Thorne v Kennedy [2017] HCA 49

Back­ground

The par­ties met over the inter­net in 2006. Ms Thorne, an East­ern Euro­pean woman, was 36 years old and was liv­ing in the Mid­dle East. She had no sub­stan­tial assets. Mr Kennedy was a 67 year old prop­er­ty devel­op­er, with assets worth between $18 mil­lion and $24 million. 

Ms Thorne relo­cat­ed to Aus­tralia in Feb­ru­ary 2007, about 7 months after meet­ing Mr Kennedy. Their wed­ding was set for 30 Sep­tem­ber 2007. On 19 Sep­tem­ber 2007, Mr Kennedy told Ms Thorne that they were going to see solic­i­tors to sign an agree­ment, and advised her that if she did not sign the agree­ment, the wed­ding would not go ahead. The next day, Mr Kennedy took Ms Thorne to see a dif­fer­ent solic­i­tor to obtain advice about the agree­ment. This was the first time that Ms Thorne became aware of the con­tents of the agree­ment. Being only 10 days before the wed­ding, Ms Thorne’s fam­i­ly had already flown in from East­ern Europe. All arrange­ments for the wed­ding had been made.

The solic­i­tor advis­ing Ms Thorne pro­duced a writ­ten advice, describ­ing the pro­vi­sion for Ms Thorne under the agree­ment as ​‘piteous­ly small’ in light of Mr Kennedy’s sig­nif­i­cant wealth. The solic­i­tor’s advice con­clud­ed that it was evi­dent that Ms Thorne was ​‘under sig­nif­i­cant stress’ in the lead up to wed­ding, and that Ms Thorne appeared to have been put in a posi­tion where in order for the wed­ding to go ahead, the agree­ment had to be signed, regard­less of whether or not it was fair. The solic­i­tor also pro­vid­ed oral advice to the effect that this was the worst agree­ment that she had ever seen and advised Ms Thorne against sign­ing the agreement.

Ms Thorne signed the agree­ment four days before the wed­ding. Con­trary to the solic­i­tor’s advice, Ms Thorne signed anoth­er agree­ment, in sim­i­lar terms, a short peri­od after the wedding. 

Tri­al Judge’s Decision

After the par­ties sep­a­rat­ed, Ms Thorne applied to the Fed­er­al Cir­cuit Court for both agree­ments to be set aside. The pri­ma­ry judge attrib­uted Ms Thorne’s actions to duress or undue influ­ence. Her Hon­our described Ms Thorne as being pow­er­less[1] with ​“no choice”[2] but to sign the agree­ment. Ms Thorne was suc­cess­ful, based on six key fac­tors, being:

1. Ms Thorne’s lack of finan­cial equal­i­ty with Mr Kennedy; [3]

2. Ms Thorne’s lack of per­ma­nent res­i­den­cy sta­tus in Aus­tralia at the time; [4]

3. Ms Thorne’s reliance on Mr Kennedy for all things; [5]

4. Ms Thorne’s emo­tion­al con­nect­ed­ness to her rela­tion­ship with Mr Kennedy and the prospect of moth­er­hood; [6]

5. Ms Thorne’s emo­tion­al prepa­ra­tion; [7] and

6. the ​‘pub­lic­ness of her upcom­ing mar­riage.’[8]

Full Court Decision

The hus­band appealed the deci­sion, and the Full Court upheld the hus­band’s appeal. The Full Court found that there were no mis­rep­re­sen­ta­tions by Mr Kennedy regard­ing his finan­cial posi­tion and that he made it clear that Ms Thorne would not receive any of his wealth upon sep­a­ra­tion. It held there was no undue influ­ence because Ms Thorne had no con­cern about what she would receive upon sep­a­ra­tion. It fur­ther held that there was no uncon­scionable con­duct as Mr Kennedy did not take advan­tage of Ms Thorne. It con­sid­ered the agree­ments to be fair and rea­son­able because Mr Kennedy had told Ms Thorne at the start of their rela­tion­ship that his wealth was for his three adult chil­dren, and she had accept­ed this. 

High Court Decision

The High Court unan­i­mous­ly allowed Ms Thorne’s appeal. It held that the agree­ments were void­able under sec­tion 90K of the Fam­i­ly Law Act, on the grounds of uncon­scionable con­duct. The major­i­ty also found that the agree­ments were void­able on the basis of undue influence. 

Kiefel CJ, Bell, Gagel­er, Keane and Edel­man JJ out­lined sev­er­al promi­nent fac­tors[9] in deal­ing with pre and post nup­tial agree­ments, including:

1. “whether the agree­ment was offered on a basis that it was not sub­ject to negotiation”;

2. the emo­tion­al cir­cum­stances in which the agree­ment was entered, includ­ing any explic­it or implic­it threat to end a mar­riage or to end an engagement;

3. whether there was any time for care­ful reflection;

4. the nature of the par­ties’ relationship;

5. the rel­a­tive finan­cial posi­tions of the par­ties; and

6. the inde­pen­dent advice that was received and whether there was time to reflect on that advice.[10]

The plu­ral­i­ty high­light­ed that pres­sure by the oth­er par­ty can reduce a per­son­’s abil­i­ty to make ratio­nal judg­ments to a sub-stan­dard lev­el, and, addi­tion­al­ly, direct evi­dence on the cir­cum­stances sur­round­ing the enter­ing of the Agree­ment can estab­lish undue influence.

