Upper Tribunal (Administrative Appeals Chamber)

IN THE UPPER TRIBUNAL                             Appeal No.  CCS/308/2013

ADMINISTRATIVE APPEALS CHAMBER

Before: Upper Tribunal Judge PA Gray

The decision of the Upper Tribunal is to dismiss the appeal.  The decision of the Sheffield Tribunal made on 17 September 2012 under number SC 147/11/ 00338 was correct in law. 

The issue in a nutshell is whether a non-resident parent, habitually resident in the UK can have any financial liability under child support legislation where he enters into employment with a company registered outside Great Britain and works offshore.  In my reasons for this decision I will initially identify the parties and set out the chronology and decision making by the agency, and then the issues that were before the FTT, and their process and decision making.  I will then deal with the procedure once the matter moved to the Upper Tribunal, 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 boys, Connor and Oliver now 17 and 13 respectively.  Since their parents separated they have lived with their mother the second respondent.   She is the Parent with Care and their 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.   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.
2.  Child support maintenance for the boys was based on the statutory scheme which came into place on 3/3/2003, still known as the "new rules" to distinguish it from the original scheme, the "old rules".  It will be necessary for me to refer later to that initial scheme.
3. During 2009 the mother applied to the agency for a maintenance calculation in the knowledge that the father was gainfully employed.
4. On 22/4/10 the father was found liable to pay child support maintenance of £175 a week from the effective date of 21/12/09. Those calculations are not the subject of dispute, and I do not therefore have the precise figures, but the liability was upon the basis of a substantial annual salary in the region of £50,000.   
5. On 23/4/10 the father contacted the agency, saying that he was neither habitually resident in the UK nor did he work for UK company. This led to the agency looking closely at the matter, and the notes of the case officer indicate that there was some high-up contact within the agency as there were a number of ‘look alike’ cases in the system.  The advice given led to a revision of the decision on 26/8/10 and the resetting of the maintenance liability at nil from the same effective date. The reasoning was that the father had no assessable income for child support calculation purposes, neither being employed in Great Britain, nor subject to tax and insurance here. The mother appealed.

The appeal to the FTT

6. On 31/8/11 the matter came before a District Tribunal Judge who adjourned it to obtain further information as to the father’s employers and his income, and the habitual residence issue.  Directions were issued as to provision of certain information by the father.
7. On 14/12/11 the FTT allowed the appeal following non-compliance by the father with the directions issued to him. The tribunal appears to have drawn an adverse inference from that failure to comply, concluding that the father did indeed have income which was able to be taken into account under the child support legislation.  That tribunal found that he was habitually resident in the UK, despite his working abroad, and that his annual salary in April 2009 was £55,000, which was not liable to UK tax or national insurance contributions.  They directed an assessment on that basis. 
8. On 19/12/11 the father applied for the decision to be set aside, and it is enough for me now to say that on 31/5/12 that decision was set aside by a District Tribunal Judge and the matter was rescheduled for a hearing which took place on 17/9/12.
9. Following that hearing the FTT "with some regret" confirmed the decision of the agency, that is to say the nil calculation, on the basis that the law prevented the father's income being taken into account for the purposes of calculating liability for child support.  They did so upon the basis of the following facts.

The facts

10. At all relevant times the father was working in Afghanistan as a security guard at the British Embassy in Kabul. He worked for 9 weeks and then returned to the UK for 3 weeks.  The pattern to his work showed that although he was out of the jurisdiction of great deal, he returned regularly.  He had a new partner in the UK, and saw his sons regularly.  He maintained a vehicle here, and some banking facilities.  He was employed under an employment contract with a company incorporated in Jersey, G4S International Employment Services Ltd (G4S (Jersey)).  His salary was not subject to any deductions for UK tax or National Insurance payments.

