"Sham"

Sometimes people ask me if I think they should go to law school. I like it well enough. It's not rocket science. But if you're thinking about it, you might want to know that I've just spent half an hour going through Stubart Investments Ltd. v. Canada, [1984] 1 S.C.R. 536, to find out what the Supreme Court of Canada means when they talk about a corporate "sham". It's a fairly short SCC case, only 45 pages. And it's online, so you can Ctrl-F to find each use of "sham". The first definition is in the concurring minority decision written by Justice Wilson:

a sham transaction is one that does not have the legal consequences that it purports on its face to have

Not, bad, I think, although I'm never comfortable with "purport". But she gives some examples. Then Estey takes over with the majority decision and he's got this version:

...a transaction conducted with an element of deceit so as to create an illusion calculated to lead the tax collector away from the taxpayer or the true nature of the transaction; or, simple deception whereby the taxpayer creates a facade of reality quite different from the disguised reality.

Then he quotes Lord Diplock in Snook v. London and West Riding Investments, Ltd., [1967] 1 All E.R. 518. , where Lord Diplock found that no sham was there present because no acts had been taken:

... which are intended by them to give to third parties or to the court the appearance of creating between the parties legal rights and obligations different from the actual legal rights and obligations (if any) which the parties intend to create

I think I've got the idea of sham now. But it would have been nice if in the 45 pages the five judges involved could have just said "Here, kids, when you're doing your business organization exams, use this basic definition..." If it comes up on Wednesday, I'm going with: Sham = Deceitful actions intended to give the appearance of creating between the parties legal rights and obligations different from the actual legal rights and obligations (if any) which the parties intend to create Signs:

• missing documents;
• backdating or buttressing the documentation after the event; and
• the transaction and the form in which it was cast constructed to create a false impression in the eyes of a third party.

Link: Stubart