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This is a sample (posted 11 November 2017) of "latest notable cases", which is posted monthly with live links for members at the Members' Home Page under Members' Practice News. Also available at our Members' Home Page (along with our E-Book, our up-to-the-minute family law and child support practice news, our online forms and precedents and our free legal help line) is our online members' Archive of all our back issue indexed case notes (assembled by topic and with live links to AustLII), useful papers and client brochures.

Our E-Book - now with FREE APP for iPad and Android users - offers links to all the AustLII-published cases we cite, links to forms and precedents and a word/phrase search function (also available at our archive once you have chosen your topic).

Financial agreements – Fiancée (and as wife) wins appeal to High Court – Trial judge’s decision to set aside pre-nuptial and post-nuptial agreements reinstated – Not for duress (as trial judge held) but for undue influence and unconscionable conduct

In Thorne & Kennedy [2017] HCA 49 (8 November 2017) the High Court heard Ms Thorne’s appeal against a decision of the Full Court of the Family Court of Australia. The nature of the appeal was described at [1]-[2] of a joint judgment delivered by (Kiefel CJ, Bell, Gageler, Keane and Edelman JJ):

“This appeal concerns two substantially identical financial agreements, a pre-nuptial agreement and a post-nuptial agreement which replaced it, made under Part 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’ [Thorne & Kennedy [2015] FCCA 484 at [91]]. 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. 

One of the issues before the primary judge, Judge Demack, was whether the agreements were voidable for duress, undue influence, or unconscionable conduct. The primary judge found that Ms Thorne's circumstances led her to believe that she had no choice, and was powerless, to act in any way other than to sign the pre-nuptial agreement. Her Honour held that the post-nuptial agreement was signed while the same circumstances continued, with the exception of the time pressure. The agreements were both set aside for duress, although the primary judge used that label interchangeably with undue influence, which is a better characterisation of her findings. The Full Court of the Family Court of Australia (Strickland, Aldridge and Cronin JJ) [Kennedy & Thorne [2016] FamCAFC 189] allowed an appeal … concluding that the agreements had not been vitiated by duress, undue influence, or unconscionable conduct [saying at [167] that the wife’s ‘real difficulty’ in proving duress was that she had received independent legal advice (against signing either agreement)]. For the reasons which follow, the findings and conclusion of the primary judge should not have been disturbed. The agreements were voidable due to both undue influence and unconscionable conduct.”

Nettle and Gordon JJ agreed with the orders proposed by the majority but gave different reasons.

After a discussion of case law in respect of duress ([26]-[29]), undue influence ([30]-[36]) and unconscionable conduct ([37]-[40]), the majority said (from [54]):

“Any assessment of whether the agreements were vitiated by undue influence must begin by consideration of the findings of the primary judge, with due regard for the advantages enjoyed by the primary judge and the evaluative exercise involved in the primary judge's consideration.

[55] With one exception, none of the findings of fact by the primary judge was overturned by the Full Court. That exception was the Full Court's rejection of the primary judge's finding that there was no outcome available to Ms Thorne that was fair or reasonable. The Full Court erred in rejecting this finding. It was open to the primary judge to conclude that Mr Kennedy, as Ms Thorne knew, was not prepared to amend the agreement other than in minor respects. Further, 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. [Independent accredited family law specialist] Ms Harrison's unchallenged evidence was that the terms of the agreements were ‘entirely inappropriate’ and wholly inadequate ‘[i]n relation to everything’. She said that the agreements did not show any consideration for Ms Thorne's interests. Even without Ms Harrison's evidence, it is plain that some of the provisions of the agreements could not have operated more adversely to Ms Thorne. For instance, the agreements purported to have the effect that if Ms Thorne and Mr Kennedy separated within three years then Ms Thorne was not entitled to anything at all.

[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.

[57] The Full Court also mischaracterised the effect of the primary judge's reasons. As explained above, the primary judge found that Ms Thorne was ‘powerless’ and that Ms Thorne believed that she had ‘no choice’ to do anything other than sign the agreements as presented. The primary judge's finding was, in effect, that Ms Thorne was deprived of the ability to bring a free choice to the decision as to whether to sign the agreements. Ms Thorne's choices about entering the agreements on Mr Kennedy's terms were subordinated to the will of Mr Kennedy. Despite the strong advice from Ms Harrison, Ms Thorne accepted the terms of the agreements in part due to her ‘reliance on Mr Kennedy for all things’. Although the primary judge described her conclusion as one of ‘duress’, for the reasons explained above her conclusion is more aptly described as one of undue influence. It was, therefore, unnecessary for the primary judge to assess the extent to which the pressure upon Ms Thorne came from Mr Kennedy as might be required for the doctrine of duress. It was also unnecessary for the primary judge to consider whether, for the purposes of the doctrine of duress, the pressure that Mr Kennedy exerted upon Ms Thorne was improper or illegitimate. These are matters within the domain of duress rather than undue influence. Contrary to the reasoning of the Full Court, the failure of the primary judge to reach these conclusions was not an error.

