Arbitration in Mauritius – Increasing the substance?

INTRODUCTION:

Mauritius has, to date, successfully concluded 39 double taxation avoidance agreements (DTAs) worldwide thus allowing the country to become an international financial centre of repute. To keep pace with such recognition, Mauritius has recently been fine-tuning its Alternative Dispute Resolution regimes of law, especially in the field of arbitration, into a state-of-the art legal and regulatory framework. One sector expected to witness an important emergence of arbitration in Mauritius is the Global Business Sector.

The Financial Services Commission (“FSC”) has, in September 2013, brought some important amendments to Chapter 4 of the Guide to Global Business. The purpose of these amendments is to reinforce substance in Mauritius by increasing control and management requirements that GBC1s  will need to fulfill in order to be eligible for the Tax Residency Certificate in Mauritius. This will further improve the image of Mauritius as a clean and well regulated international financial centre of substance. One of the additional requirements pertains to the incorporation of an arbitration clause in the constitution of a GBC1 as one of the relevant criteria for determining whether its business is being controlled or managed from Mauritius.

NEW CONTROL AND MANAGEMENT REQUIRMENTS FOR GBC1s:

A GBC1 is required to have at least two local directors on its board. As from the 1st of January 2015, however, in addition to the existing requirements, a GBC1 will need to ensure that its two local directors are not only of sufficient caliber to exercise independence of mind and judgment, but also have the qualities listed in the Circular Letter of March 2013 from the FSC including: having relevant qualification and experience to exercise sufficient care, diligence and skills for the good conduct of the business of the company and having sufficient time and ensuring that sufficient time and attention is given to the affairs of each board he/she serves on.

It should also be noted that as from the 1st of January 2015, a GBC1 wishing to be eligible for the Tax Residency Certificate so as to avail treaty benefits under the DTAs, will have to demonstrate added control and management by complying with at least one of the following additional criteria :

  • Has its office premises in Mauritius;
  • Employs on a full-time basis at administrative/technical level, at least one person resident in Mauritius;
  • Have an arbitration clause in its constitution whereby all disputes arising out of the constitution shall be resolved by way of arbitration in Mauritius;
  • Hold or is expected to hold within the next 12 months, assets (excluding cash held in bank account or shares/interests in another corporation holding a Global Business Licence) which are worth at least USD 100,000;
  • List its shares on a securities exchange licensed by the FSC;
  • Incur expenditure in Mauritius which can be reasonably expected from any similar corporation which is controlled and managed from Mauritius.

In case the GBC1 is licensed as a collective investment scheme, closed end fund or external pension scheme, it would also have to be administered from Mauritius and have applicable to it, the above listed additional control and management requirements.

Through these amendments, the FSC is reiterating its commitment and willingness to enhance economic substance in Mauritius. The amendments have been positively taken on board by the global business industry. On the basis of the above, having the ability to choose among different ways to meet the control and management requirements, a GBC 1 would definitely go for the option best suited to it. It is objectively appraised that including a provision in the constitution for the seat of arbitration to be in Mauritius is the less costly and time-consuming option, assuming that the shareholders of the GBC1 consider arbitration as their option for resolving disputes arising out of the constitution.

MAURITIUS ARBITRATION:

By allowing and encouraging shareholders of a GBC1 to arbitrate in Mauritius with regards to dispute arising out of the constitution of the company, the FSC is accentuating the positioning of Mauritius as a jurisdiction of choice for the resolution of business and investment disputes in the African region and beyond.

In fact, Mauritius law already provided a mechanism for arbitration to shareholders of a GBC1 in case of a dispute arising out of the company’ s constitution through the International Arbitration Act 2008 (the “IAA”). The IAA was influenced by the UNCITRAL model and the law was subsequently amended to refine certain aspects and keep abreast with international developments. The setting up of the LCIA-MIAC Centre which is the result of a joint venture between the London Court of International Arbitration (“LCIA”) and the Mauritius International Arbitration Centre Limited (“MIAC”), demonstrates the interest of the international business company for these services. To also cater for Francophone Africa, the Mauritius Chamber of Commerce and Industry (“MCCI”) has recently concluded an agreement with the Chambre de Commerce et d’Industrie de Paris.

The IAA has been amended in 2013 to update and simplify the arbitration mechanism for GBL Companies. The scope of applicability of the amended sections of the IAA is restricted solely to arbitration clauses incorporated in the constitution of the GBL Company. It does not affect or limit the right of the shareholders of the company to agree to their choice of arbitral seat for disputes concerning or arising out of agreements other than the constitution of the company. Consequently, many GBL Companies are expected to make use of this advantage in as much as the inclusion of an arbitration clause in their respective constitutions may not be difficult to achieve.

CONCLUSION:

In the same vein, by giving GBC1 the option to include an arbitration clause in their respective constitution as a relevant criterion for determining whether their businesses are being managed or controlled from Mauritius, the FSC is also promoting arbitration in Mauritius. Given the relative simplicity and cost effectiveness of adding the arbitration clause in a company’s constitution, this method will undoubtedly be one of the preferred ones in order to comply with the additional substance requirements imposed by the FSC and that will be effective as from 1st of January 2015.