UK Social Security and Child Support Commissioners' Decisions

 


[2004] UKSSCSC CCS_2357_2003 (25 June 2004)

CCS/2357/2003

DECISION OF THE CHILD SUPPORT COMMISSIONER

1. The absent parent's appeal to the Commissioner is allowed. The decision of the Telford appeal tribunal dated 11 December 2002 is wrong in law, for the reasons given below, and I set it aside. It is expedient for me to give the decision on the absent parent's appeal against departure direction made on behalf of the Secretary of State on 5 July 2001 having made the necessary findings of fact (Child Support Act 1991, section 24(3)(b)). My decision is that that appeal is allowed and that no departure direction is to be made on the parent with care's application received on 24 April 2001.
2. This is a very complicated case with the added dimension, as is so often present by the stage of an appeal to the Commissioner, that events have moved on considerably since the relevant dates. The appeal tribunal thought that it was concerned with three appeals, which were heard at the same time. In relation to one of those appeals, I have refused the absent parent leave to appeal to the Commissioner (CCS/2356/2003), although I shall have to discuss the subject-matter of that appeal. In relation to the other two appeals, I granted leave to appeal. I make a separate, relatively short, decision on the other of those cases (CCS/2361/2003). There are also parts of the appeal tribunal's decisions that the parent with care considers wrong. She has not made any application for leave to appeal against any of the appeal tribunal's decisions. I deal formally with that part of the parent with care's case in the decision in CCS/2361/2003, for reasons that have to do with the overall course of the case.
3. I shall therefore try to set out the general background in the present decision, making what simplifications I can. I shall refer to the parents as the absent parent and the parent with care to avoid confusions about who was applying for what or appealing against what at different stages.

The course of decisions and the issues before the appeal tribunal

4. An initial child support maintenance assessment was made against the absent parent with effect from 6 November 2000, it seems on 17 November 2000. As soon as that assessment was notified, he applied on 11 December 2000 for a departure direction (application number 401775294) and one was made on 17 April 2001. Not all of the absent parent's grounds were accepted, but something was allowed for his travel to work costs and in particular a direction was given in respect of assets (amounting to £52,198) of the parent with care capable of producing income or more income and increasing the amount of her weekly income by £80.08. That had the effect of reducing the weekly amount of the maintenance assessment from £72.13 to £65.63 from 6 November 2000. On 3 July 2001 the absent parent appealed against that departure direction, challenging in particular the amount of the parent with care's capital, partly on the basis that there had been arithmetical errors in totalling various assets.
5. It seems that when the decision of 17 April 2001 was notified, the parent with care responded with a departure direction application of her own (application number 401905919), received on 24 April 2001. Her application was on the grounds of her costs incurred in travelling to work, of the absent parent having assets capable of producing income or higher income, of the absent parent's housing costs being unreasonably high, and of the absent parent's travel costs being unreasonably high. In the decision dated 5 July 2001 (the date shown in the computer records) those grounds were rejected by the Secretary of State apart from that of assets capable of producing income or higher income. It was decided that the absent parent had assets of £38,947 falling within regulation 23 of the Child Support Departure Direction and Consequential Amendments Regulations 1996 (the Departure Direction Regulations) and that a departure direction should be made increasing the weekly amount of his income to be taken into account in calculating the maintenance assessment from 6 November 2000 by £59.75.
6. On the same date, and notified in the same letter dated 9 July 2001, a decision seems to have been made revising the departure direction made on 17 April 2001 on the absent parent's earlier application. The revision partly affected his travel to work costs. The effect of that revision, and whether it formed part of any subsequent appeal to the appeal tribunal, is somewhat obscure. As the absent parent and his representative have expressed themselves as entirely happy with what the Secretary of State has done in relation to his travel to work costs and did not wish to pursue that matter in the case before me, I propose to say no more about the issue and simply to leave it out of the remainder of my decisions. But, more importantly, the revision of the departure direction of 17 April 2001 also included a decision that the parent with care had assets of £59,162.33 falling within regulation 23 of the Departure Direction Regulations, so that the weekly amount of her income to be taken into account in the maintenance assessment calculation from 6 November 2002 was increased to £90.77.
7. The absent parent appealed on 8 August 2001 against the departure direction made on the parent with care's application. That appeal was given the tribunal register number U/04/049/2001/01108 and I shall call it appeal B from now on. It is the subject of the present decision. The parent with care also appealed on 8 August 2001 against the departure direction made on her application. That appeal was given the tribunal register number U/04/049/2001/01109 and I shall call it appeal C from now on. It is the subject of my decision in CCS/2361/2003. The absent parent's earlier appeal against the departure direction of 23 April 2001 on his application was given the tribunal register number U/04/049/2001/01106 and I shall call it appeal A from now on. All three of those cases were referred by the Child Support Agency to the Appeals Service with the submission that they should be heard together as connected appeals.
8. That history is enough to throw up a number of technical problems, but there is an additional twist. In the parent with care's appeal form received on 8 August 2001 she quoted the child support reference number 401905919, which had been the number given on the letter of 9 July 2001. That is the reference number of her application for a departure direction. However, in the additional sheets attached to the appeal form the parent with care challenged the calculation of the amount of her capital assets, which she said had reduced from £59,162 in stocks and shares in November 2000 to £45,000 in July 2001. In the written submissions to the appeal tribunal on behalf of the Secretary of State, the terms of the direction made on 17 April 2001 were discussed in the submission on appeal A, with a reference to the revision on 5 July 2001. The terms of the direction made on 5 July 2001 on the parent with care's capital were discussed in the submission on appeal C, where it was said that incorporated within the decision on the parent with care's application was a revision connected to the absent parent's application.
9. The first difficulty is that neither the Secretary of State nor the appeal tribunal (nor I until the present stage of the case) took proper account of the effect of the decision of 5 July in revising the decision of 17 April 2001. Schedule 4C to the Child Support Act 1991 (the 1991 Act) extends the ordinary provisions about decisions and appeals and about revisions and supersessions to departure direction cases, with small modifications. One result is that where a departure direction has been made, either parent has a right to appeal against the direction (Schedule 4C, paragraph 3). Another result is to apply section 16 of the 1991 Act on revisions to decisions in departure direction cases. Section 16(6) of the 1991 Act provides:

"(6) Except in prescribed circumstances, an appeal against a decision of the Secretary of State shall lapse if the decision is revised under this section before the appeal is determined."

The only circumstances prescribed are those in regulation 30(1) of the Social Security and Child Support (Decisions and Appeals) Regulations 1999, that the decision as revised is not more advantageous to the appellant than the decision before it was revised. Thus, here the absent parent's appeal against the departure direction given on 17 April 2001 lapsed on 5 July 2001 because the revision produced a departure direction which was (before taking into account the countervailing effect of the departure direction given on the parent with care's application) more advantageous to him than the direction of 17 April 2001. That is on the assumption, that I have no reason to question, that grounds did exist under section 16 for a revision to take place.

10. The result is that appeal A, as presented to the appeal tribunal, no longer had any existence after lapsing on 5 July 2001. Notice should have been given by the Secretary of State of the lapsing of the appeal, if that was reasonably practicable (Child Support (Maintenance Assessment Procedure) Regulations 1992, regulation 16A), but the absence of such notice cannot take away from the effect of section 16(6) of the 1991 Act. In such circumstances a new right of appeal arises against the departure direction given in the revising decision. However, in the present case there does not appear to be anything from the absent parent that could be treated as an appeal against the departure direction given on his application on 5 July 2001. As noted above, I refused the absent parent leave to appeal against the appeal tribunal's decision on appeal A (CCS/2356/2003), so that I cannot make any formal rulings about that decision, but my view is that the appeal which the appeal tribunal thought was before it no longer existed, so that there was no jurisdiction to make any decision on that purported appeal.
11. What is relevant in the two appeals before me is the effect of the analysis above on the parent with care. She did in the additional pages attached to the appeal form received on 8 August 2001 challenge the calculation of the departure direction made on 5 July 2001 on revision of the decision of 17 April 2001. Although she cited only the reference number of her own application for a departure direction, that was merely reproducing the reference number on the letter of 9 July 2001. That letter said that the departure award set out included the revision of the departure direction previously awarded to the absent parent. In my judgment, there is no doubt that that constituted an appeal, within time and within the conditions of regulation 33 of the Decisions and Appeals Regulations, against the departure direction given on 5 July 2001 on the absent parent's application, following the revision of the decision of 17 April 2001. Thus there was an appeal which was required to be put before an appeal tribunal.
12. What was done by the Child Support Agency was not at all satisfactory. It was not satisfactory to regard the issues raised by the parent with care's appeal against the departure direction given on revision on the absent parent's application (which I shall from now on call appeal D) as incorporated in appeal C. Appeal C was in substance the parent with care's appeal against the departure decision given initially on her own application of 24 April 2001. It seems to me part of the structure of the legislation on departure directions that directions are to be given on particular applications. So, for instance, under paragraph 3(2)(a) of Schedule 4C to the 1991 Act an appeal tribunal is to consider the matter on appeal as if it had the powers and duties of the Secretary of State in relation to the application in question. In addition, there is an important distinction between appeals against departure directions initially given on an application and appeals against directions given on revision. In the latter case a parent may wish to raise the question of whether grounds for revision under section 16 of the 1991 Act existed.
13. I have given careful thought to whether, although the appeal tribunal considered the issues raised by appeal D, that appeal was ever properly before the appeal tribunal at all. The result of that would have been that appeal D was outstanding and still to be heard and determined by an appeal tribunal. However, I should look at the substance of matters and not just at the form in which they were presented. In substance, appeal D was properly made and was presented to the appeal tribunal with an explanation of how it arose and a submission from the Secretary of State. The fact that it was in the disguise of an offshoot of appeal C does not affect the substance. I conclude that appeal D was properly before the appeal tribunal, which had the power and indeed the duty to decide the appeal. The issues arising naturally came within the ambit of what had been submitted on appeal C. The consequence is that, although the appeal tribunal thought that appeal C was one appeal with one tribunal register number requiring one decision (so that only one decision notice was issued under that register number), in fact and in substance there were two appeals. Appeal C and appeal D were separate appeals requiring separate decisions. I have given effect to the conclusion in decision CCS/2361/2003.

