McCloy v New South Wales: Out with US corruption and in with German proportionality

BY ANNE TWOMEY

15.10.2015

In McCloy v New South Wales [2015] HCA 34, the High Court upheld the validity of provisions in the New South Wales Election Funding, Expenditures and Disclosures Act 1981 that impose a cap on political donations, prohibit indirect campaign contributions and prohibit the making of political donations by property developers. This post addresses two of the main points of interest in the judgments, which are first, the Court’s broad view of corruption and its refusal to travel down the US Supreme Court’s approach in relation to political donations; and second the re-writing of the test in Lange v Australian Broadcasting Commission and the adoption of a German approach to proportionality.

Corruption

 The High Court had previously held in Unions NSW v New South Wales that the Election Funding, Expenditures and Disclosures Act was enacted for the legitimate end of preventing the reality and perception of undue influence and corruption of the government. The focus of the Court was therefore directed towards whether the challenged provisions had a rational connection to the achievement of that end.

McCloy, in an audacious move, contended that political donations are made to secure access to politicians in order to seek to influence them. He argued that this is protected by the implied freedom of political communication, because it involves political participation, including the building and asserting of political power. The joint judgment of French CJ, Kiefel, Bell and Keane JJ rejected that argument, and in separate judgments, Gageler, Nettle and Gordon JJ agreed. The joint judgment stated that ‘guaranteeing the ability of a few to make large political donations in order to secure access to those in power would seem to be antithetical to the great underlying principle’ of representative government that involves equal sharing in political power.

The joint judgment also rejected the argument because it appeared to treat the implied freedom as a ‘personal right’, which the Court has long rejected in favour of its status as a limitation on government power. Gordon J agreed with the joint judgment on this point. Gageler J was even more scathing of McCloy’s claims, describing the argument as being ‘as perceptive as it is brazen’ and as going ‘to the heart of the mischief to which the provisions are directed’.

McCloy had argued that ‘gaining access through political donations to exert persuasion is not undue influence’. The joint judgment noted that this mirrored the statement of Justice Kennedy of the US Supreme Court in the controversial 2010 decision of Citizens United v Federal Election Commission that ‘[i]ngration and access … are not corruption’. The US Supreme Court has in recent years taken a very narrow view of corruption, confining it to quid pro quo corruption, where a payment is directly made in exchange for an official act. The High Court, however, was more prepared to identify different kinds of corruption in different shades of grey.

The joint judgment referred to ‘clientelism’, in which an office-holder becomes financially dependent upon donors so that he or she ceases to act in the public interest, instead acting in the interests of the donor. Their Honours saw this as sapping the ‘vitality, as well as the integrity, of the political branches of government’. Gageler J, while accepting that preferential access through the making of donations does not necessarily equate to corruption, considered that the ‘line between a payment which increases access to an elected official and a payment which influences the official conduct of an elected official is not always easy to discern.’ He acknowledged the ‘basic human tendency toward reciprocity means that payments all too readily tend to result in favours’. Gageler J accepted that the elimination of preferential access to government based upon the making of donations is not only a legitimate end for legislation but also a ‘compelling objective’.

A third kind of corruption was described in the joint judgment as ‘war-chest’ corruption in which the best funded candidates and parties squeeze out other voices from political discourse by dominating advertising and other sources of conveying mass communications. While the High Court has previously danced around the question of whether a ‘level playing field’ is a legitimate end for electoral legislation, the joint judgment in McCloy recognised that ‘[e]quality of opportunity to participate in the exercise of political sovereignty is an aspect of the representative democracy guaranteed by our Constitution’. Gageler, Nettle and Gordon JJ took similar approaches in their separate judgments.

The joint judgment went on to state that the ‘risk to equal participation posed by the uncontrolled use of wealth may warrant legislative action to ensure, or even enhance, the practical enjoyment of popular sovereignty’. This confirms the revival of the notion of ‘popular sovereignty’ seen in Unions NSW v New South Wales, and reflects an aversion amongst members of the Court to the corrosive role of money in US politics, which has been exacerbated by decisions of the US Supreme Court. The High Court has clearly chosen to reject that path.

The Court also accepted on this occasion that there was sufficient evidence of corruption involving donations by property developers to justify special legislative measures prohibiting their donations. This is in contrast with previous scepticism expressed by the Court in Rowe v Electoral Commissioner as to the ‘fraud’ justification for early closure of electoral rolls and in Unions NSW to any ‘corruption’ justification for the exclusion of donations by corporations and unions. As property developers are largely dependent for their profits upon the decisions of government, such as the re-zoning of land and the grant of development approvals, this increases the incentive for corruption and places them into a special category in relation to which additional measures may be taken to reduce the risk of corruption. Only Nettle J was prepared to strike down the ban on property developer donations, due to its discriminatory application.

Finally, the Court accepted that mere transparency through disclosure of donations was not sufficient to address the risk of corruption. None of the Justices regarded disclosure as an adequate alternative to restrictions on donations.

