On 7 October 2015, the High Court of Australia in McCloy v New South Wales [2015] HCA 34 upheld the validity of provisions in the Electoral Funding, Expenditure and Disclosures Act 1981 (NSW) (the EFED Act) that impose caps on political donations, prohibit donations from property developers and restrict indirect campaign contributions in New South Wales. The challenge was brought by former lord mayor of Newcastle and property developer Mr Jeffery McCloy on the basis that those provisions were invalid for impermissibly infringing the freedom of political communication implied in the Commonwealth Constitution. McCloy Administration Pty Limited and North Lakes Pty Limited were also plaintiffs to the proceedings.

The High Court upheld the validity of the provisions of the EFED Act, finding that while the provisions did burden the implied freedom of communication on governmental and political matters, the purpose of the provisions was to secure and promote the actual and perceived integrity of the Parliament and institutions of government in New South Wales by preventing corruption and ensuring political equality. The provisions were therefore compatible with the maintenance of the constitutionally prescribed system of representative government and were reasonably appropriate to advance that legitimate object.

The decision confirms that political donations may be limited – both in their size and in who can make them – for the purposes of preventing corruption and helping to ensure political equality.

Background facts

Mr McCloy, after being subjected to compulsory examination by the Independent Commission Against Corruption about whether donations made in the March 2011 NSW state election contravened the EFED Act, together with the other plaintiffs, challenged each of the following provisions of the EFED Act on the basis that they contravened the implied freedom of political communication in the Constitution:

  1. Part 6 Division 2A, which makes it unlawful for a person to accept a donation that exceeds the applicable cap;
  2. Part 6 Division 4A, which makes it unlawful for ‘prohibited donors’ (a property developer, tobacco industry entity or liquor or gambling industry entity) to make political donations; and
  3. Section 96E which makes it unlawful for a person to make certain ‘indirect campaign contributions’, including payments for political advertising and the waiving of any payments for political advertising.

The plaintiffs argued that as the giving of donations gave access to politicians and political parties ion 2A and section 96E (caps on politicaln order to “build and assert political power”, the provisions impermissibly restricted a donor’s ability to gain access and make representations to politicians and political parties, and impermissibly limited the funds available to political parties to meet the costs involved in political communication. Because the provisions of the EFED Act burdened the implied freedom of political communication, it was incumbent on the respondent, New South Wales, to justify that burden.

The Court’s decision

In a joint judgment, French CJ, Kiefel, Bell and Keane JJ, referring to the High Court’s decision in Lange v Australian Broadcasting Corporation (1997) 189 CLR 520, reiterated the test for determining whether legislation impermissibly infringes upon the implied freedom of political communication. The test requires that not only must the purpose of the provisions be compatible with the system of representative government provided for by the Constitution but so too must the means adopted to achieve that purpose.

The majority held that while each of the provisions burdened the implied freedom of political communication, the provisions had been enacted for legitimate purposes and, in fact, preserved and enhanced the system of representative government. In particular:

  • Division 2A and section 96E (caps on political donations) were valid as while those provisions targeted money which may be used for political communication, they had the legitimate purpose of preventing corruption and undue influence in government by preventing the payments of large sums of money through political donations. The majority referred to various types of corruption that the provisions aimed to prevent, including a candidate for office bargaining with a wealthy donor to exercise his or her power in office for the benefit of the donor in return for financial assistance with the election campaign (or ‘quid pro quo’ corruption), or the danger that office holders will decide issues not on the merits or desires of constituents, but according to the wishes of those that have made large financial contributions valued by the office holder (or ‘clientelistic’ corruption), both of which threaten the quality and integrity of government decision; and
  • Division 4A was valid as the majority accepted that property developers warranted specific legislation given the nature of the public powers which they might seek to influence, together with the fact that their profits depended on public officials’ exercising statutory discretions in their favour. The majority observed that eight adverse reports concerning land development applications had been published by ICAC since 1990, and, noting the difficulties in prosecuting corruption of this kind, considered that those reports brought to light the reality of the corruption risk concerning land development applications and the accompanying loss of public confidence.

The majority also emphasised that alternatives, such as those requiring disclosure of donations or limiting restrictions on political donations to acts of bribery, would not be as effective or a reasonable alternative to preventing corruption as the capping of political donations because they would not be considered as effective (disclosures) or were inherently difficult to detect (bribery).

Of the other Justices, Gageler and Gordon JJ, in separate judgements, agreed with the answers of the majority, and respectively held that the provisions were no more restrictive than was reasonably necessary and reasonably appropriate and adapted, to prevent corruption and undue influence in government. Nettle J, in a separate judgment, agreed that the donation caps in Division 2A were appropriate and adapted to the legitimate aim of reducing the risk of undue influence but held that the prohibitions against property developers in Division 4A were invalid as they discriminated against a particular sector of the community, and were thus against the expression of their particular political views.