DECISION OF THE UPPER TRIBUNAL

(ADMINISTRATIVE APPEALS CHAMBER)

 

The DECISION of the Upper Tribunal is to allow the appeal by the appellant (“the father”), but to only marginal effect.

 

The decision of the Chesterfield First-tier Tribunal dated 14 February 2012 under file reference 031/07/01859 involves an error on a point of law. The tribunal’s decision is therefore set aside.

 

The Upper Tribunal is in a position to re-make the decision on the appeal by the father against the decision of the Secretary of State (formerly the Child Maintenance and Enforcement Commission and the Child Support Agency) dated 2 March 2004 and as revised on 27 June 2007. The decision that the First-tier Tribunal should have made is as follows. The Upper Tribunal re-makes the decision accordingly.

 

The father’s appeal against the decision of the Child Support Agency (now the Secretary of State) dated 27 June 2007 is dismissed.

 

The substance of that decision, with an effective date of 16 August 2002, was correct. The Agency had correctly assessed the father’s gross income from all sources (including rental income) as £80,000 p.a. and had also correctly deducted amounts for income tax and national insurance contributions.

 

 

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

 

 

REASONS FOR DECISION

 

The Upper Tribunal’s decision in summary

1. The father’s appeal to the Upper Tribunal is allowed, although in a marginal sense only. The decision of the Chesterfield First-tier Tribunal on 14 February 2012 involves an error on a point of law. The tribunal’s decision is therefore set aside. The Upper Tribunal re-makes the original decision under appeal in the terms set out above. For the most part this has almost the same effect as the First-tier Tribunal’s decision. The main difference is that income tax and national insurance must be deducted by the Agency when doing the necessary recalculations.

 

The context of this appeal

The factual background: an introduction

2. This case has (even by the standards of many other child support appeals) a very long and troubled history. It relates to a decision on the father’s child support liability which has effect from 2002. The case has already had one visit to the Upper Tribunal. The case file now runs to over 1,400 pages, notwithstanding the fact that much of the earlier evidence has been lost by the Child Support Agency. It would be pointless to try and even begin to set out a full account. The following summary will suffice for present purposes.

 

3. The parents separated in 1993 (or possibly earlier). They have been involved in various hearings before the child support appeal tribunal and its successors since at least 1997. It is, accordingly, very much an “old scheme” case, based on the child support rules in force before March 2003.

 

4. I refer to the parties simply as the father (the non-resident parent and the Appellant before the Upper Tribunal), the Secretary of State (or “the Agency”) and the mother (the parent with care). In effect, the father sees himself as the victim of unreasonable demands by both the mother and by the tribunal below. The mother, on the other hand, regards the father as “ducking and diving” to avoid his responsibility to provide financial support for their daughter, the “qualifying child” in question, who is now aged 23. One matter upon which the parents are probably agreed, despite their many other differences, is that the Agency has been hopelessly inefficient in handling this case from the outset.

 

The Agency’s decisions (or at least those concerned with this appeal)

5. In June 2002 the father telephoned the Agency to report that he was unemployed, had no income and was claiming jobseeker’s allowance. He phoned again in August 2002 to repeat that he was unemployed. It does not appear that the Agency took any immediate action.

 

6. However, on 2 March 2004 an Agency decision-maker decided that the father was liable to pay £0.00 in child support as from 16 August 2002. The mother appealed that decision.

 

7. On 27 June 2007 a different decision maker revised that decision of 2 March 2004, and decided that the father was liable to pay £136.89 per week as from 16 August 2002. This decision was made on the basis that the father had misrepresented his true income, which the Agency found, following a criminal compliance investigation, to be in the order of £80,000 a year. On 1 August 2007 the decision was reissued to the father, who appealed that revised decision.

 

The first hearing before the First-tier Tribunal (FTT1)

8. On 26 October 2009 the First-tier Tribunal (FTT1) heard the father’s appeal against the revision decision of 27 June 2007. It allowed the father’s appeal “with considerable reluctance”. In short, FTT1 found that the Agency had lost the relevant paperwork and could not now prove its case, even though “there is very good evidence that [the father] enjoyed a substantial income between 2002 and 2007”. The mother appealed to the Upper Tribunal against the decision of FTT1.

 

9. On 21 August 2010 Judge Jacobs allowed the mother’s appeal (under file reference CCS/3054/2009), ruling that FTT1 had failed to consider the possibility of a revision for official error. He also held that FTT1 should have considered the possibility of a supersession as an alternative to revision. He directed a re-hearing, the panel for which, he said, could be constituted in the same way as before.

