IN THE
UPPER TRIBUNAL Appeal No. CCS/308/2013
ADMINISTRATIVE
APPEALS CHAMBER
Before:
Upper Tribunal Judge PA Gray
The decision
of the Upper Tribunal is to dismiss the appeal. The decision of the
Sheffield Tribunal made on 17 September 2012 under number SC 147/11/ 00338 was
correct in law.
The issue in a nutshell is whether a non-resident parent,
habitually resident in the UK can have any financial liability under child
support legislation where he enters into employment with a company registered
outside Great Britain and works offshore. In my reasons for this decision I
will initially identify the parties and set out the chronology and decision
making by the agency, and then the issues that were before the FTT, and their
process and decision making. I will then deal with the procedure once the
matter moved to the Upper Tribunal, what I was considering and why, and the approach
to the law that I used in coming to my conclusions.
REASONS FOR DECISION
- In
this child support case, the appellant and the second respondent are the
parents of two boys, Connor and Oliver now 17 and 13 respectively. Since
their parents separated they have lived with their mother the second
respondent. She is the Parent with Care and their father is the
Non-Resident Parent in the terms of the applicable legislation. I will
refer to the parents as the mother and the father. The Secretary of
State for Work and Pensions is the respondent, the functions of CMEC
(formerly the CSA) having been transferred to the DWP under a transfer of
functions order effective from 1/8/12. I will refer to the body that has
from time to time been administering child support maintenance as the
agency.
- Child
support maintenance for the boys was based on the statutory scheme which
came into place on 3/3/2003, still known as the "new rules" to
distinguish it from the original scheme, the "old rules". It
will be necessary for me to refer later to that initial scheme.
- During
2009 the mother applied to the agency for a maintenance calculation in the
knowledge that the father was gainfully employed.
- On
22/4/10 the father was found liable to pay child support maintenance of
£175 a week from the effective date of 21/12/09. Those calculations are
not the subject of dispute, and I do not therefore have the precise
figures, but the liability was upon the basis of a substantial annual
salary in the region of £50,000.
- On
23/4/10 the father contacted the agency, saying that he was neither
habitually resident in the UK nor did he work for UK company. This led to the agency looking closely at the matter, and the notes of the case officer
indicate that there was some high-up contact within the agency as there
were a number of ‘look alike’ cases in the system. The advice given led
to a revision of the decision on 26/8/10 and the resetting of the
maintenance liability at nil from the same effective date. The reasoning
was that the father had no assessable income for child support calculation
purposes, neither being employed in Great Britain, nor subject to tax and
insurance here. The mother appealed.
The appeal to the FTT
- On
31/8/11 the matter came before a District Tribunal Judge who adjourned it
to obtain further information as to the father’s employers and his income,
and the habitual residence issue. Directions were issued as to provision
of certain information by the father.
- On
14/12/11 the FTT allowed the appeal following non-compliance by the father
with the directions issued to him. The tribunal appears to have drawn an adverse
inference from that failure to comply, concluding that the father did
indeed have income which was able to be taken into account under the child
support legislation. That tribunal found that he was habitually resident
in the UK, despite his working abroad, and that his annual salary in April
2009 was £55,000, which was not liable to UK tax or national insurance
contributions. They directed an assessment on that basis.
- On
19/12/11 the father applied for the decision to be set aside, and it is
enough for me now to say that on 31/5/12 that decision was set aside by a
District Tribunal Judge and the matter was rescheduled for a hearing which
took place on 17/9/12.
- Following
that hearing the FTT "with some regret" confirmed the decision
of the agency, that is to say the nil calculation, on the basis that the
law prevented the father's income being taken into account for the
purposes of calculating liability for child support. They did so upon the
basis of the following facts.
The facts
- At
all relevant times the father was working in Afghanistan as a security
guard at the British Embassy in Kabul. He worked for 9 weeks and then
returned to the UK for 3 weeks. The
pattern to his work showed that although he was out of the jurisdiction of
great deal, he returned regularly. He had a new partner in the UK, and saw his sons regularly. He maintained a vehicle here, and some banking
facilities. He was employed under an employment contract with a company
incorporated in Jersey, G4S International Employment Services Ltd (G4S (Jersey)). His salary was not subject to any deductions for UK tax or National Insurance
payments.
The appeal to the Upper Tribunal
- With
the leave of the District Tribunal Judge who had heard the case the mother
appealed to the Upper Tribunal against the decision of the FTT.
