Upper Tribunal (Administrative Appeals Chamber)

IN THE UPPER TRIBUNAL Case No.  CCS/3324/2013

ADMINISTRATIVE APPEALS CHAMBER

 

1. This is an appeal by the non-resident parent (Mr L), brought with my permission, against a decision of a First-tier Tribunal sitting at Southampton on 26 April 2013. For the reasons set out below that decision was in my judgment wrong in law and I set it aside. In exercise of the power in s.12 of the Tribunals, Courts and Enforcement Act 2007 I make the findings of fact set out below and re-make the First-tier Tribunal’s decision as follows:

 

Miss L’s appeal against the decision of the Secretary of State made on 18 November 2011 is allowed. Mr L’s liability for child support maintenance is calculated at £41 per week with effect from 29 July 2011.

 

2. Mr L and the parent with care (Miss L) have a son, now aged 8. The parents separated in November 2008, and on 22 August 2009 a decision was made calculating child support maintenance payable by Mr L in the sum of £73.71 per week from 14 August 2009.

 

3. On 26 July 2011 Mr L applied for supersession of the child support maintenance decision of 22 August 2009 on the ground of a change of circumstances, namely a reduction in his income. (Mr L says that his reduction was made by the CSA without his knowledge, but the Secretary of State’s submission to the First-tier Tribunal stated that Mr L made an application for supersession, and I so assume. Nothing turns on this).

 

4. On 18 November 2011 a decision was made reducing the child support maintenance award to the sum of £7.71 per week, with effect from 29 July 2011. That was on the basis of taxable self-employed earnings of Mr L, in his business of supplying and installing windows, of £6,214.00 in respect of the tax year 6/4/09 to 5/4/10. (That was a figure obtained from HMRC as the self-employed income for tax purposes. There were no accounts for any year before the First-tier Tribunal. Mr L told me at the hearing that his accounts are made up to 30 April in each year. The accounts on which that tax assessment was based would therefore have been those for 1 May 2008 to 30 April 2009).

 

5. Miss L appealed against that decision. Her grounds of appeal referred to rental income being received by Mr L, and to assets which he owned. The Child Support Agency treated the appeal as being or including an application for a variation on the ground in reg. 18 of the Child Support (Variations) Regulations 2000 (assets) (“the Variations Regulations”). Accordingly, the Child Support Agency wrote to Mr L on 6 January 2012 asking for his comments in relation to the assets which Miss L had contended he owned, and their values. Mr L responded in detail on 19 January 2012.

 

6. On 25 January 2012 a decision was made refusing the variation application on the ground that there was insufficient evidence that Mr L had assets with a net value in excess of £65,000 “as no confident information relating to valuations of the relevant properties at [the effective date of 29 July 2011] is available.” Miss L’s appeal was therefore treated as being in effect an appeal against the variation decision, and a submission was sent by the CSA to the First-tier Tribunals Service on that basis.

 

7. Miss L was able to provide the First-tier Tribunal with significant amounts of information as to Mr L’s financial position which she had obtained from Mr L in the divorce proceedings. The First-tier Tribunal, at or after various hearings which were adjourned, made Directions for the provision of further information by the parties. Mr L complied only partially with the Directions relating to him, and in particular he did not provide valuations of some of the properties or verification of the amounts charged on them.

 

8. The effective hearing before the First-tier Tribunal was on 26 April 2013, at which Mr Cox (a friend of Miss L) appeared as representative for Miss L (who did not appear), Mr L did not appear, and the Secretary of State was represented.

 

9. The First-tier Tribunal allowed Miss L’s appeal and directed a variation under reg. 18 of the Variations Regulations. Its maintenance calculation was based on an  assessment of the net capital value of Mr L’s assets at a total of £325,000, to which it applied the 8% interest rate on judgment debts, specified in reg. 18(5), in order to arrive at the “weekly value” of the assets. That resulted in a weekly value for the assets of £500, to which the Tribunal added the £116.63 per week from earnings, making a total of £616.63 per week. The Tribunal took 15% of that (the appropriate percentage where there is one qualifying child) and arrived at a maintenance calculation of £92 per week, with effect from 29 July 2011.

