UPDATED: Conservative Party Appeals Aspect of “In-and-Out” Ruling

May 21st, 2010

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Joan Bryden of the Canadian Press is reporting some significant developments in the case concerning the proper method of accounting for advertising expenses by the Conservatives in the 2004 and 2006 elections — the so-called “In-and-Out” case.

[Here's that fantastic explanatory graphic again from the Ottawa Citizen's Robert Cross. Click on it to view the enlarged version.]

Inside the 'in-and-out' scheme, by Robert Cross for the Ottawa Citizen

The Conservative Party is appealing one finding of Judge Martineau’s ruling from last January, concerning the allocation of the market value of advertising expenses.

Recall that in January, Judge Martineau found that in-and-out transfers of funds per se are fine (as they always were), and that the content of a candidate’s ads can promote the candidate OR the party OR the leader, as always used to be the case.  (The Chief Electoral Officer had argued that the ads *had* to promote the candidate in order to count as a candidate’s election expense.)

*** [UPDATE: I'm appending the full text of their original argument below, to do it proper justice, in case I've misunderstood some of the subtleties.]

But the court also ruled that there has to be a reasonable basis for allocating costs of regional ad buys between the local campaigns, based on their market value to the campaign (not on the basis of how much room they have left under their spending limit); and that the difference between what the candidate’s campaign paid and the market value of those ads to the candidate’s campaign is to be considered a contribution in kind (and thus counts towards the candidate’s spending limit; note that only paid expenses are rebatable under the Elections Act).

This last finding, however, requires further clarification in the view of the Conservative Party, who are asking in their appeal whether such an allocation can be forced on a candidate’s campaign.  They are arguing that the effect of the ruling would be to prevent certain candidates within a given regional media market from participating in the regional buy, were every other candidate in the area unable to participate to the same extent.  In other words, the riding campaign with the least means to participate should not determine the level of participation of its neighbouring ridings, they appear to be claiming.

While the Conservatives are arguing the point from a Charter freedom of speech perspective, we can also note that only an official agent can approve a candidate election expense.  Indeed elsewhere in the same ruling Judge Martineau found that if a candidate’s official agent paid an expense, that in and of itself is sufficient evidence that the candidate’s campaign approved of the expenditure.  However we can assume that the official agents did not agree to this revised market-based allocation.  I suppose it’s for the Finance department of Elections Canada to decide whether a claimed market value is reasonable in other cases, though, so in the end if this ruling stands I guess they’ll have to do it here as well.

Anyways, in light of the appeal, Elections Canada has moved to request a stay of Judge Martineau’s ruling pending its outcome (i.e., they’ve asked that it not take effect right away until a decision on the appeal can be handed down).  In doing so, they argue that the effect of that finding would be to retroactively put some 10 Conservative candidates over their 2006 spending limits.  They calculated the hypothetical impact of that finding on the campaign expense returns of the 65 affected candidates, and found 10 who would be so affected, including 4 current Members of Parliament, 3 of whom now sit in Cabinet.  According to the submission (here I’m quoting from the CP story that quotes the submission):

If the ruling is allowed to stand, the four sitting Tories and up to six former candidates could face charges. If convicted, they could be barred from running again or even be barred from sitting in the House of Commons, much less cabinet.

Because of the potentially grave consequences, Elections Canada is asking that Justice Luc Martineau’s ruling be stayed until the appeals are completed.

“These nine or 10 candidates could face prosecution and, if convicted, face significant consequences,” the independent elections watchdog argued in an affidavit filed with the Federal Court of Appeal late last month.

“In particular, three could lose their current appointments as ministers.”

“Apart from any conviction,” the agency goes on, “this option would cast doubt on the legitimacy of the election of the four candidates … who are current members of Parliament.”

According to the Canadian Press, the four sitting members are (click on the riding name to view the campaign finance metrics for the candidates in those ridings, which in turn link to the candidate’s returns at Elections Canada):

Candidate Riding $ Limit
2006 GE
% Spent
2006 GE
$ Now Potentially
Over Limit
BERNIER, Maxime Beauce, QC $81,497 97% $20,138
CANNON, Lawrence Pontiac, QC $89,728 80% $7,618
PARADIS, Christian Mégantic – L’Érable, QC $75,377 95% $10,188
VERNER, Josée Louis-Saint-Laurent, QC $79,200 94% $13,304

Bryden is also reporting that while the Commissioner of Elections’ investigation of the allegedly fraudulent aspects of the advertising arrangement is continuing, Commissioner William Corbett had already referred the matter to the Director of Public Prosecutions last June.  As yet no charges have been laid, nor has any decision been reached along those lines, according to the director’s spokesperson.

I’ve argued before that there are valid issues here both for the Chief Electoral Officer to examine, and for the Conservative Party to litigate in the interest of obtaining a clearer definition and direction in the manner of how, if at all, election expenses might be transferred from a central campaign to a candidate’s campaign or back again.  It’s probably not helpful for any step along the way to be characterized as an utter defeat or a “sweeping” victory, as these are complex issues whose full impacts might not be fully appreciated on first examination, as we’ve just seen.

Meanwhile, if I’m able to obtain the names of the other six affected former candidates, I’ll update this post with their details as well.


*** Here are the relevant paragraphs from the original submission of Elections Canada on the point I tried to summarize:

145. Subsection 407(4) clarifies that “cost incurred” in subsection (1) means an expense that is incurred by a registered party or a candidate, whether it is paid or unpaid. An expense is incurred when the legal liability is created.

146. It should also be noted that the word “promote” in subsection 407(1) is used in its primary and broadest sense and captures any expense that supports the candidate in his or her effort to be elected, including, for example, office supplies. It is not confined to the narrow sense of promotion in relation to advertising content that explicitly endorses a named candidate or party.

147. Accordingly, an election expense is (i) an expense incurred by the entity reporting the expense, (ii) the goods or services in respect of which the expense is incurred were used during the election period, and (iii) the goods or services in respect of which the expense is incurred directly promote the entity incurring the expense. This third element is referred to as “the purpose test”.

148. The position of the Respondent has consistently been that the refusal to certify the RMB expenses claimed by candidates was based on the fact that the CEOC was not satisfied the expenses were incurred by the candidates.

149. The Applicants nevertheless insist that “although Elections Canada never admitted the importance of the content of the ads to the Decisions, [...] the CEO considered the “national” content of the ads” and that “this played a crucial role in the Decisions.” [para. 159] On that basis, the Applicants, in their memorandum, put forward an argument that it is permissible for candidates to incur expenses that promote a party or its leader.

Reference: Applicant’s Memorandum, para. 159, Applicant’s Record, Vol. VII, Tab 22, p. 2415.

150. The interpretation advanced by the Applicants is unnecessary if it only serves to justify expenses for advertisements that do not explicitly mention the candidate claiming the expense. Such an ad may well promote the candidate (in the broad sense in which “promote” is used in s. 407).

151. If, however, the interpretation advanced by the Applicants is that a candidate may incur elections expenses that promote the party in the broad sense, and vice-versa, the Respondent submits that such an interpretation, while irrelevant to these proceedings, is inconsistent with the legislative scheme of the Canada Elections Act, and would lead to an absurd result.

6 Responses to “UPDATED: Conservative Party Appeals Aspect of “In-and-Out” Ruling”

  1. Krn Summers says:

    Certainly an interesting twist.

    The worm turns.

    There are an awful lot of legal threads within each of these cases… and yet more between them. And the reverberations between them. And the array of possibilities that either the Conservatives or EC might choose to emphasise. [And, repeat cycle of uncertainty.]

    But here’s my take anyway.

    There are two main legal cases. One is Elections Canada having determined that the Conservatives in arbitrary and illegal fashion set about moving spending from the national campaign to the candidate campaigns, so that the national campaign could spend more without exceeding the spending cap.

    The Conservative Party countersued in a civil suit that EC exceeded its rights in denying that the spending claims of the candidate campaigns were legitimate election expenses.

    Strictly speaking this was a narrow challenge against part of EC’s overall case. But the challenge had two broader benefits for the Conservatives.

    First was public relations benefits. And the Conservatives won on that score.

    Second was to kick the legs out from the part of the EC case that the arrangements in themselves were ipso facto nothing more than an attempt to get around the national campaign spending limit.

    And I think that with the judges decision, the Conservatives also decisively won on that score.

