According to Georgian legislation, a simulated transaction is void if it is concluded solely for appearance’s sake, without the intention that it will produce the corresponding legal consequences.
If, however, the parties use a simulated transaction to conceal another transaction, this is considered a sham transaction. A sham transaction is a type of simulated transaction and differs in that the parties actually intend to carry out the concealed transaction.
What is the court practice regarding simulated and sham transactions?
According to the consistent practice established by the Supreme Court of Georgia, a transaction may be considered simulated or sham if the parties did not have the will (intention) for the legal consequences expressed in the transaction to occur.
What is the difference between them?
The difference is that in a simulated transaction, both the declarant and the recipient of the declaration agree that the expressed will shall not take effect, i.e., the parties to the transaction must be aware that the transaction concluded between them will not have legal consequences. In a sham transaction, the will (intention) of the parties is to conceal another transaction. The parties’ intention must be directed toward achieving the purpose envisaged by the concealed transaction, i.e., the parties must be aware that the transaction concluded between them will not have legal consequences and is concluded solely to conceal another transaction.
