Upper Tribunal (Administrative Appeals Chamber)

IN THE UPPER TRIBUNAL Case No.  CCS/3364/2014

ADMINISTRATIVE APPEALS CHAMBER

1. This is an appeal by the non-resident parent (Mr S), brought with my permission, against a decision of a First-tier Tribunal sitting at Derby on 6 March 2014. For the reasons set out below I dismiss the appeal.

2. Mr S and the parent with care (Mrs H) have a daughter, Megan, who was born in 2004. According to the Secretary of State’s written submission to the First-tier Tribunal a decision was made on 16 November 2011 calculating child support maintenance payable by Mr S to Mrs H in respect of Megan at £5 per week with effect from 14 January 2005. It is apparent from the fact that that calculation had effect from such an early date, and from other references in the papers before me, that there has in fact been a fairly complicated adjudication history, there having been a previous appeal to a First-tier Tribunal which was heard in 2009. However, it is not necessary to enter into any of the details of that history.

3. On 10 November 2011 Mrs H applied for a supersession of the maintenance calculation, by way of a variation, on the grounds of lifestyle inconsistent with income and diversion of income and income not taken into account.

4. On 8 May 2012 a decision was made that the existing calculation should be superseded, by way of variation, so that the calculation became £41 per week with effect from 4 November 2011 and then £43 per week with effect from 30 March 2012. The variation was on the ground in reg. 19(1A) of the Child Support (Variations) Regulations 2000, by reason of Mr S having received a dividend of £9,000 in respect of the year ended 31 October 2010 from a company (which I will refer to as “Lettings”) in which he at all material times owned one of the 2 shares and his brother owned the other. It is clear from the accounts of Lettings (p.209), although not directly material to this appeal, that Mr S received a dividend of £12,500 in respect of the following year.

5. Mr S appealed on the ground that he did not hold a controlling interest in Lettings.

6. That appeal was dismissed by a First-tier Tribunal on 21 January 2013, but that decision was set aside by the Upper Tribunal on 17 October 2013 as wrong in law on the ground that the First-tier Tribunal had failed to consider whether “the non-resident has the ability to control the amount of income he receives from a company or business …”, as required by reg. 19(1A)(a) of the 2000 Regulations. Upper Tribunal Judge Wright said the following in para. 8 of his decision:

“The test under regulation 19(1A) of the [2000 Regulations] requires consideration to be given to the legal and factual circumstances surrounding [Lettings] so as to determine whether the father had the ability to control the income he received from that company. That is far better done by the First-tier Tribunal with all the parties present before [it] and once it has before it all relevant information about the company and the father’s role in it. That information is not before the Upper Tribunal and was not before [the First-tier Tribunal]. It will need to be provided to the next tribunal, in all likelihood by the father.”

Judge Wright’s directions included a direction that if any of the parties had any further relevant evidence that they wished to put before the new tribunal that evidence should be sent to the First-tier Tribunals Service within one month.

7. The hearing before the new First-tier Tribunal was listed for 6 March 2014. On 28 February 2014 Mr S wrote to the First-tier Tribunals Service as follows:

“Due to the lateness of receiving the bundle I have been unable to communicate with the Tribunal earlier than to-day; however, as I cannot offer any new information that would aid the Tribunal, one would assume this will not be of detriment to my case.

I will instead confirm the accountant certified details of [Lettings], which were supplied to the Child Support Agency in December 2004 and are held on my permanent file, copies attached, and which should have been used to form the evidence based decision that I have never held a controlling interest in that company and therefore could not at any time control my income.

As you will see, the company had two shares, one of which I held; each of these shares had one voting share, again, you will see that of those, I had one.

I trust with the reassessment of the historic evidence, it will now be a simple matter for the Tribunal to rightly find in my favour and dismiss [Mrs H’s] variation appeal; in line with Child Support Legislation as laid out by the Upper Tribunal in their considered submissions.

I also confirm that I will not be attending the oral hearing, 06/03, as apart [from] these indisputable facts, I can add nothing else to the process.”

8. The information from the accountants referred to in that letter is at pages 171 to 176 of the papers, and is a document headed “CLS MEANS 1C”. It appears to be a document, completed and signed by Lettings’ accountant on 11 November 2004, used in connection with an application for legal advice and assistance, although its original purpose does not matter. It states that Mr S became a director of Lettings on 2 October 2003 and owned one of the two issued shares. However, in answer to the question “does this director or their spouse or partner control any of the voting shares of this company as well as the ones that they own?” the “yes” box was ticked. Then, to the question “How many shares to they control?” the answer “one” was given. It is quite clear that that latter answer relates to the number of shares, in addition to any owned shares, which the applicant controls.

