DECISION OF THE UPPER TRIBUNAL

(ADMINISTRATIVE APPEALS CHAMBER)

 

 

The DECISION of the Upper Tribunal is to allow the appeal by the father.

 

The decision of the Sutton First-tier Tribunal dated 25 January 2011 under file reference 154/10/06268 involves an error on a point of law and is set aside. The Upper Tribunal is not in a position to re-make the decision under appeal.  It therefore follows that the mother’s original appeal against the Commission’s decision of 19 July 2010 is remitted to be re-heard by a different First-tier Tribunal, subject to the Directions below.

 

This decision is given under section 12(2)(a) and 12(2)(b)(i) of the Tribunals, Courts and Enforcement Act 2007.

 

 

DIRECTIONS

 

The following directions apply to the re-hearing:

 

(1) The re-hearing should be at an oral hearing and, subject to any further directions by a Regional or District Tribunal Judge, the appeal should be heard by a tribunal judge and a financially qualified panel member.

 

(2) The new tribunal should not involve the tribunal judge or the financially qualified member who sat on the last tribunal on 25 January 2011.

 

(3) If either parent has any further written evidence to put before the tribunal, this should be sent to the regional office of HM Courts and Tribunals Service in Sutton within one month of the issue of this decision. 

 

(4) The written submission to the Upper Tribunal by S A Powell, on behalf of the Commission, dated 11 May 2012 (docs 111-133, including attachments, of the Upper Tribunal file), should be made available for the benefit of the new tribunal.

 

(5) The Child Maintenance and Enforcement Commission or Secretary of State should be represented at the new hearing by a presenting officer.

 

(6) By statute the new tribunal is confined to dealing with matters as they stood at the date of the decision under appeal (19 July 2010).

 

(7) The new tribunal must consider all the evidence afresh and is not bound in any way by the decision of the previous tribunal. 

 

These directions may be supplemented or modified as appropriate by later directions by a District Tribunal Judge in the Social Entitlement Chamber of the First-tier Tribunal. 

REASONS FOR DECISION

 

The Upper Tribunal’s decision in summary

1. The father’s appeal to the Upper Tribunal against the decision of the First-tier Tribunal (FTT) is allowed. 

 

2. There will, unfortunately, have to be a re-hearing before the FTT of the mother’s original appeal against the Commission’s decision dated 19 July 2010. 

 

3. I regret both the further delay and the frustration for both parents that this re-hearing will cause to resolving this case. However, for the reasons that follow, this is the only practicable way forward on the child support legislation as it stands.

 

The issues in this appeal

4. The two main issues in this appeal, at least as it was before the FTT, concerned the proper treatment of (1) a payment of just over £45,000 received by the father, which was connected (to use as neutral term as possible) to his work; and (2) pension contributions (in excess of £2,000 a month) made by the father.

 

5. However, before those issues are considered there are some more technical questions relating to the “effective date” and the “relevant week” for the maintenance calculation that need to be explored in the light of the sequence of events in this appeal. In plain English the effective date is the start date for the maintenance calculation and the relevant week is important for assessing the father’s weekly net income.

 

The timeline for the case

6. The chronology of this case is important, not least as its implications do not appear to have been fully taken into account by the original decision maker or the FTT. On 2 March 2010 the mother made an application for child support maintenance. At that date the father was employed by H Global as a trader in international capital markets.

 

7. The CSA promptly contacted H Global, who on 25 March 2010 informed the Agency that the father was leaving their employment on 16 April 2010. There was no indication as to who his new employer would be.

 

8. On 13 May 2010, however, the CSA went ahead and made a maintenance calculation. This appears to have been based on the father’s earnings at H Global, comprising an annual salary of nearly £59,000 and an annual bonus of £46,700, even though the father no longer worked for that company.

 

9. On 8 June 2010 the CSA received a letter from the father, asking for an explanation of the maintenance calculation and referring to his change of employment. This letter was not on the tribunal file but was referred to in the log of CSA actions and decisions on the case.

 

10. On 25 June 2010, in reply to the Agency’s enquiry, the father wrote to the CSA with the name of his new employer, S Global. He declined to provide copies of his payslips, arguing that the June payslip included a one-off compensation payment for loss of shares associated with his former employer, and asking for the CSA to wait until he could provide payslips for three months. He also argued that the compensation payment in question was not a bonus.

