2. Trusts
A. Introduction
A trust exists where a person holds or is vested with, or is
deemed to hold or have vested, property of which that person is not
the owner in the individual’s own right, with a fiduciary
obligation to hold, use, deal or dispose of it for the benefit of
any person, whether or not yet ascertained or in existence and/or
for any purpose, including a charitable purpose, which is not for
the benefit only of the trustee.
B. Most Frequently Used Trusts
The Trusts Act provides a flexible regulatory
framework that allows the settlor to determine the type of trust
required, be it discretionary or fixed. This Act also specifically
provides for protective or spendthrift trusts.
All purpose trusts must have an enforcer whose duty it is to
enforce the trust in accordance with its terms and purposes. The
enforcer cannot act as trustee for the same purpose trust.
There is no requirement for the trust deed to be filed with any
governmental body. Nonetheless, it is advisable to register the
trust at the office of the Registrar General in order to get a
‘date certaine’ that will be evidence of the existence of
the trust on the date of registration.
A charitable purpose trust is one with an exclusive purpose or
object, such as relief of poverty, advancement of education,
advancement of religion, protection of the environment, advancement
of human rights and fundamental freedoms, or any other purpose
beneficial to the public in general.
A non-charitable purpose trust is valid and enforceable provided
that the purpose for which the trust is created is specific,
reasonable and capable of fulfilment, and is not immoral, unlawful
or contrary to public policy.
The Financial Service Commission (FSC) has issued a circular
relating to private trust companies. High-net-worth individuals may
now set up a private trust company (PTC) holding either a Category
1 global business licence (GBL1) (tax resident) or a Category 2
global business licence (GBL2) (tax exempt) to act as a trustee in
respect of their own assets that would be settled in one or more
trusts. The PTC must provide its private trust business services
solely to connected persons and must not solicit trust business
from, or provide trust business services to, the public. The PTC
must appoint a duly licensed management company to carry out its
trust administration services in relation to any express trust to
which it is a trustee. The PTC should at all times maintain a
minimum paid up capital of USD5,000.
C. Proper Law Of A Trust
Mauritius is not a party to the Hague Convention on the
Law Applicable to Trusts and on their Recognition, 1 July
1985. The proper law of a trust, as inspired by this Convention,
is:
- the law expressed by terms of the trust or intended by the
settlor to be the proper law
- where no such law is expressed or intended, the law with which
the trust has its closest connection at the time of its creation,
or
- where the law expressed by the terms of the trust or intended
by the settlor to be the proper law, or the law with which the
trust has its closest connection at the time of its creation, does
not provide for trusts or the category of trusts involved, the
proper law of the trust will be the law of Mauritius.
A foreign trust whose proper law is a law other than the law of
Mauritius is governed by, and interpreted in accordance with, that
proper law. A foreign trust is not, however, enforceable in
Mauritius to the extent that it purports to do anything which under
the law of Mauritius is an offence, that it confers or imposes any
right or function, the exercise or discharge of which under the law
of Mauritius is an offence, that it is immoral or contrary to
public policy, or that it purports to apply directly to immovable
property situated in Mauritius.
D. Creation Of A Trust
I. Validly Constituted Trusts
A trust may be created by disposition of property inter
vivos or by will, or by holding property on trust. Only
an instrument in writing can create a trust other than a unit
trust, constructive or resulting trust, or any trust arising by
operation of law or by judicial decision.
A trust is not valid or enforceable where it purports to do
anything contrary to the law of Mauritius, or it purports to confer
any right or power or impose any obligation, the exercise of which
or the carrying out of which is contrary to the laws of Mauritius,
or it has no identifiable or ascertainable beneficiary, or where
the court declares that it was established by duress, fraud,
mistake, influence, misrepresentation, or in breach of fiduciary
duty, or it is immoral, or the settlor had no legal capacity to
create such a trust.
Ii. Duration And Termination Of A Trust
The maximum duration of a trust other than a purpose trust is 99
years from the date of its coming into existence. A charitable
trust may be of perpetual duration. Generally a purpose trust,
whether charitable or not, may be of perpetual duration. A trust
may be terminated by unanimous agreement among all beneficiaries or
by court order or by the trustees, in accordance with the terms of
the trust deed.
Iii. Beneficiaries
Any person, whether natural or corporate, entitled to benefit
under a trust, or in whose favour a power to distribute trust
property may be exercised, may be a beneficiary. A beneficiary must
be identifiable by name, or be ascertainable.