- The
Secretary of State’s representative Mr O’Kane made a written submission to
the Upper Tribunal. I am grateful to him for setting out the background
to this difficult case. Having struggled unsuccessfully in that
submission to reconcile a previous case decided by Upper Tribunal Judge
Turnbull under the old rules with the legislation under which this case
fell to be considered, he concluded that the FTT had come to the only
decision that was available to it under the law. I will return to Judge
Turnbull’s decision shortly, because I think it is the easiest entry level
from which to understand the essential difficulty, and the changed legal
picture.
- Following
the submission of the Secretary of State the mother and the father
responded. I thank them for their attempts to engage with the process.
There is a practical difficulty for lay people in proceedings before this
tribunal which deals only with legal issues and those difficulties are
compounded by the particular complexities of the child support
legislation.
- By
direction of an Upper Tribunal Judge the matter was listed for an oral
hearing, and it came before me when I was sitting in Leeds on
26/09/13. I was able to hear from the mother, and from the Secretary
of State's representative Mr Cooper. Understandably father did not attend,
as he was abroad working. He maintained the correctness of the decision
taken by the FTT.
The mother's argument
- The
mother maintained that the father was habitually resident in the UK, spending nine weeks out working in Afghanistan, but regularly coming back for the three weeks
that he was off, and having contact with his sons during that time. That
contact was clearly important to the boys, and I am sure was equally
important to the father. She challenged the interpretation of the agency
that his earnings were deemed ineligible as they were not subject to UK tax or national insurance. She felt that could not be the intention of the Child Support
Act, with its concentration on there being joint responsibility for the
upkeep of children. She felt strongly that if this was indeed the law it
needed review. She spoke of her contact with her local MP, Caroline Flint;
there were other MPs who had similar cases and that the Minister of State
for Work and Pensions Iain Duncan Smith knew of the problem. She spoke
about approaching the Childrens Minister.
- I
could understand the frustration of the mother as to what appeared to be a
conundrum in relation to the expectations of parents contributing to the
upkeep of their children as they were financially able, and the conclusion
of the agency.
The position of the Secretary of State
- The
position set out in the submission of the Secretary of State was
maintained by Mr Cooper who said that, regrettably, there was no error of
law in the second decision of the FTT because the law was clear that money
earned out of a Jersey company without deductions for UK tax and National
Insurance payments could not be taken into account. Mr Cooper said that there
were Internet sites suggesting that a number of people were affected by
this aspect of child support law.
The facts and the habitual residence
issue
- There
had been little real factual disagreement, although the father disputed
that his factual circumstances amounted to habitual residence as a matter
of law. That decision was one for the FTT to make applying the law to the
facts that they found, and the aspect of their decision that he was habitually resident in the UK is not one with which I would interfere;
it seems to me to have been a conclusion open to the FTT on the evidence
before it. The
legal issue before me was really as to the treatment of the father’s
earnings under his contract with G4S (Jersey) and whether or not the
decision of the FTT in that regard involved an error of law.
The jurisdiction of the agency
- Where
the parent with care, the non-resident parent and the child are habitually
resident in the UK the agency has jurisdiction to make a maintenance
calculation under section 44 Child Support Act 1991. The jurisdiction of
the court is ousted where the agency has jurisdiction, or would have if an
application was made; section 8 Child Support Act 1991. I will return to
that point later.
- Even
where the habitual residence of the father was established the mother
faced an additional hurdle. The terms of the father’s employment abroad
required careful analysis due to the legislative framework.
The earnings issue
- The
definition of an employed earner within the child support legislation is
to be found within the Child Support (Maintenance Calculation in Special
Cases) Regulations 2000 (the MCSC regulations). Regulation 1 (2) states
that "employed earner" has the same meaning as in section 2 (1)
(a) of the Social and Benefits Act. This is the Social Security
Contributions and Benefits Act 1992. That defines an employed earner as
"a person who is gainfully
employed in Great Britain either under a contract of service, or in an office
(including elective office) with general earnings …."
Under paragraph 4 (1) MCSC regulations "Earnings"
subject to certain qualifications under paragraph 4 (2) means… "any
remuneration or profit derived from that employment". A self-
employed earner is subject to a similar provision.
- The
definition of an employed earner is extended by the MCSC regulations to
include a person gainfully employed in Northern Ireland and a person to
whom section 44 (2A) of the Child Support Act 1991 applies. The relevant
part of that section reads
a non-resident parent falls within
this subsection if he is not habitually resident in the United Kingdom, but he is –
(a) employed in the civil service of the
Crown, including Her Majesty's Diplomatic Service and Her Majesty's Overseas
Civil Service;
(b) a member of the naval, military or air
forces of the Crown, including any person employed by an association
established the purposes of Part XI of the Reserve Forces Act 1996.
