Electoral Commission wins appeal on interpretation of ‘expenses incurred’ by Vote Leave

The High Court in London had held that three payments totalling £620,000 made by Vote Leave Limited to an advertising company by Darren Grimes, who ran an unincorporated association called BeLeave, were “referendum expenses”.

But the Court of Appeal of England and Wales ruled that the Divisional Court’s interpretation of the relevant legislation was “wrong” and that it fell into the error of concluding that the phrase “expenses incurred” meant the same thing as “spent”.

‘Donations’

The Lord Chief Justice, Lord Burnett of Maldon, sitting with Lord Justice Singh and Lady Justice Nicola Davies, heard that in February and March 2017 the Electoral Commission conducted assessments of the campaign spending returns of Vote Leave and Mr Grimes, both of whom were “permitted participants” in the referendum campaign. 

The commission’s assessments included consideration of the parties’ spending in connection with services provided by AggregateIQ Data Services (“AIQ”), a Canadian company specialising in online advertising. 

During the referendum period, Vote Leave paid a total of £3.4m to AIQ, although it declared £2.697m in referendum expenses in respect of AIQ. 

The three payments in issue – £400,000 paid on 16 June 2016, £40,000 paid on 20 June 2016, and £180,000 paid on 21 June 2016 – were made by Vote Leave to AIQ to pay for advertising services purchased from AIQ by Mr Grimes, and none was declared as “referendum expenses” by Vote Leave.

The court was told that some time before 9 June 2016 Vote Leave was informed that a third party donor wished to make it a substantial donation, but it calculated that this donation could not be spent without taking it above its £7 million statutory spending limit for the referendum campaign by more than £500,000. 

Accordingly, at some time before 13 June 2016, Vote Leave suggested to Mr Grimes that it might donate some funds to him, and following a series of email exchanges the three sums were donated to BeLeave but the money was paid directly to AIQ “on behalf of BeLeave”.

The three payments made by Vote Leave to AIQ were reported to the Electoral Commission in the return made by Mr Grimes both as donations received by him and as payments made in respect of referendum expenses incurred by him or on his behalf, but the AIQ Payments were not included in the return made by Vote Leave in respect of its referendum expenses.

In its February and March 2017 assessments of the campaign spending returns of Vote Leave and Mr Grimes, the Electoral Commission concluded that there were no reasonable grounds to suspect that there had been any incorrect reporting of campaign spending or donations, and it decided not to open an investigation.

‘Expenses incurred’

Thereafter the Good Law Project, an interest group whose application was financed by crowd-funding, sought judicial review of the decision, and the Divisional Court granted the application after ruling that the commission had misinterpreted the definition of “referendum expenses” in section 111(2) of the Political Parties, Elections and Referendums Act 2000.

The court began with the “ordinary English usage” of the term “expenses incurred”, and was of the view that a person incurs an expense whenever they have spent money (including making a donation to charity) or incurred a liability which in either case reduces their financial resources. 

The judges then turned to the terminology used in the 2000 Act itself, and held that the meaning of the words “expenses incurred” must be understood in the context of the other elements of the definition of “referendum expenses”, which requires the expenses to be a “qualifying” expense within the meaning of Part 1 of Schedule 13.

However, after the proceedings in the Divisional Court had begun, but before the judgment was delivered, the Electoral Commission carried out a further assessment review and decided that it would, after all, open an investigation into the spending of Vote Leave and Mr Grimes. 

The commission published the report of that investigation on 17 July 2018, finding that Vote Leave and Mr Grimes had breached the campaign finance rules in a number of respects, including in their reporting of the AIQ Payments in issue in this action, but the commission made the findings on a different legal basis from that challenged by the Good Law Project, namely that the payments represented “common plan expenses”.

The commission appealed to the Court of Appeal principally because the issue of statutory interpretation had potentially wider implications, not only in connection with any future referendum, but also in relation to elections.

It was argued that the Divisional Court ignored paragraph 1(4) of Schedule 15 to the 2000 Act, which separates the concepts of (a) making a donation and (b) incurring of referendum expenses, and that its interpretation of referendum expenses “undermines the policy of transparency to the public”, which is of central importance in modern electoral law.

It was submitted that effect of the legislative scheme in the 2000 Act is that money donated to a permitted participant has to be recorded under the Schedule 15 regime, whereas money spent by a permitted participant must be recorded under the Schedule 13 regime, and thus He submits when the legislation is read harmoniously and as a whole, the two regimes governing donations and expenses are mutually exclusive and do not overlap.

‘Wrong interpretation’

The Court of Appeal ultimately came to the conclusion that the interpretation reached by the Divisional Court was “wrong”.

The judgment of the court stated: “The consequence was that the Divisional Court concluded that anyone who makes a donation to a charity can be said to have incurred an expense in the ordinary meaning of those words. It was of the view that whenever a person’s assets are ‘diminished’, it can be said that that person has incurred an expense. 

“We respectfully disagree. We do not think that the financial reporting standards in accountancy assist in interpreting this statute and would observe that few would consider themselves as having incurred an expense when, as countless thousands do every day, they donate money to charity.

“In our view, the Divisional Court fell into the error of assuming that the phrase ‘expenses incurred’ means simply the same thing as ‘spent’. ‘Expenses’ are not necessarily the same as ‘expenditure’ or spending. Furthermore, we consider that the Divisional Court gave insufficient weight to the inclusion in the phrase ‘expenses incurred’ of the word ‘incurred’.

“In this context, we note that the Divisional Court acknowledged that the interpretation to be given to the phrase ‘expenses incurred contended for by Vote Leave was one which was a possible interpretation as a matter of language. Our view is that, when the legislation is read harmoniously and as a whole, the interpretation contended for by the Electoral Commission (and supported by Vote Leave) is the correct one.

“There is no difficulty in the statutory scheme with the same money being treated both as a donation by one person and as a referendum expense by the recipient. The difficulty caused by the Divisional Court’s analysis is that a donation may be treated also as a referendum expense by the donor as well as being a referendum expense by the donee. The consequence will be that a single amount of money will count twice towards different people’s limits on expenses.” 

The appeal judges concluded: “In our view, the correct interpretation of the legislation read as a whole is that a donation to a permitted participant cannot also be an expense incurred by the donor. This interpretation accords both with the natural and ordinary meaning of the 2000 Act and its underlying objectives. It would provide clarity for all those concerned who have to interpret and apply the legislation in a practical way.”