Pabari v Secretary of State for Work and Pensions & Anor

This appeal concerns the approach to “housing costs” for the purpose of determining exempt income when making a maintenance assessment under the Child Support Act 1991 (“the Act”). It is convenient to set out the relevant statutory framework before describing the facts of the case. Considerable changes to the system have been enacted but not yet brought into force, and I refer only to the law, system and terminology currently in force and applicable to this case.

As part of the overall process of making a maintenance assessment under the Act, it is necessary to calculate the “assessable income” of each parent. This is his or her net income minus his “exempt income, calculated or estimated in accordance with regulations….”. It is also necessary (although not relevant to the present case) to calculate the absent parent’s “protected income” since, if his disposable income after deduction of the maintenance would be less than his protected income, the maintenance assessment is adjusted.

These calculations are performed in accordance with the Act itself and the Child Support (Maintenance Assessments and Special Cases) Regulations 1992 (S.I. 1992 No. 1815). In what appears to be the jargon of those who work daily with these regulations, I will refer to them as MASC Regulations 1992.

By regulation 9 of MASC Regulations 1992, the exempt income of the absent parent shall be the aggregate of various specified amounts. One of these is “an amount in respect of housing costs determined in accordance with regulations 14-18”. Regulation 14 provides that:

Schedule 3 is headed “Eligible housing costs”. Paragraph 1 provides that:

In the case of exempt (but not protected) income, paragraph 3 provides that:

However, the whole of Schedule 3 is subject to the overall limitation of paragraph 4. Paragraph 4 has been the subject of amendment. In the original MASC Regulations, as made in 1992, it provided that:

Regulation 15 of the Child Support (Miscellaneous Amendments) (No.2) Regulations 1996 (S.I. 1996 No. 3196) substituted a new head for head (a) of sub-paragraph (1) of paragraph 4. In its substituted form, paragraph 4(1) of MASC Regulations 1992 now provides that:

The 1996 Amendment Regulations also added further sub-paragraphs to paragraph 4, including sub-paragraph (4) which provides that:

The issue in this case centres on the application of the words “necessarily incurred” in paragraph 4(1)(a), as substituted, to the facts of the case. However, before turning to the facts it is convenient also to set out paragraph 2 of Schedule 3. This provides that:

The appellant before us is Mrs Minaxi Pabari. She was formerly married to Mr Nilesh Pabari. They have two children, Devini who is now aged twelve, and Ishani who is now aged nine.

Mr Pabari was born in April 1962. We were told, and it was not challenged, that in 1987, when he was about 25, he bought a house jointly with his brother. They jointly obtained an endowment mortgage with a 25 year term, maturing in about 2012 or 2013 when he himself will be about 50. In about 1992, after Mr and Mrs Pabari had married, they and the brother bought a new house, again with an endowment mortgage maturing on or about the same date as the previous one. Finally, in about 1999 Mr and Mrs Pabari bought and moved to a new house of their own at 12 Pasture Close, Bushey. They obtained an endowment mortgage in their joint names and again this matured on or about the same date. Thus, on each occasion that Mr Pabari had mortgaged or re-mortgaged his home, the endowment policies matured on or about the same date, always when he would be about 50.

Unfortunately the marriage broke down. Mrs Pabari moved to Southampton. The children live with her, so she is the parent with care and Mr Pabari is the absent parent for the purpose of the Child Support legislation and scheme. Mr Pabari remained at 12 Pasture Close. There was a divorce. A final order as to ancillary relief was made by consent on 22 March 2001. It provided for a clean break. It included a recital:

All the above was duly done. However, and as the order and the recital contemplated, Mr Pabari necessarily had to re-mortgage 12 Pasture Close, for two reasons. First, he needed to increase the amount borrowed so as to raise the lump sum of £56,000. Secondly, he had to transfer to Mrs Pabari his interest in the endowment policies that secured repayment of the existing mortgage.

