Snook v London and West Riding Investments Ltd [1967] 2 QB 786 (CA)

Facts

  • The case concerned an alleged car sale and repurchase agreement involving Mr. Snook and London and West Riding Investments Ltd.
  • Mr. Snook claimed to have sold his car to the defendant company to escape responsibility for a traffic offence.
  • The Court of Appeal found the transaction was a sham designed to conceal Mr. Snook’s continued ownership of the car.
  • The court examined the circumstances, documents, and the parties' conduct to determine the reality behind the arrangement.

Issues

  1. Whether the transaction between Mr. Snook and the defendant company constituted a sham.
  2. What constitutes a “sham” in law, and how intent and evidence play a role in identifying it.
  3. How to distinguish sham transactions from legitimate arrangements, even if such arrangements are for tax or other lawful purposes.

Decision

  • The Court of Appeal held that the transaction was a sham intended to mislead as to Mr. Snook’s true ownership.
  • The court set out key features of a sham transaction: a shared intention by the parties to present a false agreement and to deceive others regarding the real arrangement.
  • The court clarified that actual intent, verified through evidence, is central to identifying a sham.
  • The transaction was not upheld, and the court assessed the real agreement between the parties rather than the formality.

Legal Principles

  • A sham transaction arises where parties share an intention to create documents or arrangements that misrepresent their true agreement.
  • Proving a sham requires clear evidence of joint intent to mislead; suspicion alone is insufficient.
  • Courts look beyond form to substance, examining all relevant facts and conduct to determine parties’ true intentions.
  • Valid agreements aimed at lawful objectives are not shams if they reflect the parties’ real intent, even when designed for benefits such as tax reduction.
  • Sham transactions are disregarded by courts; the legal outcome reflects the actual arrangement, not the apparent one.

Conclusion

The Court of Appeal in Snook v London and West Riding Investments Ltd established that intent and clear evidence are essential to identifying sham transactions, which courts will ignore in favor of the real agreement. This principle underpins judicial analysis of transactions in tax, contract, and property contexts, ensuring that only genuine agreements are legally upheld.

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