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NT v Secretary of State for Work & Pensions (CSM) (Child support: variation: departure directions: other) [2015] UKUT 422-2

Child support appeal challenging a decision to “vary” the appellant’s income by reference to his real property assets, on the basis it was not a just and equitable variation - s 28F Child Support Act 1991, regulation 18 CSM (Variation) Regulations 2000.

In this case, the appellant, the non-resident father of two qualifying children, challenged a decision of the FTT to take into account certain of his assets, and thereby make a "variation" to the income figures used by the Tribunal, for the purposes of calculating his liability in child support maintenance (CSM). In coming before the FTT, the father appealed against a decision of the Secretary of State who, on 6 August 2012, determined that he should pay the mother, his former partner, the sum of £342 per week in CSM, an increase of £311 per week from what he had previously been paying. This increased sum was awarded on the grounds of the mother's then-unchallenged evidence that the father had assets of at least £1 million in real property or proceeds of sale.

Before the FTT, the father presented further evidence of his income and assets. The FTT accepted that the father had fewer assets than those claimed by the mother, finding that he owned (jointly with the mother) two properties valued at £1.7 m in total. One of these properties, No.67, was occupied in part by the appellant as his home but the property's basement flat was let to tenants. In calculating the relevant CSM, the FTT disregarded the value of the appellant's home and valued the remainder of No.67 at £170,000. Adding that to the value of the other property, No.15, the FTT then deducted the sum of several bank loans secured against the properties and halved the equity remaining, concluding that the father's share could be valued at £375,685. The FTT found that it was just and equitable to make a variation to the appellant's income figures using 8% of that sum (or £30,054.80), on which basis the Secretary of State found the appellant liable to pay £144 per week in CSM.

The father appealed this decision to the UT.

On appeal, the UT found as follows:

Summary by Anita Rao, barrister, Field Court Chambers
_________________________

NT v Secretary of State for Work and Pensions (CSM)
[2015] UKUT 0422 (AAC)

Case No.  CCS/5433/2014

IN THE UPPER TRIBUNAL ADMINISTRATIVE APPEALS CHAMBER

Before Upper Tribunal Judge Rowland

Decision:  This appeal is unsuccessful.  I set aside the decision of the First-tier Tribunal dated 25 April 2014 insofar as it related to the variation (see paragraph 6 of the decision notice) but I substitute a decision to the same effect. 

REASONS FOR DECISION
1. The Appellant and Second Respondent are respectively the father and mother of two "qualifying children" for the purposes of child support maintenance, the father being what is known in the legislation as the "non-resident parent".  On 18 July 2007, the Secretary of State decided that the father was liable to pay child support maintenance to the mother at the rate of £31 pw with effect from 21 May 2007.  On 6 August 2012, the Secretary of State superseded that decision and decided that the father was liable to pay child support maintenance to the mother at the rate of £342 pw with effect from 6 February 2012.  The father appealed out of time to the First-tier Tribunal, which admitted the appeal despite the delay.  On 25 April 2014, the First-tier Tribunal allowed the appeal, but not to the extent sought by the father.  It made findings as to the father's gross income from self-employment from 6 February 2012 and 2 April 2012 and also decided that there should be a "variation" from both dates on the ground that the father had relevant assets.  The father now appeals, with my permission, against the decision of the First-tier Tribunal insofar as it relates to the variation. 

2. In his application to the Upper Tribunal for permission to appeal, the father originally advanced three grounds of appeal and I raised another issue when I granted permission to appeal.  The Secretary of State supports the appeal on the third of the father's grounds, albeit for different reasons, and, to a limited extent, on the point I raised.  He submits that the Upper Tribunal should substitute a decision on those points.  The mother opposes the appeal on all grounds.  In his reply, the father appears to abandon his first ground but stands by his other grounds and adopts the point I raised.  He, too, wishes the Upper Tribunal to re-decide the case itself rather than remitting it.  None of the parties wishes there to be a hearing and I am satisfied that I can properly decide the case on the papers.

3. The Secretary of State's decision was made following an application by the mother for a variation.  Section 28F(1) of the Child Support Act 1991, as amended, provides –

"Agreement to a variation
28F
.—(1) The Secretary of State may agree to a variation if—

(a) the Secretary of State is satisfied that the case is one which falls within one or more of the cases set out in Part I of Schedule 4B or in regulations made under that Part; and
   
(b) it is the Secretary of State's opinion that, in all the circumstances of the case, it would be just and equitable to agree to a variation."