By 2001, endowment mortgages had become unpopular and Mr Pabari obtained a repayment mortgage. No complaint is made of that. But he obtained the mortgage for a term whose redemption date was on or about the same date as the previous mortgages, i.e. a term of about 12 years until 2013. According to paragraph 10 of the Decision of the commissioner, Mr Pabari told the commissioner that it was “his choice to retain the same redemption date. He was under no pressure from the lender or anyone else. So, he took out a short repayment mortgage rather than one for 25 years.”

Prior to these events, the total child maintenance payable by Mr Pabari as the absent parent had been assessed by the Child Support Agency as £143.38 per week. After the re-mortgaging, the child maintenance payable by Mr Pabari was reassessed at £106.63 per week. The reduction was attributable to the Child Support Agency treating the full amount of Mr Pabari’s new periodic mortgage repayments as “housing costs” when calculating his exempt income and making the ultimate maintenance assessment.

The endowment mortgage in place immediately prior to implementation of the order for ancillary relief secured a loan of £75,000 and the repayments of interest and endowment premiums totalled about £120 per week. The new, repayment, mortgage secured a loan of £120,000 and the repayments of interest and capital total about £253 per week. If the repayment mortgage had been for a longer term than 12 years, for instance for a 25 year term, the periodic repayments would be lower and the maintenance assessment higher.

Mrs Pabari makes no complaint that Mr Pabari obtained a repayment mortgage; and no complaint that he increased the borrowing from £75,000 to £120,000 since the order contemplated that he would do so (in fact he only increased the borrowing by £45,000 although the lump sum was just under £57,000). But she does complain that he obtained a mortgage for a 12 year term. She contends that so short a term was not, and is not, necessary and that the whole of the periodic repayments are not “necessarily incurred for the purpose of … securing possession of” Mr Pabari’s home. She contends that in calculating his exempt income, there should be an apportionment under paragraph 4(4) of Schedule 3 to MASC Regulations 1992 and that Mr Pabari should be credited only with the level of repayments he would have to have made under a repayment mortgage with a term of 24 or 25 years. She says that a 25 year term is the “normal” term and that a term of 24 years would coincide with Mr Pabari reaching the “normal” retirement age of 65.

A parent with care is entitled to appeal to a tribunal and Mrs Pabari did so. On 13 December 2002 the tribunal, which consisted of a legally qualified chairman and a financially qualified member, allowed her appeal on another point (which is no longer in issue and not relevant to this appeal) but rejected her appeal insofar as it related to the mortgage. There is a right of appeal on a point of law only to a child support commissioner. Mrs Pabari did appeal. On 1 September 2003 Mr Commissioner Edward Jacobs dismissed the appeal, although his reasoning differed from that of the tribunal.

On behalf of the Secretary of State, Ms Demetriou submitted that the appellant’s case, and Mr Castle’s argument, amounted to equating costs “necessarily incurred” with “absolutely essentially” or “barest minimum of essential costs”. She suggested that such a test would require in every case an exhaustive survey of the mortgage market to see if perchance a cheaper mortgage could have been obtained elsewhere, and would enable the parent with care to question the choice of lender. Further, it would probably require an endowment mortgage to be taken as the yardstick in any case. Instead, she submitted, the words “necessarily incurred” must be given a sensible and workable meaning as the commissioner had given to them. In the context of these regulations, “necessarily” is not a hard-edged word, but implies a band on a spectrum, somewhere between essential and reasonable.

On behalf of Mr Pabari, Ms Willbourne particularly emphasised the facts and history of the case. Mr Pabari had necessarily had to re-mortgage so as to transfer the endowment policies and pay the lump sum, and it would strain paragraph 4(1)(a) too far, and beyond its purpose, to say that at that point he should have doubled the term.

