Sham

In order to generate a targeted loss of $22 million for use in his 2011 taxation year, Chad agreed to pay a fee of $240,000 to a UK foreign exchange (FX) trading firm (“Velocity”) to enter into straddle trades in which he would enter into contracts both for the purchase and sale of US dollars, such that he was close to fully hedged and then, near to the year end, closed out whichever of the “long” or “short” contracts were in a loss position.

The Crown argued that the fee had been paid by Chad for the agreement of the brokerage firm to generate the $22 million loss and not for its trading activities, and the trading activity was a sham and the trades legally ineffective. In rejecting the “sham” submission, Sommerfeldt J stated (at para. 82) that he “did not find anything to suggest that the … Documents did not accurately set out the legal rights and obligations that Mr. Chad and Velocity had intended to create.” Regarding the legal effectiveness of the trades, he noted that although it was unclear which jurisdiction’s laws governed the agreements, all of these jurisdictions were common-law jurisdictions and concluded (at para. 107) that “[b]ased on the evidence and [his] understanding of the fundamental common‑law principles of contract law … the FX Contracts were legally effective, in accordance with their terms.”

The taxpayer (“KQI”), which was a Canadian operating subsidiary in a group ultimately controlled by a Finnish parent, used funds that had been borrowed by a Canadian holding company in the group (Kone Canada) and advanced to KQI as an interest-bearing loan and share subscription proceeds to purchase, for a cash purchase price of $394 million, cumulative preferred shares of “Kone US” (a group company with an active business) from the non-resident affiliated company (“Kone BV”) to which such shares had recently been issued as a stock dividend. At the same time, KQI agreed to resell such preferred shares at pre-agreed higher prices, to Kone BV in three and five years’ time, which in fact occurred. The gain arising under this resale (corresponding to accumulated and unpaid dividends on the shares) was deemed under s. 93 to be dividends coming out of exempt surplus of Kone US.

Before going on to find that there was no GAAR abuse, and in rejecting the sham argument, the Court noted (at para. 23):

The parties acted in accordance with the rights and obligations established by the documents. The mere fact that US tax law looks at the economic substance of the repo transaction and treats it as a secured loan whereas Quebec tax law looks at the form of the transaction, is not sufficient to transform the repo into a loan for Quebec tax purposes.

The taxpayer (“KQI”), which was a Canadian operating subsidiary in a group ultimately controlled by a Finnish parent, used funds that had been borrowed by a Canadian holding company in the group and advanced to KQI as an interest-bearing loan and subscription proceeds to purchase, for a cash purchase price of $394 million, cumulative preferred shares of “Kone USA” (a group company with an active business) from the non-resident affiliated company (“Kone BV”) to which such shares had recently been issued as a stock dividend. At the same time, KQI agreed to resell such preferred shares at pre-agreed higher prices, to Kone BV in three and five years’ time, which in fact occurred. The gain arising under this resale was deemed under s. 93 to be dividends coming out of exempt surplus of Kone USA. The funds so received by Kone BV were used indirectly to fund purchases by the Kone group of targets with complementary businesses.

The ARQ sought to impute interest income to KQI under TA s. 127.6, the Quebec equivalent of ITA s. 17(1), on the basis that the above “repo” transaction was a sham that should instead be characterized as an interest-free loan by KQI to Kone BV or, alternatively, that the repo transaction represented an abusive avoidance of such s. 17 equivalent for Quebec GAAR purposes.

In rejecting the sham argument, Fournier JCQ noted that although the parties had agreed to treat the repo transaction as a secured loan by KQI to Kone BV for U.S. tax purposes, such characterization under the US “substance over form” tax doctrine did not detract from the “actual legal obligations agreed to between the parties in Canada and Quebec” (TaxInterpretations translation, para. 131), and here the Court was in the “presence, in the United States, as in Canada, of a purchase and a sale of shares” (para. 133).

The appellants engaged in transactions which were intended to result in the realization by them of substantial capital gains (resulting in additions to their capital dividend accounts), that were immediately distributed by them), followed by the realization of largely offsetting capital losses later that day. These transactions depended in part on the appellants being considered to have acquired units of an income fund ("FMO") from another income fund ("TOM") (which in turn had purportedly acquired the FMO units from an RRSP in consideration for issuing TOM units to it) at a cost equaling the units’ FMV, followed immediately by a distribution to them of capital gains that had been realized by FMO – with that distribution not reducing the ACB of their units by virtue of s. 53(2)(h)(i.1)(A) and (B)((I). Accordingly, such repurchases were intended to result in the realization of largely offsetting capital losses.

