I think the MATS Part 1 makes sense.
If the aircraft is displaying a squawk which is not deemed validated (e.g a conspicuity code), then we can't assume the Mode C is correct. If it's not correct, then by stating that the aircraft is above/below may lead the pilot to concentrate lookout in the wrong place, thus the method I prefer is 'Unknown traffic, (position), indicating FL/Alt, unverified.'
It's then up to the pilot to assess where to look, initially at the indicated level, but they might also get their scan going up as well as down if they don't find it there.
For traffic where the Mode C is verified, then using the vertical distance above/below is the way it should be done to avoid the problems ANSA alludes to.
As an aside, ANSA, do you get a lot of unknown traffic in the Upper Airspace in your part of the world ?? Would imagine there might be a few mil things whizzing about as laws unto themselves.