Lord Hoffmann pointed out at paragraph 23 that “many words or phrases are linguistically irreducible in the sense that any attempt to elucidate a sentence by replacing them with synonyms will change rather than explain its meaning.” However, there is still a “distinction between the meaning of a word, which depends upon conventions known to the ordinary speaker of English or ascertainable from a dictionary, and the meaning which the author of an utterance appears to have intended to convey by using that word in a sentence. The latter depends not only upon the conventional meaning of the word used but also upon syntax, context and background.” The latter is a question of law. “The meaning of an English word is not a question of law because it does not in itself have any legal significance. It is the meaning to be ascribed to the intention of the notional legislator in using that word which is a statement of law.” (Lord Hoffmann at paragraph 24)

In the context of a hierarchy of tribunals in that case (as there are in this case) Lord Hoffmann said at paragraph 25 that “There is a good deal of high authority for saying that the question of whether the facts as found or admitted fall one side or the other of some conceptual line drawn by the law is a question of fact ……. What this means in practice is that an appellate court with jurisdiction to entertain appeals only on questions of law will not hear an appeal against such a decision unless it falls outside the bounds of reasonable judgment.”

This echoes the observations of Lord Mustill (with whom the rest of their Lordships agreed) in R v Monopolies and Mergers Commission and another, ex parte South Yorkshire Transport Ltd[1993] 1 WLR 23. The factual context was very different. On the facts of that case, the Monopolies and Mergers Commission could only accept a reference if it related to a “substantial part” of the United Kingdom. The commission decided that the reference in point did so relate. Within proceedings for judicial review, the judge and the Court of Appeal considered that it did not. In the House of Lords, Lord Mustill said at page 29 A – D that (as is indeed obvious) the word “substantial” “accommodates a wide range of meanings”. Between the extremes of its meaning “there exist many shades of meaning, drawing colour from their context. That the protean and nature of the word has been reflected in the decided cases is ……. made quite clear by the judgment of [the judge] …..” Lord Mustill said, however, that “The courts have repeatedly warned against the danger of taking an inherently imprecise word, and by redefining it thrusting on it a spurious degree of precision.”

Lord Mustill concluded at page 32C that the appreciation of the commission of “substantive” (sic as reported, but quaere should be “substantial”) was broadly correct. He continued at page 32F:

I now apply these approaches to the present case.

In my view “necessarily” where it appears in paragraph 4(1)(a) of Schedule 3 is a linguistically irreducible word. We should be very careful not to replace it with a synonym in this case nor to paraphrase paragraph 4, and I eschew any attempt to do so.

It is also a word which accommodates a range of meanings, although it is far less protean or wide than the word “substantial” which Lord Mustill was considering.

In my view it is possible and permissible to say where on the spectrum of exigency the word “necessarily” is placed, and to say what it does not mean. It does not mean merely reasonably, or sensibly or justifiably. It is higher on the spectrum than that. Nor does it mean “reasonably necessarily”. The maker of the regulation has not qualified the word necessarily, so if there is a different shade of meaning, or a different band on the spectrum, between “reasonably necessarily” and “necessarily” simpliciter, it is the latter meaning and the latter band which the regulation requires. But nor does the word “necessarily” convey an absolute meaning, such as absolutely essentially or inescapably. The context is, as Mr Castle accepts, too subjective for that; and I agree with the submission of Ms Demetriou that the regulation cannot sensibly require that minute scrutiny is given not only to all possible mortgage options at the time of commencement, but to continuing possible remortgage options. Further, “necessarily incurred” in paragraph 4 (1)(a) qualifies both the purpose of purchasing, renting or otherwise securing possession of the home; and also “the purpose of carrying out repairs and improvements to that home.” There is a definition of “repairs and improvements” in paragraph 2, quoted in paragraph 10 above. In relation to repairs it means “major repairs necessary to maintain the fabric of the home.” In relation to improvements it means any of the measures listed in sub-paragraphs (a) to (k) “undertaken with a view to improving its fitness for occupation.” The measures themselves include at (k) other improvements which the child support officer considers reasonable in the circumstances. So it is clear that although all repairs and improvements must, because of paragraph 4 (1)(a), be “necessarily incurred”, consideration of repairs and improvements requires the application of a range of judgments by the decision maker. The breadth and elasticity of paragraph 2 (which employs words like “major”, “maintaining the fabric of the home”, “improving its fitness for occupation” and “reasonable in the circumstances”) would be otiose if “necessarily incurred” was given too restrictive or absolute a meaning in paragraph 4 (1)(a).

