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[2005] UKSSCSC CCS_2719_2003 (09 March 2005)

CCS/2719/2003

CCS/2995/2003

DECISION OF THE CHILD SUPPORT COMMISSIONER

I allow the mother's appeals in part and set aside the decision of the Leicester appeal tribunal dated 3 April 2003 insofar as it relates to the father's income and the mother's applications for departure direction. I substitute my own decision as follows:

(a) In the basic child support assessments –

(i) from 31 January 1997, the father's net weekly earnings are to be taken as his declared remuneration (see paragraph 31), less National Insurance contributions payable on the declared salary element of that remuneration;

(ii) from 16 July 1999, the true amount of child benefit paid to the father's partner should be taken into account (see docs 731 and 747 on file CCS/2995/2003).

(b) In addition, I issue a departure direction on the ground of diversion of income, having the effect that –

(i) from 13 March 1998 to 15 July 1999, the net income of the father shall be increased by the amount by which his declared drawings from the company of which he a shareholder (see paragraph 31) exceed his declared remuneration;

(ii) from 16 July 1999, the net income of the father shall be increased by the amount by which his declared drawings plus £200 pw. exceed his declared remuneration.

(c) I also issue a departure direction on the ground that it is reasonable to expect the father's partner to contribute to his housing costs, having the effect that the father's housing costs shall be reduced by one quarter from 16 July 1999.

(d) The mother's other applications for departure directions are dismissed.

This decision leads to a reduction in the father's liability for child support maintenance from 31 January 1997 to 12 March 1998, it makes no practical difference to the father's child support maintenance liability from 13 March 1998 to 15 July 1999 and it means that his liability from 16 July 1999 will be based on his having a net income of £200 pw more than the tribunal took into account and on his having reduced housing costs. It takes no account of changes of circumstances after 29 June 2002.

I do not disturb the tribunal's decisions as to shared care and the mother's income.

REASONS

The history

The Appellant is the mother of the qualifying children. At the hearing before me, she was represented by her father. The father of the qualifying children appeared in person. The Secretary of State for Work and Pensions was represented by Mr Leo Scoon of the Office of the Solicitor to the Department of Health and the Department for Work and Pensions.

These proceedings were commenced nearly seven years ago. At that time, the father was liable to pay to the mother child support maintenance of £8.48 pw by virtue of a decision of a child support officer made on 29 October 1997 and effective from 31 January 1997. On 17 March 1998, the Secretary of State received an application by the mother for departure directions on the grounds that the father had assets capable of producing a higher income, that he was diverting income, that his lifestyle was inconsistent with his income and that his housing costs were unreasonably high. On 9 June 1998, the Secretary of State issued a departure direction on the ground that the father's housing costs were unreasonably high, which had the effect of increasing the amount of child maintenance to £18.21 with effect from 13 March 1998. The mother appealed. On 27 May 1999, the Leicester appeal tribunal purported to refer the case to a child support officer with directions as to the father's net income, his housing costs and "shared care". The father appealed and, on 12 February 2001, I allowed his appeal on the ground that the tribunal had erred in dealing with matters that fell within the scope of a basic maintenance assessment rather than the departure direction (CCS/1019/00). I referred the case to another tribunal and said that, before the case was put before a tribunal, the Secretary of State should consider whether there was an outstanding challenge by the mother to the underlying maintenance assessment and, if so, should consider dealing with that before the tribunal dealt with the departure direction appeal. Meanwhile, on 15 January 2001, it appears that the Secretary of State had decided that the amount of child support maintenance payable from 26 May 2000 was nil. There had been some other changes since March 1998 but the details are not material.

The case I had referred to the tribunal came before the tribunal on 31 August 2001. The Secretary of State had apparently not taken any action in respect of the basic maintenance assessment in the light of my suggestion. The tribunal commented forcefully that I should have issued a direction rather than merely making a suggestion. To remedy that defect in my decision, the tribunal directed the Secretary of State to treat the claimant's original appeal as a request for review of the current maintenance assessment and indicated that it did not expect the departure direction appeal to be pursued. The direction seems to have led to some correspondence between the Child Support Agency and the Appeals Service because, on 28 November 2001, the Regional Chairman appears to have varied the tribunal's direction by directing the Secretary of State, in effect, to treat the mother's application for the departure direction as an application for review of the current maintenance assessment, which was a better approach. He further directed that the question whether the departure direction decision should be pursued should be considered in the light of the Secretary of State's new decision.