It is not­ed that the High Court specif­i­cal­ly reject­ed the argu­ment that the fianc­fi­anc rela­tion­ship ought be recog­nised as a rela­tion­ship of pre­sumed undue influ­ence – while this had been accept­ed in old­er cas­es, the High Court found this was no longer the case.

In regards to uncon­scionable con­duct, the High Court held that Mr Kennedy uncon­sci­en­tious­ly took advan­tage of Ms Thorne’s spe­cial dis­ad­van­tage, which neg­a­tive­ly affect­ed her judg­ment as to her best inter­ests. Net­tle J found that the spe­cial dis­ad­van­tage was cre­at­ed by Mr Kennedy in bring­ing Ms Thorne to Aus­tralia, keep­ing her here with the belief he would mar­ry her, prepar­ing for a wed­ding, and then pre­sent­ing her with an Agree­ment, refus­ing to mar­ry her unless she entered into the Agree­ment on his terms.

Impli­ca­tions for Par­ties Enter­ing Into Finan­cial Agree­ments.

The High Court deci­sion in Thorne v Kennedy again high­lights the dif­fi­cul­ties inher­ent in Finan­cial Agree­ments – whilst both par­ties were prop­er­ly legal­ly advised and had ​“ticked the box­es” in respect to the tech­ni­cal require­ments under Sec­tion 90G of the Fam­i­ly Law Act, this was insuf­fi­cient to over­come the cir­cum­stances which sur­round­ed the par­ties enter­ing into the Agree­ment, and the inher­ent inequal­i­ty of both their bar­gain­ing posi­tions and the effect of the Agreement. 
A num­ber of ​“take aways” for par­ties who are look­ing to enter into Finan­cial Agree­ments pri­or to mar­riage (or cohab­i­ta­tion) can be extract­ed from this judgment:

1. Obtain legal advice ear­ly! Start dis­cus­sions about the Agree­ment well in advance of any pro­posed wed­ding date. If you are able to nego­ti­ate and enter into an Agree­ment sev­er­al months before a wed­ding (and before the guests have arrived!), that will go some way to min­imis­ing any pos­si­ble argu­ments about uncon­scionable con­duct and undue influ­ence. Avoid sign­ing Agree­ments in close prox­im­i­ty to a wedding.

2. Beware of adopt­ing a ​“sign this or else” posi­tion. As high­light­ed in Thorne v Kennedy, an agree­ment which is not sub­ject to nego­ti­a­tion, par­tic­u­lar­ly where there is a sig­nif­i­cant dis­par­i­ty in the finan­cial posi­tions of the par­ties, leaves the Agree­ment vul­ner­a­ble to being set aside.

3. Whilst Finan­cial Agree­ments are often entered into for the express pur­pose of pro­tect­ing the wealth of one par­ty, the Court will con­sid­er the out­come of the Agree­ment when deter­min­ing uncon­scionabil­i­ty and undue influ­ence – so, it may be bet­ter in the long run to be more gen­er­ous to the par­ty of less­er means, and have an enforce­able Agree­ment, than to obtain a more strin­gent Agree­ment which is vul­ner­a­ble to being set aside. The High Court judg­ment means that a par­ty enter­ing into an Agree­ment which is a ​“bad bar­gain” for them may have a stronger case than pre­vi­ous­ly, to seek to set aside an Agree­ment. Par­ties should note that ​‘it can be an indi­ci­um of undue influ­ence if a pre-nup­tial or post-nup­tial agree­ment is signed despite being known to be gross­ly unrea­son­able even for agree­ments of this nature’[11]:

The High Court judg­ment appears to broad­en the cir­cum­stances in which a Finan­cial Agree­ment can be set aside, mak­ing it all the more impor­tant for par­ties to engage spe­cial­ist lawyers when con­tem­plat­ing enter­ing into a Finan­cial Agree­ment. Par­tic­u­lar­ly where there is a sig­nif­i­cant dis­par­i­ty in the par­ties’ income, prop­er­ty and resources, and where there might be a per­ceived ​“imbal­ance” in the rela­tion­ship between the par­ties, par­ties will need spe­cial­ist advice and draft­ing to avoid the pit­falls high­light­ed in the above case.

Par­ties who have entered into Agree­ments which are heav­i­ly weight­ed in favour of one par­ty, may also wish to con­sid­er the sta­tus of their Agree­ment in light of the above judg­ment, and obtain fur­ther advice as to any vul­ner­a­bil­i­ties they may have in light of the above judgment.