B e f o r e :
LORD JUSTICE LAWTON,
LORD JUSTICE BRIGHTMAN
and
LORD JUSTICE FOX
BETWEEN :
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CONSERVATIVE AND UNIONIST CENTRAL OFFICE
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Appellant (Respondent in Court of Appeal)
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- and -
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JAMES ROBERT SAMUEL BURRELL (HM Inspector of Taxes)
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Respondent (Appellant in Court of Appeal)
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(Transcript of the Shorthand Notes of The Association of Official Shorthand-writers, Ltd., Room 392, Royal Courts of Justice, and 2, New Square, Lincoln's Inn, London, WC2)
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Mr. JOHN KNOX, QC, and Mr. CHRISTOPHER McCALL (instructed by The Solicitor of Inland Revenue) appeared on behalf of the Respondent (Appellant in the Court of Appeal).
Mr. ANDREW PARK, QC, and Mr. DAVID GOLDBERG (instructed by Messrs, Trower Still & Keeling) appeared on behalf of the Appellant (Respondent in the Court of Appeal).
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HTML VERSION OF JUDGMENT
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LORD JUSTICE LAWTON: This is an appeal by the Inland Revenue from an order of Mr. Justice Vinelott made on April 2, 1980, whereby he adjudged on the hearing of an appeal by way of Case Stated from a decision of the Commissioners for the Special Purposes of the Income Tax Acts that such decision was erroneous and that assessments to corporation tax on the Conservative and Unionist Central Office for each of the five years ending on March 31, 1972 to 1976, be discharged. The Special Commissioners had decided that the Central Office was an unincorporated association and as such was chargeable to corporation tax on its profits under the provisions of sections 238(1) and 526(5) of the Income and Corporation Taxes Act 1970. Mr. Justice Vinelott adjudged that it was not such an association so that corporation tax was not chargeable. It was agreed before .us that the Central Office was nothing more than an administrative unit of the Conservative and Unionist Party (to which I shall refer hereafter as "the Party"). No point has ever been taken by either side as to the name used for the purpose of the assessments. Both parties to this appeal asked the Court to consider the legal nature of the Party, If it is an unincorporated association, corporation tax has to be paid on the income identified in the Conservative and Unionist Party Income and Expenditure Accounts for the relevant years on "investment income and interest". If it is not such an association, income tax will have to be paid on this income. We have not been concerned to decide who will have to pay income tax but we were told by Mr. Park on behalf of the Party that whatever income tax is payable will be paid out of the Party's central funds. The reason why the Party is contesting the assessments to corporation tax which have been made upon it is that for the relevant years the rates at which corporation tax was charged were much higher than the rates for income tax.
The charging section of the Income and Corporation Taxes Act 1970 (section 238(1)) starts with these words: "Corporation tax shall be charged on profits of companies ...". Section 526 is an interpretation section. Sub-section (5) defines "company" as follows: "'Company' means, subject to subsection (6) below [which has no relevance in this case], any body corporate or unincorporated association, but does not include a partnership, a local authority or a local authority association". It is against this statutory background that a meaning has to be given to the words "unincorporated association". It is sufficiently like a "company" for it to be put in the charging section within the ambit of that word. The interpretation section makes it clear that the word "company" has a meaning extending beyond a body corporate but not as far as a partnership or a local authority. I infer that by "unincorporated association" in this context Parliament meant two or more persons bound together for one or more common purposes, not being business purposes, by mutual undertakings, each having mutual duties and obligations, in an organisation which has rules which identify in whom control of it and its funds rests and upon what terms and which can be joined or left at will. The bond of union between the members of an unincorporated association has to be contractual. This was accepted by the Special Commissioners and was the basis of their conclusion. The point of law which arises is whether on the facts they found they could properly have come to the conclusion which they did. The facts are set out fully in the. Case. For the purposes of this judgment I need do no more than refer to those which I consider to be relevant to the point of law.
Since membership of an unincorporated association is based on agreement between the members, a starting point for examining the legal nature of the Party is to consider how anyone can join it. To this there is a short answer: no one can join the Party directly. Membership can be 'Obtained either through a local constituency association or through the Parliamentary party. Members of local constituency associations, and such associations themselves, have no constitutional links with the Parliamentary party although there are many political links. These local associations choose their own Parliamentary candidates from a list of candidates approved by the Party's Standing Advisory Committee. If a candidate of their choice is elected a member of the House of Commons he becomes a member of the Parliamentary party when he accepts the Conservative Whip, which he will do on election but which he may refuse later, in which event he will no longer be a member of the Parliamentary party. Once elected members of the House of Commons become representatives of the constituency for which they have been elected, not delegates of the local constituency associations which may have put them up as candidates. On the facts as found I can find nothing which links contractually and directly members of local constituency associations to Conservative members of the House of Commons representing their constituencies. The lack of a contractual link is even more clear in the case of peers who are members of the Parliamentary party as long as they accept the Conservative Whip in the House of Lords.
