Australia: Thorne v Kennedy [2017] HCA 49: Financial agreements

BACKGROUND

The parties met over the internet in 2006. Ms Thorne, an Eastern European woman, was 36 years old and was living in the Middle East. She had no substantial assets. Mr Kennedy was a 67 year old property developer, with assets worth between $18 million and $24 million.

Ms Thorne relocated to Australia in February 2007, about 7 months after meeting Mr Kennedy. Their wedding was set for 30 September 2007. On 19 September 2007, Mr Kennedy told Ms Thorne that they were going to see solicitors to sign an agreement, and advised her that if she did not sign the agreement, the wedding would not go ahead. The next day, Mr Kennedy took Ms Thorne to see a different solicitor to obtain advice about the agreement. This was the first time that Ms Thorne became aware of the contents of the agreement. Being only 10 days before the wedding, Ms Thorne's family had already flown in from Eastern Europe. All arrangements for the wedding had been made.

The solicitor advising Ms Thorne produced a written advice, describing the provision for Ms Thorne under the agreement as 'piteously small' in light of Mr Kennedy's significant wealth. The solicitor's advice concluded that it was evident that Ms Thorne was 'under significant stress' in the lead up to wedding, and that Ms Thorne appeared to have been put in a position where in order for the wedding to go ahead, the agreement had to be signed, regardless of whether or not it was fair. The solicitor also provided oral advice to the effect that this was the worst agreement that she had ever seen and advised Ms Thorne against signing the agreement.

Ms Thorne signed the agreement four days before the wedding. Contrary to the solicitor's advice, Ms Thorne signed another agreement, in similar terms, a short period after the wedding.

TRIAL JUDGE'S DECISION

After the parties separated, Ms Thorne applied to the Federal Circuit Court for both agreements to be set aside. The primary judge attributed Ms Thorne's actions to duress or undue influence. Her Honour described Ms Thorne as being powerless1 with "no choice"2 but to sign the agreement. Ms Thorne was successful, based on six key factors, being:

  1. Ms Thorne's lack of financial equality with Mr Kennedy; 3
  2. Ms Thorne's lack of permanent residency status in Australia at the time; 4
  3. Ms Thorne's reliance on Mr Kennedy for all things; 5
  4. Ms Thorne's emotional connectedness to her relationship with Mr Kennedy and the prospect of motherhood; 6
  5. Ms Thorne's emotional preparation; 7 and
  6. the 'publicness of her upcoming marriage.'8

FULL COURT DECISION

The husband appealed the decision, and the Full Court upheld the husband's appeal. The Full Court found that there were no misrepresentations by Mr Kennedy regarding his financial position and that he made it clear that Ms Thorne would not receive any of his wealth upon separation. It held there was no undue influence because Ms Thorne had no concern about what she would receive upon separation. It further held that there was no unconscionable conduct as Mr Kennedy did not take advantage of Ms Thorne. It considered the agreements to be fair and reasonable because Mr Kennedy had told Ms Thorne at the start of their relationship that his wealth was for his three adult children, and she had accepted this.

HIGH COURT DECISION

The High Court unanimously allowed Ms Thorne's appeal. It held that the agreements were voidable under section 90K of the Family Law Act, on the grounds of unconscionable conduct. The majority also found that the agreements were voidable on the basis of undue influence.

Kiefel CJ, Bell, Gageler, Keane and Edelman JJ outlined several prominent factors9 in dealing with pre and post nuptial agreements, including:

  1. "whether the agreement was offered on a basis that it was not subject to negotiation";
  2. the emotional circumstances in which the agreement was entered, including any explicit or implicit threat to end a marriage or to end an engagement;
  3. whether there was any time for careful reflection;
  4. the nature of the parties' relationship;
  5. the relative financial positions of the parties; and
  6. the independent advice that was received and whether there was time to reflect on that advice.10

The plurality highlighted that pressure by the other party can reduce a person's ability to make rational judgments to a sub-standard level, and, additionally, direct evidence on the circumstances surrounding the entering of the Agreement can establish undue influence.