The result was that, in a decision made on 29 June 2002 but notified on 1 July 2002, the Secretary of State revised the decision dated 29 October 1997 and decided that the father was liable to pay child support maintenance at the rate of £20.76 pw from 31 January 1997 and £15.14 pw from 20 March 1998 until 15 July 1999, after which his liability was nil, apparently because he then was living with his new partner and her four children. The mother appealed against that decision and, on 15 January, both that appeal and the original departure direction appeal came before the Leicester appeal tribunal again. The hearing was adjourned part-heard with directions for further evidence and was concluded at Nottingham on 3 April 2003.

The arguments before the tribunal were made against the background that the father was a director, with his father (to whom I shall refer as "the grandfather", while acknowledging that the mother's representative is also a grandfather of the qualifying children), of a limited company. He stated that his income from the company by way of salary was kept at a level that ensured that he paid Class 1 National Insurance contributions but at a very low rate and that the balance of the remuneration he received from the company was by way of dividend, paid net because the company deducted the tax due. In respect of the salary, he submitted payslips. He said that he also made further drawings which represented funding from the grandfather in the form of gifts or loans and he submitted a table labelled "V4" (doc 234 on file CCS/2719/03) setting out the figures for the six years to 30 September 2002. The mother did not accept the figures. She pointed out that over the period from August 1996 to December 1997, the father had claimed his remuneration to be some £19,000 but that his bank statements, which she had obtained in ancillary relief proceedings, disclosed an income of £35,000 and that not a single one of the payments into the account had been consistent with his claimed salary or the payslips. The father had claimed that the balance had come from the grandfather but had been inconsistent as to whether it was in the form of gifts or loans. Subsequent bank statements, in respect of a period after the discrepancy had been highlighted, had shown a smaller gap between declared remuneration and actual income and a third set, from May 1999 after the discrepancy had been highlighted again, showed no gap at all. However, the mother said that his standard of living appeared not to have been affected and he still had three foreign holidays a year and expensive cars and carried out expensive improvements to his new house. She pointed out that the father had moved from a house worth £120,000 with a £90,000 mortgage to a six-bedroom detached house in a good residential area, valued at £210,000 and bought with the assistance of a £140,000 mortgage, which, it was argued, would not have been granted had the father declared to the building society the same income he had declared to the Child Support Agency. Thus, it was argued, either the father's income was higher than he said or else his lifestyle was simply inconsistent with his income and, in particular, his housing costs were excessive. The father, on the other hand, said that he still received gifts and loans from the grandfather in addition to the money shown on his bank statements, because the grandfather paid for some holidays, cars, furniture and so on and had helped with the house purchase. He also said that some expenditure was met by his partner from the maintenance she received in respect of her children.

The tribunal, consisting of a legally qualified panel member sitting alone, rejected most of the mother's submissions and accepted the father's figures. However, it found the father's declared drawings to be income and directed the Secretary of State to reassess the child support maintenance on that basis and on the basis that no tax was paid but that National Insurance contributions were paid on the salary. This resulted in an increase in the amount of arrears owed by the father but the current assessment remained as nil, notwithstanding that the mother had been in receipt of working families tax credit and accordingly was deemed to have no income.

Since the hearing before me, the Secretary of State has provided me with various computer print outs showing the decisions made by child support officers and the Secretary of State and, more usefully, copies of the letters sent to the parents on 21 May 2003 explaining to them the decisions made following the tribunal's decision. As the figures have all already been in the possession of the parents, I have not asked for further comments on them. Child support maintenance was assessed at £50.55 pw from 31 January 1997, £64.76 pw from 26 September 1997, £62.21 pw from 20 March 1998, £33.55 pw from 25 September 1998, £31.39 pw from 16 July 1999, £47.05 pw from 3 September 1999 and nil from 24 September 1999 (separate calculations made at 26 May 2000, 29 September 2000, 28 September 2001 and 28 June 2002 all resulting in nil assessments as well).

