R(CS) 5/03

Mr. J. M. Henty	CCS/761/2001
15.1.02
Departure direction – debts incurred before becoming an absent parent - application of regulation 16 of the Child Support Departure Direction and consequential Amendments Regulations1996 to personal loan taken out to repay debt incurred in respect of property which had been formerly occupied as matrimonial home
The absent parent and the parent with care purchased the matrimonial home with the assistance of a building society mortgage. That property was later sold leaving a negative equity of £10,000 which the couple continued to repay under a scheme arranged by the building society in June 1992. In August 1992 the couple separated. Subsequently in August 1996 the absent parent arranged with the building society to pay £5000 in full and final settlement of the outstanding debt by way of a personal loan. In due course the absent parent applied for a departure direction in respect of contact costs and his liability under the personal loan. His application was application was refused and the tribunal dismissed his appeal .The absent parent appealed to the Commissioner on the grounds that the personal loan replaced the original mortgage debt and that the mortgage debt was clearly a debt incurred before the absent parent had become an absent parent.
Held, allowing the appeal, that:
1.	following consideration of CCS/1645/1999, that where repayments were payable under a loan or mortgage in respect of a property which had been in the past, but was no longer, the home of the parent with care and any child in respect of whom the current assessment was made, then the payments did not fall within the exception in regulation 16(2)(h) and the payments did not constitute special expenses;
2.	it is important when considering regulation 16(2) and (4) to consider the situation as at the date of the absent parent’s application.

DECISION OF THE CHILD SUPPORT COMMISSIONER

1.	The appeal before me concerns only the costs of the personal loan taken out with the building society in August 1996. My decision is that the decision on this aspect by the Tribunal who determined the issue on 2.4.98 was not erroneous in point of law and the appeal is therefore dismissed.

2.	The absent parent (“AP”) and the parent with care (“PWC”) were married and had children. They purchased a house which was the matrimonial home, with the assistance of a building society mortgage. In 1991, being anxious to move to a different area and being unable to sell the house, they handed the keys to the building society who later sold it, leaving a negative equity of £10,000. They continued repaying the debt under a repayment scheme arranged by the building society in June 1992 but, in August of that year, they separated. The AP later became unemployed and was unable to keep up the payments towards the debt of £10,000. In June 1996, the AP began repaying the debt again and on 25.6.96 (page 19 of the papers) he came to an arrangement with the building society who were prepared to accept £5,000 in full and final settlement of the outstanding money. That would be provided by way of a personal loan which the claimant duly signed at p.21. The repayments were £103.84 per month with an APR of 9.4%. 

3.	A maintenance assessment was duly made. On 14.8.97, the AP made a claim for a departure direction concerning contact costs, and his liability under the personal loan. It was refused and, on 2.4.98, the Tribunal heard and dismissed his appeal. From that, the AP seeks to appeal to me. The appeal is now limited to the costs under the personal loan, on the basis that it replaced the original mortgage debt, and that mortgage debt was clearly a debt incurred before the AP had become an absent parent. Further, it is quite plain that it was incurred for the joint benefit of the AP and the PWC and satisfied regulation 16(1) of the Child Support Departure Direction and Consequential Amendments Regulations 1996.

4.	I heard an oral hearing of the application for leave to appeal on 15.8.01. All parties concerned agreed I should treat the application for leave to appeal as the substantive appeal itself pursuant to regulation 13(3) Child Support Commissioners (Procedure) Regulations 1999. I grant leave to appeal and treat the application accordingly. 

5.	Now regulation 16(2) provides:

	“Paragraph (1) shall not apply to repayment of –

		… 

		(h)	amounts payable by the applicant under a mortgage or a loan taken out on the security of any property except where that mortgage or loan was taken out to facilitate the purchase of, or to pay for repairs or improvements to, any property which is the home of the parent with care and any child in respect of whom the current assessment was made; 

			…

		(k)	a loan obtained by the applicant, other than a loan obtained from a qualifying lender or the applicant’s current or former employer;”

It is I think quite plain that the original building society mortgage was taken out to facilitate the purchase of the matrimonial home and would therefore prima facie qualify under the proviso to (h). 

Paragraph (4) provides as follows:

	“	(4)	Where an applicant has incurred a debt partly to repay a debt or debts repayment of which would have fallen within paragraph (1), the repayment of that part of the debt incurred which is referable to the debts the payment of which would have fallen within that paragraph shall constitute expenses for the purposes of paragraph 2(2) of Schedule 4B to the Act.”

6.	Subsequent to the hearing I issued a direction, the relevant part of which was as follows:

	“	1.	It seems to me that the loan of £5,000 under the Personal Loan Agreement (21) was a new loan and not the original loan hiding under a different metamorphosis.  It also seems to me – and I think was accepted at the hearing – that the original loan from the building society satisfied regulation 16(1), as must the balance outstanding of £10,000 after the house had been sold.