 

10. I held an oral hearing of this appeal, at which Mr L appeared in person, Miss L was represented by Mr Cox, and the Secretary of State was represented by Mr David Lowe of counsel, instructed by the Treasury Solicitor.

 

11. I can only set aside the First-tier Tribunal’s decision if it went wrong in law. The First-tier Tribunal was not permitted to take into account any changes in circumstances which occurred after the date of the decision which was under appeal to it: section 20(7)(b) of the Child Support Act 1991. The application by Miss L for a variation (see para. 5 above) was an application for revision (rather than supersession) of the decision of 18 November 2011, because it was made within one month of that decision. The decision of 25 January 2012 was therefore in substance a decision refusing to revise the decision of 18 November 2011. The decision under appeal to the First-tier Tribunal was therefore the decision of 18 November 2011. However, if there had been some change of circumstance between 18 November 2011 and 25 January 2012, the First-tier Tribunal could in my judgment have taken it into account, as a supersession decision could have been made on 25 January 2012. Although, therefore, the First-tier Tribunal’s decision had effect from 29 July 2011, the First-tier Tribunal was permitted to take into account changes of circumstances down to 25 January 2012.

 

12. The Secretary of State supports the appeal, contending that the First-tier Tribunal’s decision was wrong in law in three respects (which I consider further below). The written submission on behalf of the Secretary of State invited me to remit the matter for redetermination by a fresh First-tier Tribunal. However, Mr Lowe did not oppose my re-making the First-tier Tribunal’s decision, if I consider that more appropriate.

 

13. In my judgment the First-tier Tribunal’s decision was wrong in law in the respects which I discuss in detail below, and it is appropriate for me, rather than remitting the matter to a fresh First-tier Tribunal, to make the necessary findings of fact and re-make the First-tier Tribunal’s decision. My approach is that I should leave the First-tier Tribunal’s findings of fact in relation to the values of Mr L’s assets undisturbed, save to the extent that the First-tier Tribunal made errors of law in arriving at them. Where the First-tier Tribunal’s findings of fact are vitiated by errors of law, I consider that I can properly make my own findings on the evidence before me. Mr L had ample opportunity to adduce evidence before the First-tier Tribunal, and indeed, as I have noted, failed partially to comply with the First-tier Tribunal’s Directions. To remit the matter to a fresh First-tier Tribunal would be to prolong the matter even further, and give rise to further costs.

 

14. I refer to the First-tier Tribunal’s conclusions in para. 7 of its “Summary of Reasons” as to the values of Mr L’s assets, and the further reasoning in para. 2 of the subsequent Statement of Reasons.

 

15. Mr L does not contend that the First-tier Tribunal went wrong in law in relation to the values of the land at Gatwick (£5,000) or the shares in Jezersca Corporation (£25,000).

 

16. I turn therefore to consider Mr L’s contentions in relation to the remainder of the assets.

 

17. First, as regards the Merton High Street properties, the Tribunal said that it accepted “the estimate of £1.7 million given in the papers”. From that it deducted the amount of £1.2 million said by Mr L to be outstanding on a mortgage of that property. It then took 49% of the resulting £0.5 million to arrive at a figure of £245,000 for the value of Mr L’s 49% interest in this property.

 

18. There is evidence (pp.24-5) that this property was on the market for sale in 2010 for £1,950,000. However, by the end of 2011 the property had been on the market for more than a year (p.22). Mr L reported at that time that a local estate agent was of the view that the flats could be sold individually “fairly quickly, for a total of £1.65 million, maybe even £1.7 million”. The marketing history was set out in a little more detail by Mr L in the witness statement dated 3 June 2011 at p.218. Mr L further says that the County Court used a figure of £1.65 million for the purposes of the divorce proceedings (p.236) (but see p.291, where he says that a figure of £1.75 million was used). Then in his grounds for this appeal he said (p.290) that the property was then marketed at £1.75 million, but still did not sell, and that “using the information that I have supplied here the Merton flats are worth at best £1.55 million”.

