Upper Tribunal (Administrative Appeals Chamber)

IN THE UPPER TRIBUNAL                                          Appeal Nos.  CCS/387/2009

ADMINISTRATIVE APPEALS CHAMBER                                            CCS/703/2009

 

 

1.     This is an appeal by the non-resident parent (Mr K) against two decisions of an appeal tribunal sitting at Brighton on 18 August 2008. For the reasons set out below those decisions were in my judgment wrong in law and I set them aside. In exercise of the powers in section 12 of the Tribunals, Courts and Enforcement Act 2007 I make the findings of fact set out below and re-make the Tribunal’s decisions. The decisions which I substitute are as follows:

 

            In respect of the appeal under tribunal reference 177/07/02475 (CCS/387/2009)

            Miss P’s appeal against the decision of the Secretary of State made on 9             August 2007 is allowed. The maintenance calculation is varied under             Regulation      20 of the Child Support (Variations) Regulations 2000. The liability of Mr K           to         pay maintenance in respect of his daughter Mia is assessed at £72.45 per      week from 28 July 2006. That sum is arrived at by the following             calculation:

 

                        £644 per week (total cost of lifestyle) x 75% (3 relevant children) x                               15% (1 qualifying child) = £72.45.

 

            In respect of the appeal under tribunal reference 177/07/02471 (CCS/703/2009)

      Miss P’s appeal against the decision of the Secretary of State made on 28       November 2007 is allowed. The maintenance calculation is varied under       Regulation 20 of the Child Support (Variations) Regulations 2000. The liability of Mr K to pay maintenance in respect of his daughter Mia is     assessed at     £94.71 per week from 2 February 2007 down to 25 July    2007. That sum is       arrived at by the following calculation:

     

                  £753 per week (total cost of lifestyle) x 75% (3 relevant children) x 15% (1                   qualifying child) = £94.71

 

2.     Mr K and the parent with care (Miss P) lived together between 1992 and 1996 (p.140 of CCS/703/2009) and have a daughter, Mia, who is now aged 14, and who lives with Miss P.  Mr K lives with a new partner (Miss C), by whom he has three children, now aged about 7, 5 and 3.

 

3.     On 4 May 2005 child support maintenance payable by Mr K in respect of Mia was calculated at £29.14 per week from 4 March 2005.

 

4.     On 1 August 2006 Miss P applied for the subsisting maintenance calculation to be superseded on the grounds that Mr K no longer had shared care and that she wished a variation on the grounds (inter alia) that Mr K had assets and that his lifestyle was inconsistent with his declared income.

 

5.     On 2 August 2006 a decision was made, by way of supersession, increasing the maintenance calculation to £34 per week from 28 July 2006, on the ground that the shared care allowance no longer applied.

 

6.     On 8 February 2007 Mr K applied for a supersession of that assessment on the grounds of change of circumstances, namely that he had 3 children living in his household and that his income had reduced.

 

7.     As from 25 July 2007 Mr K was in receipt of working tax credit (p.33 of CCS/703/2009). No variation could therefore have effect in respect of a period after that date: s.28F(3) of the Child Support Act 1991; reg 30(a) and 7(5)(b) of the Child Support (Variations) Regulations 2000. Section 28F(3) of the 1991 Act provides that “the Secretary of State shall not agree to a variation” in specified circumstances, one of which (in the case of a variation on the ground of assets or lifestyle in excess of declared income) is that, at the date on which the variation would take effect, the non-resident parent is “in receipt of working tax credit.” It is in my judgment implicit in that provision that a variation should cease to have effect if there is an award of working tax credit.

 

8.     On 9 August 2007:

 

(1)            A decision was made refusing the variation application which Miss P had made on 1 August 2006. That was the first decision under appeal to the Tribunal.

(2)            A further decision was made superseding the maintenance calculation, on the grounds for which Mr K had applied on 8 February 2007, and reducing it to nil from 2 February 2007.

 

9.     On 31 August 2007 Miss P appealed against the decisions of 9 August 2007. The appeal against the supersession decision was treated as a further application by Miss P for a variation.

 

10.  On 28 November 2007 a decision was made refusing that variation application. Miss P also appealed against that decision. That was the second decision under appeal to the Tribunal.

 

11.  On 18 February 2008 a hearing of the tribunal took place, at which both Mr K and Miss P appeared and gave evidence, but the hearing was adjourned so that further information could be supplied.

 

12.  On 28 May 2008 a further hearing took place at which Miss P appeared and gave evidence, but Mr K did not. It was again adjourned, in order to give Mr K a further opportunity to produce evidence which the Tribunal considered to be necessary, and for the provision of which it made detailed Directions.

 

13.  The final hearing took place on 18 August 2008, at which again Miss P appeared, and Mr K did not.

 

14.  It was common ground that, if a variation were to be made on the applications which Miss P made, the effective dates of the variations would be 28 July 2006 in respect of the first application and 2 February 2007 in respect of the second application.

 

15.  The Tribunal allowed Miss P’s appeals. On both applications it directed a variation on the grounds of assets (reg. 18 of the Child Support (Variations) Regulations 2000) and lifestyle inconsistent with declared income (reg. 20).

 

16.  As regards assets, it decided that as at 28 July 2006 Mr K owned (as it is common ground that he did) a property which I shall refer to as no. 60 C Drive, which it valued at £330,000, less a mortgage of £257,000, giving equity of £73,000. It decided that as at 2 February 2007 he owned no. 60, with that same net value, and in addition 2 properties which I shall refer to as nos. 1 and 2 O Walk, with a net value of £294,000 in total. That made total relevant net assets of £367,000 as at 2 February 2007. Applying the statutory rate of 8% to those figures gave deemed income from assets of £112 per week as at 28 July 2006 and £564 per week as at 2 February 2007.

 

17.  As regards lifestyle inconsistent with declared income, the Tribunal decided as follows:

 

      As at 28 July 2006

      It considered that the total income necessary to support Mr K’s lifestyle, as itemised on a schedule which it prepared, was £1012 per week, from which it     deducted £80 per week in respect of Miss C’s income and £288 per week rent      received from No. 60 C Drive, making a total cost of lifestyle of £644 per            week,   which was very substantially in excess of the income on which the            maintenance     calculation from 4 March 2005 had been based (£228.04)

 

      As at 2 February 2007

      The Tribunal started with the same itemised figure of £1012 per week, to     which it       added £151 per week in respect of an MBNA personal loan and £280 per week in       respect of a mortgage with Skipton Building Society. From those      figures it deducted       sums of £80 per week in respect of his partner’s income, £288 per week rent       received in respect of no 60 C Drive and £322 per week from capital which it       considered was used to support lifestyle, giving a total cost of his lifestyle of       £753 per week.

 

18.  The Tribunal therefore directed a variation as from 28 July 2006 on the basis of income of £112 per week (assets) plus £644 per week (lifestyle), giving a total of £756 per week. It calculated the revised maintenance calculation on that basis as £85 per week.

 

19.  The Tribunal directed a variation as from 2 February 2007 on the basis of income of £564 per week (assets) plus £753 per week (lifestyle), giving a total of £1317 per week. It calculated the revised maintenance calculation on that basis as £148 per week.

 

20.  In my judgment the Tribunal’s decision was wrong in law in at least the following respects, which I set out first in summary form:

 

(1)            It failed sufficiently to indicate that it had weighed the relevant evidence relating to the value of no. 60 C Drive;

(2)            It did not consider whether nos. 1 and/or  2 O Walk were prevented from being included as assets for variation purposes on the ground that they were assets of a business and/or assets which Mr K was retaining for a reasonable purpose.

(3)            The Tribunal in any event adopted what appears to have been an incorrect method of calculating the net equity in these two properties.

(4)            The Tribunal further in my judgment needed to consider the position as at dates later than February 2007, because there were changes which occurred after that date, but at dates which it had jurisdiction to consider.

 

21.  It is helpful first to consider the dates which the Tribunal had jurisdiction to consider.

 

22.   As regards the decision of 9 August 2007 refusing the variation application which Miss P had made on 1 August 2006, the period over which the Tribunal had jurisdiction was from about 27 July 2006 (the earliest effective date of a variation by way of supersession) down to 9 August 2007 (the date of the decision under appeal).

 

23.       As regards the decision of 28 November 2007, it may be that the position down to that date could have been considered. However, that is academic because, owing to the award of working tax credit, no variation could have effect after 25 July 2007. The period over which the Tribunal had jurisdiction was therefore from 2 February 2007 down to 25 July 2007.

 

The variation on the ground of assets (reg. 18)

24.       Reg. 18(3) of the Child Support (Variations) Regulations 2000 provides that the assets variation ground does not apply

 

            “(b)     in relation to any asset which the Secretary of State is satisfied is being                    retained by the non-resident parent to be used for a purpose which the                      Secretary of State considers reasonable in all the circumstances of the                      case;

 

(d)            except where the asset is a legal estate or beneficial interest in land and

produces income which does not form part of the net weekly income of the non-resident parent as calculated or estimated under Part III of the Schedule to the Maintenance Calculations and Special Cases Regulations, to any asset used in the course of a trade or business.”

 

(i) The position in respect of no. 60 C Drive

25.       The evidence before the Tribunal indicated that this property had been “gutted and redecorated” by Mr K, as part of his business of property development (p.43 of CCS/387/2009). It had been let from February 2006 at a rent of £1250 per month (p.185 of CCS/703/2009), and remained let throughout the periods over which the Tribunal had jurisdiction. I think that there may have been no up to date evidence as to the rent. It was subject to a mortgage in the sum of £257,000, the repayments by December 2007 being £1319.30 per month. There was dispute before the Tribunal as to the valuation of this property.

 

26.    The following evidence was before the Tribunal in relation to that value:

 

            (1)       On 16 January 2007 Miss P provided particulars of sale of a 3

            bedroomed house in C Drive at £299,950 (p.42 of CCS/387/2009). She wrote on these             particulars: “this property he still owns and rents out, also has another similar property             in the same road which he also owns and rents out”. It seems that these particulars             related either to no. 60 or a very similar property. It is not clear precisely when the             particulars of sale dated from.

 

(2)            In May 2007 Miss P stated that the C Drive properties (she thought that Mr K

then owned 2) were worth £300,000 each. (p.69 of CCS/387/2009). In her submission to the Tribunal in July 2008 she stated that her view was that the equity in the C Drive property was £30,000 “assuming average market value after deduction of loan” (p.208 of CCS/703/2009). It is not clear, however, to what time that related.

 

(3)       In June 2007 Mr K provided particulars of sale of a 3 bedroomed property a short distance from no. 60 C Drive at an asking price of £275,000 (p.77 of CCS/387/2009).

 

(4)       However, an “up my street” search conducted in June 2007 revealed a sale of a property at no. 107 C Drive at £330,000, the sale being stated to have taken place in January 2007 (p.83 of CCS/387/2009) This was referred to by the decision maker, who appears to have conducted this search, on p.21 of CCS/703 2009 (“a similar house sold in C Drive for £330,000”) and p.31 of CCS/387/2009. It is not clear what accommodation this house had, although Miss P or her current partner (Mr H) is recorded as saying at the hearing on 18 August 2008 (p.156 of CCS/387/2009) that “the houses are all similar eg 60 and 64).”

 

(5)       In August 2007 Miss P said in a letter to the CSA that no. 60 was “valued at” £330,000 (p.126 of CCS/387/2009).

 

(6)       Mr K produced a letter dated 18 June 2008 from an estate agent instructed by him recommending that no. 60 C Drive be marketed at £250,000 and that he would expect the sale price to be in excess of £240,000. (p.190 of CCS/703/2009).

 

(7)       In July 2008 Miss P produced evidence of particulars of sale of three 3 bedroomed properties in the immediate area at prices of £284,950, £289,950 and £289,950 (pages 231 onwards of CCS/703/2009).

 

27.       Given that there was a mortgage of £257,000, and that the net assets must total in excess of £65,000 if a variation is to be made by reason of assets, it would not be possible to make a variation on the basis of no. 60 C Drive alone unless its value at the relevant dates was in excess of £322,000.

 

28.       The Tribunal’s reason for adopting a value of £330,000 at both dates was as follows:

 

            “Mr K had a property asset at 60 [C Drive] in which there was an equity of £73,000 at the relevant time (value of £330,000, mortgage of £257,000). This    finding was based on the evidence of Miss P and Mr H, on the figure at p.21 and         on        the information at p.184, all of which the Tribunal accepted.”

 

29.       The information at p.184 was the mortgage statement, and is uncontroversial. The “figure at p.21” is, in effect, the evidence as to the sale price of no. 107 C Drive for £330,000 in January 2007. It is not really clear what the “evidence of Miss P and Mr H” refers to.

 

30.       In my judgment the Tribunal erred in law in not in its reasoning specifically referring at least to the sale particulars for no. 60 (or the similar property in C Drive owned by Mr K) which Miss P had produced in January 2007, the offer price being £299,500, and to the fact that Miss P’s assertion in May 2007, based on those particulars, was that the value was £300,000. In my judgment the Tribunal’s decision must be set aside as wrong in law on that ground.