 

The second hearing before the First-tier Tribunal (FTT2)

10. There were then a series of delays in getting the matter re-listed, in part because of the father’s attempt to challenge Judge Jacobs’s decision in the Court of Appeal. However, Sullivan LJ refused the father permission to appeal on 12 May 2011 (application C3/2010/2880). There were also adjourned hearings before the FTT in January and December 2011 and a series of other FTT directions notices.

 

11. On 14 February 2012 the re-hearing finally took place, before FTT2 (composed of the same District Tribunal Judge and financial member as FTT1). Both parents attended (but without representatives). FTT2’s decision was (nominally at least) to allow the father’s appeal, revising the Agency’s decision of 1 August 2007 (which, of course, was in the same terms as that of 27 June 2007, having simply been reissued). FTT2 decided that the Agency should recalculate the father’s child support liability as from the effective date of 16 August 2002 on the basis that his net income (including rental income) was £80,000 a year, with no deduction for income tax or national insurance contributions (NICs). This time it was the father who applied for permission to appeal to the Upper Tribunal.

 

The current proceedings before the Upper Tribunal

12. On 12 June 2012 Judge Jacobs gave directions for an oral hearing of the application. On 26 November 2012 that hearing took place before Judge Mesher in Manchester. On 6 December 2012 Judge Mesher gave the father permission to appeal and issued detailed directions as to the issues raised by the appeal. Judge Mesher has since retired and the case has been reallocated to me for decision.

 

13. All three parties have now made detailed and extensive written submissions on the appeal; Mrs S A Powell for the Secretary of State, the mother in person and the father by way of Ms Rachel Spicer of Counsel. I am grateful to all of them. All their representations have been taken into account, even if every point does not need to be referred to for the purposes of this decision.

 

14. In summary, both Mrs Powell and Ms Spicer argue that FTT2’s decision involves an error of law, although their reasoning differs in certain respects. They both argue that FTT2’s decision should be set aside and that the case should go back for re-hearing before a fresh FTT.

 

15. The mother, in short, supports the decision of FTT2. She has asked for an oral hearing of this appeal before the Upper Tribunal, but equally has also asked for the case to be dealt with as expeditiously as possible. Given the detailed written arguments on file, I take the view that an oral hearing before the Upper Tribunal is neither necessary nor proportionate. I therefore refuse the mother’s rather conditional request for an oral hearing.

 

16. I agree with Mrs Powell and Ms Spicer that, in two respects at least, the FTT’s decision involves an error of law. I also agree that its decision should be set aside. However, I do not agree with them on the proposed course of action thereafter. I take the view that I should decide the underlying substantive appeal on the papers myself, rather than send the matter back for yet another FTT oral hearing. I explain why below.

 

The two errors of law in the decision of FTT2

The Agency’s decision-making summarised

17. The Agency’s original decision, taken on 2 March 2004, was that the father had a nil liability for child support as from 16 August 2002 on the basis that he was unemployed and his only income was jobseeker’s allowance. The Agency then revised that decision on 27 June 2007, having concluded that the father’s income at the time was in fact £80,000 a year. The Agency’s revised assessment made deductions for income tax and NICs from that gross figure.

 

The approach taken by FTT2

18. Having decided that the father’s income was £80,000 in August 2002, FTT2 decided that income tax and NICs were not deductible from that figure. FTT2 reached this conclusion on the basis that the father’s main source of income was in property dealings, on which he had paid no income tax or national insurance. As none had been paid, FTT2 ruled that none was to be deducted. Indeed, the father freely admitted to FTT2 that he had paid no national insurance, even on a voluntary basis, between 2002 and 2007.

 

Judge Mesher’s observations and the parties’ submissions

19. In his ruling of 6 December 2012, Judge Mesher concluded that permission to appeal “must be given” as FTT’s conclusion on this point “appears to be contrary to the approach laid down in the decision of the Court of Appeal in Gray v Secretary of State for Work and Pensions [2012] EWCA Civ 1412” (on appeal from TG v CMEC (CSM) [2012] UKUT 303 (AAC)). The Court of Appeal had allowed the non-resident parent’s appeal in that case, remitting the matter to the Secretary of State for a recalculation of the child support assessment, “but only so as to allow for a deduction of the income tax and national insurance on the notional surplus between the earnings found by the First Tier Tribunal and the earnings accepted by the HMRC” (per Ward LJ at [30]).

 

20. Mrs Powell does not dissent from, and I take her to support, that analysis. Ms Spicer obviously argues that this (amongst other matters which she seeks to identify) was indeed an error of law on the part of FTT2. The mother, understandably enough, does not engage with this rather technical issue, preferring to focus on what she regards as the father’s persistent flouting and evasion of his responsibilities.

