CCS/4476/2002

DECISION OF THE CHILD SUPPORT COMMISSIONER

1.	I allow this appeal.  I set aside the decision of the Preston appeal tribunal dated 10 June 2002 on file U/06/075/2002/00030 and I refer the case to a differently constituted tribunal for determination.  Unless the President directs otherwise, the tribunal shall again consist of both a legally qualified panel member and a financially qualified panel member.

REASONS

2.	The appellant is the mother of the qualifying child and the second respondent is his father.  The mother is in receipt of child support maintenance and had applied for departure directions on 2 October 1997 on the grounds that the father’s lifestyle was inconsistent with his declared income, that he had unreasonably high housing costs and that it was reasonable for his wife to contribute to his housing costs and on 29 August 2001 on the same grounds and, additionally, on the ground that the father was diverting income to another person.  The first application resulted in the Secretary of State declining to make a direction but inviting the mother to make a further application by telephone.  This further application resulted in a direction given by the Secretary of State.  The mother appealed against the first decision and the father appealed against the second decision.  On 29 February 2000, a tribunal made different directions.  However, both parties appealed against the tribunal’s decisions and, on 18 February 2002, Mr Commissioner Angus set aside the tribunal’s decisions (CCS/3393/00).  He referred the appeal arising from the application dated 2 October 1997 to a differently constituted tribunal for determination.  He held the telephone application to be invalid.  Meanwhile, the mother had made her further application on 29 August 2001.  The Secretary of State referred that application to a tribunal and the same tribunal heard both the remitted appeal in respect of the application made on 2 October 1997 and the reference of the application made on 29 August 2001.  I note that, contrary to the Commissioner’s direction and to section 24(5) of the Child Support Act 1991, the financially qualified panel member had been a member of the tribunal sitting on 29 February 2000.

3.	On 10 June 2002, the tribunal allowed to a limited extent the mother’s appeal (tribunal register number C/06/075/1998/02469) in respect of the first application but refused to make a departure direction on the reference (tribunal register number U/06/075/2002/00030) of the later application.  The mother applied for leave to appeal against both decisions.  The chairman refused leave in both cases and the mother applied to a Commissioner.  On 13 January 2003, I indicated (CCS/4475/02) that I was minded to refuse leave to appeal against the tribunal’s decision on file C/06/075/1998/02469 but I directed a submission from the Secretary of State.  At the same time, I granted leave to appeal against the decision on the reference on file U/06/075/2002/00030.  On 24 January 2003, the mother withdrew her application for leave to appeal against the decision on file C/06/075/1998/02469 and so my direction ceased to have any effect.  

4.	In respect of the decision on file C/06/075/1998/02469, the father says, on page 198:

“I went to appeal but was told that [the mother] had already appealed and all the documents were at the commissioners in London and [they] would be asking me to respond anyway.”

If the father was given such advice, it was wrong.  The mother had only applied for leave to appeal and the father would be unlikely to be invited to respond to such an application.  If leave were granted, he would be invited to respond to the appeal but, if leave were refused, he would probably never have the opportunity of making submissions to the Commissioner, unless he applied himself for leave to appeal.  An application for leave to appeal had to be made to the chairman in writing within one month of the statement of reasons being issued.  As the statement of reasons in this case was issued on 14 August 2002 and the tribunal’s file was sent by the Appeals Service to the Commissioners’ office on 24 October 2002, any application made after the documents had been sent would have been late.  However, the facts that the documents had gone and that the application was late would not have precluded a chairman from granting leave to appeal.  If necessary, the documents could have been recovered from the Commissioners’ office.  The Appeals Service had a duty to put any written application before a chairman for consideration.  

5.	Nevertheless, as the mother has withdrawn her application for leave to appeal against the tribunal’s decision on file C/06/075/1998/02469, the current position is that that decision of the tribunal stands.  There is no evidence before me of any written application by the father for leave to appeal and, even if there were, the application would have had to have been considered by a tribunal chairman before any application or appeal was made by the father to a Commissioner (see regulation 11(1) of the Child Support Commissioners (Procedure) Regulations 1999).  Therefore, only the appeal against the tribunal’s decision on file U/06//075/2002/00030 in respect of the reference of the application made on 29 August 2001 is before me.

