SC v CMEC (CSM) [2011] UKUT 458 (AAC)

UKUT-AAC

SC v CMEC (CSM)

[2011] UKUT 458 (AAC) · 2011-11-02

The appeal is allowed.

The decision of the First-tier Tribunal given at Liverpool on 8 February 2011 under reference SC900/10/00223 involved the making of an error on a point of law.

That decision is set aside.

The case is remitted to the First-tier Tribunal for reconsideration in accordance with the following directions. The parties should note that those directions are addressed to them as well as to the First-tier Tribunal and specify time limits for compliance .

DIRECTIONS

[ The directions issued by the Upper Tribunal (and the Appendix to this decision, which is referred to in these directions) relate to the detailed facts of this individual case and raise no issue of general legal interest. They have therefore been omitted from the version of this decision that is published on the website of the Administrative Appeal Chamber]

REASONS FOR DECISION

Introduction

1 This appeal is about Emma and Thomas and how much their father must pay each week to support them.

2 The Commission has decided that the Father need not pay anything for the period from and including 14 September 2009 but must pay £108.00 per week from and including 13 October 2009.

3 The figure of £108.00 reflects the Commission’s decision to agree a variation in favour of the mother on the ground of “Lifestyle inconsistent with declared income” (i.e., under regulation 20(1) of the Child Support (Variations) Regulations 2000 (“the Variations Regulations”)). In other words, it accepted that the income which had been taken into account for the purposes of the unvaried maintenance calculation was substantially lower that the level of income required to support Father’s overall lifestyle. The effect of the variation was to add £539.01 to the father’s unvaried net weekly income of £95.00 and to increase his liability to £108.00 from the unvaried flat rate of £5.00.

4 The Father appealed to the First-tier Tribunal. His case was that no variation should have been made. The mother opposed that appeal on the basis that the variation was correct and that the Commission should also have agreed further variations on the grounds of income not taken into account and assets.

5 Following a hearing which he attended but the mother did not—the tribunal allowed the appeal and reversed the Commission’s decision to agree a variation on the grounds of lifestyle. It also directed that the Father’s liability be recalculated on the basis of more reliable figures for his earnings. It did not agree any variations on the other grounds advanced by the mother.

6 The Mother now appeals to the Upper Tribunal with the permission of Judge Levenson. The Commission supports the appeal. The Father does not.

The First-tier Tribunal’s decision

General remarks

7 As I discuss below, the Tribunal’s decision is unsatisfactory in a number of respects. That is not entirely the responsibility of the tribunal judge who gave it. This was an appeal that was crying out for pre-hearing case management directions but, so far as I have been able to ascertain (and I accept that the First-tier Tribunal’s file that has been provided to me may not have been complete) none were given.

8 I have therefore taken the opportunity above to progress matters by giving the directions that I would have given if, before the original hearing, the file been referred to me as a salaried judge of the First-tier Tribunal. I hope that the tribunal which reconsiders this appeal will have rather more information and evidence available to it than was available to the tribunal on 8 February 2011.

9 However, I should mention that further directions may be needed before this appeal is ready to be re-listed before the First-tier Tribunal. In particular, it may be desirable for the Tribunal that re-considers the case to include a Financially Qualified Member ( i.e., an accountant). That is an issue which can only be properly considered once the additional evidence directed above has been produced and considered. I also draw attention to what I have said in the Directions about the need for the Commission to look harder for the missing papers and the powers that are available to the Tribunal to focus the Commission’s collective mind on the need for such a search if those papers still cannot be found.

What were the issues before the Tribunal?

10 The tribunal

judge characterised the issues before him in the following terms:

“6. [The Mother] had applied for a variation on the grounds of assets (Regulation 18), income not taken into account and diversion of income (Regulation 19), as well as on the ground of lifestyle inconsistent with declared income (Regulation 20). She had been successful in obtaining a variation on the ground of lifestyle but such information as there is in the appeal papers … did not persuade me. … I could have limited the appeal to the issue of lifestyle but I was prepared to consider income, under Regulation 19, as well because the accounts were in and showed dividends.

Presumably on that basis, the statement does not address the other grounds for a variation raised by the mother.

11 With respect to the judge, he would not have been entitled to limit the appeal to the issue of lifestyle and he was not entitled to decline to address the issues arising from the Mother’s applications for variations on the grounds of assets and diversion of income. He erred in law by doing so.

12 Appeals are against outcome decisions, not the reasons for those decisions or the various determinations and findings of fact from which outcome decisions are built. In contrast to the position for departures under the old child support scheme, a determination to agree or not to agree a variation (and section 28G of the Child Support Act 1991 ('the Act') expressly describes it as a “determination” not a “decision”) does not itself carry a right of appeal. Neither does a determination not to agree a variation. Rather, such determinations are among the building blocks from which the final maintenance calculation is constructed. The maintenance calculation itself does carry a right of appeal and, in the course of an appeal against a maintenance calculation, the parties are entitled to challenge the determinations which led to it.