    But all of this is largely unrelated to the main case EC is persuing against the Conservative Party: that there was a deliberate and organized attempt to circumvent the national spending cap. EC has lots of correspondence among the national campaign, the local campaigns, and the ad agency to support their case.

    The EC case in no way depended on what the Conservatives challenged in the civil suit. Saying that the arrangement itself demostrtated circumventing the spending cap was probably to be nothing more than some sort of legal preamble.

    So in winning the civil suit, the Conservatives never really did anything to EC’s main case. And it was no decisive win. Even before this new twist came out, there were obvious problems for the Conservatives in the judge’s finding that the party could not arbitrarily allocate advertising expenses among the candidate campaigns, and that the Conservatives appeared to have allocated expenses among the campaigns by the sole criteria of how much room under their own spending caps they had, NOT according to benefits received.

    This was always clearly trouble for the Conservatives in the larger case- which proceeds invisibly to all of us, and very slowly.

    So in a lot of ways this is a sideshow. But the Conservative Party civil suit always was a sideshow, and this latest development would appear to eliminate any of the small victory they got from pressing the suit. And thats at best: if it turns out that in the end EC does not press THIS particular case against the Ministers and MPs.

  2. Krn Summers says:

    Elections Canada rarely goes from determining that parties, candidates, or their agents have egregiously broken the rules, to pushing a legal case.

    Until the Conservatives came to power all parties have viewed Elections Canada as an umpire.

    You may not agree with the umpire, and you argue ceaselessly if this is going to cost you, but in the end the umpire is the umpire.

    Part of that understanding is that everyone knows Elections Canada cuts a LOT of slack in determining whether there has been too much of an infraction.

    Under these normal rules of operation, if after review and much discussion Elections Canada still determines you have gone too far, then there is a tacit negotiation of penalties and redress. A great deal of which focuses on fessing up to some degree of transgression, which almost always includes an explicit or tacit ‘back door’ that you did not do it deliberately.

    But the Conservative Party has turned its back on that long tradition, to play hardball instead.

    My personal opinion is that Elections Canada is not after tit for tat revenge. That they are mostly concerned with the integrity of the general principles of the spending caps and enforcing them. Hence, that they would be satisfied if the Conservatives ultimately agreed that they should not have done it, and put their arms out for the slap on the wrist.

    That EC will even say nothing to an explict “we thought it was OK, we had no intention to circumvent and violate…” Etc, etc.

    I would imagine that this new case against the Ministers and MP would take some time to unwind anyway.

    And it doesnt sound like that main event case is coming out into some formal in public steps any time soon… let alone get near resolution.

    My guess is that all of this will wind its way slowly in the background, until after the election… even if that is 2 years from now.

    And then, removed from all the hot stakes the Conservative Party has in all this… Elections Canada will return to looking for the negotiated settlement that is the norm.

  3. RCO says:

    This whole case is extremely complex and i still wonder if election canada is pursuing it for partisan reasons as we have not seen such a case before . yet alone one against an incumbent government get pushed for so long at such a high expense. mean liberal leadership candidates have been given extension after extension for years now yet elections canada goes after the tories for years over this even after losing many court cases . so you have to wonder why there still pushing it .

  4. Krn Summers says:

    I think there is a big difference with the Liberal leadership contendors case. That case has been pursued in the traditional manner manner that I mentioned. Elections Canada staff are naver confrontational in their approach [and they werent with the Conservative Party either].

    Enforcement of the loans thing is very difficult for Elections Canada. If you think about it, in practice, what are they suppossed to do?

    They have been agitating for closing up the loopholes… so that parties or candidates don’t go making those huge loans in the first place.

    The recently re-introduced legislation around loans would improve the situation a lot. If it becomes law, it will be illegal to make those kinds of loans in the first place. Now its only [potentially] illegal not to pay them.

    The Conservative Party went straight at one of the main pillars of the principles behind the Elections Act: the spending limits.

    They are entitled to their argument that their work-around of the limits was within the letter or the law.

    But don’t expect Elections Canada to stand by and just tacitly accept that.

    Not to mention, as I’ve already pointed out, that the Conservative Party took the unpredented approach of refusing that Elections Canada had any authority.

    They had the option to work out some kind of face saving agreement for a wrist slap. But they refused.

    Play hardball. you get a hardball response.

  5. Thanks for the link, CS.

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