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NH v CMEC [2009] UKUT 183 (AAC) (23 September 2009)

Appeal No. CCS/3583/2008

IN THE UPPER TRIBUNAL

ADMINISTRATIVE APPEALS CHAMBER

1. This is an appeal by the non-resident parent (Mr H), brought with the permission of a Judge of the First-tier tribunal, against a decision of an appeal tribunal sitting at Middlesbrough on 30 September 2008. For the reasons set out below that decision was in my judgment wrong in law and I set it aside. In exercise of the power in section 12 of the Tribunals, Courts and Enforcement Act 2007 I make the finding of fact set out in paragraph 24 below and re-make the Tribunal's decision. The decision which I substitute for that made by the Tribunal is as follows:

The appeal by Mr H against the decision of the Secretary of State made on 19 February 2008 is allowed, to the extent hereafter indicated, and that decision is set aside. Although there had been a change of circumstances in that the amount of income payable to Mr H under his permanent health insurance policy had increased, the appeal tribunal in 2005 had been in error of law in directing a variation by reason of such income, and Mrs. W's application for supersession, made by reason of the increase in income, therefore fails. However, there is no jurisdiction in either the decision maker or this tribunal to supersede the 2005 tribunal's decision for error of law, and the variation which that tribunal directed must therefore remain on foot. Subject to any supersession on other grounds, the decision of 17 August 2005 calculating child support maintenance liability at £73 per week therefore stands.

The facts

2. Mr H and the parent with care (Mrs W) have two daughters, now aged 14 and 12.
3. In 1990, when he was 40 and employed as a nurse, Mr H took out an "income security plan" (i.e. a permanent health insurance policy) with Zurich Life. This was an insurance policy designed to provide Mr H with an income in the event of his becoming "totally unable by reason of sickness or accident to follow his own occupation or occupations and is not following any other occupation." The sum payable was a fixed sum of £927 per month, with provision for increase linked to the RPI. Benefit does not become payable under the policy until after a year's incapacity, and ceases to be payable at the age of 65. There are provisions for payment of a proportionate benefit if Mr H were to become capable of carrying on another occupation or of working part time. By Clause 6 of the policy "If the Insured retires fully or partially from his occupation then unless the retirement is the result of a disability for which benefit is payable the Policy will be cancelled."
4. Mr H ceased working as a nurse (or in any capacity) some 10 to 12 years ago owing to what appears to have been extreme fatigue. The Tribunal found that at that time Mr H was sleeping some 16 hours a day, but that it was only some 3 years ago that this was diagnosed as being due to sleep apnoea. In 2007 he had a tracheotomy and jaw alignment, which appears to have resolved the sleep apnoea. At the date of the Tribunal hearing Mr H was doing a course and hoped to return to work in January 2009.
5. Following an application by Mrs W for child support maintenance, Mr H's liability was assessed as being the flat rate of £5 per week, the flat rate being applicable because he was in receipt of incapacity benefit. On 11 April 2005 Mrs W applied for a variation on the ground in reg. 19(1) of the Child Support (Variations) Regulations 2000, namely that the flat rate was applicable and that

"the Secretary of State is satisfied that the non-resident parent is in receipt of income which would fall to be taken into account under the Maintenance Calculations and Special Cases Regulations but for the application of [the flat rate provision]."

6. A decision maker refused to direct a variation, taking the view that Mr H's income from the permanent health insurance policy (at that time £1476.77 per month) was not income which would, but for the provision for a flat rate, have been taken into account under the main formula. However, by a decision made on 4 August 2005 an appeal tribunal ("the 2005 Tribunal") allowed Mrs W's appeal against that decision, holding that Mr H's income from the permanent health insurance policy would have been taken into account under the main formula, and directed a variation requiring it to be treated as his income under reg. 19(1) of the Variations Regulations. No Statement of Reasons for the 2005 Tribunal's decision was sought by or on behalf of Mr H or the Secretary of State, and there was no appeal against its decision.
7. By a decision made on 17 August 2005, implementing the 2005 Tribunal's decision, maintenance was calculated at £73 per week with effect from 8 December 2004.
8. On 10 January 2008 Mrs W applied for the existing maintenance calculation to be superseded on the ground that Mr H's income from the permanent health insurance policy had increased to £1568.17 per month. However, in response to that Mr H's representative submitted that

"as there has been a change in the amount of the income we would request that at this point you decide not to take the policy payments into account at all. The policy payments are not a personal pension and should therefore be exempt."

