Which case won?

casea
The case for the husband and his estate
  • From very early in our relationship I told my ex-wife that I regarded my wealth as my own, that on my death it would pass to my children and that if we were to marry, she would need to sign an agreement to this effect.
  • There was nothing unlawful about me asking my wife-to-be to sign a binding financial agreement.
  • I insisted that she receive independent legal advice from an accredited specialist in family law before signing the agreement.
  • The advice she received was that the agreement was plainly against her interests and that she should not sign it, so she knew exactly what the position was and chose to sign the agreement of her own free will.
  • In my opinion, I made adequate provision for my wife in the financial agreements in the event of our relationship breaking down.
  • The financial agreements are valid and should be allowed to stand.
caseb
The case for the wife
  • I was given little time to consider the agreement presented to me, no opportunity to negotiate its terms and was told that if I did not sign it, the wedding would not go ahead and our relationship would be over.
  • I wanted to remain in Australia and I had long desired to have children – I saw this relationship as my only real chance to achieve these things.
  • Indeed, if the relationship ended I would have been left with no job, no visa, no home, no income and no community in Australia. This meant I was extremely vulnerable and entirely reliant on my fiancé.
  • To compound this, by the time the agreement was presented to me, my family had been flown to Australia. My fiancé’s ultimatum was not accompanied by any offer to help my family return home, so they too had become entirely reliant on my fiancé.
  • In these circumstances my state of mind was affected so severely that I was incapable of making a judgment in my own best interests.
  • My ex-husband’s behaviour amounts to undue influence and unconscionable conduct, so the agreements should be set aside and I should be entitled to the rights I would have otherwise had under Australian law.

So, which case won?

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Case A Case B

Case B won. You were right!

How people voted
a53%
b47%

Expert commentary on the court's decision

“It is important to note that the High Court judges did not find that a ‘bad bargain’ would of itself be grounds to terminate a financial agreement.”
Wife succeeds at first instance but matter goes on appeal

The decision in the first instance in Thorne & Kennedy [2015] FCCA 484, by the Federal Circuit Court, found in favour of the wife and declared that the financial agreements were not binding. After having considered the whole of the circumstances, the court set them aside. The judge made the following comment: “… the wife signed the agreements under duress … borne of inequality of bargaining power where there was no outcome to her that was fair and reasonable”.

The husband’s legal representatives (his estate) appealed the matter to the Full Court of the Family Court. The appeal was allowed. When the Full Court heard the matter in Kennedy & Thorne [2016] FamCAFC 189, it found that the agreements were actually binding and could not be set aside on the grounds of duress, undue influence or unconscionable conduct.

The wife then appealed the matter to the High Court and was granted special leave to appeal. The matter was heard and determined by the Full Bench of the High Court. (See Thorne v Kennedy [2017] HCA 49.)

High Court considers doctrines of undue influence and unconscionable conduct

The judges gave a very useful overview and outline of the doctrines associated with undue influence and unconscionable conduct. What are normally equitable concepts commonly found in commercial matters and trust related matters were applied in the family law context. The judges made the following points:

  • Boundaries between undue influence and duress can often be blurred.
  • Undue influence arises from various and different sources, one of which may be excessive pressure (which is common of course in family law matters).
  • That pressure, or excessive pressure, can work to remove a person’s feeling of choice, where a person may feel there is no choice but to comply with the other party’s will.
  • In all matters in which allegations are made as to undue influence (and unconscionable conduct), judges have to look very, very carefully at all of the facts and scrutinise the exact relations between the parties, which is again very common in many family law cases.

The High Court judges usefully set out the following important matters for consideration as to whether undue influence is a factor in a binding financial agreement:

  • Was the agreement able to be negotiated, and offered to the other party on that basis?
  • What were the emotional circumstances? For example, was there any threat, implied or actual, to end the marriage or the engagement (for example “We’re not getting married unless you sign this”).
  • What timeframe was given for the other party to consider the agreement, reflect on any advice provided and think through the options?
  • What is the nature of the relationship between the parties? For example, is one more powerful than the other?
  • What are the respective financial positions of the parties?
  • If independent advice was received, when was it received, was there time to reflect on that advice and/or an opportunity to negotiate or consider alternatives?

It is important to note that the judges did not find that a “bad bargain” would of itself be grounds to terminate a financial agreement; it has always been the case that a person is free to determine their own bargain.

Where the parties enter into the agreement with their eyes wide open, having had time to reflect, take proper advice and negotiate that bad bargain, then it’s unlikely a court would intervene to upset that bargain.

The judges said in relation to undue influence:

Of course the nature of Agreements of this type means that their terms will usually be more favourable, and sometimes much more favourable, for one party. However, despite the usual imbalance in Agreements of that nature it can be an indicium of undue influence if a prenuptial or postnuptial Agreement is signed despite being known to be grossly unreasonable, even for Agreements of this nature.

The judges then went on to state the following in relation to unconscionable conduct:

The findings by the primary Judge that Ms Thorne was subject to undue influence – powerless, with what she saw as no choice but to enter the Agreements – point inevitably to the conclusion that she was subject to a special disadvantage in her entering into the Agreements. That “special disadvantage” was known to Mr Kennedy and “had in part been created by him”. He created the urgency with which the prenuptial Agreement was required to be signed and the haste surrounding the postnuptial Agreement and the advice upon it. 

While Ms Thorne knew Mr Kennedy required her acknowledgement that his death would not result in her receiving a windfall inheritance at the expense of his children, she had no reason to anticipate an intention on his part to insist upon terms of the marriage that were as unreasonable as those contained in the Agreements. 

Further, Ms Thorne and her family members had been brought to Australia for the wedding by Mr Kennedy and his ultimatum was not accompanied by any offer to assist them to return home. These matters increased the pressure which contributed to the substantial subordination of Ms Thorne’s free will in relation to the Agreements. 

Mr Kennedy took advantage of Ms Thorne’s vulnerability to obtain agreements which… were entirely inappropriate and wholly inadequate.

High Court finds in favour of wife

The High Court upheld the appeal of the wife and restored the decision of the Federal Circuit Court, namely that the agreements were not binding and should be set aside. The husband’s estate was ordered to pay the wife’s costs of the High Court appeal.

Reducing risk in binding financial agreements

Binding financial agreements were intended by parliament to provide couples with an alternative means of agreeing terms between them, without the need to go to court. When valid, these agreements can be an excellent way to manage risk between two people in a relationship.

As this case highlights however, the validity of these agreements depends to a large extent on how they were prepared, considered and negotiated between the parties. The case underscores the importance of both parties receiving independent legal advice from an experienced family lawyer.

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