R(CS) 3/01
Mr. E. Jacobs CCS/4885/1998
25.9.00
Departure direction - lifestyle inconsistent with declared income - whether tribunal entitled to base direction on evidence which could also be used in formula assessment
Tribunal practice - additional grounds for departure added following referral - whether within tribunal's jurisdiction
The Secretary of State referred an application for departure by the parent with care to a tribunal. The tribunal gave a departure direction in respect of lifestyle inconsistent because it could not accept that he would now be living on so low an income as he had declared; and in respect of partner's contribution to housing costs that 50% be attributable to each party because they were both working, had no dependants, and therefore contributed equally. The absent parent appealed to the Commissioner.
Held, allowing the appeal, that:
- it is necessary to assess specifically the level of income required to support the overall life-style and to consider the difference between that and the income declared for the formula assessment in order to comply with regulations 25(1) and 40(5) of the Child Support Departure Direction and Consequential Amendments Regulations 1996;
- it is permissible in a departure case to rely on both evidence of lifestyle which should properly be taken into account for the formula assessment and other evidence of lifestyle which indicates an inconsistency with the income on which the formula assessment is based;
- it is not a mistake of law to base a departure direction on such evidence even though it could also be used for a formula assessment;
- a departure direction in respect of partner's contribution to housing costs must be based on the respective incomes of the parties to comply with regulation 40(7);
- it is essential to form a positive view on the evidence that the just and equitable requirement is satisfied;
- no burden of proof applies to the evaluation of that evidence;
- an applicant may add another head to an application before it is determined by an appeal tribunal on referral.
DECISION OF THE CHILD SUPPORT COMMISSIONER
Decision:
- My decision is as follows. It is given under section 24(2) and (3)(d) of the Child Support Act 1991.
- 1 The decision of the Sheffield child support appeal tribunal held on 16 September 1998 is wrong in law.
- 2 Accordingly, I set it aside and refer the case to a differently constituted appeal tribunal for determination.
- 3 I give the following directions to the appeal tribunal that rehears this case:
(a) The appeal tribunal must investigate and determine all of the issues raised by the parties that are within its jurisdiction, together with all other issues arising from the evidence or the circumstances of the case. In particular, the appeal tribunal proceed as directed in paragraphs 35, 40, 48 and 52.
(b) Before this case is listed for rehearing, I direct that it must be put before a legally qualified panel member to consider whether it is necessary or desirable to give directions under regulation 38(2) of the Social Security and Child Support (Decisions and Appeals) Regulations 1999. Also, the panel member will want to ensure that the decisions of the Commissioners mentioned in paragraphs 35, 40 and 48 are added to the papers.
The parties
- This case concerns an application for a departure direction from the formula assessment of the absent parent's liability for child support maintenance. In the terminology of the child support legislation, the appellant is the absent parent, and the second respondent, who applied for the departure direction, is the parent with care. I shall refer to them in those terms.
- The child support officer was added as a third respondent as some of the issues raised by the appeal concerned the relationship between the formula assessment (made by the child support officer) and the "life-style inconsistent" head for a departure direction (given by the Secretary of State). However, on 1 June 1999, the title and status of child support officer were abolished and the duties of those officers were transferred to the Secretary of State.
The appeal to the Commissioner
- This is an appeal to a Commissioner against the decision of the appeal tribunal brought by the absent parent with my leave. The Secretary of State supports the appeal.
- I directed an oral hearing of the appeal. It was held before me in London on 13 September 2000. Neither the absent parent nor the parent with care attended, although both had made written observations on the appeal. The Secretary of State was represented by Mr. L. Scoon of the Office of the Solicitor to the Departments of Health and Social Security. I am grateful to him for his submissions.
The history of the case
- The parent with care applied for a departure direction from the formula assessment of the absent parent's liability for child support maintenance. The application was made under a number of heads. The application could not succeed in respect of some of those heads, because the necessary conditions were not satisfied. The Secretary of State referred the application to a child support appeal tribunal. The submission on the referral included the application form, some computer printouts relating to the formula assessment, and a summary of the heads of the application with brief comments.
- The parent with care wrote to the chairman of the appeal tribunal asking for a direction that the absent parent provide specified details and that the Child Support Agency provide a comprehensive breakdown of child support calculations since 1994. She also referred to extra expenses relating to her son's medical condition. She enclosed some further evidence.
