Sherdley v Sherdley
| Jurisdiction | England & Wales |
| Judge | Lord Bridge of Harwich,Lord Elwyn-Jones,Lord Brandon of Oakbrook,Lord Brightman,Lord Ackner |
| Judgment Date | 08 April 1987 |
| Judgment citation (vLex) | [1987] UKHL J0408-3 |
| Date | 08 April 1987 |
| Court | House of Lords |
[1987] UKHL J0408-3
House of Lords
Lord Bridge of Harwich
Lord Elwyn-Jones
Lord Brandon of Oakbrook
Lord Brightman
Lord Ackner
My Lords,
For the reasons given in the speech of my noble and learned friend Lord Brandon of Oakbrook, with which I agree, I would allow the appeal and make an order in the terms proposed by him.
My Lords,
I have had the advantage of reading in draft the speech prepared by my noble and learned friend, Lord Brandon of Oakbrook. For the reasons he has given I would allow the appeal, set aside the orders of the Court of Appeal dated 18 April 1986 and of Wood J. dated 9 May 1985 and make an order in the terms of the draft order approved by my noble and learned friend, Lord Brandon of Oakbrook.
My Lords,
The appellant, Ian Sherdley, upon the dissolution of his marriage to Carole Sherdley in February 1985, was granted the custody, care and control of the three children of the family, Rachael then nearly 12, Kristofor then 10 and Carina then 8. Since then the children have lived with the appellant at his home in Hindhead, Surrey, and have attended fee-paying schools there at which they still are. in May 1985 the appellant made an application in the Family Division of the High Court for an order against himself for the payment by him of the children's school fees direct to the schools concerned as agents for them. I shall consider later the precise form which such an order might take. The appellant's application was dismissed by Wood J. by order dated 9 May 1985, and an appeal by him to the Court of Appeal (Sir John Donaldson M.R., Neill and Balcombe L.JJ.) was dismissed by order dated 18 April 1986. He now brings a further appeal, with the leave of the Court of Appeal, to your Lordships' House. Although the appellant's notice of application was served on Carole Sherdley, she has neither appeared nor been represented at any stage of the proceedings. However, both the Court of Appeal and your Lordships have had the assistance of argument by counsel instructed by the Treasury Solicitor as amicus curiae, and I am sure that your Lordships feel as much indebted for that assistance as I do.
My Lords, the sole purpose of the appellant in applying for the order to which I have referred is to obtain, if they can thereby be obtained, two separate tax advantages. The first advantage is the right to deduct from his gross income for tax purposes the grossed-up amount of the payments less tax ordered to be made. The second advantage is the ability to recover on behalf of the children so much of the tax deducted by him in making the payments less tax as their own personal tax allowances entitle them to have recovered.
My Lords, in order to show how it has come about that a father should apply for an order against himself of the kind to which I have referred, it is necessary to review the course which the history of financial provision by way of periodical payments for the maintenance and education of the children of dissolved marriages has taken over many years. In making that review I shall examine successive changes in the relevant statutory provisions; changes in the relevant practice of the court; the policies followed by the Board of Inland Revenue for time to time; and various Practice Directions issued by the Senior Registrar of what is now the Principal Registry of the Family Division during the relevant period.
The convenient starting point for the review which I think that it is necessary to make is section 193(1) of the Supreme Court of Judicature (Consolidation) Act 1925, which gave the High Court power, in matrimonial proceedings, to "make such provision as may appears just with respect to the … maintenance and education of the children, the marriage of whose parents is the subject of the proceedings."
In Stevens v. Tirard [1940] 1 K.B. 204 the custody of the three children of a dissolved marriage was granted to the mother, and an order was made under section 193(1) above that the father should pay to the mother for the maintenance and education of the three children sums of £90, £90 and £70 a year less tax respectively. It was held by the Court of Appeal, in proceedings between the father and the Inland Revenue, that the payments were part of the mother's income, and not the income of the children, for tax purposes. In Yates v. Starkey [1951] Ch. 465 there were again three children of a dissolved marriage the custody of whom had been granted to the mother, but the order relating to their maintenance was in the form that the father should pay to the mother £100 a year in trust for each of the three children. It was held by the Court of Appeal, in proceedings between the father and the Inland Revenue, that, treating the order as having been lawfully made under section 193(1) above (as to which there was doubt), its effect was to create a trust in favour of each child in respect of which the father was the settlor, with the result that, under section 21 of the Finance Act 1936, the payments were deemed to be his income, and not the income of the children, for tax purposes. Section 21 of the Finance Act 1936 has since been replaced in similar terms, first by section 397 of the Income Tax Act 1952, and more recently by section 437 of the Income and Corporation Taxes Act 1970, which remains the relevant statutory provision at the present time.