The relevant legislation

14. In appeal B, the absent parent was contending that none, or at least a smaller amount than the Secretary of State considered, of his assets should come within regulation 23 of the Departure Direction Regulations. In appeal C, the parent with care was contending that the amount should be higher than the Secretary of State considered. Regulation 23(1), (2) and (4) (paragraph (3) has been revoked), as in force prior to 30 April 2002, provides:

"(1) Subject to paragraphs (2) and (3), a case shall constitute a case for the purpose of paragraph 5(1) of Schedule 4B to the [1991] Act where--

(a) the Secretary of State is satisfied that any asset in which the non-applicant has a beneficial interest, or which he has the ability to control—

(i) is capable of being utilised to produce income but has not been so utilised;

(ii) has been invested in such a way that the income obtained from it is less than might reasonably be expected;

[(iii) and (iv) not relevant];

(v) has not been sold where the Secretary of State is satisfied that the sale of the asset would be reasonable;

(b) any asset has been transferred by the non-applicant to trustees and the non-applicant is a beneficiary of the trust so created; or

(c) any asset has become subject to a trust created by legal implication of which the non-applicant is a beneficiary.

(2) Paragraph (1) shall not apply where--

(a) the total value of the asset or assets referred to in that paragraph does not exceed £10,000.00 after deduction of the amount owing under any mortgage or charge on that asset; or

(b) the Secretary of State is satisfied that any asset referred to in that paragraph is being retained by the non-applicant to be used for a purpose which the Secretary of State considers reasonable in all the circumstances of the case.

(4) For the purposes of this regulation the term "asset" means--

(a) money, whether in cash or on deposit;

(b) a beneficial interest in land and rights in or over land;

(c) shares as defined in section 774 of the Companies Act 1985, stock and unit trusts as defined in section 6 of the Charging Orders Act 1979, gilt edged securities as defined in paragraph 1 of Schedule 2 to the Capital Gains Tax Act 1979, and other similar financial instruments."

15. Regulation 40(2) of the Departure Direction Regulations, applied by regulation 40(1) where a departure direction is given in cases including those under regulation 23, provides:

"(2) In a case falling within paragraph (1)(a) of regulation 23 (assets capable of producing income or higher income), subject to paragraph (4), the net income of the non-applicant shall be increased by the amount specified in that departure direction, being the whole or part of an amount calculated by applying interest at the statutory rate prescribed for a judgment debt or, in Scotland, at the statutory rate in respect of interest included in or payable under a decree in the Court of Session at the date on which the departure direction is given to--

(a) any moneys falling within that paragraph;

(b) the net value of any asset, other than monies, falling within that paragraph, after deduction of the amount owing on any mortgage or charge on that asset,

less any income received in respect of that asset which has been taken into account in the calculation of the current assessment."

16. The essential background to those provisions is that the amount of either parent's capital is irrelevant as such in the ordinary formula for the calculation of a maintenance assessment. Instead, by virtue of paragraph 13 of Schedule 1 to the Child Support (Maintenance Assessments and Special Cases) Regulations 1992, any "interest, dividend or other income derived from capital" is to be taken into account as income, subject to the disregards in Schedule 2.

The factual background

17. The ordinary maintenance assessment in effect from 6 November 2000 was calculated without taking into account any income from capital as part of the absent parent's income, although I do not know what information about capital and income from capital was given by him on the maintenance enquiry form. He did not dispute that as at 6 November 2000 he had capital assets amounting to about £68,000. These were shown with valuations on a summary report as at 5 June 2001 (page C13, page 51 in the Commissioner's file). Of that total, about £1,000 was represented by a joint life or long-term care policy with the parent with care and £28,2666 by pension schemes. The absent parent had personal equity plans (PEPs) valued at £32,168 and unit trusts valued at £6,779. It appears also not to be in dispute that the absent parent also had £6,500 as his half-share (with the parent with care) of the net proceeds of sale, after discharging mortgages, of two houses which had been rented out. I do not know exactly when those houses were sold, so that I am not sure whether in November 2000 that asset was represented by money or by a share in the ownership of the houses.
18. The absent parent was born on 12 April 1955. He seems throughout to have been in reasonably well-paid professional employment or self-employment. One of the main points raised on his behalf before the appeal tribunal in the present case was that his capital investments stemmed from a sum received by him as residuary beneficiary under the will of his sister (who I shall call S). S died in February 1992. As shown by the accounts of the estate on pages 118x and 118y, the absent parent received £131,499.18 (£129,999.18 balance due + £1,500 already received on account) as residuary beneficiary in August 1992. It has been argued that, although it was not realised at that time, that sum was impressed with a trust under the terms of the will in favour of the absent parent's and S's mother and father.
19. Clause 5 of the will gave S's residuary estate to her trustees (the absent parent and a solicitor, who were executors) on trust to sell or retain all or any part of it, and then continued without any link:

"(i) Unto my Brother [the absent parent] but if he shall predecease me then I GIVE the residuary estate to his Wife absolutely but should she predecease me then I GIVE my Residuary Estate to [the absent parent] and his Wife's children in equal shares absolutely

(ii) If the said [the absent parent] and his Wife [...] shall predecease me then I instruct my Trustees to increase the pecuniary legacy to my niece [...] to the sum of £50,000.00.