- A full-time chairman of tribunals gave detailed directions to the absent parent to provide information and documents. No direction was given to the Child Support Agency. The absent parent replied and complied with some, but not all, of the chairman's directions.
- At the hearing, the parent with care attended and a presenting officer was in attendance for the Secretary of State. The absent parent did not attend and was not represented.
- The child support appeal tribunal gave a departure direction in respect of life-style inconsistent and partner's contribution to housing costs.
The tribunal's reasons
- Although the full statement of the tribunal's decision dealt with other issues, it is only necessary to set out how it dealt with three issues.
Life-style inconsistent
- The tribunal drew from the absent parent's failure to produce all the evidence specified in the chairman's direction the adverse inference that he had not been fully frank. It knew of the declared income of the absent parent and his partner, amounting to £176.01 a week net. It also knew some of the family's outgoings, amounting to £586.27 a month. It considered that "his lifestyle (modest though it may be) is substantially in excess of his declared income." The parent with care had described the absent parent as ambitious and he had had an income of £22,000 in 1992-1993. In those circumstances, the tribunal said that it could not accept that he would now be living on so low an income as he had declared. The appeal tribunal concluded that he had a gross annual income of £30,000. As I read the decision notice and the full statement of the tribunal's decision, that was the absent parent's income only and was additional to his partner's income.
Partner's contribution to housing costs
- The appeal tribunal assumed that, as both the absent parent and his partner were working and had no dependants, they contributed equally to joint living expenses. It 'therefore' directed that the absent parent be allowed only 50% of his housing costs.
Just and equitable.
- The appeal tribunal dealt with this requirement in this paragraph:
"On the limited evidence available to us and bearing in mind the precise amount of the new assessment cannot be calculated today as full details were not provided by the CSA and also it is necessary to calculate [the absent parent's] tax liability there is no reason to suggest the final figure would not be just and equitable."
- The Secretary of State's submission to the Commissioner states that the recalculation in accordance with the direction given by the appeal tribunal increased the child support maintenance from £4.80 to £90.53 a week.
- There are issues that arise in respect of each of these parts of the tribunal's decision and reasons. An issue also arises on the special expenses relating to the qualifying child's medical condition.
The legislation
- The relevant legislation is contained in the Child Support Act 1991 as amended and the Child Support Departure Direction and Consequential Amendments Regulations 1996. References are to that Act and Regulations unless otherwise stated.
Life-style inconsistent
The tribunal's reasons
- This head is governed by regulations 25 and 40(5). Both were amended from 19 January 1998. I set out the version current at the date of the application. The amendments do not affect any issues that arise on this appeal.
- Regulation 25(1) applies if:
"the Secretary of State is satisfied that the current maintenance assessment is based upon a level of income of the non-applicant [in this case, the absent parent] which is substantially lower than the level of income required to support the overall life-style of that non-applicant."
- If a case is made out under regulation 25(1), regulation 40(5) provides that:
"the net income of the non-applicant who is a parent of a child in respect of whom the current assessment is made shall be increased by the difference between the two levels of income referred to in paragraph (1) of that regulation [i.e. regulation 25]."
- The tribunal's reasons show that it did not have regard to these provisions. It first concluded that the absent parent's lifestyle was substantially in excess of his declared income. Then, it fixed the absent parent's income by reference to his previous income and his ambitious character. Those factors may be relevant to determining the absent parent's income, but they are not relevant to determining the increase in his net income under regulation 40(5). That increase has to be determined as set out in regulation 40(5) and not in any other way. The tribunal should have reasoned from the life-style to the income needed to support it. It did not do that and that was a mistake in law.
- There is a further mistake in law in this part of the case. In deciding whether the conditions in regulation 25(1) are satisfied, it is always relevant to consider whether the parent's life-style could be financed in other ways than from income.
- Regulation 25(2)(b) (re-enacted from 19 January 1998 as regulation 25(2)) makes express provision for a life-style being paid for from capital or from a partner's income. The tribunal clearly considered the possibility that the partner's income was being used to finance the life-style, but nonetheless concluded that it could not be supported even on their joint incomes. It was improbable that the absent parent was supporting his modest life-style from capital. So, the tribunal cannot be criticised for not referring to that.