So far as is now material, the mother relied on the case set out in regulation 18 of the Child Support (Variations) Regulations 2000 (SI 2001/156), as amended, which provides –

"Assets
18
.—(1) Subject to paragraphs (2) and (3), a case shall constitute a case for the purposes of paragraph 4(1) of Schedule 4B to the Act where the Secretary of State is satisfied there is an asset— 

(a) in which the non-resident parent has a beneficial interest, or which the non-resident parent has the ability to control;
   
(b) which has been transferred by the non-resident parent to trustees, and the non-resident parent is a beneficiary of the trust so created, in circumstances where the Secretary of State is satisfied the non-resident parent has made the transfer to reduce the amount of assets which would otherwise be taken into account for the purposes of a variation under paragraph 4(1) of Schedule 4B to the Act; or
   
(c) which has become subject to a trust created by legal implication of which the non-resident parent is a beneficiary. 

(2) For the purposes of this regulation "asset" means— 

(a) money, whether in cash or on deposit, including any which, in Scotland, is monies due or an obligation owed, whether immediately payable or otherwise and whether the payment or obligation is secured or not and the Secretary of State is satisfied that requiring payment of the monies or implementation of the obligation would be reasonable;
   
(b) a legal estate or beneficial interest in land and rights in or over land;
   
(c) shares as defined in section 744 of the Companies Act 1985, stock and unit trusts as defined in section 6 of the Charging Orders Act 1979, gilt-edged securities as defined in Part 1 of Schedule 9 to the Taxation of Chargeable Gains Act 1992, and other similar financial instruments; or
   
(d) a chose in action which has not been enforced when the Secretary of State is satisfied that such enforcement would be reasonable,
and includes any such asset located outside Great Britain. 

(3) Paragraph (2) shall not apply— 

(a) where the total value of the assets referred to in that paragraph does not exceed £65,000 after deduction of— 

(i) the amount owing under any mortgage or charge on those assets;
   
(ii) the value of any asset in respect of which income has been taken into account under regulation 19(1A); 

(b) in relation to any asset which the Secretary of State is satisfied is being retained by the non-resident parent to be used for a purpose which the Secretary of State considers reasonable in all the circumstances of the case;
   
(c) to any asset received by the non-resident parent as compensation for personal injury suffered by him;
   
(d) except where the asset is of a type specified in paragraph (2)(b) and produces income which does not form part of the net weekly income of the non-resident parent as calculated or estimated under Part III of the Schedule to the Maintenance Calculations and Special Cases Regulations, to any asset used in the course of a trade or business; or
   
(e) to property which is the home of the non-resident parent or any child of his; or
   
(f) where, were the non-resident parent a claimant, paragraph 22 (treatment of payments from certain trusts) or 64 (treatment of relevant trust payments) of Schedule 10 to the Income Support (General) Regulations 1987 would apply to the asset referred to in that paragraph.

(4) For the purposes of this regulation, where any asset is held in the joint names of the non-resident parent and another person the Secretary of State shall assume, unless evidence to the contrary is provided to him, that the asset is held by them in equal shares.
 
(5) Where a variation is agreed on the ground that the non-resident parent has assets for which provision is made in this regulation, the Secretary of State shall calculate the weekly value of the assets by applying the statutory rate of interest to the value of the assets and dividing by 52, and the resulting figure, aggregated with any benefit, pension or allowance prescribed for the purposes of paragraph 4(1)(b) of Schedule 1 to the Act which the non-resident parent receives, other than any benefits referred to in regulation 26(3), shall be taken into account as additional income under regulation 25.
 
(6) For the purposes of this regulation, the "statutory rate of interest" means interest at the statutory rate prescribed for a judgment debt or, in Scotland, the statutory rate in respect of interest included in or payable under a decree in the Court of Session, which in either case applies on the date from which the maintenance calculation which takes account of the variation takes effect."

4. The mother's application was prompted by her belief that the father had assets of at least £1,000,000 in real property or from the proceeds of sale of the former matrimonial home.  As the statutory rate of interest for the purpose of regulation 18(6) was 8% and as the father failed initially to respond to the application because he had moved from the address notified to the Secretary of State, the Secretary of State decided that his assets were worth £80,000 pa or £1,538.46 pw, which was the figure used in calculating the father's weekly liability for child support maintenance at £342.  