9. Neither Mr S nor Mrs H appeared at the hearing before the First-tier Tribunal. The First-tier Tribunal dismissed the appeal. In its Statement of Reasons the First-tier Tribunal reasoned as follows on the issue of “control”:

“17. In considering this question I considered the legal and factual circumstances surrounding [Lettings]. In doing so I considered all of the documentation in the bundle of papers including the appellant’s letter dated 28 February 2014 with enclosures. From the information provided, I was of the view that [Lettings] is a small company involved in letting property and was run by the directors, the appellant and [Mark S]. There is nothing in the form CLS MEANS 1C or other documentation which gives any indication that the appellant does not have the ability to control the amount of income that he received and in particular the form in which he receives the income. Had it been the case that the appellant does not have this ability, I would have expected him to provide full details. The appellant was clearly conversant with the issues and had the benefit of a detailed explanation of those issues from the Upper Tribunal. I felt therefore that in the absence of any such explanation from the appellant, he does have the ability to control the amount of income he receives from a company or business, including earnings from employment or self-employment. Regulation 19(1A) of the [2000 Regulations] is therefore satisfied.

18. I would add that in his letter of appeal, the appellant states that he does not have a controlling interest in [lettings]. That is not the test set out in Regulation 19(1A).”

10. In giving permission to appeal against the First-tier Tribunal’s decision I stated as follows:

“It is arguable that the First-tier Tribunal’s decision was wrong in law in stating, in paragraph 17 of the Statement of Reasons, that in the absence of additional explanation from the Appellant he should be found to have the ability to control the amount of income which he received from the company. It is not clear that any additional information was ever directed to be provided by the First-tier Tribunal.

However, if the First-tier Tribunal’s decision is set aside as wrong in law the Upper Tribunal has the power, rather than remitting the matter for redetermination by a fresh First-tier Tribunal, to re-make the First-tier Tribunal’s decision, making all necessary findings of fact for that purpose: section 12 of the Tribunals, Courts and Enforcement Act 2007. I give notice to the parties that I may exercise that power in this case, if I set aside the First-tier Tribunal’s decision.

I note from the information enclosed with the Appellant’s letter to the First-tier Tribunals Service dated 28 February 2014, which he relies on as having been in the possession of the Child Support Agency since 2004, that on p.5 of the document “CLSMEANS 1C” it was clearly stated that the Appellant controlled one voting share, in addition to the one which he owned. That appears to have been a clear statement that the Appellant owned one share and controlled the other. On that footing, it may well be that the only decision which the First-tier Tribunal could properly have made, on the only evidence on which the Appellant seeks to rely, was the one which it did make.”

11. I directed Mr S to provide copies of the Memorandum and Articles of Association of Lettings, and of that company’s accounts for the year 2010/11, which he has done.

12. The Secretary of State does not support the appeal. He contends, first, that on the evidence before it, and in particular what was said in CLSMEANS 1C, the First-tier Tribunal was entitled to conclude that Mr S had control over both of the issued shares of Lettings.

13. Secondly, the Secretary of State refers to the following statement in para. 63 of the decision of the Upper Tribunal (Carnwath LJ and Judge Jacobs) in RC v CMEC [2011] AACR 38:

“The language and context of regulation 19(1A) indicate that control means effective rather than legal control. It is concerned with income that the non-resident parent “has the ability to control”. The focus of that language is on the reality and practicality of control, which is a matter of fact. There is no reason to restrict control to sole control. If two or more directors are able to control the payments they receive from their company for their mutual benefit, they each have effective control through their co-operation. It would be wrong to lay down hard and fast rules. The practicalities of control within a company will vary according to the personalities involved and their capacity to influence the decisions made by the company on particular matters in the circumstances obtaining at particular times. That is something to be decided as a question of fact in an individual case.”

The Secretary of State submits, on the basis of that passage, that “there is no reason to restrict control to sole control”.

14. Thirdly, the Secretary of State submits as follows:

“…..even if it was accepted [that] [Mr S] did not have control over both shares in the company, as the holder of one of two equal shares in the company, [he] as well as the other director, would both have effective control over how much income they receive from [Lettings]. Accordingly, it is submitted the First-tier Tribunal were entitled to reach the determination they did.”

15. I entirely agree with the first three sentences of what was said in para. 63 of RC v CMEC. A person may in fact have the “ability to control” the amount of income he receives from a company even though he does not have that ability in law in the sense that, were there to be a dispute over what income should be paid by the company by way of salary and/or dividend, his view would prevail in litigation. It may be that, short of legal control in that sense, he has effective control because the other shareholder(s) would, for whatever reason, agree with his wishes.