(iii) (a) If [the absent parent] is my residuary beneficiary at my death in accordance with clause 5(i) herein I would ask him to pay for two weeks holiday per year for life for my parents at a place to be decided by them up to a maximum of £2,000 in total per annum

(b) That from the income of the monies gifted to [the absent parent] I give the sum of £150 each to my parents per month for their use"

20. A number of payments to S's parents were made over the years by the absent parent, and later by the absent parent and the parent with care jointly, although at that time it appears that it was thought that the clause 5(iii) of the will imposed no more than a moral obligation. Matters became much more complicated after the absent parent and the parent with care separated in February 2000. There were disputes about how much of the £131,500 had been invested in the parent with care's name, about how much had been paid to S's parents and about how much they should have been paid on the basis that clause 5(iii) imposed a trust obligation on the absent parent under both of heads (a) and (b). The absent parent has said that it was about then that he became aware of the significance of the terms of the will. In early 2002, the absent parent's solicitors took counsel's advice on the interpretation of the will and were apparently advised that clause 5(iii)(a) did not create a trust, but clause 5(iii)(b) did, placing an obligation on the absent parent to pay each of his parents £150 a month from the income of the residuary estate.
21. The absent parent's parents were granted leave to intervene in the ancillary relief proceedings between the absent parent and the parent with care. On 27 March 2002 a consent order was made containing the following recitals:

"And upon the parties acknowledging that this order is to bring to an end the trust arising out of the will of the late [S], and that this order is in full and final settlement of all actions, claims and demands relating thereto;

And upon the intervenors acknowledging that, upon payment to them of the sum of £63,000.00 (as set out at paragraph 2 of this order) they have no beneficial interest in the matrimonial assets of the applicant and the respondent and that the trust of the residuary estate of the said deceased are discharged

And upon the applicant undertaking to file at Court a variation of trust instrument (signed and dated by all parties) by not later than the 8th May 2002"

It was then ordered that the applicant and the respondent (the absent parent and the parent with care) pay the intervenors £63,000 in full and final settlement on the sale or transfer of the former matrimonial home or, if earlier, 27 March 2003. It was also ordered that the sum was to be secured by a legal charge on the former matrimonial home. No deed of variation of trust appears in the papers before me.

22. On 23 October 2002 a further consent order was made varying the terms of the order of 27 March 2002 so that the £63,000 was to be paid by the absent parent alone, upon his having paid the parent with care a lump sum of £90,000 and her having transferred to him all of her legal and beneficial interest in the former matrimonial home.

The appeal to the appeal tribunal

23. A first hearing of the linked appeals took place on 19 June 2002, which was adjourned with detailed directions for the lodging of further evidence and submissions, particularly on the trust issue. The resumed hearing took place on 11 December 2002, before a legally qualified panel member (the chairman) and a financially qualified panel member. Both parents attended. The absent parent was represented by Mr Kenneth Ballantyne, a retired solicitor who had been helping him as a friend of the family. The parent with care was represented by Mr Kirwan, I think from her solicitors.
24. In relation to appeal B, the subject of the present decision, Mr Ballantyne had argued in his advance written submission that in November 2000 the absent parent held his capital assets as a trustee of S's will subject to the trust obligation to pay £3,600 a year to his parents out of the income. He submitted that the capital was therefore being used for a reasonable purpose, for the benefit of the beneficiaries of the trust and not for income for his own benefit.
25. The appeal tribunal disallowed appeal B, and indeed increased to £45,447.00 the amount of the absent parent's capital caught by regulation 23 of the Departure Direction Regulations. There was some confusion about the decisions recorded on the respective decision notices. On the decision notice for tribunal register number 01108, where the absent parent was the appellant (ie appeal B, the present case), the appeal tribunal recorded decisions about the absent parent's travel to work costs and unreasonably high housing costs, which I do not need to bother with, and a decision that the parent with care had assets of £62,498 at the effective date of 6 November 2000 producing a gross weekly income of £96.15 at the statutory rate of 8%, which was directed to be added to her income.
26. On the decision notice for tribunal register 01109, where the parent with care was the appellant (ie appeal C and what I have identified as appeal D, dealt with in CCS/2361/2003) the appeal tribunal recorded the following decision initially:

"In relation to assets capable of producing income or higher income the appeal is allowed. The respondent has assets valued at £45,447.00 at the effective date 14/05/2001, producing a gross weekly income of £69.92 at the statutory rate of 8%.

In relation to unreasonably high housing costs the appeal is dismissed.

We make a departure direction taking into account our decisions given above. We consider it just and equitable to do so."

Following a request on behalf of the Secretary of State, the chairman later purported to correct the decision notice to make the effective date 6 November 2000.