 

11. On 5 July 2010 the CSA wrote to S Global asking for details of the father’s earnings. S Global replied with the relevant figures on 16 July 2010. The figures included an extra payment of £45,324.00 in June 2010, described by the new employer’s payroll department as a bonus.

 

12. On 19 July 2010 the CSA made a maintenance calculation, basing the father’s income on the regular salary payment for 19 June 2010 (£99,999 on an annual basis) together with the one-off £45,324.00 payment, described as above as a bonus.

 

13. As noted at paragraph 6 above, the implications of this sequence of events for the legal basis of the ensuing maintenance calculation do not appear to have been fully appreciated by the decision-maker (or FTT). The CSA’s position before the FTT was that the effective date for the calculation under appeal was 13 April 2010. This was why the CSA said that it could not take into account the father’s pension contributions in his new employment, as those only came into effect later. Yet at the same time the CSA took into account the one-off payment made in June 2010. The logical inconsistency in these two positions is (or should be) self-evident.

 

The FTT’s decision on the father’s appeal

14. The FTT dismissed the father’s appeal, confirming the CSA’s decision of 19 July 2010. The FTT ruled that the effective date was 13 April 2010 and the relevant week was 18 March 2010 – 4 April 2010 (sic). The FTT then decided as follows on the father’s two grounds of appeal.

 

15. First, the FTT concluded that the June 2010 lump sum payment was not a bonus but a “joining fee” from the new employer, rather than a “compensation fee” from the previous employer. In the FTT’s view the payment, on which both tax and national insurance were paid, fell within the definition of “earnings” in paragraph 4 of the Schedule to the Child Support (Maintenance and Special Cases) Regulations 2000 (SI 2001/155).

 

16. Second, the FTT declined to adjust the calculation in the light of the pension contributions as these started after the effective date. The father’s remedy, the FTT suggested, was to ask for the calculation to re-visited by the CSA, with any further decision carrying its own right of appeal.

 

The reasons in summary why the FTT erred in law

17. The FTT’s decision involves an error of law for the following four reasons. First, the FTT did not identify the correct effective date. Second, the FTT did not identify the correct relevant week. Third, in the light of the evidence it had, the FTT failed to make sufficient findings of fact to establish whether the June 2010 one-off payment was in respect of the father’s past or future employment rights. Fourth, the FTT fell into error in its consideration of the issue of the father’s pension payments.

 

The effective date of the maintenance calculation

18. In retrospect, and perhaps indeed with the benefit of hindsight, the most sensible way of proceeding, even at the cost of some limited delay, may have been for the CSA to ensure that it had all the details about the father’s new employment before making the original calculation. The CSA could then have made a “stepped” calculation under paragraph 15 of Schedule 1 to the Child Support Act 1991, with an appropriate adjustment for the change of earnings with the new employer (see also regulation 25(5) of the Child Support (Maintenance Calculation Procedure) Regulations 2000 (SI 2001/157)). There is, however, no evidence, that any such stepped calculation was ever made.

 

19. The FTT did not investigate the issue of whether the date identified by the CSA (13 April 2010) was the correct effective date for the calculation. However, it was clear from the timeline in the CSA’s submission to the FTT that the original decision was taken on 13 May 2010 with an effective date of 2 March 2010, and that a supersession decision was taken on 19 July 2010, purportedly with an effective date of 13 April 2010.

 

20. The decision of 19 July 2010 was plainly a supersession decision, as it took account of the father’s change of employment. As the decision was taken under section 17 of the 1991 Act, the effective date was governed by section 17(4). As S A Powell notes in the helpful submission to the Upper Tribunal on behalf of the Commission (now the Secretary of State), none of the special exceptions to the general rule apply in this case. It follows that the effective date is governed by the standard rule in section 17(4). As the supersession decision here was made by the CSA of its own initiative, on the basis of information received from a third party (the father’s new employer), the effective date was the first day in the maintenance period (in effect, the week) in which the decision was made. So the effective date was 13 July 2010, not 13 April 2010.

 

The relevant week for the maintenance calculation

21. The next issue to be grappled with is the “relevant week” for the purpose of the maintenance calculation. The FTT simply adopted the week identified by the CSA (and for some reason turned it into a fortnight). As S A Powell for the Commission, notes, the definition of the relevant week is governed by regulation 1(2) of the Child Support (Maintenance Calculation and Special Cases) Regulations 2000. This in turn depends on when notice was given to the parties of the intention to make a supersession decision (see also regulation 7C of the Social Security and Child Support (Decisions and Appeals) Regulations 1999 (SI 1999/991)).

