The sham doctrine in the context of Maltese law trusts and foundations

Abstract

A sham is a scheme of action which seeks to create the impression that certain rights and obligations have been created when in reality a different transaction is intended or no transaction at all. This is frequently done in relation to trusts by the creation of documentation which is not intended to have any real efficacy on the parties although its literal drafting suggests that the position is something else. In foreign jurisdictions, the sham doctrine has been used as a tool to attack the validity of the trust. However, the approach adopted by courts when faced with a claim of 'sham trust‘ is not uniform. Chapter 1 discusses the meaning of sham and how it forms part of the general law as well as the test a court employs when making a determination of sham. Chapter 2 delves into a broader, conceptual understanding of the sham doctrine‘s application to trusts. Chapter 3 outlines the difference between a formal and an administrative sham and demonstrates how they may overlap. Chapter 4 evaluates the actions available under our law to attack the transfer of property on trust and essentially seeks to determine whether the sham action can be used in our courts to attack the validity of the trust. Chapter 5 analyses whether the sham doctrine commonly applied to trust law can also be applied to foundations, which are frequently chosen by persons as an alternative to the trust institute. The conclusion reached is that the Roman law concept of simulation serves as an already existing civil law doctrine which enables our courts to substantively deal with a claim of 'sham trust‘. It is concluded that a claim of simulation may be used by a person who wishes to attack the validity of the trust on the ground that there was never a genuine intention to create a trust in the first place.