5. However, the father was made aware of the Secretary of State's decision and appealed, providing rather more evidence as to his circumstances.  He is a builder by trade and had gone into business with his mother, buying property, renovating it and then letting it.  The First-tier Tribunal accepted the evidence of the father and his accountant as to the properties and, in particular, as to their value and who occupied them.  It also accepted that the proceeds of sale of the former matrimonial home had been used to repay bank loans.  There were five other properties identified by the mother but three were left out of account, for reasons given in paragraph 20 of the statement of reasons.  That left two others, which I shall call No.15 and No.67.  No.15 was valued at £1,150,000 and No.67 was valued at £550,000.  They were both owned jointly by the father and his mother.  No.15 was let to tenants and so was the basement flat at No.67.  The rest of No.67 was occupied by the father as his home.  The First-tier Tribunal valued the basement flat at No.67 at £170,000.  The value of the father's home in No.67 was excluded from the calculation under regulation 18(3)(e).  The total value of No.15 and the basement flat of No.67 was £1,320.000, from which the First-tier Tribunal deducted the whole of bank loans secured on the two properties, resulting in net equity of £751,370 of which the father's share was one half – i.e., £375,685.  8% of that figure is £30,054.80 and the First-tier Tribunal decided that it was just and equitable to make a variation using that figure because it considered that it "was not so inconsistent with the actual share of the rent attributable to [the father] to justify a reduction in the rate of interest applied."  This decision was implemented by the Secretary of State deciding that the father's liability for child support maintenance was £144 pw from 2 April 2012.  (The figure for the period from 6 February 2012 to 1 April 2012 will have been slightly lower because the First-tier Tribunal's finding as to the father's annual gross earnings from self-employment in respect of that period was £1,000 lower.)

6. The father's first ground of appeal is, as I think he now recognises, misconceived.  He argued that, by virtue of regulation 18(3)(d), the value of the properties fell to be disregarded as assets "used in the course of a trade or business".  However, as the Secretary of State points out, that submission overlooks the opening words of the subparagraph that were added by an amendment in 2002.  The effect of the amendment was considered in detail in MG v Child Maintenance and Enforcement Commission (CSM) [2010] UKUT 83 (AAC); [2010] AACR 37.

7. The father's second ground of appeal is that the method of calculation adopted by the First-tier Tribunal meant that only half the loan liability was deducted when, in his submission, regulation 18(4) required the full liability to be deducted because it refers only to the asset and not also to the loan liability.  He submits that the First-tier Tribunal should have asked for copies of the loan agreements, which show that he and his mother were jointly and severally liable for the loans.  The Secretary of State and the mother oppose this ground, arguing that deducting the loan is a part of valuing the asset.  The father, in reply, argues that that is to confuse two separate concepts.

8. The father would have a case if he alone was liable to repay the loan and his mother was entitled to her share of each property free of any loan.  However, as the loan agreements show and as the First-tier Tribunal no doubt assumed, she is also liable for the loan albeit that he and she are "severally" liable.  The bank might be entitled to pursue the father alone for repayment of the loan, if it chose to do so, but, if it did, he would be entitled to seek reimbursement of half the amount of the loan from his mother, which could be taken from her share of the property.  Accordingly, the method of calculation adopted by the First-tier Tribunal was perfectly appropriate and I reject this ground of appeal.

9. Before turning to the father's third ground of appeal, it is convenient to take the additional point that I raised when I granted permission to appeal which was whether the First-tier Tribunal had adequately considered regulation 18(3)(b) in relation to the basement flat at No.67.  I suggested that considering whether it was reasonable for the father to retain the basement flat required consideration of the question whether it was realistically divisible from his home and saleable as a separate entity and, in any event and perhaps more importantly, whether it was reasonable for the father to retain it because it produced an important real income that he needed to live on.  The Secretary of State accepts that the question whether the basement flat was realistically divisible from the father's home needed clarification but does not accept that it was relevant whether it produced an income because the original maintenance assessment calculation took account of the father's financial needs.  The mother points out that the basement flat is self-contained, has a separate postal address – being No.67A – and, as the First-tier Tribunal found, was separately assessed for council tax.  Accordingly, she believes it to be realistically divisible from the rest of the property. She also distinguishes this case from MG v Child Maintenance and Enforcement Commission (CSM) and submits that the First-tier Tribunal did give consideration to regulation 18(3)(b)  The father states that his home and the basement flat at No.67 are one entry in the land registry but does not deny that they are in fact realistically saleable as separate entities.  He has not made any further submission in relation to regulation 18(3)(b).