 

22. In the present case it is unclear whether any such notification was given by the CSA. However, Mr Commissioner (now Judge) Mesher ruled in CCS/3671/2003 that such an omission did not invalidate the decision made on the supersession. That was an “old scheme” case, but given the similarity in language between regulation 24 of the old scheme Child Support (Maintenance Assessment Procedure) Regulations 1992 (SI 1992/1813) and the new scheme regulation 7C, I accept S A Powell’s submission that the same principle applies.

 

23. This leaves a loose end in terms of identifying the actual relevant week in this case. It clearly cannot be the week originally chosen by the CSA and adopted (albeit stretched into a fortnight) by the FTT. Given that the earliest the parties were notified of the decision was on 19 July 2010, then, in keeping with the legislative structure of the scheme, the sensible and pragmatic solution is probably to identify the preceding 7 days as the relevant week (13 July 2010 to 18 July 2010).

 

The one-off payment in June 2010

24. The FTT’s conclusions on this issue are summarised at paragraph 15 above. In short, the FTT (understandably) went straight to the definition of “earnings” in paragraph 4 of the Schedule to see whether or not the payment was in or out of scope.

 

The parties’ submissions

25. The father’s argument now is that the FTT should have considered what he submits is the necessary and logically prior question of whether the payment in question was a payment of income or of capital. He relied on Mr Commissioner (now Judge) Jacobs’s decision in CCS/3387/2006 (especially at paragraph 7) and the Court of Appeal’s decision in Morrell v Secretary of State for Work and Pensions [2003] EWCA Civ 526 (reported as R(IS) 6/03). He argues that as a one-off payment the sum lacked the regularity required to be assessed as part of his income.

 

26. S A Powell, for the Commission, does not address the father’s submissions head-on; for example, the decisions in CCS/3387/2006 and Morrell are not referred to in the Commission’s response. However, the implication of those arguments is that the FTT was right in the first instance to focus on paragraph 4 of the Schedule and not to deal separately with the income/capital question. The Commission’s argument is that the decision of Mr Commissioner Mesher in CCS/3671/2002 is more in point, even though it is an old scheme case, for the guidance offered on the meaning of “derived from that employment”.

 

27. In that respect, the evidence on file does not all point one way. S Global’s payroll department simply described the payment as a “bonus” (see paragraph 11 above). The father described the payment as cash compensation for loss of his shares in H Global which could not be transferred into S Global shares (docs 26, 33). He produced emails from the HR departments of both employers which appear to support this account (doc 35).  He also produced a letter to the same effect from S Global (doc 36) – however, this letter had been redacted in part so the new tribunal may wish to ask to see the unexpurgated version. Failing that, they may decide that the letter should be given less evidential weight.

 

28. The mother’s submission to the Upper Tribunal (doc 134) is thorough and well-reasoned. In short, she argues that the lump sum payment was a payment of income, pure and simple, that the bonus culture associated with City finance institutions is well known, that bonuses form an expected part of the overall remuneration package, and that all employers in that market know that they have to provide incentives (sometimes called “golden handshakes”) to attract the best new staff. One such tactic is to compensate new recruits for the income they would forego by moving jobs; in other words, upfront cash payments are made to reflect the future expected income from share options held with a previous employer.

 

The Upper Tribunal’s analysis

29. I am not persuaded by the main plank in the father’s argument. The decision in CCS/3387/2006 related to the old scheme. The new scheme has a different conceptual and legislative framework in this respect. Under the old scheme, all income is taken into account unless expressly disregarded. It is therefore important to distinguish between income and capital. The new scheme takes a very different approach. It does not have regard to all types of income; it simply lists certain (sometimes narrowly defined) categories of payment. The notion of “net weekly income” is given its meaning by a series or string of definitions in the regulations. In particular, paragraphs 3 and 4 of the Schedule focus on “earnings” and paragraph 4 defines “earnings” to include certain payments and exclude others. This legislative framework is very different to that which formed the backdrop to CCS/3387/2006. In my view the FTT was right not to get diverted into a debate as to whether the June 2010 payment was “income” or “capital”.

