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Schedule 1 to The Children Act 1989: Not Just for Wags

Anita Mehta, barrister of Crown Office Row, Brighton, argues that Schedule 1 to the Children Act 1989 applications should not be regarded as the domain of footballers’ girlfriends or the uber-wealthy but as a powerful tool for meeting children’s needs in a wide variety of cases

Anita Mehta, barrister of Crown Office Row, Brighton 

Whenever applications pursuant to Schedule 1 to the Children Act 1989 ("Schedule 1") are mentioned, many of us immediately think of footballers, the millionaire's defence, and fleeting relationships but what of families with unmarried parents who have modest assets?

Most unmarried parents seeking provision for their children are unlikely to be familiar with Schedule 1 and so, their minds are more likely to turn to the Child Maintenance Service ("CMS"). Any lingering confusion as to whether there was an overlap of CMS and the Court's jurisdiction to order child support payments was clarified by Holman J in Dickson v Rennie [2014] EWHC 4306 (Fam)  in which Holman J held that the Court's power to order top-up maintenance is only available where the CMS has assessed that the payer's income exceeds the maximum maintenance assessment of £3,000 gross per week.

Schedule 1 applications, however, are not restricted to periodical payments.  In addition to the Court's power to make an order for periodical payments or secured periodical payments, the Court has the power to order a lump sum, transfer and settlement of property. The Court's power also extends to making orders for periodical payments and lump sum for children over the age of 18 in full time education or where special circumstances i.e. disability exist.

According to the recent Office for National Statistics data released last week, the fastest growing family type over the last decade is cohabiting couples both with and without dependant children.  Further, the types of families in which dependant children live have changed significantly over the last decade.  In 2004 11% of children lived in such families which rose to 14% by 2014, whereas over the same period the percentage of children living in a married couple family fell by 3% to 63%.  It has been beyond the writer's reach to persuade any Court Centres to provide statistics for applications made pursuant to Schedule 1 in recent years.  Therefore, anecdotally, the writer would suggest there does not appear to have been similar growth in the number of Schedule 1 applications to match the growing number of families where parents do not have recourse to the Matrimonial Causes Act 1973.

Published judgments on Schedule 1 applications have, traditionally, concerned big money cases where the father's assets hugely exceed needs.  However, there are now examples where the Court has considered applications where the father does not have sufficient assets to comfortably meet both his own needs and those of the child.  A conundrum that Courts are, of course, very familiar with in cases where the parties have been married.

Though not listed as a factor on the checklist that the Court has to consider in an application under Schedule 1, it is well established that a child's welfare has an important role to play in the Court's determination. Lord Justice Thorpe made this clear in Re P (Child: Financial Provision) [2003] EWCA Civ 837 when he said, 'I would only wish to amplify by saying that welfare must be not just 'one of the relevant circumstances' but, in the generality of cases, a constant influence on the discretionary outcome'. Has the time come for lawyers to take a more robust view of the possibilities of a Schedule 1 application? Is there greater scope than previously thought for Courts to be asked to prioritise a child's needs over those of their parents?

Cases: the wider application of Schedule 1

In DE v AB [2011] EWHC 3792 (Fam) at the time of the hearing before the District Judge the mother was earning £60,000 per annum plus commission but was reliant on Job Seeker's allowance by the time of the appeal.  The mother's home had equity of £98,000 but she had liabilities of £111,385 i.e. she was in debt to the tune of £13,385.  The father had previously been a city trader but had been made redundant in 2004 with a redundancy package of £952,000. After a three-year sabbatical, and some rather grand spending, all he had was the equity in his home of £358,000.  The District Judge calculated the father's earning capacity to be around £100,000 per annum. 

