The Facts
Engagement between people of vastly different personal circumstances
A couple became acquainted on the internet via a website for potential brides. He was a wealthy property developer, an older man who had previously been married and who had three adult children from his first marriage. His family was in Australia, as were his assets, which were worth between $18 million and $24 million.
She was an Eastern European woman who was much younger than him, had been married and divorced, had no children and wanted to have children of her own. She had no assets, spoke little English and her family lived overseas. She had no connections or community in Australia.
The couple met overseas in person shortly after meeting via the website. He took her on an extended European holiday and met her family. Seven months after they met, the couple moved to Australia with the intention of getting married.e took
Man asks woman to sign binding financial agreement
Ten days prior to the wedding, the man asked the woman to enter into a binding financial agreement and arranged for her to see a lawyer.
The woman’s lawyer advised her not to sign the agreement, stating in writing that it had been drafted solely to protect the man’s interests and in no way considered hers. Despite this advice, she signed the agreement four days before the wedding.
Wife seeks declaration that financial agreements were not binding
Under the terms of the financial agreement, the wife was to receive a penthouse apartment as well as some money and a vehicle in the event of the couple’s separation. However, the penthouse apartment did not come to fruition due to a problem with the property development encountered by the husband.
The wife commenced legal proceedings, seeking a declaration that the financial agreements were not binding. The husband contended that the financial agreements were binding. To complicate matters more, the husband passed away during the proceedings.
It was up to the court to decide whether the financial agreements should be set aside.
Expert commentary on the court's decision
Wife succeeds at first instance but matter goes on appeal
The decision in the first instance in Thorne & Kennedy [2015] FCCA 484, by the Federal Circuit Court, found in favour of the wife and declared that the financial agreements were not binding. After having considered the whole of the circumstances, the court set them aside. The judge made the following comment: “… 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”.
The husband’s legal representatives (his estate) appealed the matter to the Full Court of the Family Court. The appeal was allowed. When the Full Court heard the matter in Kennedy & Thorne [2016] FamCAFC 189, it found that the agreements were actually binding and could not be set aside on the grounds of duress, undue influence or unconscionable conduct.
The wife then appealed the matter to the High Court and was granted special leave to appeal. The matter was heard and determined by the Full Bench of the High Court. (See Thorne v Kennedy [2017] HCA 49.)
High Court considers doctrines of undue influence and unconscionable conduct
The judges gave a very useful overview and outline of the doctrines associated with undue influence and unconscionable conduct. What are normally equitable concepts commonly found in commercial matters and trust related matters were applied in the family law context. The judges made the following points:
The High Court judges usefully set out the following important matters for consideration as to whether undue influence is a factor in a binding financial agreement:
It is important to note that the judges did not find that a “bad bargain” would of itself be grounds to terminate a financial agreement; it has always been the case that a person is free to determine their own bargain.
Where the parties enter into the agreement with their eyes wide open, having had time to reflect, take proper advice and negotiate that bad bargain, then it’s unlikely a court would intervene to upset that bargain.
The judges said in relation to undue influence:
The judges then went on to state the following in relation to unconscionable conduct:
High Court finds in favour of wife
The High Court upheld the appeal of the wife and restored the decision of the Federal Circuit Court, namely that the agreements were not binding and should be set aside. The husband’s estate was ordered to pay the wife’s costs of the High Court appeal.
Reducing risk in binding financial agreements
Binding financial agreements were intended by parliament to provide couples with an alternative means of agreeing terms between them, without the need to go to court. When valid, these agreements can be an excellent way to manage risk between two people in a relationship.
As this case highlights however, the validity of these agreements depends to a large extent on how they were prepared, considered and negotiated between the parties. The case underscores the importance of both parties receiving independent legal advice from an experienced family lawyer.