Smith J found that, in light, inter alia, of the very transitory nature of the appellants’ holding of the FMO units, that the appellants had not acquired their beneficial ownership, so that their purported disposition on their repurchase did not generate the capital losses. In going on to find that the acquisitions and repurchases also were shams, he stated, inter alia (at paras. 224-225):

[I]t cannot be said that the alleged transaction by which FMO repurchased its units for cancellation resulted in ‘real’ capital losses. These were mere paper transactions ... allegedly supported by demand promissory notes that the Appellants would never be called upon to honour and that were issued and cancelled on December 28, 2005.

I agree with the Respondent, relying on Triad Gestco ... “that the Appellants did not enjoy a ‘real’ economic gain nor a real economic loss”.

The taxpayer in Friedberg entered into spread positions in gold futures contracts, and in the same taxation year closed out the losing legs on his straddle positions (while entering into further contracts to maintain his hedged position) but deferred closing out the remaining contracts until the subsequent taxation year. The taxpayer here carried out a similar straddle program, except that it involved FX OTC forward contracts rather than gold futures. In order that he could shelter virtually all of the income of around $40 million earned by him over a number of years ending in 2007, he had to keep increasing the scale of his straddle position, given that the entire gain from closing out, in each year, the gain leg from the previous year’s trading needed to be offset in addition to his other taxable income for that year. Associated companies claimed $150 million in losses from the same straddle program.

The straddle trades were not shams: the “parties to the trades did not represent their legal rights and obligations to the Minister any differently than the way they themselves understood them” (para. 225); and although there could “be no doubt but that the straddle trading had no business purpose” (para. 227), “[l]ack of business purpose is not a sham” (para. 228).

Furthermore, the Crown failed to “cite any binding authority that establishes ‘window dressing’ as a stand-alone judicial anti-avoidance doctrine” (para. 245).

The taxpayer (“AgraCity”) was a resident corporation wholly-owned by a resident individual (James Mann) that between 2005 and 2008 promoted the importation into Canada of a herbicide (ClearOut) that was a generic version of RoundUp. The rules of the applicable Health Canada branch (the “PMRA”) required that Canadian corporations could not promote the sale of this product in Canada, although they could promote its importation (under the “Own Use Import” or “OUI” program). To comply with this PMRA requirement, in 2005 James Mann caused the formation of a new US corporation (“NewAgco US”) to be used to purchase ClearOut in the US markets, to warehouse it in its rented warehouse facilities in North Dakota, and to sell it to farmer “members” of the group of companies that included AgraCity (the “FNA members”). NewAgco US charged what James Mann considered to be a reasonable mark-up over its costs, and paid fees to AgraCity for logistical and other related services.

In order to minimize U.S. taxes on the profits generated by NewAgco US, a corporation in the group owned equally by James Mann and his younger brother Jason Mann (“SaskCo”) formed a Barbados international business corporation (“NewAgco Barbados”) to take over the role of NewAgco US in 2006.

In reassessing AgraCity for its 2007 and 2008 taxation years, CRA relied upon the transfer pricing rules in ss. 247(2)(a) and (c) and re-allocated an amount equal to all of NewAgco Barbados’ profits from these sales activities to the income of AgraCity. However, in its arguments before Boyle J, the Crown’s primary position was now that the transactions were a sham or window dressing; in the alternative, that ss. 247(2)(b) and (d) applied to recharacterize the transactions; and in the further alternative, ss. 247(2)(a) and (c) resulted in a transfer pricing adjustment.