- However, there are other ways in which a life-style can be supported than those covered by regulation 25(2)(b). They include careful budgeting and the use of credit facilities. The tribunal had no evidence on these matters. This was not because the absent parent had failed to comply with the chairman's direction to produce evidence, as those directions did not include these matters. The difference between the incomes used in the formula assessment and the couple's expenditure as considered by the tribunal was not so great that it could not be achieved by careful budgeting and perhaps by some use of credit. Obviously, the tribunal could not decide, in the absence of any evidence, that this was how the life-style was achieved. But these were realistic possibilities. The tribunal should have taken them into account in determining whether regulation 25(1) applied and its reasons should have shown that it had done this. The lack of reference to these considerations in the context of the tribunal's findings on income and expenditure makes its decision wrong in law.
The relationship between regulation 25 and the formula assessment
- I raised the issue of the relationship between regulation 25 and the formula assessment of income. Schedule 1 to the Act, supplemented by the Child Support (Maintenance Assessments and Special Cases) Regulations 1992, contain detailed rules about calculating or estimating a parent's income for a formula assessment. Regulation 25 applies if the parent's life-style shows that there is a higher level of income than was taken into account for the formula assessment.
- Mr. Scoon argued that these were separate and discrete provisions each of which had its own proper scope. I agree with him that that is true of the way in which they are operated by the officers who act in the name of the Secretary of State (and previously those who acted as child support officers). Those officers take a narrow view of the evidence of income that is admissible in making a formula assessment. They rely on documentary evidence, like wage slips, P60s and accounts. In my experience, they do not rely on other evidence at all. Certainly, they do not do so regularly. Their approach leaves regulation 25 to apply when the parent's life-style is not consistent with the documentary evidence of income.
- However, this clear distinction is not maintainable before appeal tribunals and Commissioners, as they take a broader approach to evidence of income for a formula assessment. That is illustrated by CCS/3368/1997, paragraph 4, in which Mr. Commissioner Howell directed a child support officer to make a formula assessment of a father's income "taking into account the father's style of living and expenditure if the required details continue to be unforthcoming."
- This creates a problem for appeal tribunals and Commissioners who are dealing with a regulation 25 case in which a parent appears to have more income than has been considered in the formula assessment. Should the additional income be taken into account under regulation 25 or should the matter be deferred for the formula assessment to be reconsidered?
- Obviously, regulation 25 cannot be used if the evidence relied on is not evidence of the parent's life-style. That will be the case, for example, if the evidence shows that a payslip has been misread or accounts misinterpreted. Mr. Commissioner Williams dealt with a case of misunderstood accounts in CCS/4247/1999. The Commissioner decided that a case had not been shown under regulation 25 and referred the case to the Secretary of State, drawing attention to the doubts about the accuracy of the formula assessment. He explained the basis of this approach in paragraph 29:
"If the assessment is wrong it should be reviewed … I do not accept that the departure direction procedure is there to circumvent the review and appeals procedure or to make good a failure to apply the rules for assessment properly. In other words, it is inappropriate to use a departure direction to arrive at what should have been the starting point."
- I respectfully agree with the approach taken by the Commissioner in the circumstances of that case. However, with respect, my opinion is that his reasoning in paragraph 29 goes too far. It leaves very little room for regulation 25 to apply. Indeed, it may leave no room for it to apply at all in view of Mr. Commissioner Howell's approach to evidence of income, with which I respectfully agree.
- I am not the only Commissioner who has criticised the circuitous and lengthy procedures that apply in child support. They have been improved under the Social Security Act 1998, but there is still plenty of scope for parents to find themselves going round in circles. I admit to a predisposition against increasing the complexity of the child support procedures if I can avoid it.
- The legislation has created an overlap. Evidence of life-style may be used to show income either for a formula assessment or for a departure direction. Obviously, the same income can be taken into account under both. If the issue comes before an appeal tribunal in a formula assessment case, it must follow the approach of Mr. Commissioner Howell in CCS/3368/1997. The terms of the income assessment rules in the formula are mandatory. The appeal tribunal must admit the evidence of life-style and determine what level of income can be inferred from it. If the issue comes before an appeal tribunal in a departure direction case, it must deal with the case under regulation 25, provided that there is evidence of a life-style inconsistent with the income on which the formula assessment was based. If the evidence relied on is not of life-style, the approach of Mr. Commissioner Williams in CCS/4247/1999 must be followed.