The appeal to the Upper Tribunal

11.  With the leave of the District Tribunal Judge who had heard the case the mother appealed to the Upper Tribunal against the decision of the FTT. 
12. The Secretary of State’s representative Mr O’Kane made a written submission to the Upper Tribunal.  I am grateful to him for setting out the background to this difficult case.  Having struggled unsuccessfully in that submission to reconcile a previous case decided by Upper Tribunal Judge Turnbull under the old rules with the legislation under which this case fell to be considered, he concluded that the FTT had come to the only decision that was available to it under the law.  I will return to Judge Turnbull’s decision shortly, because I think it is the easiest entry level from which to understand the essential difficulty, and the changed legal picture.
13. Following the submission of the Secretary of State the mother and the father responded. I thank them for their attempts to engage with the process. There is a practical difficulty for lay people in proceedings before this tribunal which deals only with legal issues and those difficulties are compounded by the particular complexities of the child support legislation.
14. By direction of an Upper Tribunal Judge the matter was listed for an oral hearing, and it came before me when I was sitting in Leeds on 26/09/13.     I was able to hear from the mother, and from the Secretary of State's representative Mr Cooper. Understandably father did not attend, as he was abroad working. He maintained the correctness of the decision taken by the FTT.

 The mother's argument

15.  The mother maintained that the father was habitually resident in the UK, spending nine weeks out working in Afghanistan, but regularly coming back for the three weeks that he was off, and having contact with his sons during that time. That contact was clearly important to the boys, and I am sure was equally important to the father. She challenged the interpretation of the agency that his earnings were deemed ineligible as they were not subject to UK tax or national insurance. She felt that could not be the intention of the Child Support Act, with its concentration on there being joint responsibility for the upkeep of children. She felt strongly that if this was indeed the law it needed review. She spoke of her contact with her local MP, Caroline Flint; there were other MPs who had similar cases and that the Minister of State for Work and Pensions Iain Duncan Smith knew of the problem.  She spoke about approaching the Childrens Minister.
16. I could understand the frustration of the mother as to what appeared to be a conundrum in relation to the expectations of parents contributing to the upkeep of their children as they were financially able, and the conclusion of the agency. 

The position of the Secretary of State

17. The position set out in the submission of the Secretary of State was maintained by Mr Cooper who said that, regrettably, there was no error of law in the second decision of the FTT because the law was clear that money earned out of a Jersey company without deductions for UK tax and National Insurance payments could not be taken into account. Mr Cooper said that there were Internet sites suggesting that a number of people were affected by this aspect of child support law.

The facts and the habitual residence issue

18. There had been little real factual disagreement, although the father disputed that his factual circumstances amounted to habitual residence as a matter of law. That decision was one for the FTT to make applying the law to the facts that they found, and the aspect of their decision that he was habitually resident in the UK is not one with which I would interfere; it seems to me to have been a conclusion open to the FTT on the evidence before it.  The legal issue before me was really as to the treatment of the father’s earnings under his contract with G4S (Jersey) and whether or not the decision of the FTT in that regard involved an error of law.

The jurisdiction of the agency

19. Where the parent with care, the non-resident parent and the child are habitually resident in the UK the agency has jurisdiction to make a maintenance calculation under section 44 Child Support Act 1991.  The jurisdiction of the court is ousted where the agency has jurisdiction, or would have if an application was made; section 8 Child Support Act 1991.   I will return to that point later. 
20. Even where the habitual residence of the father was established the mother faced an additional hurdle.  The terms of the father’s employment abroad required careful analysis due to the legislative framework.

The earnings issue

21. The definition of an employed earner within the child support legislation is to be found within the Child Support (Maintenance Calculation in Special Cases) Regulations 2000 (the MCSC regulations).  Regulation 1 (2) states that "employed earner" has the same meaning as in section 2 (1) (a) of the Social and Benefits Act. This is the Social Security Contributions and Benefits Act 1992. That defines an employed earner as

"a person who is gainfully employed in Great Britain either under a contract of service, or in an office (including elective office) with general  earnings …."

Under paragraph 4 (1) MCSC regulations "Earnings" subject to certain qualifications under paragraph 4 (2) means… "any remuneration or profit derived from that employment".  A self- employed earner is subject to a similar provision.

22. The definition of an employed earner is extended by the MCSC regulations to include a person gainfully employed in Northern Ireland and a person to whom section 44 (2A) of the Child Support Act 1991 applies. The relevant part of that section reads

a non-resident parent falls within this subsection if he is not habitually resident in the United Kingdom, but he is –

(a)  employed in the civil service of the Crown, including Her Majesty's Diplomatic Service and Her Majesty's Overseas Civil Service;

(b)  a member of the naval, military or air forces of the Crown, including any person employed by an association established the purposes of Part XI of the Reserve Forces Act 1996.