 

21. Judge Mesher raised a number of other issues in his grant of permission to appeal. In particular, he referred to the directions by Judge Jacobs when setting aside and directing a rehearing of FTT1’s decision in CCS/3054/2009. Judge Jacobs had pointed out that, as a matter of law, the father’s appeal was brought against the original decision as revised (Child Support Act 1991, section 16(3)). Furthermore, in the cumbersome language of the legislation, the FTT could not take into account circumstances that were not obtaining at the time the decision was made (Child Support Act 1991, section 20(7)(b)). The relevant time was the date when the original decision was made, rather than the date on which it was revised (see Child Support Commissioner’s decision R(CS) 1/03). Judge Mesher considered that FTT2’s reasons, which referred to events after 2 March 2004, suggested that FTT2 had overlooked this prohibition in section 20(7)(b).

 

22. Ms Spicer argues, and Mrs Powell accepts, that there are passages in the statement of reasons issued by FTT2 which contravene this rule, indicating that the tribunal impermissibly had regard to matters that occurred after March 2004 (e.g. the father’s various property dealings and contacts with the Agency). The mother, again understandably enough, does not really engage with this point of law.

 

The Upper Tribunal’s conclusion

23. On the first point, FTT2’s decision involved a plain error of law in the tribunal’s refusal to deduct income tax and national insurance from the father’s 2002 annual income of £80,000 which it had identified. This is no real criticism of the approach taken by FTT2 – its hearing took place on 14 February 2012, there were conflicting Upper Tribunal decisions on the point and the matter was not resolved until the Court of Appeal handed down its decision in Gray on 5 November 2012.

 

24. FTT2 also erred in law on the second point, namely the breach of section 20(7)(b) of the 1991 Act. At first I considered it possible that the way that the tribunal expressed itself was due to the need to take, as it put it, a broad brush approach, given the gaps in the evidence. On that basis it might have been argued that FTT2 was simply referring to some events after March 2004 as evidence of circumstances that prevailed before that date. Unfortunately that generous interpretation cannot stand in the light of the record of proceedings before FTT2. The judge’s note (p.1240) of his own observation at the hearing records as follows: “T [tribunal] ltd to looking @ circs no later than 1.8.07”. I can only assume that the complexity of the case was such that the judicial eye had been taken off the jurisdictional ball for a moment. As Judge Jacobs had previously directed, as a matter of law the tribunal could not take into account “circumstances not obtaining” as at the date of the original decision in March 2004.

 

25. I therefore allow the father’s appeal on both these points. Given the nature of these errors, FTT2’s decision cannot stand. I therefore also set aside the decision of FTT2 (Tribunals, Courts and Enforcement Act (TCEA) 2007, section 12(2)(a)). I can do so without having to address the father’s various other grounds of appeal at this stage. However, the nature and content of those grounds of appeal are such that it would plainly be wrong for me to adopt the approach which the Court of Appeal in Gray was in the happy position of being able to do, namely simply remitting the matter to the Secretary of State for a consequential recalculation of the father’s child support liability without further ado.

 

The appropriate method of disposal

26. So what then is the appropriate method of disposal? The choice then is essentially between remitting the case for (another) re-hearing before a fresh tribunal (TCEA 2007, section 12((2)(b)(i)) or the Upper Tribunal re-making the decision itself (TCEA 2007, section 12(8)(b)(ii)). One or other of those two courses must be adopted, once the decision has been taken to set aside. But the choice of path is a matter of judicial discretion.

 

27. Mrs Powell submits that the case should be remitted for re-hearing before a freshly constituted FTT with appropriate directions. She does not give any reasons for that suggestion. It may simply be because that is the Secretary of State’s default position where an appeal to the Upper Tribunal is supported. Ms Spicer supports Mrs Powell’s proposal, but again without giving further reasons. The mother’s position has already been noted (above at paragraph 15).

 

28. There are a number of factors which point in favour of remittal. For example, this is a fact-heavy case and the FTT is the primary judge of the facts. The FTT’s flexible composition is such that it can sit with a tribunal judge and a financially qualified member (as has already happened at the hearings before both FTT1 and FTT2). There are obviously other important considerations, such as ensuring that the parties “have their day in court”. It may also not be the best use of the Upper Tribunal’s resources to make the substantive decision on an appeal with a case-file running to in excess of 1,400 pages.

