Simulated Agreements and Commercial Purpose: Commissioner for the South African Revenue Service v. NWK Ltd 2011 2 SA 67 (SCA)

Generally the approach to determining whether an agreement is simulated has been considered to be subjective, the enquiry being whether the form in which the parties have couched their agreement accords with their actual intention. Where there is disparity between what the parties have declared their contractual intention to be and the actual legal consequences generated in the circumstances, in accordance with the maxim plus valet quod agitur quam quod simulate concipitur, the law will give effect to the consequences actually intended as opposed to those that were simulated. Although on the whole the courts have endorsed this subjective approach, it does raise some concerns of a practical nature, notably whether the real intention of contractants can readily be ascertained and, perhaps more importantly, to what extent objective considerations actually are determinative in such instances. To compound matters the case law is not always entirely clear and consistent. Recently in Commissioner for the South African Revenue Service v NWK Ltd the Supreme Court of Appeal emphasised the commercial object or purpose of a transaction in adjudicating disguised transactions. This note examines this judgment within the context of simulations.