Thorn in the Side of Prenuptial Agreements? Thorne v Kennedy

By Katy Barnett

Thorne v Kennedy Case Page

In Thorne v Kennedy, the High Court unanimously struck down both a prenuptial and a postnuptial agreement (the plurality on the basis of undue influence and unconscionable conduct, and Nettle J and Gordon J on the basis of unconscionable conduct alone). The agreements had been entered into by a impoverished 36-year-old woman from overseas (known by the pseudonym ‘Ms Thorne’) who married a 67-year-old wealthy Australian property developer (known by the pseudonym ‘Mr Kennedy’). Prior to and after the wedding, Ms Thorne agreed that she would have very little claim on Mr Kennedy’s assets (worth between $18 million and $24 million) if her relationship with her husband broke down because he wanted his money to be kept for his three children from his first marriage. Ms Thorne’s English was poor; she had no assets; she was desperate to have a child; her Australian visa was about to expire, and she would not be able to get a new visa without her marriage; and Mr Kennedy asked her to sign the prenuptial agreement four days before the wedding, when all her family had come to Australia from her home country to attend. She was told that if she did not sign the wedding would not go ahead and the relationship would end, and so she signed the agreement. This was despite the fact that the independent solicitor whom Mr Kennedy arranged to advise Ms Thorne implored her not to sign it and pronounced it the worst agreement she had ever seen. Pursuant to the prenuptial agreement, Ms Thorne was obliged to sign a postnuptial agreement in the same terms, which she did, although the independent solicitor again advised her not to. Ms Thorne and Mr Kennedy divorced just under four years later.

Some have argued that this signals the death-knell to ‘binding financial agreements’ under pt VIIIA of the Family Law Act 1975 (Cth) (eg, here) because there will almost never be equality between partners, whereas others (eg, here and here) argue that binding financial agreements will still be viable, but care must be taken with the circumstances of entry into such agreements.

Why have a prenuptial agreement regime at all?

Before I get into the ‘meat’ of the decision, I want to look at why the legislature might have decided to allow pre- and postnuptial agreements in the first place. As the plurality notes at [17], according to the Further Revised Explanatory Memorandum to the relevant bill, the amendments allowing ‘binding financial agreements’ pursuant to pt VIIIA were introduced ‘to encourage people to agree about the distribution of their matrimonial property and thus give them greater control over their own affairs, in the event of marital breakdown.’ It was envisaged that these changes would take account of the growing financial contributions of women before and during marriage. However, s 90K(1)(e) of the Family Law Act provided that binding financial agreements would not be enforceable if ‘a party to the agreement engaged in conduct that was, in all the circumstances, unconscionable’ in the making of the agreement. This turned out to be pivotal to Ms Thorne’s claim (in an interesting aside, she apparently only sought legal advice after a stranger at the hairdresser advised her to do so).

There is a difficulty with the notion that parties to a marriage will effectively plan for division of property at the outset of the marriage (whether in a pre- or postnuptial agreement). The problem is that when people marry, most parties don’t expect to divorce. In Richard Thaler and Cass Sunstein’s book Nudge (2005), it is observed that, although people are very good at anticipating the divorce rate of other couples, almost all couples are certain or almost certain that they personally will not divorce. We all like to think that our relationship are stable, and so we are bad judges of our own chances of relationship success, although we are good at judging the success of others. If we enter into a pre- or postnuptial agreement, our decisions may not be wise.

But it is also difficult to sort out entitlements after a relationship has broken down, because of what Thaler and Sunstein call the ‘self-serving bias’ problem. When a relationship breaks down, people tend to see things differently, and think that they were entirely in the right, and the other party is entirely in the wrong. A will say, ‘I never intended B to have an interest in my house!’ and B will say, ‘But A told me he’d share the house with me!’ We all suffer from this. As Thaler and Sunstein point out, after a World Cup match between Brazil and Italy, ask the fans from each country in whose favour the referees were biased, and the answers will be quite different. This is why family law cases are messy, protracted and expensive.

Thaler and Sunstein’s interesting suggestion for getting around this is to have a standard marriage contract which deals with the common problems which arise upon marital breakdown. In fact there is an ancient precedent for this with the ketubah, or Jewish marriage contract. This was the way in which the rabbis got around the problem of dowries. The ketubah sets out that the husband must provide his wife with certain things (clothing, food and conjugal relations) but also that he is to pay his wife a specified amount of money if they divorce. This recognises that often it is the woman who is left disadvantaged upon the breakdown of a heterosexual marriage.