The Lange test and proportionality

The second significant aspect of the case was the joint judgment’s re-writing of the Lange test, breaking down its elements into a number of more precise tests. Emphasising their importance, the new tests were set down in the second paragraph of the joint judgment. The analysis started with a summary of the nature of the freedom, being a ‘qualified limitation on legislative power’. The freedom ‘may be subject to legislative restrictions serving a legitimate purpose compatible with the system of representative government for which the Constitution provides, where the extent of the burden can be justified as suitable, necessary and adequate, having regard to the purpose of those restrictions.’ From this summary, the test was then broken down into its elements.

The first question remains whether the law effectively burdens the freedom in its terms, operation or effect. The second question is described as one that involves ‘compatibility testing’. It requires the identification of the purpose of the law and the means adopted to achieve that purpose and asks whether they are compatible with the constitutionally prescribed system of representative government in the sense that ‘they do not adversely impinge’ upon it. This clarifies previous uncertainty as to what amounts to a ‘legitimate end’ under the Lange test.

The third question is described as requiring ‘proportionality testing’. It is broken up into three parts. It asks whether the restriction imposed by the law on the freedom is justified as

(a) suitable;

(b) necessary; and

(c) adequate in its balance.

A law is ‘suitable’ if it has a rational connection to its purported purpose. It is ‘necessary’ if there is ‘no obvious and compelling alternative, reasonably practicable means of achieving the same purpose which has a less restrictive effect on the freedom’. It is ‘adequate in its balance’ if the court makes the value judgment that the importance of the purpose served by the law outweighs the extent of the restriction that it imposes on the freedom.

The joint judgment accepted that the ‘balance’ struck between the importance of the purpose and the extent of the restriction on the freedom necessarily involves a value judgment, but their Honours contended that this ‘does not entitle the courts to substitute their own assessment for that of the legislative decision-maker’. It is hard to see how this is so.

Their Honours asserted that the courts have ‘a duty to determine the limit of legislative power affecting constitutionally guaranteed freedoms’ and that even when this involves an assessment of public benefit, it does not ‘intrude upon the legislative function’. They rejected the notion of deference to the extent that this entails ‘unquestioning adoption of the correctness of’ choices by the legislature. They also rejected the relevance of a ‘margin of appreciation’ as used in the European context.

The other three Justices were not convinced of the need for, or appropriateness of, a new test at this stage. Gordon J noted that no party had argued for a revised test or a new mandatory structure for the reasoning and that the questions stated in the case could be ‘answered by reference to the known questions and tools’. Nettle J too, while addressing some of the uncertainties that had arisen in relation to the interpretation of the Lange test, concluded that ‘it is unnecessary to delve into strict proportionality’. Both applied the existing statement of the Lange test, upholding the provisions imposing caps on donations and a ban on indirect donations. Nettle J, however, dissented upon the ban on donations by property developers, holding these provisions invalid. He

appeared to regard the act of donation as a non-verbal means of political communication, and considered that a discriminatory ban upon donations by some groups lessened the free flow of political communication and distorted the level playing field.

Gageler J too rejected the need to make any choice between the alternative expressions of the ‘reasonably appropriate and adapted formulation’. He thought there was even less warrant for the ‘wholesale importation into our constitutional jurisprudence, under the rubric of proportionality, of a particular and prescriptive form of proportionality analysis’ drawn from the Canadian Charter and the European Convention on Human Rights. In the absence of full argument of the issues before the Court, he limited himself to recording his two principal reservations.

First, Gageler J was concerned that the standardised criteria set out in the tests might not be appropriate in relation to every law that burdens the implied freedom. He noted that even in the jurisdictions in which these tests were generated, varying degrees of latitude apply, including a ‘margin of appreciation’, which are not captured by the strict tests laid down by the joint judgment. Secondly, he was concerned that the proportionality test was not sufficiently connected back to the reasons for the implied freedom. It was designed to deal with express rights of individuals. He instead relied upon the need for a ‘compelling justification’ when a law is directed at the ‘conduct of elections for political office’. In this case the imposition of the restriction in pursuit of that compelling end had to be seen on close scrutiny to be a ‘reasonable necessity’ in order to be upheld as valid. He upheld the legislation on the ground that there was a compelling justification and the laws were reasonably necessary.

Conclusion

From a policy point of view, the High Court’s decision in McCloy is a welcome development that will permit reasonable regulation of political donations to lessen the potentially pernicious influence of money on politics. It paves the way for broader and much needed reforms across the country.

From a legal point of view, this case will provide a new starting point for applying proportionality review, not only in relation to the implied freedom, but presumably also in relation to other constitutional guarantees that employ similar standards. It has the virtue of applying strict and structured tests, adding an element of stability to the jurisprudence, but also risks imposing a form of rigidity which moves the application of the implied freedom further away from its purpose, potentially resulting in unjustifiable outcomes. Whether this new proportionality test extends into the field of the Commonwealth Parliament’s purposive powers, or as is controversially suggested by the joint judgment, to the application of the incidental legislative power, and the impact this will have on the division of powers between the federal and State legislatures, remain to be seen.

Anne Twomey is a Professor of Constitutional Law and Director of the Constitution Reform Unit at the University of Sydney.

Suggested citation:  Anne Twomey, ‘McCloy v New South Wales: Out with US corruption and in with german proportionality’ on AUSPUBLAW (15 October 2015) <https://auspublaw.org/blog/2015/10/mccloy-v-new-south-wales/>