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[2008] UKSSCSC CCS_375_2007 (29 January 2008)

CCS/375/2007

DECISION OF THE CHILD SUPPORT COMMISSIONER

1. I allow the father's appeal to a very limited extent. I set aside the decision of the Chesterfield appeal tribunal dated 16 August 2006 and substitute departure directions to the effect that the father's weekly income is to be increased by £1,337.69 per week with effect from 30 August 2002.

REASONS

2. I held an oral hearing at which the appellant father was represented by Mr Bob Pape of Child Support Solutions, the Secretary of State was represented by Mrs Gillian Jackson of the office of the Solicitor to the Department of Health and the Department for Work and Pensions and the second respondent, the mother of the qualifying child, was represented by her husband. I apologise for the delay there has been since then.
3. The qualifying child is aged 8 today. She lives primarily with her mother. On 28 January 2003, the Secretary of State decided that the father should pay child support maintenance at the rate of £13.10 per week from 30 August 2002, £6.82 per week from 4 October 2002 and £6.02 per week from 25 October 2002. On 18 February 2003, the Secretary of State received an application for departure directions but, on 14 December 2004, he concluded that a departure direction should not be given. The mother appealed. On 16 August 2006, the Chesterfield appeal tribunal allowed the appeal to the extent of finding that the father had assets valued at £232,000 (a property in Spain worth £190,000 net, £12,000 held in the Royal Bank of Scotland and £30,000 in premium bonds) capable of yielding an income of £356.92 per week at the statutory rate of 8% per annum and that he had diverted income of £80,000 per annum or £1,038.46 per week and that it would be just and equitable to make departure directions to the effect that his weekly income for the purposes of assessing child support maintenance was to be increased by a total of £1,395.38 per week from 30 August 2002.
4. The tribunal chairman issued a very full decision notice following the hearing. It did not claim to amount to a full statement of reasons but it ran to 48 paragraphs. Both the father and the Secretary of State asked for a statement of reasons. The Secretary of State did so because, during the hearing, his representative had been asked to calculate the effect making the departure directions suggested by the tribunal's findings so that the tribunal could consider whether it would be just and equitable to make them. The Secretary of State's representative had indicated that the effect would be to increase the father's liability for child support maintenance to £101.30 per week. However, after the hearing, calculations produced figures of £158.83 per week from 30 August 2002, £118.42 per week from 4 October 2002 and £125.10 per week from 25 October 2002.
5. Unsurprisingly, the chairman had little to add to what was in the decision notice but he did express dismay at the Secretary of State's request. He pointed out that, as he had sat with a financially qualified panel member, he could not by himself simply say that the new information would have made no difference, that there appeared to be no power to reopen the issue before the whole tribunal and that, in any event, it was difficult to conceive how the parties could have any confidence in a decision to the effect that the new information would have made no difference. He therefore extended the time for applying for leave to appeal to a Commissioner with a view to the parties resolving matters between themselves and suggested that if they could not resolve their disagreements, leave to appeal might need to be given. In the event, the father's unhappiness with the decision was not resolved and the chairman subsequently granted him leave to appeal.
6. The father has not in fact taken the point raised by the tribunal chairman, although the Secretary of State has. The Secretary of State refers to R(CS) 1/99, where Mr Commissioner Mesher said –

"… since the evidence about the second MEF could have had an effect on the decision, its withholding from the appeal tribunal rendered the appeal tribunal's decision (without any fault on its part) contrary to natural justice and hence erroneous in point of law."