 

29. However, there are a number of other factors which point the other way, and in favour of the Upper Tribunal re-making the decision under appeal. In no particular order, those factors are as follows:

·        The historic nature of the case – it concerns child support liability dating from August 2002 on the basis of a decision made in March 2004 and as revised in June 2007;

·        The interests of finality and closure – there have been a series of hearings at FTT level (I think the first, in relation to the mother’s original appeal, was way back in December 2006), including two substantive FTT hearings, several adjourned hearings and, of course, one previous consideration on appeal by the Upper Tribunal;

·        The parties have already had their “day in court” – the hearing before FTT1 took all morning, and the hearing before FTT2 took a good part of the morning;

·        A new FTT will be in no better position as regards fact-finding – in my judgement there are sufficient findings of fact in the decision of FTT2 (or that can be made on the available documentation) to support the Upper Tribunal re-making the decision under appeal and there has certainly been no suggestion that any new relevant evidence is likely to emerge.

 

30. In my assessment, the factors mentioned in the previous paragraph outweigh those summarised in paragraph 28. There is also a further consideration which I regard as decisive. As already noted, the case has already been the subject of two separate and relatively lengthy FTT substantive hearings. The FTT had ample opportunity to assess the evidence of both parties, both in person and on paper. It is fair to say that they did not regard the father as an impressive witness. By way of example, the father’s assertion that he had stood down from running a haulage business was treated “with considerable scepticism”; FTT2 explained in some detail why it was satisfied that he had remained the “moving force” behind the business. There has been no challenge to those findings in the grounds of appeal. FTT2 also concluded that the father has been “less than candid in his dealings with the CSA between 2002 and 2007”. Even allowing for Ms Spicer’s well-made point that the tribunal could not take into account circumstances obtaining after 2 March 2004, these are damning comments. I reiterate that the FTT is the primary judge of the facts, and particularly as regards the credibility of parties to a dispute. To the extent that a FTT’s conclusions are not tainted by error of law, it is important that the Upper Tribunal, as an appellate and supervisory body, respects that first-instance fact-finding.

 

The Upper Tribunal’s analysis on re-making the decision

The appeals against the Agency’s original decision and its revised decision

31. As noted at paragraph 17 above, the Agency’s original decision, taken on 2 March 2004, resulted in a nil liability from 16 August 2002. The mother appealed that decision, although on 16 July 2007 she was advised that her appeal had lapsed as the revised decision was in her favour. The revised decision, taken about three weeks earlier on 27 June 2007, and reissued on 1 August 2007, resulted in a maintenance calculation of £136.89 a week, once the tolerance rule had been applied. The father then appealed that decision (the reference in CCS/3054/2009 at paragraph 8 to the parent with care having appealed that revision decision was a typographical error).

 

32. Thus FTT1 and FTT 2 were both concerned with the father’s appeal against the revised decision dated 27 June 2007. Like the original decision, this had an effective date of 16 August 2002. Furthermore, as this was a revision decision, and not a supersession, it took the place of the original decision of 2 March 2004. As shown by the second error of law identified above in the decision of FTT2, this has important implications for the approach to be taken by the tribunal.

 

The analysis of Judge Jacobs in CCS/3054/2009

33. The framework for re-making the FTT’s decision must be Judge Jacobs’s analysis in CCS/3054/2009. This is because he laid down careful directions for FTT2 to follow. I bear in mind that Sullivan LJ subsequently refused permission to appeal to the Court of Appeal, and Judge Jacobs’s primary directions have not been seriously questioned since.

 

34. Having identified the Agency decision under appeal, Judge Jacobs directed FTT2 to have regard to section 20(7)(b) of the Child Support Act 1991. Thus the relevant time was the date when the original decision was made (i.e. March 2004), rather than the date on which it was revised (i.e. June 2007) or indeed subsequently re-notified (i.e. August 2007). Judge Jacobs also observed that the relevant legislation governing revision of an old scheme case such as this was to be found in regulation 17 of the Child Support (Maintenance Assessment Procedure) Regulations 1992 (SI 1992/1813, as amended). He further discussed the potential application of three different heads to regulation 17(1), namely (c), (d) and (f). These are in the following terms, enabling the Secretary of State to revise an earlier decision:

 

“(c) if the decision arose from an official error;

(d) if the Secretary of State is satisfied that the original decision was erroneous due to a misrepresentation of, or failure to disclose, a material fact and that the decision was more advantageous to the person who misrepresented or failed to disclose that fact than it would otherwise have been but for that error;...

...

(f) if an appeal is made under section 20 of the Act against a decision within the time prescribed in regulation 31 of the Social Security and Child Support (Decisions and Appeals) Regulations 1999(2), or in a case to which regulation 32 of those Regulations applies within the time prescribed in that regulation, but the appeal has not been determined.”

