UK Social Security and Child Support Commissioners' Decisions

 
DECISION OF THE CHILD SUPPORT COMMISSIONER
1. My decision is as follows. It is given under section 24(2) and (3)(d) of the Child Support Act 1991.
2. 1. The decision of the Rochdale appeal tribunal under reference U/40/124/2002/01438, held on 11 December 2002, is wrong in law.
3. 2. I set it aside and remit the case to a differently constituted appeal tribunal.
4. 3. I direct that appeal tribunal to conduct a complete rehearing of the issues that arise for decision.

The appeal tribunal must determine the parent with care's application for a departure direction. Although I have set aside the tribunal's decision by reference to life-style inconsistent head only, the tribunal at the rehearing must consider all the heads in the application. As this case came before the tribunal on referral by the Secretary of State, section 20(7)(a) of the Child Support Act 1991 does not apply – it is expressly limited to appeals.

In dealing with the life-style inconsistent head of the application, the tribunal must follow my analysis of regulations 25 and 40(5) of the Child Support Departure Direction and Consequential Amendments Regulations 1996 in this decision and in R(CS) 3/01.

The appeal to the Commissioner

5. This case concerns an application for a departure direction from the formula assessment of child support maintenance.
6. In the terminology of the child support legislation, the appellant is the absent parent under the assessment, and the second respondent is the parent with care under the assessment. I shall refer to them in those terms.
7. The case comes before me on appeal to a Commissioner against the decision of the appeal tribunal brought with my leave. The Secretary of State supports the appeal. The parents have both made observations on the appeal.

The history of the case

8. The parent with care applied for a departure direction under a number of heads. The Secretary of State referred the application to an appeal tribunal. The tribunal gave a direction under the life-style inconsistent head only. This was for the inclusive period from 12 July 2000 to 25 July 2001. The absent parent applied for leave to appeal against the decision, which I granted. I identified three issues for consideration on the appeal.

The legislation

9. The life-style inconsistent head for a departure direction is governed by regulation 25 of the Child Support Departure Direction and Consequential Amendments Regulations 1996:

'(1) Subject to paragraph (2), a case shall constitute a case for the purposes of paragraph 5(1) of Schedule 4B to the Act where the Secretary of State is satisfied that the current maintenance assessment is based upon a level of income of the non-applicant [in this case, the absent parent] which is substantially lower than the level of income required to support the overall life-style of that non-applicant.

(2) Paragraph (1) shall not apply where the Secretary of State is satisfied that the life-style of the non-applicant is paid for-

(a) out of capital belonging to him; or

(b) by his partner, unless the non-applicant is able to influence or control the amount of income received by that partner.'

Issue 1 – was the tribunal correct that the absent parent's life-style was not being maintained by drawing on capital?

10. At the time of the application, the absent parent was working as a sole trader. (He later converted his business to a company.) The statement of the reasons for the tribunal's decision records that it was 'satisfied that the lifestyle was not funded from capital – the allegation that the utilisation of company funds was analogous to this was not accepted given the particular position of the company in that clearly the lifestyle was, in fact, funded by the future expectations of the company, i.e. increasingly buoyant.'
11. I do not follow that reasoning. As a sole trader, there was no distinction between the absent parent's personal income and capital and that which he employed in his business. It may be that I have misunderstood the tribunal's reasoning, but it seems to me that it decided that the absent parent was funding his life-style by drawing on the capital of his business in anticipation of future profits. That is drawing on capital. At least, the tribunal's reasoning is unclear.

Issue 2 – was the tribunal right to rely on the 1998-1999 accounting year for a departure direction that did not take effect until July 2000?

