[2005] UKSSCSC CCS_449_2005 (15 December 2005)

PLH							Commissioner’s File CCS 0449/05

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:         Bexleyheath
Tribunal Case Ref:	
Tribunal date:	            4 October 2004
Reasons issued:	20 November 2004

[ORAL HEARING]

1.	The decision of the Bexleyheath appeal tribunal sitting on 4 October 2004 to deal with questions on the variation of a child support maintenance calculation made on 22 May 2003 and revised on 23 June 2003 and revised on 23 June 2003 was in my judgment erroneous in point of law and I set it aside.  The tribunal, consisting of a legal chairman Mrs M I May and a financially qualified member Mr R H Harris, appears to have misdirected itself on at any rate two of the material questions, namely the nature of earnings of an employed earner and the requirements for a variation on the ground of diversion of income.  Despite the inconvenience this will involve for the parties the only course I can realistically take is to remit the whole case for rehearing before a differently constituted tribunal.

2.	The children’s mother, the parent with care, appeals against that decision with the leave of the tribunal chairman.  At her request I held an oral hearing of the appeal at which she and the children’s father, the absent or “non-resident” parent, appeared in person and the Secretary of State was represented by Miss Gillian Harris of the solicitor’s office, Department for Work and Pensions.  I am grateful in particular to Miss Harris for her helpful skeleton and oral submissions and her subsequent work in unearthing what happened about the earlier appeal mentioned below.

3.	This case involved the maintenance for three teenage children who at all material times were living with their mother.  Their father has remarried and is the owner and controlling director of his own industrial flooring business operated through a limited company.  For some time both parents were content with an arrangement worked out between them in August 1995 whereby he paid their mother £300 a month for their maintenance, though there were difficulties from time to time when for one reason or another he failed or was unable to keep up these payments regularly.  In November 2002 she was induced to apply for help to the child support agency and the subsequent unhappy history of the case is a good illustration of why perfectly normal and reasonable people can lose all faith in the child support system and the random results it appears to produce, whether these are in their favour or not.

4.	After a delay of some six months, and according to the parent with care the loss of at least one set of papers, the agency produced a calculation on 22 May 2003 under which the absent parent was liable to pay only £13 a week for his three children’s maintenance instead of the £300 a month: that is just under one-fifth of the amount previously agreed between the parents as reasonable.  The absent parent and his new wife laughed when they saw it; and the children’s mother not surprisingly appealed.  After another month that decision was revised internally by the agency to reflect a change in the arrangements about other children in the absent parent’s household and the weekly amount was altered to £15.  However according to the parent with care she was not told about this at the time, or for some months afterwards until on 21 October 2003 an “appeals officer” dealing with her still subsisting appeal against the original figure (in which of course she wished to challenge among other things the earnings calculations which had given rise to such a small sum) wrote to her saying:

	“I note from your case records that a Decision Maker at Plymouth CSA Centre revised the decision you are appealing against and notified you of this on 23/06/03 for £15.00.  As the decision was in your favour, the appeal has been lapsed.  This means that your appeal will not be forwarded to the Appeals Service for a tribunal hearing.”

5.	She was not of course content with this as she wished to maintain her appeal against the whole basis of the calculation and the grounds of her appeal were not in any way answered by such a trivially increased figure.  As is now acknowledged by the agency, she lodged what is accepted as having been a perfectly valid appeal against the revised decision, which the agency received on 10 November 2003 and acknowledged on 19 November 2003.  At or about the same time, following advice she was given by a member of the agency staff, she lodged an application for the basis of the revised calculation to be varied on several grounds: that the absent parent had over £65,000 of assets which ought to have been taken into account, the lifestyle he was able to afford was far above the level of income on which the calculation had been based, he was diverting income via his business in order to reduce his child support liability, and he and his new wife had another source of income which had not been taken into account.  (See the application form and covering letter dated 4 November 2003, received at the agency on 10 November 2003 at pages 103-118).  Some time the following year the agency referred this application to an appeal tribunal to decide instead of giving any decision on the variation questions itself.

6.	In June 2004 the parent with care was contacted by one or more officers of the “central appeals unit” of the agency and, according to her account which I accept as truthful, was advised that she “could not have two appeals running together” and that she should withdraw her appeal against the £15 calculation.  This she was given to understand would enable the “variation appeal” to be dealt with more satisfactorily and would not affect the outcome of the case.  She accepted what she was told and at the agency’s request signed and returned a “withdrawal slip” withdrawing her appeal of 10 November 2003.  As confirmed since the hearing before me by the inquiries helpfully made by Miss Harris, the agency’s records show her appeal as having been duly withdrawn on 7 June 2004.  The consequence was that her challenge to the earnings calculation itself did not proceed and the only questions that came before the tribunal were concerned with whether there should be a variation of it on one or more of the specified grounds, its correctness not now being otherwise open to dispute.

7.	The main issues at the tribunal hearing on 4 October 2004 concerned the payments made to the children’s father from his company and in particular his regulation monthly drawings of £2,800, only a small proportion of which had been put through the PAYE system, the balance being allocated ex post facto to “loan account” by the father’s accountant in drawing up the company accounts.  The children’s mother argued that it was ludicrous that this money which was in effect the amount he was drawing by way of monthly income should not all be counted as earnings to give a more realistic figure but the tribunal rejected this, saying:

	“There is no ground for a variation in relation to income which has not been taken into account in the calculation i.e. the monthly difference between £2800 per month and £679.97 per month – the latter only being taken into account as income by the CSA.  The balance of £2120.03 is regularly drawn from the loan account of this limited company.   This represents accumulated earnings not drawn in previous years but upon which tax has been paid.  This is to be treated as capital and cannot form part of the [the father’s] income.”

