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[2004] UKSSCSC CCS_3428_2002 (24 February 2004)

 


CCS 3428 2002

DECISION OF THE SOCIAL SECURITY COMMISSIONER

I dismiss the appeal. For the reasons below, the decision of the tribunal is not wrong in law.

The absent parent is appealing, with permission of a chairman, against the decision of the London (Whittington House) appeal tribunal on 14 November 2000.

REASONS

1. I held an oral hearing of this appeal on 27 January 2004 in London. The absent parent and appellant (to whom I refer as A) was represented at the hearing by Rebecca Carew Pole of counsel, instructed by Family Law in Partnership. The first respondent, the Secretary of State, was represented by Leo Scoon of the Office of the Solicitor to the Department for Work and Pensions. The second respondent and parent with case (to whom I refer as C) was represented by David Burrows, solicitor.
2. I ruled, on request, that the hearing be in private. I did so for a combination of reasons and after discussion with the parties. Hearings before child support commissioners, like all other judicial hearings at the decision making stage, are normally in public. The duty to hear the matter in public arises in part from the European Convention on Human Rights. But in this case I considered that the combination both of the personal interests of the parties – and in particular of the qualifying child who was not a party to the proceedings though the reason for it – and to a lesser extent the commercial confidentiality which A may expect raised issues under Article 8 of, and Article 1 Protocol 1 to, the European Convention on Human Rights that overrode the public interest in a public hearing under Article 6 in this case.

Background to this appeal

3. The decision under appeal (which was subject to a very late application for leave to appeal granted by a chairman) allowed an appeal by C against a decision of the Secretary of State about the amount of child support maintenance A was liable to pay to C for the qualifying child of whom they are both parents with effect from 2 January 1997. The formal decision of the tribunal was that the assessment should be based on the 1995/6 accounts.
4. The original decision by the Secretary of State was that A's net weekly income for child support maintenance purposes was £53.75. This had previously been revised downwards, and on further revision became nil in June 1999. This was because allowable expenses exceeded gross income. C appealed against this revised decision on a number of grounds. The submission to the tribunal by the Secretary of State suggested that this decision "may be incorrect", and the tribunal was asked to look at the matter again.
5. The papers suggest that A and C have been able to agree very little since their partnership broke down, and the current proceedings are part of that ongoing context. The papers contain a full decision by Cazelet J on an application by C for relief in respect of their jointly owned house and also for the qualifying child. I see no point in repeating the points rehearsed by Cazelet J as there is a full transcript in the papers, but I take all the relevant findings and comments in that judgment into account. It is sufficient to note that A had established a pre-eminent role in the exercise of his professional expertise but had, in his contention, suffered significantly in economic terms because of the way C had dealt with matters after their partnership broke up. His concern was that his liability to pay child support maintenance should reflect that.
6. The concern of the tribunal was rightly focussed only on the child maintenance assessment. It identified the relevant provision to apply as paragraph 5 of Schedule 1 to the Child Support Maintenance Assessment and Special Cases) Regulations 1992 (the MASC Regulations). It decided that it should apply paragraph 5(2) and not paragraph 5(3) and that accordingly the relevant accounts for assessing A's income at the effective date were the accounts for 1995/6.

Grounds of appeal

7. The grounds of appeal were that the tribunal should have had a proper regard to paragraph 5(3), that it dealt with the evidence before it inadequately, that it had wrongly excluded evidence from its consideration, that its decision was inadequate, and that it had been unfair with respect to one aspect of the procedure. The issue of unfair procedure was not pursued, after discussion, at the oral hearing and I deal no further with it.
8. Paragraph 5 of Schedule 1 to the MASC Regulations provides (in subparagraph (1)) a general rule for determining the weekly earnings of a self-employed individual. But this is subject to both subparagraphs (2) and (3). These provide:

(2) Subject to subparagraph (2A) where a person who is a self-employed earner provides in respect of the employment a profit and loss account and, where appropriate, a trading account or a balance sheet or both, and the profit and loss account is in respect of a period of at least 6 months but not exceeding 15 months and that period terminates within the 24 months immediately preceding the effective date, the amount of his earnings shall be determined by reference to the average of the earnings over the period to which the profit and loss account relates and such earnings shall include receipts relevant to that period (whether or not received in that period).

