Keywords: Financial Agreements – Duress – Full Court overturns trial judge’s ruling that husband’s requirement that an agreement be signed before marriage amounted to duress – Wife’s “real difficulty” in proving duress; independent legal advice
Introduction
The case of Kennedy & Thorne [2016] FamCAFC 189 (26 September 2016) heard in front of their Honours Strickland, Aldridge and Cronin JJ, involved the executors of the Mr Kennedy’s estate appealing orders made by Justice Denmark granting the Ms Thorne’s application that the Binding Financial Agreement between Mr Kennedy and Ms Thorne under s 90B and s 90C of the Family Law Act 1975 (the “Act”) be set aside.
Background
In mid to late 2006, