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KN [2009] UKUT 139 (AAC) (17 July 2009)
Child support
variation/departure directions: other

Decisions of the Upper Tribunal
(Administrative Appeals Chamber)

As the decisions of the Middlesbrough appeal tribunal (held on 16 July 2008 under references 234/07/00590, 00591, 00592 and 00664) involved the making of an error in point of law, they are SET ASIDE under section 12(2)(a) and (b)(i) of the Tribunals, Courts and Enforcement Act 2007 and the cases are REMITTED to a differently constituted First-tier Tribunal (Social Entitlement Chamber).

DIRECTIONS:

The tribunal must undertake a complete reconsideration of the issues that are raised by the appeal and, subject to the tribunal's discretion under section 20(7)(a) of the Child Support Act 1991, any other issues that merit consideration.

Reasons for Decision

1. This case concerns the child support maintenance payable in respect of Mark and Graeme. Their father is the appellant before the Upper Tribunal and, in terms of the child support legislation, their parent with care. Their mother is a respondent and, again in terms of the child support legislation, their non-resident parent. The other respondent is the Child Maintenance and Enforcement Commission, which has replaced the Child Support Agency.

A. The appeals

2. The appeal tribunal had before it four appeals, all brought by the parent with care, against decisions on four applications by him for a variation. The applications were made on 20 December 2004, 16 March 2005, 14 April 2005 and 3 November 2006. The appeals were heard by a panel consisting of T W Blewitt (chairman) and J Wilson (financially qualified panel member).
3. Although I have set the tribunal's decisions aside, I want to acknowledge the care and attention to detail with which the members handled linked cases that were procedurally unclear and factually complicated. I also wish to acknowledge the quality of Mr Blewitt's analysis of the legislation.

B. The applications for variations

4. In part, the applications raised the issues whether the non-resident parent's life-style was inconsistent with her declared income and whether she had diverted income. In part, the applications also raised the issue of whether the non-resident parent had assets that were capable of producing income. As this is the main issue on the appeal to the Upper Tribunal, I need to set out the tribunal's reasoning.

C. The tribunal's reasoning on assets capable of producing income

5. This is governed by regulation 18 of the Child Support (Variations) Regulations 2000.
6. The tribunal noted that the non-resident parent had had dealings with a number of properties and that she had properly disclosed all income and capital gains to Her Majesty's Revenue and Customs.
7. There are three potentially relevant exclusions from regulation 18:

•    if the net value of the assets does not exceed £65,000 (paragraph (3)(a));

•    if the asset is being retained for a purpose that is reasonable in all the circumstances (paragraph (3)(b));

•    if the asset is used in the course of a trade or business (paragraph (3)(d)).

Trade or business?

8. The tribunal dealt first with this exclusion. It decided that the non-resident parent was not engaged in a trade or business, but was involved in 'an irregular and speculative enterprise in the hope (but without any guarantee) of obtaining a surplus from the proceeds of sale after expenses of purchase, sale, mortgage payments and repairs and improvement costs.' It did so, because (i) this was the opinion of Her Majesty's Revenue and Customs, (ii) all the properties were acquired in a period of a few months in 2005, and (iii) purchasing ceased and all the properties were eventually sold.
9. It seems to me that the tribunal's description of the non-resident parent's activities may well be an accurate description of the trade or business of a property developer. That issue will have to be reconsidered, if necessary, at the rehearing.

Retention reasonable?

10. The tribunal decided that this exclusion applied, because it was reasonable for the non-resident parent to retain the properties with a view to making a capital gain on sale. However, the tribunal decided that this exclusion ceased to apply by 3 November 2006, because the enterprise on which the non-resident parent had embarked had come to an end. No more properties were being bought and the properties held were being sold, albeit that some remained.
11. It seems to me that if it was reasonable to retain the properties at all, it was reasonable to retain them while they were disposed of in an orderly manner. That issue will have to be reconsidered, if necessary, at the rehearing.

Value of assets?

12. The tribunal found that the non-resident parent had assets in excess of £65,000 at 2 May 2006 and would have agreed to a variation from that date had it not been for the decision of deputy Commissioner Wikeley (now Upper Tribunal Judge Wikeley) in CCS/1885/2007. It is on this ground that a Tribunal Judge gave the non-resident parent permission to appeal.

