Upper Tribunal (Administrative Appeals Chamber)

 

 

IN THE UPPER TRIBUNAL Appeal No.  CCS/199/2013

ADMINISTRATIVE APPEALS CHAMBER

 

Before: Upper Tribunal Judge PA Gray

 

The decision of the Upper Tribunal is to allow the appeal.  The decision of the Leeds Tribunal made on 20 September 2012 under number SC 007/11/03693   was made in error of law.  under section 12 (2) (a) and (b) (ii) Tribunals, Courts and Enforcement Act 2007 I set that decision aside and remake it as follows:

 

(i) The Secretary of State shall re-calculate the child support maintenance payable by the appellant father to the second respondent mother in respect of the two qualifying children using the figures for net income set out in the decision of the First-Tier Tribunal but excluding the annual amount of £4860 that the First-Tier Tribunal found to be his income in respect of rental on the property situated at 22 Beech Walk Dewsbury WF 13 2PJ.  The newly calculated figure will have effect from 13 March 2010.

 

(ii)The final maintenance calculation will continue to bear a reduction of one seventh; the decision of the First-Tier Tribunal with regard to shared care, made under number SC007/11/03687 (now Upper Tribunal reference CCS/198/2013) remains, permission to appeal not having been granted in respect of that decision. 

 

(iii)There is liberty to apply to the Upper Tribunal as to the fresh calculations within one month with there being notified to the parties, but this is only as to the arithmetical aspects; factual matters will not be reopened.

 

In my reasons for this decision I will initially identify the parties and the appeals, I will deal with the chronology and decision making by the agency, the issues that were before the FTT, and their process and decision making.  I will explain the procedure once the matter moved to the Upper Tribunal, explain what I was considering and why, and the approach to the law that I used in coming to my conclusions.

 

 

 

 

REASONS FOR DECISION

 

 

1.     In this child support case, the appellant and the second respondent are the parents of two daughters born on 6/11/2003 and 18/02/2005 the elder now almost ten, the younger aged about eight and a half.  At all material times the girls have lived with their mother the second respondent. She is the Parent with Care and his father is the Non-Resident Parent in the terms of the applicable legislation. I will refer to the parents as the mother and the father in this decision.  The Secretary of State for Work and Pensions is the respondent, the functions of CMEC (formerly the CSA) having been transferred to the DWP under a transfer of functions order effective from 1/8/12.  I will refer to the body that has from time to time been administering child support maintenance as the agency in this decision.

 

2.      Child support maintenance for the girls was based on the statutory scheme which came into place on 3/3/2003, still known as the "new rules". 

 

 

 

 

The procedural background and decision making chronology

 

3.     On 7/2/09 the father had been found liable to pay child support maintenance of £48.58 per week in respect of the girls from the effective date of 29/11/08.

 

4.     On 17/3/10 the mother telephoned the agency and made what were likely to have been quite generalised assertions to the effect that the father's income has been understated for the purposes of calculating maintenance.  The agency categorised this as a variation application, although regrettably it was not until 4/8/10 that they issued her a variation application form to complete.  She completed and returned the form in October, outside the period of one month which would have triggered a backdating of any award.  That has not been a material consideration in this appeal, but it was a feature of the response to the FTT, so I mention it for completeness.

 

5.     In fact the mother's telephone call of 17/3/10 was as a matter of law an application for a supersession of the maintenance calculation generally.  She was alleging a change of circumstance which might have founded a variation application but which could have applied equally to the formula calculation. There was no reason to stall a decision as to that aspect. 

 

6.     No decision was made upon the variation application until 11/3/11. This was almost a year from the mother’s phone call. This level of delay is most unsatisfactory when dealing with maintenance for young children. 

 

7.     The decision was made that a variation direction could not be given, and the letter sent to the mother appears in the file numbered CCS/198/2013 at pages 36 to 38.  That was the first letter that the mother had which set out rights of appeal. The decision is described in terms as a denial of her variation application. As a matter of law it is a refusal to supersede the decision of 7/2/09.  As such on appeal to the FTT all aspects of that decision may be considered.

 

8.     In the meantime the father had contacted the agency telling them that his wages had reduced.  His application also suffered delay.  It led to a decision on 11/3/11 (the same day as the refusal of the variation application) that he became liable to pay child support maintenance of 32.86 per week from the effective date of 25/4/09. That was a reduction from the original amount, to take effect about six months after the effective date mentioned earlier, 29/11/08.  There is a note in the file that the assessment went down further, to £25 per week from the effective date of 9/10/10, but that was not the subject of the appeal.  Although not technically appealed, this matter does fall to be considered, because all aspects of the decision dated 7/2/09 are under appeal, and the jurisdiction of the tribunal to consider changes is limited only by the date when the decision under appeal was made, which was 11/3/11; until that date the FTT are able to update the income position, making stepped decisions if necessary.

