Thorne v Kennedy [2017] HCA 49: Duress, Undue Influence & Unconscionable Conduct in Pre-Nuptials

Thursday 9 November 2017 @ 11.38 a.m. | Legal Research

Yesterday, 8 November 2017, the High Court of Australia released their reasons inthe case of Thorne v Kennedy [2017] HCA 49. In this judgement, the High Court set aside the judgment of the Full Court of the Family Court of Australia, made on 26 September 2016, consequently allowing a pre-nuptial and a post-nuptial agreement to be set aside by reason of unconscionable conduct of one of the parties.

“This appeal concerns two substantially identical financial agreements, a pre-nuptial agreement and a post-nuptial agreement which replaced it, made under Pt VIIIA of the Family Law Act 1975 (Cth).  The agreements were made between a wealthy property developer, Mr Kennedy, and his fiancée, Ms Thorne.  The parties met online on a website for potential brides and they were soon engaged.  In the words of the primary judge, Ms Thorne came to Australia leaving behind "her life and minimal possessions ...  If the relationship ended, she would have nothing.  No job, no visa, no home, no place, no community" .  The pre-nuptial agreement was signed, at the insistence of Mr Kennedy, very shortly before the wedding in circumstances in which Ms Thorne was given emphatic independent legal advice that the agreement was "entirely inappropriate" and that Ms Thorne should not sign it.” at [1] per Kiefel CJ, Bell, Gageler, Keane and Edelman JJ.

Factual Background

The parties, under the pseudonyms “Ms Thorne” and “Mr Kennedy”, met over the internet in 2006, as part of an online bridal service. At the time, Ms Thorne was 36 years old with minimal assets. Mr Kennedy, however, was a Greek property developer with substantial assets. They moved together to Australia in 2007 with the intention of getting married. Prior to the wedding, however, Mr Kennedy had Ms Thorne sign a pre-nuptial agreement with the proviso that if she did not sign it, the wedding would not go ahead.

At the time, Ms Thorne obtained the advice of an independent family law specialist, Ms Harrison, who she saw without Mr Kennedy being present.  The advice provided by Ms Harrison stated as follows (paragraph [9]):

"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."

While some minor amendments were made, Ms Thorne signed the pre-nuptial agreement upon the urging of Mr Kennedy, despite Ms Harrison’s advice that “the agreement was the worst agreement that Ms Harrison had ever seen”, at [12]. Mr Kennedy then signed a substantially similar agreement after the wedding.

Four years after the wedding, Mr Kennedy signed a separation declaration from Ms Thorne. Ms Thorne then proceeded to commence a proceeding seeking orders to adjust the terms of the agreement to be more favourable to her – increasing the property order to $1.1 million and the lump sum spousal maintenance order of $104,000. During the proceedings, in May 2014, Mr Kennedy died and his children took up party as trustees and executors of his estate.

The Legal Context

The statutory guidance for certain aspects of marriage in Australia is the Family Law Act 1975 (the “Act”). In 2000, the Act was amended, introducing Pt VIIIA, allowing couples to make regulated financial agreements, including pre-nuptial and post-nuptial agreements. One restriction in this part with relation to pre- and post-nuptial agreements is that in s 90G(1), whereby a financial agreement is only binding upon the parties if:

(a)  the agreement is signed by all parties; and

(b)  before signing the agreement, each spouse party was provided with independent legal advice from a legal practitioner about the effect of the agreement on the rights of that party and about the advantages and disadvantages, at the time that the advice was provided, to that party of making the agreement; and

(c)  either before or after signing the agreement, each spouse party was provided with a signed statement by the legal practitioner stating that the advice referred to in paragraph (b) was provided to that party (whether or not the statement is annexed to the agreement); and

(ca)  a copy of the statement referred to in paragraph (c) that was provided to a spouse party is given to the other spouse party or to a legal practitioner for the other spouse party; and

(d)  the agreement has not been terminated and has not been set aside by a court.

Additionally, per s 90F, an agreement is prohibited from excluding or limiting the power of a court to make an order in relation to the maintenance of a party if:

"when the agreement came into effect, the circumstances of the party were such that, taking into account the terms and effect of the agreement, the party was unable to support himself or herself without an income tested pension, allowance or benefit."

What is important for this case, is s 90K and 90KA. Under section 90K(1), a court may set aside a financial agreement if satisfied that matters, specified in s 90K(1) are satisfied. One important factor in section 90K(1)(b) is whether “the agreement is void, voidable or unenforceable. Additionally, as per s 90K(1)(e), the court may hold the agreement void if “a party to the agreement engaged in conduct that was, in all the circumstances, unconscionable”. Section 90KA then provides, in part, that the question whether a financial agreement is valid, enforceable or effective "is to be determined by the court according to the principles of law and equity that are applicable in determining the validity, enforceability and effect of contracts and purported contracts".

The Issues

The matter for the High Court was whether, in dismissing the judgment of the primary judge in the Federal Circuit Court of Australia, the Full Court of the Federal Court erred in their decision as a question of law:

“The only issues were whether the agreements should be set aside because Ms Thorne was subject to any of the vitiating factors of duress, undue influence, or unconscionable conduct in her entry into each of the agreements and whether the reasons of the primary judge were adequate " at [22]

Duress, undue influence and unconscionable conduct are all discussed in the reasoning of the High Court, however, importantly, with regards to unconscionable conduct, their Honours stated at [38]:

“A conclusion of unconscionable conduct requires the innocent party to be subject to a special disadvantage "which seriously affects the ability of the innocent party to make a judgment as to [the innocent party's] own best interests".  The other party must also unconscientiously take advantage of that special disadvantage.  This has been variously described as requiring "victimisation", "unconscientious conduct", or "exploitation".  Before there can be a finding of unconscientious taking of advantage, it is also generally necessary that the other party knew or ought to have known of the existence and effect of the special disadvantage. […]

Although undue influence and unconscionable conduct will overlap, they have distinct spheres of operation.  One difference is that although one way in which the element of special disadvantage for a finding of unconscionable conduct can be established is by a finding of undue influence, there are many other circumstances that can amount to a special disadvantage which would not establish undue influence.  A further difference between the doctrines is that although undue influence cases will often arise from the assertion of pressure by the other party which might amount to victimisation or exploitation, this is not always required.”

The Decision

The High Court decided that the judgment of the Full Court should be overruled and the judgment of the primary judge of the Federal Circuit Court should be upheld.

“This appeal should be allowed on the basis that the Full Court erred in concluding that the primary judge's reasons were not adequate and erred in overturning the primary judge's conclusion that, in effect, Ms Thorne was subject to undue influence.  As we have explained, it is not necessary to consider the operation of the vitiating factor of duress.  This is particularly so in the absence of any detailed argument about the operation of a criterion for duress that the conduct of the dominant party is improper or illegitimate, and the absence of any findings by the primary judge or the Full Court on these matters.  In contrast, the issues concerning unconscionable conduct were fully argued.  For the reasons which follow, the Full Court also erred in its conclusion that Ms Thorne's entry into the agreements was not procured by unconscionable conduct.” at [63]

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Family Law Act 1975 (Cth) as published on Timebase's LawOne service

Thorne v Kennedy [2017] HCA 49

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