 

19. Some time before the middle of 2011 Mr L agreed to a consent order in the matrimonial finance proceedings that he pay to Miss L a sum which, together with accrued interest, apparently totalled £115,000 by the date of the consent order which I am about to mention. On 17 August 2011 a consent order was made in those proceedings charging Mr L’s interest in the Merton property with payment of the sum of £115,000, plus interest at the judgment rate of 8% per annum from that date. The order went on to state that £55,000 should be paid by 24 August 2011 and that in the event that that sum was paid on time Miss L would not apply to enforce a sale of the Merton property until 19 December 2011.

 

20. Mr L raised the initial sum of £55,000 by remortgaging his home, and the initial sum was paid in early January 2012. However, the additional sum was not paid until towards the end of 2012. Mr L raised the additional sum by selling half of his interest in the Merton property to the other co-owner for £60,000, leaving Mr L with a 25% interest in the Merton property (see e.g. p.236). Mr L paid £60,000 plus £2625 in respect of interest and/or costs to Miss L in full and final settlement.

 

21. Mr L contends that, for the purposes of the variation, his assets should be regarded as being only the 25% interest in the Merton property which he was left with after the sale to his co-owner. However, that sale did not take place until well after 25 January 2012, and therefore cannot be taken into account in determining what his assets were: see para. 11 above.

 

22. Mr L contends, next, that the price (£60,000) at which he sold a 24% interest in the Merton property to his co-owner should be taken into account in valuing the Merton property at the material time. That sale price of course took into account the outstanding mortgage. It suggests that Mr L and his co-owner placed a net value of about £240,000 on a 100% interest, valuing the Merton property free from debt at £1.44 million. The First-tier Tribunal stated in para. 2(g) of the Statement of Reasons that

 

“The fact that the [Merton] property appeared to have been sold subsequently on what appeared to be an undervalue did not change the Tribunal’s view of the value on the evidence that it [had] seen relating to the relevant time.”

 

23. In my judgment the First-tier Tribunal was entitled not to regard the sale of the 24% interest as the best evidence of the sale value of the whole, having regard to the facts that (i) it was not a sale of the property as a whole on the open market, but rather a sale of a 24% interest to a particular purchaser, in circumstances where Mr L had a particular need for money quickly; and (ii) the sale took place about a year later than the latest date at which the First-tier Tribunal was required to value the property. In my judgment the First-tier Tribunal did not go wrong in law in taking £1.7 million as the value of the flats and shop units comprising the Merton property. Miss L has not sought to challenge the outstanding mortgage figure of £1.2 million, which, as the First-tier Tribunal found, gives a net value for the Merton property of £500,000. Mr L’s 49% interest was therefore worth £245,000.

 

24. However, in my judgment the First-tier Tribunal did go wrong in law in not treating the value of Mr L’s interest in the Merton property as reduced by the additional sum of £60,000 charged on it by the charging order: see reg. 18(3)(a)(i) of the Variations Regulations, which requires the amount owing under any mortgage or charge to be deducted in determining whether the total value of relevant assets exceeds £65,000. The clear implication is that it is the net value, after deduction of sums charged on the asset, which must be looked at. The rationale for that is plainly that, if the non-resident parent were to sell the asset with a view to raising sums with which to pay child support maintenance, he would be left with only the net sum after deducting the amount of debts charged on the asset. The value of Mr L’s interest in the Merton property was therefore £245,000 less £60,000 = £185,000.

 

25. However, Mr L is in my judgment not right in submitting that the initial sum of £55,000, which he raised by remortgaging his home, should also be deducted. His home was an exempted asset for variation purposes, and sums charged on it cannot therefore be deducted from the value of other assets. Nor would it in my judgment be right to permit the £55,000 to be deducted under the just and equitable principle.

 

26. In my judgment the value of Mr L’s interest in the Merton property for reg. 18 purposes was therefore £185,000.

 

27. When giving permission to appeal I queried whether the First-tier Tribunal should have considered whether Mr L’s interest in the Merton property was excluded under reg. 18(3)(b) on the basis that it was “being retained by the non-resident parent to be used for a purpose which the Secretary of State considers reasonable in all the circumstances of the case.” The relevant point there was Mr L’s evidence that the surplus income from the Merton property was being used to fund the revenue deficit which was being incurred on the Spanish property. However, I accept the Secretary of State’s contention that the First-tier Tribunal did not go wrong in law in that respect, principally because Mr L’s evidence was that he and his co-partner were in fact attempting to dispose of the Merton property.