(c)  Employed by a company of a prescribed description registered under the Companies Act 2006 ]; or

(d)  employed by a body of a prescribed description

23. It appears that section 44 (2A) was enacted to avoid the mischief of a person working overseas on government business being deemed not to be habitually resident, and therefore not being liable to pay maintenance for children remaining in the UK. That amendment, made by section 22 of the Child Support, Pensions and Social Security Act 2000 and effective from 31 January 2001 followed certain case law which had highlighted this as an issue.  The definition, however, only covers those who are employed by UK institutions and who are not habitually resident. In this case the FTT found that the father was habitually resident, but, equally critically, despite his work within the Embassy structure he was not employed by any government institution or a prescribed body .  
24.  Subparagraphs (c) and (d) have been prescribed under the Child Support (Maintenance Arrangements and Jurisdiction) Regulations 1992, regulation 7A.  The companies prescribed for the purposes of section 44 (2A) (c) are companies which employ people to work outside the UK, but make calculations and payment arrangements in relation to the earnings of those employees in the UK, so that under child support law a Deduction from Earnings Order may be made.  G4S (Jersey) would not fall into this category. The bodies prescribed for the purposes of section 44 (2A)(d) are concerned with the NHS and similar public institutions.
25. Until recently someone in the father’s position would have probably been a Crown servant, but certain services are now contracted out, and the father works for the security group G4S, for the arm of that corporation which is based outside Great Britain, G4S (Jersey).   He is paid a salary without deduction of tax or national insurance.
26. So, since the father is not employed in Great Britain and not liable to UK tax and National Insurance his earnings are not derived from employment within the meaning incorporated into the child support legislation from the Contributions and Benefits Act; they cannot be taken into account under child support law, but because the father is habitually resident in the UK the agency that deals with child support has jurisdiction. That means that they must make an assessment if an application is made, but because there are no earnings to put into the formula assessment, the maintenance calculation will be one of nil.   This places the mother is in what may be described as a Catch 22 situation; she cannot apply to the courts, because the agency has jurisdiction, but the agency cannot take the father's income into account, so the assessment must be nil. She is dependent upon the father's goodwill for any maintenance.  So far as the welfare of the children is concerned this is not an appealing outcome.  It needs examining and.explaining further.

The old rules case law

27. The position the mother finds herself in is not new. It was a matter of difficulty under the original child support scheme too.  In the decision of Upper Tribunal Judge Turnbull in the linked cases CCS/389/11 and CCS/390/11 reported as GF-SSWP [ 2011]UKUT 371 the issue was explored.  This was a decision under the initial child support scheme, the old rules, which had wider and more inclusive provisions in the accompanying regulations.
28. The factual position really did mirror that in the current appeal, in that the father was also a close protection security guard at the British Embassy in Kabul, and also employed by G4S in their company incorporated in Jersey. He was also found to be habitually resident in the UK.  His salary, like that of the father in this case, was paid out of the jurisdiction was not subject to UK income tax or national insurance contributions.      The agency made a nil assessment upon a similar basis to that made in this case. The cases are, it seems to me, factually identical.  Judge Turnbull dismissed the father's appeal, agreeing with the decision made by the FTT that the father’s earnings could be taken into account, but for different reasons; the FTT had taken an over-simplistic approach to what was in fact quite a complex interplay of statute and regulation.
29. The legal provisions regarding earnings were and remain effectively the same in that the regulations which governed the old rules scheme, the Child Support (Maintenance Assessment and Special Cases) Regulations 1992 (the MASC regulations") under regulation 1 (2) defined "employed earner" with reference to the same provision in the Social Security Contributions and Benefits Act 1992 that I set out above. It was because of that definition that the agency had in their decision in that case decided that they could not include the father's earnings offshore.  
30. Judge Turnbull, however, looked also at schedule 1 to the MASC regulations, in particular paragraphs 8 and 15.  These paragraphs are within Part III of that schedule headed "other income". Paragraph 8 provided

"the amount of the other income to be taken into account in calculating or estimating N or M shall be the aggregate of the following amounts determined in accordance with this Part."   

31. The reference to N and M need not trouble the reader; they were methods of differentiation between different types of income calculation under the old scheme and are of no importance here.
32. Paragraph 15 provided

"any other payments or other amounts received on a periodical basis which are not otherwise taken into account under Part I, II, IV or V of this schedule except payments or other amounts which – (a) are excluded from the definition of "earnings" by virtue of paragraph 1 (2);  (b)…..”