 

 

9.     The mother appealed the decision of 11/3/11to the FTT.  The father appealed the decision that he was entitled to a reduction of one-seventh in relation to his shared care of the girls.  The appeals were linked and heard together.

 

 

 

 

The issues before the FTT

 

 

10. The mother had put her variation applications on a wide platform, alleging the grounds of assets, diversion of income together with income not taken into account and lifestyle inconsistent with the declared income, but the FTT was entitled to look at the formula calculation and not confine itself to considering the variation applications that were before it.  This is because the mother had made a generalised supersession request to the agency and, in any event, where an additional cases variation application is refused the tribunal in its inquisitorial role must look at whether the formula calculation truly reflects the income position of the non-resident parent. In JW-v-SSWP & MC & JC (CSM) CCS/738/2012) I said  “even where there is no variation application the tribunal must enquire as to the accuracy of the actual net income using evidence which can include that which might be relevant in relation to a variation application” and I reviewed the authorities.

 

11. The father’s linked appeal was based upon the fact that the agency had allowed only a one-seventh deduction in maintenance payable for his shared care of the girls, whereas he contended that he had their care for in excess of 104 nights per year and was entitled to a deduction of two-sevenths.

 

 

What happened at the FTT?

 

12. The appeal came before the First-Tier Tribunal (FTT) on three occasions. At the initial hearing, as is usual in child support cases, information was gathered which led to the making of directions for the production of documents. Regrettably the father did not attend on that occasion. That is not an issue in this appeal because of what occurred after that, but I was disturbed to hear from the father that he had been told by someone he had spoken to on the telephone at "the CSA" (as the agency, which has now had a number of guises, is still often known), that the appeal concerned only his former partner and that agency, and that he did not need to attend. This is not the first time that I have heard from parents in appeals that this has been said by the agency and if that is so I must say frankly that it is wrong. Both the parent (or other person) with care and the non-resident parent are parties to the appeal.  The tribunal procedure rules state clearly that it is for the parties to an appeal to co-operate with the tribunal. For that co-operation to take place all parties should engage with the tribunal, if only to establish whether their presence or active participation is required. That will differ from case to case, and it is a matter for a tribunal judge to decide and direct upon; it is not for the agency to pre-empt that, even if it is in an attempt to be helpful.

 

13.  The father attended the FTT on the second occasion, and directions were made for the production of documents. The father had to file various documents with the tribunal, and he had to do so at least two weeks before the final hearing so that they might be distributed to the parties.  The directions were extremely clear. The clarity of these directions undoubtedly played a part in Upper Tribunal Judge Turnbull restricting his grant of permission to appeal to two legal points, and his specifically rejecting the father’s concerns that there had been procedural irregularities in the tribunal hearing the case without him being there and in their decision not to consider documents which had been handed in to the hearing venue on the morning of the hearing. Judge Turnbull stated that these matters were not to be the subject of the appeal to the Upper Tribunal, and I will return to that below.   

 

 

 

The FTT decision

 

14. The FTT made findings as to the father's income from three sources. They directed the Agency to recalculate the maintenance calculation on the basis of their findings as to the father’s likely income from employed earnings, from other earnings as a private fitness instructor which may have been self-employed earnings, and from the rental of a property which they found that he owned and let out.  They dismissed the father’s appeal in relation to the existing shared care award, confirming that the new maintenance calculation should continue to be reduced by one-seventh to reflect the father’s level of shared care of the girls.

 

15. The FTT said that they dismissed the mother’s application for a variation based upon the father’s ownership of assets which should be taken into account, or income not taken into account, which encompasses the possibility of diversion of income.  The decision was rather unclear on this point, and that was the basis of the grant of permission to appeal. An element of confusion is demonstrated by the references in the statement of reasons to the application of the "just and equitable" principle.  This provision, which is set out in s28F (1)(b) and (2) of the Child Support Act 1991, applies only where consideration is being given to the grant of a variation (or departure under the old scheme) direction.  Having said that they did not accept that the grounds for a variation direction had been made out it was not necessary for the tribunal to go on and consider the “just and equitable” step.  It was not relevant in relation to any other decision it might make; it is not a specific step within the formula calculation.  The formula approach within the child support legislation is complemented by the variation provisions; together they comprise the yin and yang of the child support scheme.  The provisions although separate are designed to be used in conjunction with each other. Nonetheless they have distinct features, and the just and equitable step is a feature of the variation (and departure) regulations, and not a step which is applicable to maintenance calculations made under the formula. That is not to say, of course, that the formula approach is unjust or inequitable, simply that this is a specific legal provision under which there must be consideration of particular issues prior to the granting of a variation or departure direction after it is established that the initial conditions which would permit grant are satisfied.