10. It seems fairly clear that the basement flat is realistically separable from the father's home.  If it was sold separately, the land register would presumably be amended.  This may also have been clear to the First-tier Tribunal but, in any event, if the point was not considered the error is immaterial. 

11. The question whether the flat was being "retained by the non-resident parent to be used for a purpose which the Secretary of State [or, on appeal, a tribunal] considers reasonable" is not so easily answered.  In MG v Child Maintenance and Enforcement Commission (CSM), which also involved a non-resident parent engaged in the letting of property, Upper Tribunal Judge Mesher held that the appeal tribunal had erred in law in failing to address a specific argument raised by the non-resident parent that a particular flat had been bought, and was being retained, for the sole purpose of providing him with a pension in later years.  However, he went on to say –

"47. In those circumstances, I need only briefly mention what seems to me to have been a further inadequacy of reasons in relation to regulation 18(3)(b) in the decision notice signed on 31 March 2008. The property business was what the father lived on. If he sold up all the properties to invest the proceeds in some way that would produce income, as the tribunal seems to have been contemplating, it seems to me that it ought not just to have taken into consideration what his capital gains tax liability would be (£300,000), in addition to the factor of his responsibility to support his children (see paragraph 9 above). It could plainly be argued that if that was to be the source of the father's income, with no capital business assets to appreciate, he should be allowed something for the living expenses of himself and his current family. More widely, it could be argued that the retention of the property assets, or at least some of them, was for a reasonable purpose in financing his current lifestyle and providing some future financial security. I say nothing about how those factors ought to have been weighed up against the factors that the tribunal did mention, but it seems to me that its reasons were inadequate in not giving some indication that such a weighing process had been carried out."

12. If that is the right approach, the Secretary of State's submission that, because the original maintenance assessment calculation took account of the father's financial needs, an asset should not be disregarded under regulation 18(3)(b) seems misconceived.  Judge Mesher appears to have had in mind the fable of the Goose that Laid the Golden Eggs.  However, I doubt that the possibility that taking account of assets would destroy the income of the non-resident parent is a material consideration for the purpose of regulation 18(3)(b), rather than when considering whether a variation is just and equitable for the purposes of section 28F(1)(b).  As noted by Judge Mesher at paragraph [48] of his decision, "the just and equitable issue is not all or nothing but can result in an acceptance of part of the variation that would otherwise be required by the regulations" (see RC v Child Maintenance and Enforcement Commission [2009] UKUT 62 (AAC); [2011] AACR 38).  Section 28F(1)(b) is therefore more flexible than regulation 18.  Reliance on regulation 11(3)(b) seems particularly inappropriate in the case of real property where the value, or part of the value, of the relevant asset may be realised not only by selling it but alternatively by obtaining a loan secured on it while not ceasing to retain it.

13. In this case, the First-tier Tribunal made a passing reference by implication to regulation 18(3)(b) in paragraph 19 of the statement of reasons but plainly considered that no issue regarding it arose.  Since none of the parties had explicitly raised a point requiring consideration of regulation 18(3)(b) and since I am satisfied that the basement flat at No.67 could have been sold as a separate unit and that any issue as to the reasonableness of the father being required to sell the flat could more appropriately have been dealt with under section 28F(1)(b), I am satisfied that the First-tier Tribunal did not err in law in not considering regulation 18(3)(b) any further.

14. I turn then to consideration of section 28F(1)(b).  The father's third ground of appeal is that the First-tier Tribunal erred in considering whether application of the statutory rate of interest of 8% was "just and equitable".  His argument is that the gross yield on No.15 and No.67 were respectively 4.75% and 4.58% of the market value of the properties and the net yield was no more than 3% and that the £30,000 figure used by the First-tier Tribunal as a comparator was the figure recorded in paragraph 14 of the statement of reasons, which was the simply the difference between the rents received and the rents banked and that anyway the father's share of the rents was 50% of the rents received, net of loan interest and expenses.  He submits that a variation in excess of the rental gross yield would be unreasonable. 

