The unanimous High Court ruling in Thorne v Kennedy [2017] HCA 49 highlights the broadened circumstances in which financial agreements can be set aside in Australia, casting considerable doubt on agreements that are heavily weighted in favour of one party. The court set aside two financial agreements that were made pursuant to Part VIIIA of the Family Law Act 1975 (Cth) (“the Act”).

Facts

Ms Thorne and Mr Kennedy met on the internet in 2006 on a website for potential brides. Ms Thorne was 36 years of age and was living in the Middle East at the time with no substantial assets. Mr Kennedy was 67 years of age and was a wealthy property developer with assets estimated at $18 million. In February 2007 Ms Thorne moved to Australia to be with Mr Kennedy. She spoke little English and had no family living in Australia. Mr Kennedy and Ms Thorne were to be married in September 2007. Before the wedding Mr Kennedy told Ms Thorne that they were going to visit a solicitor to sign an agreement, and if she did not sign the agreement the wedding would not proceed. Ms Thorne signed the pre-nuptial agreement pursuant to s90B of the Act four days before the wedding, despite this being against legal advice. A post-nuptial agreement pursuant to s90C of the Act that had almost identical terms to the first agreement was signed after the wedding by Ms Thorne, once again against legal advice.

Trial Decision

The parties separated and Ms Thorne applied to the Federal Circuit Court for the agreements to be set aside. The trial judge set aside both agreements on the basis that they were signed as a result of duress or undue influence, noting that Ms Thorne was powerless and had no choice but to sign the two agreements, and that both agreements did not show any consideration for her interests.  

Full Court Decision

The decision was appealed by Mr Kennedy, where the court upheld his argument that he had not mislead Ms Thorne, in that it was made clear to her that she would not receive any wealth upon their separation. Further the court held that no undue influence had occurred as Ms Thorne raised no issue over what wealth she would receive in the event of separation. The court considered the agreements to be reasonable and fair on the basis that Mr Kennedy had informed Ms Thorne at the beginning of their relationship that his wealth was to be divided among his three children.

High Court decision

Ms Thorne’s appeal was allowed unanimously by the high court, holding that the agreements were voidable as a result of unconscionable conduct, pursuant to s90K of the Act. The majority also found that the agreement was voidable as a result of undue influence. The High Court considered the doctrine of duress however found that it was not necessary in deciding this issue, finding that the trial judge’s ruling was more appropriately characterised as undue influence.

Several factors were outlined by the court to have prominence when dealing with binding financial agreements:

• Whether the agreement was offered on a basis that it was not subject to negotiation;
• The emotional circumstances in which the agreement was entered, including any explicit or implicit threat to end a marriage or engagement;
• Whether there was any time for careful reflection;
• The nature of the parties’ relationship;
• The relative financial positions of the parties; and
• The independent advice that was received and whether there was time to reflect on that advice.

The court noted that the pressure applied by one party is capable of reducing a person’s capacity to make rational judgements to a sub-standard level, and based on the evidence presented, undue influence could be established as present when the agreement was entered into by Ms Thorne. 

The fiancé/fiancée relationship however was rejected by the high court as a relationship of presumed undue influence, despite the fact that this had been accepted previously by the courts.

It was concluded that Mr Kennedy unconscientiously took advantage of Ms Thorne’s special disadvantage, which interfered with her ability to make decisions that were in her best interests. The High Court upheld the trial judges finding that Mr Kennedy created this special disadvantage by moving Ms Thorne to Australia, promising to marry her, organising a wedding and then presenting her with an agreement whereby he refused to marry her unless she signed it.

What can be taken away from this?

Following Thorne v Kennedy there are several factors parties should consider before entering into binding financial or cohabitation agreements:

1. Seek legal advice well ahead of time, (not in the weeks/days leading up to the wedding!). The negotiation process of the agreement should take place well before the wedding, which will help to prevent any possible findings of undue influence or unconscionable conduct making the agreement voidable.
2. Ensure that the agreement is subject to negotiation, unlike the agreements in Thorne v Kennedy, particularly in circumstances where there is a disparity in the financial standings of the parties.
3. It may be beneficial in the long-term to have an established agreement that is more favourable to the party of lesser means. As we saw in Thorne v Kennedy, the courts may be more willing to set aside an agreement that is rigid and involves an unfair bargain.
4. Lastly parties should note “It can be an indicium of undue influence if a pre-nupital or post-nuptial agreement is signed despite being known to be grossly unreasonable even for agreements of this nature”. Therefore, an important question to ask is if the terms of the agreement are reasonable and fair to all parties.

Click here for Thorne v Kennedy [2017] HCA 49.  

Contact Peter McNamara at CML Lawyers for more information about your agreements with your fiancé, partner or married or de facto spouse.