Iv. Trustees
A trustee must be either a person of full age who has the legal
capacity to contract, or a body corporate permitted under statute
to act as trustee. A trustee cannot hold a beneficial interest
under the trust except where s/he is not the sole trustee of the
trust or the sole beneficiary under the trust.
The number of trustees of a trust cannot exceed four. Every
trust must at any one time have at least one qualified trustee that
is authorised by the FSC to provide trusteeship services.
Trustees have a general duty in the exercise of their functions
to observe the utmost good faith and to act with due diligence,
with care and prudence and to the best of their ability and
skill.
Subject to the terms of the trust or a court order, trustees are
entitled to remuneration for services. In addition, they may be
reimbursed out of trust property for all expenses and liabilities
properly incurred by them in connection with the trust.
The terms of a trust may provide for appointment of a custodian
trustee and of a managing trustee. The custodian trustee has the
sole function of holding trust property, investing funds and
disposing of assets as the managing trustee may direct. The
managing trustee manages trust property without being vested with
it. The custodian trustee is not liable for acting on direction
given by the managing trustee except where the custodian trustee
has reason to believe that the direction so given is in
contravention of any law, rule or regulation, is contrary to the
terms of the trust, is contrary to sound commercial practice, or is
otherwise objectionable.
A trustee who commits or concurs in a breach of trust is liable
for any loss or depreciation in the value of trust property
resulting from the breach, and any profit that would have accrued
to the trust had there been no breach. Where two or more trustees
commit a breach of trust they are liable jointly and
severally.
Trustees are not liable for breach of trust committed by another
person prior to appointment or for a breach of trust committed by a
co-trustee unless they become or ought to become aware of the
breach, and they actively conceal the breach, or fail within a
reasonable time to take proper steps to protect or restore the
trust property or to prevent the breach.
Beneficiaries may relieve a trustee of liability to them for a
breach of trust or indemnify a trustee against a liability for a
breach of trust, unless the beneficiary is a minor or a person
under legal disability, does not have full knowledge of all
material facts, or is improperly induced by the trustee to do
so.
The court may relieve a trustee wholly or partly of liability
for a breach of trust where it appears to the court that the
trustee has acted honestly and reasonably and ought fairly to be
excused for the breach of trust or for omitting to obtain the
directions of the court in the matter in which the breach
arose.
Terms of the trust may exonerate trustees from liability for
breach of trust. Nonetheless, the terms of the trust may not
relieve trustees of liability for a breach of trust arising from
their own fraud, wilful misconduct, or gross negligence. Where so
required by the terms of the trust, a trustee who resigns or is
removed may require reasonable security for liability (existing,
future, contingent or otherwise) before surrendering the trust
property.
Where in any transaction or matter affecting a trust, trustees
inform a third party that they are acting as trustee, a claim by
the third party in respect of the transaction or matter extends
only to the trust property. If trustees fail to inform the third
party that they are acting as trustee, or the third party is
otherwise unaware that they are acting as trustee, the trustees are
personally liable to that other party in respect of the transaction
or matter, but the trustees have right of recourse to the trust
property by way of indemnity against such personal liability unless
they acted in breach of trust.
Trust property that has been charged or dealt with in breach of
trust or fiduciary duty, or the property into which it has been
converted, may be followed and recovered unless:
- it is no longer identifiable
- it is in the hands of a bona fide purchaser for value without
notice of the breach of trust, or of any other defect in the
title
- it has been charged in favour of a person who bona fide
acquired the rights therein for value and without notice of the
breach of trust or any other defect in the title, or
- a person, other than the trustee, derived title through a bona
fide purchaser or charge holder for value without notice of the
breach of trust or defect.
A trustee or any other person who derives profit from a breach
of trust or obtains property as a result of such a breach is deemed
to be a trustee of the profit or property for the beneficiary of
the trust. Without prejudice to any other remedy provided by law,
such a beneficiary may apply to the court to trace and recover the
property. Nonetheless, a person is not liable for breach of trust
where it is established that the profit or property was obtained in
good faith.
V. Protectors Any Person Of Full Age And Of Sound
Mind, Or Any Corporation, Any Firm, Partnership Or Group Of
Persons, Whether Incorporated Or Unincorporated, May Be Appointed
As Protector. The Settlor, A Trustee Or A Beneficiary Of A Trust
May Also Be The Protector.