[58] Mr Kennedy's executors [who continued the case after Mr Kennedy died when the trial was part-heard] also relied upon the Full Court's reasoning that the primary judge had based her conclusion only upon an inequality of bargaining power. That submission cannot be accepted. Contrary to the reasoning of the Full Court, the primary judge carefully set out the six factors which, together with the lack of a fair or reasonable outcome, led her to the conclusion that Ms Thorne had no choice but to enter the agreements [at [97] of her Honour’s reasons].

[59] The primary judge's conclusions were open to her on the evidence. Each of the factors which the primary judge considered was a relevant circumstance in the overall evaluation of whether Ms Thorne had been the subject of undue influence in her entry into the agreements. In combination, it was open to the primary judge to conclude that Ms Thorne considered that she had no choice or was powerless other than to enter the agreements. In other words, the extent to which she was unable to make ‘clear, calm or rational decisions’ [NA v MA [2007] I FLR 1760 at 1785 [114] per Baron J] was so significant that she could not aptly be described as a free agent. In the Restatement of the Law Third, Restitution and Unjust Enrichment [American Law Institute (2001), §15, comment c] the Reporter said that:

‘Circumstances universally relevant to the proof of undue influence include the relation of the parties; the nature and terms of the transfer in question; the susceptibility of the transferor to the influence of the other; the opportunity of the other to exert undue influence; and the extent to which the transferor acted on the basis of independent advice.’ 
[60] In the particular context of pre-nuptial and post-nuptial agreements, some of the factors which may have prominence include the following: (i) whether the agreement was offered on a basis that it was not subject to negotiation; (ii) the emotional circumstances in which the agreement was entered including any explicit or implicit threat to end a marriage or to end an engagement [Thompson, Prenuptial Agreements and the Presumption of Free Choice: Issues of Power in Theory and Practice, (2015) at 115]; (iii) whether there was any time for careful reflection; (iv) the nature of the parties' relationship; (v) the relative financial positions of the parties; and (vi) the independent advice that was received and whether there was time to reflect on that advice.”

The majority continued at [63]-[65]:

“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.

[64] The Full Court recognised that Ms Thorne was labouring under a disadvantage [[138] of the Full Court’s reasons], although the Court did not add the adjective ‘special’, which, as Mason J in Commercial Bank of Australia Ltd v Amadio [[1983] HCA 14] explained, is used to emphasise that the disadvantage is not a mere difference in the bargaining power but requires an inability for a person to make a judgment as to his or her own best interests. The findings by the primary judge that Ms Thorne was subject to undue influence – powerless, with what she saw as no choice but to enter the agreements – point inevitably to the conclusion that she was subject to a special disadvantage in her entry into the agreements.

[65] Ms Thorne's special disadvantage was known to Mr Kennedy. Her special disadvantage had been, in part, created by him. He created the urgency with which the pre-nuptial agreement was required to be signed and the haste surrounding the post-nuptial agreement and the advice upon it. While Ms Thorne knew Mr Kennedy required her acknowledgement that his death would not result in her receiving a windfall inheritance at the expense of his children, she had no reason to anticipate an intention on his part to insist upon terms of marriage that were as unreasonable as those contained in the agreements. Further, Ms Thorne and her family members had been brought to Australia for the wedding by Mr Kennedy and his ultimatum was not accompanied by any offer to assist them to return home. These matters increased the pressure which contributed to the substantial subordination of Ms Thorne's free will in relation to the agreements. Mr Kennedy took advantage of Ms Thorne's vulnerability to obtain agreements which, on Ms Harrison's uncontested assessment, were entirely inappropriate and wholly inadequate. Even within that class of agreement, the agreements which Ms Thorne signed involved ‘gross inequality’ [Gartside v Isherwood (1778) 1 Bro CC 558 at 560-561 per Lord Thurlow LC  [28 ER 1297 at 1298]].

The appeal was allowed with costs.

NOTE – A further 6 cases are summarised for members this month at our Members’ Home Page under “latest notable cases” under the following headings:

Property – Case stated – Court has power under s 90AE to direct Commissioner of Taxation to substitute husband for wife in relation to tax debt

Property – Full Court holds no error in dismissal of husband’s application to vary spousal maintenance order but that the appointment of receivers to collect arrears was not proper where another order such as for sale of jewellery might have been made

Property – Order for distribution of sale proceeds set aside as it assumed a sale price as valued, lacking provision for adjustment if the home sold for more or less than its valuation

Children – Father loses appeal against order allowing mother’s relocation from Melbourne to a town 60 km away – Trial judge’s finding that mother’s negative attitude towards father would improve post-relocation was open on the evidence – Judge’s application of s 69ZT was unsound

Property – No provision for husband who murdered wife after she began property proceedings – Court’s approach to s 79(8) and s 75(2) – Husband’s contributions based entitlement ordered to be paid to intervening creditor to whom husband was liable in damages for having caused her permanent injury

Children – Parenting case between birth mother of two children; sperm donor father of eldest and known as father of youngest; and mother’s same sex spouse (NZ) – Mother’s application to relocate with children and spouse to New Zealand dismissed