The tribunal also held that there should be no departure direction, revoking the direction made by the Secretary of State on the ground of unreasonably high housing costs. It did so because it was satisfied that, insofar as the father's lifestyle was not supported by his declared income, it was supported by gifts from the grandfather, the maintenance received by his partner and a legacy. It was also satisfied that the housing costs were not unreasonably high because the father could afford them in the light of those additional sources of finance.

This appeal

The mother now appeals against the tribunal's decisions, with the leave of another tribunal chairman. The father has said that he is not happy with the tribunal's decision insofar as it assessed his income to be more than his declared remuneration, but he has not appealed against it. The Secretary of State supports the mother's appeal to the extent of submitting that the tribunal's decision is erroneous in point of law but the written submissions suggested that the case be referred to yet another tribunal, despite my indication that a final decision should be given by a Commissioner if there were an error of law.

There are really three points of contention. The mother first criticises the tribunal for assessing the father's income at too low a level after 30 September 1998. Alternatively, she submits that a departure direction should be made on the ground that the father's lifestyle was inconsistent with his income. In the further alternative, she submits that after 30 September 1999, the father's housing costs were unreasonably high, given the level at which his income had been assessed.

Even the father accepts that his lifestyle is not supportable on his declared income from earnings and dividends. It follows that he has another source, or other sources, of finance. The tribunal decided that the other sources were the grandfather, the father's wife and a legacy. The challenges to that finding are, in effect, submissions that the tribunal erred in not finding the company to be an additional source of finance, that the amount of the grandfather's contributions has been under-assessed and that the manner in which his contributions have been taken into account is wrong.

As regards the company as a source of finance beyond the declared earnings and dividends, three suggestions have been made, albeit obliquely. One is that the father's drawings from the company, which admittedly were in excess of his declared earnings and dividend until May 1999, were even greater than has been disclosed and represented his true earnings. One is that income from the company due to the father has been diverted elsewhere, probably to the grandfather. The third is that the company has been accumulating income due to the father so that the asset must be regarded as producing a higher income then it does. There is no direct evidence in support of any of those suggestions.

An appeal to a Commissioner lies only on a point of law. In other words, the tribunal was the final arbiter of questions of fact and, unless there is any error of law in the tribunal's decision, I have no power to interfere with that decision. The arguments advanced on the mother's behalf have substantially been a reiteration of the points made to the tribunal. However, they do give rise to some points of law. All the arguments are also bound up with each other, being dependent on either the acceptance of, or the rejection of, other arguments.

Failure to adjourn

The mother's representative points out that the tribunal chairman had issued directions on 16 January 2003 to the father requiring him to produce not only his bank statements but also the statements of any account in which he had had an interest and also to produce a breakdown of all his drawings from the company and on 17 March 2003 requiring him to produce "the full bank statements including details of payee of debits and source of credits." The father did produce the statements from his own account and a breakdown of his receipts but he did not produce any documentary evidence as to the source of the receipts or any copies of documents from the company which would have shown to whom payments had been made. The mother's representative submitted that he was thereby in breach of the direction. The father told the tribunal that he did not realise he had to produce anything else. I am not convinced that the father was in fact in breach of the direction but, even if he was, I do not accept the mother's representative's submission that the tribunal necessarily erred in not making further attempts to obtain the documents. No specific request for an adjournment to oblige the father to produce further documents was made to the tribunal. The Secretary of State's representative referred in her written submission to the decision of Mr Commissioner Jacobs in CCS/2061/2000, where he said:

"It is a matter for the judgement of the appeal tribunal in each case whether it has before it reliable evidence on which to make a decision. If it is satisfied with the evidence that it has, it does not matter that the direction has not been complied with. If it is not satisfied with the evidence that it has, it may be appropriate to draw some adverse conclusions from the failure to comply."

I respectfully agree.