16. But what is said in the next two sentences of that para. 63 should in my view be treated with caution. The question is whether the non-resident parent has the ability to control the amount of income he receives, and not whether he and another, if acting in concert, would have control. In other words, it is in my view clearly not permissible, in determining whether the non-resident parent has control, simply to assume that he and another shareholder would cooperate. Nor is it sufficient to find that the non-resident and another (or others) would in practice reach some sort of agreed view (by way of compromise) as to what income should be paid. There would in my judgment have to be a finding that the other shareholder(s) would in practice, for whatever reason, be likely to go along with the wishes of the non-resident parent. For that reason I would reject the second and third submissions of the Secretary of State.

17. However, I would dismiss the appeal because in my judgment the First-tier Tribunal made the only decision which was open to it on the evidence before it. The evidence provided by the document CLSMEANS 1C showed quite clearly that Mr S owned one share and had control over the other. That document was put forward, by Mr S in his letter dated 28 February 2014, as providing the objective evidence on which the Tribunal should act in deciding whether he had control of the amount of income which he received from the company. There was no evidence from Mr S to contradict that, beyond his bare repeated statements that he did not have a “controlling interest”.

18. At the time of providing further information pursuant to my Direction made in giving permission to appeal, Mr S stated in a letter of 17 November 2014 as follows:

“In regard to contesting the decision made by the First-tier Tribunal, in respect of my ability to control [Lettings] while a director, one would reiterate that rather than relying on document CLSMEANS 1C as indicated in your letter; it is rather a case that apart from my own numerous submissions as to the matter of control, aligned to the fact that the First-tier Tribunal have never asked for any documents to test their speculation, the document CLSMEANS 1C (which was not created or specifically supplied to the CSA in regard to this matter) remained the only independently factual document upon which any kind of decision could be made.

It should be noted that the document CLSMEANS 1C was completed in respect of me personally and therefore it did not disclose fully the second directors ownership/voting rights compared to my own; to clarify that situation and enable the Upper Tribunal to make correct directions, I have asked that [the accountants] who originally prepared form CLSMEANS 1C, to provide a statement of fact, which you will find attached.”

19. That “statement of fact” is a letter dated 14 November 2014 from Lettings’ accountants, which states as follows:

“We refer to the form “CLS MEANS 1C” dated 11 November 2004 that was prepared by us and would clarify the shareholding of the company.

Since its incorporation the company has had two shares issued that rank equally in all respects.

When [Mr S] was a shareholder he owned one share, but did not own or control the other share in any way and neither he nor the other shareholder was appointed chairman or managing director.

Therefore, neither shareholder controlled the company.”

20. In his letter dated 29 January 2015, by way of submission in reply, Mr S said that “the Secretary of State appears to have misunderstood the form CLSMEANS 1C; it does not indicate in any way that I had control over the two shares  of [Lettings] when I was a director.” 

21. As I have said, I agree with Mr S’s statement, in his letter of 17 November 2014, that “the document CLSMEANS 1C (which was not created or specifically supplied to the CSA in regard to this matter) remained the only independently factual document upon which any kind of decision could be made”. The letter of 14 November 2014 from the accountants flatly contradicts what was said in CLSMEANS 1C, without providing any explanation for that contradiction, but in any event that letter was not before the First-tier Tribunal. Mr S’s submission in his letter dated 29 January 2015 is simply wrong and also flatly contradicts the clear meaning of CLSMEANS 1C. Mr S’s contention, in his letter of 17 November 2014, that that document “did not disclose fully the second directors ownership/voting rights compared to my own” may be correct, but does not detract from the clear statement in the document that Mr S controlled the other voting share in the company.

22. I should add that it is apparent that, since the material time, Mr S may have transferred his share to his mother (see p.149, as apparently confirmed by the use of the words “when [Mr S] was a shareholder” in the accountants’ letter of 14 November 2014), as a result of which Mrs H appears to have made a further application for a variation on 14 September 2013. Those events are not material to this decision. I also note, from Lettings’ accounts, that as at 31 October 2011 the company held property valued at £646,415 (p.208), which is stated (p.209) to be “shown at most recent valuation.” The company is shown as having mortgages totalling £577,931 at that date. The valuation of £646,415 is clearly a historic valuation. The rents received in the year 2010/11 were £60,971 gross. At a gross yield of, say, 5% per annum that would imply a current valuation for the properties of in the region of £1.2 million. If Mr S still retains control of his one share, it may be that that share has substantial capital value which could form the basis for a variation under reg. 18 of the 2000 Regulations (assets).

Charles Turnbull

Judge of the Upper Tribunal

15 April 2015