Thaler and Sunstein recognise this in Nudge. In their view, the current legal system leaves people vulnerable to chance and uncertainty, and consequently, any standard prenuptial marriage contract should be drafted to help the weakest party to the contract, usually the woman:

Typically, a woman’s economic prospects fall after divorce, whereas the prospects of the man increase. It makes sense to adopt default rules that insure against the most severe kind of loss.

Research by the Australian Institute of Family Studies has found that, although some men and women recover their financial position around six years after a divorce, women with dependent children typically find it much more difficult and may not recover their position. This is because single mothers find it hard to juggle work and childcare obligations without extra support from a spouse.

The idea of a default prenuptial agreement has also been suggested in Australia by Zeev Vinokurov as a means of avoiding the complexity and expense of the family law system. One could of course argue that we already have a default prenuptial agreement because of the legislative provisions in the Family Law Act which provide for fair division of property upon the breakdown of relationships (which are designed to protect the more vulnerable party). The difference is that the parties don’t turn their minds to the provisions of the Family Law Act at the time of the marriage, before self-serving bias has kicked in, whereas if they have to sign a contract, they may give these issues more thought before emotions have become polarised by separation.

However, in keeping with their ‘libertarian paternalist’ ideals, Thaler and Sunstein would allow parties to negotiate around the default rules if they chose, even if this led to a situation where one party was massively disadvantaged — so long as the party freely entered the agreement and was not in a circumstance which would vitiate consent. And this brings us full circle to Thorne v Kennedy. What circumstances vitiate consent? In a previous post, Joanna Bloore has outlined the three potential (and overlapping) vitiating factors in this case:

  • Duress (also known as illegitimate pressure) which involves one party pressuring the other into an agreement against their will;
  • Undue influence which involves one person having such influence over the decisions of another that it deprives the other party of their free will; and
  • Unconscionable dealing which involves one party taking advantage of another’s ‘special disadvantage’ to induce them into entering an agreement which is unfair and harsh.

I will now deal with each of those in turn.

Why was there no duress?

The trial judge had found that the agreement was formed under duress (in other words, Ms Thorne was pressured into signing the agreements by Mr Kennedy) however, only Nettle J considered duress in detail in the High Court. He would have decided the agreements had been entered into under duress but for the decision in Australia & New Zealand Banking Group v Karam [2005] NSWCA 344. Karam had held that duress could only be present where there was ‘threatened or actual unlawful conduct’, although it had been criticised. It follows from this is that there is no room for duress where the pressure is lawful (known as ‘lawful act duress’). Nettle J noted the criticisms of Karam at [72], including the fact that Karam departed from relevant Australian authority, and the fact that Karam‘s rejection of illegitimate pressure by lawful means was based on a view that the concept is too uncertain to be acceptable, but his Honour noted that the same could be said for the other vitiating factors. However, his Honour concluded at [73]:

Nevertheless, there would need to be detailed argument and deep consideration of the ramifications of departing from Karam before this Court would contemplate that course, and, although counsel for Ms Thorne essayed something of that task in written submissions, in oral argument it was accepted that what was said about illegitimate pressure by lawful means was subsumed by what was advanced under the rubric of unconscionable conduct.

Nettle J’s observation raises the difficult question of how all these vitiating factors overlap, something recognised by the plurality, who noted at [30] that the boundaries between undue influence and duress in particular were blurred, but that all the vitiating factors overlapped.

By contrast, the plurality said that it was not necessary to rely on duress because the focus of the factual findings at trial had been on Ms Thorne’s lack of free choice, rather than any pressure by Mr Kennedy. Consequently we still do not know the status of ‘lawful act duress’ in Australian law. It seems for the moment that Karam stands.

When will there be undue influence? The plurality explain

The plurality said undue influence arose where a person had no free will. Sometimes undue influence is presumed in certain relationships, such as parent and child, religious advisor and acolyte, solicitor and client, and doctor and patient. This is easier for a plaintiff to prove because you do not have to prove that there was actual undue influence: the law presumes that there was, and it is for the defendant to lead evidence to rebut the presumption. However, the court said that the relationship of fiance and fiancee was no longer one of presumed undue influence (although it had been historically held to be so). This meant that any undue influence had to be actual undue influence — that is, Ms Thorne had in fact been unduly influenced by Mr Kennedy to sign the agreements.