(c) Employed by a company of a prescribed
description registered under the Companies Act 2006 ]; or
(d) employed by a body of a prescribed
description
- It
appears that section 44 (2A) was enacted to avoid the mischief of a person
working overseas on government business being deemed not to be habitually
resident, and therefore not being liable to pay maintenance for children
remaining in the UK. That amendment, made by section 22 of the Child
Support, Pensions and Social Security Act 2000 and effective from 31
January 2001 followed certain case law which had highlighted this as an
issue. The definition, however, only covers those who are employed by UK institutions and who are not habitually resident. In this case the FTT found that the
father was habitually resident, but, equally critically, despite his work
within the Embassy structure he was not employed by any government institution
or a prescribed body .
- Subparagraphs
(c) and (d) have been prescribed under the Child Support (Maintenance
Arrangements and Jurisdiction) Regulations 1992, regulation 7A. The
companies prescribed for the purposes of section 44 (2A) (c) are companies
which employ people to work outside the UK, but make calculations and
payment arrangements in relation to the earnings of those employees in the
UK, so that under child support law a Deduction from Earnings Order may be
made. G4S (Jersey) would not fall into this category. The bodies
prescribed for the purposes of section 44 (2A)(d) are concerned with the
NHS and similar public institutions.
- Until
recently someone in the father’s position would have probably been a Crown
servant, but certain services are now contracted out, and the father works
for the security group G4S, for the arm of that corporation which is based
outside Great Britain, G4S (Jersey). He is paid a salary without
deduction of tax or national insurance.
- So,
since the father is not employed in Great Britain and not liable to UK tax
and National Insurance his earnings are not derived from employment within
the meaning incorporated into the child support legislation from the
Contributions and Benefits Act; they cannot be taken into account under
child support law, but because the father is habitually resident in the UK
the agency that deals with child support has jurisdiction. That means that
they must make an assessment if an application is made, but because there
are no earnings to put into the formula assessment, the maintenance
calculation will be one of nil. This places the mother is in what may be
described as a Catch 22 situation; she cannot apply to the courts, because
the agency has jurisdiction, but the agency cannot take the father's
income into account, so the assessment must be nil. She is dependent upon
the father's goodwill for any maintenance. So far as the welfare of the
children is concerned this is not an appealing outcome. It needs
examining and.explaining further.
The old rules case law
- The
position the mother finds herself in is not new. It was a matter of
difficulty under the original child support scheme too. In the decision
of Upper Tribunal Judge Turnbull in the linked cases CCS/389/11 and
CCS/390/11 reported as GF-SSWP [ 2011]UKUT 371 the issue was
explored. This was a decision under the initial child support scheme, the
old rules, which had wider and more inclusive provisions in the
accompanying regulations.
- The
factual position really did mirror that in the current appeal, in that the
father was also a close protection security guard at the British Embassy
in Kabul, and also employed by G4S in their company incorporated in Jersey. He was also found to be habitually resident in the UK. His salary, like that of
the father in this case, was paid out of the jurisdiction was not subject
to UK income tax or national insurance contributions. The agency made
a nil assessment upon a similar basis to that made in this case. The cases
are, it seems to me, factually identical. Judge Turnbull dismissed the
father's appeal, agreeing with the decision made by the FTT that the
father’s earnings could be taken into account, but for different reasons;
the FTT had taken an over-simplistic approach to what was in fact quite a
complex interplay of statute and regulation.
- The
legal provisions regarding earnings were and remain effectively the same
in that the regulations which governed the old rules scheme, the Child
Support (Maintenance Assessment and Special Cases) Regulations 1992 (the
MASC regulations") under regulation 1 (2) defined "employed
earner" with reference to the same provision in the Social Security
Contributions and Benefits Act 1992 that I set out above. It was because
of that definition that the agency had in their decision in that case
decided that they could not include the father's earnings offshore.
- Judge
Turnbull, however, looked also at schedule 1 to the MASC regulations, in
particular paragraphs 8 and 15. These paragraphs are within Part III of
that schedule headed "other income". Paragraph 8 provided
"the amount of the other income
to be taken into account in calculating or estimating N or M shall be the
aggregate of the following amounts determined in accordance with this
Part."
- The
reference to N and M need not trouble the reader; they were methods of
differentiation between different types of income calculation under the
old scheme and are of no importance here.