27. For completeness, I add that the decision notice for tribunal register 01106, relating to the departure directions made on 17 April 2001 (ie appeal A, which I have found in paragraph 10 above had lapsed) recorded the same decisions as on the decision notice for tribunal register 01108, with the addition of a dismissal of the appeal in relation to inconsistent lifestyle.
28. Of course, the issue of the parent with care's capital was not part of appeal B at all. It was raised, as the appeal tribunal correctly said in its combined statement of reasons, in appeal A, and also in appeal D. The presence of a decision on that issue in the decision notice for appeal B can perhaps be regarded as a mere slip. More important is the omission from that decision notice of any record of a conclusion on the absent parent's appeal against the direction on his capital falling within regulation 23 of the Departure Direction Regulations. A decision to dismiss that appeal can no doubt be inferred from the decision on appeal C and from the appeal tribunal's later statement of reasons (issued on 2 May 2003). However, it is unsatisfactory that the decision notices did not record the results of the various appeals clearly and that might in itself amount to an error of law.

The appeal tribunal's reasons

29. Paragraph 14 of the statement of reasons said, in relation to appeal B and the absent parent's capital capable of producing income or higher income, that the issue was dealt with in its decision on appeal C, the parent with care's appeal. It then in paragraph 15 excluded the absent parent's pension fund and life assurance policy from the scope of regulation 23, accepted his valuation of what it called stocks and shares at £38,947 and added £6,500 for the half-share in the net proceeds of sale of the rented houses. The statement continued:

"16. We understand [the absent parent] has claimed that the assets which have been valued generate no income for him because they were purchased out of the money from his late sister's estate being trust fund money. Our view is that the orders of the County Court indicate that the matter of the trust fund and payments due to [the absent parent's parents] have been settled by consent with [the absent parent] paying his parents and [the parent with care] being released from liability on the basis of the lump sum she received in respect of her interest in the matrimonial home and of the matrimonial assets. In our view this indicated that the stocks and shares and proceeds from the rented properties have been accepted by [the absent parent] as beneficially belonging to him and not part of any trust. To the extent of the first ground of the [appeal C], the appeal is allowed in the terms of our decision."

The appeal to the Commissioner

30. The absent parent now appeals against the decision on appeal B with my leave. The main ground put forward by Mr Ballantyne was that the appeal tribunal had misdirected itself in law on the trust issue and had taken into account events happening after the date of the decision under appeal. The representative of the Secretary of State, in the submission dated 12 September 2003, supported the appeal, by reference to the submission made on the same date in CCS/2361/2003. It was agreed that the appeal tribunal had erred in law by failing to have regard to circumstances as at the effective date (6 November 2000). It was suggested that the case should be remitted to a new appeal tribunal for rehearing. The parent with care replied in a letter dated 5 October 2003 making the understandable point that assets stemming from S's residuary estate should be treated in the same way whether in the absent parent's hands or in her hands. Mr Ballantyne made a submission dated 12 November 2003 expanding on the trust arguments with reference to case-law, but expressed agreement with the suggestion that the appeals should be remitted to a new appeal tribunal.
31. I directed an oral hearing in view of the need for further discussion of the legal issues and in the hope of being able to substitute a final decision. The hearing took place on 19 February 2004. The absent parent was present, represented by Mr Ballantyne. The parent with care had written that she was unable to attend, but asked for the points made in her letter of 5 October 2003 to be taken into account. The Secretary of State was represented by Mr Leo Scoon of the Office of the Solicitor to the Department for Work and Pensions. I am grateful to both representatives for their submissions.
32. A new point of law arose in the course of the hearing and I gave a direction for further written submissions on the point. Submissions were received dated 16 March 2004 from the representative of the Secretary of State and dated 22 April 2004 from Mr Ballantyne. The parent with care had replied in a letter dated 24 March 2004. She was under the difficulty of not knowing how the point of law had arisen (which on reflection I should have explained further in my direction) and raised a number of other issues about the ongoing developments in the child maintenance assessment. Mr Ballantyne replied in detail on those issues, but most of them are not relevant to the appeals before me and I say no more about them.

Was the appeal tribunal's decision wrong in law?

33. There is no doubt that the decision on appeal B was wrong in law. The appeal tribunal was required, since the departure direction applied for by the parent with care would take effect from 6 November 2000, to consider the circumstances as at that date and for the remainder of the period covered by the maintenance assessment current at the date of the application on 24 April 2001. However, a limit was set by section 20(7)(b) of the 1991 Act, applied in departure direction cases by paragraph 3 of Schedule 4C, which provides that an appeal tribunal "shall not take into account any circumstances not obtaining at the time when the decision or assessment appealed against was made". Thus the appeal tribunal could not take into account circumstances obtaining after 5 July 2001, the date when the departure direction under appeal was made. The appeal tribunal appeared to judge the absent parent's case on the trust point according to the circumstances as they were after the two court orders brought the trust to an end (accepting that as both beneficiaries were parties, the consent order could have that effect). That was contrary to section 20(7)(b). If the appeal tribunal intended to find that the court orders showed that the relevant part of the absent parent's capital had always been in his beneficial ownership, free of any equitable obligations, such a conclusion would have been perverse. The court orders were made on the assumption that a trust obligation was in existence prior to 27 March 2002 and that action needed to be taken to alter the rights and obligations arising under S's will. At the very least, if the appeal tribunal intended to make such a finding, there was a failure to give any reasons for it.
34. In addition, there was a more general error, shared in the approach of the decision makers and the Secretary of State before the appeal tribunal. That was in the apparent assumption that if a maintenance assessment did not include any income from capital in its calculation and a parent did have capital, at least in the form of stocks and shares, unit trusts, PEPs, ISAs and such-like, a departure direction under regulation 23 should be made. Such an assumption is not good enough. Regulation 23 contains a series of conditions, often using quite technical language, and it is necessary to examine the relevant conditions in turn before reaching the conclusion that the regulation applies. Finally, there were in my judgment errors in failing to consider whether the full amount of the then current statutory rate of interest on judgment debts (8%) or some lower amount should have been applied and whether there should have been some allowance for income tax which would have been payable if the capital had actually produced income at the gross rate applied. My reasons for those conclusions are explained below when discussing the interpretation of regulations 23 and 40(2).
35. For those reasons, the appeal tribunal's decision on appeal B must be set aside as wrong in law. It is expedient, on the view I take of the law after having had the benefit of submissions on the law and on the evidence at the oral hearing, for me to substitute a decision on the absent parent's appeal against the departure direction made on 5 July 2001 on the parent with care's application.

