Morley-Clarke v Jones
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE OLIVER,LORD JUSTICE MUSTILL,SIR DENYS BUCKLEY |
| Judgment Date | 28 June 1985 |
| Judgment citation (vLex) | [1985] EWCA Civ J0628-5 |
| Docket Number | 85/0342 |
| Court | Court of Appeal (Civil Division) |
| Date | 28 June 1985 |
[1985] EWCA Civ J0628-5
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
(MR. JUSTICE ANTHONY LINCOLN)
Royal Courts of Justice
Lord Justice Oliver
Lord Justice Mustill
and
Sir Denys Buckley
85/0342
1983 M 2424
MR. D.C. POTTER QC and MR. M. HART (instructed by The Solicitor of Inland Revenue, Somerset House, London WC2R 1LB) appeared on behalf of the Respondent (Appellant)
MR. T. SCOTT BAKER QC and MR. ANDREW THORNHILL (instructed by Messrs. Potter & Kempson, Solicitors, Farnham, Surrey GU9 7QX) appeared on behalf of the Appellant (Respondent)
This is an appeal from an order made on 24th September 1984 by Mr.Justice Anthony Lincoln sitting as an additional judge of the Chancery Division allowing an appeal by way of Case Stated from the General Commissioners for Surrey, who had upheld an assessment to income tax on the taxpayer (the respondent to the present appeal) for the years 1975/76 to 1979/80 inclusive under Case III of Schedule D (annual payments). The question raised before the General Commissioners was whether the income the subject-matter of the assessment was the income of the taxpayer. The case (which is reported in (1985) 2 Weekly Law Reports 341) was and is, we were given to understand, intended to be a test case in order to obtain a decision on a question of great importance in relation to orders made in the Family Division, that is to say whether, when periodical payments under the Matrimonial Causes Act 1973 are ordered to be paid in respect of a period prior to the making of the order, they are taxable as income of the recipient in the year in respect of which they are paid or as income of the recipient in the year in which they are actually received. If that is right the case seems to be a rather less than ideal one to have been selected as an examplar, for it raises an issue of the identity of the recipient which is not normally to be found in a retroactive order. However that may be, the court has to deal with the appeal which the parties have chosen to present.
The facts can be very shortly stated. The taxpayer is a lady who was formerly married to a Mr. Ian Morley-Clarke. There was one child of the marriage, John Robert Morley-Clarke, who was, during the years of assessment, a minor in the custody of the taxpayer. The taxpayer's marriage to Mr. Morley-Clarke was dissolved on her petition by decree nisi on the 18th April 1969, on which date there was made a consent order (which I will refer to as "the 1969 order") in, so far as material, the following terms, that is to say, it was ordered that the respondent
"do pay or cause to be paid to the petitioner with effect from the date on which the decree nisi herein is made absolute maintenance for herself during their joint lives until further order at the rate of 1/-per annum payable monthly and with effect from to-day maintenance for the child John Robert Morley-Clarke until further order at the rate of £2.10.0 per week payable weekly".
That order was made under the provisions of the Matrimonial Causes Act 1965. That Act, in s.16, enabled the court to make "an order requiring the husband to pay to the wife during their joint lives such monthly or weekly sum for her maintenance as the court thinks reasonable" and provided in s.34(l) for the court to make "such order as it thinks just for the custody, maintenance and education of any relevant child".