Boyle J found that the evidence presented did not establish the existence of any sham transactions, nor any deceptive window dressing, stating (at para 78):

The reassessed 2006 and 2007 transactions (involving NewAgco Barbados in its 2007 and 2008 fiscal years) are otherwise identical to the calendar 2005 year transactions which used NewAgco US, a related company that was not in a low tax jurisdiction. … There was no attempt to mislead or deceive others about the adopted structure, the participants involved or its purpose and objectives. …[A] Canadian entity could not be the seller of the US ClearOut to the Canadian farmers under the OUI program. … It was clearly NewAgco Barbados that purchased the ClearOut …[and] bore material risk in these transactions. … That two related parties would sit down at year end and ensure the service fee generated a reasonable profit above the service provider’s costs should not be surprising or of much concern. … The Services Agreement between AgraCity and NewAgco Barbados appears to be a valid contractual agreement setting out in very large measure what AgraCity was responsible for doing and what it in fact did, as well as how AgraCity was to be paid for performing those services. There is no requirement that such a contract or agreement be in writing. … [C]onfused books and records … are not, on their own, evidence of a sham unless their inaccuracies, inconsistencies and/or omissions can be shown to favor a particular, but clearly inaccurate, recording of the party’s rights, obligations, revenues etc. In this case they do not.

In 2006, one of the two taxpayers (“Paletta International”) invested US$8.0 million cash in a limited partnership (“Six Iron Partnership”) to finance the alleged acquisition of a recently-produced film that the producer (“Fox”) allegedly sold to the Six Iron Partnership for US$128.3 million. As part of these transactions, the Six Iron Partnership signed a distribution agreement with Fox and agreed to bear US$82 million for the prints and advertising expenses (“P&A expenses”) respecting the film.

Fox, or an affiliate, had the right to reacquire the film under a series of option agreements prior to, or within five days following the commercial release of the film. The option price was essentially the cost of the film, plus the P&A expenses allegedly incurred by the partnership, less 3% of the P&A expenses. The options were allegedly exercisable at the option holder’s sole discretion. Fox, through its affiliate, exercised the options and reacquired the film prior to its commercial release. This series of transactions led to the dissolution of the Six Iron Partnership.

Paletta International reported a loss of US$96.1 million from the partnership, which mostly related to its share of the P&A expenses – and also reported a capital gain from the disposition of its partnership units (but took advantage of the 5-year capital gains reserve.) It further claimed other financing charges and expenses.

A few years later, Angelo Paletta (the second taxpayer), along with other members of his family, invested in a quite similar arrangement involving the “Swilcan Partnership”.

In confirming the denial of the partnership losses claimed by the two taxpayers, Hogan J stated (at paras. 243-245):

[T]he Appellants invested in the Six Iron and Swilcan Partnerships solely to avail themselves of the tax savings that the promoters led them to believe they could expect and that they felt secure in the knowledge that Fox had agreed to reacquire the films prior to their commercial release.

Accordingly, I conclude that the options were shams designed to mask the parties’ agreement that Fox would reacquire the films prior to their commercial release.

Consequently, the P&A expenses allegedly borne by the partnerships were not incurred for the purpose of earning income. Likewise, the financing and other expenses incurred by the Appellants with respect to their partnership interests are not deductible.

The taxpayer, Mr. Lee, a resident of B.C., engaged in a tax avoidance plan involving a spousal trust (intended to be resident in Quebec) which avoided provincial tax on a deemed dividend received on the redemption of shares in the trust’s hands. The Trust elected to be taxed federally on income it had distributed to its beneficiary (Mrs. Lee) but did not elect to be taxed on this same income in Québec. Since the beneficiary was not a resident in Québec, no provincial tax was paid on the distributed income. Nevertheless, the Trust received the federal abatement. The Province of Québec subsequently enacted retroactive tax legislation that deemed the Trust to have elected to be taxed on the distributed income in Québec, thereby retroactively eliminating the tax benefit associated with the strategy. The Minister reassessed Mr. Lee after the expiration of the “normal reassessment periods” for the taxation years in question on the basis that the Trust that he purportedly settled did not exist either because the trust or the transfer of property to the trust was a sham, or because the trust was not properly constituted under Québec law.

After noting that the Quebec trustee (Mr. Paris, a retired KPMG accountant) had followed the advice of Montreal counsel in connection with the settling of the trust including depositing the initial "gift” of the taxpayer to the Trust of $2,000 in the name of the Trust, Owen J found (at paras 67, 68, 69, 70 and 73), and before vacating the reassessments:

In my view, the fact that Mr. Paris followed a course of action recommended by KPMG that he concluded after proper deliberation was in the best interests of the beneficiary of the Trust is perfectly in keeping with the role of a trustee of a discretionary trust. While the reasonable expectation of all concerned may have been that Mr. Paris would follow the steps suggested by KPMG, that expectation is not evidence of an absence of discretion, nor is it evidence of a sham. Under the terms of the Deed, Mr. Paris had the legal authority to make all necessary decisions regarding the Trust and its property and he in fact made those decisions. A decision to follow a pre-conceived or pre-planned course of action is still a decision. Mr. Paris had the expertise and experience to consider the best interests of the beneficiary and to make that decision.