 

31.       In my judgment the most convincing evidence as to the value at the relevant dates is that referred to in (1) in para. 26 above. The evidence referred to in (4) of para. 26 is in my judgment less persuasive, because it is not clear what accommodation that property had. In her submission in this appeal (p.283 of CCS/703/2009) Miss P seeks to apply a percentage increase, which she says emerges from the evidence relating to no. 1 O Walk, to the valuation by Mr K’s surveyor of £250,000 as at June 2008. However, I do not find that a particularly satisfactory process.

 

32.       I therefore find that the value of no. 60 C Drive was in the region of £300,000 at February 2007, and probably less at July 2006, which means that the equity in that property alone was less than £65,000 at the material times.

 

33.       It may be (although this is not material in view of my above finding, and my findings below), that no. 60 C Drive was in any event prevented from being the subject of an assets variation on the ground that it was an asset “used in the course of a trade or business.” It may be that, if Mr K’s business is considered to be that of property development, it ceased to be used for the purpose of that business once it had been redeveloped and let, although I am doubtful about that. If it was an asset used in the course of a trade or business, it seems that it was not within the exception (for land producing income not included in the maintenance calculation) because, although it was let, and the rent was not included in the maintenance calculation, the rent was exceeded by the amount of repayments under the mortgage secured on it, and it was therefore not “producing income” for this purpose: see para. 23 of my decision in CCS/2219/2008.

 

(ii) The position in respect of nos 1 and 2 O Walk

34.       The evidence before the Tribunal indicated as follows. The land was purchased in September 2006, and two houses were built on it. Mr K contended before the Tribunal in February 2008 that the properties belonged to a company, and that he was only a 50% owner of the company, with a Mr Williams owning the other 50%. By May 2007 the houses appear to have been on the market for £490,000 each. By August 2007 (p.126 of CCS/387/2009) Miss P was saying that that they were on the market for £800,000 or for rent at £3,600 per month for the pair. No. 1 became registered in Mr K’s name in April 2007 (p.173 of CCS/703/2009) and no. 2 became registered in the name of Mr and Mrs Williams in September 2007 (p.172 of CCS/703/2009). On 24 August 2007 Mr K let no. 1 at a rent of £1700 per month. (p.181 of CCS/703/2009). In September 2007 Mr Williams let no. 2 at the same rent (p.170 of CCS/703/2009). By January 2007 Mr K appears to have owed £253,000 to Skipton Building Society, secured on (probably) no. 1 only (p.178 of CCS/703/2009), and in addition to have owed £25,000 to MBNA on a personal loan, not secured (pp. 148 and 175 of CCS/703/2009). The Skipton mortgage was an interest only tracker mortgage (p.210 of CCS/703/2009), and according to the Tribunal’s finding the repayments (it is not clear at what date) were £280 per week, significantly less than the gross rent.

 

35.       In my judgment the Tribunal erred in law in failing to consider whether, as at February 2007, nos. 1 and 2 were prevented from being taken into account as assets, for variation purposes, on the ground that (i) the land and partly completed buildings on it were being retained for a reasonable purpose (namely the completion of the development), and (ii) the land was being used in the course of a trade or business (namely the development of the land). Although those contentions were not made to the Tribunal, I cannot see that there was any answer to them, and in my judgment the Tribunal should therefore have considered those points. It is perfectly clear, from evidence which Miss P herself put before the Tribunal, that Mr K is or was at the material time a property developer (pp 42-3 of CCS/387/2009, where he is referred to as a “seasoned local developer with years of experience and a raft of successful projects under his belt”). As noted above, the exclusion of business assets does not apply where the asset is producing income of a type not included in the maintenance calculation, but nos. 1 and 2 O Walk were clearly not producing any income at February 2007. I therefore find that, as at February 2007, nos. 1 and 2 O Walk were not capable of being the subject of a variation on the ground of assets, for the reasons which I have just mentioned.

 

36.       The position may have changed in this respect from the dates (August and September 2007) when nos. 1 and 2 were let. They probably ceased, by then at the latest, to be retained for a reasonable purpose, and may have ceased to be used for the purpose of a business. Even if they were still used in the course of a business, they were producing rent which in the case of no. 1 at any rate appears to have been greater than the mortgage interest, and which had not been included in the maintenance calculation. However, it is not necessary for me to make any findings about those matters, because in any event no variation could have effect after 25 July 2007.