Failure to give adequate reasons

Nonetheless, the Secretary of State submits that the tribunal erred in not explaining why it was now satisfied with the father's evidence. On one level, the explanation for the tribunal's acceptance of that evidence is simply that the tribunal found the father to be a credible witness. The mother's case raised suspicion but, understandably, it did not contain hard evidence contradicting the father's account. The obtaining of conclusive evidence one way or the other would have been difficult in this case and that may have been a factor in the tribunal's mind. On that level, I do not consider that the tribunal erred. However, the more serious question is whether the tribunal gave adequate reasons for rejecting the specific challenges made to the father's case by the mother and her representative. Given the tribunal's finding that the father received substantial amounts of money from the grandfather, there are, in my judgment, three specific issues that the tribunal failed to address at all.

First, the finding that money came from the grandfather did not necessarily mean that money had not been diverted to the grandfather from the company or that the capital was unnecessarily being accumulated in the company (or another company in which the relevant company was a shareholder), as the mother had suggested. The tribunal did not deal with those issues and that was important because the mother's suggestion lay behind her request for the tribunal to direct the father to provide documentary evidence of his income. The tribunal might have taken the view that the mother's suggestions were mere speculation and should not be investigated further but the failure to say that leaves open the possibility that the tribunal simply did not appreciate that the issues had been raised because they had not been clearly enough spelt out at the hearing.

Secondly, once the tribunal had accepted that the grandfather was a source of finance, it was necessary for the tribunal to decide whether payments received by the father were capital or income and, if income, whether they were payments that fell to be taken into account as periodical payments within the scope of paragraph 15 of Schedule 1 to the Child Support (Maintenance Assessments and Special Cases) Regulations 1992 and, if so whether they were to be disregarded under Schedule 2. The tribunal found that all the payments into the bank accounts not accounted for as earnings or dividends were, with a few exceptions identified by the father, income received from the grandfather but did not consider whether any of that income fell to be disregarded. Conversely, the tribunal found that none of the payments received but not revealed in the bank accounts were to be taken into account but did not say whether that was because they were capital or other non-periodic payments or because they were income payments that were to be disregarded. The Secretary of State has pointed out that payments in kind are to be disregarded under paragraph 46 of Schedule 2. Plainly the payments into the bank account were not payments in kind, but payments made otherwise than through a bank account were not necessarily payments in kind. More important, in my view, are paragraph 19(1) of Schedule 2 which provides for £20 pw of a voluntary payment made at regular intervals to be disregarded and paragraph 19(2) which provides that any voluntary payment made at regular intervals which is intended and used for an item other than food, ordinary clothing and footwear, gas, electricity or fuel charges or housing costs or council tax is to be wholly disregarded. The tribunal did not expressly deal with any of these issues.

Nor did the tribunal deal expressly with the mother's contention that the bank accounts did not disclose the true income of the father. Indeed, the tribunal's acceptance of the father's figures led it to take the father's income as being the declared amount of his drawings from the company notwithstanding that in the years ending 30 September 2000 and 30 September 2002 that was actually less than his declared remuneration by way of salary and dividend. That apparently perverse conclusion is unexplained. Equally unexplained, as I have already suggested, is the tribunal's conclusion that the additional finance required by the father to support his lifestyle was not assessable income.

Departure direction on the ground that lifestyle is inconsistent with income

The tribunal found that the father's lifestyle was not inconsistent with his declared income because it was supported by the income of his partner and by presents from his parents. In CCS/2858/2002, the decision to which the press-cutting at doc 607 on file CCS/2995/2003 relates, Mr Commissioner Howell QC held that a tribunal had erred in holding that a departure direction was appropriate only when it was established that a person could not sustain his lifestyle on the income declared. He said that that a direction might be appropriate "if some quirk in the rules for the formula assessment results in an artificially and unrealistically low figure having to be assumed for a person's income in the calculation". Although the Court of Appeal subsequently set aside Mr Commissioner Howell's decision on the main issue before him, it expressly agreed with his approach to departure directions (Smith v. Smith [2004] EWCA Civ 1318). Mr Commissioner Howell pointed out that, while the heading of regulation 25 of the Child Support Departure Direction and Consequential Amendments Regulations 1996 (S.I. 1996 No. 2907) referred to "declared" income, the regulation itself refers to the level of income upon which the assessment is based. I would add that paragraph 5(2)(b) of Schedule 4B to the Child Support Act 1991 also contains no reference to "declared" income as such. It follows that the tribunal in the present case erred in considering only whether the father's lifestyle was inconsistent with his "declared" income. The tribunal was right to hold that, to the extent that the father's lifestyle was supported by his partner, no departure direction should be issued, but, to the extent that his lifestyle was supported by disregarded income from the grandfather, the tribunal should have considered whether a departure direction would be appropriate. The power to give a departure direction should not be used to subvert the formula used for basic assessments but it is intended to amount to "some discretion to depart from the maintenance formula assessment" and Smith makes it clear that, where the level of income used in the assessment is "substantially" less than the level required to support the lifestyle (see regulation 25(1) of the 1996 Regulations) and this appears unfair in a particular case so that it is "just and equitable" to issue a departure direction (see section 28F(1)(b) of the 1991 Act), a departure direction may be given. In the present case, the question whether a departure direction should be issued is, of course, linked to the analysis of payments received by the father from the grandfather.