Actual undue influence was held by the plurality to be present here. The trial judge had correctly considered that the ‘grossly unreasonable’ nature of the agreement itself (even in a field where such agreements tended to be imbalanced) indicated undue influence (at [65]). It was found that Ms Thorne was unduly influenced to the extent that she could not make clear, calm or rational decisions, and was not a free agent (at [59]). They quoted comment (c) to §15 of the US Restatement of the Law Third, Restitution and Unjust Enrichment, in which it was said:

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.

These criteria must now guide our consideration of whether there is in fact undue influence in contract law more broadly. It is worth noting the next sentence in the commentary to the Restatement, which the plurality did not quote:

Cases of undue influence inevitably turn on their particular facts. The issue of causation — whether the transfer in question was the result of undue influence, or of the transferor’s independent volition — is the ultimate determination to be made by the trier of fact; as such it cannot be specified by legal rule.

At [60], the plurality set out the factors which would indicate undue influence in the specific context of binding financial agreements (these criteria were not directly drawn from the Restatement):

(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;

(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.

With respect, my fear is that these factors will be difficult to apply in cases that are less extreme than Thorne v Kennedy. I am imagining a case like Harmer v Pearson [1993] QCA 19; (1993) 16 Fam LR 596, where a couple acquired property as joint tenants. However, relations between the couple deteriorated, and they signed an agreement in August 1990 whereby it was agreed that one party had contributed 11.82% to the purchase of the property, and the other party had contributed 88.18%, and their ownership of the property reflected those contributions. In December 1990, the couple separated. Clearly the agreement was entered into when the relationship was in trouble, and it seems evident that one party had greater financial resources than the other. Nonetheless, the agreement was upheld. Pincus JA said, ‘there was no finding or, indeed, evidence that the agreement was signed by the appellant under a misapprehension as to its effect, or under any other circumstance which could justify a court, exercising equitable jurisdiction, in ignoring it or even treating it as, in the popular sense of the word, unfair.’ However, in light of the criteria suggested by the High Court above, it is difficult to know whether undue influence would be present on the facts. There is not enough information in the judgments in Harmer v Pearson about the deterioration of the parties’ relationship to know. On that point, it appears in these cases, it will now be necessary to undertake a detailed forensic analysis of the breakdown of the relationship.

Nettle J did not discuss undue influence, as he found that there was unconscionable conduct, but Gordon J discussed it in detail. Her Honour found that there was no undue influence because the trial judge had found Ms Thorne ‘was able to comprehend what she was doing when she signed the agreements, and that she knew and recognised the effect and importance of the advice she was given’ but she ‘wanted the marriage to Mr Kennedy to proceed and to prosper’ (at [80]–[81]). Gordon J considered that the true problem with the agreement was not that Ms Thorne had been unduly influenced (the trial judge had found that Ms Thorne knew what she was doing) but that Ms Thorne was in such a position of disadvantage that she entered into a terrible bargain, knowing full well that it was terrible.

When will there be unconscionable conduct? The plurality and the minority judges agree

The plurality agreed that the test for establishing unconscionable conduct in equity was that recently stated in Kakavas v Crown Melbourne Ltd [2013] HCA 25. In other words, the party claiming unconscionable conduct must be subject to a special disadvantage which affects their ability to make a judgment as to their own best interests. The other party must also know of the special disadvantage, and unconscientiously take advantage of it. The plurality recognised the partial overlap between undue influence and unconscionable conduct (at [40]):

Although undue influence and unconscionable conduct will overlap, they have distinct spheres of operation. One difference is that although one way in which the element of special disadvantage for a finding of unconscionable conduct can be established is by a finding of undue influence, there are many other circumstances that can amount to a special disadvantage which would not establish undue influence. A further difference between the doctrines is that although undue influence cases will often arise from the assertion of pressure by the other party which might amount to victimisation or exploitation, this is not always required.

