The case, P v Secretary of State for Work and Pensions  UKUT 60 (AAC) dealt, inter alia, with the question of a variation under reg.18 of the Child Support (Variations) Regulations 2000 (SI 2000/156) ("the 2000 Regulations"). That is, the assets variation whereby under the pre-2012 system, the non-resident parent could be deemed to be earning 8 per cent net per annum on assets other than their own home, subject to certain narrow and specific exceptions.
The attitude of the Upper Tribunal to the interpretation of reg.18 may be directly relevant to future cases, given that the government seems to intend to introduce some form of assets variation, although perhaps not at the unrealistic level of 8 per cent net per annum.
The case was a long and complicated one. The original formula assessment was made on 21 November 2006 and the final decision from the Upper Tribunal was issued on 19 February 2018. Even by child support standards, that was a long history.
The father and his new partner each owned 50 per cent of the shares in their company which had a large portfolio of rental properties. The father then transferred his shares to the new partner and declared that he now had no part in the running of the company. That began the dispute which ended in more than 4,000 pages of tribunal documents. The earlier First-tier Tribunal failed specifically to address the issue of the father’s reasons for disposing of his shares in the company and in 2009, the case was referred back to a fresh tribunal for a rehearing. Shortly before that, the mother had lodged a fresh appeal on the ground, inter alia, of a diversion of income. Such a diversion under reg.19 of the 2000 Regulations was almost identical to a diversion which we would now find under reg.71 of the Child Support Maintenance Calculation Regulations 2012 (SI 2012/2677) ("the 2012 Regulations") for a new case. In February 2010, the tribunal decided that both of these appeals should be heard together. Unfortunately, the hearing did not take place until October 2010 and, once again, completely failed to grapple with the question of the value of the shares transferred by the father to his partner. The mother was granted leave to appeal to the Upper Tribunal, which then remitted the case to the tribunal to consider whether or not the father still had the ability to control the shares, and the question of how much the shares should be worth and also whether or not it would be just and equitable to apply the statutory rate of 8 per cent in this case.
The appeal was heard for the third time in May 2015, nine years after the initial decision. The tribunal rejected the father’s contention that he had ceased to have any control over the property company—one of the major aspects of the appeal. There did not seem to be any difference in the way the company had been run before and after the transfer of the shares. The tribunal decided that the shares should be valued on the basis of the August 2006 accounts. The accounts showed a figure of £2,406,000. Unfortunately, the tribunal based its own valuation of £4,500,000 on a rough total value of the company’s assets. No reason was given for this and, of course, a failure to explain the reasons for a decision is, in itself, an error in law in child support terms.
In October 2015, the father wrote to the First-tier Tribunal asking for a correction of this decision and eventually in July 2016, the Upper Tribunal judge treated the letter as an application for permission to appeal. That permission was granted and the Secretary of State decided, on this occasion, to support the father’s appeal. In May 2017 the Upper Tribunal judge gave a direction that he intended to have an oral hearing of the whole case, which took place on 4 July 2017.
The judge decided that notwithstanding the transfer of the shares to the father’s new partner, they were still effectively under his control and should be included in the calculation. The judge confirmed that the tribunal should have taken the calculation based upon the book value of the shares, rather than the tribunal’s own assessment of their "true" worth, taking into account rough valuations of the company’s assets. There was another asset in the case, a farm, which the father and his new partner were developing. During the period of development of that property, the father and his partner had lived in it. They had not moved into it, although, until after the date of the original First-tier Tribunal decision and, accordingly, under s.20(7)(b) of the Child Support Act 1991, he could not claim that that asset should be excluded from the valuation.
The Upper Tribunal also said that the value of the shares should not be subject to any discount to reflect difficulty in selling part of the shareholding in a private company. This was the case because, "in some circumstances, a limited company can co-exist with a ‘quasipartnership’ between those involved if the shareholders are bound by personal relationships involving mutual confidence" (Ebrahimi v Westbourne Galleries Ltd  A.C. 360).
In summary, the Child Support Agency (CSA), as it then was, had made a decision on 21 November 2006. The case was administered by the CSA, and then by the Child Maintenance and Enforcement Commission, and then again by the CSA. The Child Maintenance Service was not significantly involved because by the time of the final appeal, the children concerned were aged 25 and 23. This final decision was not issued until 11 years had passed in unsatisfactory dispute. The case is an illustration of what can go wrong if mistakes are made at the First-tier Tribunal level and are not promptly appealed. The case is also an illustration of how the Upper Tribunal may treat the question of assets variation if such variations are restored after the government’s current review of child support. The case can also be referred to in future matters involving reg.71 of the 2012 Regulations in which a parent with care claims that there has been a diversion of income. Here the diversion was of capital, but that had a direct effect on the rights to dividend income.
P v Secretary of State for Work and Pensions contains information, guidance and warnings. We can all learn from it.