It is not suggested that there was anything wrong with the order at the time when it was made, and it was not an unusual form of order. The tax position at that time was that the income of an infant child of divorced parents was aggregated with that of his custodial parent and he had no separate personal allowance—a position continued by the provisions of Chapter V of Part I of the Income and Corporation Taxes Act 1970. As a result of s.16 of the Finance Act 1971 these provisions ceased to have effect from the tax year 1972/73 onwards and thereafter it became the practice for orders for periodical payments in respect of child maintenance to be made in a form in which the payments were ordered to be paid direct to the child so that they formed part of his income and he could claim his own personal allowance. Express power to make such orders was conferred on the court by s.3(2)(a) of the Matrimonial Proceedings and Property Act 1970. From then onwards a parent receiving maintenance payments under orders in the form of the 1969 order was at a distinct disadvantage as compared with those who, as the guardians of infant children, received the same or similar maintenance payments on behalf of their children, for although the payments were ordered as "maintenance for the child" or children, it was clearly established by the decision of this court in Stevens v. Tirard, (1940) 1 King's Bench 204 that the moneys paid under such an order were the income of the recipient parent beneficially for all purposes and unaffected by any right or interest of the child. The ratio of that was simple and clear. It was simply that the parent assuming custody assumed thereby the common law duty of maintaining the child out of his or her own resources and that the payments were made to him or her beneficially in order to compensate for that assumed liability. They therefore neither conferred any interest in nor created any trust or equitable obligation in favour of the child. They formed part of the parents' income and were taxed accordingly.
The disadvantages flowing from this form of order appear to have been appreciated by the taxpayer in 1979 and it seems that she or her advisers had some discussions with the Revenue, as a result of which the impression was gained that if the court could be persuaded to vary the order retrospectively, no question of tax on the maintenance payments which she had received in respect of the past years would arise, and indeed that she would receive a repayment of tax overpaid on the basis of such a variation. We have been told on behalf of the Revenue that this was a misunderstanding and that no such assurance was given. The General Commissioners found it as a fact and expressed their regret, but in any event it has formed no part of the taxpayer's case in law on this appeal and I say no more about it.
On 14th November 1979, the taxpayer having applied to the court for a variation on 7th November, a consent order (the 1979 order) was made
"that the order herein dated the 1st day of April 1969 insofar as it relates to maintenance for the child…..be varied and it is ordered that the above-named respondent do make to the said child as from the 14th November 1979 periodical payments for the said child whilst he continues full-time education or until further order at the rate of £2.50 per week payable weekly".
That, of course, took care of the future, but it went no way to curing the past and on 26th February 1980 the 1979 order was varied by consent. I will refer to this variation as the 1980 order although in fact it was effected simply by an endorsement on the 1979 order of a note that it had been varied by consent and by striking out the date 14th November 1979 as the date for the commencement of the periodical payments and substituting 18th April 1969.
The taxpayer's contention is that the effect of the 1980 order was to convert retrospectively the payments which she received in the years to which the assessment related, (that is 1975/6 to 1979/80) into payments to the child and thus retrospectively to deprive those payments of the quality of being her income which they possessed at the time when they were made.
The General Commissioners felt unable to accede to that contention. The learned judge held that they were wrong.
The case raises four distinct questions, viz.-
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(i) whether the court has power effectively to make orders having retrospective effect;
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(ii) whether, if the first question is answered affirmatively, it has power to vary an order retrospectively;
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(iii) whether, if it has, such retrospective variation can extend to substituting a different person as the beneficiary of the order; and
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(iv) assuming that either question (i) and (ii) or all three questions are answered affirmatively, such retrospective variation can be effective to alter fiscal consequences of the original order which have already attached prior to the date on which the variation was made.
The learned judge gave an affirmative answer to all four questions. On this appeal the Revenue has not sought to argue that the court has no power to make orders with retrospective effect nor that it has no power under s.31 of the Matrimonial Causes Act 1973 to vary orders retrospectively to a date prior to the date of application to vary.
The argument has therefore been confined to questions (iii) and (iv). It is, of course, the existence of question (iii) that makes this case, potentially at any rate, an unsuitable one as a test case, because if that question is answered in the negative—as the Revenue contend that it should be—it would be decisive of the appeal and any remarks that this court thought fit to make with regard to question (iv) would be obiter only.
The learned judge, whilst accepting that there might be objections to the introduction by way of variation into an order of a wholly unrelated adult payee, held that the retrospective substitution of a new payee could be achieved under the court's power of variation where the person intended to be...
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