The Commissioner's decision on the absent parent's appeal

The interpretation of regulations 23 and 40(2) of the Departure Direction Regulations

36. Before considering the submissions made about the particular circumstances of the present case, I need to look briefly at the general structure and interpretation of regulations 23 and 40(2) of the Departure Direction Regulations. The drafting of regulation 23 is unhelpful in many ways, as has been pointed out by Mr Commissioner Jacobs in decision CCS/8/2000. It uses a number of technical legal terms and concepts in a way which leads one to expect that the scope of the provision will be fairly precisely defined. However, in order for the different parts of regulation 23 to fit together to produce any sort of workable result, a rather looser approach must be taken.
37. The problem really stems from the separation in regulation 23(1)(a) between "assets", as defined in regulation 23(4), and the nature of a parent's interest in any asset. That separation works easily enough for some kinds of assets, but not for others. For instance, if a parent is the legal owner of money, in cash or on deposit, then the parent has a beneficial interest, full beneficial ownership, in the money. However, if the asset is a beneficial interest in land (see regulation 23(4)(b)), one might get a nonsense of talking of a parent having a beneficial interest in a beneficial interest, as Mr Commissioner Jacobs pointed out in paragraph 24 of CCS/8/2000. So he held that in that context "asset" had to be interpreted so that regulation 23(1)(a) applies as if it read "the Secretary of State is satisfied that the non-applicant has a beneficial interest in land", and the asset is then the non-applicant's beneficial interest.
38. In my judgment, a similar approach must be taken to some other definitions in regulation 23(4)(c). Of particular relevance to the present case is the definition of a unit trust. The definition incorporated, in section 6 of the Charging Orders Act 1979, is:

"any trust established for the purpose, or having the effect, of providing for persons having funds available for investment, facilities for participation by them, as beneficiaries under the trust, in any profits or income arising from the acquisition, holding, management or disposal of any property whatsoever"

That appears to make the asset, for the purposes of regulation 23, the entire unit trust, rather than the beneficial interest under the trust (to the extent of the number of units purchased) which any individual investor will have. However, such a meaning would be absurd, requiring the value of the unit trust as a whole to be taken for the purposes of regulation 23(2)(a) and the calculation of income under regulation 40(2). For that reason, and for consistency with the other kinds of financial instrument covered by regulation 23(4)(c), the asset which an investor in a unit trust holds is to be regarded as the investor's beneficial interest in the trust.