Departure direction on the ground that housing costs are unreasonably high

I am also satisfied that the tribunal erred in its approach to the making of a departure direction under regulation 26 of the 1996 Regulations on the ground of unreasonably high housing costs. The effect of regulation 26(a) is that housing costs are not regarded as unreasonably high if they amount to no more than half the person's net income. In this case, they did represent more than half the father's net income, as assessed by the tribunal, after 30 September 1999. Regulation 26(c) has the effect that housing costs above that level will be unreasonably high only if "substantially higher than necessary". Setting aside cases involving exorbitant rents or interest rates, housing costs may be "substantially higher than is necessary" if a house is larger than is necessary or is more luxurious or in a more expensive area than is necessary and it will be "just and equitable" to give a direction if the person concerned could reasonable be expected to do, or to have done, something to reduce the costs. Therefore the question whether the father could afford to meet his housing costs with support from his father was not the issue. The issue was whether, in the absence of such support, he could reasonably have been expected not to incur the costs, or to reduce the costs, so that he could afford to pay more child support maintenance, bearing in mind the general principles set out in section 28E(2) of the Child Support Act 1991. While in practice, as in this case, a person may find another way of paying the housing costs, instead of reducing them, the point of the departure direction is that the amount of child support maintenance that would otherwise be payable should not be reduced on account of housing costs to the extent that those housing costs could reasonably have been reduced. That is why the fact that the claimant has been able to find another source of financial support is to be ignored in deciding whether to issue a departure direction.

My decision as to the father's actual income and income-related departure directions

For the reasons that I have already given, I am satisfied that the tribunal's decision must be set aside. I am also satisfied that I should give a final decision in this case. Like the tribunal, I have not sought further evidence. I think it would be an unprofitable exercise because the chances of me obtaining incontrovertible documentary evidence supporting either party's case seem very slight. An extremely detailed analysis of the grandfather's finances would be required and I do not consider that proportionate, particularly as I am dealing with a period in the past and so am effectively assessing arrears rather than current maintenance.

It is quite clear that the documentary evidence that there already is in this case does not reveal the whole picture of the father's finances. It is, however, sufficient to show that his evidence is not to be taken at face value and that some scepticism is due where his evidence is not corroborated. I do not suggest that the father is fundamentally dishonest but there are indications that the finances of the company are manipulated so that what appears on paper suggests something different from the reality and there are also indications that he is prepared to exaggerate his position if that is to his advantage. There are three principal grounds for my taking this view.

First, there is the discrepancy between the amount of income revealed by the father's bank statements and the amount of income he claimed to have from the company. I entirely accept the father's evidence that the device of showing drawings from the company largely in the form of a dividend but with a salary just sufficient to require payment of National Insurance contributions was suggested by the company's accountant. It is a legitimate device. However, the fact that the payments into the father's bank account bear no relationship to his claimed remuneration from the company, particularly before May 1999, suggests that documents such as his payslips do not reflect the reality. No documentary evidence has been produced to show that only some of the payments into the father's bank accounts came from the company and that the total of such payments was at least approximately equal to the amount of drawings shown in the accounts. On the contrary, the father himself has referred to all the credits to his bank account, other than certain identified payments, as "the actual drawings made from [the company]" (doc 231 on file CCS/2719/2003). Furthermore, the fact that the payments into the bank account began more closely to reflect the claimed remuneration after the discrepancy was drawn to the father's attention raises the question whether there was a change in the amount of income or whether the bank statements became as misleading as the company's payslips. The fact that the company's payslips did not reflect the reality before May 1999 shows a willingness to mislead and I do not place any weight on the subsequent bank statements when considering the total income of the father.