9. By a decision made on 19 February 2008 the decision maker acceded to Mrs W's application and superseded the existing maintenance calculation, increasing it to £77 per week with effect from 9 January 2008.
10. The Tribunal, by the decision now under appeal to me, dismissed Mr H's appeal against that decision. The Tribunal considered that, if the flat rate had not been applicable, Mr H's income from the permanent health insurance policy would have been included under the main formula as "other income" of Mr H, within the following definition in para. 15 of the Schedule to the Child Support (Maintenance Calculations and Special Cases) Regulations 2000 ("the MCSC Regulations"):

"This paragraph applies to any periodic payment of pension or other benefit under an occupational or personal pension scheme or a retirement annuity contract or other such scheme for the provision of income in retirement whether or not approved by the Inland Revenue."

Does the income from the permanent health insurance policy fall within para. 15?

11. The 2008 Tribunal reasoned as follows:

"The Zurich policy is an income security plan. It provided for income provision in the event of illness and disability. It was taken out by both parties when they lived together, paid for from joint funds as a form of income provision. When looking at the definition within the [MCSC Regulations] of "personal pension scheme" the Tribunal has concluded that this policy can be defined as such. It is a personal pension scheme being a scheme/arrangement capable of having effect so as to provide benefits (income provision) in the form of pensions or otherwise payable on death or retirement (in this case ill health retirement) to or in respect of [Mr H] who was an employed earner and who had made arrangements for the trustees of the scheme for him to be a member of the scheme. Taking a broad brush to that definition the Tribunal was satisfied that it can therefore be treated as income from a personal pension scheme."

12. Returning to the wording of para. 15 of the Schedule to the MCSC Regulations, it is clear that the permanent health policy is neither an "occupational pension scheme" nor a "retirement annuity contract" within the meaning of the definitions of those expressions in reg. 1(2) of the MCSC Regulations. "Personal pension scheme" is there defined as meaning:

"such a scheme within the meaning in section 1 of the Pension Schemes Act 1993 and which is approved for the purposes of Part XIV of the Income and Corporation Taxes Act 1988."

13. That definition is stated at the beginning of reg. 1(2) to apply "unless the context otherwise requires." It is clear that the requirement that the scheme be approved by HMRC does not apply in relation to the meaning of "personal pension scheme" in para. 15 of the Schedule to the MCSC Regulations, because it is there expressly stated that it does not matter whether the scheme is approved by the Inland Revenue.
14. By section 1(1) of the Pension Schemes Act 1993:

""personal pension scheme" means a pension scheme that –

(a) is not an occupational pension scheme, and

(b) is established by a person within section 154(1) of the Finance Act 2004"

15. The Commission's representative, in the relevant part of his submission in this appeal, appears to suggest that the definition of "pension scheme" which is relevant for the purposes of s.1(1) of the 1993 Act is that in s.150 of the Finance Act 2004. However, it seems to me that the relevant definition must be that in s.1(5) of the 1993 Act itself, which is as follows:

"In subsection (1) "pension scheme" (except in the phrases "occupational pension scheme", "personal pension scheme" and "public service pension scheme") means a scheme or other arrangements, comprised in one or more instruments or agreements, having or capable of having effect so as to provide benefits to or in respect of people –

(a) on retirement,

(b) on having reached a particular age, or

(c) on termination of service in an employment."

16. The words in brackets in that definition of "pension scheme" are puzzling. At first sight it looks as though that definition is not intended to apply to the use of the expression "pension scheme" in the definition of "personal pension scheme" in section 1(1). However, the only thing that section 1(1) does is to define the expressions "occupational pension scheme", "personal pension scheme" and "public service pension scheme". If the definition of "pension scheme" in s.1(5) does not have effect for the purpose of any of those three definitions, then it has no effect at all. That cannot be right. I think, therefore, that the words in brackets in section 1(5) were inserted simply in order to make clear that the definition has effect only where the words "pension scheme" are to be found in the actual definition of "personal pension scheme", "occupational pension scheme" or "public service pension scheme", and the definition is therefore not to be substituted in those expressions themselves. I would have thought that that would have been perfectly obvious in any event, but it is the only plausible explanation for the words in brackets in section 1(5) which I have been able to think of.
17. A permanent health insurance policy would not ordinarily be thought of as a "pension scheme". The question, however, is whether a permanent health policy such as the Zurich policy falls within the particular definition of "pension scheme" in s.1(5) of the 1993 Act. As noted above, the Tribunal considered that it does, on the ground that it is capable of having effect so as to provide benefits on retirement (i.e.

retirement by reason of ill health). Payment under the policy is triggered if the policy holder is unable by reason of ill-health to carry on his own occupation and is not following any other occupation. That may well result in "retirement" (i.e. early retirement on ill-health grounds) or in "termination of service in an employment". But of course it need not do so, in that the ill-health which prevents carrying on of the occupation may be merely temporary (although under the terms of Mr H's policy it must have lasted for longer than 12 months). The question is whether s.1(5), and in particular the words "on retirement", cover an arrangement where the trigger for payment is not the fact of retirement itself, but cessation of work owing to ill-health, which may or may not lead to retirement or termination of service. In my view an arrangement does not provide for payments "on retirement" or "on termination of service", within the meaning of s.1(5), unless that is the condition which makes the benefit payable. It is not in my judgment sufficient that the trigger for payment under the policy (inability to work for more than a year) may (and indeed in many cases probably will) also result in retirement or termination of service. If it were otherwise, payments under the policy would be pursuant to a "pension scheme", and therefore within para. 15, even in the case of a clearly temporary inability to work owing to ill-health. That would seem to be contrary to the intention behind the provisions.

18. The definition of "pension scheme" in section 150 of the Finance Act 2004 is wider, and includes schemes which provide benefits "on the onset of serious ill-health or incapacity" (whether or not "retirement" is involved). That would appear to have covered the permanent health policy in the present case, and I am not sure that I would have agreed with the Commission's submission that the benefits under the policy would still not have qualified as income for child support maintenance purposes by reason of the words "or other such scheme for the provision of income in retirement" in para. 15 of the Schedule to the MCSC Regulations. However, as the definition in section 150 of the 2004 Act is not in my view the relevant definition, I do not need to decide that point.
19. In my judgment, therefore, the income from the policy was not a payment of pension or other benefit under "[a] ….. personal pension scheme or a retirement annuity contract or other such scheme for the provision of income in retirement", within the meaning of para. 15 of the Schedule to the MCSC Regulations. A variation under reg. 19(1) of the Variations Regulations should therefore not have been made in respect of that income in 2005.

Should the decision of the 2005 Tribunal be superseded?

20. However, it does not follow from that that the 2008 Tribunal ought to have superseded the decision of the 2005 Tribunal and cancelled the variation which that Tribunal had directed. A decision of an appeal tribunal can be superseded only in accordance with the statutory conditions for a supersession.
21. Under reg. 6A(3) of the Social Security and Child Support (Decisions and Appeals) Regulations 1999 a decision (whether made by a decision maker, the First-tier Tribunal or the Upper Tribunal), may be superseded on the ground that there has been a change of circumstances since the date from which the decision had effect, or on the ground that the decision was made in ignorance of, or was based on a mistake as to, some material fact. In addition, a decision by a decision maker, but not a decision made on appeal, may be superseded on the ground that it was erroneous in point of law.
22. Mrs. W's application for supersession was made on the ground that there had been a change of circumstances, namely that the amount payable to Mr H under the policy had increased. Before considering the powers of the decision maker, and then appeal tribunal on appeal, pursuant to that application, it is convenient to consider whether there were any other supersession grounds available.

23. The only other possibility is that the 2005 Tribunal's error was not an error of

law, but rather that it was ignorant of or mistaken as to a material fact. Because no Statement of Reasons for the 2005 Tribunal's decision was sought, its precise reasoning is not known. At an earlier stage of this appeal I drew attention to the possible significance of the issue whether the 2005 Tribunal's error could be described as something other than an error of law, and directed that if the parties had any documentation, not already in evidence, relevant to why the 2005 Tribunal decided as it did, they should provide it. Mr H was represented in 2005, but not by the representative now acting, although the former representative's file has apparently been passed to the current representative.

24. Mr H's current representative relies on the fact that the variation application

made by Mrs. W in 2005 described the income received by Mr H as "private pension from Zurich Life – wage protection resulted from ill health" and then "Zurich Life – wage protection – resulting from ill health (private pension)." The representative submits that this indicates that Mrs W misled the 2005 Tribunal as to the nature of the payments being received, so that the 2005 Tribunal's error was essentially one of fact. I would not be willing to find, on the basis of the very small selection of documentation which has been produced, that the 2005 Tribunal was not provided with a copy of the permanent health policy, but relied simply on the description of the income in Mrs W's variation application. In the absence of much more convincing proof to the contrary, I assume and find that the 2005 Tribunal had a copy of the permanent health policy, and so was fully conversant with the facts. Even if it did not, however, it seems to me that the description which Mrs W gave, and in particular the reference to "wage protection", made it probable that the 2005 Tribunal understood that the payment was under a permanent health policy, rather than a payment on ill-health retirement under a personal pension policy. Again, therefore, I would consider it more probable than not that the error was one of law, rather than a mistake as to a material fact. I remind myself that the 2008 Tribunal undoubtedly had a copy of the policy, and was acquainted with all the facts, and yet decided that the income did fall within para. 15.

