Financial Agreements – what’s the position now

high

 

The long awaited decision in Thorne & Kennedy has today been delivered by the High Court.

Background

The case concerned Ms Thorne an Eastern European woman living in the Middle East who, at 36 met Mr Kennedy, 67, online. Mr Kennedy was estimated to have personal wealth of between $18 million and $24 million.

They embarked on a relationship, with Ms Thorne moving to Australia to marry Mr Kennedy having been told that she would “have to sign paper”. Ms Thorne bought no assets with her.

Despite being advised by her solicitor that the Financial Agreement was the “worst agreement [she] had ever seen”, Ms Thorne signed it on 26 September 2007, just four days before the wedding.

Shortly after the wedding, Ms Thorne signed a further (post-nuptial) Agreement. The terms were practically identical to the first.

On both occasions her solicitor repeated her advice that the Agreement should not be signed and she raised her concerns about the pressure being employed by Mr Thorne.

The parties separated in August 2011. Proceedings were commenced in April 2012 in which Ms Thorne sought orders including a property order in the amount of $1.1 million and lump sum spousal maintenance of $104,000.00.

Mr Kennedy died during the proceedings and was substituted by the executors and trustees of his estate – his two adult children.

Proceedings

At first instance, the primary Judge attributed Ms Thorne’s actions (in signing the agreement and ignoring the advice she received) to duress and/or undue influence. Essentially, the Judge found that Ms Thorne was “powerless” and had “no choice” but to sign the Agreements, because of six matters, namely:

  • The financial inequality between the parties;
  • Ms Thorne’s lack of permanent status in Australia (at the time);
  • Ms Thorne’s reliance on Mr Kennedy;
  • Ms Thorne’s “emotional connectedness to their relationship and the prospect of motherhood”;
  • Ms Thorne’s emotional preparation for marriage; and
  • The “publicness” of the upcoming marriage.

As a consequence, at first instance, the agreement was set aside.

That decision was successfully appealed with the Full Court upholding two grounds of appeal. Ms Thorne appealed that decision in the High Court.

High Court’s Decision

The Appeal was allowed, effectively setting aside the Full Court’s decision. This results in the agreement being set aside and Ms Thorne’s application for property adjustment and lump sum maintenance orders to now be determined.

The High Court found that:

  1. The two agreements were vitiated by undue influence. The High Court referred to the primary Judge’s view that “Ms Thorne was deprived of the ability to bring a free choice to the decision as to whether to sign the agreements”;
  1. The primary Judge’s reasons were adequate – the primary judge was found to have “assessed, evaluated and characterised all of the circumstances” before reaching a conclusion that Ms Thorne believed she had no choice but to sign the agreements;
  1. The agreements were vitiated by unconscionable conduct – the Court, in accepting that Ms Thorne was at a special disadvantage, which was known to Mr Kennedy and, in part, “created by him”. This was particularly relevant to the timing of both agreements.   The Court found that Mr Kennedy “took advantage of Ms Thorne’s vulnerability to obtain agreements which, on [her solicitor’s] uncontested assessment, were entirely inappropriate and wholly inadequate”.

What this means

Financial Agreements still have a place. They are a valuable tool to set out, with clarity, the financial practicalities of separation.

The decision demonstrates the need to carefully consider what would be a just and equitable division of assets, having regard to the parties’ respective financial positions. It also demonstrates that the circumstances of the making of the agreement are relevant, namely the manner into which it is entered, the consequences (if any) of a party not signing and, the timing.

For more information on Financial Agreements, please contact John Butler or John Lawley at Butlers.

 

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Wednesday, 12 December 2018