The failure to provide information, or the provision of inaccurate information, may also lead a tribunal into the sort of error of fact that is capable of being an error of law, that is "making a mistake as to a material fact which could be established by objective and uncontentious evidence, where the appellant and/or his advisers were not responsible for the mistake, and where unfairness resulted from the fact that a mistake was made" (Regina (Iran) v. Secretary of State for the Home Department [2005] EWCA Civ 982, presumably applying E v. Secretary of State for the Home Department [2004] EWCA Civ 49). It makes no difference whether one relies on breach of natural justice or mistake of fact. However, as was emphasised in Iran and in R(I) 2/06, errors are only errors of law if they are material in the sense that they might have affected the outcome. Moreover, a chairman can generally act on them only if there is an application for leave to appeal. If the chairman had been sitting alone and had been satisfied after hearing representations from the father that the new figures would not have made any difference, I do not see why the father should not have had confidence in an indication to that effect, which could have been expressed as a reason for refusing leave to appeal (or as an observation when granting leave on some other ground or, as the Secretary of State originally envisaged in this case, an observation made at the end of a statement of reasons). The legislation governing the relevant departure directions is based on the obvious premise that a person is to be taken to have income that he of she could have had had he or she acted differently and with due regard to the welfare of the child and the legitimate expectations of the other parent. Consequently, where the conditions for making a departure direction are otherwise satisfied, it is a legitimate presumption that it will be just and equitable to make the direction in the absence of some particular reason for not doing so. If the chairman could not say that the new figures might not have made a difference, whether because he was not sitting alone or for some other reason, the appropriate course of action would generally be to obtain representations from the other parties with a view to setting aside the decision under section 23A of the Child Support Act 1991. However, for the reasons I have given, the mere fact that financial effect of the directions was miscalculated may often be of little significance in itself and tribunal chairmen should not too readily set aside a decision on that ground alone.

7. It is perhaps not surprising that neither Mr Pape nor Mrs Jackson suggested that the correct figures by themselves required a particular different outcome to this case. The grounds of appeal were addressed to different issues. Nonetheless. the chairman in this case had not been sitting alone and therefore could not say that the figures would have made no difference and, in any event, it would have been inappropriate for him to do so without giving the father the opportunity to make observations. Moreover, there were other grounds of appeal in this case, justifying the grant of leave to appeal. I accept that the decision of the tribunal must be set aside because it was misled as to the effect of its decision and I turn to consider the other grounds of appeal.
8. At the hearing, Mr Pape first challenged the tribunal's decision to make a departure direction on the ground that the father had diverted income. Regulation 24 of the Child Support Departure Directions and Consequential Amendments Regulations 1996 (S.I. 1996/2907) has the effect that a departure direction may be made where –

"(a) the non-applicant has the ability to control the amount of income he receives, including … dividends from shares, …; and

(b) the Secretary of State is satisfied that the non-applicant has unreasonably reduced the amount of his income which would otherwise fall to be taken into account under regulation 7 or 8 of the Maintenance Assessment and Special Cases Regulations by diverting it to other persons or for purposes other then the provision of such income for himself."

