Beware the disguised agreement

If there’s one thing that 2017 taught us, it’s beware of the disguised agreement. False agreements created to lend legitimacy to suspect accounting practices used to evade tax. Dodgy appointment terms signed to disguise the fronting nature of companies trying to obtain BEE certificates. Convoluted consulting agreements signed with politically-connected lead generators who miraculously secure lucrative public-sector contracts in return for disproportionate commission payments. In law, we call this a simulated transaction. Which is polite wording for “dirty rotten criminal activity”. Last year we saw many dirty rotten criminals being knocked from their perches, and 2018 should be no different.

But when clever, convoluted contracts are used to disguise the suspect nature of the transactions, how do we differentiate the legitimate from the what-the-bleep? When a court is charged with interpreting and enforcing an agreement, it looks at what the agreement says, not what it’s called. In deciding whether a transaction is bogus (and potentially unlawful and unenforceable) or genuine (and likely lawful and enforceable), the court asks:

  • Is there intention to give effect to the contract in accordance with its terms? Ie. do the parties intend to act in accordance with the requirements stated in the agreement? Of course, parties who are trying to clothe their suspect dealings in threads of legitimacy would invariably ensure that their written terms include valid obligations to a greater or lesser extent. Accordingly, there is a second component that needs to be considered.
  • What is the commercial sense behind the transaction? Here we have the court piercing the very heart of the transaction. Because with this question the court is brushing aside all the glitzy terms, fancy wording, meaningless terminology, and other pretty baubles used by the parties to dress up their transaction – exposing the transaction in all its raw glory, warts and all. In short: why does this agreement exist? What is it true objective? Does the true purpose accord with the agreement’s stated purpose?

If the parties have no intention of ever complying with or enforcing the terms of the agreement, then it’s probably a simulated transaction. And if the real reason the agreement exists is to circumvent the law in some manner, then it’s probably a simulated transaction that potentially exposes the parties to criminal prosecution.

If you’ve landed on Agreements Online looking for a sham agreement to disguise your nefarious intentions, then we ask you to move swiftly on. We also suggest that you research the conditions of South Africa’s prison cells before you proceed with your plans. But if you’re looking for a solid written agreement to give effect to honest business transactions, then feel free to browse the numerous agreements and documents on Agreements Online.

We wish all the honest, hard-working businessmen and women out there everything of the best in 2018. May the gods of fortune smile on you, and may you reap success in your every endeavour.

We wish all the dirty rotten criminals out there all that they deserve in 2018. May the long hand of the law grab you by the scruff of your neck, and may you be rewarded with a long and uncomfortable prison stay.

Please note that this information is supplied for general information and does not constitute legal advice. It is advisable for you to contact a legal practitioner for guidance in respect of your unique requirements.

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