23. In his initial submission in this appeal the Commission's then representative appeared to be of the view that the increase in the payments under the policy justified the decision maker (and therefore the Tribunal on appeal) reconsidering the issue whether the income from the policy should have given rise to a variation at all, and superseding and cancelling the variation if it ought not to have done.
24. However, in para. 10(4) of R(IB) 2/04 the Tribunal of Commissioners said (in relation to the equivalent provisions of the 1999 Regulations relating to social security adjudication):

"It was common ground between Mr Drabble and Miss Lieven – and in our judgment rightly so – that the decision of the Court of Appeal in Wood v Secretary of State for Work and Pensions [2003] EWCA Civ 53 (reported as R(DLA) 1/03) is authority for the propositions that:

(a) there can be no supersession under section 10 unless one of the grounds for supersession specified in regulation 6 is actually found to exist, and the ground which is found to exist must form the basis of the supersession in the sense that the original decision can only be altered in a way which follows from that ground.

We refer, in particular, to the judgment of Rix LJ (with whom Dyson LJ agreed)(at paragraph 49):

" '[S]uperseded' in regulation 6 can only refer to an earlier decision in respect of which a subsequent Section 10 decision has been based on one of the regulation 6(2) criteria. Unless one of those criteria has been established, and, I would suggest, forms the basis of the new superseding decision, a section 10 decision superseding an earlier decision can not even be made."

Therefore, for example, it would not be permissible to supersede a decision awarding disability living allowance on the ground that the claimant's condition had worsened, but then to make an award which was less favourable to the claimant than the original one. The establishment of a ground for supersession does not therefore necessarily put the claimant's entitlement at large in the sense of empowering the superseding decision-maker to make whatever decision appears to him to be appropriate in the light of the claimant's current condition."

I refer also to para. 37 of R(IB) 2/04:

"…it follows from Wood that a claimant who appeals against an adverse supersession decision is entitled to submit on appeal that there was no available ground for supersession, or that that ground is not capable of forming the basis of the decision which was made." (My emphasis).

27. In a further written submission the Commission's representative (now Mr Christopher Ellis) accepts that it follows from that interpretation of the statutory provisions that the decision maker in the present case was not permitted to use the fact that the amount payable under the policy had increased as a ground for in effect superseding the 2005 Tribunal's decision for error of law and cancelling the variation. He submits that the only decision which the decision maker could permissibly have made was the one which he did – i.e. to give effect to the change of circumstances by taking into account the increased amount of income and therefore increasing the amount of the maintenance assessment.

25. However, Mr Ellis goes on to submit that, because the appeal raised the issue whether the variation should ever have been made, the 2008 Tribunal was entitled and required to consider that issue. I think that it is important that I set out the whole of this part of Mr Ellis' submission:

"15. What then of the duties of the tribunal? It clearly had before it the issue of whether the Zurich policy income did or did not fall within the terms of a variation reg 19(1). That was the ground of appeal. Thus is was not even a question of making a judgment as to whether to take into account an issue not raised by the appeal under section 20(7)(a).

16. In my submission a tribunal is entitled to reconsider a decision of an earlier tribunal when there has been a fresh MC made on supersession. I also submit that where the question of whether the making of a variation was in fact lawful was raised as a ground of appeal then the tribunal was required to deal with that question.

17. That simply leaves the question of whether the tribunal was (like the Secretary of State) confined to the grounds for supersession (in this case a change of circumstances – as stated by the Court of Appeal in Wood and confirmed in R(IB) 2/04).

18. I pause at this point to note that the situation the tribunal is faced with here is not exactly the same as the scenario described in R(IB) 2/04. This is not a case where the tribunal is dealing with an application for an increase in DLA where it considers that the award should be less. In this case the tribunal is exercising a power which was not available to the DM namely to make a different finding as to the law from that made by an earlier tribunal.

19. In my submission therefore the tribunal can substitute its own decision to the effect that the variation is to be cancelled and it can further decide that the effective date of that decision should be the effective date of the decision under appeal.

20. As I have said the tribunal here is not exercising a power which the DM would have had. It is not making a supersession decision of its own initiative because none of the grounds for such a supersession in reg 6A is satisfied.

21. The alternative is the very unattractive argument that a tribunal cannot reverse the decision of an earlier tribunal on the grounds that it erred in law even when fresh assessments are made. The result of that would be that a tribunal decision which was wrong in law would continue to have effect in perpetuity if it was not appealed timeously to the Upper Tribunal. In my view this would amount to an unwarranted restriction of the powers of tribunals."

