Thorne v Kennedy [2017] HCA 49

While this week’s High Court decision may suggest the end of pre-nuptial style agreements it is important to look at the circumstances surrounding this particular case.

In essence, if an Agreement is drawn in the correct legal way, and both parties go into the Agreement after receiving independent legal advice about what the Agreement provides it is likely to be binding on the parties.  With the possible exception of not having relationships at all, it is currently the best available protection to agree in advance about what should happen in property matters if the relationship comes to an end.

The protection under a Binding Financial Agreement is however not absolute and they can and do get challenged by disappointed parties from time to time.  While the grounds for challenging them are legally technical, one of the grounds can occur where one party has acted in a way that puts the weaker party under a lot of pressure to sign it (duress) or unfairly taken advantage of the weaker party by putting them in a situation where they have virtually no choice other than to sign the agreement or the relationship is over (undue influence).

A very recent decision by the High Court in Thorne v Kennedy [2017] HCA 49 has reminded us as family lawyers that even the best legal drafting and taking careful steps to advise our client’s may not be enough to ensure that a particular Agreement is upheld.    The facts of Thorne v Kennedy are set out in the facts and background section below.

In the original decision by Judge Demack of the Federal Circuit Court, the Judge considered the hypothetical question of why Ms Thorne would sign an Agreement when she understood the advice of her Solicitor to be that the agreement was the worst the Solicitor had ever seen.  Judge Demack also asked why, despite the advice of her Solicitor, Ms Thorne failed to conceive of the notion that Mr Kennedy might end the marriage.

Judge Demack ultimately concluded that Ms Thorne had no choice or was powerless because of six (6) particular facts as she found them:

  1. Her lack of financial equality with Mr Kennedy;
  2. Her lack of permanent status in Australia at the time;
  3. Her reliance on Mr Kennedy for all things;
  4. Her emotional connectedness to their relationship and the prospect of having a child with Mr Kennedy;
  5. Her emotional preparation for marriage; and
  6. The publicness of her upcoming marriage.

In what the High Court described as a vivid description by Judge Demack of Ms Thorne’s circumstances ‘she was in Australia only in furtherance of their relationship.  She had left behind her life and minimal possessions.  She brought no assets of substance to the relationship.  If the relationship ended, she would have had nothing.  No job.  No visa.  No home.  No place.  No community.  The consequences of the relationship being at an end would have significant and serious consequences to Ms Thorne.  She would not be entitled to remain in Australia and she had nothing to return to anywhere else in the world.  Every bargaining chip and every power was in Mr Kennedy’s hands’.

Either the document as it was signed or the relationship was at an end, the husband made that clear.

In terms of the later Agreement that was then signed some weeks after the parties’ marriage, Judge Demack held that it was also void for the same grounds and should be set aside as it was simply a continuation of the first. The only difference was the time pressure was no longer the same.  The result however that the marriage would be at and end before it was begun if it wasn’t signed remained.

In the majority judgement by the High Court, they concluded that Judge Demack’s conclusions were open to her on the evidence.  In combination it was open to Judge Demack to conclude that Ms Thorne considered that she had no choice or was powerless other than to enter the Agreement.

Taking matters further, the majority judgment of the High Court said that particularly in the context of deciding whether prenuptial and postnuptial agreements have been entered into where there has been duress or unconscionable conduct some of the factors which may have prominence include the following:

  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 into 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 the independent advice that was received and whether there was time to reflect on that advice.

The High Court respectfully disagreed with the Full Court and did not consider that an assessment of whether undue influence arises in the circumstances required and may not even permit a trial Judge to assign some weight to the each of the factors upon which the trial Judge relies nor is a trial Judge necessarily required to identify which factors are fundamental and which are subsidiary.  An assessment of the will power of a person is not an exercise of mathematical precision.

The High Court allowed the appeal and set aside both Binding Financial Agreements that had been signed.   Having set aside both the agreements, what  ultimately now to be a just and equitable property settlement between Ms Thorne and Mr Kennedy’s estate (Mr Kennedy having now passed away) has been returned to the Federal Circuit Court to be determined.

The take away from all of this is that it can be very difficult to get Financial Agreements right, particularly prenuptial and asset protection types of Financial Agreements which are more likely to be challenged and need to withstand Court scrutiny.  It appears that being willing to negotiate the terms and reaching a genuine consensus early in the relationship is a far safer option then presenting an agreement to your partner on the basis that it is “sign here” or else we are done.  The level of legal care and skill needed to secure Agreements that may otherwise seem “unfair” is also becoming increasingly high and should only be attempted by the most experienced family lawyers.


THE FACTS AND BACKGROUND

The parties met over the internet in 2006.  At the time Ms Thorne was living in the Middle East.  She was 36 years old.  She had minimal assets.

Mr Kennedy was a 67 year old Greek Australia property developer.  He had assets worth between $18 million and $24 million.  He was divorced with three (3) adult children.  Prior to getting engaged, Mr Kennedy had met Ms Thorne twice and travelled overseas.  He briefly mentioned that he would ask her to sign a document to protect his money for his adult children.

Seven months after Mr Kennedy and Ms Thorne met they moved to Australia to live in Mr Kennedy’s penthouse with the intention of getting married.  The wedding was set for 30 September 2007.  In early August, Mr Kennedy asked his Solicitor to draw a Prenuptial Agreement.  In about mid-September and less than two (2) weeks prior to the wedding, Ms Thorne asked Mr Kennedy whether he required her to sign the Agreement.  He replied that if she did not sign it then the wedding would not go ahead.

Mr Kennedy arranged for Ms Thorne to see an independent Solicitor.  After meeting with the Solicitor, a written advice was prepared and provided to Ms Thorne.  While the terms were complex, they in effect provided that if Mr Kennedy separated from Ms Thorne within three (3) years of getting married, with or without children, then Ms Thorne would get nothing.  If they separated after three (3) years without children then Mr Kennedy would pay Ms Thorne of $50,000.  The advice from her solicitor was to the effect that it was the worst Financial Agreement that that Solicitor had ever seen.  She advised Ms Thorne not to sign it.

After having received the advice, Ms Thorne signed the agreement anyway.  The agreement was signed on 26 September 2007 and the parties married on 30 September 2007 as arranged.

Terms had also been included in the agreement that after the wedding the parties would enter into another Financial Agreement in the same terms. On 5 November 2007, just over a month after the parties married, Ms Thorne received advice from the same Solicitor again not the sign the second agreement and she did so anyway on the same day.

After less than four (4) years of marriage Mr Kennedy ended the relationship and the parties separated without children.  Ms Thorne commenced Court proceedings and sought to set aside the agreements.  In the first instance, Judge Demack of the Federal Circuit Court set aside both of the Financial Agreements.  Mr Kennedy appealed to the Full Court of the Family Court.  The Full Court upheld the appeal.  Ms Thorne was then granted permission to Appeal to the High Court.

Mr Kennedy died in May 2014 during the trial.  The litigation was then continued by the Executors of his estates who were two (2) of his adult children.