6.	As I said when I granted leave to appeal, many of the mother’s arguments raise issues of fact rather than issues of law.  However, it does seem to me that the tribunal erred in law in their approach to the diversion of income or, at any rate, in the adequacy of their reasoning in that respect.  There are two issues, both arising from the fact that the father and his new wife are the directors and only shareholders of a small limited company.  

7.	Regulation 24 of the Child Support Departure Direction and Consequential Amendments Regulations 1996 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 earnings from employment or self-employment and dividends from shares, whether or not the whole of that income is derived from the company or business from which his earnings are derived; 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 Assessments and Special Cases Regulations by diverting it to other persons or for purposes other than the provision of such income for himself.”

It is plain that, with his wife as the only other director of the company, the father had “the ability to control the amount of income he receives”.  The question for the tribunal was whether he unreasonably reduced his income by diverting it to his wife or to the company itself.  The tribunal carefully considered the company accounts for the year ended 31 March 2001 and they also had before them the accounts for the previous year.

8.	In her grounds of appeal, the mother complained that the tribunal had ignored the fact that the father was entitled to director’s remuneration as well as earnings from the company.  When granting leave to appeal, I indicated that I did not consider that there was anything in that point because the figure for director’s remuneration appeared to include all that was paid to the father.  I commented that the figure for “employee costs” of £86,768 in the notes to the accounts included £19,981 directors’ remuneration and £64,987 pay of other employees, which sums were shown separately in the profit and loss account and that it appeared to me that the £19,981 included both the father’s remuneration and his wife’s remuneration.  On rereading the chairman’s record of the proceedings and the statement of reasons, I am not so sure that is correct because the father appears to have told the tribunal that the £19,981 was remuneration paid to his wife.  If that is so, the father’s earnings of £16,387.20 would presumably be part of the £64,987.  I do not consider that there is any evidence that the father received more than £16,387.20 in the relevant year (which is what the mother alleged) but, if his wife received £19,981 for working part-time on administrative tasks, there might be a question as to whether he had unreasonably reduced his income by diverting it to her.  Having been dismissive of this issue when I granted leave to appeal, I have not received any comments on it from the father.  As I must refer this case to another tribunal on another ground, it is sufficient that I say that this is an issue that must be investigated by that tribunal.

9.	I turn to the ground upon which I granted leave to appeal and the Secretary of State supports the appeal.  A sum of £12,149 is shown in the company’s profit and loss account for the year ended 31 March 2001 as “retained profit for the year”.  The previous year, the profit of £9,005 had similarly been retained.  The father’s case was that it was reasonable for the company’s profits to be ploughed back in.   The tribunal accepted that was so and therefore found that he had not “unreasonably” reduced his income.  However, the note in the accounts for the year ended 31 March 2001 about creditors shows the sum of £78,836 as “director’s account” and this figure was down from £88,108 in the previous year, showing that getting on for £10,000 had been drawn off.  The tribunal’s statement of reasons refers to that reduction in the father’s investment in the company but makes no comment on what appears to me to be an inconsistency in the father’s case.  In effect, the father was putting money into the company with one hand and taking it out with the other.  That completely undermines the tribunal’s reasoning for not issuing a departure direction based on the retention of profit.  Income was being converted into capital, which was very advantageous to the father as regards his child support liability.  If there was any substantial advantage to the company or if there was any other factor that made the reduction in income reasonable, I consider that the tribunal should have explained what it was.

10.	The father’s submissions have been mostly in relation to the tribunal’s decision on file C/06/075/1998/02469, which, as I have explained, is not before me.  In relation to the appeal that is before me he has reiterated his case that the investment in the business was necessary but he has not addressed the question why that is so if the principal effect has been to enable him to withdraw capital.

11.	Accordingly, I refer this case to another tribunal for consideration.  All issues arising on the application made on 29 August 2001 will be at large before the new tribunal but I do not encourage the mother to revive arguments that have previously been unsuccessful.

	(Signed)	MARK ROWLAND
		Commissioner
		28 May 2003