Court rules Binding Financial Agreements invalid


Posted By on 15/11/17 at 10:52 AM

In the recent decision handed down by the High Court of Australia in Thorne v Kennedy, the enforceability of Binding Financial Agreements was considered.  This decision has been eagerly awaited by the family law community due to the ramifications for parties and practitioners regarding existing and future Binding Financial Agreements.

Background

This case involved a 67-year-old property developer, Mr Kennedy*, who met Ms Thorne*, a 36-year-old Eastern European woman on an online dating site.  Mr Kennedy had substantial assets worth approx. $18 million while Ms Thorne had no substantial assets, and spoke very little English.  The parties were engaged to be married when days before the wedding Mr Kennedy required Ms Thorne to sign a Binding Financial Agreement (BFA).  Mr Kennedy told her that if she did not sign that the wedding would not go ahead.  By this time Ms Thorne’s family had been flown to Australia from Eastern Europe, accommodated at the expense of Mr Kennedy and arrangements for the wedding had been made.

Ms Thorne was advised by a lawyer to not to enter into the agreement.  She was advised that the agreement was in the husband’s favour, and was the worst BFA  that solicitor had ever seen.  Despite this advice, Ms Thorne signed the agreement 4 days prior to the wedding.  The agreement also required her to sign a further agreement in similar terms within 30 days of the wedding.

The parties separated after living together for 4.5 years, and just under 4 years from the date upon which the first agreement was signed.

The wife commenced proceedings in the Federal Circuit Court seeking orders that both agreements be set aside, and otherwise seeking orders for maintenance and a property settlement.  While the matter was before the court, Mr Kennedy died.

The wife’s case succeeded at first instance, but the husband’s estate appealed, taking the matter to the Full Court of the Family Court, and then to the High Court of Australia.

Binding Financial Agreements

The decision

The High Court found that both agreements were voidable due to both undue influence and unconscionable conduct.

The Court made reference to the fact that the wife was powerless to make any decision other than to sign the first agreement, and referred to an inequality of bargaining power and a lack of any outcome for the wife that was fair or reasonable.  The Court also made reference to the following further factors including the wife’s:

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

In summary the trial judge said (at p 47): “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”.

The Court also set out various factors which were identified as being relevant to whether a financial agreement should be set aside for undue influence (at [60]):

  • whether the agreement was offered on a basis that it was not subject to negotiation;
  • the emotional circumstances in which the agreement was entered 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.

These factors were held to be guidance for future applications where a claim of undue influence is made with regard to a party seeking to overturn a BFA.

The High Court said that the following matters increased the pressure which contributed to the substantial subordination of the wife’s free will in relation to the agreements, and that the husband took advantage of the wife’s vulnerability to obtain those agreements:

  • the husband had created the circumstances of urgency, within which the agreement was to be signed and advice given;
  • the wife knew that there was some kind of document, but did not have any reason to anticipate the terms would be unreasonable;
  • the wife’s family members had been brought to Australia by the husband for the wedding, but in his ultimatum to sign the document, he did not make any offer to assist them to return home.

Significance of the decision

This case can be seen as groundbreaking in many respects, including:

  • claims of undue influence or unconscionable conduct cannot be overcome by entering into a second agreement on similar terms after marriage;
  • undue influence can arise, even where a party has received independent legal advice;
  • lawyers need to be wary of “ink on the wedding dress or tuxedo”. If an agreement is sought close to the date of a marriage, then a post nuptial agreement is more suitable.

The case overall serves as a valuable warning to all family lawyers when advising a client or negotiating a BFA, or indeed a property settlement, to take care where there is an unequal bargaining power evident between the parties.

*Names have been changed to protect identities.

Monica Blizzard

Monica Blizzard Director

Monica Blizzard is an Accredited Family Law Specialist with the Law Institute of Victoria, a trained mediator and collaborative lawyer, and has 20 years experience working in family law.

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