9. It was not in dispute before the tribunal that the father controlled and was effectively the owner of a limited company producing work clothing, including uniforms. Nor was it disputed that the father had received dividends of £40,000 in the year ended 1999, £70,000 in the year ending in 2000, £85,000 (or possibly £67,238.89 but the difference is immaterial) in the year ending 2001, nothing in either of the year ending in 2002 and 2003 and £225,000 in the year ending in 2004. The father told the tribunal that the reason he had not taken any dividend in the years ending in 2002 and 2003 was that he had considered it prudent to leave the money in the company while it was changing the nature of its business in the light of competition from China. The tribunal regarded that as implausible and found that he could well have taken dividends of £80,000 in each of those years (arriving at those figures by dividing £250,000 by three and rounding down), resulting in a net figure of £54,000 per annum additional income. The tribunal plainly made a slip in taking £250,000 as the relevant figure rather than £225,000, which would have resulted in a gross figure of £75,000 per annum over three years and a net figure of £51,000 per annum.
10. Mr Pape submitted that the tribunal erred in finding the father to have diverted income when he had merely delayed receiving it, particularly as the dividend had been paid during the period in issue before the tribunal. He had submitted to the tribunal that it would not be appropriate to make a departure direction because the whole of the dividend received in the year ending in 2004 would in due course be taken into account in the formula assessment.
11. Mrs Jackson submitted that delaying a payment could amount to diverting it and she referred me to CCS/3499/2004, in which Mr Commissioner Mesher made a tentative suggestion to that effect, and to the observations of Mr Commissioner Jacobs when issuing directions in the present case. It seems to me that, if one looks at the purpose of the legislation, Mrs Jackson must be correct. The object of the legislation is to prevent a parent who has control over his of her income from manipulating the income so as affect the amount of child support maintenance payable. In the absence of such an approach it would be possible for some people to arrange to take income after liability for child support maintenance had ceased. Here, the income was, on the tribunal's findings, for practical purposes diverted to the company for a period of time.
12. However, Mr Pape has a point that the legislation is not intended to make a person worse off and it is wrong both to attribute a gross income of £80,000 per annum for the years ending in 2002 and 2003 and a gross income of £250,000 in the year ending in 2004 (using the tribunal's figures). The tribunal's answer to the point was simply to say that it "has to concern itself with the maintenance liability during the period in question, not some later period." Given that a tribunal is not entitled to make a departure direction unless it is "just and equitable" to do so, that was not, in my judgment, an adequate response. On the other hand, Mr Pape's approach overlooks the fact that the amount of child support maintenance due in one year where an additional gross income of £250,000 is taken into account may be less than the additional amount of child maintenance due over three years if an additional gross income of £80,000 is taken into account in each year. Moreover, the £250,000 will have been taken into account in a formula assessment only if an assessment was made in the relevant year.
13. There are two possible approaches, depending on the procedural history of a case. First, if no formula assessment was in fact made taking account of the dividend of £250,000, because no new assessment was made in the relevant year, no injustice was done by applying the departure direction attributing a net income of £54,000 per annum from 2002 and letting that direction continue until such date as a new assessment was effective. Alternatively, if a formula assessment was made taking account of the dividend of £250,000, the amount of income to be taken into account in the departure direction from 2002 was that amount that would produce an overall liability over the period from 30 August 2002 to the date of the new assessment equal to the difference between the amount due under the new assessment and the amount that would have been due under both the new assessment and the old assessment if the gross income had been taken into account at the rate of £80,000 per annum for two years and £90,000 per annum thereafter. It would not actually be necessary to work out what sum of income would have to be used in the formula, provided the amount of arrears was worked out.
14. In the present case, it appears that no assessment made taking account of the £225,000. Consequently, in my view, the tribunal's decision cannot be faulted, save that the net figure taken into account should have been £51,000 instead of £54,000.
15. Mr Pape's next point was primarily concerned with the tribunal's finding that the father had assets that could have produced an income. He argued that that the tribunal should have accepted submissions he made before it and deducted from the assets taken into account the sum of £60,000 because, as is not disputed, the father had paid that sum to the mother under an order made on 21 April 2004 by Her Honour Judge Carr Q.C. in Sheffield county court in joined proceedings brought under the Children Act 1989, the Land and Appointment of Trustees Act 1996, the Married Women's Property Act 1882 and the Torts (Interference with Goods) Act 1979. Had that sum come out of those assets, there might have been force in that approach, at least with respect to the period after April 2004. However, the father did not dispose of any of those assets then; he actually paid the sum out of the £225,000 dividend and retained the assets. Mr Pape therefore argued that, instead, the £60,000 should be taken into account against the dividend. That, however, is not possible because the sum ordered to be paid by the judge was plainly a capital sum and, given that capital is not taken into account for child support maintenance purposes, there is generally no reason why income that is to be taken into account should be reduced due to such a capital payment being made. Income naturally metamorphoses into capital if it is retained and the fact that the father used the money he had retained through temporarily diverting it into the company to make a capital payment does not make it unjust or inequitable to treat him as having received the money as income in the way that the tribunal did.
16. Mr Pape's third point was that the tribunal had erred in finding the father to have assets amounting to £12,000 in the Royal Bank of Scotland, when the balance of his account varied enormously. It was £22,000 in August 2002 but was then depleted, being somewhat over £18,000 in October 2002 but down to £5,000 in April 2003 and below £1,000 for all but one day of July 2003. He did not suggest that the tribunal was not entitled to take a broad approach, as it clearly did, but he submitted that the average balance in the first year before the tribunal was £11,000 and only £1,000 in the second year so that the tribunal ought to have taken £6,000 as the relevant figure. Mrs Jackson argued that, in the light of CCS/1047/2006, the tribunal was entitled to take a broad approach and was therefore entitled to take the view that it did. The mother's representative points out, as he did before the tribunal, that the father must have had other accounts because the accounts the tribunal considered did not include payments for utilities and also that the material account had a balance of £40,000 in May 2002.
17. There is merit in the arguments of all parties on this issue. Mr Pape is right to submit that a broad approach must nonetheless be such as to produce a reasonably accurate figure. However, I am not persuaded that the tribunal erred in law in this case because the relevant bank statements before it related only to the period to August 2003 and £12,000 was a reasonable figure for that year. It might have been a reasonable inference that the balance in the account remained below £1,000 during the following year, particularly as the tribunal knew that the balance had been under £700 in December 2004, but I am not persuaded that the tribunal was bound to take that view, particularly as it is not clear that any argument was addressed to it on the point and, if did consider the point, it may have suspected, for the reasons that had been advanced on behalf of the mother, that full disclosure had not been made. Moreover, the disputed sum of £6,000 would only have had a very small impact on the eventual assessment of child support, giving rise to a notional income of only £9.23 per week out of the £1,395.38 per week the tribunal attributed to the father.
18. Mr Pape's fourth point, and the main point raised in his grounds of appeal and in his submissions to the tribunal, arises out of an undertaking given by the father in the proceedings before Her Honour Judge Carr QC incorporated in the order she made on 21 April 2004. He undertook –