 

37.       I should also mention that it appears on the evidence likely that, at any rate by September 2007, Mr K was the owner of only no. 1 O Walk. That does suggest that it may never have been intended that he be the owner of both properties, and the document at p.171 of CCS/703/2009 (of which only the first page is present) also suggests that that may have been so. If this had never been intended, Mr K ought, however, to have been able to establish this much more conclusively by documentation. In view of the fact that, for the reasons which I have given, these properties were in my judgment not capable of being the subject of an assets variation, it is not necessary for me to consider this issue further.

 

38.       If I had agreed with the Tribunal in concluding that nos. 1 and 2 O Walk properly formed the subject of a variation on the ground of assets, I would have decided that it erred in law in calculating the net equity in the properties. The Tribunal was entitled on the evidence to arrive at a value of £400,000 for each of the properties, but it arrived at the equity by deducting the “construction costs (£341,000) outlined by [Mr K] at p.148 and undisputed land costs (£165,000)”, giving an equity of £294,000. However, it seems to me probable, reading the figures on p.148 in the light of Mr K’s contention that he only owned one of the plots, that the figures which he was giving on p.148 were in relation to plot 1 only. On the evidence the amount secured on no. 1 appears to have been £253,000, which would give an equity in respect of that property, when completed, of about £150,000. (That, however, makes no allowance for the fact that the properties were not complete by February 2007).

 

39.       My conclusion in relation to the variation on the ground of assets is therefore that the Secretary of State was correct in refusing to direct a variation on this ground. No 60 C Drive had a net value of less than £65,000, and nos 1 and (if owned) 2 O Walk were at the material times prevented from being taken into account because they were assets used in the course of a business and in addition (down to the date of completion of construction) were being retained for a reasonable purpose.

 

 

 

The variation on the ground of lifestyle inconsistent with declared income.

40.       The only error which Mr K has sought to rely upon in relation to the lifestyle variation is that “my partner … was working for British Airways at the time and did enclose all of her wage slips, but have gone on [Miss P’s] say that she was working for Marks and Spencers.”

 

41.       The Tribunal, in determining how much additional income was necessary to support the cost of Mr K’s lifestyle, proceeded on the basis that he was receiving a contribution of £80 per week in respect of “partner’s income (assumed to continue although no payslips provided).”

 

42.       At the adjourned hearing on 28 May 2008 the Tribunal had directed that Mr K disclose “documents showing the earnings of [Mr K’s] partner for the period 1 January 2006 to 1 March 2007.” Mr K disclosed payslips from British Airways in respect of the period from February 2005 down to June 2006. These showed Mr K’s partner (Miss C) to have been in receipt of statutory sick pay and maternity pay down to June 2006. Latterly maternity pay was at the rate of £108.85 per week. There was a “lump sum award” of £280.56 on 30 September 2006, but the inference from the payslips seems to have been that employment terminated in June 2006. In the Record of Proceedings of the hearing on 18 August 2008 Miss P’s current partner is recorded as saying (p.157 of CCS/387/2009): “Miss C works 16 hours per week at M & S - ? 2 years ago.”

 

43.       On that scanty evidence, the Tribunal was in my judgment justified in finding that the net contribution which Miss C was able to make to expenditure was at the rate of £80 per week, and gave such explanation as it reasonably could for that finding.

 

44.       I therefore find no error of law in relation to the Tribunal’s decision on the application for a variation on the ground of lifestyle inconsistent with income. I therefore incorporate the Tribunal’s findings and calculations in respect of lifestyle in my decisions set out in paragraph 1 above.

 

45.       The Tribunal should in my judgment (and as the Child Maintenance and Enforcement Commission agrees in its submission in these appeals) have incorporated in its decision a direction that the variation continued only until 25 July 2007 (see para. 7 above). Even if it could be established that, in obtaining an award of working tax credit, Mr K had misled HMRC, the child support adjudicating body (whether a decision maker or appeal tribunal) cannot go behind the award, save in cases where there has been a conviction for or admission of fraud: CCS/3452/2007. I note that in his recent decision in CCS/539/2009 Upper Tribunal Judge Jacobs held that it was a matter of discretion as to whether an award of working tax credit should prevent a variation being directed. However, he was focusing on the wording of Section 28B(2) of the Child Support Act 1991, relating to the rejection of a variation application at the preliminary consideration stage, and appears to have overlooked s.28F(3) of the 1991 Act, which is mandatory: “the Secretary of State shall not agree to a variation ….”

 

 

 

Charles Turnbull

Judge of the Upper Tribunal

                                                                               

                                                                                                  12 November 2009