33. Judge Turnbull said that the tribunal could not on the facts have concluded that the father's earnings from his work in Afghanistan was earnings falling within paragraph 1 of schedule 1 to the MASC regulations, that is to say the earnings of an employed earner. However, he found that the earnings did fall to be taken into account under paragraph 15 of schedule 1, which was wide enough to encompass remuneration from that source.

The different legal picture under the new rules

34. The difference in this case is that the new scheme, although retaining the definition of earnings set out in the Contribution and Benefits Act does not replicate paragraph 15 in the regulations which govern that scheme, the Maintenance Calculation in Special Cases Regulations 2000 (the MCSC regulations).   
35. There is only one schedule to those regulations, and it makes reference to "other Income" under Part V at paragraphs 14 and 15 which read 

" 14. The amount of other income to be taken into account in calculating or estimating net weekly income shall be the aggregate of the payments to which paragraph 15 applies, net of any income tax deducted and otherwise determined in accordance with this Part.  15.  This paragraph applies to any periodic payment of pension or other benefit under an occupational or personal pension scheme or retirement annuity contract or other such income to the provision of income in retirement whether or not approved by the Inland Revenue."

36. The clear purpose of paragraph 15 in these regulations is to deal simply with the various types of pension income.   It is not the wide provision that fell to be considered by Judge Turnbull in GF-SSWP [2011] UKUT 371. On the face of the MCSC regulations 2000 the scope to bring offshore earnings into account as "other income" is simply not there.

Do the variation regulations provide for inclusion of this income?

37. In view of the importance of ascertaining whether the child support legislation was able to take account of this income in some way, I had indicated to the parties before the hearing that I would be considering the potential application of the Child Support ( Variation) Regulations 2000 (the variation regulations)  at the hearing.
38. The possible heads were variation regulations 19 and 20, which deal respectively with income not taken into account and diversion of income, and lifestyle inconsistent with declared income. Mr Cooper’s submission, with which I have come to agree, was that the variation regulations could not be read to accommodate this income. 
39. In relation to the variation provisions as to income not taken into account or diversion of income, regulation 19, the application of paragraph (1) centred upon whether or not the maintenance calculation, which had been nil, was a “nil rate award”, because if not the application of regulation 19 was in doubt. It is not a “nil rate award”.  That is defined in regulation 5 MCSC Regulations.  It is confined to those who are receiving benefit, or are minors, students or otherwise of very low means.   There is a nil assessment for the father outside the terms of regulation 5; his liability is calculated as nil because he has no assessable income to be taken into account under the MCSC regulations.  Paragraph 4 was not applicable because there was no allegation that the father was diverging his income to other persons or for purposes other than the provision of income for himself.
40. The possible application of paragraph (1A) was the main issue. Be control element was raised at the hearing, that is to say the ability of the non-resident parent under regulation 19 (1A (a) to "control the amount of income he receives from a company or business, including earnings from employment or self-employment". Such control within child support law has tended to be construed widely, and I suggested that I might have asked the question of the chief executive of G4S International Employment Services Ltd as to whether or not the father could choose to have payment in the UK with a view to deciding whether under regulation 19 (1A) he had the ability to control his earnings.   On balance I have decided that that to do that is really beyond my remit as an appellate tribunal. The father was employed by an organisation which was at arms length to him, and there was no evidence that he was in a position to choose how or by whom he was employed given the job that he had taken on. Additionally the paragraph quoted above from regulation 19 refers to the ability to control the amount of income received from a company or business.  This tends much more towards capturing the incomes of those who work within company or business structures in which they have influence, for example a sole or large shareholder in a company of which they are a company director, where they are able to apportion profits between employed earnings, dividends and retention.  I found that Regulation 19 did not cover the income under consideration.
41. Regulation 20, the lifestyle provision has an inherent difficulty in that paragraph (3) states that paragraph (1), the essential part of the regulation, does not apply where the Secretary of State is satisfied that the lifestyle of the non-resident parent is paid for from "income which is or would be disregarded for the purposes of the maintenance calculation under the Maintenance Calculations Special Cases Regulations".    There is authority to the effect that this includes any income that would not be taken into account under the MCSC regulations, and is not limited to those items that are specifically disregarded under paragraph 2 of the schedule: see the decision of Upper Tribunal Judge Jacobs in CCS/1320/2005 at paragraph 15.  In that case  the argument was considered that income may only be  disregarded under those regulations if it falls within the specific disregard set out in paragraph 2 of the schedule, which is headed "Amounts to Be Disregarded When Calculating Income" and which reads