"to pay to the Applicant either the sum of £150 per month or the amount as assessed by the Child Support Agency whichever shall be the higher by way of general maintenance for the child …; such general maintenance to be (a) payable monthly and (b) varied upwards automatically with effect from the payment due on the first anniversary of its commencement and thereafter on the anniversary of that date by the percentage by which the Retail Prices Index shall have changed between the date fifteen months prior to the variation and the date three months prior thereto."

Mr Pape submitted to the tribunal that the effect of that undertaking was to make it not just and equitable to make any departure direction because the liability for child support maintenance in consequence of the departure direction would itself be increased in line with the retail price index and that the provision in the undertaking for increases in line with the retail price index was itself a departure. The tribunal rejected that submission. The mother told the tribunal that she had only ever interpreted the undertaking as applying to the sum of £150 per month and that she would not enforce the undertaking if the effect of the tribunal's decision were to make the father liable to pay more than £150 per month. The tribunal took the view that that was what the court had intended and that the court had not expressed its order correctly and had not intended to limit the power of the tribunal to give a departure direction. The Secretary of State supports the tribunal's decision, submitting in effect that if the terms of the undertaking cause difficulty the remedy is to apply to the court for it to be varied.

19. Before me, Mr Pape has refined his arguments somewhat. He submits that the court order clearly does not mean what the mother says she understood it to mean and points out that the Child Support Agency would collect only the amount calculated under the child support legislation and that any additional index-linked element would have to be calculated by the parents themselves and paid direct to the mother with the possibility of enforcement through the court. He also submitted that the increase would be ever upwards, that it would be difficult to persuade the court to vary the undertaking unless there was a drastic change of circumstances and that the tribunal should not have taken account of the mother's promise not to enforce the order, given the history of litigation between the parties.
20. I accept Mr Pape's submission that the tribunal erred in interpreting the undertaking so that the index-linking did not apply any assessment of child support maintenance. The tribunal was right to reject the mother's construction as being correct on a literal basis but it was wrong to take the view that the court could not reasonably have intended the undertaking to be construed literally. Firstly, where an undertaking is concerned, the intention of the person giving the undertaking may be at least as relevant as the understanding of the court. Secondly, there was, contrary to Mr Pape's main contention, nothing unreasonable in the undertaking even if it applied to an assessment based on a departure direction. Since the abolition of automatic reviews of child support maintenance, an assessment usually remains in force until one or other of the parties applies for supersession. It is perfectly sensible for parties to agree to an index-linking arrangement between themselves in place of applications for supersession. No doubt the payment difficulties Mr Pape has mentioned could arise, but parents may well prefer to risk having those difficulties rather going through the process of applying through the Child Support Agency for supersessions. The court, of course, had no power to order the father to pay child support maintenance and so could not enforce the undertaking in contempt proceedings, but it was entitled to record the agreement between the parties as part of an overall settlement that included settlement of the issues that were properly before the court and the agreement for child support maintenance would have been enforceable in contract.
21. Arguably, the agreement should have been recorded by the court as such rather than as an undertaking and that perhaps lends force to Mr Pape's submission that the court would not have varied the undertaking. I would not have expected it to be difficult to persuade a court to vary an undertaking that had become unjust and inequitable, but a court would not be able to vary a contract, although it might interpret the contract so as to limit its effect in certain circumstances. On this basis, there is theoretical force in Mr Pape's submission that the agreement for index-linking should have been taken into account in deciding whether it was just and equitable to make a departure direction. However, I fail to see why it should have prevented any departure direction being made. At most, it could have suggested that there should be a reduction in the amount of income to be taken into account in years after the first year and even that would have been inconsistent with an apparent agreement to have index-linking instead of applications for supersession. Moreover, in this case, it was highly relevant that the mother had said that she would not enforce the