 

16. The FTT decision had the effect of significantly increasing the father's liability, and he sought permission to appeal. His application was quite general in its terms, he clearly disagreed with those the decision as to the calculation of his income, and as to the shared care.

 

 

 

 

The further appeal to the Upper Tribunal

 

17. Permission was initially refused by the District Tribunal Judge, but was granted by Judge Turnbull, who did not grant permission to appeal generally. He refused permission to appeal in relation to number 198, the shared care appeal. He allowed permission in respect of the upper appeal number 199 upon the limited basis described above, and he gave case management directions.  His concern as to two legal aspects led to his grant of permission.  He did not take any point as to the amount of income which the tribunal found was relevant to the father’s letting out a flat, but he questioned whether the tribunal had been entitled to take it into account as income within the formula.  He also thought that the tribunal may have made a mistake as to the effective date from which their decision was to run.

 

18. The Secretary of State was directed to provide a response to the appeal, and I am grateful to the Secretary of State’s representative for the observations set out in that document. Following that the mother and then the father were to respond sequentially, and both made responses.  Again I express my thanks to them for their positive engagement with the process. For reasons which I entirely understand in their documentary submissions they tended to concentrate upon disputed factual aspects. There is a practical difficulty for lay people in proceedings before a tribunal which deals only with legal issues and those difficulties are compounded by the particular complexities of the child support legislation. It was thus of particular assistance to me to hear from both the mother and father at the oral hearing in Leeds, and from the Secretary of State's representative Mr Cooper who attended in the respected tradition of an amicus curiae, or friend to the court, adopting a wholly impartial approach.

 

 

 

My decision

 

 

19.  My decision is that those parts of the tribunal decision relating to the father's income from earnings and in a part-time activity as a fitness instructor will stand. No permission to appeal was granted in respect of those aspects. I have not thought it appropriate to extend the grant to include them.  The other income aspect concerned what the tribunal established to be the rental income from a flat which they found was owned by the father. With regard to that I share the concern of Judge Turnbull.  Any income derived from that flat rental should not have been included in the father's income for the consideration under the child support scheme. My decision excludes it.

 

20.  The submission of the Secretary of State had been that there were flaws in the approach taken by the FTT to the flat rental issue, in that they have not established whether or not the income was income from a business, which might have been able to be included within variation regulation 19, concerning income not otherwise taken into account. The recommendation in that submission was that the case should be remitted to a different FTT to make the appropriate enquiries and findings, however I do not remit the matter to a fresh tribunal because I do not think that there has ever been any evidence which would permit the rental income of this flat to be taken into account by the in the child-support formula or as part of a variation under regulation 19 or otherwise.

 

21. I have decided that I am able to remake the decision without using that income. It is easy, in that it is only a mathematical exercise, to recalculate the decision to exclude the income attributable to the letting out of the flat, assessed by the tribunal as £4860 per annum.  That does not mean that this amount is taken off the maintenance; it means that the father's net income must be recalculated to exclude that amount, and the formula then applied to that the lower amount.

 

22. The reason why the income from letting the flat cannot be taken into account in either the formula calculation or under any of the heads of variation demands some inspection of the various regulations, and consideration of the child support scheme as a whole.

 

 

 

The law in connection with the flat rental income

 

23. Net weekly income is prescribed by the Schedule to the Child Support (Maintenance Calculation in Special Cases) Regulations 2000.  This does not include income received from letting.  The submission of the Secretary of State refers to the decision of Upper Tribunal Judge Mesher in MG-v-CMEC (CSM) [2010] UKUT (AAC) 83.  That case identified income which was taken into account within the formula, that being income which was covered by part 2 of the Income Tax (Trading and Other Income Taxes) Act 2005 (ITTOIA). Rental income from property is not covered by those tax provisions, and the case is authority (at paragraph 34) for the proposition that income from this source must not be taken into account within the formula which sets the Maintenance Calculation.  The decision explains that the formula is not designed to encompass income from property dealings unless those dealings amount to a business enterprise.