(2A) Where the Secretary of State is satisfied that, in relation to the person referred to in subparagraph (2), there is more than one profit and loss account, each in respect of different periods, both or all of which satisfy the conditions mentioned in that subparagraph, the provisions of that subparagraph shall apply only to the account which relates to the latest such period, unless the Secretary of State is satisfied that the latest such account is not available for reasons beyond the control of that person, in which case he may have regard to any such other account which satisfies the requirements of that subparagraph.

(3) Where a calculation would, but for this subparagraph, produce an amount which, in the opinion of the Secretary of State, does not accurately reflect the normal amount of the earnings of the person in question, such earnings, or any part of them, shall be calculated by reference to such other period as may, in the particular case, enable the normal weekly earnings of that person to be determined more accurately and for this purposes the Secretary of State shall have regard to –

(a) the earnings received, or due to be received, from any employment in which the person in question is engaged, or has been engaged or is due to be engaged;

(b) the duration and pattern, or the expected duration and pattern, of any employment of that person.

9. In applying that paragraph it is common ground that A is self-employed at all relevant times and that the effective date is 2 January 1997. Accordingly, the accounts for the purposes of paragraph 5(2) are any accounts ending between 3 January 1995 and that date. A's accounts were drawn to a year end of 30 September. So, potentially, the accounts within paragraph 5(2) are the accounts for the year ending 30 September 1995 and the year ending 30 September 1996. Applying paragraph 5(2A), the relevant account is that for the year to 30 September 1996.
10. Ms Carew Pole sought to resist the application of paragraph 5(2) in this way because the tribunal should have relied instead on paragraph 5(3). In a full argument, she submitted that the tribunal had misinterpreted that subparagraph, had failed properly to consider the circumstances in which the subparagraph applied in this case, and had erred in failing to apply it. In her view, paragraph 5(3) was not well drafted. In particular, it was not clear precisely to what "for this purpose" related. She submitted that it meant both the purpose of calculating the weekly earnings correctly and also the purpose of establishing if paragraph 5(2) was the appropriate rule by which to do this. The tribunal was therefore obliged to consider both the factors in subparagraph (3) before concluding that that subparagraph did not apply. The tribunal had not done this. In particular, it had not considered factor (b) because it had not looked forward, as it could do when hearing the case in 2000. Nor was there anything in the tribunal decision showing that it had considered averaging over 1995-6 and 1996-7. She relied on the decision of Commissioner Howell QC in CCS 718 1999 on that point, while distinguishing it from this case on its facts on other points, and she also referred to his decision in CCS 1645 1995. The tribunal had refused to consider up to date information and so had stopped itself taking a proper look at A's income on the evidence available.
11. Miss Carew Pole also noted that the accounts were based on the accruals basis, and that a full picture could only be seen by looking also at the cash books for the period. But this had not been done. There was also one high value contract in 1997/98 and this was mentioned in the proceedings but was not ruled on expressly by the tribunal. The overall result of the tribunal decision lacked common sense as it produced a child support maintenance assessment that was far too large in proportion to A's actual income from 1997 to 2001. That was clear from the failure of the Secretary of State to take account even of later information up to the date of decision in 1999. A's income had gone down, and that downturn was not cyclical. His business had changed because, for example, he had lost his business premises. In reaching a conclusion that paragraph 5(3) did not apply, the tribunal had reached a perverse conclusion.