Secondly, I note from the father's response to a questionnaire in the ancillary relief proceedings that credit payments on motor vehicles used by the mother were charged to the grandfather's director's loan account in order to avoid the tax liability that would accrue if it were shown as a company car (doc 369 on file CCS/2995/2003). Whether or not that was legitimate, the reality was hidden.

The third reason why I am sceptical about the father's evidence is that he produced his mortgage application form, dated 13 May 1999 (doc 235 on file CCS/2719/2003), which revealed a current basic annual income of £14,000 and annual dividends of £16,000. He explained to me that those figures were intended to be references to the same money, notwithstanding that the income figure cannot have been intended to include the dividends because it is the smaller figure. He did not suggest that the figures related to different years but said that the dividend figure was gross, overlooking the fact that the income figure was also gross. The mother's representative, quite rightly in my view, submitted to me that the form could not be read in the way the father suggested and that it therefore indicated a total annual income of £30,000. The granting of a £140,000 mortgage to a person with a gross annual income of £14,000 or £16,000 would be extraordinary but the granting of such a mortgage to a person with an annual income of £30,000 and a good record of keeping up payments would not. I do not believe that the father misunderstood the form. Either his true income was £30,000 pa and he has tried to mislead me, or his income was about half that sum and he tried to mislead the building society or else his income was between the two figures and he has tried to mislead both of us.

What then is the true position ? On the father's own account, he receives substantial sums from his father that do not go through his bank account. Indeed, it is quite clear that his bank account no longer reveals very much about the expenditure of his household. It once did, because a considerable amount of the shopping was paid for by debit card. The father's explanation for the change is that his new partner, with whom he has been living since he moved to his present house, pays the bills. She has an income, amounting to about £12,000 pa, from child support maintenance and child benefit for her four children but no other income. I have no doubt that she does contribute to the household bills but I am not convinced that she pays all of them. The father told me that he has a credit card. I have not seen any statements and there is no indication on his bank statements of payment of credit card bills.

Despite the mother's representative's criticism of it, the father's document V4 is a useful starting point for the determination of this case. The father has calculated, for each year, the remuneration shown in the company's accounts and what he describes as "drawings made", which are the credits shown in his bank statements less certain identified "special bankings". Those special bankings are what are described as loans from the grandfather to pay off a credit card debt and to assist with the purchase of his new house, a repayment of money by the Child Support Agency and some £47,000 which was an inheritance from his grandmother. I accept that those payments were capital sums that it is proper to exclude from the calculation of the father's income. The mother's representative has suggested that documentary proof of the source of those payments is required but I am prepared to accept the father's evidence on these points. He is convincing when he gives a detailed explanation about a matter and those are atypical payments, save perhaps for the £5,000 credited in January 1997 but the mother accepts that that sum was used to pay off a substantial debt.

The father describes the difference between the formal remuneration and the drawings as "loan and funding" from the grandfather. The figures are as follows:

Year ending	30.9.97 £pa	30.9.98 £pa	30.9.99 £pa	30.9.00 £pa	30.9.01 £pa	30.9.02 £pa
salary	3,900	3,900	3,900	4,020	4,360	4,320
dividend	12,000	10,000	12,500	11,500	12,500	12,500
total remuneration	15,900	13,900	16,400	15,520	16,860	16,820
drawings	22,704	27,765	20,206	13,790	17,341	15,480
difference	11,804	13,865	3,806	(1,730)	481	(1,340)

Typically until May 1999, there were about three or four bank giro credits each month of varying multiples of a hundred pounds, although for a few months at the end of 1997, there were regular payments of £1,300 or £1,200 with few other payments. From June 1999 until September 2003, there were monthly credits of £1,240 and just a few odd additional credits.