2. The following amount shall be disregarded when calculating the net weekly income of the non-resident parents –

(a)  where a payment is made in a currency other than sterling, an amount equal to any banking charge or commission payable in converting that payment to sterling;

(b)  any amount payable in a country outside the United Kingdom where there is a prohibition against the transfer to the United Kingdom of that amount.

42. I agree with the view of Judge Jacobs as to the wider nature of the concept of income disregarded for the purposes of the regulations.  Considering overall the way in which the legislation has limited definitions of an employed earner and their income, including the narrowness of the amending legislation under section 44 of the Child Support Act 1991 itself and the highly qualified way in which companies or other bodies under that section have been prescribed, to include this income under the lifestyle variation provision by reading paragraph 2 of the schedule as a closed definition of income to be disregarded would be to fly in the face of the other provisions. The result is that the father’s income does not fall within the variation provisions either. So where does this leave the mother? 

The mother’s position

43. It is not, of course, for me to decide matters outside the remit of this case, but it is important as a matter of statutory construction that I look holistically at what the position is likely to be upon my taking a certain view of the meaning of the legislative provisions. It is in that context that I consider the mother’s general position in relation to a child maintenance claim against the father where she cannot go to court as the agency has jurisdiction, but the outcome of the exercise of that jurisdiction in terms of actual maintenance is that no money will be due from the father towards the upkeep of their children. 
44. Is that a legally perverse or irrational outcome, and do European Convention rights assist the mother as to this apparent lack of remedy?  In the light of the decision of the ECHR in the case of Kehoe-v-UK (Application No. 2012/06) there would appear to be no article 6 issues here, the scheme and its public purpose being considered in a broad, rather than an individualised way in Strasbourg, as it had been in the House of Lords. Arguments under articles 8 or 14 in conjunction with article 1 of protocol 1 appear unlikely to succeed; there is a wide margin in human rights law allowed to state schemes intended to impact on the public good overall.  As I said in MM v Secretary of State for Works and Pensions (CA)  [2013] UKUT 0585 (AAC) child support legislation is an arm of social strategy, and designed as a scheme to be both broad in its catchment and simple in its approach. With such schemes there may well difficult individual cases where a decision appears awry.   In the case of Humphreys (FC) v The Commissioners for Her Majesty's Revenue and Customs [2012] UKSC 18 in which the Supreme Court analysed aspects of the child tax credit regime in the context of possible discrimination they emphasised the importance of the larger picture where the state is pursuing a legitimate social aim, and that may prevail over individualised rights. 

My conclusions

45. It would be hubris to say that I have left no stone unturned in relation to the legal avenues so I do not go that far, but I have wrestled with this issue and I come to my decision with some reluctance due to the practicalities for this parent with care and perhaps many others. 
46. The result of my analysis is that the father’s offshore earnings that are not  subject to UK tax and National Insurance cannot be brought into account either in the formula or within the variation provisions of the 2003 child support scheme. 
47. This appears not to be a lacuna in the scheme but a purposive decision; the effect could have been ameliorated by some of the amending provisions, but it has not been.  The reach of the child support scheme is beyond the maintenance calculations that are made; it is also a collection and enforcement scheme and I note that the companies prescribed to which I refer in paragraph 24 were those where the payment regimes enabled the imposition of Deductions of Earnings Orders, a main plank of the enforcement provisions. The exclusion of earnings paid abroad may reflect the difficulty of controlling payment in those circumstances; I do not know, and it is not a matter for me.   It seems to me, however, that it means I cannot say that the fact that the mother may be without the ability to obtain child support maintenance from the father renders my interpretation legally irrational and the scheme incoherent and open to an incompatibility challenge.   It lends support to my interpretation of the statutory provisions and the conclusions that I set out. 
48. Accordingly I dismiss the appeal, and the decision of the First Tier Tribunal stands. 

Signed on the original on 21 November 2013

P A Gray

Judge of the Upper Tribunal