Katy Barnett, ‘Thorn in the Side of Prenuptial Agreements? Thorne v Kennedy‘ (4 December 2017)

Joanna Bloore, ‘Pressure, Influence, and Exploitation in Thorne v Kennedy‘ (24 July 2017)

The High Court has allowed an appeal against a decision of the Full Family Court on the enforceability of binding financial agreements before and after marriage. Pt VIIIA of the Family Law Act 1975 (Cth) allows parties to a marriage to enter into binding financial agreements before or after a marriage to clarify their respective positions on asset redistribution in that the relationship breaks down. The parties met on an online website for potential brides, and the appellant moved to Australia to marry the respondent. The respondent was a wealthy Australian property developer with significant assets; the appellant had no significant assets, basic English skills, no family in Australia and, at the time of the marriage, was in the country on a tourist visa. Shortly before the wedding, the repsondent insisted that the appellant sign a binding financial agreement, which she did, over legal advice that it was ‘entirely inappropriate’ and that she should not sign it (see at [7]–[15]). The parties also entered into a second, post-marriage binding financial agreement, which again the appellant was advised not to sign. The Full Family Court overturned the trial judge’s finding that the agreements were the result of duress and undue influence, holding that the trial judge failed to provide adequate reasons for making those findings, and concluding that the agreement bound both parties.

The High Court unanimously allowed the appeal. The plurality (Kiefel CJ, Bell, Gageler, Keane and Edelman JJ) held that the Full Family Court erred in disturbing the findings of the trial judge; the agreements were voidable due to both undue influence and unconscionable conduct (at [2]). After reviewing the facts (at [7]ff), and statutory context (at [16]), the plurality reiterated that this appeal focused on whether the agreements should be set aside because the appellant was subject to the vitiating factors applied according to the principles of the common law and equity: duress, undue influence or unconscionable conduct in entering into these agreements (at [22], and noting the issues not raised in the appeal: [23]–[25]).

Turning to the meanings of duress, undue influence and unconscionable conduct, the Court first noted that duress focuses on the effect of pressure on a person who seeks to set aside a transaction: it does not require that the person’s will be overborne, or that their free will or agency was lost (at [26]). The plurality held that it was not necessary for the primary judge to consider common law duress, noting that the primary judge described the pressure on the appellant through her lack of free choice, as opposed to examining whether the respondent was the cause of the pressure, and whether it was improper or unlawful (at [29] and see [57] on the more proper description of this as undue influence rather than duress). On undue influence, the Court noted the difficulty of defining the term and its blurred overlap with duress (at [30]):

One reason why there is no clear distinction is that undue influence can arise from widely different sources, one of which is excessive pressure. Importantly, however, since pressure is only one of the many sources for the influence that one person can have over another, it is not necessary that the pressure which contributes to a conclusion of undue influence be characterised as illegitimate or improper.

The plurality reiterated that pressure can deprive a person of free choice in the sense of substantially subordinating his or her will to that of another person; and while that need not be a reduction to the status of an ‘automaton’ or mere channel for that other person, it does require at least that the person’s judgmental capacity is ‘markedly sub-standard’ due to the pressure of the other party (at [32] and see [33]). The plurality then noted that undue influence can be proved by direct evidence of the circumstances of the transaction (and relied upon by the primary judge), and also proving by presumption where the parties share a particular kind of relationship (for example, parent/child): at [34]. The plurality rejected the appellant’s submission that the fiancé/fiancée relationship should be recognised as a presumption: while this had been recognised in past judgments, in current social conditions there are a range of circumstances in which two people can be engaged that negates any possible presumption that either party ‘substantially subordinates his or her free will to the other’ (see at [34]–[36]). Finally, on unconscionable conduct, the plurality noted that these principles were not controversial in this appeal: it requires that an innocent person be subject to a special disadvantage that seriously affects the person’s ability to make a judgment as to their best interest, and that the other party must unconscientiously take advantage of that special disadvantage (at [38]ff).

Moving to the question of how an appellate court should deal with a primary judge’s findings on vitiating factors, the plurality emphasised that the appellate court’s role was to scrutinise those findings and assess any challenge to those conclusions ‘in light of the advantages enjoyed by that judge’ (at [41]). Referring to the Court’s recent decision in Kakavas v Crown Melbourne Ltd [2013] HCA 25, the plurality stated that proof of the interplay of dominant and subordinate positions in a relationship depends largely on inferences drawn from other facts and an assessment of the character of each person, and that a trial judge has the advantage of seeing these things first hand (at [42]ff).