39. There are many other problems in trying to work out how the precise terms of regulation 23(1)(a)(i) and (ii) in particular apply to different sorts of assets. Some were raised by Mr Commissioner Jacobs in CCS/8/2000, but I do not need to say how far I agree with his conclusions. The arguments tend to send one round and round in circles, though whether ever-decreasing or ever-expanding I would not like to say. For the purposes of the present case, it is not necessary to explore those problems any further. They can wait for some other case.
40. I should, though, express some conclusions about the operation of regulation 40(2) of the Departure Direction Regulations, although as it turns out I do not need to apply that provision in the present case. At the oral hearing, I raised the question whether the requirement to increase the non-applicant's income by the "whole or part of" the amount produced by applying the statutory judgment debt interest rate (8%) to the net value of assets within regulation 23 allowed the Secretary of State or an appeal tribunal to consider applying a lower percentage rate closer to interest rates currently available on savings. Mr Scoon was inclined to think that, as regulation 40 was not intended to be punitive, and in the light of the overall test of "just and equitable" in section 28F(1) of the 1991 Act, the application of a market rate was open to consideration. But he asked for time for a written submission to be made after proper thought, which I granted.
41. The submission dated 16 March 2004 on behalf of the Secretary of State (not written by Mr Scoon) was, with respect a little confusing. The submission, if I have understood it properly, was that the words "in whole or in part" do not allow an interest rate less than 8% to be applied in carrying out the calculation within regulation 40(2) but merely reflect the overall discretion within the just and equitable test, after considering all the relevant circumstances, not to give a departure direction for the amount produced under regulation 40(2), but to give a direction for some lower amount. It was submitted that the statutory judgment debt interest rate broadly reflects long-term trends in interest rates and is relatively stable, avoiding frequent changes to reflect the savings market.
42. In her reply dated 24 March 2004, the parent with care pointed out that it was many years since the Bank of England's interest rate had been anywhere approaching 8% and stressed that it would only be fair if her capital had the same interest rate applied to it as the absent parent's. In his reply dated 22 April 2004, Mr Ballantyne submitted that, as the words "in whole or in part" qualified the amount by which the income of the non-applicant was to be increased by a direction, they allowed the capital value of relevant assets to be reduced rather than the specified interest rate, and that any reduction should be under the exercise of the just and equitable discretion.
43. I do not agree with the Secretary of State and Mr Ballantyne. It seems to me that the 1998 amendment adding the words "in whole or in part" to regulations including regulation 40(2) must have been intended to have some effect on those specific regulations and not merely to clarify what might already be done under the just and equitable test. If the latter had been intended, words like "subject to section 28F(1)(b) of the 1991 Act" would have been more appropriate. The explanatory note to the amending regulations, relied on in both submissions, merely states that the amendment is to make it clear that a departure direction can be given for less than the full amount which might have been applicable and carries no implication that that is only to be by the operation of the just and equitable test. In my view the words add an open-ended power to regulation 40(2), before the just and equitable test is reached, to make a direction for a lower amount than would otherwise have been produced.
44. I agree with Mr Ballantyne that the words are directed at the amount of additional income to be specified in the departure direction, not directly at the rate of interest applied under regulation 40(2). However, that does not mean either that it must be asked whether the value of the relevant assets should be reduced or that the amount of interest that could be obtained, net of income tax, from ordinary investments like savings accounts is irrelevant. The required use of the statutory judgment debt interest rate is problematic. As I understand it, the imposition of interest on judgment debts is compensatory. The person entitled to a sum of money under the judgment is by definition being kept out of that money and is awarded interest to compensate for what the person would have had to pay to borrow an equivalent sum. In that context, of an estimate of the costs of borrowing, 8% is a reasonable figure and courts have, I also understand, a power to vary the figure as the circumstances require. It could be argued that the use of that figure in the context of specifying an amount of income to be assumed as earned from capital assets has a punitive element. There may be cases in which some element of punishment for a deliberate attempt to evade the child support legislation is appropriate. But in an ordinary case, where what is to be decided is the amount of income which is fairly to be assumed as earned from assets falling within regulation 23, there should be consideration of whether of specifying a lower amount than would be produced by applying 8%, in the light of market interest rates, net of tax.