However they added:
	“[The father] has never denied that he has access to these funds in addition to the income which he pays himself and which appears on the payslips.  He gave evidence that this was being paid to fund a mortgage and this is entirely logical.  He clearly has money in excess of £679.97 per month to fund his lifestyle, pay his mortgage etc but as this excess monies [sic] cannot be categorised as income it cannot be taken into account for child support purposes. …

	[The mother] alludes to diversion of income (inasmuch as she appears to be arguing that by accumulating earnings in a director’s loan account  and then drawing it as capital [he] is effectively diverting his income).  As a matter of fact, the tribunal did find that there was a diversion of income although not exactly on the grounds as advanced by [her].”

They then went on to refer to regulation 19(4) of the Child Support (Variation) Regulations 2000 SI 2001 No 156, and found as a fact that in the year to 31 March 2003 when there was a child support liability the father had unreasonably reduced the amount of his income by causing the company not pay him a dividend of £5,000 (the figure it had paid the previous year) so that this amount should be added to his income by way of a variation, increasing his child support liability to £50 a week on the tribunal’s own estimate.

8.	The first question I must determine is what was the proper scope of the proceedings in front of the tribunal.  On the facts as now clarified there is in my judgment no doubt that Miss Harris was correct in submitting that there could have been no appeal before the tribunal against the calculation itself as embodied in the revised decision of 23 June 2003, for the simple reason that the parent with care had abandoned that appeal and it had therefore never been placed before the tribunal.  The only issues within its jurisdiction to determine were those arising from her application for a variation of the normal rules which is only possible on certain restricted grounds.  A parent with care ought not of course to have been induced in these circumstances to abandon a perfectly valid appeal against a calculation and the determination of earnings on which it was based, but that was not in any way the fault of the tribunal and if she has suffered any loss it has to be a matter for separate redress against the agency for maladministration.  This is not the first occasion I have come across when possibly incorrect advice of this nature appears to have caused a valid appeal to be abandoned in favour of the more restricted departure or variation procedure, despite denials in the upper reaches of the agency that it happens: I can only say that I accept the parent with care, who appeared before me, as a witness of truth when she says that in this case it did.

9.	Turning to the issues the tribunal did have power to deal with, I again accept Miss Harris’ submission that there were material misdirections affecting the tribunal’s conclusions affecting the “lifestyle inconsistent” and “diversion of income” grounds, such at the decision has to be set aside.  In the first place I would not for my part accept as correct that if regular monthly payments are made to an employed earner by his employing company (which is the position as between the children’s father and his company even though he is also the owner of its shares and the chairman of the directors) that cannot be counted as “any remuneration or profit derived from that employment” so as to count as earnings under paragraph 4 of schedule 1 to the Child Support (Maintenance Calculations and Special Cases) Regulations 2000 SI 2001 No 155, even though as the tribunal apparently found the money represented accumulated earnings or undistributed profits of some period before the one in which they were actually paid.  I can see no room in paragraph 4 for some doctrine of “accumulation” or conversion of earnings into “capital” so as to take them out of the reckoning, and even if it is a little obscure exactly what the tribunal had in mind about that it is clear from the last paragraph of their statement of reasons at pages 153-157 that they materially misdirected themselves in reaching their conclusion by having regard, as they expressly said, to the provisions of schedule 1 relating to the self-employed with their references to “profits”, “gains” and “capital”.   Those are of course quite separate from those relating to employed earners such as the father here, and not applicable to this case.

10.	Whatever misapprehension the tribunal members were under, it must in my judgment have affected their decision on the “lifestyle inconsistent” as well as the “diversion of income” grounds under regulations 19 and 20 of the variations regulations; and it accordingly needs to be set aside and reconsidered even though the tribunal was unable to reopen the figure used for “earnings” under the main calculation itself.

11.	I must also accept that in the variation the tribunal members did direct, for what they found to be a “diversion of income” in the non-payment of a dividend for the year to 31 March 2003, there was a plain misdirection in that they apparently overlooked the fact that the non-payment of a dividend at the material time for these proceedings could not have constituted a case for variation under regulation 19(4) in any event, since even if such a dividend had been paid it would not have fallen to be taken into account as income of the absent parent for the purposes of the calculation under the new child support rules at all.  Hence the essential condition in regulation 19(4)(b) that “the non-resident parent has unreasonably reduced the amount of his income which would otherwise fall to be taken into account”  (my emphasis) was not and could not have been satisfied by the facts the tribunal envisaged.

12.	For those reasons, I set aside the decision of the tribunal and remit the case for rehearing as indicated above.  All relevant factual and other questions will now be open to be considered afresh by the new tribunal which will now rehear the case and for that reason it is unnecessary for me to say anything further about the other possible grounds on which the application for a variation of the calculation rules was based, or the various other factual issues referred to in the written and oral submissions of the two parents in the course of the appeal proceedings before me.  The appeal is allowed accordingly.

(Signed)

P L Howell
Commissioner
15 December 2005

		Commissioner