12. The parent with care's application for a departure direction was received on 14 July 2000. If a departure direction was given on the application, its effective date would be 12 July 2000: see regulation 32(2)(a). The tribunal referred in its reasoning to the accounts for the absent parent's business for the 1998-1999 accounting year. Was that permissible?
13. Regulation 25 does not have an easy relationship with the formula assessment provisions. I explored some aspects of that relationship in R(CS) 3/01. Regulation 25 requires a comparison between a person's life-style and the income on which the formula assessment was based. The life-style will be that current at the time of the application. But the formula assessment may be based on income that relates to an earlier period. This is especially likely if the formula assessment has been based, as in this case, on accounts for a business.
14. The matter becomes more complicated when the evidence on which a life-style argument is based is taken into account. That evidence will inevitably relate to a past period. So will any rebutting evidence of how that life-style was funded. That evidence can, of course, only be used to prove the life-style current at the date of the application and how it was funded at that date. So, the tribunal has to be satisfied that the life-style as proved in evidence is ongoing.
15. So, a tribunal may have to compare a present life-style with an assessment of income that relates to an earlier period. And it has to do this by reference to evidence that entirely relates to the past. How should a tribunal or the Secretary of State' decision-maker deal with this sort of case?
16. If there is direct evidence of an increase in income since the formula assessment, one approach would be to supersede the formula assessment. That would allow a comparison of present life-style and present income. This is envisaged by section 28B(6) of the Child Support Act 1991. However, this approach may not be appropriate. If, as in this case, the absent parent's income is based on accounts, the formula will always be applied to income for a past period that may now be out-of-date. In those circumstances, the tribunal must ensure that its approach does not prejudice the absent parent. Common sense dictates that the tribunal should concentrate on the financial circumstances at the date of the application. The legal means of ensuring that a comparison between different periods of time does not work to the prejudice of an absent parent is the just and equitable requirement. This allows a tribunal a broad discretion in the application of the departure direction scheme. It should be exercised to prevent invalid comparisons producing inappropriate results.
17. In R(CS) 3/02 at paragraphs 32 to 34, I suggested that the departure direction scheme could be used to update an assessment until the next formula assessment. I was there referring to income that was proved by inference. This case is different in two respect. First, I am referring at the moment to direct evidence of income. Second, this is the type of case in which the formula operates by reference to a period of time (an accounting period) that is significantly in the past. In this type of case, the proper approach is to accept that there is an inherent risk that the formula assessment will often be out-of-date. Sometimes that may be to the advantage of the absent parent. Other times it may be to the advantage of the person with care. In these circumstances, the formula is best left to catch up with reality over time rather than be disrupted by the departure direction scheme.
18. My conclusion on this issue is this. The tribunal should not simply have referred to evidence from the 1998-1999 accounting year. It should have found its facts as at the date of the application. In relying on past evidence, as it inevitably had to, the tribunal should have done two things. First, it should have related that evidence to the relevant time (of the application). Second, it should have ensured through the just and equitable requirement that the absent parent was not prejudiced by the unhappy relationship between the formula assessment and the departure direction scheme. It went wrong by not explaining clearly how it had dealt with that evidence in order to overcome this possibility of prejudice.

Issue 3 – is it permissible to give a life-style departure direction even it is known that the declared income is correct?

19. This issue is another aspect of the unhappy relationship between the formula assessment and the departure direction scheme.
20. The tribunal described the absent parent's evidence as having been 'given candidly' and accepted that evidence. It is inherent in that approach that the absent parent had disclosed to the appeal tribunal all his income. In those circumstances, was the tribunal still entitled to give a direction on the ground that his life-style was inconsistent with that income?
21. The purpose of regulation 25 is clear from its terms. It allows a person's income to be calculated by inference from that person's life-style, despite the lack of direct evidence of income. Appeal tribunals often try to identify and calculate the non-applicant's income rather than work by inference from that person's life-style. That is an understandable approach, but it is wrong in law. However, the person's actual income will often be an issue before a tribunal, because of the nature of a typical defence to an application for a departure direction under this head. Typically, a defence will try to prove one or both of two things. One is that the applicant has misrepresented the nature and cost of the non-applicant's life-style. The other is that the non-applicant has no other income than that disclosed. This second argument requires the tribunal to consider the credibility and reliability of the evidence of the evidence given and produced.
22. In this case, the tribunal could not ignore the evidence given and produced by the absent parent to show that he had made a full disclosure of his income. Its conclusions on this point and on the inconsistent life-style argument were intimately connected. If it was impossible to reconcile the person's life-style with declared income, the tribunal should have concluded that there was income that was not accounted for. That income should then have been calculated in accordance with regulation 40(5). But before reaching that conclusion, the tribunal had to be satisfied that it had enquired sufficiently into the case. As the evidence of the non-applicant's actual income appeared to credible and reliable, but inconsistent with his life-style, the tribunal should have considered whether the evidence could be reconciled.
23. As the case is presented in the statement of the reasons for the tribunal's decision, there was an apparent conflict between full disclosure and an inconsistent life-style. This apparent conflict showed the need for a more detailed enquiry into the nature of the life-style, its cost and the way it is funded. The record does not show that the tribunal undertook that enquiry.

Summary

24. I allow the appeal and direct a rehearing. I have considered whether to substitute a decision for that of the appeal tribunal, but have concluded that a rehearing on the facts is more appropriate.

Signed on original

Edward Jacobs Commissioner 29 May 2003