- Paragraph
15 provided
"any other payments or other
amounts received on a periodical basis which are not otherwise taken into
account under Part I, II, IV or V of this schedule except payments or other
amounts which – (a) are excluded from the definition of "earnings" by
virtue of paragraph 1 (2); (b)…..”
- Judge
Turnbull said that the tribunal could not on the facts have concluded that
the father's earnings from his work in Afghanistan was earnings falling
within paragraph 1 of schedule 1 to the MASC regulations, that is to say
the earnings of an employed earner. However, he found that the earnings
did fall to be taken into account under paragraph 15 of schedule 1, which
was wide enough to encompass remuneration from that source.
The different legal picture under the
new rules
- The
difference in this case is that the new scheme, although retaining the
definition of earnings set out in the Contribution and Benefits Act does
not replicate paragraph 15 in the regulations which govern that scheme,
the Maintenance Calculation in Special Cases Regulations 2000 (the MCSC
regulations).
- There
is only one schedule to those regulations, and it makes reference to "other
Income" under Part V at paragraphs 14 and 15 which read
" 14. The amount of other income
to be taken into account in calculating or estimating net weekly income shall
be the aggregate of the payments to which paragraph 15 applies, net of any
income tax deducted and otherwise determined in accordance with this Part.
15. This paragraph applies to any periodic payment of pension or other benefit
under an occupational or personal pension scheme or retirement annuity contract
or other such income to the provision of income in retirement whether or not
approved by the Inland Revenue."
- The
clear purpose of paragraph 15 in these regulations is to deal simply with
the various types of pension income. It is not the wide provision that
fell to be considered by Judge Turnbull in GF-SSWP [2011] UKUT 371.
On the face of the MCSC regulations 2000 the scope to bring offshore
earnings into account as "other income" is simply not there.
Do the variation regulations provide
for inclusion of this income?
- In
view of the importance of ascertaining whether the child support
legislation was able to take account of this income in some way, I had
indicated to the parties before the hearing that I would be considering
the potential application of the Child Support ( Variation) Regulations
2000 (the variation regulations) at the hearing.
- The
possible heads were variation regulations 19 and 20, which deal
respectively with income not taken into account and diversion of income,
and lifestyle inconsistent with declared income. Mr Cooper’s submission,
with which I have come to agree, was that the variation regulations could
not be read to accommodate this income.
- In
relation to the variation provisions as to income not taken into account
or diversion of income, regulation 19, the application of paragraph (1)
centred upon whether or not the maintenance calculation, which had been
nil, was a “nil rate award”, because if not the application of regulation
19 was in doubt. It is not a “nil rate award”. That is defined in
regulation 5 MCSC Regulations. It is confined to those who are receiving
benefit, or are minors, students or otherwise of very low means. There
is a nil assessment for the father outside the terms of regulation 5; his
liability is calculated as nil because he has no assessable income to be
taken into account under the MCSC regulations. Paragraph 4 was not
applicable because there was no allegation that the father was diverging his
income to other persons or for purposes other than the provision of income
for himself.
- The
possible application of paragraph (1A) was the main issue. Be control
element was raised at the hearing, that is to say the ability of the
non-resident parent under regulation 19 (1A (a) to "control the
amount of income he receives from a company or business, including
earnings from employment or self-employment". Such control within
child support law has tended to be construed widely, and I suggested that
I might have asked the question of the chief executive of G4S
International Employment Services Ltd as to whether or not the father
could choose to have payment in the UK with a view to deciding whether
under regulation 19 (1A) he had the ability to control his earnings. On
balance I have decided that that to do that is really beyond my remit as
an appellate tribunal. The father was employed by an organisation which
was at arms length to him, and there was no evidence that he was in a
position to choose how or by whom he was employed given the job that he
had taken on. Additionally the paragraph quoted above from regulation 19
refers to the ability to control the amount of income received from
a company or business. This tends much more towards capturing the incomes
of those who work within company or business structures in which they have
influence, for example a sole or large shareholder in a company of which
they are a company director, where they are able to apportion profits
between employed earnings, dividends and retention. I found that Regulation
19 did not cover the income under consideration.
