A (A Child)

The court may alter an earlier child-property settlement where an unforeseen mistake made the approved structure substantially disadvantageous, provided the child’s beneficial interest is preserved. A tax consequence arising from an unforeseeable misunderstanding may justify restructuring the trust; the exercise is not impermissible tax avoidance where it merely corrects the accidental structure. Sections 3 and 8 of the Children Act 1989 were considered sufficiently wide to support the Family Division’s original statutory jurisdiction. However, applications founded on the inherent jurisdiction concerning a child’s property should be made in the Chancery Division.

The appeal concerned an order made by Sumner J on 3 October 2000 directing that property belonging to V be held in the discretionary Giovanni Trust. The trust was later found to expose the property to substantial United States gift tax because V’s United States citizenship was unaffected by her mother’s renunciation of citizenship. Italian usufruct law also meant that income from the trust property was payable to V as its fruits.

The trustees sought to replace the original trust with a substantially different structure, based on a form approved by Richards J in related proceedings concerning the Umberto Trust. The application relied principally on sections 3 and 8 of the Children Act 1989, alternatively on the inherent jurisdiction. The central issues were whether the court had jurisdiction to make the variation and whether the proposed restructuring was proper.

1. Appeal allowed. Permission to appeal, an extension of time, permission to rely on further evidence and permission for a private hearing were dealt with as stated in the order. The proposed draft order was approved, with the specified additions and drafting amendments.
2. Per Moses LJ, the court’s intervention was justified by a genuine and unforeseeable mistake. The United States gift-tax liability, including interest and penalties, had not reasonably been anticipated when the original order was made. The court was not engaging in tax planning to avoid a properly appreciated fiscal liability. It was correcting an accidental trust structure which would otherwise impose a wholly unnecessary tax burden.
3. The replacement trust could differ radically from the Giovanni Trust, but only because V’s beneficial interest in the settled property was expressly preserved. The property itself and the child’s beneficial entitlement were not altered. The form approved by Richards J in the related Umberto Trust proceedings provided appropriate Chancery assistance in assessing the proposed structure.
4. Moses LJ considered it unnecessary to resolve the detailed interaction of the relevant provisions of the Children Act 1989. Thorpe LJ nevertheless held that sections 3 and 8 were drawn in sufficiently wide terms to confer statutory jurisdiction on the Family Division to entertain the original application, which had also been framed under the inherent jurisdiction.
5. Thorpe LJ added that, insofar as jurisdiction was inherent, the proper forum was the Chancery Division, not the Family Division. The order therefore ensured that future applications would be made to a Chancery Division judge. Rathbone was added as second defendant, Suzanne Marriot was substituted as litigation friend, and time was extended.

• Court of Appeal (Civil Division): Appeal from the order made by Sumner J on 3 October 2000. Appeal allowed and the proposed restructuring of the Giovanni Trust approved.
• High Court of Justice, Family Division: Sumner J directed that V’s property be held on the terms of the Giovanni Trust.