On appeal, Baron J, sitting in the High Court, upheld an award of £250,000, in reversion, for a housing fund. Baron J found that the figure awarded as a housing fund was 'completely unappealable' but she reduced the lump sum awarded to be paid towards the mother's debts to £40,000. Thus, the father paid £290,000 which was 81% of his assets, to the mother albeit only about 11% was transferred outright.   Whilst that percentage is not unheard of in applications under the Matrimonial Causes Act 1973, this order was made pursuant to Schedule 1.

Whilst this case had a twisted tale with further appeals and hearings, the most important aspect, for these purposes, was that the mother later established that the father had sold an enterprise through a company for £111,000 before the original proceedings but had failed to disclose it.  As a result, the father was ordered to pay a further lump sum of £80,000; of which £20,000 was for provision for the child, the £45,000 lump sum was restored with interest and the mother's costs of that appeal of £11,000.  The overall percentage is therefore around 79% not including the costs awards.

This case is the best example the writer can find of a reported authority of a Schedule 1 application where a high proportion of a father's assets was ordered to provide for a child.  The District Judge found at trial that neither of the parents could afford to maintain their homes and they would have to be sold eventually anyway but the effect of the order meant that the father would be compelled to sell his home.  Thus, it is a clear example of the Court putting a child's need for secure housing above the parent's needs.

A further example of an order under Schedule 1 being made in a non- big money case is Re M-M (A child) [2014] EWCA Civ 276.  In this case, the mother owned her own home and had been caring for the child on state benefits in the UK as a single parent.  Thus, the mother's claim was not to provide a house but for a lump sum which would include payment of her significant credit card debts and repairs to her home.  The father worked for an investment company in Geneva and as a result was outside of the jurisdiction of what was the Child Support Agency.  The Court made orders in respect of periodical payments but the part of the order that is of interest for the purposes of this article is how the Court dealt with the claim for the lump sum.  The father owned his own property subject to a mortgage and had £137,000 in a bank account and a further £60,000 in a long-term investment.  The father had subsequently married and at the time of the hearing had three young children with his wife.

The Court of Appeal heard cross-appeals from the parents in respect of the first instance decision.  The Court upheld the order of a lump sum of around one-third of the father's available capital to clear the mother's hard debts:

'34. The judge was required to have some regard to the husband's financial resources and the standard of living of his family and the three children who live with him.  Equally, his capital resources had a limit to them.   In exercising her discretion, and in seeking to achieve an outcome which was fair, just and reasonable, the judge had to balance these factors.   She did so by targeting the entirety of her order at the credit card debt with no additional payment of a lump sum directly to the mother.   The payment made, however, represented almost exactly a third of the capital that was readily available to the father at the time.'

Inevitably, the order would impact on the lifestyle the father would be able to provide for the children of his marriage as his case was that he occasionally had to dip into his capital. Whilst this order may appear not to be as extreme an example as DE v AB, on this occasion the Court was balancing the competing needs of children. Moreover, as the money was a lump sum to repay the mother's debts (unlike a housing fund) it obviously would not revert to the father in the long term.   The writer suggests it is another example of the Court prioritising the needs of the child over the parent.

These cases are an example of a lump sum and settlement of property being made where assets are more modest and do not exceed needs. The point is the size of the award takes into account the father's resources (unless the father has so much money that they can utilise the millionaire's defence) and authority tells us that the father's standard of living is relevant to the size of the award.  Thus, in more modest cases, it is argued, orders can still be made but no doubt the nature and size of the award will reflect the more limited pot that is available.

Practical guidance
An order pursuant to Schedule 1 can be made against a 'parent' on the application of a parent, guardian, special guardian or any person in whose favour a residence order is in force. 'Parent' is defined as being the biological parent or other persons who are parents by operation of the law. Of course, though the circumstances may be rare in cases of more limited means, nothing would preclude a formerly married parent from bringing an application. At present, an application is made using Form A1 and then parties are required to complete Form E1. However, the indication from the President and the recommendation contained in the Final Report of the Financial Remedies Working Group are that there should be a unified procedure for all financial remedies, so practitioners are likely to see the introduction of a new Form in due course.