Mr. Knox on behalf of the Inland Revenue did not suggest that there was any direct link. His submission was that all the different sections of the Party are linked together through the National Union and the Party Leader and that anyone joining a local constituency association (which is the only way in which a member of the public, not being a peer or a member of the House of Commons, can join the Party) by that act impliedly accepts the linkage so that he becomes a member of an unincorporated association which is the Party.
Anyone joining a local constituency association impliedly agrees to become linked to the National Union. Between 1972 and 1975 the members of that body were local constituency associations. In 1975 the Rules were changed so that anyone who subscribed annually to any registered constituency association became a member of the National Union. Mr. Park on behalf of the Party accepted that all who were members of the National Union were members of an unincorporated body. But that still leaves a constitutional gap between the National Union and the Parliamentary party. The Special Commissioners were of the opinion that the gap was bridged by the rules which regulate the Party Meeting and the selection of the Leader of the Party. Without such a bridge having its foundations in contractual relationships there could not be, in my judgment, an unincorporated association. Peers, particularly Scottish representative peers, and Conservative members of the House of Commons would have no bonds of union with local constituency members.
The keystone of the bridge is said to be the Party Leader. In a booklet, entitled "The Party Organisation", which was annexed to the Case, the Leader's position and functions are described as follows:
"The Leader of the Party stands at the apex of the entire structure of the Party, linking together the three elements of Parliamentary Party, National Union, and Party Headquarters. .... the Leader heads both the Conservative Party in Parliament and the Conservative Party Organisation in the country, including the Party Headquarters. He is elected in the first place by the Conservative Members of Parliament in the House of Commons .... The Leader elected by the Parliamentary Party in the House of Commons is then presented for election to a special meeting representing the Party as a whole. This meeting is organised by the National Union and the Chief Whip jointly. Conservative Members of both Houses, Parliamentary Candidates and Members of the National Union Executive Committee covering all sections of the Party are eligible to attend this meeting .... The Leader of the Party appoints the officers of the Party - the Chairman, Deputy Chairman, Vice-Chairmen and Treasurers -who are directly responsible to him for the state of the Party organisation throughout the country and the Party's finances. The Leader of the Part:/ also appoints the Chairman of the Conservative Research Department".
The procedure for electing the Leader is contained in rules made in 1965. The Case does not state who made the rules. All that is clear is that neither the local constituency associations nor the National Union had any rule-making powers which enabled them to direct the "members of the House of Commons in receipt of the Conservative and National Liberal Whips" to elect a Leader. Nor is there any rule-making powers in these bodies to change the mode of election. Whoever made the rules can change them. This must mean that somewhere in the Party there is an unidentified rule-making body which at any time can make fundamental changes affecting the organisation and leadership of the Party, including the destruction of the bridge which is said to exist between, the Leader and the mass membership and over which the mass membership has no control. In my judgment, however viable such a body may be as a political movement, it lacks the characteristics of an unincorporated association for the purposes of the taxing statutes. There are no mutual understandings between all the members, no mutual rights and obligations and no rules governing control where it clearly lies, which is in the Leader. It is no answer to say, as Mr. Knox did, that on joining a local constituency association members impliedly agree to accept what he called the conventions of the Party. Agreements which confer rights and impose obligations, as membership of unincorporated associations do, must be reasonably certain because they may become justiciable and those creating unincorporated associations sometimes do. No member of a local constituency association, basing his claim on contractual rights, could ask the Court to protect those rights in respect of the Parliamentary party's election of a Leader who was "presented for election as Party Leader to the Party Meeting constituted as at present": see the "Procedure for the Selection of the Leader of the Conservative and Unionist Party" set out in the booklet to which I have referred.
Another approach to the problem presented by this case is to ask when the unincorporated association which is said to exist was formed. If, as was accepted by both the Special Commissioners and the Inland Revenue, such an association is a creature of contract, the agreement which brought it about must have been made on some identifiable occasion or in some identifiable circumstances. I can find in the Party's history as set out in the Case and the documents annexed thereto no such occasion or circumstances.