- Regulation
20, the lifestyle provision has an inherent difficulty in that paragraph
(3) states that paragraph (1), the essential part of the regulation, does
not apply where the Secretary of State is satisfied that the lifestyle of
the non-resident parent is paid for from "income which is or would
be disregarded for the purposes of the maintenance calculation under the
Maintenance Calculations Special Cases Regulations". There is
authority to the effect that this includes any income that would not be
taken into account under the MCSC regulations, and is not limited to those
items that are specifically disregarded under paragraph 2 of the schedule:
see the decision of Upper Tribunal Judge Jacobs in CCS/1320/2005 at
paragraph 15. In that case the argument was considered that income may
only be disregarded under those regulations if it falls within the
specific disregard set out in paragraph 2 of the schedule, which is headed
"Amounts to Be Disregarded When Calculating Income" and
which reads
2. The following amount shall be
disregarded when calculating the net weekly income of the non-resident parents
–
(a) where a payment is made in a currency
other than sterling, an amount equal to any banking charge or commission
payable in converting that payment to sterling;
(b) any amount payable in a country
outside the United Kingdom where there is a prohibition against the transfer to
the United Kingdom of that amount.
- I
agree with the view of Judge Jacobs as to the wider nature of the concept
of income disregarded for the purposes of the regulations. Considering
overall the way in which the legislation has limited definitions of an
employed earner and their income, including the narrowness of the amending
legislation under section 44 of the Child Support Act 1991 itself and the
highly qualified way in which companies or other bodies under that section
have been prescribed, to include this income under the lifestyle variation
provision by reading paragraph 2 of the schedule as a closed definition of
income to be disregarded would be to fly in the face of the other
provisions. The result is that the father’s income does not fall within
the variation provisions either. So where does this leave the mother?
The mother’s position
- It
is not, of course, for me to decide matters outside the remit of this
case, but it is important as a matter of statutory construction that I
look holistically at what the position is likely to be upon my taking a
certain view of the meaning of the legislative provisions. It is in that
context that I consider the mother’s general position in relation to a
child maintenance claim against the father where she cannot go to court as
the agency has jurisdiction, but the outcome of the exercise of that
jurisdiction in terms of actual maintenance is that no money will be due
from the father towards the upkeep of their children.
- Is
that a legally perverse or irrational outcome, and do European Convention
rights assist the mother as to this apparent lack of remedy? In the light
of the decision of the ECHR in the case of Kehoe-v-UK (Application No.
2012/06) there would appear to be no article 6 issues here, the scheme
and its public purpose being considered in a broad, rather than an
individualised way in Strasbourg, as it had been in the House of Lords.
Arguments under articles 8 or 14 in conjunction with article 1 of protocol
1 appear unlikely to succeed; there is a wide margin in human rights law
allowed to state schemes intended to impact on the public good overall.
As I said in MM v
Secretary of State for Works and Pensions (CA) [2013] UKUT 0585 (AAC) child support legislation is an
arm of social strategy, and designed as a scheme to be both broad in its
catchment and simple in its approach. With such schemes there may well
difficult individual cases where a decision appears awry. In the case of
Humphreys (FC) v The Commissioners for Her Majesty's Revenue and
Customs [2012] UKSC 18 in which the Supreme Court analysed aspects of
the child tax credit regime in the context of possible discrimination they
emphasised the importance of the larger picture where the state is
pursuing a legitimate social aim, and that may prevail over individualised
rights.
My conclusions
- It
would be hubris to say that I have left no stone unturned in relation to
the legal avenues so I do not go that far, but I have wrestled with this
issue and I come to my decision with some reluctance due to the
practicalities for this parent with care and perhaps many others.
- The
result of my analysis is that the father’s offshore earnings that are not
subject to UK tax and National Insurance cannot be brought into account
either in the formula or within the variation provisions of the 2003 child
support scheme.
- This
appears not to be a lacuna in the scheme but a purposive decision; the
effect could have been ameliorated by some of the amending provisions, but
it has not been. The reach of the child support scheme is beyond the
maintenance calculations that are made; it is also a collection and
enforcement scheme and I note that the companies prescribed to which I
refer in paragraph 24 were those where the payment regimes enabled the
imposition of Deductions of Earnings Orders, a main plank of the
enforcement provisions. The exclusion of earnings paid abroad may reflect
the difficulty of controlling payment in those circumstances; I do not
know, and it is not a matter for me. It seems to me, however, that it
means I cannot say that the fact that the mother may be without the
ability to obtain child support maintenance from the father renders my interpretation
legally irrational and the scheme incoherent and open to an
incompatibility challenge. It lends support to my interpretation of the
statutory provisions and the conclusions that I set out.
- Accordingly
I dismiss the appeal, and the decision of the First Tier Tribunal stands.
Signed on the original on 21 November 2013
P A Gray
Judge of the Upper Tribunal
