UK Social Security and Child Support Commissioners' Decisions

CCS 14368/96 [1997] UKSSCSC 18 (31st October, 1997)

Commissioner's File: CCS 14368/96
Mr Commissioner Howell QC
31 October 1997

CHILD SUPPORT ACTS 1991 AND 1995

APPEAL FROM DECISION OF CHILD SUPPORT APPEAL TRIBUNAL
ON A QUESTION OF LAW

DECISION OF THE CHILD SUPPORT COMMISSIONER


Appeal Tribunal: Central London CSAT

[ORAL HEARING]

1. My decision is that the child support appeal tribunal were wrong to direct in their decision of 7 March 1996 that no allowance should be made to the absent parent for the transfer of a share in the former matrimonial home under the court order dated 19 January 1990. I set the decision aside and exercise the powers in s. 24(3) Child Support Act 1991 to substitute my own decision. This is to remit the case to the child support officer to recalculate the assessment from 18 April 1995 making allowance for the transfer as a qualifying transfer under Sch. 3A Child Support (Maintenance Assessments and Special Cases) Regulations 1992 SI No 1815 to the extent explained below, and in all other respects giving effect to the directions of the tribunal.

2. This case concerns the maintenance for a young man now aged 16 whose parents divorced when he was seven. The appeal against the tribunal's decision on the amount of his maintenance is brought by his father, who appeared and conducted his case in person at the oral hearing before me. The respondents were (1) the child support officer, who appeared by Daphne Thomas of the DSS solicitor's office; (2) the boy's mother, who sent in written submissions supporting his father's appeal; and (3) the Secretary of State, who had applied to be joined as a separate respondent and appeared by Mark Shaw of Counsel, instructed by the solicitor to the Department of Social Security.

3. Both parents obviously behaved well at the time of the divorce, and the settlement between them about the care and access for their son and on financial matters was an amicable one. This case concerns the impact of the child support legislation on the financial arrangements agreed and implemented under a court order dated 19 January 1990. The order itself was in evidence before the tribunal and a copy without the usual confusing obliterations is at pages 160-162 of the appeal file. It recited that the two former spouses acknowledged its provisions to be accepted in full and final settlement of all claims they might have against each other for both capital and income or other property adjustment, and that the contents of the family home where the mother and son were continuing to live had been equitably divided, the father undertaking to pay the mortgage instalments, premiums on an endowment policy and all or most of the next two years' gas, telephone and electricity bills. On those acknowledgements and undertakings, it was ordered by consent that:

1. "The property continue to be held by the parties on trust for sale so that it shall be used by the [mother] as a house for herself and her dependants."

2. The terms of the trust for sale were to be that the mother was to have the full use, occupation and benefit of the property until sale, and that the trust for sale was not to be enforced until the happening of the first of a list of events including her death, remarriage or choosing to move, or the son attending the age of eighteen.

3. On sale of the property the proceeds were to be applied in discharging the mortgage and subject to that divided between the father "as to his appropriate share as hereinafter defined" and the balance to the mother.

4. The "appropriate share" was to be a percentage which would vary according to a formula, as follows:

" (i) 20% from the date hereof until 31 August 1989

(ii) 21% on 1 September 1989 and increasing thereafter on the first day of each month at the rate of 1/12 of 1% until sale or other disposal of the property in accordance with the terms hereof."

with a provision that the change in percentage would be frozen if at any time the mother took over responsibility for the mortgage.

5. The mother was given an option to buy out the father's share at any time.

6. The father was to pay monthly periodical maintenance to the son at the rate of 8% of his own gross salary rising to 10% until the son was 17 or later ceased to be in full-time education.

7. The father was to pay the mother "periodical payments at the rate of 5p per annum or until further order."

8. On maturity of the policy the proceeds were to be divided two-thirds to the father and one-third to the mother.

4. These terms were implemented and adhered to until September 1993 when the mother was required to make a maintenance application under s. 6 Child Support Act 1991 as she was claiming income support. This resulted in a maintenance assessment which it is now common ground should have become effective two days after it was actually made (and not earlier) as there was already a court maintenance order in force. It is also common ground that some corrections to the assessment are needed, and the tribunal's careful and thorough decision of 7 March 1996 (at pages T137-141) dealt with a number of issues on which directions were needed for the recalculation.

5. The only question still in issue on the appeal to me is whether the tribunal were right to direct that no adjustment should be made to the father's "exempt income" under Sch. 3A to the maintenance assessments regulations for any of the transfers and payments he made pursuant to the 1990 court order. This subdivides into: (1) whether there were any payments other than the transfer of beneficial interest in the house that could count under Sch. 3A; (2) whether that transfer could be a "qualifying transfer" as defined in Sch 3A para 1(1) or was excluded by sub-para (d) because it was only partial; (3) whether sub-para (e) excluded it anyway as being for the mother's own maintenance only; and (4) to the extent (if any) that it did count as a qualifying transfer, how its qualifying value should be calculated under Sch. 3A para 4.