According to the booklet to which I have already referred, the Parliamentary party can trace its origins back "for several hundred years", certainly back to the second decade of the reign of Charles II. The same booklet states that the local constituency associations developed out of the registration societies which were formed after 1832 to carry out the task of making sure that the names of supporters entitled to vote were included in the register of electors. In 1867 it was decided to form a federation of local associations in England and Wales. This was the beginning of the National Union. In l870 an important event happened in the constitutional history of the Party. Mr. Disraeli founded the Conservative Central Office. Until 1911 the general control and direction of that Office was in the hands of the Whips. In that year the first Party Chairman was appointed. From its earliest days the Central Office collected funds for the Party's use. At first these funds were under the direct control of the Leader; in modern times the Party's Honorary Treasurers have been responsible for the funds. There is now a Board of Finance whose function it is to raise money for the central funds of the Party. Since the financial year which ended on the 31st March 1968 the Party has published an Income and Expenditure Account of its central funds, together with a statement of the net cash and invested reserves. It is these accounts which probably have attracted the attention of the Inland Revenue. The central funds are derived mainly from donations; but a substantial proportion comes from contributions made by local constituency associations on a quota basis. They are expected to meet their quotas but some associations do not do so. Central Office administers the funds for Party purposes but neither the National Union nor the local constituency associations have any right under any rule to a say in how the funds are to be used. When I asked Mr. Knox during the course of argument when the Inland Revenue suggested that the Party had become an unincorporated association he said that it had done so when the funds administered by the Party's officers through the Central Office had come to be recognised as the funds of the Party rather than mere financial help given to the Leader to be used by him for Party purposes. In my judgment, this would be no beginning of such an association. Further, I can find no event in the history of the Party which looks like a beginning of such an association. The indications are that the separate bodies which make up the Party co-operate with each other for political purposes but maintain independent existences for organisation purposes.
The Inland Revenue's main argument, however, was based upon the proposition that the Party's unquestioned, valid control of funds could only be possible in law if it were an unincorporated association. The officers of the Party who receive donations, legacies and constituency association quota subscriptions for Party purposes could not hold them as trustees since the law does not recognise trusts for non-charitable purposes. Clearly they could not use the funds for their own purposes. The only form of holding which made legal sense, so it was submitted, was that they held the funds for the benefit of the members of the Party, being an unincorporated association, to be used by them for the Party's purposes. I reject this argument for three reasons: first, because I find this working back kind of argument a most unsatisfactory way of establishing the existence of an association which could only have come into existence as the result of an agreement between two or more persons; secondly, because it disregards the history of the central funds; and thirdly, because it ignores what most people intend when they make donations to central funds. I have had the benefit of reading in draft Lord Justice Brightman's analysis of the legal nature of a donation to Central Office central funds. I agree with what he will say.
I would dismiss the appeal.
LORD JUSTICE BRIGHTMAN: The issue is whether or not the investment income of the Conservative Party Central Office funds during the relevant years was the income of an unincorporated association. The Crown does not allege that the Central Office itself is an unincorporated association. The assertion is that Central Office funds are held for the purposes of an organisation known as the Conservative Party, or more fully as the Conservative and Unionist Party; that such organisation has all the necessary requirements for qualifying as an unincorporated association; and that the Special Commissioners were justified in finding that it is such an association. The members of the association are said to be (i) all the persons who are members of the local constituency associations (which local associations are themselves unincorporated associations) and (ii) the members of both Houses of Parliament who accept the Conservative Party whip. The contract which is alleged to bind together the members of this unincorporated association known as the Conservative Party is said to consist of the rules forming the constitution of the National Union of Conservative and Unionist Associations; the rules regulating "party meetings" at which the candidate chosen by the Parliamentary Conservative Party as Leader of the Party is presented for election as Party Leader; and the rules forming the respective constitutions of the local constituency associations. I agree, for the reasons given by Lord Justice Lawton, that no such overall unincorporated association exists.
Before, however, that conclusion is accepted, I think that a critical observer is entitled to ask the question what, on that hypothesis, would be the legal relationship between a contributor to Central Office funds and the recipient of the contribution so made.
Strictly speaking, this Court does not have to answer that question -only to decide the issue whether the Special Commissioners were entitled to find that the Conservative Party is an unincorporated association. But if no realistic legal explanation of the relationship is forthcoming except the existence of an unincorporated association, one might justifiably begin to entertain doubts as to the credibility of the hypothesis upon which the question is asked. I will therefore attempt an answer.