So “necessarily” must be given its proper force, but not a strained force. I agree with paragraphs 39 and 40 of the Decision of Mr Commissioner Jacobs (quoted in paragraph 22 above) where he said that paragraph 4(1)(a) set a high threshold but also that it must be interpreted and applied sensibly, with appropriate regard to the realities of property acquisition and of the mortgage market. In my view Mr Castle was right to accept the appropriateness of that comment.

I also agree with the sense of the observations of Mr Commissioner Jacobs when he said at paragraph 52 (quoted more fully in paragraph 24 above) that in practice the focus is likely to be on the sequence of events that led to the mortgage arrangements …. and the reason the parent gives for making that decision. A parent will need a more persuasive reason to explain some decisions than others.

Beyond what I have stated in paragraphs 37 to 41 above, I do not believe it possible to “sharpen” the test where it appears in paragraph 4(1)(a) of Schedule 3 to the regulations.

It follows from what I already have said that I consider that in paragraphs 36 –53 of his Decision, under the heading “My analysis of the legislation”, Mr Commissioner Jacobs did (in the language of Lord Hoffmann) correctly identify the “conceptual line drawn by the law” by the test of “necessarily incurred” which he had to apply. In the language of Lord Mustill, the commissioner properly understood the “criterion for a judgment” which he had to make. There is, in my view, no error of law in the analysis and approach which the commissioner identified for himself.

So his task, then, was to decide on which side of the conceptual line, or by application of the criteria as he had correctly understood them, the facts of the case fell. This he did in paragraphs 54 – 56, under the heading “How does this analysis apply to the facts of this case?”

I agree with Mr Castle that the sentence within paragraph 54 of the Decision that “it is not surprising that he decided to keep to the same redemption date as before” does not reflect the idea of necessity nor the correct test. To say that something is not surprising is far less exigent than to say it was necessary. If the reasoning of the commissioner had been contained in that paragraph alone, than I would have been driven to conclude that despite his previous careful and correct analysis, the commissioner had, at that point, fatally applied the wrong test. But the section of the Decision has to be read as a whole. The nub of his reasoning is in paragraph 56, quoted in paragraph 25 above. Here, the commissioner repeatedly refers to necessity and the costs being necessarily incurred.

I acknowledge that another tribunal or commissioner might, without falling into error, have concluded that the decision of Mr Pabari not to extend the overall term of his mortgage, although reasonable, sensible or wise was not necessary. But that involves the exercise of judgment around the margins of the meaning of “necessarily incurred”. In my view, the final decision whether, on the facts and in all the circumstances of the case, the costs were necessarily incurred involves the exercise of a judgment with which this court can only interfere if the decision of the commissioner fell outside the bounds of reasonable judgment. In my opinion it did not. In my opinion it was open to the commissioner to conclude that as Mr Pabari was merely re-mortgaging in order to release the endowment policies to his former wife and raise the lump sum, the costs were necessarily incurred even although he did not use the occasion as an opportunity to extend the previous terms.

I would accordingly dismiss this appeal.

Within his own reasoning and Decision, Mr Commissioner Jacobs referred to two previous decisions of other commissioners, namely a decision of Mr Commissioner Williams in CCS/2742/2001 and a decision of Mrs Commissioner Brown in Northern Ireland (but applying identical legislation) in CSC 4/02-03. Our attention was also drawn to a later and recent decision of Mr Commissioner Mesher in CCS/1707/2003 in which he considered not only those earlier decisions but also the decision of Mr Commissioner Jacobs in the present case.