 

35. Judge Jacobs directed the new FTT to start by deciding as a fact what the father’s income actually was in 2004, the relevant date for the purposes of the revision decision. If the FTT concluded that the father’s income was higher than the decision maker believed in 2004, then the FTT might then conclude that either regulation 17(1)(b) (“official error”) or regulation 17(1)(c) (“misrepresentation / failure to disclose”) applied. For reasons that I shall return to later, Judge Jacobs concluded that regulation 17(1)(f) (“pending appeal”) had no application. He also directed that if FTT2 was constituted in the same way as FTT1 (as, of course, it duly was), then it only needed to deal with the additional issues summarised in paragraphs 16,17 and 18 of his decision. These three paragraphs read as follows:

 

“16. The tribunal drew attention to the evidence that the absent parent had £80,000 a year income in 2004. That is both what he put on his mortgage application form (page 585) and what the bank manager stated and certified as his income (page 579). In view of its evident concern about the absent parent’s income, it should not have left the case where it did. What it should have done was to decide as a matter of fact what income the absent parent had in 2004. It may then have found that there were only two possibilities: (i) the absent parent had misrepresented or failed to disclose that income or (ii) the decision-maker had made an official error. This approach only works if the tribunal is first persuaded that the absent parent’s income was higher than the decision-maker believed in 2004. But if that is so, it is possible that the tribunal did not need to decide whether the proper ground for revision was regulation 17(1)(c) or (d). It may have been satisfied that one or other must have been the case; either would justify a revision. I have directed a rehearing for the tribunal to consider this possibility.

17. I also draw the tribunal’s attention to Ms Powell’s points in paragraphs 12 and 13 on page 1062. It is possible that there may be some official error in respect of those matters, although that would depend on the information available to the decision-maker at the time.

H. Supersession

18. The tribunal also went wrong by failing to consider making a supersession in substitution for a revision. That is permissible under the authority of R(IB) 2/04. This would release the tribunal from considering matters as of 2004. It could then consider any change of circumstances that had occurred since then, subject of course to the provisions governing the effective date of any assessment. Ms Powell’s points in paragraphs 12 and 13 on page 1062 may also be considered on supersession.”

The starting point: the father’s income in March 2004

36. The first question that has to be addressed, in line with Judge Jacobs’s directions, is the true level of the father’s income in March 2004. This inquiry is not helped by the fact that the Agency has mislaid a substantial amount (if not all) of the pre-2007 paperwork relating to the mother’s application for child support. I simply note that it is entirely possible that the lost documentation contains little evidence of value in this regard. I say that as the appeal file shows the father has not always fully or promptly complied with the FTT’s directions for filing evidence and there is little reason to suppose that he had been any more forthcoming when dealing with the Agency. It follows that this first question has to be answered on the best evidence now available, bearing in mind the balance of probabilities.

 

37. So what does the documentary evidence available to FTT2 suggest? First, the file includes a Barclays mortgage application form from June 2000 in which the father stated that his basic income was £60,000 a year, with an additional £10,000 a year in rental income from investment properties (pp.24 and 31). Second, on a Woolwich mortgage application form dated 14 May 2004 he declared his income as company director in a haulage business to be £80,000 a year. Third, the father’s income tax return for the year to 5 April 2004 does not include any extra pages for employment (as an employee or director), ticking only the “Land & Property” and “Capital Gains” supplementary pages. In fact the relevant “Land & Property” page is not included for that year, but on his tax returns the declared gross rental income for the year before was £9,556 (p.328) and £24,611 (p.295) for the year after. Fourth, the figures on these tax returns correspond to exactly 50% of the gross rents recorded in the rental income accounts prepared for the father and his wife; on that basis, his share of rental income (again, before expenses) in the year to April 2004 was £20,446 (p.84).

 

38. What then of the oral evidence before FTT2? In the record of proceedings, the father is noted as agreeing that, in addition to his rental income, he had realised a total of £566,446.62 from loans between November 2000 and April 2008, confirming figures that he had belatedly provided in writing shortly before the hearing. Later in the hearing he conceded that he was dealing in properties and buying and selling houses. He said that he had been advised that the receipts were not income but “I used it as explanation for £80k income” (p.1248); at another point he stated that “I said I earned £80k as carried forward from previous mortgage applications; I know I signed it but it was wrong info” (pp.1242-1243).

 

39. So what then was the father’s income in March 2004? In my assessment, on the best evidence available, and applying the balance of probabilities, the father’s aggregate annual gross income from all sources (the haulage company, property dealings and rental income) was in the order of £80,000. The passage of time and the absence of some paperwork mean that a “rounded” figure such as this is inevitable. However, it is supported by the two mortgage applications. The figure of £10,000 for rental income on the first application in 2000 is broadly consistent with the levels included in both the tax returns and private accounts for other years. Although the second application in 2004 was dated a couple of months after the date of the decision, it can properly be regarded as persuasive evidence of the father’s financial position as at the date of the decision itself (see by analogy R(DLA) 2/01 and R(DLA) 3/01). For fairly obvious reasons, the father’s attempt to suggest that the statements on those forms were misleading is in itself deeply unattractive.

