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CHILD SUPPORT: Smith v Secretary of State for Work and Pensions [2006] UKHL 35

Date:13 JUL 2006

(House of Lords: Lord Nicholls of Birkenhead, Lord Rodger of Earlsferry, Lord Walker of Gestingthorpe; Baroness Hale of Richmond; Lord Carswell: 12 July 2006)

The issue: The question in Smith was whether, when calculating the earnings of a self-employed non-resident parent (NRP), there should be any deduction permitted for capital allowances. This involved the proper interpretation of the expression total taxable profits" in para 2A of Sch 1 to the Child Support (Maintenance Assessments and Special Cases) Regulations 1992 (SI 1992/1815) (as amended by SI 1999/977), described by Lord Nicholls as "a singularly unhappy piece of drafting".

Outcome: The House of Lords, by a 3-2 majority, reversed the decision of the Court of Appeal ([2004] EWCA Civ 1318; [2005] 1 FLR 606) and restored the decision of the Child Support Commissioner (in CCS/2858/2002). The result was that an NRP was not entitled to any such deduction in respect of capital allowances.

Majority view: The majority of the House (Lord Walker of Gestingthorpe; Baroness Hale of Richmond; Lord Carswell) agreed with the Child Support Commissioner's interpretation of the phrase "total taxable profits" as meaning the NRP's annual trading profit net of allowable revenue expenses (in old language the profit chargeable to income tax under Sch D). Capital allowances were not deductible before the 1999 amendments, which took the form of administrative improvements rather than changes in substance. As a matter of construction, the fact that the term "total taxable profits" appeared in Box 3.92 on the self-assessment tax form was not decisive (contrary to the view taken by the Court of Appeal). The prospect of a departure direction, which had influenced the Court of Appeal, was simply "too speculative" to carry any weight (Lord Walker). In addition, it was clear that capital allowances were not deductible in cases resolved under para 3 of Sch 1, and Parliament should be "presumed not to intend to produce inexplicable anomalies" (Baroness Hale). In general, the majority's detailed reasons reflect criticisms of the Court of Appeal's decision by Wikeley and Young in 'Smith v Secretary of State for Work and Pensions: Child Support, the self-employed and the meaning of 'total' taxable profits' - total confusion reigns' at Child and Family Law Quarterly, Vol 17, No 2, 2005 at p 267.

Minority view: The minority view (Lord Nicholls of Birkenhead and Lord Rodger of Earlsferry) would have upheld the Court of Appeal's interpretation of "total taxable profits" as meaning the NRP's annual trading profit net of allowable revenue expenses AND after deduction of capital allowances. Lord Nicholls argued that this figure was meant to be derived readily from the tax return, and that the majority's interpretation created an unacceptable clash between paras 2A and 2B of Sch 1. Lord Rodger's view was that a change in substance had been effected by the 1999 amendments.

Human rights dimension: Counsel for Mrs Smith also argued that para 2A was in breach of her Art 8 of the European Convention for the Protection of Human Rights and Fundamental Freedoms 1950 rights. Lord Rodger concluded that there was no positive encroachment on her family and no violation of Art 8. Lord Walker and Baroness Hale accepted that there was "considerable force" in counsel's submission that a state which denied the parent with care the right to enforce her claim through the courts (R (Kehoe) v Secretary of State for Work and Pensions [2005] UKHL 48; [2005] 2 FLR 1249) must be under a positive duty to provide an effective alternative system of child support. Lord Walker preferred not to decide that point, disposing of the case on normal principles of statutory interpretation. Baroness Hale opined that it would be a "considerable feat of interpretation to spell the 'right to receive regular, reasonable maintenance'" out of Art 8. However, domestic legislation should be interpreted so far as possible so as to comply with international obligations, and Art 27.4 of the UN Convention on the Rights of the Child 1989 (UNCRC) required signatory states to "take all appropriate measures to secure the recovery of maintenance". Where there were two possible interpretations of a statutory provision, the one chosen should be that which better complies with the commitment to children's welfare expressed in ratifying the UNCRC.