In CCS 2742/2001, the absent parent had, without pressure upon him to do so, remortgaged so as to reduce the term of the mortgage from 25 to 10 years, claiming that he was anxious that he might not be able to continue working throughout the remaining term of the earlier mortgage. The tribunal held that the resulting increased payments were not necessarily incurred and Mr Commissioner Williams upheld its decision. In CSC 4/02–03, the non resident parent had similarly redeemed an earlier mortgage and remortgaged for a shorter term, thereby increasing the monthly repayments. The tribunal considered that the increased payments were not necessarily incurred. On appeal, Mrs Commissioner Brown considered that paragraph 4 (1)(a) related only to the purpose of the mortgage and not to its term or the amount payable. She remitted the case for redetermination. Clearly, the facts of both those cases are distinguishable from the present case in which the expiry date of the terms has remained constant throughout. But the reasoning of the two commissioners conflicts, and Mr Commissioner Jacobs did not agree with that of Mrs Commissioner Brown. In the recent case of CCS/1707/2002, the absent parent changed his mortgage from an endowment to a repayment mortgage and also reduced the term. Mr Commissioner Mesher disagreed with the view of Mrs Commissioner Brown. He said at paragraph 19 of his Decision “I also agree that paragraph 4(1)(a) is concerned with the purpose of a housing cost, but I do not agree that that requires ignoring questions of the amount of the cost involved…”. He then suggested a “two stage test” or approach to remortgage cases, which may be helpful to analysis in some cases but which is not, in my view, essential. He continued by saying that it is necessary in remortgage cases “to ask, looking at the new transaction as a whole, including all its terms and conditions, especially as to the interest rate, term of the loan and level of periodical payments required, whether the housing costs that would otherwise be calculated on the new mortgage or loan were necessarily incurred….The question is not whether the incurring of the particular housing costs is absolutely necessary, but whether it is necessary in a common sense and reasonable way, bearing in mind the interests of all concerned in a child support case and not merely the personal interests of the parent concerned.” After a case-specific examination of the facts of that case, Mr Commissioner Mesher concluded that the change from an endowment to a repayment mortgage was “necessarily incurred”, but the reduction in the term was not.

I agree that Mrs Commissioner Brown was wrong in CSC 4/02–03 to exclude consideration of the length of the term and the amount of periodic repayment of the mortgage; and I agree with the approach and thrust of what Mr Commissioner Mesher said in the passages quoted above, which is substantially to the same effect as how Mr Commissioner Jacobs directed himself in the present case. But with this caveat. The test of necessity must be considered in a common sense and reasonable way; but the test remains necessity, and a lower test of sensibleness or reasonableness per se must not be substituted. What all these cases illustrate is that the decision requires careful examination of the facts and circumstances of the individual case, and the overall exercise of a judgment as to whether the costs in question are necessarily incurred.

I would dismiss this appeal.

I agree that this appeal should be dismissed for the reasons given by Holman J. I add a few words of my own because the word “necessarily” which lies at the heart of the appeal has given rise to difficulty. The appeal turns on the meaning of this word where it is used to describe housing costs that are “necessarily incurred for the purpose of purchasing, renting or otherwise securing possession of the house for the parent….”.

“Necessary” is a somewhat protean word whose meaning depends on the context in which it is used. In some contexts, it means “indispensable” or “essential”. Thus, for example, section 2(1) of the Law of Property (Miscellaneous Provisions) Act 1989 provides that a contract for the sale of an interest in land “can only be made in writing”. To say that it is “necessary” for such a contract to be in writing is to use the word in its strongest sense. It is indispensable that such a contract be in writing. There is no contract unless it is in writing.

In R v Shayler [2002] UKHL 247, [2003] 1 AC 247 at para 23 Lord Bingham of Cornhill said of the word “necessary” where it appears in the phrase “necessary in a democratic society” in article 10(2) of the European Convention on Human Rights:

In some contexts, the word “necessary” has a weaker meaning. But it will usually bear the connotation of some degree of compulsion or exigency. The context will determine where on the spectrum of compulsion or exigency the word “necessary” is placed (I adopt the words of Holman J at para 39).