- This approach should ensure that the same result is reached, hopefully by the most efficient route. The formula assessment rules are mandatory. Income proved by evidence of life-style must taken into account. If it is taken into account, it cannot be relied on again under regulation 25. If it is not taken into account, it can be considered on an application under regulation 25. That regulation is not mandatory, as there are discretionary elements which have to be considered. If a departure direction is given in respect of this income, it is included in the formula as net income, just as if it had been proved under a formula assessment. The next time that the formula is reconsidered, it can be taken into account and the departure direction will no longer be needed. If a departure direction is not given, the evidence used can be relied on to support a reconsideration of the formula assessment.
- Stated in a different way, my conclusion is this. It is not a mistake of law for a tribunal to deal with a parent's income by inference from life-style under regulation 25, even if the same evidence could also be used under a formula assessment. This applies whether or not the tribunal gives a departure direction under that head.
Directions for the rehearing
- I direct the appeal tribunal to proceed as follows at the rehearing. It must take the approach I have set out in this section of my decision. It must also follow the analysis of Mr. Commissioner Williams in CCS/4247/1999, paragraphs 32 to 36. A copy of that decision (or, at least, of those paragraphs) must be added to the papers.
Partner's contribution to housing costs
The tribunal's reasons
- On the face of it, there is a contradiction between the tribunal's conclusion on life-style inconsistent and its conclusion that the absent parent's partner should meet half of his housing costs. The tribunal concluded that the absent parent had a gross income of £30,000 a year, which must have been at least three times his partner's income. Nevertheless, the tribunal assumed that they were contributing equally to their joint living expenses, including housing costs. That assumption is not obvious to me. Given the disparity in their incomes as found by the tribunal, it is surely most unlikely that they were contributing equally to their joint expenses. At the least, the tribunal's reasons for making that assumption are inadequate. That makes its decision wrong in law.
- Even if the assumption was correct, it did not necessarily follow that a contribution of 50% towards the absent parent's housing costs was appropriate. The appropriate amount by which the absent parent's eligible housing costs are reduced in a direction under this head must be determined by taking into account the income of the absent parent and his partner: see regulation 40(7). There is nothing in the tribunal's reasons to show that it took account of income at all. The tribunal's reasons related entirely to other factors. That was a mistake of law.
- In some cases it is appropriate to assume that tribunals know and have applied the correct law, although it is not expressly mentioned. This is not one of those cases. The lack of any reference to the couple's incomes, taken with the disparity between their incomes, raises a doubt whether the tribunal did have in mind the correct legal test.
- It is also possible that the tribunal's conclusion on this head may be perverse in the sense that it was not a conclusion that was open to a tribunal acting judicially and properly instructed on the law. However, in view of the other mistakes in this part of the case, it is not necessary for me to go so far.
Directions for the rehearing
- I direct the appeal tribunal at the rehearing to follow my decision in CCS/3543/1998, paragraphs 13 to 24. A copy of that decision must be added to the papers.
Just and equitable
- Section 28F(1) of the Act provides that:
"The Secretary of State may give a departure direction if-
(b) it is his opinion that, in all the circumstances of the case, it would be just and equitable to give a departure direction."
- Section 28D(3) provides that
"In dealing with an application for a departure direction which has been referred to it under subsection (1)(b), a child support appeal tribunal shall have the same powers, and be subject to the same duties, as would the Secretary of State if he were dealing with the application."
- Taken together, those provisions imposed a duty on the tribunal not to give a departure direction unless it was satisfied that it was just and equitable to give it. Before the tribunal had power to give a direction, it had to form the positive opinion that it would be just and equitable to do this. In the circumstances of this case, it was not sufficient to decide that there was nothing to suggest that it would not be just and equitable. It may be that the tribunal was correct in making that statement. However, by its own admission it did not know what net income it was attributing to the absent parent and did not know what effect that would have on the amount of child support maintenance payable by the absent parent. In those circumstances, it was not in position to be satisfied that it would be just and equitable to give the direction. There may be some cases in which it is possible to estimate the likely impact on the formula assessment sufficiently to reach a judgment that it would be just and equitable to give a direction without knowing the precise amount of the change that it would produce. This was not one of them. I doubt that the tribunal knew that the change would be as great as it was; it certainly came as a surprise to me. It is always wise to know the impact that a direction would have on a formula assessment before giving the direction. In most cases it will be a mistake of law not to have this information. It was a mistake of law in this case.