The views of the Secretary of State

12. Mr Scoon started his submission on behalf of the Secretary of State by resiling in part from the written submission of the Secretary of State. Mr Burrows, on behalf of C, objected to this being done without notice to the other parties or to the Commissioner. This was because Mr Burrows had expected the Secretary of State to support his client's case and now found, without notice, that the opposite view had been adopted. I have some sympathy with that viewpoint, but also with that of Mr Scoon. Submissions in cases like these are often not made by lawyers at the initial stage, and the lawyers are sometimes instructed rather belatedly. In proper fulfilment of their professional duties, lawyers acting for the Secretary of State may consider that they should not pursue the opinion previously expressed for the Secretary of State before the Commissioner. Of course, if that change of view is made without notice in such a way as to make a hearing without adequate notice unfair, then the only proper course is for the case to be adjourned to give the other parties proper notice of the new view. In this case, however, the Secretary of State was a neutral party between the two sides of an argument where both were professionally represented. I suggested that on that basis we should hear Mr Scoon, and come back to any issue of unfairness if one emerged. In the event none did.
13. In effect, Mr Scoon's submissions were to transfer the allegiance of the Secretary of State from the arguments put for C to those put for A without any major new point emerging. Mr Scoon's view on behalf of his client was that the approach taken by Miss Carew Pole to the decisions of Commissioner Howell was the correct approach. Paragraph 5(3) should have been considered more fully. Other approaches could also have been taken, for example of having shorter assessment periods with different assessments for different periods. That could deal with any unfairness that later emerged.

The viewpoint of the parent with care

14. Mr Burrows strongly supported the decision of the tribunal. It was not a matter of common sense or reality but of applying the law. The issue was simply whether the tribunal should have gone outside paragraph 5(2). The tribunal had to take its decision consistently with section 20(7)(b) of the Child Support Act 1991, as amended, and should focus on the circumstances when the decision was made and the evidence before it. Paragraph 5(2) is in mandatory terms, and should be applied unless paragraph 5(3) is to be applied. For that to happen, the tribunal had to find on the facts that the accounts did not accurately reflect normal earnings. "The purpose" to be identified in that subparagraph was the purpose of the application of that subparagraph alone, and nothing wider. On the facts this was not a case where there was any obvious drop in income. That could be seen by looking at the averages across the figures available at the time for the periods from 1994 to 1996. The figure set by the tribunal was not far off the average over that period. Having heard from the other parties, Mr Burrows was of the view that not only was the tribunal view to be supported but that no substantive ground of law had been identified to disturb the decision of the tribunal on appeal.
15. In reply, Miss Carew Pole emphasised that the approach to be taken on the relationship between the two subparagraphs was a two stage approach. The facts related both to the first stage of establishing if the preconditions for transferring to subparagraph (3) were present and the second stage of identifying the income of an individual under that subparagraph. So the tribunal must look to both (a) and (b) to see if either applied. She also argued again that the tribunal decision had been perverse because the cash books were not the red herring that the tribunal had perceived them to be. She did not rest her case on other contentions raised by her client at earlier written stages in the proceedings and did not take further his point about a failure of fairness in the appeal process.

My decision

16. In considering these arguments, I indicated that I had not taken any detailed look at the full accounting information produced by A prior to the oral hearing, and that I did not therefore ask any party to address me on those issues, or on the issue of the nature of accounts. My view was that if the matter had to be redetermined then that should be done by an appeal tribunal with a financial member. That would give it the opportunity to take an expert view of the accounts and other financial evidence and the conclusions to be drawn from them.
    
