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12 December 2017

Thorne v Kennedy - is your Financial Agreement vulnerable?

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The recent High Court decision in Thorne v Kennedy [2017] HCA 49 provides practitioners with a summary of the law regarding duress, undue influence and unconscionable conduct in relation to the preparation of financial agreements.

Husband and Wife met online in 2006. He was 67 and she was 36. The Wife was living in the Middle East and the Husband on the Gold Coast. The Husband was a Greek Australian property developer and had significant wealth (between $18 million and $24 million). The Wife had no assets of significance.

The parties communicated online prior to meeting. During these communications the Husband made it clear to the Wife that if they were to marry he would require her to sign a prenuptial agreement as his wealth was to go to his adult children.

The parties courted for about 7 months. During that time the Husband travelled overseas to visit the Wife on 2 occasions and took her on holiday to Europe where he met her family.

In about February 2007 the Wife moved to Australia and moved into the Husband’s home and a wedding date was set for 30 September 2007. The Husband arranged for a prenuptial agreement to be drawn and on 19 September the Husband took the Wife to an appointment for her to see an independent solicitor. This was the first time the Wife had seen the terms of the Agreement.

In summary, the Agreement provided that the Wife would receive nothing if the parties separated within 3 years, with or without children, and only $50,000 if they separated after 3 years without children. The provision made for the Wife was more generous if the Husband died while they were still together.

The Husband made it clear to the Wife that if she did not sign the Agreement the wedding would be called off. If the wedding was called off the Wife would have had no right to reside in Australia, no means of support and little to return to overseas. Her family, who had been flown in and accommodated by the Husband to attend the wedding, would have also been stranded.

The independent legal advice received by the Wife was clear. Her solicitor told her that the Agreement was the worst Agreement she had ever seen and cautioned her not to sign. By this time, the Wife’s family had been flown in for the wedding and the wedding arrangements made. The solicitor advised the Wife of her concerns that she was entering into the Agreement to avoid the wedding being called off. The Wife declined to take her lawyer’s advice and signed the Agreement. The Wife signed a further Agreement in similar terms about a month after the wedding.

The Husband ended the relationship about 4 years after the marriage. The Wife filed proceedings in the Federal Circuit Court of Australia at Brisbane seeking to set the Agreements aside. At trial, Judge Demack found for the Wife and set the Agreements aside. The Husband appealed and the matter was heard by the Full Court of the Family Court. The Full Court reversed the trial judge’s decision and allowed the Appeal.

The Full Court’s decision was challenged by the Wife in the High Court of Australia. The decision, which was handed down on 8 November 2017, set aside the Orders of the Full Court of the Family Court and ordered that the appeal to the Full Court be dismissed with costs.

The High Court was unanimous in finding that the Agreements should be set aside due to unconscionable conduct. The majority, Kiefel CJ, Bell, Gageler, Keane and Edelman JJ also found that the Agreements should be set aside due to undue influence.

While the decision does not substantially change the law, it highlights various factors that should be considered when drafting and entering into Financial Agreements.  Some of the factors to be considered include:-

  • The nature of the relationship between the parties;
  • The relative financial position of each party;
  • Whether one is dependent upon the other;
  • Whether the terms of the Agreement are fair and reasonable;
  • The ability and the opportunity afforded to the party in the weaker financial position to negotiate the terms of the Agreement;
  • The ability afforded to the party in the weaker financial position to reflect on the legal advice provided to them.

It is clear from this case that, while Financial Agreements are often used in circumstances where one party holds a superior financial position, Agreements designed to benefit the party who holds the wealth are likely to be more vulnerable to challenge.

If you would like advice in relation to a Financial Agreement or family law matters generally, please contact us and arrange an initial consultation with one of our solicitors.

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