If the Conservative Party is rightly described as an unincorporated association with an identifiable membership bound together by identifiable rules, and Central Office funds are funds of the Conservative Party, no problem arises. In that event, decided cases say that the contribution takes effect in favour of the members of the unincorporated association known as the Conservative Party as an accretion to the funds which are the subject-matter of the contract which such members have made inter se: see, for example, In re Recher's Will Trusts (1972) Ch. 526. If, however, the Conservative Party is not an unincorporated association, that easy answer is not available.
I will consider the hypothesis by stages. No legal problem arises if a contributor (as I will call him) hands to a friend (whom I will call the recipient) a sum of money to be applied by the recipient for political purposes indicated by the contributor, or to be chosen at the discretion of the recipient. That would be a simple case of mandate or agency. The recipient would have authority from the contributor to make use of the money in the indicated way. So far as the money is used within the scope of the mandate, the recipient discharges himself vis-à-vis the contributor. The contributor can at any time demand the return of his money so far as not spent, unless the mandate is irrevocable, as it might be or become in certain circumstances. But once the money is spent, the contributor can demand nothing back; only an account of the manner of expenditure. No trust arises, except the fiduciary relationship inherent in the relationship of principal and agent. If, however, the recipient were to apply the money for some purpose outside the scope of the mandate, clearly the recipient would not be discharged. The recipient could be restrained, like any other agent, from a threatened misapplication of the money entrusted to him, and like any other agent could be required to replace any money misapplied.
The next stage is to suppose that the recipient is the treasurer of an organisation which receives and applies funds from multifarious sources for certain political purposes. If the contributor pays money to that treasurer, the treasurer has clear authority to add the contribution to the mixed fund (as I will call it) that he holds. At that stage I think the mandate becomes irrevocable. That is to say, the contributor has no right to demand his contribution back, once it has been mixed with other money under the authority of the contributor. The contributor has no legal right to require the mixed fund to be unscrambled for his benefit. This does not mean, however, that all contributors lose all rights once their cheques are cashed, with the absurd result that the treasurer or other officers can run off with the mixed fund with impunity. I have no doubt that any contributor has a remedy against the recipient (i.e. the treasurer, or the officials at whose direction the treasurer acts) to restrain or make good a misapplication of the mixed fund except so far as it may appear on ordinary accounting principles that the plaintiff's own contribution was spent before the threatened or actual misapplication. In the latter event the mandate given by the contributor will not have been breached. A complaining contributor might encounter problems under the law of contract after a change of the office holder to whom his mandate was originally given. Perhaps only the original recipient can be sued for the malpractices of his successors. It is not necessary to explore such procedural intricacies.
So in the present case it seems to me that the status of a contribution to the Conservative Party Central Funds is this. The contributor draws a cheque (for example) in favour of, or hands it to, the treasurers. The treasurers are impliedly authorised by the contributor to present the cheque for encashment and to add the contribution to Central Office funds. Central Office funds are the subject-matter of a mandate which permits them to be used for the purposes of the Conservative Party as directed by the Leader of the Party. The contributor cannot demand his money back once it has been added to Central -Office funds. He could object if Central Office funds were used or threatened to be used otherwise than in accordance with their declared purposes, unless it is correct to say, on ordinary accounting principles, that his contribution has already passed out of Central Office funds.
This discussion of mandates, and complaining contributors, is all very remote and theoretical. No contributor to Central Office funds will view his contribution in this way, or contemplate even the remotest prospect of legal action on his part. He believes he is making an out and out contribution or gift to a political party. And so he is in practical terms. The only justification for embarking on a close analysis of the situation is the challenge, which was thrown down by counsel for the Revenue in opening, to suggest any legal framework which fits the undoubted fact that funds are held by Central Office and are administered for the use and benefit of the Conservative Party, except the supposition that the Conservative Party is an unincorporated association.
I see no legal difficulty in the mandate theory. It is not necessary to invent an unincorporated association in order to explain the situation. The only problem which might arise in practice under the mandate theory would be the case of an attempted bequest to the Central Office funds, or to the treasurers thereof, or to the Conservative Party, since no agency could be set up at the moment of death between a testator and his chosen agent. A discussion of this problem is outside the scope of this appeal and, although I think that the answer is not difficult to find, I do not wish to prejudge it.
I would dismiss the appeal.
LORD JUSTICE FOX: I have had the benefit of reading the judgments that my Lords have delivered and I agree with them.
(Appeal dismissed with costs. Leave to appeal to the House of Lords refused)