Nettle J (at [78]) and Gordon J also agreed that there had been unconscionable conduct such to justify the agreements being set aside (at [115]–[123]). Gordon J also reiterated the difference between undue influence and unconscionable conduct as relating to an overborne will:

Although the doctrine of unconscionable conduct bears some resemblance to the doctrine of undue influence, there is an important difference between the two doctrines. As Mason J explained in Amadio, that difference concerns the will of the innocent party. For unconscionable conduct, “the will of the innocent party, even if independent and voluntary, is the result of the disadvantageous position in which [the innocent party] is placed and of the other party unconscientiously taking advantage of that position”. By contrast, for undue influence, “the will of the innocent party is not independent and voluntary because it is overborne”

Both Nettle J and Gordon J found that Ms Thorne’s circumstances were such as to raise a special disadvantage, particularly because Mr Kennedy had persuaded Ms Thorne to come to Australia, that the agreement was raised very soon before the wedding, that the relationship would end if she did not sign, and that the appellant was financially and emotionally invested in the respondent. As Nettle J observed at [75]:

In all likelihood, things would have been different if, instead of waiting until the eleventh hour, Mr Kennedy had made clear to Ms Thorne from the outset of their relationship that his love for her was in truth so conditional that the marriage he proposed would depend upon her giving up any semblance of her just entitlements in the event of a dissolution of their marriage. In the scheme of things, it can hardly be supposed that a young woman in Ms Thorne’s position would be persuaded to abandon her life abroad and travel halfway around the world to bind herself to a sexagenarian if, at the outset of the relationship, she had been made aware of the enormity of the arrangement that was proposed.

(Mind you, if Sidhu v Van Dyke is any guide, it seems that people are prepared to do disadvantageous things to ensure that a relationship succeeds!)

Gordon J noted (at [120]–[122]) that Mr Kennedy had not only known of Ms Thorne’s special disadvantage, but had created the factors that contributed to it, including by encouraging her to sign agreements that were grossly unfair and unreasonable and springing the first agreement on her just before the wedding. The fact that that the appellant received independent legal advice did not negative the conduct: indeed, the fact that Ms Thorne was willing to sign despite the advice not to sign underscored the extent of her disadvantage (at [123]).

To my mind, Nettle J’s and Gordon J’s decisions are preferable, as the criteria for application are clearer, and my own preferred reading of the facts squares with that of Gordon J: Ms Thorne’s will was not overborne, but she was in such a position of special disadvantage that the contract should be set aside.

It also seems odd that the plurality found that actual undue influence and unconscionable conduct co-existed on these facts, because surely the two are incommensurable. In the instance of actual undue influence, the Court is saying, ‘Ms Thorne had no free will — she was so influenced by Mr Kennedy that when he told her to sign, she did so.’ In the instance of unconscionable conduct, the court is saying, ‘Ms Thorne had free will, but she was subject to such special disadvantage that Mr Kennedy was able to take advantage of her and cause her to enter into an agreement which was highly unfair.’

What is significant about this decision?

There are a number of take-home points in relation to this decision. First, in a practical context where lawyers are advising clients, if one party wishes to enter into a binding prenuptial, they should not introduce it just before the wedding when all the guests have arrived, nor should they make it extremely disadvantageous. Secondly, the mere presence of independent legal advice is not enough to negative either undue influence or unconscionable conduct if the influence or special disadvantage is strong enough (particularly if the independent legal adviser tells the person not to enter the transaction).

In a broader policy context, I wonder if the provisions of pt VIIIA really work to achieve the stated statutory aim of ensuring that people decide at the outset how to divide up their property in the event of divorce or breakup. I suspect that they do not: first, people do not think that they will divorce because of intrinsic cognitive biases, and secondly, people are not necessarily capable of rationally looking after their own interests in a relationship context (as Ms Thorne’s experience shows). In any case, the entry into pre- and post-nuptial agreements did not avoid expense or distress in this case, precisely because the terms Mr Kennedy proposed were so unfair.

AGLC3 Citation: Katy Barnett, ‘Thorn in the Side of Prenuptial Agreements? Thorne v Kennedy‘ on Opinions on High (4 December 2017) <http://blogs.unimelb.edu.au/opinionsonhigh/2017/12/04/barnett-thorne/>.

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About Katy Barnett

Katy Barnett is an Associate Professor at Melbourne Law School. She was awarded her PhD in 2010, and it was published in 2012 by Hart Publishing as a monograph entitled Accounting for Profit for Breach of Contract: Theory and Practice. In 2013 she was a visiting scholar with Brasenose College, Oxford as part of the Melbourne-Oxford Faculty Exchange.