 

40. Thus in reaching this decision I have, of course, had regard to section 20(7)(b) of the 1991 Act. I have therefore excluded from consideration the actual funds advanced on remortgaging in the period after March 2004. Those advances are, obviously, in themselves “circumstances not obtaining” at the time the decision was made. However, this does not mean that they are completely irrelevant. As R(DLA) 2/01 and R(DLA) 3/01 show, again by analogy, they at least provide evidential support for the inference that the father was in the business of property dealings before the relevant date (as he freely admitted to FTT2). The unchallenged findings by FTT2 (which I expressly adopt) that the father was actively involved in and benefiting from the haulage business, the property dealings and rental income all provide support for the figures stated on the mortgage application form.

 

41. I have not overlooked the point that the revised decision of 2004 concerned child support liabilities as from August 2002 and that the father was on jobseeker’s allowance in the summer of 2002. However, as the father conceded to FTT2, “I was only on JSA for a few months” (p.1241). Presumably he was on contributory-based jobseeker’s allowance, which lasts for a maximum of six months, as his extensive property holdings would have excluded him from means-tested or income-based JSA. There is, in any event, a moot point as to whether that award was properly made, given his ongoing work in property development. If further evidence was available, it might have been possible to make a stepped assessment (see paragraph 15 of Schedule 1 to the Child Support Act 1991), but that is not feasible here.

 

42. The second question posed by Judge Jacobs can be dealt with much more shortly. The answer to the question whether the father’s income was higher than the Agency understood it to be in 2004 is a resounding yes. In March 2004 the Agency’s decision-maker thought that the father’s income as at the effective date in August 2002 was the princely sum of £53.95 p.w. (pp. 975 and 1067), which was the then weekly rate of contribution-based JSA for an adult aged 25 or over. This was plainly wrong. It obviously omitted his share of the rental income. It excluded any income from the haulage business (although that seems to have been a period of transition). It certainly completely ignored the issue of income derived from property dealings.

 

The basis for changing the decision of 2 March 2004 (the nil assessment)

43. The next stage is to consider whether there were grounds for revising the decision of 2 March 2004 when the Secretary of State took action on 27 June 2007. In CCS/3054/2009, Judge Jacobs directed that if the tribunal found as a fact that the father’s income in 2002 was higher than the Agency believed in 2004, it might conclude that there were really only two possibilities. The first was that the father had misrepresented or failed to disclose that income (regulation 17(1)(d)). Alternatively, the second was that the decision-maker had made an official error (regulation 17(1)(c)).

 

Misrepresentation or failure to disclose

44. The decision-maker on 27 June 2007 took the view that the father had misrepresented his true income in the summer of 2002 (p.13). The best evidence of this – given the Agency’s loss of much of the contemporary paperwork – is a computer screen print (or “notepad entry”), purportedly dated 12 June 2002 (p.1035), which notes the caseworker’s account of a telephone call from the non-resident parent (NRP):

 

“NRP states is still unemployed but now IRO [in receipt of] benefit states will make csm [child support maintenance] pymt of £250 pm until s/sess [supersession] completed S/O [standing order] mandate issued for this amount. NRP states does not have any other income advised to complete 191 when received and return ASAP.”

 

45. On the balance of probabilities I find that there was a misrepresentation by the father on 10 June 2002 in this telephone call to the effect that he had no other income beyond JSA. I say 10 June, and not 12 June, as the following notepad entry is dated 10 June and refers to Form 191 being sent out to “request info on other income”. The entry of 12 June was thus a typographical error for 10 June.

 

46. I am well aware that this conclusion is at odds with the finding by FTT1. The first tribunal, having noted that “often the CSA makes catastrophic errors”, was not prepared to find that the Agency had been misled by the father. In particular, FTT1 was not prepared to accept the notepad entry as an accurate statement of what the father said. They continued (at paragraph [13] of the statement of reasons):

 

“It is clearly not a verbatim transcript of the conversation. It is well within the experience of the Tribunal that ‘Notepad’ entries can be notoriously inaccurate and at best summarise what a clerk thought was the gist of a conversation. The absence of the subsequent form 191 is worrying. Who knows what might have been declared in that form?”

 

47. Those points are well-made. Judge Jacobs indicated as much when he ruled that he could “find no error of law in the tribunal’s reasoning on this narrow issue” (CCS/3054/2009 at [13]). So why do I now take a different view? I do so for two reasons.