 

24. The issue in this case, however, was whether the income from letting the flat could be taken into account in any other way. In particular it was whether or not any of the variation regulations could allow this income to be included in the calculation of child support maintenance.

 

25. Specifically regulation 19(1A) of the variation regulations needs to be considered.  That provides that:

 

"subject to paragraph (2) a case shall constitute a case for the purposes of paragraph 4 (1) of schedule 4B to the Act where-

(a)  the non-resident parent has the ability to control the amount of income he receives from a company or business, including earnings from employment or self-employment; and

(b)  the Secretary of State is satisfied that the non-resident parent is in receipt of income which would fall to be taken into account under the Maintenance Calculations and Special Cases Regulations but the application to the non-resident parent of paragraph 4 (1) (b) or 5(a) of schedule 1 to the act.

 

 

26.  Other aspects of that regulation referr to issues of diversion, where the non-resident parent has the ability to control the amount of income he receives from company or business, including earnings from employment. Employment. Those matters are not applicable in this case. The mother’s case, which I understand, was put forward on the basis that father was receiving income from a flat which she understood that he owned. She was never alleging that he ran any sort of property business, but simply that he was able to let out the flat that he owned because he was currently living elsewhere. 

 

27.  The new rules formula under the child-support scheme does not take into account income which comes from property which is owned, but not used as a business concern. The old, original child-support scheme provided for the inclusion of income from sources other than earnings from employment or self-employment, and rental income from property could be included. Income from the ownership of capital, including property, was taken into account under schedule 1 of the Child Support (Maintenance And Special Cases) Regulations 1992. The new scheme in contrast did not encompass such other income. This led to amendments in relation to regulation 19 of the Variation Regulations primarily in order to capture dividend income which was otherwise not able to be taken into account.  The amendment closed what was perceived to have been a loophole in relation to those who had companies that they control, who were able to pay themselves minimal income, taking the majority of their remuneration by way of dividend, which was tax efficient.  It did not, however, widen the position to include income from all sources. The amended regulation, which I have set out above, is limited to income from business enterprises.  It also, where income is shown to be from a business, limits the application of the variation to instances where the income is in excess of £100 per week, which was not the case in respect of the father's rental income on the FTT figures.  For those reasons the mother cannot bring the rental income from this one property into regulation 19, and no other heads of variation will apply.  The income must be excluded.

 

 

The effective date issue

 

28. The other issue upon which Judge Turnbull granted permission was in respect of the effective date. I am of the view that the tribunal was correct in the effective date that it stated.

 

29. The date of the mother's application for a variation is no longer a relevant consideration, because no variation direction has been made. The benchmark for the purposes of the setting of the father’s increased net income was the telephone call which the mother made to the agency on 17 March 2010, when she said that his income had been under assessed. As I have said earlier in this decision that telephone call was an application to supersede the maintenance assessment. I have not disturbed the findings of the FTT as to the father’s secondary income from his fitness training. That had not been included in the original assessment of the father's net income.  Its inclusion means that the mother’s application to supersede was successful.  The effective date of a supersession is the usual child-support payday for this assessment unit of the week in which the application was made. That is why the tribunal stated it to be 13 March 2010, and I agree with them.

 

 

 

Concluding matters

 

30. The father has been much exercised by the feeling that the tribunal found against him because of his lack of attendance and perceived lack of cooperation. FTT directions as to the production of documents from the father had explained that in the absence of positive evidence being forthcoming the tribunal was able to draw adverse inferences in coming to their conclusions.  Whilst it is true that the tribunal had the power to do that I can reassure the father that it was not actually done in this case. The tribunal assessed the absence of evidence from the father in a neutral way, coming to their views upon the positive account of the mother in relation to his having some additional income from his work in fitness training, and the expertise of the tribunal (which included a financial member who was an accountant) as to the amount of income that this was likely to bring in. The father is not able to challenge those findings, because they are factual matters and not legal issues, however I would not wish him to be under the misapprehension that the figures arrived at were in some way intended to be either penal, or were made due to any perceived issues as to his integrity.   

 

31. Finally, in this case where at times tensions ran high as to the financial issues, I repeat some remarks that I made at the oral hearing.  To their immense credit the parents have throughout managed contact arrangements in the interests of the girls, who clearly retain excellent relationships with both their parents which will stand them in good stead as they mature.  Despite the difficulties of this litigation the mother and the father need to hold on to that positive feature.

 

 

 

 

 

(Signed on the original) PA Gray

 

Judge of the Upper Tribunal

 

22 October 2013