Mauritius: Trusts Act 2001- Highlights

By Sameer Tegally, Corporate & Chancery Group Ltd

The Trusts Act 2001 ("TA") is a wholly fresh piece of legislation, governing trusts, which are created by resident settlors or by non-resident settlors. Formerly, there were two distinct regimes, the Trusts Act 1989 and the Offshore Trusts Act 1992 ("OTA") which applied to onshore trusts and offshore trusts respectively.

The TA is a welcome law since it brings onshore trusts and offshore trusts together, under one roof, thereby dismantling the ring fencing which has been segregating these two types of trusts. The sub-headings below highlight the major changes brought about by the TA, primarily in respect of trusts set up by non-resident settlors (previously known as ‘offshore trusts’).

• The provision for custodian and managing trustees is a new concept, which has been comprehensively injected in Sections 25 & 26 of the TA.
• A custodian trustee may be appointed by virtue of the trust instrument and may either be a firm or partnership or body corporate. The sole function of the custodian trustee is to hold the trust property and deal with its funds or assets as per the directions of the managing trustee.
• The managing trustee, on the other hand, manages the trust property and exercises his powers and discretion under the trust instrument, but he is not vested with the trust property.

• Whereas the OTA has been providing for the optional appointment of an enforcer for purpose trusts, it is now compulsory under the new law to appoint one. There is a specific section [s. 21, TA], which clearly sets down the method of appointment of the enforcer, his powers and duties, amongst others.

• By virtue of s. 24(1)(b) of the TA, the protector’s consent may now be required in relation to the exercise of the trustee’s powers and discretions. Furthermore, a protector may be a body corporate, a firm, a partnership, or a group of persons, whether corporate or incorporate.

• A salient feature of the TA is that all trusts must now be made in writing. Under the OTA, it was possible to create a trust by oral declaration.

• Accumulation of income for trust property including immovable property situated in Mauritius cannot exceed 25 years, as per s. 10(2) of the TA.

• Under a protective trust, the trustee has a statutory duty to pay the income to the beneficiary until the latter’s interest terminates or when a determining event occurs. If that event occurs and the interests of the beneficiary continues, the trustee must in his absolute discretion, pay the income to either of the following persons:

• Under s. 15 of the TA a woman over the age of 55 (under the OTA, the age is 60) is deemed to be no longer capable of bearing a child.

• Charitable trusts may have two additional objects:

1. Advancement of human rights and fundamental and fundamental freedoms;
2. Protection of the environment.

• Under the OTA, a trustee could be a beneficiary if he was not the sole beneficiary. Moreover, each trust should have at least 2 trustees (1 trustee is enough if that trustee is a corporate trustee).
• Now, under the new law, a trustee may be a beneficiary provided that he is not the sole beneficiary or he is not the sole trustee of the trust. Each trust must have at least one qualified trustee but the total number of trustees cannot exceed four (4). A qualified trustee is a management company or a resident of Mauritius, duly authorised to provide trusteeship services.

• Section 37(3) of the TA confers an additional fiduciary obligation on the shoulders of the trustee: a trustee cannot deal with the trust property for his own profit or for a purpose not related to the trust.
• The TA also recognises that a trustee cannot be liable for a breach of trust committed by his predecessor, prior to his appointment or by his co-trustee, unless he becomes aware or ought to have become aware of the breach and he actively conceals it. A trustee in such a position has indeed a statutory duty to take all reasonable steps to remedy the breach (s. 50(5), TA).
• Under the OTA, a trustee of an offshore trust could not invest in securities and other investment vehicles in Mauritius, unless duly approved by the Mauritius Offshore Business Activities Authority (MOBAA). Now, through the TA, government has abolished this discriminating measure such that henceforth, trustees may freely invest in securities and investments in Mauritius (of course, subject to the terms of the trust).

• In view of s. 10 of the OTA, the Court may declare an offshore trust void or voidable, where it is proved beyond reasonable doubt that the offshore trust was made with the intent to defraud the creditors of the settlor at the time the trust property was vested in the trustee. Besides, it is expressly mentioned in s. 10(4) that the onus of proving such intent rests on the creditor.
• Now, s. 11(3) of the TA provides that the Court may declare a trust void where it is established that the trust was made with the intent to defraud the creditors of the settlor (that is, the same provision under s. 10 of the OTA, but omitting here the crucial words "beyond reasonable doubt").
• The wording therefore reverts the standard of proof from "beyond reasonable doubt" to that of "on the balance of probabilities". It is therefore understood that the TA has lowered the standard of proof inasmuch as the proof "on the balance of probabilities" is admittedly a lower standard of proof than the proof "beyond reasonable doubt".
• In a nutshell, the OTA required of the creditor to prove beyond reasonable doubt (note that a reasonable doubt is not sufficient) that the settlor intended to defraud him at the time of transferring his property to a trust. Now, the TA requires the creditor to prove on the balance of probabilities (that is, it is more probable than not) that the settlor had such intention.

• The TA sets out exhaustively the persons/ institutions to which a trustee must disclose information.

• A beneficiary may now bring an action against the trustee within 2 years from the breach of trust or from delivery of the final accounts of the trust, whichever is earlier. Under the OTA, that limitation period was 3 years.

• Under s 7 of the TA, leasehold interests lasting at least 18 years may be held on trust. Moreover, immovable property in Mauritius may be held on trust by charitable trusts only. Protective and non-charitable purpose trusts may hold immovable property in Mauritius, subject to obtaining approval from the Prime Minister under the Non-Citizens (Property Restriction) Act 1975 as amended.
• The transfer on trust, of property outside Mauritius cannot be invalidated by reason that it contravenes the applicable law of the transfer. However, that transfer must imperatively constitute a valid transfer had it taken place in Mauritius.

• A settlor may further declare a trust in respect of property, which he does not necessarily own at the time of the declaration of the trust. Therefore, the trust property may comprise of property to be owned in the future.

A remarkable feature of the TA is that it brings about revolutionary amendments to the Mauritius Civil Code ("Code Civil Mauricien"), which is French inspired. In order to avoid any possible conflict of our laws, the Code now espouses the concept of ‘fiducie’ (the French term for "trust"), despite the fact that the trust model itself is alien to the French Codes.

There is no doubt that the Trusts Act 2001 offers a strong, yet flexible legal foundation, upon which Mauritius created trusts will sprout and thrive safely and efficiently.