“The trial judge concluded that the mortgage was a sham. He found that the mortgage was put in place to “trick” third party claims, or to recover only from the wife if the marriage failed.
The most commonly cited definition of the sham doctrine is that of Lord Diplock in Snook v. London & West Riding Investments Ltd., [1967] 1 All E.R. 518 (C.A.). He stated, at p. 528, that a sham means:
[A]cts done or documents executed by the parties to the “sham” which are intended by them to give to third parties or to the court the appearance of creating between the parties the legal rights and obligations different from the actual legal rights and obligations (if any) which the parties intend to create… [F]or acts or documents to be a “sham”, with whatever legal consequences follow from this, all parties thereto must have a common intention that the acts or documents are not to create the legal rights and obligations which they give the appearance of creating.
This definition of a sham has been cited many times by all levels of Canadian courts, including the Supreme Court of Canada. In Stubart Investments Ltd. v. The Queen, 1984 CanLII 20 (SCC), [1984] 1 S.C.R. 536, 1984 CarswellNat 222, at para. 51 (WL Can), Estey J. described the element of “deceit” as being at the heart of the sham doctrine. In discussing the required level of deceit in Antle v. Canada, 2010 FCA 280, 413 N.R. 128, at para. 20, Noël J.A. held that it suffices that the parties to a transaction present it as being different from what they know it to be. The majority of cases involving the sham doctrine arise in the tax context, but the doctrine has been used in appropriate cases to strike down mortgages: see Moghimi v. Dashi, 2016 ONSC 2580.”