Last week, the long awaited High Court judgment of Thorne v Kennedy was delivered.
The parties had entered into two Binding Financial Agreements: a prenuptial agreement and a postnuptial agreement. The wife, Ms Thorne, appealed the decision of the Full Court of the Family Court which upheld the agreements and sought to set aside the two Financial Agreements arguing that the agreements had been signed as a result of duress, undue influence or unconscionable conduct.
The High Court found in favour of the wife and held that the Financial Agreements should be set aside because she had signed them in circumstances of undue influence and unconscionable conduct. The primary judge, Judge Demack, found that the Ms Thorne’s situation led her to believe that she had no choice and was powerless to act in any way other than to sign the agreements.
The parties met on the internet in 2006. Ms Thorne was aged 36 years. She was from Eastern Europe and had been living in the Middle East. She did not have any substantial assets. Mr Kennedy was a 67 year old Australian property developer with assets worth $18-24 million. He was divorced with three adult children.
After a short courting period, Ms Thorne travelled to Australia on a permanent basis to wed Mr Kennedy. Prior to the wedding, Mr Kennedy told Ms Thorne that his money was intended for his children only and that if she did not sign a Financial Agreement, then he would not marry her. Less than two weeks before the wedding day, Ms Thorne sought independent legal advice in relation to the Financial Agreement that had been provided to her by Mr Kennedy. Her lawyer strongly advised her not to sign the agreement and was very concerned that Ms Thorne was only signing the agreement so that her wedding would not be called off. Despite her lawyer advising that the agreement was the worst agreement she had ever seen, Ms Thorne went ahead and signed.
The second agreement was very similar to the first. Again, Ms Thorne’s solicitor urged her not to sign the second agreement but she did so anyway. The effect of the agreements meant that Ms Thorne was only entitled to $50,000 (indexed) in the event that they separated.
After nearly four years, the parties separated and later divorced. Ms Thorne sought orders to set aside the two agreements, a settlement payment of $1.1 million and a lump sum spousal maintenance order of $104,000. In 2014, Mr Kennedy died during the trial, and was substituted as a party by two of his adult children, who were the executors and trustees of his estate. Ms Thorne argued that she had been under immense pressure to sign the agreements and had signed the documents under duress. She had permanently left her country of origin and was living in Australia on a limited visa. At all times she was financially and emotionally dependent on Mr Kennedy.
Previously, the Full Court had found that despite the wife’s reliance on her husband, she had not been under duress when signing the agreements. This was primarily due to the fact that she had received independent legal advice prior to signing the documents.
However, in a unanimous decision, the High Court set aside the decision of the Full Court and found that both Financial Agreements should be set aside. Five judges of the High Court found that Ms Thorne had been subject to undue influence and unconscionable conduct and the remaining two Justices agreed that neither agreement was binding based on Mr Kennedy’s unconscionable conduct.
Their Honours agreed with Judge Demack’s comments in the trial judgment that Ms Thorne had been “powerless” and that she believed she had no other choice but to sign the agreements as they had been presented to her. Their Honours also agreed that Ms Thorne’s powerlessness was due her financial inferiority at the time of signing, the fact that she was on a temporary visa in Australia, and that she was entirely reliant on Mr Kennedy. She was also emotionally prepared to start a family with him and was very eager to have a baby. Furthermore, her upcoming marriage had been publicised to her friends and family, many of whom had travelled from overseas to attend the ceremony.
As a result, the High Court agreed with the primary judge in finding that Ms Thorne was deprived of the ability to make a free choice about the decision.
In relation to unconscionability, their Honours found that Ms Thorne had a “special disadvantage” in accordance with CBA v Amadio and this had seriously affected her ability to make a judgment as to her best interests. Mr Kennedy took advantage of that by rushing Ms Thorne into signing the agreements and threatening to call off the wedding if she did not sign. Mr Kennedy’s actions were deemed unconscionable. In allowing the appeal, the High Court ordered that the Respondent (Mr Kennedy’s executors) pay costs for both appeals to the Full Court and the High Court.
As a consequence of this judgment, the following factors will be taken into consideration in determining whether a prenuptial or postnuptial agreement may be vitiated due to undue influence:
- 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 to end an 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.
If you are considering entering into a Binding Financial Agreement with your partner or even if you have already entered into a prenuptial agreement and seek advice on whether it may be set aside in light of the High Court decision, our team of family law solicitors are able to advise you.