9 thoughts on “Thorn in the Side of Prenuptial Agreements? Thorne v Kennedy

  1. An interesting analysis, Katy. It’s worth pointing out that usually seeking legal advice is usually seen as a way of overcoming the ‘special disadvantage’ and ‘undue influence’ barriers. This decision overrides that general principle and has the effect of casting the contracting party as in some sense incapable of making a decision like this for herself even after getting legal advice. At any rate that’s so in the case of a contract that is (a) urgently entered into and (b) disadvantageous (to the disadvantaged party). As you note that could have some troubling implications for the certainty and enforceability of contracts, but I think that holds true whether they be objected to on special disadvantage grounds or undue influence grounds.

    • Yes. I am now wondering what kind of legal advice could have negatived the undue influence or special disadvantage in a case like this? I am guessing that the timing was wrong for it to work – maybe if it had been proposed one month out or before the bride’s family had come to Australia – or perhaps at the outset before any arrangements were made?

      I suppose there’s also a sunk cost fallacy with weddings which means people feel that they have to proceed even when they know it’s wrong (one person I know said she was screaming in her head, “no no no!” as she walked down the aisle at her first wedding, but she didn’t feel she could back out because her parents would be angry, and relatives from interstate were in attendance…) It may have been too late for the legal advice to work here, but then…how early should such advice be? The US Restatement seems to indicate that you can’t be definitive on these things, which makes life hard…

      • Yes, that’s the problem right there. And it means people involved in the murkier cases will pay more in terms of time and money to lawyers to get their finances sorted. Or have their seemingly valid agreements overturned, or at any rate contested, more often. Which tends to defeat the point, I think.
        And while the lady here was obviously disadvantaged, there will be plenty of possible cases of wealthy women put in uncomfortable positions due to this ruling.

        • Yes. Reminds me of Jones v Kernott [2011] UKSC 53, where the woman was in a more powerful economic position than the man. It isn’t always the case that the woman is the more disadvantaged one in a heterosexual relationship breakdown, particularly if the man takes on carer responsibilities for any children after the breakup.

          It strikes me that the forensic questions in these cases will now become very complex and detailed…who said what and when…

  2. The suggestion of a standard pre nuptial agreement has some merit,particularly if it provides for various outcomes depending on the age of the person and dependent children.At least it will put the parties on notice of what is likely to occur if they claim they are entitled to more.
    Of course it does not deal with the personal aspects of custody of children,nor can it deal with the hiding of assets.In the case of the latter I am reminded of the story of the husband who refused to swear an affidavit as to his circumstances which resulted in the wife being given all the assets.The wife’s comment was that she had received all the assets that she knew of.

    • Malcolm, I suspect that a document with varying outcomes depending on the age of the parties could become perhaps too long and difficult for ordinary people to understand, and I’m not sure age would be a fair determinant of people’s assets and entitlements.

      I agree that a standard prenup could have an optional “box” for parents to tick that accounts for children by assigning a fixed percentage per child, e.g. 10%, of either the “after-marriage” or “all inclusive” asset pool to the parent with primary custody, or if they have equal custody, then no change. This could perhaps be by way of a simple trust for the child.

      Like Will kits I suspect that a few varying versions of the “default BFA” might emerge if permitted with varying options for the parties.

  3. ZV says: This decision overrides that general principle and has the effect of casting the contracting party as in some sense incapable of making a decision like this for herself even after getting legal advice.

    Let’s assume that she was not incapable; and let’s further speculate that her independent legal advice also suggested that what she signed (twice) was not enforceable – see KB’s This was despite the fact that the independent solicitor whom Mr Kennedy arranged to advise Ms Thorne implored her not to sign it and pronounced it the worst agreement she had ever seen.

    I admit I have not read the decision in full, but it occurs to me that – if faced with legal advice that the contract/s were of doubtful value, but potentially advantaged me – I would simply ask where should I sign.

  4. So does that mean that a lawyer advising a client about prenups should advise that “as long as I advise you not to sign it, you’ll be ok to sign it”? That particular point from the HCA ends up being somewhat absurd in practice, ie the more you advise the client that the agreement is without risk, the more risk that the agreement will stand.

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