 

48. First, FTT1’s finding, as a finding of fact, was in no way binding on any subsequent tribunal. Indeed, while FTT1 was prepared to give the father the benefit of the doubt, FTT2, composed of the same members, and with the advantage of further evidence, made clear adverse findings both as to his credibility and as to the nature of his contacts with the Agency. For example, FTT2 was “satisfied that throughout the whole of his dealings with the CSA from 2002 to 2007 [the father] misrepresented his circumstances by failing to tell the CSA about his involvement in the haulage companies and by failing to tell the CSA of his profits and income from his property business”. As noted above, circumstances between 2004 and 2007 were not to be taken into account (other than by way of inference to the position before March 2004). The passage in question in FTT2’s reasons also appears to elide misrepresentation and failure to disclose, but this may simply be due to the time pressures involved in drafting a statement of reasons on the day of the hearing.

 

49. Second, and more significantly, there was additional evidence before FTT2 which was not available to FTT1. This included a copy of a letter sent by the father to the mother dated 10 June 2012 (the day of the telephone call to the Agency), in which he wrote that one of the haulage companies had closed down “which means personally I have no income at this time. I have phoned the CSA and they told me to stop payments to you pending a review” (emphasis added). In my view this contemporaneous statement increases the likelihood that he made the same representation on the same day to the Agency. Furthermore, there is the father’s letter to the FTT dated 31 January 2012 (shortly before FTT2’s hearing; p.1133) in which he explicitly stated “In June 2002 I telephoned the CSA and told them I was not working and had no income, and I assume they based their assessment on this”.

 

50. For those reasons I reach the conclusion set out at paragraph 45 above.

 

51. It follows that on 27 June 2007 the Secretary of State’s decision maker was entitled to take the view that he was “satisfied that the original decision was erroneous due to a misrepresentation of ... a material fact and that the decision was more advantageous to the person who misrepresented ... that fact than it would otherwise have been but for that error” within regulation 17(1)(d). There was therefore a valid ground for revising the decision of 2 March 2004.

 

Official error

52. Given the findings and conclusion set out above, I need not consider whether there was a ground for revision based on official error within regulation 17(1)(c)). I suspect there almost certainly was but it would be futile to pursue that point further now.

 

Pending appeal

53. Judge Jacobs concluded that regulation 17(1)(f) (“pending appeal”) had no application to the circumstances of this case. He ruled that it could be used only by the Secretary of State on reconsideration, and not by the FTT (CCS/3054/2009 at [19]). Mrs Powell and Ms Spicer both agree with that analysis, relying on the effect of section 20(7)(b) of the 1991 Act. Judge Mesher gave detailed reasons for taking the contrary position, views which I have to say I regard as carrying some force. However, the point need not be resolved in the context of this appeal and so is best left for decision to a case in which it is instrumental.

 

The supersession alternative

54. Judge Jacobs directed that FTT2 might need to consider the possibility of a supersession, rather than a revision, which of course would release the tribunal from considering matters as of 2004 (CCS/3054/2009 at [18]). Again, that alternative approach is now redundant.

 

The secondary grounds of appeal

55. The father’s primary grounds of appeal, concerning the basis for revision and the rule in section 20(7)(b) of the 1991 Act have been dealt with above. In her detailed written submissions, Ms Spicer also elaborates on two secondary challenges to FTT2’s decision, namely (1) that the tribunal was wrong to treat capital receipts arising out of re-mortgaging properties as income for child support purposes; and (2) that, in any event, it was wrong for such monies to have been assessed as income from self-employment.

 

Capital or income receipts?

56. As to the first point, it must be noted that Judge Mesher expressly indicated that he would not have given permission to appeal if this ground had stood alone. He was in “no doubt” that as a matter of principle FTT2 “was entitled to conclude that the father was in the business of property dealing, albeit taking revenue by remortgaging rather than selling” (grant of permission at [9]). As Judge Mesher observed, while the proceeds of a single remortgage transaction would be regarded as a capital receipt, the receipts of such transactions as part of a business activity constituted income receipts (see HH v Child Maintenance and Enforcement Commission (CSM) [2011] UKUT 60 (AAC), especially at [29]-[31], a case in which the Court of Appeal has refused permission to appeal). Mrs Powell, for the Secretary of State, supports that analysis.

 

57. Ms Spicer seeks to make good the argument that the monies raised in this way by the father did not constitute earnings from self-employment as defined in either paragraph 2A or 3 of Schedule 1 to the Child Support (Maintenance Assessments and Special Cases) Regulations 1992 (SI 1992/1815; “the MASC Regulations”). She relies on Chandler v Secretary of State for Work and Pensions [2007] EWCA Civ 1211 (reported as R(CS) 2/08 and at [2008] 1 FLR 638) and seeks to distinguish HH v Child Maintenance and Enforcement Commission (CSM). I am not persuaded by Ms Spicer’s valiant efforts.