The Court's discretion in deciding whether and how to exercise its powers is guided by a six-point checklist set out at section 4(1) of Schedule 1 which has parallels with, but is narrower than, s.25 of the Matrimonial Causes Act 1973. The Court must have regard to "all the circumstances of the case" including:

(a) the income, earning capacity, property and other financial resources which each person mentioned in sub-paragraph (4) has or is likely to have in the foreseeable future;

(b) the financial needs, obligations and responsibilities which each person mentioned in sub-paragraph (4) has or is likely to have in the foreseeable future;

(c) the financial needs of the child;

(d) the income, earning capacity (if any), property and other financial resources of the child;

(e) any physical or mental disability of the child;

(f) the manner in which the child was being, or was expected to be, educated or trained.

Thorpe LJ sets out the approach to these applications in big money cases in Re P.  The Court will make a broad-brush assessment to determine the quantum of the claim: 'it is not for the court to specify the precise amounts of each category of the claim, but to take an overall sum to make provision for the components that are referred to'.  That approach also appears to be good law for cases involving more modest assets despite May LJ's obiter comment in Re P that Thorpe LJ's expressions were unlikely to apply to cases where the available assets were smaller.  Certainly, Baron J considered the District Judge was correct to take a broad-brush assessment of need without auditing the claim in DE v AB

In big money cases, Re P prescribed that the Court will first consider the appropriate home for the child; usually the order will be that the home reverts to father when the child reaches their majority. The Court will then consider the appropriate lump sum required to furnish and equip the home and the cost of a family car before considering the budget the mother requires in maintaining the home and meeting other external expenses.

In the types of cases this article is concerned with, there may still be the possibility of an order for settlement of property with the mother supplementing the property purchase with her own funds or a mortgage. In DE v AB the mother was not precluded from supplementing the housing fund of £250,000 by way of a mortgage so long as father's investment was not put at risk.  The customary use of mortgage capacity and property particulars in financial remedy cases can be adopted. Note, that if the mother chooses to cohabit or marry it would be unlikely to disrupt a settlement of property so long as the child still lived with the mother, although it would have an affect on any income provisions as per Singer J in F v G (Child: Financial Provision) [2004] EWHC 1848 (Fam).

Despite the use of a broad-brush assessment, in respect of lump sum provision in cases where the assets are more limited, the writer would suggest obtaining evidence in support of more expensive items of expenditure. The Court may make more than one lump sum order or an order for payment of a lump sum by way of instalments but lump sum Schedule 1 orders cannot be used to supplement child support by the backdoor. The lump sum can be claimed for liabilities or expenses reasonably incurred, in connection with a child, before the making of the order.

No doubt part of the reluctance to pursue these claims in cases where resources are limited is the risk of costs.  The general rule for Children Act 1989 applications that there is no order as to costs does not apply to Schedule 1 proceedings. Thus the most important practical guidance is to protect your client's position on costs. See KS v ND (Schedule 1: Appeal: Costs) [2013] EWHC 464 (Fam) for guidance on costs in Schedule 1 cases. Mostyn J indicates the starting position 'In Schedule 1 proceedings the Court should in my opinion start with a 'clean sheet'' and reminds practitioners 'that protection in respect of costs can be achieved by making a Calderbank v Calderbank [1976] Fam 93, [1975] 3 WLR 586, (1975) FLR Rep 113 offer'.

Note that there are now standard orders specifically for Schedule 1 applications.

In light of recent social and demographic trends, property rights of unmarried couples and child maintenance has been the focus of much comment and debate.  This article has sought to demonstrate that Schedule 1 has far wider reach than big money cases.  These orders are part of the Family Court's welfare arsenal after all and so perhaps the time has come for practitioners to become more robust and challenging with these applications to assist clients in meeting the needs of their children. 

The writer thanks Camilla Wells of Crown Office Row, Brighton for her assistance with this article.