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[2006] UKSSCSC CCS_1944_2005 (23 February 2006)

PLH Commissioner's File: CCS 1944/05
 


CHILD SUPPORT ACTS 1991-1995

APPEAL FROM DECISION OF APPEAL TRIBUNAL

ON A QUESTION OF LAW

DECISION OF THE CHILD SUPPORT COMMISSIONER

Appellant: [the parent with care]

Respondents: (1) Secretary of State

(2) [the absent parent]

Appeal Tribunal: Aldershot

Tribunal Case Ref:

Tribunal date: 25 February 2005

Reasons issued: 13 April 2005

1. In this second appeal relating to the same application for a departure direction from a child support assessment originally effective from 18 May 2002 I have had unfortunately to conclude that the further decision of the tribunal after the rehearing on 25 February 2005 (Mr B Anscomb, chairman, sitting alone) was again based on an error in point of law. I set it aside and in accordance with section 24(3)(d) Child Support Act 1991 remit the case to be redetermined by either the same or a differently constituted tribunal. I decline the request by the parent with care for a separate oral hearing of this present appeal as the course I am taking makes that unnecessary.
2. For the purposes of the further rehearing I give the tribunal the directions that:

(a) the findings made in its statement of reasons issued to the parties on 13 April 2005 as to the scale of the absent parent's lifestyle were soundly based on the totality of the evidence provided by the parties before and at the hearing of 25 February 2005, and establish that the case is one with regulation 25(1) Child Support Departure Direction and Consequential Amendments Regulations 1996 S.I. No 2907 as the current formula assessment was based on a weekly net income of the absent parent (£405.27) which was at all material times substantially lower than the level of income required to support his overall lifestyle (£700);

(b) the evidence failed to establish that that lifestyle had been paid for over the material period out of capital belonging to the absent parent or by his partner so as to bring the case within the exception in regulation 25(2);

(c) the case is accordingly one for a possible departure direction on "lifestyle inconsistent" grounds and the tribunal must accordingly proceed to determine under section 28F of the 1991 Act and regulation 40(5) whether it is just and equitable to give a direction increasing the assessment over all or part of the material period by increasing the absent parent's weekly net income for the purposes of the assessment by the whole or part of the difference between the two figures recorded in its findings.

3. This appeal as will already have been gathered relates to whether there should be a departure on "lifestyle" grounds from the formula maintenance assessment which the second respondent, the absent parent, is liable to pay the appellant, the parent with care, for their son who lives with her and is now aged 11.
4. The formula assessment to which it relates was one made on 31 December 2002 imposing a liability of £71.04 per week from 18 May 2002 but reducing that to only £5.40 a week from 7 December 2002, though both of these figures have been altered and revised on more than one occasion in the course of the proceedings. At the date of the previous tribunal hearing with which I dealt in my decision of 10 January 2005 on file CCS 2082/04 they had been adjusted to £64.35 and £10.96 respectively, and it was really the latter amount effective from 7 December 2002 that the appellant wished to dispute in her departure proceedings.
5. In that decision I remitted the case to the tribunal to redetermine the question of a departure only when there was a stable basis for it in the form of a finalised figure for the actual formula liability, which at that time was still up in the air. Following that the formula amount was I understand finally determined by a decision of the same tribunal on 25 April 2005, given immediately before the one with which I am concerned. That confirmed, with one important modification, the latest departmental revisions which had taken place in the meantime in the autumn of 2004. The exact figures for the revised formula liabilities effective from 18 May and 7 December 2002 respectively are not before me, but there has been no appeal against them so I can take them as now firm. The important figure for present purposes is that as recorded by the tribunal chairman in paragraph 5 of his statement of reasons on page 242 the weekly "net income" of the absent parent on which the formula liabilities from both those dates was based was some £405.27. He quite rightly directed himself in the circumstances that the question of a departure needed to be considered from the earlier date as well as the later one even though the formula liabilities derived from that figure for the two periods were different.
6. As the tribunal chairman pointed out there had already been two previous hearings of the evidence in this case, on 12 January and 6 April 2004 when both parents had attended and given evidence; and he was I consider fully justified in proceeding with the hearing on 25 February 2005, when further oral evidence was given to him by the parent with care, even though the absent parent did not attend again on that date. Dealing with the evidence the chairman said at page 243:

"7. The Tribunals at the hearing on 12.01.04 and 6.04.04 made a record of the proceedings which were available today and contained, among other evidence, evidence from [the absent parent]. The chairman in making his decision on 06.04.04 had the benefit of assessing the evidence from [him] and determining whether it was reliable. As is common in cases involving lifestyle, there is a paucity of written evidence and it is oral evidence relied upon both by [the parent with care], who is not able to obtain significant documentary evidence of [his] financial affairs, and by [him] in response to the tribunal's questions.

His evidence was neither contradictory, nor inherently improbable and he is entitled to be believed.

8. Firstly, the tribunal attempted to assess, from the limited evidence available, the lifestyle of [the absent parent]. It is clear that he is not on the breadline; he has a substantial property to maintain, a large mortgage with payments of £320.70 per month, more than one motor car, had carried out major improvements to his house, pays maintenance under a court order of £100 per week and foreign holidays. Nor is there any evidence of his being grossly extravagant.

9. Secondly, from its own knowledge of the cost of living the tribunal estimated the net income required to support such a lifestyle was £700 per week, which is substantially greater than the declared income of £405.27."

7. I can see nothing whatever wrong with that. In my view the tribunal was fully entitled to proceed with the case on 25 February and make that finding on the evidence then put forward without delaying the proceedings even further and offering either or both of the parties yet more opportunities to make their evidence more complete. Given the substantial discrepancy thus found to exist between the level of income required to support the absent parent's overall lifestyle and that on which the formula assessment for the periods in question had actually been based, there can be no doubt that on that finding the case met the primary condition within regulation 25(1) for constituting a "departure case" on lifestyle grounds. Insofar as it is right to talk about an "onus of proof" in these cases the applicant had therefore discharged any burden on her of showing this to be a case for a possible direction on such grounds, unless conversely there was adequate evidence on the other side to establish on the balance of probabilities that the exception in regulation 25(2) applied, to take the case out of paragraph (1) again.
8. Regulation 25(2) prescribes that:

"(2) Paragraph (1) shall not apply where the Secretary of State [sc. the Tribunal] is satisfied that the lifestyle of the non-applicant is paid for -

(a) out of capital belonging to him; or

(b) by his partner, unless the non-applicant is able to influence or control the amount of income received by that partner."

Again insofar as it is right to talk about an "onus" in these cases it is I think clear from the way the second paragraph is worded that at this point the "burden" switches: a case that meets the main condition in paragraph (1) is not taken out of it unless on the balance of probabilities the exception in paragraph (2) is shown to apply. In any case in practice the evidential burden of demonstrating that an unexplained gap in income needed to support his lifestyle has been funded over the material period out of a source bringing it within the exception is on the non-applicant seeking to escape a departure.

9. It is also important to bear in mind that the material time to look at for the purposes of the "lifestyle" questions (what level of lifestyle is being pursued, and whether it is being paid for out of an excepted source) is, as this same chairman had entirely correctly directed when requiring the absent parent to supply financial and other information in advance of the first tribunal hearing (page 46A), the period from which any departure direction is to take effect. That may of course be a completely different time from that used for calculating the income figures on which the formula assessment for the liability over that period has been based. It is of course one of the purposes of the departure direction provisions to allow the use of a more "just and equitable" income figure reflecting what the absent parent can currently afford even though the formula assessment may have been perfectly correctly calculated: e.g. on self-employed business accounts which often show historical figures for a period already some time in the past.
10. With those points in mind I consider that the tribunal chairman did significantly misdirect himself in the next passage of his statement of reasons, when he determined this to be a case falling within the exception in regulation 25(2). He said:

"10. Thirdly, the tribunal looked for the source of the income over and above the declared income. It was [the applicant's] view that this came from undeclared earnings, but she was unable to substantiate this view.

The tribunal had also the uncorroborated evidence from [the absent parent] that in addition to his income he was living on a payment of £50,000-£60,000 from a divorce settlement. There was evidence also in the tax return form paragraph 3.114 that [he] had received a return of capital of £64,149.00.

Also, [his] partner had earnings of £125.63 per week which contributed to his lifestyle at 18.05.02, although subsequently she ceased work.

11. [His] lifestyle was supported by his earnings £405.27, his partner's earnings £125.63 and the balance from his capital. Accordingly a Departure Direction on the ground of lifestyle cannot be made."