The Respondent appears to be applying the concept of sham as a sort of step transaction doctrine to disregard the creation of the Trust. That is neither correct nor appropriate. A sham involves an element of deceit—the parties must intend to give to third parties the appearance of creating between them legal rights and obligations different from the legal rights and obligations, if any, that the parties actually intend to create. …

Creating legal (or equitable) relationships to give effect to a tax plan is not the perpetration of a sham. In this case, there was no deceit on the part of the Appellant or Mr. Paris regarding the legal relationships created under Québec law. …

… [E]ven if the Appellant’s sole reason (motive) for creating the Trust and transferring the Class F Shares to the Trust was to save tax, that is not in and of itself evidence of a sham. …

Own J further found (at para. 75):

I have considerable difficulty understanding the basis of the Respondent’s submission that the creation of the Trust was legally ineffective. The PASF and the evidence clearly indicate that the Trust was created for the benefit of Mrs. Lee in accordance with the requirements of Québec law and that following the creation of the Trust Mr. Paris, as trustee, had control over the property of the trust for the benefit of Mrs. Lee.

Cameco Canada formed a Swiss subsidiary (“CESA/CEL,” - more precisely, a two-employee Swiss branch of a Luxembourg subsidiary ("CESA"), that was succeeded a few years later by a Swiss subsidiary ("CEL")) and had it enter into long-term contracts for the purchase of uranium from two Russian-based companies, with the benefit of a Cameco Canada performance guarantee. CESA/CEL also purchased uranium from the Cameco Canada under long-term base-escalated supply contracts (the “BPCs”), and then sold that uranium to Cameco US (who had marketed the uranium) at 98% of the sales price obtained by Cameco US. When the price of uranium subsequently increased significantly, CESA/CEL made substantial profits from the resale of the uranium under both types of contract.

Although CRA assessed Cameco Canada under s. 247(2), it also argued that “although on paper the uranium-trading business was transferred to CESA/CEL, CESA/CEL did little more than rubberstamp the paperwork” and that “in reality the Appellant continued to control and carry on the uranium-trading business” (para. 578). In finding that there was no sham, Owen J stated (at para. 670):

[T]he Appellant, Cameco US and CESA/CEL did not factually represent the numerous legal arrangements that they entered into in a manner different from what they knew those arrangements to be, nor did they factually represent the transactions created by those arrangements in a manner different from what they knew those arrangements to be, consequently, the element of deceit required to find sham is simply not present.

A newly-launched public corporation ("Birchcliff") sought to access the losses and credits of a lossco ("Veracel"). A substantial subscription receipt offering by Veracel closed about one month before the implementation of a Plan of Arrangement under which the subscription receipts were converted into Class B common shares and then immediately converted on the amalgamation of Vercel with Birchcliff into common shares of the amalgamated corporation. As these investors received a majority voting equity interest in Amalco, the loss streaming rules otherwise engaged by ss. 256(7)(b)(iii)(B) and 111(5)(a) were avoided.

In rejecting a Crown submission that the issuance of the Class B shares was a sham, Jorré J stated (at paras 100 and 101):

…I do not see how there can be an element of deceit in this case where the ephemeral nature of the Class B shares and the resulting inability of Class B shareholders to enjoy any of the attributes of owing the shares was, so to speak in plain view, in the arrangement agreement and the plan of arrangement filed with the Court of Queen’s Bench of Alberta … .

The two predecessor corporations told the Court of Queen’s Bench what they would do and proceeded to do it. That is not hidden.

A family corporation (“Ontario”) used proceeds of a daylight loan to redeem shares of Holdco, which used those proceeds to purchase a life insurance policy (or, to be more precise, to purchase an annuity to fund the premiums on the acquired policy) from an accommodating offshore insurance company, with those funds making their way back, through a series of equally accommodating intermediaries, to the sole individual shareholder of Holdco (“Paul Sr.”) as a loan. This “Metropac” loan was guaranteed by Holdco, with the guarantee secured by Holdco’s life insurance policy. The loan terms limited the lender’s recourse thereunder to realization of such security.

