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A (A Child) [2006] EWCA Civ 1441

Application for permission to appeal, with appeal to follow, an order made by Sumner J in 2000 that created a trust for the benefit of child, V. Application and subsequent appeal allowed.

The reason for the application was that the trust was to be hit by a tax demand of $46m arising from US Gift Aid tax because of an error concerning the nationality of the applicant. Moses LJ, though uneasy at the prospect of seeming to become involved in tax planning, was confident that the consequences arising from the original Order could not have been resonably foreseen and so allowed the alteration. The judgment also includes comments by Thorpe LJ on the whether the matter should have been handled by the Chancery division.



Neutral Citation Number: [2006] EWCA Civ 1441


Royal Courts of Justice
London, WC2

Wednesday, 17th May 2006

B E F O R E:


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MR F HINKS QC AND MR J ADKIN (instructed by Messrs Charles Russell, LONDON, EC4 1RS) appeared on behalf of the Appellant.
MR R HAM QC AND MR E RAJAH (instructed by Messrs Taylor Wessing, LONDON, EC4Y 0DX) appeared on behalf of the first Respondent.
MR S TAUBE QC (instructed by Messrs Taylor Wessing, LONDON, EC4Y 0DX) appeared on behalf of the second Respondent.

(As Approved by the Court)

Crown copyright©

1. LORD JUSTICE MOSES: This is an application for permission to appeal, and an appeal if we give permission, which for my part I would do, seeking effectively to vary an order made as long ago as 3 October 2000 by Sumner J in relation to property belonging to the respondent's daughter, V. Paragraph 4 of Sumner J's order directed that property belonging to V should be held on the terms of a discretionary settlement known as the Giovanni Trust. The Trust was eventually dated 25 October 2000 and declared as such by the second respondents to this appeal, Rathbone Trustees Jersey Limited formerly the Lex Trust Company Limited.

2. The problem that has triggered this appeal emerged only later. The subject matter of the discretionary trust as the name of the trust reveals, was property belonging to Mr A, the then husband of Mrs A. Subsequently in 2005, a further trust consisting of property originally belonging to the paternal grandfather, Umberto, was to be the subject of a further trust, the Umberto Trust. Applications in relation to that were sensibly sent by a judge of the Family Division, Roderick Wood J, to a judge of the Chancery Division, David Richards J.

3. He, in circumstances to which I will turn in a moment, made an order in relation to the Umberto Trust which identifies the form of a trust which it is now sought to make in relation to V which differs radically from the original Giovanni Trust, the subject matter of the order of Sumner J. The reason for that was that it was realised that, through an accident of United States law, the subject matter of the property settled on V would be the subject to a massive charge to United States Gift Tax. Indeed, as a result of the impact of interest and penalties, on top of the fiscal charge, it was feared that it could amount to as much as US$46 million.

4. The reason for that was that at the time the matter came before Sumner J, when V was a year old, and her mother had renounced United States citizenship. It was therefore thought that the settlement on V would have no United States tax consequences. V, I should add, was born in Italy. However, it has now emerged, as it emerged at the time of the Umberto proceedings in 2005, that notwithstanding the mother's renunciation of United States citizenship, that would have no impact upon the citizenship of V. Her citizenship could not be renounced and the consequences were that the settlement upon her would be subject to the impact of United States Gift Tax with interest and penalties.

5. A further problem arose, less serious, but which was also overlooked and also forms, in part, the subject matter of this application; namely, that under the applicable Italian law of Usufruct the income from the property in the Giovanni Trust Fund would have been payable as of right to Avery as part of the fruits of V's property. The evidence apparently shows that the total income received by the Rathbone Jersey Trustees from the Giovanni Trust fund exceeded the value of the capital that the trustees had distributed to the mother, and substantial sums by way of fees and expenses had also been paid. In those circumstances, it is sought to invoke this court's jurisdiction, pursuant to the Children's Act, to alter the order made by Sumner J and thereby create a different trust in the form of a draft order.

6. The jurisdiction is sought to be invoked under a congeries of sections under the Children Act 1989, and particularly by reference to Section 3 of that Act read with Section 8. It is said that on a proper reading under Section 3, it is plain that this court has jurisdiction to ensure that parental responsibility as defined in Section 3 is properly exercised by the parent, in other words by Avery, in the role of guardian of V's property. It is unnecessary for my part for me to go further into the interstices of the relevant sections in the Children Act 1989 because in my view this is a very unusual case.

7. For my part, I felt considerable reluctance at the outset, in this court becoming involved in alterations of Sumner J's order, lest it be thought that this court was becoming involved with some aspect of tax planning so as to avoid the incidence of tax. All sorts of considerations might prompt the reluctance of this court to interfere in any way in such procedures, but for my part I am quite satisfied that what has happened in this case has been a pure accident arising from an unforeseeable mistake as to the consequences of the renunciation of the mother's United States citizenship. I fully accept that the impact of United States Gift Tax upon the subject matter of the settlement could not reasonably have been foreseen.

8. David Richards J has, with his Chancery experience and as a Chancery judge, fully considered the propriety of the draft order that is now sought in the context of the Umberto Trust and he has been satisfied that it is proper that the settlement should be formed in the manner now described in the proposed draft order in relation to the Giovanni Trust. In particular, the draft order creates a different trust from that ordered by Sumner J whilst preserving and making it abundantly plain that the beneficial interest of the child, V, is not in any way altered. I am quite satisfied that had the court appreciated the incidence of United States Gift Tax, the Giovanni Trust as originally ordered would never have been ordered, let alone approved by the court. It gave rise to a wholly unnecessary impact of United States Gift Tax.

9. In those circumstances I would, with the addition of the words which were included under sub paragraph 4(a), the full-out words under (ii) being added in terms that I hope will be properly drafted out for the associate of the court, approve of the draft order, in particular noting that the effect upon the property settled upon V will not in any way be changed, and that this is not in reality a means of seeking to avoid the mitigation of a tax imposed in another jurisdiction, but merely reflecting what was a true mistake which triggered the order originally made by Sumner J.

10. LORD JUSTICE THORPE: I do not regard the issue before the court today as an issue that truly engages the family justice system, and I am content to support and agree with the disposal explained by my Lord, Lord Justice Moses.

11. I add only my view on the demarcation issue. I accept Mr Taube's submission that Sections 3 and 8 of the Children Act 1989 are drawn in sufficiently wide terms to permit the view that the Family Division held statutory jurisdiction to entertain the original application. I note that that application was alternatively framed under the court's inherent jurisdiction. In my judgment, it was unfortunate that those who acted in 2000, and none now remains in the case, issued proceedings in the Family Division, and that the issue was not subsequently questioned either administratively or judicially. None of the lawyers involved then had any experience in family law, and the Family Division judge inevitably had no expertise in the subject matter of the application.

12. The later decision of Roderick Wood J to transfer a related application to the Chancery Division was entirely sound. Insofar as jurisdiction arises inherently, as Mr Hinks submits is demonstrated by the decision of the House of Lords in Chapman v Chapman [1954] AC 429, it should be exercised in the Chancery Division and not in the Family Division.

13. I am relieved to see that paragraph 9 of the order which we make today ensures that any future application will be to a judge of the Chancery Division. Accordingly, we add Rathbone as the second defendant. We substitute Suzanne Marriot as litigation friend, we extend time, we grant permission, we admit the new evidence and we make the order sought.

Permission to appeal: Granted
Extension of time: Granted
Permission of rely on further evidence: Granted
Permission to have hearing in private: Refused
Appeal: Allowed