26. In my judgment that submission is fundamentally flawed in that it proceeds on

the footing that, on an appeal from a decision made pursuant to a supersession application, the appeal tribunal's power can be wider than that of the decision maker. In my judgment that is plainly not right. There is nothing in the legislation which justifies such a conclusion. The issue for the appeal tribunal is simply whether the decision under appeal was right, and, if not, what decision the decision maker should have made: see, in particular, paras. 25, 26 and 55(8) of R(IB) 2/04. In so far as it is being suggested that there is a difference in this respect between an appeal tribunal's powers on appeal from child support decisions, as compared with the position (directly under consideration in R(IB 2/04) on social security appeals, I reject that suggestion. The structure of the legislation is for present purposes the same.

27. According to para. 16 of that submission the trigger for the appeal tribunal's wider power is that there has been "a fresh MC [maintenance calculation] made on supersession". But what if the decision maker has refused to supersede, so that there has been no fresh maintenance calculation? It would be very odd if the extent of the tribunal's power depended on whether the decision maker did not did not accede to the supersession application.
28. A decision can only be altered by the mechanisms of appeal, revision or supersession contained in the adjudication legislation: see section 46A of the Child Support Act 1991, which provides that "subject to the provisions of this Act, any decision of the Secretary of State or an appeal tribunal made in accordance with the foregoing provisions of this Act shall be final." The 2005 Tribunal's decision was not appealed, and there is no provision for revision of a decision made on appeal. The only possibility was therefore that of supersession.
29. I do not think that it is necessary for me to explore the limits of the principle,

accepted in R(IB) 2/04 as having been endorsed by the Court of Appeal in Wood, that on a supersession the original decision can only be altered in a way which follows from the ground for supersession. In most cases that principle will be of limited, if any, significance, because a decision which is later considered to be or to have become "wrong" can be superseded, either for change of circumstances or for ignorance or mistake of fact or (in the case of a decision not made on appeal) error of law. However, in my view it is clear from the structure of the supersession grounds, and in particular the fact that a decision made on appeal cannot be superseded for error of law, that it was not permissible in the present case to use the fact that the payments under the permanent health policy had increased as a reason for in effect superseding the 2005 Tribunal's decision for error of law.

30. I should stress that that is not because the 2005 Tribunal's finding and decision that the sums payable under the permanent health insurance policy fell within para. 15 had some effect by way of issue estoppel, so that it could not be reconsidered in any subsequent decision. It is implicit in s.46A(2) of the Child Support Act 1991 that there is no generally applicable principle of issue estoppel in child support adjudication. So far as I am aware, no regulations have been made under that provision to provide for issue estoppel to apply in particular circumstances.
31. The reason why the variation which the 2005 Tribunal directed could not be cancelled by the decision maker in 2008 (or the appeal tribunal on appeal from that decision) was not because the decision of the particular issue whether the policy income fell within para. 15 remained binding for the purpose of subsequent decisions, but because (i) the 2005 decision directing a variation continued to have effect unless and until superseded and (ii) the only available ground for supersession was a change of circumstances consisting of an increase in the amount payable under the policy, and a supersession on that ground could not lead to cancellation of the variation.
32. However, it does not in my judgment follow that the 2008 decision maker was required to give effect to the change of circumstances by increasing the amount of the maintenance calculation. So to hold would amount to saying that the 2008 decision maker was bound by the 2005 Tribunal's decision of the issue whether the policy income fell within para. 15. In my judgment, for the reasons which I have given, he was not. In considering whether the 2005 decision should be superseded for change of circumstances so as to increase the amount of the assessment, the decision maker was in my judgment entitled and required to reconsider whether the policy income fell within para. 15. If he concluded that it did not, the correct approach was simply to refuse the supersession application. He was not in my judgment required to give effect, by a superseding decision, to the wrong decision which the 2005 Tribunal had made on that issue. What he could not do, however, was to supersede the 2005 tribunal's decision by cancelling the variation.
33. What would the position have been if there had for some reason been a reduction in the amount of the policy income? That would have been a change of circumstances leading to supersession of the 2005 decision, in terms of a reduction in the maintenance calculation. Again, however, it was not a change of circumstances which could have led in effect to a cancellation of the variation directed in 2005. The appropriate decision would in my view therefore have been to supersede the 2005 decision by reducing the amount of the maintenance assessment.

Conclusion

34. The decision giving effect to my above conclusions is set out in paragraph 1

above.

Charles Turnbull

Judge of the Upper Tribunal

23 September 2009