17. I agree with Mr Burrows that the starting point in this case is that the Secretary of State and tribunal shall use the 1995/96 accounts. The starting point in this case was a decision of the Secretary of State resting not the paragraph 5(2) accounts but on cash books and other unfiltered information. The tribunal rightly concluded that this was the wrong approach, and that it should shift the basis of the assessment to the appropriate accounts.
18. As counsel recognised, there is a general, but unstated, assumption behind paragraph 5 that an account for the correct period, whether that identified under paragraph 5(2), 5(2A) or 5(3), will give a more "normal" answer than cash books, bank statements or similar information to the question of identifying the earnings of a self-employed person. A profits and loss account is usually drawn on an accruals basis, that is, on the earnings of the business and on the expenses incurred during the period of account. It should be drawn on the same basis from year to year. Such accounts are likely to produce more reliable figures than cash books or other cash flow information. This is because accruals based accounts reflect when work is done while cash books and bank statements reflect when work is paid for. Accruals based accounts also reflect when expenditure is incurred rather than when cash is transferred to creditors. The purpose of paragraph 5 is the identification of normal earnings of a self-employed earner at the relevant time, not the current cash flow position.
19. The second question for the tribunal was whether it should move the basis of assessment from the 1995-6 accounts to other (and if so which) accounts or information. The question for me is a narrower one. Has the tribunal erred in law in deciding that the evidence and information before it was such that it should properly adopt those accounts and no other basis for assessment with effect from January 1997?
20. The one authority raised on all sides as relevant to this question is that of Commissioner Howell QC in CCS 718 1999. The issue in CCS 718 1999 is the same as that here, namely on what basis the transfer should be made from paragraph 5(2) to paragraph 5(3). After setting out the relevant provisions, the Commissioner made it clear that mere variations of the earnings of a self-employed person over time were not a reason to depart from the accounts indicated in paragraph 5(2). I agree. I also agree with the concluding remarks of the Commissioner:

"Mr Burrows rightly drew my attention to the lack of any more precise definition of the word "normal" in this context, and that being so it seem to me that the decision on whether the basic accounting period required too be used by paragraph 5(2) throws up a "normal" or an abnormal figure must be very much a question of fact and degree for the tribunal of fact to determine, in which a Commissioner should be slow to interfere."

21. Before me, it was argued that CCS 718 1999 should be distinguished because it was on a different factual basis. In that case the variation of profits had been caused by the nature of the trade itself whereas, it was contended, in this case the variation was caused by the extraneous issue of the conduct of C in preventing A having access to trading assets. There was also the point that in this case, but not that, the timing of the decisions allowed a look forward as well as a look back, although the tribunal in this case had not properly used it. Those points are, in my view, points of fact and not inherent in the decision in CCS 718 1999. That decision was that, on the approach adopted by the Commissioner, there was no issue of law on which the Commissioner should interfere with the decision of the tribunal in its choice of periods of account.
22. In this case, the tribunal decided, after moving the basis of assessment to the accounts, that the 1995-96 account should be used and not those of 1996-97 (or, I add in the light of the arguments before me, any earlier or later period, or any averaging).
23. In its statement, the tribunal referred to the profits for 1993-94 and 1994-5, so clearly had those in mind. It stated that it was looking at "the entire period" but did not refer expressly to the profits from 1997 forward save that it indicated that it was aware of the high value contract. It was also aware of the comments of Cazelet J in his decision about A's business income and outgoings, and the effort that Cazelet J felt had been put into the business by A. The tribunal also reminded itself that as the decision of the Secretary of State was in 1999 it could look forward as well as back. It therefore did not fetter its decision in any inappropriate way.
24. That decision was made by a tribunal including a financially qualified member. It heard sworn evidence from A and C against a background of both copious information and the prior analysis of a High Court judge about the position between the parties. It is clear from the record of proceedings that the argument put to me were also put to the tribunal. The tribunal spent a day and a half hearing from, and examining, the parties before reaching the conclusion, which it set out, that it saw no basis to shift from paragraph 5(2) to paragraph 5(3). Despite the efforts of those representing A and the change of mind of the Secretary of State, I am not persuaded that there is any error of law in the decision of the tribunal that, as from January 1997, the basis of account should be that laid down in paragraph 5(2), namely the 1995-6 account, and I do not therefore interfere with it.

David Williams

Commissioner

24 February 2004

[Signed on the original on the date shown]