Section 193(1) of the Supreme Court of Judicature (Consolidation) Act 1925 was replaced by section 26(1) of the Matrimonial Causes Act 1950, which was in like terms. By 1953 the High Court had begun to make orders for payments by a father for the maintenance for his children to be made direct to the children themselves. The object was to make the payments income of the children, while at the same time avoiding the creation of a settlement by a father of the kind which had been held to have been created in Yates v. Starkey, and so enable tax advantages to be obtained which were not obtainable with the form of order made in that case. In 1953 the Solicitor for the Board of Inland Revenue wrote to the Senior Divorce Registrar, stating that, whenever a maintenance order was made in matrimonial proceedings for payment direct to a child, the Board did not regard section 397 of the Income Tax Act 1952 as applying, and would, therefore, regard the income as that of the child for tax purposes. The making of orders for payment of maintenance direct to children thereafter became a regular practice because of the tax advantages involved. Moreover, although the question might well have been raised at some time or another whether such orders were within the powers conferred by section 26(1) of the Matrimonial Causes Act 1950, or by section 34(1) of the Matrimonial Causes Act 1965 which replaced it using similar terms, it appears that no one ever saw fit to raise such a question.
Any doubt which might have existed about that matter was in any case laid to rest by section 3(1) and (2)(a) of the Matrimonial Proceedings and Property Act 1970, which gave the court power, in matrimonial proceedings, to order:
"that a party to the marriage shall make to such person as may be specified in the order for the benefit of a child of the family, or to such a child, such periodical payments and for such term as may be so specified."
Those provisions were subsequently replaced, in substantially the same terms, by section 23(1)( d) of the Matrimonial Causes Act 1973, which remains in force today. Departing temporarily from chronological sequence, I would observe that similar express power to order payment of maintenance for children direct to them was given to Magistrates' Courts in domestic proceedings by section 2(1)( c) and section 11(2)( a) and 3( a) of the Domestic Proceedings and Magistrates' Courts Act 1978, and to the High Court in wardship proceedings by section 50 of the Administration of Justice Act 1982, amending section 6(2)( b) of the Family Law Reform Act 1969.
On 22 December 1975 the Senior Registrar of the Principal Registry of the Family Division issued a Practice Direction (Divorce Registry; Consent Summons)(No. 2) [1976] 1 W.L.R. 74, the relevant part of which read:
"The attention of solicitors is drawn to two minor adjustments of procedure made to the current Divorce Registry practice which permits consent applications being made to a registrar without attendance ….
1…..
2. On the issue of a consent summons or filing a notice of application seeking an order which includes an agreed term for payments direct to a child in excess of the amounts qualifying for the time being as 'small maintenance payments' under section 65 of the Income and Corporation Taxes Act 1970, the solicitor should certify either on the summons or the notice whether the child is, or is not, living with the party who will be making the payments under the proposed terms."
On 20 July 1978 the Senior Registrar wrote to the Treasury Solicitor and Queen's Proctor with regard to the propriety of making, in a particular case, an order for the payment by a father of periodical payments direct to children of the family who were living with him pursuant to an order giving him care and control of them. There followed prolonged consultation between various government departments and on 12 February 1979 the then Attorney-General wrote to the Senior Registrar:
"The Treasury Solicitor and Queen's Proctor has referred to me your letter of 20 July, as it raises questions of public policy and the possibility of the appointment of counsel to represent the Queen's Proctor or the Crown generally as an intervener.
In your letter you say that, if there is no objection to the order, you would not wish to hear counsel on behalf of the Queen's Proctor. In the circumstances I have obtained the...
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