A federal court has ruled against Stephen Harper's Conservative Party in its long-running feud with Canada's elections watchdog, overturning a legal victory the Tories had argued offered them vindication in the matter.
The decision, handed down Tuesday, comes days after four senior Conservatives – including two senators – were charged under federal law with "willfully" exceeding spending limits in the pivotal 2006 campaign that brought the Tories to power.
The two senators charged are Doug Finley, a former party campaign manager, and Irving Gerstein, a major Tory fundraiser who is also accused of providing a "materially false and misleading statement."
The charges, which are administrative and not criminal, carry a maximum penalty of $2,000 or one year in jail, or both.
Elections Canada alleges the Tory party broke the rules through a so-called in-and-out financing scheme: skirting a national campaign spending cap by shifting some advertising expenses to individual candidates in 67 ridings.
In Tuesday's ruling, the Federal Court of Appeal concluded "it was reasonable" for the Chief Electoral Officer to be dissatisfied with the manner in which the Conservatives reported expenses.
The court ruled the Conservative Party's interpretation of Elections Canada's oversight powers "would weaken compliance with the limits set by Parliament on the amount of money that candidates may spend on their election and can recover by way of reimbursement from public funds."
In the decision, the court ruled "abuses could well proliferate and the statutory objective of promoting a healthy democracy through levelling the electoral playing field [be]undermined."
The Court of Appeal decision erodes a key defence offered by the Tories when news of the charges surfaced last week. The Conservatives had cried foul at the time, suggesting the Commissioner of Canada Elections was acting contrary to what courts had already decided.
"We've been repeatedly in court about this," Mr. Harper told reporters last week. "The courts, to this point, have ruled in our favour."
The parliamentary secretary to the Prime Minister went even further, suggesting the watchdog was out of line.
"For Elections Canada to ignore a federal court decision and lay administrative charges is puzzling at best and unfair at worst," Pierre Poilievre said last Friday.
After Tuesday's ruling, however, the Conservatives called the matter a "difference of opinion" with Elections Canada and vowed to seek leave to appeal the ruling to the Supreme Court.
"This is an administrative dispute with Elections Canada that has been going on for five years in regards to whether certain expenses should be counted as local or national," Conservative Party spokesman Fred DeLorey said.
He pointed out that the Tories changed their campaign finance accounting after Elections Canada made its views known on the matter.
"We have a difference of opinion on this and we maintain that our people acted under the law, as they understood it at that time," Mr. DeLorey said.
"When it was clear that Elections Canada had changed its interpretation of the law, the Conservative Party adjusted its practices for the 2008 election campaign."
NDP MP Pat Martin called for Mr. Finley and Mr. Gerstein to be suspended from the Senate until the courts have finished adjudicating the matter.
"Our spending limits make a fair and egalitarian electoral system. You shouldn't be able to buy an election in this country because you have deeper pockets or a fatter checkbook," Mr. Martin said.
"The Conservatives have made a mockery of those rules and in doing so they've diminished the integrity of our democracy."
Also charged last week were Michael Donison, the Conservative Party's former executive director, and Susan Kehoe, a senior Tory staffer – as well as the Conservative Party of Canada and the Conservative Fund of Canada.