15. The Secretary of State does not adopt the father's reasoning but nonetheless argues that the First-tier Tribunal may have confused the question of whether a variation should be made at all with the question whether the 8% rate was appropriate and, in any event, has not given adequate reasons for its decision that it was just and equitable to make a variation.  He suggests that the Upper Tribunal should substitute its own decision.  He does not suggest what that decision might be but he raises various issues and submits that the decision should be made in the light of any further comments made by the father in reply.  The mother, on the other hand, submits that the First-tier Tribunal has given adequate reasons for its decision.  In reply, the father makes submissions regarding the points raised by the Secretary of State.

16. I do not accept the father's arguments that the First-tier Tribunal necessarily erred in finding it was just and equitable to make the variation just because it applied the statutory interest rate rather then a percentage equal to or lower than the gross yield on the relevant properties.  The figures were percentages of different figures used for different purposes.  Nor do I accept the father's submission that the First-tier Tribunal had in mind the figure of £30,000 in paragraph 14 of the statement of reasons when it said that the variation was not very inconsistent with the actual share of the rent attributable to the father.  It seems to me much more probable that the First-tier Tribunal had in mind that the annual rental income shown in the profit and loss accounts submitted by the father ranged from £56,960 in the year ending 31 March 2009 to £49,250 in the year ending 31 March 2013.  The father's share would have been half and therefore a sum not much lower than the amount of income to be taken into account under the variation.  However, as the father has submitted, the sums actually available to him had to be calculated after deductions and the deductions were such that the accounts of the property letting business consistently showed a loss.  Therefore, there is force in the Secretary of State's submission that the First-tier Tribunal's reasoning is inadequate.  Alternatively, it is irrational.  It is not obvious why the gross rent received was a relevant figure or, at any rate, why it justified by itself the variation.  The mother's submission does not answer that point.  I accept her submission that the valuation of the basement flat at No.67 and the other figures used in the variation are adequately reasoned, but the overarching consideration as to whether the variation is just and reasonable is not.

17. On that ground only, the First-tier Tribunal erred in law.  I set aside its decision but, as the parties who support the appeal submit I should, I will substitute my own decision.

18. I see no reason not to accept all the information provided by the father in his reply to the responses of the other parties. 

19. However, the purpose of the Child Support Act 1991 is to ensure that parents who do not live with their children pay appropriate amounts for their support and I take as a starting point that amounts calculated under the 2000 Regulations will generally be appropriate unless, in the particular circumstances of the case, it can be demonstrated that requiring those amounts to be paid would be unreasonable or otherwise unfair.  Generally, the Act and regulations have regard only to income, but regulation 18, which is expressly authorised under paragraph 4(2)(a) of Schedule 4B to the Act as amended, permits regard to be had to assets exceeding the value prescribed in regulation 18(3)(a), presumably on the basis that a parent with such assets can be expected to provide income for the support of his or her children out of the assets.

20. I do not accept the father's argument that the amount to be paid in respect of an asset should be related to the income the asset generates or is capable of generating.  Regulation 18 applies not just to real property but also to money, shares or a chose in action and paragraph (5) would be rendered a dead letter by such an approach.  Indeed, there is a stronger argument for deducting from the income to be taken into account applying the 8% statutory rate any actual net income generated by the capital that was already taken into account in the child maintenance assessment.  However, in the present case, the relevant assets did not generate any profit to be taken into account in the assessment, although capital appreciation was no doubt to be expected.  For this reason also, the point I raised about not taking away from a non-resident parent assets that provide an income upon which that parent can live and out of which child support maintenance can be paid falls away.  On his figures, the father's income would not in fact have been reduced had he sold his interest in the relevant properties.  Moreover, as I have indicated, the sale of a property, or an interest in it, is not the only way of raising money from it.  Money can be borrowed against it. 

21. The fact noted by the First-tier Tribunal that the amount of income that fell to be taken into account under regulation 18 was roughly the same as the gross rents received from the relevant properties is, in my judgement, irrelevant. 

22. The simple point in this case is that the father had a share in the equity of property (excluding his home) and that share was worth some £375,000.  The total equity was jointly owned with his mother but was not otherwise tied up.  He was not being asked to pay 8% of that sum to support his children each year.  He was being asked only to pay £144 pw (a figure based on his other income as well as those assets), which is only £7,488 pa and therefore less than 2% of the value of his relevant assets.  I can see no reason why it would not be just and equitable for him to pay that sum; he could plainly raise it if he was minded to do so.  On the contrary, it is clearly just and equitable for a variation to be made so that he must support his children at a realistic rate.

23. I therefore substitute a decision to the same effect as that of the First-tier Tribunal.

Mark Rowland
30 July 2015