A sham transaction – will it be easy to prove?

In the case we succeeded in proving that our client had not entered into a sham transaction to make a payment of EUR 120,000 and that the money must be returned to him.

In practice we often see even the strangest versions being invented in order to defend against a claim. Yet some of the evidence submitted can convince the court – in other words, the defensive position itself can pay off, however much it may look like something from the "fantasy section" at the start of the proceedings…

We always remind our clients that it is a serious mistake to think the court simply understands everything: the court did not take part in the companies' business, does not know about personal arrangements, and will decide the case on the basis of the material collected and the position that appears closest to the parties' real relationship.

In this case, the defendant chose to deny the existence of a service relationship and sought to prove that our client was not supposed to receive any services under the contract, that the transaction itself was merely intended to conceal another mutual arrangement and simply to create a legal basis for making the EUR 120,000 payment. He also intensively argued that what existed was not a service relationship but a need to invest through third parties, which had merely been fictitiously disguised under another contract.

However, the case was won in our client's favour and none of the versions put forward convinced the court. A lawfully concluded and valid contract has the force of law for its parties, and a contract obliges the parties to perform not only what is expressly provided for in it but also everything that follows from the essence of the contract and the law.

The defendant's failure to perform his contractual obligations was qualified as unlawful inaction infringing our client's legitimate property interests, the latter having suffered direct losses in the form of expenses incurred through the defendant's fault, with a causal link to the damage. The client was therefore awarded EUR 120,000 in damages from the defendant.

Cases raising questions of sham transactions, disclosure of the real relationship and compensation for damage are not simple in terms of proof. Nor can they be… After all, it is essentially necessary to reconstruct the true intentions of the parties to the contract, and revealing what a person was thinking at a given moment will never be easy.