After finding that there was a shareholder benefit arising from Holdco permitting its policy to be used to pay off the Metropac Loan, C Miller J went on, in the alternative, to find (at para. 105, see also para. 123) that “the documents misrepresented what was indeed an absolute assignment [of the policy by Holdco], and in this respect there is a sham element to the transaction,” so that his finding of a shareholder benefit was further justified on this basis.

The terms of the annuity referenced an additional return based on an investment referencing a global index fund. The parties knew this clause would be inapplicable given that all of the funds used to purchase the annuity were immediately deployed elsewhere. C. Miller found that this did not render the annuity a sham, stating (at paras. 117 and 118):

Although there has been a misrepresentation, my view is that to void the entire transaction as a sham transaction because of a misrepresentation that is not fundamental to the nature of the annuity extends the concept too broadly. …[T]he annuity is simply to fund the insurance. While there may be a minor pretense in how the funds were to be invested, there is no deception by Paul Sr. as to what was really going on with this contract. It was to provide $400,000 a year… .

An agreement for the purchase of a new condo by the appellant was amended to add her friend as a co-purchaser. Hershfield J found that the amended purchase agreement entailed, at most, a supply of a co-ownership interest in the property by the appellant to her friend in consideration for her friend’s guarantee – and did not result in any interest in the condo also being supplied by the builder to the friend (so that the new housing rebate was not denied to the appellant). In this regard, he stated (at para. 23):

The amended agreement did nothing of substance. Indeed, if such an agreement had been entered into to gain an unintended tax advantage, it might be seen as a wholly artificial transaction – a sham.

The taxpayers were participants in leveraged donation transactions, which were intended to result in a step-up of the adjusted cost base of courseware licences (e.g., on how to use Microsoft products) under ss. 69(1)(c) and 107(2) (apparently with a view to avoiding s. 248(35)) before the licences were donated by them at a higher stipulated value to a registered charity ("CCA").

A Bahamian corporation ("Phoenix') acquired various courseware licenses, at costs of 13.3 to 26.7 cents each from a Florida corporation ("Infosource") which also packaged and sold such licences in the course of its business and gifted most of them to a Canadian–resident Trust (with the balance being sold to raise cash to fund its purchase price). Ostensibly, the licences then were distributed to the program participants such as the taxpayers as capital beneficiaries of the Trust, with the participants then donating them to CCA. The participants also made cash donations to a second registered charity ("Millennium"), which redonated 80% of those amounts to CCA and used the balance to pay fees and other expenses. The participants were issued charitable receipts for three or more times their cash outlay (and perhaps 800 times the cost to Phoenix of the licences (para. 125)).

Pizzitelli J agreed with the Minister that the transactions were a sham. The trust and escrow agent were operated, either directly or indirectly, by the Promoter, so that any purported independent exercise of discretion or judgment was a fabrication. There were numerous other examples of deceit, including concealing the fact that 90% of the total cash donated did not stay with any charities, and the creation of fraudulent invoices and a backdated inventory of courseware CDs.

Before stating (at para. 89) "the deceit…need not be perpetrated by the Appellants in order to find a sham, as their participation in the sham is sufficient to invalidate their purported gifts of cash and property to the charities," Pizzitelli J noted that their execution of Deeds of Gifts referencing the gifted licences as described in "Schedule A" which, in fact had not yet been completed, amounted to, if not complicity, at least wilful blindness (para. 88).

See summaries under s. 118.1 – total charitable gifts and s. 104(1).

A predecessor ("Birchcliff") of the taxpayer negotiated a plan to merge with a corporation ("Veracel"), which had discontinued its medical equipment business, in order to access Veracel's non-capital losses and credits. Investors subscribed for subscription receipts of Veracel and received voting common shares of Veracel therefor under a Plan of Arrangement, and Veracel and Birchcliff amalgamated immediately thereafter under the Plan. The voting common shares received by the investors on the amalgamation represented a majority of the voting shares of the amalgamated corporation, so that no acquisition of control of Veracel occurred under s. 256(7)(b)(iii)(B), and the loss-streaming rules under ss. 111(5)(a) and 87(2.1) were avoided.

Although he proceeded to find that GAAR applied to extinguish the losses, Hogan J rejected the Minister's argument that the investors' "would not enjoy the rights and privileges attached to [their] shares" (para. 45) so that their acquisition was a sham, stating (at para. 52) that there was no evidence "that the New Investors were engaged in deceit."

