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Duress in Signing Financial Agreements

The issue of what constitutes duress when signing a Binding Financial Agreement was recently considered by the Full Court of the Family Court of Australia in the matter of Kennedy & Thorne [2016] FamCAFC 189.

The parties met overseas where the Wife lived and were married in Australia the following year .The Husband had assets of $18 million and three adult children from a previous relationship to which he intended to bequeath the assets. The parties completed two Binding Financial Agreements, one very shortly before they were married and then subsequently approximately 1 month after they were married with the second agreement terminating the first.

At first instance the Wife was successful in having the agreement declared non-binding due to duress. The trial judge found that the Wife signed the agreement in circumstances where she knew if she did not sign the parties would not marry and that there was no negotiation regarding the terms of the agreement. As is required by legislation the Wife had received independent legal advice and her solicitor had strongly advised her not to sign as it was the worst contract the solicitor had ever seen. Despite the Wife’s limited English it was found that she understood this clear advice.

The trial judge applied a test that stated “to establish duress, there must be pressure the practical effect of which is compulsion or absence of choice” and “duress was born [sic] out of the inequality of bargaining power where there was no outcome available to [the wife] that was fair or reasonable”.

The Full Court found this test was incorrect and stated “the correct test is whether there is “threatened or actual unlawful conduct”…. There needed to be a finding that the “pressure” was “illegitimate” or “unlawful”.” It further said “it is beyond doubt that “inequality of bargaining power” cannot establish duress”.

The trial judge had found the Husband had made it clear to the Wife from the outset of the relationship that his wealth would be given to his children and further that her main concern in the agreements was what would occur should the Husband predecease her and the agreements provided for this. In these circumstances no duress was found and the agreements were found to be enforceable.

 

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