High Court to make landmark decision on Financial Agreements

“It can be said, as it was, by that great Asian jurist, Chairman Mao, that power grows out of the barrel of a gun – but it can also grow out of the impending big wedding in four days’ time”

- The Hon. Matt Foley, Barrister for the Appellant Wife

10 March 2017

An appeal heard in the High Court of Australia on 8 August 2017 provides the Court with a rare opportunity to make authoritative statements about the application of duress, undue influence and unconscionable conduct in relation to Binding Financial Agreements.

With judgment reserved, it may be some time before we know the extent of the implications of the decision. However, we have taken the opportunity to distil the landmark legal battle to date, including the oral submissions and comments made by the High Court Justices on Tuesday.

The Relevant Facts:

It all started back in mid-2006 when Mr Kennedy and Ms Thorne met via an internet marriage site.

Ms Thorne was 36 years old, born and living overseas with limited English language skills which had been informally acquired. She had no children and no assets of substance. Mr Kennedy was a 67 year old Australian property developer with assets in the vicinity of $18 to $24 million. He was divorced from his first wife and had 3 adult children.

Following initial telephone conversations, the couple travelled together around Europe and Mr Kennedy met Ms Thorne’s family. Mr Kennedy began providing funds to Ms Thorne. The couple came to Australia in February 2007 and moved into Mr Kennedy’s penthouse.

Their wedding was scheduled for late September 2007. A few weeks before the wedding, the bride’s parents and sister were flown to Australia from Europe by Mr Kennedy and they were accommodated by him. On 26 September 2007, with the wedding scheduled four days later, the parties signed a Financial Agreement. On 20 November 2007, a second Financial Agreement was signed by the parties to similar effect.

The parties had no children together. On 16 June 2011, Mr Kennedy signed a separation declaration. Ms Thorne accepted the separation after a couple of months and vacated the former matrimonial home, after a marriage of 4.5 years.

Litigation history:

On 27 April 2012, Ms Thorne filed an application in the Federal Circuit Court seeking orders for the two financial agreements to be declared non-binding, set aside or declared void. Ms Thorne also sought a property settlement in the order of $1,100,000 and lump sum spousal maintenance of $104,000. Mr Kennedy opposed the application, relying on the Financial Agreements. He died in 2014 and his adult children continued the proceedings.

At trial, Ms Thorne successfully argued that the Agreements were entered into under duress. Crucially, the Trial Judge found:

91. 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.

92. 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.

However, on appeal, the Full Court of the Family Court (Strickland, Aldridge and Cronin JJ) overturned that decision and upheld the second Financial Agreement as binding.

On 10 March 2017, the High Court (Keane and Edelman JJ) granted special leave to Ms Thorne to appeal the decision.

The Financial Agreements:

Mr Kennedy asserts that he made it clear from the outset of the relationship that his wealth was his and he intended it go to his children. He submits he told Ms Thorne “If I like you I will marry you but you will have to sign paper. My money is for my children.”

Mr Kennedy made the arrangements for Ms Thorne to obtain legal advice in relation to both Financial Agreements, which provided for the following:

1. During the marriage, Mr Kennedy would meet household expenses, pay Ms Thorne the sum of at least $4,000 per month and provide her with a Mercedes Benz to drive. Further, her family could reside in a property owned by him, rent-free.

2. In the event of separation, Ms Thorne would receive $50,000 (indexed) if they remained married for more than three years (without children). If they separated earlier, she would receive nothing.

3. In the event Mr Kennedy died during the parties’ marriage, the Agreements provided for Ms Thorne to receive a residential unit worth up to $1.5 million, the Mercedes Benz and at least $5,000 per month.

Before the first Agreement was signed, Ms Thorne’s lawyer expressed concern she was acting under pressure and she strongly advised Ms Thorne not to sign the Agreement. This advice was repeated before Ms Thorne signed the second Agreement.

The High Court hearing:

During oral submissions on Tuesday, 8 August 2017, the Appellant’s lawyers urged the High Court to conclude that the equitable principles of duress, undue influence and unconscionable conduct should be applied differently in the context of agreements reached between parties in intimate relationships compared to commercial contracts. The Appellant’s lawyers submitted that factors such as the mutual support, trust and dependency between spouses (or intended spouses or de facto partners) were relevant circumstances which should be taken into account when applying principles of law and equity.

The Appellant’s lawyers relied on the Trial Judge’s findings that Ms Thorne had no choice but to sign the Agreement or the wedding would be called off. They conceded that Ms Thorne’s lawyers had made some minor handwritten changes to the first Agreement, but argued that these were “machinery or minor in nature”.

The High Court Justices questioned the barristers for both parties on the circumstances surrounding Ms Thorne’s signing of the second Agreement, after the marriage. They sought both barristers’ views on whether there was evidence and/or findings during the trial that there was pressure on Ms Thorne to sign the second Agreement or whether there was any scope for her to negotiate its terms. The Respondent’s lawyers were unable to point to any opportunities given to Ms Thorne to engage in negotiations and they acknowledged that Mr Kennedy was anxious to have the second Agreement signed. Mention was made of Mr Kennedy calling Ms Thorne, while she was meeting with her lawyer about the second Agreement, to see how much longer the appointment would take. Justice Keane also observed that it would be difficult to suggest that Mr Kennedy had been open to negotiations in circumstances were Ms Thorne had relayed her solicitor’s views that the Agreement was “terrible” and Mr Kennedy’s only response was to criticise the solicitor.

Justice Gordon noted that Mr Kennedy’s “true financial position” was not known to Ms Thorne until she was provided with the proposed Agreement immediately before the wedding. This was one of several facts Ms Thorne relied upon during the Full Court proceedings in support of a finding of duress and it will be interesting to see if the High Court’s decision contains any comments about the timing of financial disclosure.

During the hearing, the Respondent’s lawyers attempted to argue that Ms Thorne would have consented to the terms of the Agreement regardless of the circumstances leading up its execution, as the Respondent had all times made it clear that he wished to preserve his wealth for his children. The High Court Justices did not seem to be persuaded that this would prevent a finding of duress, undue influence and/or unconscionable conduct on the present facts.

Whether or not the appeal is allowed, these proceedings provide a welcome opportunity to the High Court to indicate when Binding Financial Agreements might be vitiated by the conduct of a party with greater assets and/or bargaining power. The determinations made in this case may well alter the way family lawyers approach Financial Agreements in the future and we look forward to receiving the High Court’s decision.