	Paragraph (4) of regulation 16 provides (my emphasis):

	“(4)	Where an applicant has incurred a debt partly to repay a debt or debts repayment of which would have fallen within paragraph (1) the repayment of that part of the debt incurred which is referable to the debts repayment of which would have fallen within that paragraph shall constitute expenses …”

It seems to me that the £5,000 loan was incurred for the repayment of the original loan which was within 16(1).  It seems to me that it is only the original loan which has to have the qualities of regulation 16(1), and the original loan in this case satisfied the exception in regulation 16(2)(h).  It appears that regulation 16(1) is satisfied or not when it is taken out and there is no requirement for it to be satisfied “for the time being”.  Was CCS/1645/99 correctly decided?  I do not find para. 15 easy to understand or very persuasive.”

7.	The only learning directly in point is in fact CCS/1645/1999. The basic facts of that case are, in my view, essentially similar to those in this. The AP and C (his then partner) were living together as husband and wife and bought their house jointly on a mortgage. They could not keep up the payments. A agreed with the mortgage company to accept a lesser amount – as happened in this case – in full satisfaction and W, on his behalf, borrowed the necessary money. In paragraph 15 the Commissioner held as follows:

	“	15.	But I find that regulation 16(2)(h) applies to the original debt. This is because the house was repossessed and could not be C’s home, or that of any child, at the time A made the application for the departure direction.  The wording of regulation 16(2)(h) is set out in full above.  It is unambiguous and clearly states that the house ‘is’ the home of either the parent with care or of a child.  There is no rule dealing with the case where the house was the home but has been repossessed by a mortgagee, as occurred here.  Nor can the effect of regulation 16(2)(k) be sidestepped because the mortgage or loan stopped being secured at the time of the repossession and sale (which was also, I assume, the time C left).  The wording is ‘taken out on the security’.  The loan remained the same after the security was removed.  It might be arguable that if the lender and borrowers had replaced the mortgage debt with another loan at that time then a replacement loan could have been allowed under regulation 16(4), but that did not happen in this case.  

	“16.	I must therefore find that the original loan cannot have qualified under regulation 16.  For that reason regulation 16(4) cannot apply to either of the two replacement loans even if they would otherwise have qualified.”

The reference to “the original debt” was the mortgage taken out in 1989 concerning which the Commissioner, in paragraph 14 of his decision, held that all the conditions of regulation 16(1) were met for that loan.  Similarly that is the case here.  

I can see that regulation 16(2)(h) applies to the personal loan in this case, and the exception in that paragraph is inapplicable. But that still leaves the question whether regulation 16(4) is applicable. 

8.	Pausing there, I turn to the Secretary of State’s response to my direction (61/3). In effect, he is submitting that regulation 16(2)(h) only refers to a loan at a time when the house is the home. He recognises that there are difficulties in the interpretation of regulation 16(4) but, not insignificantly, adds:

	“	19.	In any event, I would argue that it would be strange to have a situation where a man paying a mortgage on a home no longer occupied by the PWC/child would not qualify for a departure while a man who took out a second debt to pay or repay [a] mortgage in the same situation would.”

There is much common sense in that submission. 

9.	The other relevant authority is CCS/3616/2000 [R(CS) 3/03] given by the Commissioner on 18.6.01. That concerned regulation 16(2)(k). The claimant was a partner in a partnership – W & M. M incurred legal costs of £9,715.73 and in paragraph 14 the Commissioner said that that debt, had it not been paid, would have fallen within regulation 16(1). Anyhow, he borrowed that sum from WP and Sons Ltd., a firm who had a contract for services with W &M. That however did not qualify under regulation 16(2)(k) since the Commissioner held that the exception there comprehended only the circumstances of a contract of service. I agree. He went on to consider what the effects of regulation 16(4) might have been placing great reliance on the words “subject to paragraphs (2) to (4)” in regulation 16(1). I do not think I need continue with a detailed analysis of the reasons.

10.	I confess that I have experienced some difficulty in discerning to my satisfaction the rationale in those two decisions and in reconciling the relevant legislation, not, with respect, a masterpiece of the draftsman’s art. However, once one recognises that the situation has to be judged as at the date of application, then the jigsaw falls into place. The regulation is headed “Debts incurred before the absent parent became an absent parent”, but that does not mean that the exception in (2)(h) could be satisfied then, for the simple reason that until the parents separated there was not an AP or a PWC. When one looks at the date of application, one must ask oneself the question, “Is the relevant property the home of the AP?”  If the answer is “no”, then the personal loan would never have been one which could have fallen within 16(1) since it was excluded under 2(h). A fortiori, if the relevant property had been repossessed. Thus the replacement powers in 16(4) are completely irrelevant since they have nothing to bite on. 

11.	The decision to refuse the departure direction was therefore correct.

(Date)	15 January 2002	(signed) J. M. Henty
Commissioner