point,
what is notable is that the effect of their approach leaves the discretion conferred by the
use of the word “may” curiously empty of content. The minority seemed to find it
difficult to envisage circumstances in which forfeiture would not be allowed, and simply
accepted (although somewhat half-heartedly) the Court of Appeal‟s approach as to when
this discretion might be exercised. It is unclear from the wording of the subsection that
the discretion was intended to be so very narrow, and that forfeiture was to be almost
automatic.

The minority saw forfeiture as tantamount to restitution of the impermissible donation,
regardless of the circumstances of that donation. However, this sat oddly with Lord
Brown‟s view that forfeiture may not be required, as a matter of discretion, if the
donation had already been returned, albeit outside of the 30 day window. Arguably, if
forfeiture is tantamount to restitution, this would not be a matter of discretion – is the
offending donation capable of confiscation once it has already been returned?

Moreover, it is notable that if that were so, the discretion as to whether to require
forfeiture would effectively lie in the Commission‟s hands, not in the hands of the
magistrates‟ court. An application would be close to a formality, a rubber stamping
exercise. The majority‟s approach not only left broad discretion with the court, rather
than only with the Commission, but also gave a magistrates‟ court flexibility in respect of
the appropriate sanctions, rather than a stark choice between “all or nothing.”

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On the “all or nothing” point, there was an important difference within the reasoning of
the majority itself, which may be particularity striking to those of the view that the
majority were on stronger ground on the “presumption” issue than the “all or nothing”
issue. Whilst Lord Phillips was of the view that the answer to the presumption issue was
not to be found in the all or nothing issue, for Lords Kerr and Mance, the “all or
nothing” issue was of critical importance. Certainly Lord Kerr was of the view that if
partial forfeiture was not possible, “it is difficult to see how a broadly based discretion
would be appropriate” (paragraph 109).

It may well therefore be that had the “all or nothing” point not been taken for UKIP (as
in the Court of Appeal) the outcome of the case would have been different.

What is also highly notable is the majority‟s approach to the word “forfeiture.”
Essentially, the majority found that the use of this word had stemmed from the Neill
Committee Report, but that the Committee had not really meant “forfeiture” in the strict
sense of the word. Rather, they had referred to a financial penalty, taking the
impermissible donation as the starting point.

Arguably, it would have been adequate (and perhaps more satisfactory) to invest the
discretion with meaning and breadth in respect of whether forfeiture itself is a
proportionate response to the facts of the case, stopping short of finding that
proportionality plays directly into the level of forfeiture that can be required.

However, and notably, not a single one of their Lordships took this view and indeed, two
of the majority used the “all or nothing” point to steer their conclusion on the
“presumption” point. Accordingly, the “all or nothing” point, lost before Walker J and
not taken by UKIP in the Court of Appeal, appears to have been potentially decisive.

Lord Phillips also dealt very briefly (and almost in passing) with the Appellant‟s
subsidiary contention on the basis of Article 1 of the First Protocol to the European
Convention on Human Rights, and agreed that total forfeiture should not be ordered in
circumstances where it was a disproportionate sanction, as this would breach the
Convention. The strongest dissent on this point was from Lord Brown, who was “at a
loss to see” how forfeiture of a donation which by definition the party should not have

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accepted or kept could violate its human rights. Even if it could, “the court always has the
option- and on that hypothesis would be bound- to make no forfeiture order at all.” But again this
leaves the circumstances in which a court would not make an order at all very shadowy,
and would provide a court with no guidance as to when the exercise the discretion
undoubtedly contained in the word “may”.
* Counsel for the Appellant were Patrick Lawrence Q.C. and Can Yeginsu, both of
Four New Square Chambers.

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