The application of the regulations to the present case

45. The first question in applying those provisions to the absent parent's capital assets as they were at 6 November 2000 and down to 5 July 2001, is whether any of those assets came within the definition in regulation 23(4) of the Departure Direction Regulations. The exact nature of the assets labelled pension funds in the report on page 52, valued at £28,266, is not known. If they consisted of retirement annuity contracts or personal pension policies, or possibly policies representing transfers out from an occupational pension scheme, there would be a question whether they were "similar financial instruments" within subparagraph (c). My inclination would be that were not. It seems to me that the policies or contracts created in acquiring such products are not "similar" to the instruments created when stocks or shares are directly owned or units in a unit trust are bought. I do not have to reach a final conclusion on that because, even if they were assets within regulation 23(4), I accept the view of the appeal tribunal that they were retained by the absent parent to be used for a reasonable purpose within regulation 23(2)(b). For the same reasons, the life and critical illness policy is not a relevant asset.
46. The personal equity plans (PEPs) and unit trusts would seem to fall within the definition of asset. Stocks and shares and units in unit trusts could all be put within the PEP wrapper. I do not know the exact nature of all the investments falling within the PEP label on page 52. But the absent parent has not at any stage put forward an argument that they were not assets at all under regulation 23, and I conclude that the PEPs and unit trusts, valued together at £38,947, did come within the definition. So also did the absent parent's interest in the two rented houses before they were sold (under regulation 23(4)(b)) and in the net proceeds of sale after they were sold (under regulation 23(4)(a)). In either case, I endorse the valuation of £6,500 accepted by the appeal tribunal.
47. The next question in logical order is whether any of the conditions in regulation 23(1)(a) to (c) apply. However, I can cut through many of the difficulties raised by the drafting of those provisions in the light of what I have decided below.
48. There was discussion at the oral hearing of the nature of the obligation imposed on the absent parent under S's will in relation to making payments to his and S's parents. I agree with Mr Ballantyne and Mr Scoon that clause 5(iii)(a) on payments for an annual holiday created no legal or equitable obligation. The words were merely of request, and a rather faint request, insufficient to impose any trust obligation. In my judgment, clause 5(iii)(b) imposed an obligation on the absent parent either as the residuary beneficiary or in his capacity as an executor and trustee under the will, it does not matter which. There might be some doubt whether a trust was created, rather than a charge or equitable lien on the residuary estate received by the absent parent. The principles are helpfully discussed in the commentary to Article 8(2)(b) in Underhill and Hayton on the Law of Trusts and Trustees (I have access to the 15th edition, 1995, in the Commissioners' library). It seems to me that the words of clause 5(iii)(b) showed an intention to do more than impose a personal obligation on the absent parent, since they sought to give the right to payment directly to S's parents. But words will not be construed as creating a trust when a charge or an equitable lien would do the job. It could also be argued that a charge or equitable lien might also have been more appropriate to the type of family arrangement envisaged, as there would then be no obligation to keep trust accounts or invest in the way that a trustee would have to.
49. However, on the basis that a trust properly so called was created, the absent parent would still have had a beneficial interest in the assets stemming from the residuary estate. Any trust was only to make payments out of income, so that the absent parent would have retained a beneficial interest in any excess income and in the entire fund after the death of both parents. If he did not have a beneficial interest, he would still have had the ability to control the assets subject to the trust. So, one way or another, the general condition at the beginning of regulation 23(1)(a) was met as at 6 November 2000. It is plain, and not now disputed, that the making of the court orders in 2002 did not affect the nature of the equitable obligations in existence at that date, and indeed was an acknowledgement that both parents then believed (on advice) a trust to have been in existence.
50. I propose to ignore the great difficulties in working out the proper application of regulation 23(1)(a) in particular, at least in relation to the absent parent's PEPs and unit trusts. So far as the £6,500 related to his interest in the two rented houses is concerned, I do not have full information, but have enough to come to a decision. If, at the dates in question, the rented houses had not yet been sold, the asset did not come within head (i) because it was producing income, ie rent. It did not come within head (ii) as no evidence has been put forward that the rents obtained were less than could reasonably be expected. Heads (iii) and (iv) are not relevant. The asset did not come within head (v), as in my judgment it would have been equally reasonable not to sell the houses as to sell them. Head (v) cannot apply just because a decision has been taken to sell but the sale has not yet been completed. If at the dates in question the houses had been sold, the absent parent's asset was £6,500 in money. But I do not know if it was put in an account that would earn interest or put to some other use. In the absence of evidence I do not feel able to conclude that either of the potentially relevant heads, (i) and (ii), applies. Nor is it worth delaying the final decision in this case for evidence to be obtained, either for me or for a new appeal tribunal. Thus I conclude that the £6,500 related to the rented houses is not an asset to which regulation 23(1)(a) applies. Regulation 23(1)(b) and (c) plainly do not apply to it either.
51. I must now ask whether regulation 23(2) takes the absent parent's PEPs and unit trusts out of the scope of regulation 23(1), on the assumption that they would otherwise be within it. It does not do so by virtue of subparagraph (a), as the net value of the relevant assets exceeded £10,000. I have decided that it does have that effect by virtue of subparagraph (b).
52. I have to look at the circumstances as they were at 6 November 2000, and in the period down to the date of the decision on 5 July 2001. By November 2000 the issue of whether the absent parent's parents were owed money for past failures to meet the obligation to pay them £300 a month between them was in the open. There are in the papers letters from the absent parent's father to the parent with care in March and April 2001 requesting payment from her on the basis that she then had control over about five-eighths of the moneys stemming from S's residuary estate. However there is also a copy of a letter dated 27 January 2000 from the absent parent's solicitors to the parent with care's solicitors requesting her to make a payment of £3,200 to his parents from a named fund in fulfilment of the terms of S's will. The parent with care did not accept the basis on which the requests for payment were made. Thus there was in November 2000 an ongoing dispute about the legal effect of S's will and the rights and remedies of the absent parent's parents in the context of the separation of the parent with care from the absent parent, the making of an application under the 1991 Act and the likely need for a court order eventually to be made dividing the matrimonial property. And I have held that the actual legal position at the time was that the absent parent was under equitable obligations, even if possibly not the full obligations of a trustee, in relation to the payments to his parents out of the income of S's residuary estate.
53. I consider that in those circumstances it was reasonable for the absent parent to retain the relevant assets in the form they were in: in medium to long-term investments providing it seems capital growth rather than income. It was reasonable for him to retain the capital from which the income to meet the equitable obligations would have to come, as there was a real possibility of having to pay out a lump sum to his parents and there was no certainty about how the legal disputes about who would have to make such a payment would be resolved. Consequently, I hold that regulation 23(1) does not apply to the absent parent's PEPs and units trusts by virtue of regulation 23(2)(b). That leaves no assets falling within regulation 23 in relation to which any departure direction effective on 6 November 2000 could be made.
54. I therefore do not need to consider the questions of the amount of income properly to be added under regulation 40(2) of the Departure Direction Regulations or of what direction it would have been just and equitable (section 28F(1) of the 1991 Act) to impose.
55. I do not expect the parent with care to be very impressed with my conclusion above. She might say that I have allowed the absent parent to take the benefit of a situation created by his own failure to realise the nature of his legal obligations. I have hesitated about that and about suspicions that the absent parent may have been taking into account that the ordinary child support formula works on income, not on capital. However, departure directions can only be made on evidence, not suspicion, and in accordance with the cases carefully specified in the Departure Direction Regulations. There is no general discretion to do what seems just or equitable or fair. The parent with care might also point to her consistent argument that she and the absent parent should be treated even-handedly and to the appeal tribunal's decision that she should be treated as receiving income at 8% from assets of £62,498. I cannot directly deal with that part of what the appeal tribunal did in my present decision. It is the subject of my decision in CCS/2361/2003, under which the parent with care's appeal in appeal D is referred to a new appeal tribunal for rehearing.
56. For the reasons given above, the absent parent's appeal is allowed and my decision is as set out in paragraph 1 above.

(Signed) J Mesher

Commissioner

Date: 25 June 2004