By Mark Lea, Lea & White International Advisers Limited

The jurisdiction of Labuan, Malaysia’s International Business and Financial Centre located in Sabah, has set its sights on becoming a leading wealth management centre for Asian investors. To serve the burgeoning needs of the private banking sectors in Asia Pacific, Labuan has re-drafted its trust laws which were enacted on 11 February 2010.

In this article, Mark Lea (Partner of Lea & White and Managing Director of Lea & White International Advisers Limited) provides some highlights on the new Labuan trust laws, which were drafted with the assistance of Lea & White, a leading trust law specialist in the region.

CONTROL OF THE TRUST

Retention of control by a Settlor or Protector is one of the most sought after features in Trust Law, particularly in Asia. The Labuan Trusts Act (“LTA”) offers reserved powers to a Settlor, similar to Jersey.

Also, similar to the Bitish Virgin Islands Special Trusts Act (‘VISTA’), LTA includes the ‘Labuan Special Trust’ (LST) to ‘enable a trust of company shares’ to be established under which (a) the shares may be retained indefinitely (b) the management of the company may be carried out without power of intervention by the trustees.

Compared to VISTA, LST is more contemporary as the trustee is not liable for losses from speculative or imprudent activities of the company, and
despite the trust to retain the designated shares, the trustee has power to sell them as well as protection when exercising the power

DURATION OF THE TRUST

Another sought after feature is for the trust to exist in perpetuity. Bermuda, Guernsey, Jersey, Dubai and now Labuan allows perpetual trusts as a default provision. There is flexibility for a fixed term trust to be converted to a perpetual trust and vice versa; shorten or extend the duration; and making this retrospective for existing trusts.

UNENFORCEABLE FOREIGN CLAIM

Protection against a foreign law claim or enforcement of a foreign law judgement is provided for in Labuan, which compares favourably with Dubai, Bahamas, Bermuda, BVI, Guernsey and Jersey and to a limited extent, Singapore.

TYPES OF TRUSTS

Labuan has introduced Purpose Trusts thus comparing favourably with Cayman’s STAR Trusts, Guernsey, Dubai, BVI, Jersey, Bermuda and Mauritius. It has included the promotion of art, science, religion and unique to Labuan, ‘the advancement of human rights and fundamental freedom’.

TRUSTEES’ POWERS AND DUTIES

In place of the ‘statutory duty of care’, Labuan has the common law standard of ‘the prudent man’ test. It has also introduced specific provisions relating to trustees’ powers in investment, delegation and insurance while Labuan’s modern statement of Trustees’ duties  compares well with Dubai.

CONFIDENTIALITY

Labuan has provision ensuring confidentiality balanced against provisions requiring trustees to provide information.

PROTECTORS AND BENEFICIARIES

Good modern trust law provides for a Protector as a watchdog for the Beneficiaries and Labuan covers these matters. Labuan compares favourably with Guernsey and Dubai with its provisions  identifying Beneficiaries; powers of addition and removal or exclusion of Beneficiaries; disclaimer by a Beneficiary of his interest in whole or part; class closing rules; and determining the nature of a Beneficiary’s interest and whether or not the Beneficiary can deal with that interest.

RIGHT TO INFORMATION

Labuan’s guidelines covering the right for Beneficiaries, a Settlor, Protector, enforcer and for the Court to receive information, position Labuan at the same level as Dubai and Mauritius.

NATURE AND EXISTENCE OF A LABUAN TRUST

LTA describes the Settlor as either a “qualified person” (a non- Malaysian resident) at the time the trust is created, or “resident” at that time provided the trust property does not include any Malaysian property. Beneficiaries have to be “qualified persons” at the time the trust is created or at a time they become entitled to be beneficiaries. Unlike Guernsey which permits trusts to be created orally or by conduct, a Labuan Trust must be in writing and can be by unilateral Declaration of Trust which need not name the Settlor. Thus, Labuan provides the clearest and most user friendly provisions in trust laws.

THE PROPER LAW OF A LABUAN TRUST

The law governing a Labuan trust is that chosen by the Settlor or implied in the trust. In this respect, Labuan compares suitably with Dubai, the Cayman Islands, Bermuda, Guernsey, Isle of Man and Jersey.

MIGRATION OF A LABUAN TRUST

Labuan, like Dubai, has provided for the redomiciling of trusts into and from the original territory with a consequent change of proper law.

LETTER OF WISHES

An unusual provision that puts Labuan in a positive light concerns the letters or memoranda of wishes given by the Settlor, a Beneficiary or a member of a class of Beneficiaries.

Article by:

MARK LEA

Lea & White International Advisers Limited
12/F HK Diamond Exchange Building
8-10 Duddell Street
Central
Hong Kong

Tel:   00 852 2528 2097
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