The dress is made and the relatives have flown in: can a woman be expected to fairly consider a pre-nup presented days before her wedding to her much older millionaire fiancé? Lessons from the High Court for parties exerting undue influence when negotiating financial agreements.

By: Michael D Alexander

Barrister-at-Law (Queensland Bar)

Introduction

The High Court’s decision in Thorne v Kennedy [2017] HCA 49; (2017) FLC ¶93-807 setting aside the decision of the Full Court of the Family Court of Australia (and upholding the decision of Judge Demack of the Federal Circuit Court at Brisbane) has shed some doubt on the efficacy of financial agreements in circumstances where it is considered a bad bargain for one of the parties.

The questions must now be asked –  is it impossible for a financial agreement to survive an application for it to be set aside?

The facts

The parties met over the internet in 2006. At the time, the Wife was a 36 year old Greek woman who spoke little English and possessed no substantial assets. The Husband was a 67 year old Greek Australian property developer and held assets of somewhere between $18 million and $24 million. He was divorced with three adult children.

The wedding between the parties was set for 30 September 2007. On 8 August 2007 the Husband instructed a solicitor to prepare a pre-nuptial agreement. On approximately 19 September 2007 the Husband told the Wife that they were going to see solicitors about the signing of an agreement. The Husband informed the Wife that if she did not sign the agreement the wedding would not proceed. On 20 September 2007 the Husband took the Wife (and her sister) to see an independent solicitors who was also an accredited family law specialist. The Husband waited in the motor vehicle outside.

It was only during this meeting that the Wife became aware of the contents of the proposed agreement. By this time the wedding venue was booked, guests invited, the Wife’s parents and family had travelled from Eastern Europe to Australia and the Wife’s dress had been made.

The Wife’s solicitors provided her with a written advice stating, inter alia:

“I believe that you are under significant stress in the lead up to your wedding and that you have been put in a position where you must sign this Agreement regardless of its fairness so that your wedding can go ahead. I also understand from what you have told me that you are longing to have a child and you see your relationship with [Mr Kennedy] as the opportunity to fulfil what may well be a long held desire. I hold significant concerns that you are only signing this Agreement so that your wedding will not be called off. I urge you to reconsider your position as this Agreement is drawn to protect [Mr Kennedy’s] interests solely and in no way considers your interests.”

On 24 September 2007 the Wife’s solicitor explained the above advice. At trial, the Wife’s understanding of the advice provided on this occasion was that the agreement “…was the worst agreement that the solicitor had ever seen”. The solicitor’s evidence was that the agreement was entirely inappropriate and that she told the Wife that she should not sign it.

The Wife signed the agreement on 26 September 2007, four days before her wedding. The agreement contained a recital that within 30 days the parties would sign a further agreement (in substantially the same terms as the first). The parties did so.

During the conference with her solicitor in respect of the second agreement, the Wife’s solicitor once again urged her not to sign the agreement, stating that her opinion was that the Wife was being pressured into doing so. Notwithstanding such advice, the Wife signed the second agreement the same day.

The parties separated slightly less than four years after marriage (in August 2011) without children. The Wife commenced proceedings in August 2012, seeking orders setting aside the two agreements, a property adjustment order of $1.1 million, and a lump sum spousal maintenance order of $104,000.

The Husband died in May 2014, during the trial. He was substituted as a party by the executors and trustees of his estate, who were two of his adult Children.

The decision at first instance

In March 2015 Judge Demack found that neither agreement was binding and set both aside as a consequence, holding (at [94]):

“(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”.

Her Honour set out six matters which, in combination, led her to the conclusion that Ms Thorne had “no choice” or was powerless, namely:

  • her lack of financial equality with Mr Kennedy;
  • her lack of permanent status in Australia at the time;
  • her reliance on Mr Kennedy for all things;
  • her emotional connectedness to their relationship and the prospect of motherhood;
  • her emotional preparation for marriage; and
  • the “publicness” of her upcoming marriage.

These six matters were the basis for what the plurality of the High Court described as the “vivid” description by the trial judge (quoted at [47]) of the wife’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 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, was signed, or the relationship was at an end. The husband made that clear.

As to the second agreement, the High Court plurality noted (at [48]) that the trial judge held that it was “simply a continuation of the first – the marriage would be at an end before it was begun if it wasn’t signed”. In effect, the trial judge’s conclusion was that the same matters which vitiated the first agreement (with the exception of the time pressure caused by the impending wedding) also vitiated the second agreement. The factors had not otherwise dissipated.

The Appeal to the Full Court of the Family Court

In relying upon the decision of the New South Wales Court of Appeal in Australia & New Zealand Banking Group v Karam the Full Court held that the primary judge had erred in the test for duress which she had applied. The Full Court held that duress required threatened or actual unlawful conduct but that the primary judge had not concluded that the pressure was ‘illegitimate’ or ‘unlawful’.

The Honours overturned the finding by Judge Demack (which had been a factor in her assessment that the agreements were vitiated) that there was no outcome available to Ms Thorne that was fair or reasonable. The Full Court considered the agreements to be fair and reasonable because:

  • the Husband had told the Wife at the outset of their relationship, and she had accepted, that his wealth was intended for his children, and
  • the Wife’s interest, which was provided for in the agreements, concerned only the provision that would be made for her in the event the Husband predeceased her.

It was held that the Wife could not have been subject to undue influence because she acquiesced in the Husband’s desire to protect his assets for his children and because she had no concern about what she would receive on separation. The Full Court held that the Husband’s conduct was not unconscionable because he did not take advantage of the Wife.

The High Court

The judgment of the plurality of the High Court was delivered on 8 November 2017. Their Honours held that the findings by Judge Demack should not have been disturbed, concluding that the conclusions were open to her on the evidence, stating (at [54]), “the description of the agreements by the primary judge as not being “fair or reasonable” was not merely open to her. It was an understatement”. Their Honours went on (at [56]):

“The primary judge was correct to consider the unfair and unreasonable terms of the pre-nuptial agreement and the post-nuptial agreement as matters relevant to her consideration of whether the agreements were vitiated. 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 financial imbalance in agreements of that nature, 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. In other words, what the Full Court rightly recognised as the significant gap between Ms Thorne’s understanding of Ms Harrison’s strong advice not to sign the “entirely inappropriate” agreement and Ms Thorne’s actions in signing the agreement was capable of being a circumstance relevant to whether an inference should be drawn of undue influence.”

Their Honours held that 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:

  • whether the Agreement was offered on a basis that it was not subject to negotiation;
  • 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;
  • 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.

The plurality said that the trial judged used duress interchangeably with undue influence, and considered that undue influence was, “a better characterisation of her findings”.

In the minority judgment, Justices Nettle and Gordon agreed that the agreements should be set aside for unconscionable conduct, but did not agree that they should be set aside for undue influence.

In terms of the provisions of section 90K and 90KA of the Act, the High Court held that the same tests applied to marital relationships as to the commercial relationships, when considering vitiating factors such as duress, undue influence and unconscionable conduct.

Where to from here

Justice Nettle stated:

“In the scheme of things, it can hardly be supposed that a young woman in Ms Thorne’s position would be persuaded to abandon her life abroad and travel halfway around the world to bind herself to a sexagenarian if, at the outset of the relationship, she had been made aware of the enormity of the arrangement that was proposed”.

This powerful statement by his Honour makes clear that if a financial agreement results in a bad bargain for one party, it may be evidence of a vitiating factor such as unconscionable conduct, undue influence or duress.

The upshot very clearly appears to be that if the Agreement is not fair, it won’t likely survive – whether legal advice has been diligently provided or not.