Rehab loses challenge to abolition of compensation fund

The Rehab Group has lost its High Court challenge to the Minister for Justice's decision to abolish the Charitable Lotteries Scheme (CLS), set up to compensate charitable lotteries whose prize funds were capped to protect sales of the National Lottery.

The scheme was initially funded from the National Lottery surplus but from 2005 was 35 per cent funded by the Central Exchequer. Of 19 charities who benefitted, Rehab, Ms Justice Iseult O’Malley noted, was “by far the largest”, securing some €3.9m out of €6m paid out in 2012 when the decision to phase it out over three years was announced.

Then Minister for Justice Alan Shatter, at a meeting in November 2011 attended by Angela Kerins and Frank Flannery of Rehab, had raised issues including about profits of only €9,452 on some €4m sales of Rehab Lottery scratch cards.

Rehab responded it found it difficult to operate economies of scale in relation to lottery products and that affected profitability and added tensions with the National Lottery also hindered sales. Mr Flannery told the Minister it would be “morally wrong” to end the CLS.

In October 2012, the Minister, in a letter noting Rehab had received some €80m under the CLS, said he had concluded the CLS could not be justified in current economic circumstances and must be phased out by 2015. His decision was approved by the Taoiseach.

In juducial review proceedings challenging that decision, the Rehab Group and Rehab Lotteries argued they were denied fair procedures, had not been consulted about the intention to wind down the scheme prior to the formal decision and should have been given an opportunity to make representations.

The Minister denied those claims. The court heard the Minister believed existing criteria for the CLS were “unacceptable” in that they incentivised running charitable lotteries at extremely low profit margins or at a loss. He was also concerned a low proportion of already low profit margins reached those whom it was intended to assist.

In her reserved judgment, Ms Justice O’Malley said the scheme, as Rehab conceded, was not intended to provide compensation arising from the setting up of the National Lottery but was an effort to amemliorate the difficulties faced by some charities.

While the scheme operated, charities would have had rights relating to its administration, including it be operated fairly. It was accepted it was at all times subject to periodic review and the beneficiaries had no legal right to its continuance. There was never any representation any decision to end it would not be taken without consultation.

Rehab could not assert a legal right to the payments or allege termination of those interfered with their legal rights other than, perhaps, their right not to be wrongly damaged in their reputation, she said.

It seemed the decision to abolish the scheme was “rooted in policy considerations” as were the various previous decisions favouring retention of the scheme, she said. Unfortunately, the coming of harsher economic times seemes to have produced a “harsher policy analysis” and it was not for the court to decide if that was correct.

The policy decision applied to all charities affected and was not based on considerations applicable to any individual organisation. The Minister and advisers had simply concluded the scheme was not a justifiable expenditure of public money.

In this case, she could not rule the traditional exemption of policy decisions from the application of the rules of natural justice had been abrogated, she ruled.

While the Minister’s letter contained what might be perceived as criticism of Rehab, it did so by way of illustration of ineffciency of the scheme, she said. It was understandable Rehab would be “disgruntled”, particularly where they were given the impression the Minister was favourably disposed to their cause, but that did not mean the decision was specific to them and gave rise to a right to be heard in defence of their reputation, she ruled.

The length of time to make the decision did not illustrate an urgency that would, on its own, excuse the Minister undertaking a consultation if that was otherwise legally required, she added. A consultation process would not have been impracticable or unduly onerous given the limited numbers affected.

The November 2011 meeting could not, as the Minister argued, be realistically interpreted as the opportunity for Rehab to put its case because the Minister had not told them then he was considering abolishing the scheme, she said. The Minister argued he was not obliged to consult and any litigant could take that approach, she added.

* In a statement, the Rehab Group said it noted the ruling and would seek to engage in “constructive consultation” with the Department of Justice concerning how charitable organisations can successfully operate charitable lotteries in the future. As long as charity lotteries are unable to compete with National Lottery prizes, their capacity to generate income from lotteries is severely restricted, it said. It had used funds from the CLS for projects to support the disabled and marginalised, it added.