It is noted that the High Court specifically rejected the argument that the fiancé/fiancée relationship ought be recognised as a relationship of presumed undue influence – while this had been accepted in older cases, the High Court found this was no longer the case.

In regards to unconscionable conduct, the High Court held that Mr Kennedy unconscientiously took advantage of Ms Thorne's special disadvantage, which negatively affected her judgment as to her best interests. Nettle J found that the special disadvantage was created by Mr Kennedy in bringing Ms Thorne to Australia, keeping her here with the belief he would marry her, preparing for a wedding, and then presenting her with an Agreement, refusing to marry her unless she entered into the Agreement on his terms.

IMPLICATIONS FOR PARTIES ENTERING INTO FINANCIAL AGREEMENTS.

The High Court decision in Thorne v Kennedy again highlights the difficulties inherent in Financial Agreements – whilst both parties were properly legally advised and had "ticked the boxes" in respect to the technical requirements under Section 90G of the Family Law Act, this was insufficient to overcome the circumstances which surrounded the parties entering into the Agreement, and the inherent inequality of both their bargaining positions and the effect of the Agreement.

A number of "take aways" for parties who are looking to enter into Financial Agreements prior to marriage (or cohabitation) can be extracted from this judgment:

  1. Obtain legal advice early! Start discussions about the Agreement well in advance of any proposed wedding date. If you are able to negotiate and enter into an Agreement several months before a wedding (and before the guests have arrived!), that will go some way to minimising any possible arguments about unconscionable conduct and undue influence. Avoid signing Agreements in close proximity to a wedding.
  2. Beware of adopting a "sign this or else" position. As highlighted in Thorne v Kennedy, an agreement which is not subject to negotiation, particularly where there is a significant disparity in the financial positions of the parties, leaves the Agreement vulnerable to being set aside.
  3. Whilst Financial Agreements are often entered into for the express purpose of protecting the wealth of one party, the Court will consider the outcome of the Agreement when determining unconscionability and undue influence – so, it may be better in the long run to be more generous to the party of lesser means, and have an enforceable Agreement, than to obtain a more stringent Agreement which is vulnerable to being set aside. The High Court judgment means that a party entering into an Agreement which is a "bad bargain" for them may have a stronger case than previously, to seek to set aside an Agreement. Parties should note that 'it can be an indicium of undue influence if a pre-nuptial or post-nuptial agreement is signed despite being known to be grossly unreasonable even for agreements of this nature'11:

The High Court judgment appears to broaden the circumstances in which a Financial Agreement can be set aside, making it all the more important for parties to engage specialist lawyers when contemplating entering into a Financial Agreement. Particularly where there is a significant disparity in the parties' income, property and resources, and where there might be a perceived "imbalance" in the relationship between the parties, parties will need specialist advice and drafting to avoid the pitfalls highlighted in the above case.

Parties who have entered into Agreements which are heavily weighted in favour of one party, may also wish to consider the status of their Agreement in light of the above judgment, and obtain further advice as to any vulnerabilities they may have in light of the above judgment.

Footnotes

1 Thorne & Kennedy [2015] FCCA 484 at [93].

2 Thorne & Kennedy [2015] FCCA 484 at [97].

3 Thorne & Kennedy [20150 FCCA 484 at [93].

4 Thorne & Kennedy [20150 FCCA 484 at [93].

5 Thorne & Kennedy [20150 FCCA 484 at [93].

6 Thorne & Kennedy [20150 FCCA 484 at [93].

7 Thorne & Kennedy [20150 FCCA 484 at [93].

8 Thorne & Kennedy [20150 FCCA 484 at [93].

9 Thorne v Kennedy [2017] HCA 49 at [60].

10 Thorne v Kennedy [2017] HCA 49 at [60].

11 Thorne v Kennedy [2017] HCA 49 at at [56]

For further information please contact:

Monique Robb, Senior Associate
Phone: + 61 2 9233 5544
Email: mcr@swaab.com.au

Katerina Lonergan, Graduate-At-Law

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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