Tuesday, 7 January 2014

Some Notes on Political Office and Bankruptcy

Recently, as Mr Trevor and Mrs Shona Pitman were declared bankrupt and lost their seats in the States, there has been a lot said online about Jersey's archaic laws regarding bankruptcy and automatic disqualification from the States, but if one really wants to look for archaism, one need look no further than the UK, where the old system of leaving Parliament via the "Chiltern Hundreds" applies.
The use of this goes back to a resolution of the Parliament March 1624, which changed the rules to prevent members from leaving the House by resigning. As the Commons document on the matter notes:
"To put the above in perspective, it should be remembered that in those days serving in Parliament was often regarded as an obligation to be accepted only reluctantly rather than an honour to be eagerly sought. Voluntary relinquishment of a seat was not, therefore, something to be encouraged."(1)
And it was also the case that before the 16th century, Parliament often sat for no longer than a few weeks, so procedures for resignation were not deemed necessary. It must be remembered that the Sovereign often avoided calling Parliament because that could involve troublesome political conflicts between Crown and Commons.
Of particular note, even in the 17th  century, Charles I attempted personal rule for 11 years (1629-1640) before recalling Parliament in 1640 to obtain money to finance the military struggle with Scotland. That Parliament - deemed the "Short Parliament" was more concerned with grievances regarding Royal administration than voting funds, and lasted only three weeks before Charles dissolved it.
In 1624, under the fourth and final Parliament of James I, known as "The Happy Parliament", changes were made which made it harder for members to resign from Parliament:
"Under a Resolution of the House of 2 March 1624, Members of Parliament cannot directly resign their seat. Death, disqualification and expulsion are the only means by which a Member's seat may be vacated during the lifetime of a Parliament. Therefore a Member wishing to resign has to go through the process of applying for a paid office of the Crown, which automatically disqualifies the Member from holding a seat in the House of Commons. There are two such offices: Crown Steward and Bailiff of the Chiltern Hundreds and of the Manor of Northstead." (1)
There was another significant change in the UK in 1812:
"On March 23, 1812, the Bill Respecting Members Who Become Bankrupts came for a second reading in the British House of Commons. The bill would force a bankrupt Member of Parliament to vacate his seat.  The bill was discussed on March 16, 1812. The British House of Commons maintains a vestige of this law in that Members of Parliament who become bankrupt or an equivalent status must vacate their seats. The vote was close with 22 for and 19 against the bill." (2)
It is also interesting, because the debate shows that the situation in Ireland was that a bankrupt MP would automatically lose their seat. Remember at this time, Irish MPs sat in the Commons; it was before Irish independence:
"The Chancellor of the Exchequer allowed that the existing law was anomalous: for Irish members becoming bankrupts, vacated their seats, while English members did not; but the hon. gentleman who brought in the Bill, had introduced provisions from the Irish act, which were not applicable to the English law of bankrupts. To equalise the situation of the members of both countries in this respect, the law must be embarrassed with many provisions of a different nature. At present, the Bill appeared to him to be extremely defective. An interval of six months was allowed by it alter the bankruptcy, before the exclusion of the bankrupt from the House." (3)

And - given the recent history of Jersey, where an Acting Magistrate retained his office, albeit suspended, despite being convicted -  it is interesting to note Mr Thompson's argument for the proposed Bill:
"Mr. Thompson declared, that his object was to preserve, as much as possible, the independence of parliament, and to prevent persons who possessed no qualification, from sitting in that House, and making laws for the community. No doubt there were honourable bankrupts, but nine cases of bankruptcy out of ten, were attributable to folly and imprudence. A country magistrate would look shyly at a justice, who presumed to sit on the bench and administer the law, after having paid his creditors a shilling or half a crown in the pound; nor did he think such a person much more fit for a legislator."(3)
It should be noted that "The British House of Commons maintains a vestige of this law in that Members of Parliament who become bankrupt or an equivalent status must vacate their seats." This is done now by applying to the Chilterns Hundreds but it is something an MP must do; they cannot hang on to their seats when bankrupt.
And moving to 2002, Miss Melanie Johnson, MP noted that:
"The last bankruptcy disqualification of a sitting Member of Parliament was in the late 1920s, notwithstanding the more recent names that the hon. Gentleman mentioned. Such disqualification is unusual, but that is not to say that we should not have provision to cover it. Section 427 of the Insolvency Act 1986 currently provides that a person who becomes bankrupt in England and Wales, or Northern Ireland, or has his estate sequestered in Scotland, is disqualified from being elected to this House or sitting or voting in either House or Committee of either House." (4)
It is interesting to also note that in the Australian parliament:
"A person is incapable of being chosen or of sitting as a Member of the House of Representatives if the person is an undischarged bankrupt or insolvent"
And it is also noted that:
"There has been no precedent in the House of Representatives of the seat of a Member being vacated because he or she has become bankrupt. Therefore, while a seat is vacated at the instant that the Member is declared bankrupt, the machinery for bringing this fact to the attention of the House is not established. The proper channel of communication would seem to be between the court and the Speaker and this could be achieved by a notification to the Clerk of the House who would then advise the Speaker."
On the duration of disqualification from office, while Jersey has a period of five years, in the UK it is until the individual is discharged from bankruptcy, which may be as little as 12 months (or less, if they come into sufficient funds to discharge all debts). But it can be extended if required.
For instance, the official receiver or your trustee in bankruptcy will ask you to agree to make contributions towards your bankruptcy debts, if you can afford to, for a period of time - normally 3 years. That is called an Income Payments Agreement, if agreed by the bankrupt, or an Income Payments Order, if made by a Court.  An IPO is a court order, so if you don't keep up the payments, your trustee may ask the court for an order suspending your discharge from bankruptcy
In Australia, however, discharge from bankruptcy only comes after three years and one day after being declared bankrupt. So you are disqualified from that period from becoming a Member of Parliament.