- The tribunal was also wrong in law to apply a burden of proof to this issue. A consideration of the just and equitable test resolves into two stages. First, there is an information gathering stage. Second, there is an evaluating stage in which the tribunal determines on the basis of the information before it whether it would be just and equitable to give a direction. The balance of probabilities may (I do not have to decide this point) be relevant to the first stage, but it has no role to play in the second stage. See the judgment of Lord Justice Sedley in Karanakaran v. Secretary of State for the Home Department [2000] 3 All ER 449.
- Section 28F(3) provides that:
"In considering whether it would be just and equitable in any case to give a departure direction, the Secretary of State shall have regard, in particular, to-
(a) the financial circumstances of the absent parent concerned;
(b) the financial circumstances of the person with care concerned;
(c) the welfare of any child likely to be affected by the direction."
- It was the tribunal's duty to consider those matters. It knew about the parent with care's financial circumstances and it is reasonable to assume that it took them into account. However, by its own admission it did not know the amount of net income it was attributing to the absent parent. As far as the likely impact on children is concerned, the only child to consider in this case (as far as I know) was the qualifying child. Astonishingly, the Secretary of State's submissions in departure cases regularly make no mention at all of the qualifying children. In this case, the tribunal had some details, but only because the parent with care had mentioned her son's medical condition and the related expenses. The tribunal did not refer to this evidence.
- By its own admission the tribunal was unaware of matters that were relevant to the just and equitable requirement. And it reasons do not refer to the qualifying child. There are both mistakes of law in the tribunal's decision.
Directions for the rehearing
- I direct the appeal tribunal at the rehearing to proceed in accordance with the above analysis and with my decision in CCS/3543/1998, paragraph 25 to 32.
Special expenses
The tribunal's jurisdiction
- The tribunal ignored the points made by the parent with care about the special expenses relating to her son's medical condition. This was relevant not only to the just and equitable requirement, but also to regulation 15 (special expenses of illness or disability). Was that correct in law or should the appeal tribunal have considered them under the illness or disability head?
- Mr. Scoon argued that it was not permissible for the parent with care to add a further head to her application and that the expenses related to her son's condition should be made in another application. I reject that argument. The case came before the tribunal on a referral by the Secretary of State under section 28D(2). That provision authorises the referral of "the application ... for the tribunal to determine it". An application must "state in writing the grounds on which it is made": see section 28A(2). However, regulation 5 allows an applicant to amend an application "by notice in writing to the Secretary of State at any time prior to a determination being made in relation to that application." That is wide enough to include an amendment by adding a further head. Even if a letter is addressed to the tribunal, it will come to the attention of the Secretary of State as a party to the proceedings. So, the parent with care's letter was sufficient notice to the Secretary of State of an amendment to her application and it was given before the tribunal determined her application. This gave the tribunal jurisdiction to deal with the amendment. As the absent parent had notice of the issue, no problems of natural justice arose. So, the tribunal was under a duty to deal with it. It did not and that was wrong in law.
- This reasoning applies to referrals only. It does not apply to cases that come before an appeal tribunal on appeal.
Directions for the rehearing
- The appeal tribunal must consider whether or not to give a departure direction under regulation 15.
Summary
- The tribunal's decision was wrong in law in a number of respects. So, it must be set aside. It is not appropriate for me to determine the application for a departure direction, because further evidence needs to be obtained and the facts investigated by questioning the parents. There must, therefore, be a rehearing of the case before a differently constituted appeal tribunal.
- I encourage both parents to attend the rehearing of the case. The absent parent must surely have learnt of the danger of not attending. A tribunal's decision cannot be better than the quality of the evidence before it. Its decision will be more soundly based if it is able to hear evidence from, and question, both parents. Whether or not it accepts a particular parent's evidence, of course I cannot say.
- In order to assist the parties in producing evidence relevant to the case, I have directed that a legally qualified panel member consider giving directions to identify the type of evidence that will be relevant.
Date: 25 September 2000 (signed) Mr. E. Jacobs
Commissioner