6. The first question depends on the meaning of "property" in para 1(1) of Sch. 3A. This bears a restricted meaning so that the only property and capital transfers which are allowed to affect the calculation of exempt income are those of

(a) a legal estate or an equitable interest in land;

(b) a sum of money derived from or representing capital, in cash or on deposit with an authorised financial institution;

(c) a business asset, as defined; or

(d) a mortgage endowment policy covering an estate or interest in land which is also the subject of the same transfer.

7. The father seeks to argue that the "property" he is entitled to have taken into account under Sch 3A includes not only the beneficial interest in the house taken by the mother under the order but also the money he spent subsequently on keeping up the mortgage and paying the household bills, plus the endowment policy whose proceeds were in fact later divided between the two parents in accordance with the order.

8. In my judgment the tribunal were right to reject these contentions. It is quite clear that the schedule is concerned with once for all capital transfers only. The reference in para (b) to money "derived from" capital does not extend the definition to money used in paying mortgage instalments or regular household bills on a continuing basis, even if the money used from time to time happens to come out of a bank or building society deposit account. Nor is there any way in which a transfer of goods and chattels such as the family car or furniture on a divorce can be got within the definition of "property", which is confined to the very restricted list of items at (a)-(d) inclusive and leaves out many other forms of property (for example shareholdings) altogether. The transfer of an endowment policy can qualify under sub-para (d) only if specific conditions are met: it is not entirely clear whether this policy was the mortgage-linked kind that alone could qualify, but in any case the order provided only for the transfer of a part beneficial interest in the ultimate proceeds which I do not think meets the condition as stated in (d).

9. The only real question, it seems to me, is whether an allowance should be made for the transfer of a part beneficial interest in the house. Before turning to Sch. 3A itself it is necessary to be clear exactly what was transferred under the court order of 19 January 1990. The tribunal made no express finding about this, as they accepted the argument then put forward by the child support officer that the "qualifying transfer" provisions applied only where the whole beneficial interest in the underlying property was made over, which on any footing the terms of the court order did not do.

10. However for the reasons given below I am not satisfied that that approach to the meaning of "qualifying transfer" is right, and it therefore becomes necessary to determine what the effect of the court order was. It cannot have amounted (as the child support officer originally assumed: page T31) to as much as an 80% transfer of the beneficial interest, since it could only have had that effect if the house had up to then been in the father's sole beneficial ownership. That was not so, as the reference in the order itself to a "continued" trust for sale shows; and the father himself has confirmed that he and the mother were joint owners and mortgagors of the property until the rearrangement of their beneficial interests on the divorce: see pages 150 and 182. On that basis which I see no reason to doubt, their interests before the severance and transfer under the court order were of equal value: cf. CIS 7097/95 para 14.

11. The initial effect of the court order was therefore to transfer to the mother a further 30% of the beneficial interest in the property in addition to the 50% to which her previous right as joint owner already entitled her. However this 30% did not all become hers outright, because of the annual clawback to the father of 1% for each year from September 1989 while he continued to pay the mortgage and the property remained unsold. Under the terms of the order she had no right to insist on a sale for the next ten years while remaining at the property until their son reached 18 in 1999; so that if no other rearrangement took place the beneficial shares would revert from 80/20 to 70/30, reducing what she received under the court order from 30% to 20% before she could insist on a realisation. I think therefore that the fair and realistic interpretation to put on the somewhat complicated terms of this particular court order against these particular facts is that (to the nearest 1%) it effectively transferred a 20% interest in the property to the mother for her own absolute benefit, the further 10% not being wholly for her own immediate and absolute benefit because of the clawback provision.

12. I should here interpose that at some later date in 1994 or 1995 the father made over to her the whole of the rest of his interest in the property so that she became the sole registered proprietor and took over responsibility for the mortgage: see the Land Registry entry at page T124. However as the tribunal correctly held these arrangements are of no relevance for Sch. 3A. They were quite separate from the court order.

13. Schedule 3A was added to the maintenance assessments regulations with effect from 18 April 1995, by 1995 SI No. 1045. From that date, certain transfers of property or capital under court orders or maintenance agreements made before 5 April 1993 were for the first time to be brought into account to a limited extent in assessing the exempt income, and thus the weekly maintenance obligations, of an absent parent. By a simple banding system the exempt income is increased by £20 a week for a "relevant value" of £5-10,000, £40 a week for £10-25,000, and £60 a week for over £25,000: the "relevant value" being either half or the whole of the actual net value of the property or capital transferred. To get within this system at all however a transfer has to be a "qualifying transfer", defined by para 1(1) of Sch 3A as follows:

"1. (1) In this Schedule -

qualifying transfer" means a transfer of property -

(a) which was made in pursuance of a court order made, or a written maintenance agreement executed before 5 April 1993;

(b) which was made between the absent parent and either the parent with care or a relevant child;

(c) which was made at a time when the absent parent and the parent with care were living separate and apart;

(d) the effect of which is that the parent with care or a relevant child is beneficially entitled (subject to any mortgage or charge) to the whole of the asset transferred; and

(e) which was not made expressly for the purpose only of compensating the parent with care for the loss of any right to apply for or receive periodical payments or a capital sum in respect of herself."