 

28. Mr L contends, next, that the First-tier Tribunal went wrong in not finding that the sum owing on the mortgage of the villa in Spain exceeded its value, and in not deducting the amount of the deficit from the net value of the other variation assets. Reg. 18(3) provides that reg. 19(2) shall not apply

 

“(a) where the total value of the assets referred to in that paragraph does not exceed £65,000 after deduction of –

 

(i) the amount owing under any mortgage or charge of those assets;

 

(ii) [not material]”

 

29. Reg 18(5) provides:

 

“Where a variation is agreed on the ground that the non-resident parent has assets for which provision is made in this regulation, the Secretary of State shall calculate the weekly value of the assets by applying the statutory rate of interest to the value of the assets and dividing by 52, and the resulting figure ……shall be taken into account as additional income under regulation 25.”

 

30. In my judgment the natural meaning of reg. 18(3)(a) is probably that, when determining whether the value of the relevant assets exceeds £65,000, the total amounts of the sums charged on those assets is to be deducted from the total value of those assets. If, therefore, there is “negative equity” in relation to a particular asset, that will be taken into account in determining the net value of the variation assets as a whole.

 

31. However, reg. 18(3)(a) is directly relevant only for the purpose of determining whether the assets have an overall value in excess of the £65,000 limit. The primary provision which determines how much additional income shall be added by way of variation is reg. 18(5). That refers simply to “the value of the assets”. It is in my judgment implicit that the amount owing on a mortgage of an asset must be deducted in determining its value, but I do not see the justification for attributing a value of less than nil to an asset for this purpose. It seems to me that the net value of each asset must be determined by reference only to sums charged on it, and then the individual net values added up. If the amount charged on a particular asset is greater than its value, it simply has a value of nil for the purpose of the computation. I think that that is the better view because in relation to the deficiency in value the creditor would stand as an unsecured creditor, and to the extent of the deficiency the debt would be no different from any other unsecured debt which the non-resident parent may owe. Unsecured debts are not deducted from the value of assets for the purpose of reg. 18.

 

32. I accept that there seems to be no reason why the position should be different in the particular situation when one is determining whether the total value exceeds the £65,000 threshold. But I do not consider that reg. 18(3)(a) is sufficient to lead to the conclusion that the method which it requires is to be applied to determining the value of reg. 18 assets generally.

 

33. In my judgment the First-tier Tribunal therefore did not go wrong in law in simply attributing a value of nil to the property in Spain, and in not deducting any sum by way of negative equity from the total net value of other assets. However, that does not mean that negative equity cannot be taken into account when considering “just and equitable” issues (as to which, see below).

 

34. The First-tier Tribunal plainly went wrong in law in relation to the value of the Atlantic Coal shares. The printout from the internet which it relied upon (p.273) showed the value at April 2013 to be 0.20p (not £0.20) per share. Mr L says at p.293 that their value in July 2011 was 0.31p per share. His 376,921 shares at 0.31p each give a total value of £1168. I propose to take this as £1,000.

 

35. Finally, the First-tier Tribunal plainly went wrong in law in not reducing its final figure by one-seventh in respect of shared care.

 

36. The value of Mr L’s relevant assets during the second half of 2011 was therefore in my judgment as follows:

 

Land at Gatwick £ 5,000

Jezersca shares £ 25,000

Atlantic Coal shares £ 1,000

Merton property £ 185,000

£ 216,000

 

37. Taking the 8% rate of interest specified in reg. 18(5) therefore gives additional income of £17,200 per annum, or £330 per week. Mr L’s total income for child support maintenance purposes was therefore, on that basis, £330 plus £116 (earnings), i.e. £446 per week. Applying to that the 15% (the appropriate rate for one child) rate gives £66.90 per week. Deducting one-seventh for shared care leaves £57 per week.

