Analysis of the CSARS v NWK case and its effect on the substance over form-doctrine

Abstract

In determining whether parties have entered into a simulated transaction, it is accepted legal practice to apply the principles encapsulated in the Doctrine. It is trite that the Doctrine attributes certain consequences to a transaction, namely such consequences as the parties actually intend, rather than the consequences that the parties simulate or intend to simulate. This test is applied irrespective of what the parties purpose for entering into that transaction is, however, purpose may be regarded as one of several factors in determining what such parties true intention is. In the recent case of Commissioner for the South African Revenue Service v NWK Ltd 2011 (2) SA 67 (SCA), the SCA seemingly revised the test to determine simulated transactions by stating that when considering simulation, one cannot simply have regard to whether the parties had an intention to give effect to the contract in accordance with its terms, but instead, one should further regard whether the transaction lacks commercial sense. This approach is spectacularly different from the traditional approach followed in a long line of cases decided before the NWK case. Consequently, this judgment resulted in great deal of uncertainty as regards the application of the Doctrine. This study investigates the disturbance caused by the SCA s judgement in the NWK Case and sought to determine whether the judgment revised the established principles forming part of the Doctrine. Having considered the judgments handed down in the Bosch and Roshcon cases, the view is that there are no deviations from the established principles and indeed an enquiry as to simulation will place emphasis on the manner in which the parties to a transaction intend to implement such transaction.