11. When one compares what is said there with the actual evidence before the tribunal (and again I consider it entirely right to determine the question on that evidence, without allowing anyone yet more opportunities to tweak or supplement it) it is quite apparent that this falls well short of anything that could establish the case to be one within the exception in regulation 25(2). The partner's earnings referred to (as a taxi driver) had according to the absent parent's own evidence on 6 April 2004 stopped by September or October 2002, after which her only earnings were those given to her by himself so that they could not count for the exception under regulation 25(2)(b): page 80. Hence their effect was limited to the first four or five months from May 2002. Even in those they accounted for only a third to a half of the disparity between the formula and lifestyle income figures, and regards the main period in dispute from 7 December 2002 onwards the partner's earnings had no bearing at all.
12. The other possible way to come within the exception is to show under (2)(a) that the absent parent's lifestyle was being paid for out of capital belonging to him. The two items of such capital identified in the tribunal's decision as the source for this purpose were (first) a sum of £50,000-£60,000 which according to the chairman's understanding of the absent parent's uncorroborated oral evidence at the earlier hearings he had received from a divorce settlement and was currently living on at the time material for the departure questions; and further or alternatively (second), a sum of £64,149 "return of capital" mentioned in the tax return form included among the documentary evidence, which the chairman apparently assumed had been the source used to pay for the balance of his lifestyle expenses over the same period.
13. I have to say that when one looks at the actual contemporaneous records of this evidence (and on this the chairman on 25 February 2005 had no more than is now before me) neither of those conclusions or assumptions is rationally maintainable. At the first tribunal hearing on 12 January 2004 the absent parent had referred to a sum of £60,000 "secured on the matrimonial home" as having been used by him for a house purchase following his divorce three years previously: page 53. Then in the chairman's contemporaneous record of proceedings at the further hearing on 6 April 2004 he again gave details of that and various other property transactions and borrowings (including one of £33,000 for remedial work in August or September 2003, after the period in issue) and then said "I used money from divorce £50,000-£60,000 to clear debts from running the two properties": page 87. On neither occasion did he give evidence sufficient to show that the discrepancy between the two income figures over the period actually at issue had been met by payments from this source to fund his lifestyle and if so how; nor is such evidence to be found elsewhere.
14. It may be that the chairman on 25 February 2005 was unfortunately misled by what was recorded in paragraph 14 of the earlier tribunal's statement of reasons from 6 April 2004 at page 90 that "... the extent his lifestyle exceeded his income was met partly as his partner's earnings partly out of approximately £50,000 settlement he had from his divorce from [the parent with care]"; but that statement embodies at least one fundamental misunderstanding of the evidence, in that the absent parent was never married to or divorced from the parent with care, and never had such a settlement from her. The evidence that he did give about the divorce settlement from his previous wife was not, as I say, sufficient to establish that this sum was in fact the source from which he had been funding his living expenses and lifestyle over the periods from18 May and 7 December 2002 to 7 June 2003, which as the chairman on 25 February 2005 recorded were the times that had to be focused on for the purposes of any departure.
15. Nor is there any evidence that any of the £64,149 referred to in the tax return form identified by the chairman was in fact the source of payments for the absent parent's lifestyle over any part of those periods as the decision appears to assume. A brief look at the tax return itself and the figures contained in it (in evidence before the tribunal, and before me in the appeal file at pages 199 to 212) show that it was the absent parent's tax return for the year ended 5 April 2002, and that the details given in it relate to his earnings and drawings as a self-employed trader for the much earlier accounting period from 1 May 2000 to 30 April 2001. All of the "drawings" of £64,149 referred to had thus taken place between one and two years before the periods that had to be considered for the departure had even started.
16. Although the balancing item in the simple kind of self-employed trader's account in evidence here at pages 209 to 212 is often referred to as a "capital account", in truth the periodic cash or other drawings a trader makes out of the business to be used for his own private purposes in any particular year may represent either a withdrawal of capital actually contributed; or income of the current year; or accumulated past income retained in the business in the meantime; or simple overdrawing for private purposes while increased debts are run up on the business account: or any combination. In each case where it is claimed that drawings from a business provide the source of "capital" to pay for an absent parent's lifestyle it is a matter of looking at the accounting and other evidence to see what they really represent.
17. In the present case for example it would not in my view be right to describe the £64,149 drawn in the year as a "return of capital" to the extent that it actually represented the net profit from trading activities for the same year and was just the trader taking out the current income, even if both net profit and drawings for the year are shown in the balancing "capital account" as they are here at page 212. On the figures shown there it seems to me that only the excess of the actual drawings of £64,149 over the net profit figure of £17,259 carried to the account for the current year (i.e. the difference of £46,890, which is the reduction from the opening balance on the trader's capital account shown at the start of the year) can truly be described as drawings out of past accumulated income or capital as distinct from current income of the period in which they took place. But even treating that reduced figure as representing "capital" drawn out of the business by the absent parent at some time over the twelve months to the end of April 2001 there is still, as I say, no evidence at all to demonstrate that this money or any part of it found its way into the actual funding of his lifestyle over the periods beginning more than a year afterwards on 18 May or 7 December 2002. The overwhelming probability given the other evidence about his activities must be that on the contrary he spent it as fast as he drew it, so by then it was long since gone.
18. Accordingly, in my judgment, though the chairman was right to determine the departure issues on such evidence as he had on 25 February 2005 and was right not to allow any further opportunity for additional or supplemental evidence by either side to show whether the case was or was not one for a departure direction, his conclusion that it was wholly within the exception in regulation 25(2) was simply not supported by the evidence and the decision in terms of that regulation should have been that this was a case for a possible departure direction on lifestyle grounds.
19. I accordingly set the decision aside and remit the case to the tribunal to consider and determine in accordance with the directions given above the crucial question of whether it is in fact just and equitable to make any and if so what departure over the two material periods at issue. Whether that is so is a matter for the tribunal to determine having regard to all the circumstances and the particular matters it is directed by the legislation to take into account under section 28F and regulation 30, and each parent must of course have an opportunity of making submissions and putting forward any relevant supplemental evidence on these.
20. The appeal is allowed and the case remitted for final redetermination accordingly.

(Signed)

P L Howell

Commissioner

23 February 2006