 

58. Chandler v Secretary of State for Work and Pensions was concerned with the qualitatively different issue of whether drawings from a director’s loan account, albeit originally funded by a single remortgaging transaction, amounted to a form of income within paragraph 15 of Schedule 1 to the MASC Regulations. The Court of Appeal held that they were not. In the present case FTT2 asked itself the correct question as to whether the father was in the business of property dealings, carried out for the purpose of gain – if so, then the receipts were income receipts. That was ultimately a question of fact. FTT2, which included a specialist accountant member, was satisfied that the father was in just such a business. The tribunal explained why:

 

“It is clear that all the ingredients of a business were present. [The father] was using borrowed money to make more money. He was identifying properties and buying and improving them. He was engaging solicitors to undertake the transactions. A great deal of effort was put into running what was a highly successful business”.

 

59. Ms Spicer seeks both to distinguish HH v Child Maintenance and Enforcement Commission (CSM) on its facts and to limit its scope as a general authority. However, I do not read the statements of principle in HH as restricted to the rather special circumstances of that case (a professional gambler’s winnings as income). I am fortified in this conclusion by Judge Mesher’s observations on this point when giving permission in the present appeal. I accept that there are considerable practical problems in identifying the gross income receipts in such a case, although I suspect that Ms Spicer exaggerates the added complexity of doing so in this case when compared with HH. Indeed, as Judge Mesher observed in that decision (at paragraph [32]):

 

“... However, those problems cannot be allowed to undermine the conclusion of principle, especially taking into account the interests of qualifying children in having money in fact available for their support counted in the calculations of maintenance assessments. CMEC and tribunals on appeal must simply do the best they can with the evidence that can be made available to reach a conclusion about the net income to be taken into account in the form of earnings from self-employment.”

 

60. In my judgement, FTT2 did just this in the present case. As the tribunal noted in its closing comments, the mother might well consider that they had in fact underestimated the father’s actual income. However, the benchmark set in the 2004 mortgage application provided a sufficient evidential base for its overall conclusions, as explained above.

 

Income from self-employment?

61. Ms Spicer further submits that it was wrong in any event for the monies raised by re-mortgaging to be assessed as income from self-employment. She relies on MG v Child Maintenance and Enforcement Commission [2010] AACR 37 to argue that, even if the father was a self-employed earner in the business of property dealings, then the income from that business would only come into the calculation of net weekly income by virtue of paragraphs 7 and 8 of the Child Support (Maintenance Calculation and Special Cases) Regulations 2000 (SI 2001/155) where it is income required by HMRC to be declared on the self-employment pages of an annual income tax return. This excludes, she argues, rental income (which, as we have seen, is declared on the Land and Property pages) and, by implication, any subsequent capital gains.

 

62. There are at least two difficulties with this argument. First, MG v Child Maintenance and Enforcement Commission is a “new scheme” case, and there are fundamental differences between the two schemes on issues such as the definition of assessable income (especially as regards rental income). Second, as Mrs Powell points out, tax calculation notices were not introduced as a means of determining self-employed income for child support purposes until 2007. The starting point under the version of paragraph 2A of Schedule 1 to the MASC Regulations in force at the time of the March 2004 decision was that self-employed earnings should be assessed on the basis of total taxable profits as submitted to the Revenue for income tax assessment. Where that data is not available, e.g. because no such return has ever been made, then the self-employed income is to be assessed on the old basis of gross receipts and expenses under paragraph 3 (see further HH v Child Maintenance and Enforcement Commission (CSM) at paragraphs [27] and [28]).

 

Rental income

63. For the avoidance of doubt, I should add that I agree with Mrs Powell’s submission that the father’s rental income should not be treated as self-employed earnings (by analogy with MG v Child Maintenance and Enforcement Commission [2010] AACR 37).  However, this is an old scheme case and so such income falls to be taken into account as “other” periodical income under paragraph 15 of Part III of Schedule 1 to the MASC Regulations. The relevant income is the gross income, subject to very limited deductions, and not the net rental income after the deductions which apply for income tax purposes (see paragraph 23 of Schedule 2 and R(CS) 3/00 at paragraph [23]).

 

Conclusion

64. For the reasons explained above, the Upper Tribunal therefore allows the father’s appeal on the two points identified. The decision of the First-tier Tribunal is set aside and the Upper Tribunal re-makes the decision under appeal as set out above. 

 

 

 

Signed on the original Nicholas Wikeley

on 12 September 2013 Judge of the Upper Tribunal