agreement recorded in the undertaking if the child support maintenance assessment exceeded £150 per month and that the tribunal had recorded that assertion. It would be unlikely that the court would allow her to renege on that promise, which was explicable both because the assessment under the departure direction was likely to be considerably higher than may have been contemplated by anyone at the time of the court hearing and, more importantly, because a new assessment of child support maintenance had in any event been forced on the parties before the date of the tribunal hearing because the father had become the parent of another child and so the "new scheme" had become applicable to the father and the mother in this case. I note that the mother has, in a letter to the father dated 11 January 2007, sought payment of index-linked payments, but it is unclear whether she was referring to the £150 per month payments or those assessed following the tribunal's decision and, given that the tribunal's decision was being challenged, she may well have been referring to the former payments.
22. Notwithstanding what I have said above, I agree with the observation made by Mr Commissioner Jacobs when directing the oral hearing in this case that the undertaking was really of no concern to the tribunal, given the relationship between the court and the tribunal in matters of child support maintenance. The tribunal had to exercise its statutory functions and the enforcement of any undertaking or agreement was a matter for the court. On the whole, it is for a court to have regard to what a tribunal has done in relation to basic child support maintenance, rather than for a tribunal to take a court's decision as a starting point. The precise reasoning for that in any particular case may be complicated, as I have suggested above, but the end result should be as Mr Commissioner Jacobs envisaged. If an undertaking to a court and a tribunal's decision together cause unfairness, the remedy lies in an appropriate application to the court.
23. Equally, of course, a tribunal will defer to a court on matters within the court's jurisdiction. Section 8(7) of the Child Support Act 1991 preserves a court's power to award maintenance orders in respect of children for the purpose of meeting school fees, although the general scheme of regulation 8 makes it clear that that power is really supplementary to a tribunal's power to make a maintenance assessment or issue a departure direction. Mr Pape submits that the tribunal should have had regard to the father's undertaking, given to Her Honour Judge Carr QC on 30 June 2004 in proceedings under the Children Act 1989, to pay a quarter of his daughter's school fees for a specified period. The mother undertook not to make any further application in respect of school fees and, on those undertakings, the judge made no order in respect of school fees. Mr Pape submits that it is wrong that the father should have to pay school fees out of the same income as his extra liability under a departure direction. The Secretary of State refers to CCS/37/1997 and submits that payments of school fees are not payments of maintenance and that, if there is any injustice, the father's remedy lies in an application to the court. I do not entirely agree with the approach of either Mr Pape or the Secretary of State.
24. Although I agree with the Secretary of State that payments in respect of school fess are expected to be payments in addition to child support maintenance, if a tribunal considering whether to issue a departure direction were to be satisfied that payments in respect of school fees had been, or would be, made in respect of the period to which the departure direction would relate and that a court would not have ordered such payments to be made had it been aware of the effect of the departure direction, it would be entitled to find that it would not be just and equitable to make the departure direction without at least reflecting in it the amount of the payments in respect of school fees. If the payments were being made under a court order, it would be difficult to undo the court order retrospectively and such an approach would avoid an unnecessary application to vary the order. If the payments were not being made under an order, it would avoid unfairness arising merely because the parents had agreed that payments should be received in one form rather than another.
25. However, it is not necessarily unjust and inequitable that a person should make payments in respect of school fees out of income that has been taken into account in assessing child support maintenance or out of capital that cannot be reached even through a departure direction, even in cases where a tribunal can be satisfied that a court would not have made an order for payments in respect of school fees. In the present case, the tribunal declined to reduce the maintenance liability to reflect the payments in respect of school fees because the payments were voluntary and it regarded the payments as equivalent to the sort of contact costs that might in any event have to be paid out of income and because the amount in issue "a very minor amount when compared with the income that the Tribunal has found the appellant has … of around £1700 per week (net assessable income under the main formula plus [the] additional amount found by the Tribunal)". That was a perfectly proper approach. Mr Pape told me that the judge had said that she would not have made an order for payments in respect of school fees but, apart from the fact that that justifies the tribunal's finding that the payments were voluntary, what the judge said is of little relevance. In exercising its power to make a departure direction, the tribunal was not bound to take the same approach the judge indicated she would have taken when considering whether to order payments in respect of school fees, particularly as there may be some doubt as to the circumstances in which, and the information on which, the judge's comment was made.