Terms of the trust will generally provide the powers and
functions of the protector. Unless otherwise provided in the terms
of the trust, the protector has the following powers:
- to remove a trustee and to appoint a new or additional
trustee
- to determine the law of which jurisdiction is the proper law of
the trust
- to change the forum of administration of the trust, and
- to withhold consent from specified actions of the trustees
either conditionally or unconditionally.
A person exercising any of the above powers is not, by reason
only of the exercise of the power, deemed to be a trustee. Unless
otherwise provided under the terms of the trust, a protector is not
liable to the beneficiaries or the trustees for the bona fide
exercise of his power.
Vi. Role Of Courts
The Supreme Court of Mauritius has jurisdiction to hear any
matter relating to trusts in Mauritius. On application of any
person having an interest in the trust, the court has wide powers
to make any order in respect of the execution, administration or
enforcement of a trust. A trustee can also apply to court for
directions.
E. Trust Administration
I. Introduction
Trustees must execute and administer the trust, and exercise
their functions in accordance with the Trusts
Act and the terms of the trust, and only in the interest
of the beneficiaries or in fulfilment of the purpose of the trust.
As a general principle, trustees cannot use or deal with trust
property for their own profit or for any purpose not connected with
the trust. Subject to the terms of the trust, trustees have the
duty to preserve and enhance, so far as is reasonable, the value of
the trust property. Trustees are required to keep updated and
accurate accounts and records of their trusteeship. In addition,
trustees must keep trust property separate from their own property,
and separately identifiable from any other property of which they
are trustees. Where a trust has more than one beneficiary, or more
than one purpose, the trustees, subject to the terms of the trust,
must be impartial, and must not execute the trust for the advantage
of one beneficiary at the expense of another.
Subject to their duties under the Trusts
Act and to the terms of the trust, trustees have, in
relation to the trust property, all the powers of a beneficial
owner. Trustees have power to appropriate, accumulate, advance, or
appoint trust property. Trustees may delegate any of their powers.
Any desired or intended restriction of trustee powers should be
included in the trust deed.
Ii. Variation Of A Trust
The court has power to approve any arrangement that varies or
revokes the terms of a trust, or enlarges or modifies trustee
powers of management or administration, whether or not there is
another person with a beneficial interest who is capable of
assenting to the arrangement.
A trust and any exercise of a power under the trust may be
expressed to be capable of revocation, in whole, in part or
variation. No revocation or variation can prejudice anything
lawfully done by a trustee in relation to the trust before
receiving notice of the revocation or variation.
F. Confidentiality And Disclosure
Except where ordered by the court, trustees must keep as
confidential and may not be required to disclose to any person not
legally entitled to it, or be required to produce or divulge to any
authority in Mauritius or elsewhere, any information or document in
their possession or under their control relating, among others, to
the state and amount or any other details of the trust property and
the conduct of the trust administration. Beneficiaries do not have
any right to information unless the terms of the trust so
provide.
In Vignaud O v Temple Corporate Services (2011) SCJ
153, the Judge refused to order the disclosure of a copy of the
trust deed to a beneficiary on the ground that there were no
express provision in the trust deed authorising the disclosure of
information to a beneficiary.
G. Rights Of Creditors
With respect to trusts not created by a Mauritian national or a
person domiciled in Mauritius, the Trusts
Act provides that a trust is generally not invalidated
because of the settlor’s insolvency or action against the settlor
by creditors.
Nonetheless, the court may declare a trust void where it is
established that the trust was made with the intent to defraud
persons who were creditors of the settlor at the time when the
trust property was vested in the trustee. Even so, no action shall
lie against the trustee after two years from the date of the
transfer or disposal of the assets to the trust.
The Trusts Act also provides that where the
law of Mauritius is the proper law of a trust, the court shall not
vary it, set it aside, or recognise the validity of any claim
against the trust property pursuant to the law of another
jurisdiction or the order of a court of another jurisdiction in
respect of the claim of creditors in an insolvency.
According to the Insolvency Act 2009 a
transfer made by a settlor into a trust that amounts to a voidable
preference, that is, a transfer made at a time the settlor is
unable to pay his debts and that gave one creditor preference over
other creditors, may be set aside by the court if it is made within
two years from the date at which the settlor is declared bankrupt.
A transfer as a gift made by a settlor to the trust may also be set
aside by the court if it is made within two years from the date the
settlor becomes bankrupt.