The legal concept of a “sham trust” is rooted in the broader doctrine of “sham” transactions, which can trace its judicial origin to the widely cited English case of Snook v London & West Riding Investments Ltd.[1] Shams, as aptly described by Diplock LJ, may consist of:

“acts or documents intended to give third parties or the court the appearance of creating legal rights and obligations different from those actually intended by the parties.“[2]

In Ontario and amongst adjacent common law courts, these principles have gone on to be applied when assessing trust-like property arrangements, and  in considering whether they are being used as a vehicle of deception.

When applied to the trust context, courts assess whether the trust-like property arrangement is a sham based on the intention of the settlor at the time the trust was created.[3] If the court finds that the settlor never truly intended to alienate their ability to control the property, then the purported trust is rendered void ab initio for failing to comply with the certainty of intention.[4] But what if the intention to create a valid trust was present at the time of its inception, only for the trust to be later hijacked by a rogue?

Comments from Justice Munby of the English High Court in A v A, [2007] 2 FLR 467, appear to waver regarding whether this could be the case. Initially and expressly considered at paragraph 41, Munby J. asks,

“..whether a trust which is not a sham can subsequently become a sham and, conversely, whether a trust which is a sham can subsequently lose that character.”[5]

Munby J. refers to the approach taken by the Royal Court of Jersey in In Esteem Settlement,[6]

“When a settlor creates a settlement he purports to divest himself of assets in favour of the trustee, and the trustee accepts them on the basis of the trusts of the settlement. The settlor may have an unspoken intention that the assets are in fact to be treated as his own and that the trustee will accede to his every request on demand. But unless that intention is from the outset shared by the trustee (or later becomes so shared), I fail to see how the settlement can be regarded as a sham. Once the assets are vested in the trustee, they will be held on the declared trusts, and he is entitled to regard them as so held and to ignore any demands from the settlor as to how to deal with them.”

Munby J. agrees with this supposition[7] and goes on to hold that a trust, properly constituted which is not void ab initio, cannot conceivably become a sham because the subject property would be unable to lose its character as trust property – except in accordance with any vesting provisions of the trust instrument.[8] Any other application or appropriation of the property would simply be a breach of trust.

“a trustee who has entered into his responsibilities, and without having any intention of being party to a sham, subsequently purports, perhaps in agreement with the settlor, to treat the trust as a sham. The effect is not to create a sham where previously there was a valid trust. The only effect… is to expose the trustee to a claim for breach of trust”[9]

Despite this penultimate conclusion, Munby J. goes on to propose a highly technical hypothetical wherein the exact scenario he outlined as prohibited may occur. In a final comment, Munby J. does go on to say that, conceivably, a trust may be rendered a sham if all the beneficiaries, with the requisite intention, conceivably came together for that purpose with the trustees in a Saunder v Vautier,[10]  type manner.

Final Comments

The law on sham trusts emphasizes the primacy of the settlor’s intention at the time of creation. A trust properly constituted cannot later be converted into a sham merely by the conduct of trustees or beneficiaries, this type of action is more aptly classified as a breach of fiduciary duty or breach of trust. Misuse of trust property after valid creation is treated as a breach of trust, not the creation of a sham. Only in the exceptionally rare circumstances, where all the parties (trustees and beneficiaries) act with a common intent to subvert the trust’s formal character, could a validly created trust be rendered a sham.

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[1] Snook v London & West Riding Investments Ltd, [1967] 2 QB 786, [1967] 1 All ER 518, [1967] 2 WLR 1020. (“Snook”)

[2] Ibid.

[3] McGoey (Re), 2019 ONSC 80 (CanLII), at para 20.

[4] Duca Financial Services Credit Union Ltd. v. Bozzo, 2011 ONCA 455 (CanLII), at para 2.

[5] A v A, [2007] 2 FLR 467, at para 41. (“A v A”)

[6] In re Esteem Settlement, 2003 JLR 188.

[7] A v A, at para 40

[8] Ibid. at para 42.

[9] Ibid, at para 43.

[10] Saunder v Vautier, (1841) 4 Beav 115.

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SEE US AT THE STEP CAYMAN CONFERENCE, January 22-23, 2026, where Kimberly Whaley joins: Andrew Miller TEP, Bedell Cristin (moderator), Cayman Islands; Shân Warnock-Smith KC TEP, ICT Chambers, Cayman Islands; Toby Graham TEP, Farrer & Co, U.K. on a panel discussing “THE SHAM SHOWDOWN: IS DISHONESTY THE WRONG TEST?”

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