 

38. By section 28F(1) of the 1991 Act the Secretary of State must not agree to a variation unless it is the Secretary of State’s opinion that “in all the circumstances of the case, it would be just and equitable to agree to a variation.”

 

39. Mr L has repeatedly contended, in his submissions, that he is not able to afford the sum of £92 per week directed by the First-tier Tribunal, particularly in relation to the arrears over what is now a past period approaching 3 years. However, as noted above, in considering what decision to substitute for that of the First-tier Tribunal I am required to consider the position down to 25 January 2012. In my judgment Mr L has provided insufficient particulars and evidence in relation to his overall financial position to enable it to be determined what the affordability of any particular sum was at around that time (or indeed now). In particular, there is no sufficient information before me to enable me to determine what his income and outgoings were. In the Directions made by the First-tier Tribunal on 4 January 2013 (p.257) Mr L was directed to produce a copy of his tax return for 2011 (which would have shown his self-employed earnings for 1 May 2009 to 30 April 2010). That return should have been provided to HMRC by 30 January 2012. By the date of the FTT final hearing he should also have made his return for the tax year 2011/12. Neither of those returns was provided. If they had been, and had showed income from earnings greater than that for the accounting year 2008/9, the First-tier Tribunal could have taken the higher earnings figure when doing the maintenance calculation, as the calculation itself was under appeal to the First-tier Tribunal. I do not therefore think that it would be right to reduce the additional income, to be added to his earnings by reason of assets, by reference to affordability considerations in his particular case.

 

40. I have considered, in addition, whether it would be right, on just and equitable grounds, to reduce the asset value arrived at above (and therefore the weekly maintenance payable) by reason of what Mr L asserts was and is the negative equity position in relation to the Spanish villa. In my judgment the First-tier Tribunal further went wrong in law in not expressly considering this. The Tribunal’s findings were that the Spanish Villa had a value of between 300,000 and 375,000 Euros, and that the outstanding mortgage was 375,000 Euros. Mr L’s contention at pp. 265-6 was that the outstanding loan was 375,000 Euros, and that they would have to consider taking offers for 250,000 Euros. His evidence was therefore to the effect that there was negative equity of in the region of 125,000 Euros. His evidence was further that surplus income from the Merton property was being used to pay the outgoings on the Spanish villa. Mr L’s interest was either a one-third or one-half interest, depending on how one treats the effect of the disappearance of one of the three partners. However, even accepting Mr L’s evidence in relation to the Spanish Villa, I do not consider it right to make any further adjustment, on just and equitable grounds, to the figures which I set out above. My reason is again that Mr L has not given sufficiently detailed or verified information in relation to his income and outgoings to enable it to be determined whether a maintenance assessment of in the region of £57 per week would be affordable.

 

41. However, it is still in my judgment necessary, under the just and equitable heading, to consider whether 8% is an appropriate interest rate to be using under reg. 18(5), having regard to all the circumstances, but in particular prevailing market conditions. The First-tier Tribunal further erred in law in not considering this. I note the approach and reasoning of Judge Mesher in PB v SSWP [2013] UKUT 149 (AAC), to which the Secretary of State has referred me. In my judgment it would not be just or equitable to apply a rate as high as 8% in order to determine the additional income to be added by reason of Mr L’s ownership of the relevant assets. In my judgment it would be fair to apply an overall rate of 5%, in all the circumstances.

 

42. Applying the 5% rate to the above figures gives an additional income from assets of £10,800 per annum, or £207 per week. Mr L’s total income on that basis was therefore £207 plus £116 = £323 per week. 15% of that gives £48 per week, which after deduction of one-seventh for shared care gives £41 per week. In my judgment that is the appropriate maintenance calculation.

 

43. In so far as there have been changes of circumstances since 25 January 2012, those can only be taken into account pursuant to an application for supersession already made or made hereafter. The First-tier Tribunal had no jurisdiction in relation to any such application which may have been made prior to its decision, because no decision in relation to any such supersession application was under appeal to it.

 

 

 

 

 

Charles Turnbull

Judge of the Upper Tribunal

8 May 2014