13 Under section 20(7)(a) of the Act, the First-tier Tribunal “need not consider any issue that is not raised by the appeal”. However, for an issue to be raised by the appeal, it is sufficient for it to have been “raised by one of the parties at or before the appeal tribunal’s decision” see, by analogy with section 12(8)(a of the Social Security Act 1998, R(IB) 2/04 at [33] and [193].

14 Applying those principles to the present case:

(a) The Commission’s determination not to agree variations on the grounds of assets, income not taken into account and diversion of income were just as much part of the maintenance calculation as its decision to agree a variation on the ground of lifestyle: if variations had been agreed on other grounds, the amount of the Father’s liability would probably have been higher;

(b) The Father’s appeal was against the maintenance calculation not any individual determination that led to it and put in issue whether that calculation, taken as a whole, was correct.

(c) It was the father’s case in support of the appeal that the maintenance calculation should be reduced because the Commission should not have agreed a variation on the grounds of lifestyle.

(d) It was the mother’s case in response to the appeal that the lifestyle variation was correct and also that, even if it was not , the maintenance calculation should not be reduced—or should not be reduced to the extent contended for by the Father—because the Commission should have in any event have agreed variations on the grounds of assets and/or income not taken into account and/or diversion of income.

15 In those circumstances, the validity of each of the grounds on which the Mother had applied for a variation was an issue raised by the appeal. Apart from that relating to income not taken into account (as to which see paragraphs 17 to 22 below), the tribunal judge did not have to accept that any of those grounds was made out on the evidence. But he was obliged to consider them and to give reasons for his decision in relation to them.

16 If the result of considering the additional mother’s grounds was that the maintenance calculation would increase rather then reduce, then that is the decision which the judge, in the exercise of his inquisitorial jurisdiction, should have given even though the Father had appealed and the Mother had not. In Gillies v SSWP

[2006] UKHL 2

at [41] (a case concerned with the social security system) Baroness Hale of Richmond observed that “the system is there to ensure, so far as it can, that everyone receives what they are entitled to, neither more nor less”. In my judgment, the same principle applies to child support. The Tribunal’s role is to decide the issues before it in such as way as to ensure, as far as it can, that non-resident parents are assessed as liable to pay the amount of maintenance for which the law provides, neither more nor less.

Income not taken into account

17 The Tribunal also erred in law in its decision that this was not a case in which a variation could be agreed on the ground of income not taken into account ( i.e., under regulation 19(1)-(2) of the Variations Regulations).

18 What the tribunal said was:

“[The Company’s accounts for the first year of trading] showed that [the Father] had an income of £119.07 per week without deductions and had a dividend of £5,000. [The presenting officer] said that this income would produce a main formula [ i.e., unvaried] assessment of £11 per week but that the dividend would have to come in as a variation, but at this amount it could not be taken into account because it was not in excess of £100 per week. [The Father] said he did not draw the dividend. I did not have to decide whether this was relevant because regulation 19(2B) meant that I could not take it into account in any event.”

19 So far as is relevant to the present ground for a variation, regulation 19 of the Variations Regulations reads as follows:

“ Income not taken into account and diversion of income

19. —(1) …

(1A) 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 receiving income from that company or business which would not otherwise fall to be taken into account under the Maintenance Calculations and Special Cases Regulations.

(2) Paragraphs (1) and (1A) shall apply where—

(a) … (b) the income referred to in paragraph (1A)(b) is over £100; …

Therefore regulation 19(2)(b) of the Variations Regulations does indeed have the effect that no variation may be agreed under either regulation 19(1A) where the dividend income (in this case) is £100 per week or less.

20 However, the Company’s accounts do not show that the Father had a dividend of £5,000. On the contrary, they show (page 102) “Equity dividends on ordinary shares” of £10,000. The accounts also show that only one share in the Company has been issued and that the Father is the owner of that share. That is also confirmed by the other documentary evidence about the constitution and ownership of the Company. In those circumstances the whole of the £10,000 dividend was the Father’s income.

21 Even after the deduction of income tax, the weekly equivalent of a £10,000 dividend will inevitably exceed £100. Further, there can be no question in this case that the Father has the ability to control the amount of income he receives from the Company. Finally, it is beyond argument that the Father’s dividend income would not fall to be taken into account in the maintenance calculation other than through a variation. In those circumstances, the only decision legally open to the tribunal on the undisputed evidence before it was that this was a case in which a variation could be agreed under regulation 19(1A) and (2) of the Variations Regulations. The Tribunal should therefore have made that decision and proceeded to consider whether it was just and equitable to agree such a variation.

22 The tribunal’s acceptance of the £5,000 figure appears to have been based on the Father’s evidence that the dividend was paid to (or possibly—since there was also evidence that the dividend had not been drawn—was intended for) him and his wife jointly. The Father’s wife is also a director, but not a shareholder, of the Company. There are occasions on which the law imposes outcomes on people irrespective of their intentions. This is one of them. Dividends belong to the shareholders of the company that declares them: in this case, the Father is the only such shareholder.