It could be argued in the present context (costs incurred in securing possession by means of a mortgage) that, to the extent that costs are incurred in excess of the minimum necessary to secure possession of the house, they are not necessarily incurred; or putting it another way, that costs are “necessarily incurred” only if they are unavoidably or indispensably incurred. But Mr Castle does not so contend, and he is right not to do so. Such an approach is unrealistic and would in any event be difficult to apply in practice. It would mean that it had to be established that the parent had incurred the lowest possible mortgage costs. But, in the real world, many considerations are taken into account by a would-be mortgagor when choosing a mortgage. The level of the interest rate is obviously an important consideration. But mortgage A may offer a rate of interest of 6% which is fixed for 5 years, and mortgage B may offer a variable interest rate of 5%. Which of these two offers the cheaper costs? Is the position affected if mortgage A includes a penalty for early redemption, whereas mortgage B does not do so? And what if the level of redemption penalty differs as between the two mortgages? There are many different types of mortgages available. It may be quite impossible to say whether the costs incurred in relation to any particular mortgage are the cheapest possible mortgage costs. This is the practical reason why, in the present context, it cannot have been intended that the necessity test requires the making of detailed comparisons of mortgage costs of this kind.

But, in my view, this is not the only reason why the necessity test is not limited to an objective assessment of the question whether the costs incurred are the cheapest possible costs. It may be very important to a mortgagor to have the security of a fixed rate mortgage and/or to know that he can redeem his mortgage without penalty. It may be of importance to him that the mortgagee is a front rank building society, rather than a relatively unknown secondary bank. From his point of view, it may be necessary to obtain a mortgage from a well-known building society and on terms that enable him, so far as possible, to plan his affairs with some certainty. In my judgment, it would be most surprising if these entirely normal considerations were required to be left out of account when determining whether the mortgage costs were necessarily incurred.

I do not consider that, in the context of para 4(1) of the MASC Regulations 1992, the phrase “necessarily incurred” requires such considerations to be ignored. In my judgment, in deciding whether costs are necessarily incurred, account can also be taken of the absent parent’s circumstances. That is not to introduce a test of reasonableness. But it recognises that it may not be possible to say whether a person has necessarily incurred costs without having regard to his or her circumstances. These will, of course, include whether the person could have secured the possession of his house by incurring lower costs ie whether lower costs were actually available to him or her as an option. But they may also include whether, having regard to those circumstances, he or she considered it to be possible to incur lower costs. To give another example: the absent parent may have a rational fear that he will be made redundant within the next 10 years, and that he will then find it very difficult to find employment. He may be a somewhat cautious person, and want to pay off his mortgage as soon as possible, so as to allay his concern that he may be saddled with a mortgage after he has stopped earning. From his point of view, it is necessary to pay off the mortgage as soon as possible. In my judgment, this is a consideration to which a tribunal may have regard when deciding the question.

As regards the facts of the present case, I agree that it was open to the Commissioner to hold that the mortgage costs incurred by Mr Pabari were necessarily incurred. The critical question was whether it was necessary for Mr Pabari in 2001 to obtain a mortgage for a term of about 12 years, so as to coincide with the redemption date of the earlier mortgages. No doubt, it would have been possible for him to obtain a 25 year mortgage, in the sense that there were lenders who would have been willing to grant him a mortgage for a 25 year term. But it is to be inferred that it was a matter of importance to Mr Pabari that his liability for mortgage repayments should come to an end by 2013. That is why 2013 was the redemption date for each of the mortgages that he obtained. From his point of view, having regard to his age and all his circumstances, it was necessary to be free of mortgage obligations in 2013. In my judgment, that was a factor which the Commissioner was entitled to take into account in deciding that the costs were necessarily incurred on the facts of this case.

For these reasons as well as those given by Holman J, I would dismiss this appeal.

I agree with both judgments.