"According to John Kalokerinos' paper "Who May Sit? An Examination of the Parliamentary Disqualification Provisions of the Commonwealth Constitution" the constitutional provision against bankruptcy is to protect the state and address the concern about "the scope for financial persuasion to influence a bankrupt candidate or parliamentarian"" (6)
"Kalokerinos suggests that because views towards "debt and bankruptcy, the growth in consumer credit, and the importance of elector choice" have changed enormously since 1901, s44(iii) is no longer justified." (6)
The reason why a bankrupt should not be allowed to stand for election was considered by New South Wales Premier Joseph Carruthers that the provision could be used by creditors to disqualify candidates or members of parliament to whom they are opposed.  Moreover, Carruthers argued:
"the electors should have the right to choose to be represented by a person who is bankrupt.  Such a person is not necessarily unfit for Parliament, and if that person has acted improperly, the electorate will judge him or her appropriately". (6)
Kalokerinos suggests that the laws regarding disqualification from office were drawn up many years ago and should be reconsidered:
"I conclude that the existing disqualifications are deficient. Indeed, s 44 was labelled 'vestigial' by Barwick CJ. The provisions are anachronistic and inequitable, and should be deleted, or replaced with legislative provisions which are less rigid, and capable of being updated by the Parliament as and when appropriate. As a general policy, there should be a presumption against limitations on eligibility. Two principles underpin this policy. First, in a democracy, any citizen should be eligible to stand for Parliament. This principle is consistent with representative democracy, a principle inherent in the Constitution. Secondly, there should be very few restraints on elector choice. Further, because of the difficulty of constitutional change in Australia, the disqualifications should not be contained in the Constitution, which entrenches 'archaic language devised in circumstances that prevailed a century ago'" (7)
He notes that historically, disqualification as a result of bankruptcy was less to do with finance, and more to do with morality of a bygone age:
"Discussion at the Federal Conventions over the progenitors to s 44(iii) was heated, and much light on the reasons for its inclusion may be gleaned from an examination of them. At the time, bankruptcy was generally viewed with considerable moral opprobrium. A comment by Sir John Downer exemplifies this view: 'it will be a bad day for Australia, as it would be for any country, if bankruptcy is considered merely a venial matter, and not one that involves great disgrace'." (7)
And he concludes:
"Attitudes to bankruptcy have changed enormously since 1901, and it no longer imports moral turpitude. Further, the increased availability of consumer credit has made debt widespread and an ordinary part of life. There has been a significant increase in the level of bankruptcies in Australia, and the harshness of the disqualification is compounded by the fact that many of these bankruptcies occur through misfortune, illness, unemployment, or unstable economic conditions. Changed financial circumstances and community attitudes to debt and to bankruptcy makes 44(iii) difficult to justify today. Accordingly, I propose its deletion. Such reform would remove the temptation for members and candidates to act dishonestly to avoid indebtedness and the perception thereof, and would eliminate any possibility of political uses of the disqualification by prospective creditors. As Carruthers argued over 100 years ago, the electors should have the right to choose to be represented by a person who is compelled by necessity to become bankrupt. Such a person is not necessarily unfit for Parliament, and if that person has acted improperly, the electorate will judge him or her appropriately."
When I began this research, I was of the opinion that the law, as it stood in Jersey, and the UK, and indeed Australia, was quite justified regarding bankruptcy and candidature. Having read Kalokerinos, I am now convinced that at least a discharged bankrupt should have the right to stand immediately, and the law regarding disqualification as it stands, should be changed. As automatic discharge also takes place after 4 years, a 5 year limit to eligibility seems excessive.
And Kalokerinos also highlights an Australian case where a Member of Parliament was happy to take loans offered to prevent him becoming bankrupt, and was therefore financially indebted (and hence possibly supportive) of the lenders political or economic interests. That's effectively a form of bribery, and the current law makes that an ever present danger as much in Jersey as in Australia.
(1)   http://www.parliament.uk/documents/commons-information-office/p11.pdf
(2)   http://1812now.blogspot.com/2012/03/march-23-1812-bill-respecting-bankrupt.html
(3)   http://hansard.millbanksystems.com/commons/1812/mar/23/bill-respecting-members-who-become
(4)   http://hansard.millbanksystems.com/commons/2002/jun/17/disqualification-from-office-parliament
(5)   http://www.aph.gov.au/about_parliament/house_of_representatives/powers_practice_and_procedure/~/link.aspx?_id=5F84A8EF67554138898561AB96CFEDE3&_z=z
(6)   http://www.crikey.com.au/2011/08/19/crikey-clarifier-why-mps-are-forced-to-resign-over-bankruptcy/
(7)   http://www.aph.gov.au/About_Parliament/Senate/Research_and_Education/pops/~/link.aspx?_id=AC8BF7CF6CB04C8C9F73EF30BBE19A8B&_z=z

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