23 If the dividend has in fact been paid to the Father and his wife jointly then the correct legal analysis is that the Father has received the full dividend as his income and then made a present of half of it to his wife. If the dividend has not in fact been drawn, then the correct analysis is that dividend income has been received by the father and then loaned back to the Company as a director’s loan. Either way, the full amount of the dividend is the Father’s income.

Reasons for directions

24 I hope that the directions given above, taken with the following observations will assist the Tribunal that re-considers this appeal.

The removal of the lifestyle variation

25 The Tribunal reversed the Commission’s decision to agree a variation on the ground of lifestyle because it “accepted [the Father’s] oral explanation that his lifestyle is funded by debt in answer to Miss Carson’s written evidence of lifestyle”.

26 The Commission’s representative criticises that reasoning on the basis that:

“[i]t is an accepted principle that when considering lifestyle inconsistent with declared income [the] First-tier Tribunal must establish the cost of a person’s lifestyle and then compare it to his declared income”

and that the Tribunal had failed to establish the cost of the Father’s lifestyle.

27 As I am setting aside the Tribunal’s decision in any event, I do not need to decide whether it has erred in this respect as well. There may be some cases in which a Tribunal is entitled to say that whatever the probable cost of a non-resident parent’s lifestyle, no variation can be agreed by reason of regulation 20(3) or (4) of the Variations Regulations.

28 However, I would encourage the Tribunal that reconsiders this case to make its own findings about the cost of the father’s lifestyle, if only because it may conclude that the true cost differs from that accepted by the Commission. To assist it with that task, I have directed the Father to complete a lifestyle questionnaire.

29 I also recommend that the Tribunal which re-considers this appeal should pay close attention to the precise terms of regulation 20, which do not quite say (as they were paraphrased by the Tribunal) that any lifestyle cost which is funded by debt cannot form the basis of a variation.

30 In particular, I would like to draw attention to the Father’s evidence that the cost of his lifestyle is funded in part by contributions from his wife. Regulation 20(3)(d)—which provides that to the extent that a non-resident parent’s lifestyle is paid for by his partner’s income it cannot form the basis of a variation—only applies where the non-resident parent is not “able to influence or control the amount of income received by [his] partner”. It is not open to the Tribunal in this case to conclude that the Father is unable to influence the amount of his wife’s income: on the undisputed evidence he is the sole shareholder of the company that employs her.

Diversion of income

31 As I have explained above, the Tribunal that re-considers this appeal must consider whether the Commission was correct to decline to agree a variation on the grounds of diversion. I accept the submissions now made by the Commission’s representative that it will be necessary for the Tribunal to consider the Father’s apparent decision to pay his wife a salary that is equal to his own. It may, of course, be that the wife works as hard for the company as the father does, or harder. However, if her duties are lighter than the Father’s that might—depending on whether the terms of regulation 19(4) of the Variations Regulations are satisfied as a whole—amount to diversion of income.

The place and time of the hearing

32 I have that the Mother did not attend the Tribunal hearing. The Tribunal implicitly criticised that decision stating:

“[The Mother] should have been aware from reading the papers that evidence was missing … which she could have assisted with, but she chose not to attend.”

33 That criticism strikes me as unfair.

(a) To begin with, the evidence was missing because the Commission had lost the papers. If criticisms were to be made one would expect them to be have been addressed to the Commission for having lost the evidence in the first place, rather than to the Mother for failing to make up for the loss. Although the statement includes a factual record that the Commission “was not able to produce the papers on which the decision was made”, there is not a word of comment on that situation despite the fact that it was plainly unsatisfactory and the Tribunal had powers which could have been used in an attempt to rectify it. In my experience, child support files that are supposed to be irretrievably lost often seem to become available when a Tribunal with sufficient force that they must be found.

(b) Perhaps more tellingly, the Mother did not “choose” not to attend. Because this was the Father’s appeal, it was listed at the venue nearest to his home. The claimant had explained that she was unable to travel to that venue and requested a transfer to another venue that (according to her) would involve equal travelling for both parties. The transfer was refused because that particular venue did not have the facilities to hear child support appeals. That could not be helped. However, this was a case where the Tribunal’s power to give directions should have been exercised so as to ensure, so far as practicable, that the parties were able to participate fully in the proceedings in accordance with the overriding objective. If, as I accept may well have been the case, it was not possible to list the hearing at a venue that was as convenient to the Mother as it was to the father, it should at least have been listed at a time that would reasonably have allowed her to undertake the necessary travel. The Mother has primary responsibility for looking after Emma and Thomas who, at the date of the hearing, were aged 9 and 7 respectively. The hearing was in fact listed in the first slot of a morning session, on a school day, at a venue that would have involved the Mother in a journey of more than 30 miles through urban traffic.

Conclusion

34 For all those reasons, the Mother’s appeal to the Upper Tribunal succeeds. However, the substantive issues remain to be decided by the First-tier Tribunal in accordance with the directions given above and the parties should not regard the Mother’s success at this stage as any indication of the likely outcome of the appeal as a whole.

(Signed on the original)

Richard Poynter Judge of the Upper Tribunal

2 November 2011