 

30. The $65,000 (or rather £45,324) question is whether the lump sum payment here fell to be taken into account as “any remuneration or profit derived from that employment” (under paragraph 4 of the Schedule to the Child Support (Maintenance Calculations and Special Cases) Regulations 2000). The FTT erred in law because it failed to investigate fully whether this sum was paid in respect of past or future employment rights. If the payment was made purely in respect of past rights, and especially if it was made on behalf of a third party (e.g. the previous employer, H Global), it is difficult to see how it could be “derived from” the new employment with S Global. However, if it was paid by S Global as “an inducement to enter into employment and provide future services”, then it could be regarded as a payment of earnings from the new employer (see Shilton v Wilmshurst (Inspector of Taxes) [1991] AC 684 and CCS/3671/2002 at paragraph 9, but taking care to note the double negative used there).

 

31. If the latter analysis is the correct one, then the next question to arise is how such earnings should be taken into account in terms of their attribution over time. One approach, if the payment is properly regarded in law as a bonus (whatever label the father and his past or present employer might attach to it), is to take the payment into account averaged out on a weekly basis under paragraph 6(3) of the Schedule – assuming it is found to have been paid in the 52 weeks ending with the relevant week. The alternative approach is to use the fall-back provision under paragraph 6(4) (e.g. on the assumption either that the payment is not a bonus, properly so called, or the relevant week is earlier than the date of the lump sum payment).

 

32. The FTT erred in law as it needed to make findings of fact as to whether the June 2010 lump sum payment was made in respect of rights relating to the former employment or present or future rights associated with (or rather, to be precise, “derived from”) the new employment. The further omission to consider how to take the payment into account and over what period was also an error of law.

 

33. This issue requires further fact-finding by a FTT sitting with a tribunal judge and a financially qualified panel member, so I allow the father’s appeal, set aside the previous FTT’s decision and direct a re-hearing before a new panel.

 

34. Finally, I note that the father has sent the Upper Tribunal a copy of an e-mail from the S Global HR department stating their understanding that the one-off payment was “a payment made for past rights rather than any variable pay (bonus) for performance during employment” with the new employer. The weight to be attached to this is entirely a matter for the new tribunal. I simply observe that (1) the label attached by any party or third party to a payment is not conclusive as a matter of law; (2) the question of whether the payment was an “incentive” or “inducement” remains at large. The payment in Shilton v Wilmshurst (Inspector of Taxes), paid to induce the England international goalkeeper Peter Shilton to agree to a transfer from Nottingham Forest to Southampton, now appears rather unsophisticated when viewed in the light of today’s golden handshakes and similar incentives, especially in the City of London.

 

The pension contributions

35. The FTT’s conclusions on this issue are summarised at paragraph 16 above.

 

36. The father has not raised further arguments on this point in his appeal to the Upper Tribunal. Understandably, therefore, the mother has not responded on that issue. S A Powell argues that in fact this was a matter which properly fell within the FTT’s jurisdiction as it was relevant as at the date of the supersession decision (see section 20(7)(b) of the 1991 Act). As the question of the deductibility (or not) of the pension contributions was relevant to the assessment of the father’s earnings, this was, it is argued, a further error of law. The Commission argues that the FTT should have considered paragraphs 6(1) and 6(4) of the Schedule to the Child Support (Maintenance and Special Cases) Regulations 2000.

 

37. It is, of course, the case that deductions can be made from gross earnings to reflect payments to an occupational or personal pension scheme (see paragraph 5(1)(c)). I therefore agree with S A Powell that this also represented an error of law by the FTT. I simply note that the father was making substantial monthly contributions to his pension, comfortably in excess of many people’s monthly salaries. In principle that may raise issues about a potential variation for diversion of income under regulation 19(4) of the Child Support (Variations) Regulations 2000 (SI 2001/156). However, this does not appear to have been raised as an issue in this appeal.

 

The outcome of the appeal to the Upper Tribunal

38. The father’s appeal succeeds. For the reasons above the FTT’s decision involves an error of law.  I therefore allow both the appeal and have to set aside the FTT’s decision as it cannot stand (Tribunals, Courts and Enforcement Act 2007, section 12(2)(a)). The case is remitted for re-hearing by a new tribunal (section 12(2)(b)(i) of the 2007 Act).

 

 

Signed on the original Nicholas Wikeley

on 31 August 2012 Judge of the Upper Tribunal