26. Of course, I must exercise my own judgment on this issue, given that the tribunal was misled as to the effect of the departure direction. However, looking at the correct figures, I still reach the same conclusion as the tribunal. Notwithstanding the payment of school fees, it is just and equitable to make the departure directions. The child support maintenance is not a huge proportion of the father's presumed income.
27. The mother's representative expressed some unhappiness with the tribunal's decision. He refers to a number plate belonging to the father that was up for sale for £35,000, to a payment of £60,000 shown in the directors' loan account, to the proceeds of sale of a car, to evidence as to the value of the property in Spain and to the father's statement of means filed in the court proceedings in 2003. As Mr Pape submitted, the number plate is irrelevant. Save where departure directions may be made, capital is ignored in the calculation of child support maintenance and, for the purposes of regulation 23 of the 1996 Regulations, "assets" is defined (by regulation 23(4)) so as to limit the term to money, land and shares. The other material could have been, and in some instances was, produced in the tribunal proceedings. It is true that the tribunal refused an adjournment but it was entitled to do so because the application was made at a very late stage. Equally, the tribunal was not bound to draw inferences against the father to a greater extent than it did.
28. The mother's representative also contended at the hearing before me that the tribunal did not adequately consider whether to issue a departure direction on the ground that the father's lifestyle was inconsistent with his declared income. The tribunal explained that there would be double counting if it were to consider a departure direction on that ground in addition to the other grounds. There is some force in the mother's criticism of that reasoning. Whatever supported the father's lifestyle, it cannot have been income that he had diverted and therefore was not receiving or assets that were not producing income, although it is clear that the father was relying in part on the money in the Royal Bank of Scotland account, which is why the balance was falling and to that minor extent, there would have been double counting. Although the account was not producing income, it was producing capital to support the father.
29. At the hearing before me, the possibility of there being a further hearing to deal with this issue was canvassed. However, the mother did not challenge the tribunal's decision on that ground until the hearing before me. In effect her argument is a cross-appeal made some very considerable time after the time for applying for leave to appeal had expired. It can be unfair to an appellant to allow a respondent to introduce a new point after the time for applying for leave to appeal has expired, if that new point may lead to the appellant being worse off than he would have been had he not appealed. Bearing in mind that the applications for departure directions were in respect of a period that had come to an end when the case was transferred to "the new system" some considerable time before the tribunal's decision and that there has been an application for variation of the new assessment and bearing in mind also that, save to a very minor extent, I have dismissed the father's appeal against the very significant departure directions made by the tribunal, which the mother was prepared to accept until the father appealed, I am, upon reflection, not prepared to consider further the question of a departure direction based on the father's lifestyle. Moreover, it has to be remembered that a departure direction based on a person's lifestyle is appropriate only where it is apparent that the person has undisclosed income. To the extent that the lifestyle is supported by capital or by a partner, a departure direction is not appropriate (see regulation 25 of the 1996 Regulations). It is thus by no means clear that a further departure direction would have been appropriate in this case, particularly as it is clear that the father was relying at least partly on capital.
30. Accordingly, the only material respect in which the tribunal is shown to have erred is in accidentally taking the dividend received in 2004 as having been £250,000 instead of £225,000. The consequence is that the net income to be taken into account is reduced by £3,000 per annum or £57.69 per week. That is reflected in the decision I have given above.

(signed on the original) MARK ROWLAND

Commissioner

29 January 2008