14. Thus if it appears expressly that the sole purpose of the transfer was to provide for the spouse's own maintenance, (e) excludes it from counting as a "qualifying transfer" relevant for child support maintenance at all. Para 6 deals with the converse situation where the evidence shows expressly that the sole purpose of the transfer was to replace periodic maintenance for the child: in that case its whole value is counted as "relevant". To all other qualifying transfers a judgment of Solomon is applied by paras 4 and 5: half the actual value is taken into account as "relevant" and the other half ignored. There is no attempt to reflect any true apportionment between spouse and child support.

15. There is no dispute that sub-paragraphs (a), (b) and (c) are satisfied by the 1990 court order provisions increasing the mother's beneficial interest in the house. Are conditions (d) and (e)? The father, supported by the child support officer in written submissions and by the mother, maintains that they are. The opposition comes from the Secretary of State, on the ground that condition (d) cannot be met as the mother did not end up with the entire beneficial interest in the house, and the father did not transfer the whole of what he had. For either or both of those reasons, Mr Shaw argued that she did not become beneficially entitled under the order to "the whole of the asset transferred".

16. I accept the submissions of the father and the child support officer, and reject those of the Secretary of State. There cannot I think be any doubt that a percentage share of the net beneficial interest in a house is an asset transferable in its own right and "an equitable interest in land" within the definition of "property" in para 1(1) of Sch. 3A. The fact that it is less than the whole does not therefore prevent it from being the subject matter of a "qualifying transfer". The other part of the argument, that a transfer can only qualify if it was of the entirety of whatever beneficial interest the transferor had before making it, does not appear to me justifiable on the language actually used in sub-para (d). The plain and unambiguous words of the condition are satisfied if the transferee becomes beneficially entitled to the whole of the particular property transferred. There is no extra condition about what that property has to be. I was urged to look at various pronouncements by government spokesmen as to the intended effect of the changes at the time the schedule was introduced, but I was not satisfied either that any occasion for using them as an aid to construction of the plain statutory words arose, or (when I did look at them, de bene esse) that they shed any helpful light on the point.

17. For those reasons I hold that the condition in (d) is satisfied as regards any percentage equitable interest transferred under the court order of which it can be said that the mother thereby became entitled to it outright, absolutely and beneficially. In the context of the very simple structure intended, on its own internal evidence, by the schedule the expression "beneficially entitled to the whole" is in my judgment to be interpreted as requiring that the transferee must receive absolute beneficial entitlement in respect of the subject matter of the transfer, as distinct from a limited or qualified interest which it would not be easy to identify as "lump sum maintenance". That condition appears to me to be satisfied in relation to the transfer of 20%, but not the further 10%: see para 11 above. I can see no reason however in the wording of (d) or in principle why the existence of the 10% limited transfer should prevent the 20% absolute transfer from qualifying, any more than the existence of the residual 20% the father kept or the 50% the mother already had, neither of which was transferred by the order at all.

18. I accept the united submissions of the father, child support officer and the Secretary of State that sub-para (e) does not prevent this transfer from being a qualifying transfer. Whatever the precise extent of the exclusion may be in more marginal cases it does not in my view apply here, having regard to (1) the express terms about the house which show a clear intention that the purpose is to continue to provide the son with a roof over his head as well as his mother, and (2) the lack of any express declaration in terms of condition (e) in the court order itself, and of anything in this or the other contemporaneous evidence from which it is possible to spell one out.

19. In the result I hold that there was a transfer of a 20% beneficial interest in the house to the mother satisfying all the conditions (a) to (e). The "qualifying value" under para 4 was half the value of 20% of the net equity after allowing for the mortgage, and as there were no compensating transfers, the "relevant value" to be used determine the band under Sch 3A para 10 is the same as the "qualifying value". Applying the formula in para 4 to a percentage beneficial share in land on which there is a mortgage presents no difficulty as on normal equitable principles of apportionment each such share is subject to its due proportion of the overall burden.

20. There was some mention at the hearing of the possibility of a "departure direction" but whether such a direction is justified is not an issue before me, and cannot be relevant to the interpretation of Sch. 3A which preceded the departure provisions. Any relevant later changes of circumstances must of course be taken into account by the child support officer in his recalculations in the usual way. The appeal is therefore allowed and the case remitted to the child support officer to recalculate the assessment in accordance with the directions given by the tribunal, except that from 18 April 1995 there is to be taken into account the qualifying transfer of 20% of the net equity in the former family home in the way set out above.

(Signed)

P L Howell
Commissioner
31 October 1997