Here, the primary judge found that the appellant’s decision to sign the agreement over the advice of her solicitor was due to duress or undue influence: that she was powerless to make any other decision besides signing the first agreement, that there was an inequality of bargaining power, that no outcome would be ‘fair or reasonable’ for the appellant, and that the inequality between the parties went beyond financial matters and included visa status, reliance, emotional connection to the relationship, motherhood and marriage, and the ‘publicness’ of the impending event (at [47], and see [44]–[48]). These factors also applied to the second agreement (with the time-pressure of the wedding factor excluded): at [48].

After reviewing the Full Court’s reasons for concluding that the trial judge’s list of factors were inadequate and was based on an incorrect application of the test for duress (see at [49]–[53]), the plurality turned to its own evaluation of the trial judge’s reasons. First, the plurality held that the Full Court erred in rejecting the trial judge’s finding that there was no outcome that was fair or reasonable to the appellant (at [55]):

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. 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.

The trial judge was correct to consider unfair and unreasonable terms in the agreements as relevant to whether these agreements were vitiated: while these kinds of agreements often contain imbalances, ‘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’: at [56].

Secondly, the plurality held that the Full Court mischaracterised the effect of the trial judge’s reasons. The trial judge’s characterisation of the appellant’s lack of free choice in the decision should more appropriately be described as ‘undue influence’ rather than ‘duress’, and consequently, and contrary to the reasoning of the Full Family Court, there was no need for the trial judge to conclude that the respondent had caused that pressure, and whether it was improper or illegitimate (as would be required in a duress analysis): at [57]. The plurality concluded by noting that each of the primary judge’s factors and conclusions were open to her on the evidence; each was an indication of undue influence and in combination it was open to the judge to make that finding (at [59]ff). Generalising beyond the circumstances of this case, the plurality noted (at [60]) that:

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; (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 plurality then rejected the respondent’s submission that the trial judge’s reasons were inadequate, noting that they assessed, evaluated and characterised all the circumstances before reaching the conclusion that the appellant was powerless and believed she lacked a choice (at [62]). Contrary to the Full Family Court’s conclusions, assessing undue influence does not require, and may not permit, a primary judge to assign weight to each relevant factor, or identify and categorise factors as fundamental or subsidiary: ‘[a]n assessment of the will-power of a person is not an exercise of mathematical precision’ (at [62]).

While the plurality’s conclusion that the Full Family Court erred in overturning the primary judge’s conclusions was sufficient to allow the appeal, their Honours noted that the agreements were also vitiated due to unconscionable conduct, and the Full Family Court also erred in concluding otherwise (at [63]). The trial judge’s findings that the appellant was subject to undue influence ‘point inevitably’ to a conclusion that she was also subject to a special disadvantage when entering into the agreements: her powerlessness was known to the respondent, was partly created by him by the urgency and haste surrounding both agreements (at [64]–[65], with details at [65]).

Nettle J agreed with the orders proposed by the plurality, adding comments on the NSWCA case of Australia & New Zealand Banking Group v Karam [2005] NSWCA 344, in which restricted the concept of illegitimate pressure to pressure by ‘threatened or actual unlawful conduct’ (at [70]). Noting potential criticisms of Karam (at [71] and [72]), Nettle J stated that departing from it would require a more detailed argument than was offered here, largely because in argument the points about illegitimate pressure by lawful means were ‘subsumed by what was advanced under the rubric of unconscionable conduct’ (at [73]). Nettle J emphasised that unconscionable conduct is not restricted to unlawful means, and while here it might be better described as illegitimate pressure, it can be phrased as unconscientious taking advantage of the appellant’s position of special disadvantage (at [74]):

In effect, it was a position of special disadvantage which he created by bringing her to this country, keeping her here for many months in a state of belief that he would marry her, allowing preparations for the wedding to proceed, and only then, when she had ceased for all practical purposes to have any other option, subjecting her to the pressure of refusing to marry her unless she agreed to the terms of the first agreement. It was thus also a position of special disadvantage of which Mr Kennedy was aware, or at least of which a reasonable person in his position would have conceived as a real possibility.

Nettle J read these circumstances as the respondent failing to make the true conditions of the relationship known to the appellant before she was in a position that made it impossible for her to make a judgment in her own best interests, and that the second agreement was made without the leverage of the respondent’s ability to refuse to marry the appellant indicated that she was even less capable of making a decision in her own best interests (at [75]–[77]).

Gordon J also agreed with plurality’s orders, but held that each financial agreement was procured by unconscionable conduct, but not undue influence. Her Honour emphasised that the difference in approach was based on a ‘point of principle’, namely, the relationship between undue influence and the judgment of the person who is affected (at [80]):

In this particular case, Ms Thorne’s capacity to make an independent judgment was not affected. The primary judge found that 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. Moreover, Ms Thorne wanted the marriage to Mr Kennedy to proceed and to prosper. She knew and understood that it would proceed only if she accepted the terms proffered. Once she decided to go ahead with the marriage, it was right to say, as the primary judge said, that she had “no choice” except to enter into the agreements. No other terms were available. But her capacity to make an independent, informed and voluntary judgment about whether to marry on those terms was unaffected and she chose to proceed. Her will was not overborne.

The appellant was, however, unable to make a rational judgment to protect her own interests, and in the circumstances that were clear to and largely created by the respondent, it was unconscionable to procure or accept the appellant’s asset to the agreements (at [81]).

Turning first to the principles of undue influence, Gordon J emphasised that it focuses on the quality of the consent or assent of the weaker party, namely whether that person’s ‘will or freedom of judgment’ in the transaction was affected (see at [83]–[90]). Drawing on Mason J’s judgment in Commercial Bank of Australia v Amadio [1983] HCA 14, Gordon J noted that extent of impairment of that judgment is a question of degree, specifically, that the weaker party’s will is so impaired that their decision cannot be described as ‘independent and voluntary’: at [91]. For Gordon J, this gave rise to five points: that the weaker party’s capacity to exercise independent judgment is what must be affected; that total abdication of decision-making is not necessary, but there must be a relationship or circumstances that impaired the autonomy; that it is this focus on free exercise of an independent and voluntary will that divides undue influence from unconscionable conduct; that that is not a bright line; and that the bare fact of deep emotional commitment to securing a shared life is not of itself a loss of will (at [92]–[96]).

Moving then to the trial judge’s findings, Gordon J held that while the appellant was in difficult circumstances and understood the agreement was ‘terrible’, she was still also in love with the respondent, wanted to marry him and wanted to have children with him (at [106]):

Whatever metaphors and descriptors are used to describe the relevant principles, the focus of the doctrine is on identifying whether and how a person’s will is impaired. A belief on Ms Thorne’s part that she had no choice but to sign the agreements if she wanted the relationship to continue does not speak to a lack of will or capacity to exercise independent judgment. Indeed, in light of the primary judge’s findings, such a belief demonstrates that she did enter into each agreement in the free exercise of her independent will.

For Gordon J, the correctness of the appellant’s belief that she had ‘no choice’ but to sign the agreement if she wanted to fulfil her desire to continue the relationship militated against concluding that her will was impaired: ‘the fact that Ms Thorne’s options were narrow, even eliminated, is not to the point’ because it says nothing about her will, and none of the facts here suggested any actual influence over her mind that it was not a free act (at [107]).

After reviewing the principles underlying unconscionably conduct (at [109]ff), Gordon J concluded by reiterating that the difference between it and undue influence was in the will of the innocent party: unconscionable conduct requires that the will, even if independent and voluntary, is due to the disadvantageous position that the weaker party is placed into, and of the other party taking advantage of that position (at [115]). As applied here, while the trial judge did not specifically use the language of ‘special disadvantage’, it can be discerned from the relationship between the parties, namely that the respondent brought her to Australia, that the agreement was raised 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 appellant (at [116]–[117]). That the second agreement occurred after the wedding did not dissipate this special disadvantage (see [118]). Turning then to whether the respondent unconscientiously took advantage of it, Gordon J concluded that he had: plainly he was not only aware of it, but created the factors that contributed to it; the agreements were grossly unfair and unreasonable; and the circumstances in which they were presented to the appellant was likewise unconscientious (at [120]–[122]). Finally, that the appellant received legal advice is not a sufficient response to the unconscionability of the conduct: indeed, that she was willing to sign despite that advice underscored the extent of the disadvantage (at [123]).