D. Working tax credit

13. The parent with care had been awarded working tax credit. The tribunal interpreted CCS/1885/2007 as an authority that an application for a variation in respect of a non-resident parent who was in receipt of working tax credit had to be rejected on preliminary consideration. It is correct that that case concerned working tax credit, but I do not read it as an authority for the proposition identified by the tribunal. Certainly, that issue was not argued in the case. In order to understand the issue, I need to explain something of the way that applications for variation as dealt with.
14. An application for a variation may be made at the same time as the application for child support maintenance or when a calculation is in force. For convenience, I will refer only to the former, which is governed by section 28B of the Child Support Act 1991. Equivalent provision is made for the latter by section 28G and regulation 6 of the Child Support (Variations) Regulations 2000.
15. The first issue when an application is presented is whether it has been duly made. If it has, section 28B allows the Child Maintenance and Enforcement Commission to reject it on preliminary consideration. This is a summary procedure that allows the Commission to dispose of what may loosely be called 'hopeless cases'. Section 28B(2) identifies two cases in which the application would be destined to fail: (a) if it does not contain grounds on which a variation could be agreed; and (ii) it does not contain sufficient information to make a maintenance calculation. It then provides for other circumstances to be prescribed by legislation. Those other circumstances are prescribed by regulation 7 of the Regulations. Regulation 7(5)(b) applies if 'the non-resident parent or a partner of his is in receipt of working tax credit under section 10 of the Tax Credits Act 2002.'
16. Most of the circumstances set out in regulation 7 are ones in which a variation could not be of any effect. However, regulation 7(5)(b) is different. As Mr Blewitt noted, the significance of an award of working tax credit may vary according to the ground of variation that is being considered. It may be reasonable when considering whether the non-resident parent has a life-style inconsistent with her declared income to know that her income has been assessed by Her Majesty's Revenue and Customs and an award made of working tax credit. That was the position in CCS/1885/2007. However, the position is different when assets capable of producing income are being considered. The award of tax credit is no indication of a claimant's capital position.
17. Mr Blewitt went on to note that, if his tribunal had not been bound by CCS/1885/2007, it would have relied on the fact that both section 28B and regulation 6 use the word 'may', not 'shall'. His interpretation was that the Commission had a power to reject an application if the conditions are satisfied, but was not under a duty to do so. As I have said, I do not read CCS/1885/2007 as deciding otherwise. I agree with Mr Blewitt's interpretation. As this case involved capital, it was not appropriate to exercise the power. It was appropriate to consider the application on its merits.
18. It follows that the tribunal misdirected itself in law by misinterpreting the principle for which CCS/1885/2007 is an authority. I have considered whether I could re-make the decision by agreeing to the variation that the tribunal would have made had it not felt itself bound by that decision. However, I have remitted the case for two reasons. First, I have already commented that the tribunal's conclusions on the other exclusions may be doubtful. Second, the tribunal did not have the benefit of the decision in RC v CMEC and WC [2009] UKUT 62 (AAC). The Upper Tribunal there decided that the just and equitable test was not an all or nothing one. This may be relevant as the statutory rate of interest attributed to the capital asset, which the tribunal would have applied, is 8%. It may be that, even at the time involved in these cases, that may not have been an appropriate rate of interest.

E. Other issues

19. I need to deal briefly with the issues raised by the parent with care in his appeal.
20. First, he refers to what he calls benefit fraud and the prosecution of the non-resident parent. As far as I can tell, the benefit involved was child benefit and the prosecution refers to the repayment of the benefit overpaid. He has not explained how this issue would affect the application of the legislation governing variations.
21. Second, he refers to the law changing since 2004. I am not sure what he means by this. The tribunal had to apply the law as it was at the time of each of the decisions under appeal.
22. Third, he refers to some evidence of the non-resident parent running a business and of her financial position. This evidence will be considered at the rehearing.

F. Disposal

23. I allow the appeals and remit the cases to the First-tier Tribunal for reconsideration.

Signed on original on 17 July 2009

Edward Jacobs Upper Tribunal Judge