See summary under s. 245(4).

On the basis of allegations accepted in the pleadings, the applicant, which was the trustee of RRSPs and RRIFs, purchased shares (that were taxable Canadian property) of Canadian companies from non-resident vendors at prices which (unbeknownst to it) were substantially in excess of those shares' fair market value, with the result that the RRSPs and RRIFs were stripped of funds which ended up in offshore accounts or were applied to pay the fees of the "promoters." The applicant was assessed under s. 116(5) for failure to withhold.

V. Miller J. denied a requested amendment to the applicant's Notice of Appeal asserting that the sale transactions were a sham (intended to deceive the applicant), stating (at paras. 22, 24, 27):

[I]n a tax case, a court will make a finding of "sham", only when it is the Minister who is deceived… . [I]t is only the Minister who can plead "sham" and rely on the "sham" argument to have the courts disregard a transaction. …

It is clear that both the Annuitants and the Promoters intended the purchase price for the shares be the stated purchase price. … They misled the Applicant with respect to the value of the shares purchased by the RRSPs but this is not a "sham." It is fraud.

See summary under s. 116(5).

The taxpayer's sole director ("Richard"), who ran the taxpayer's business out of his home office, employed his four children, aged 23, 21, 14 and 13, for annual salaries of $1200 each (or $600 for the two younger children) to perform tasks such as maintaining the lawn or sorting mail. The taxpayer set up an "employee profit-sharing plan" with Richard and his wife as trustees, with a "committee" of the taxpayer (i.e., Richard) to determine the taxpayer's contributions to the plan and the participants, and with distributions to the participants determined by the trustees (i.e., Richard). The taxpayer elected under s. 144(10).

D'Arcy J found that the taxpayer could not deduct its contributions to the plan, as the plan was a sham. What in fact occurred was that the purported distributions out of the fund were to a bank account controlled by Richard, so that the participants "never had control of these funds" (para. 40), and so that the "real transactions" were "the payment of amounts by the Appellant to Richard" (para. 42). Moreover, the small portion of the funds received out of the "EPSP" which were applied to expenses represented payment simply of "family expenses that a father and mother incur for their children" (para. 41).

Although these findings were sufficient grounds for "sham," he went on to note that the children did not make any contribution to the taxpayer's profits, as the chores performed were services for their parents, not the taxpayer (para. 45).

The dental practice of the taxpayer paid fees of approximately 70% of its revenues to a services company (which was wholly-owned by the dentist through a holding company) pursuant to annual contracts which (in an apparently back-dated Appendix) provided for the provision of management and health services to the practice by the services company. Gouin JCQ stated (at para. 34, TaxInterpretations translation) that "the evidence…demonstrates clearly that [the services company] had no employees and did not purchase any supplies for eventual use in management or health services."

Before denying the deduction of the fees in toto, Gouin JCQ stated (at para. 30) that "it is necessary to prove that the management expenses constitute genuine expenses and not a sham in the sense that the concluded agreements represented genuine transactions between the parties," and then quoted with approval the statement in Fillion v. The Queen, 2004 FCA 135, at para. 72 [clumsy official translation below] that:

In order to claim an expense, it is not enough to make an accounting entry backed by a vague invoice [and]… it must be established that the evidence was real, fully supported and justified and, moreover, that the expenditure was incurred in order to produce business income… .

The taxpayer, as a member of a joint venture, bought an undivided interest in seismic data for $20,000 cash and an $85,000 limited-recourse promissory note. The Minister limited the taxpayer's deductions in connection with the note portion to the amount of licensing revenues ultimately received. After finding that the expenses connected with the note were reasonable (see summary under s. 67), Favreau J stated (at para. 78):

In my opinion, the Crown cannot apply the doctrine of sham to only a part of a particular transaction while considering another part of the same transaction as being legally valid and effective. For example, I have difficulty with the Crown being permitted to apply the doctrine of sham to only that part of the acquisition by the appellant of an undivided interest in the Seismic Data that was paid for by the appellant's Promissory Note.

A consulting contract did not reflect the legal reality of the parties' rights and obligations (it was never contemplated that consulting services would be provided and the payments were to be made irrespective of the level of services to be provided) and, accordingly, the contract was found to be a sham for purposes of the Act.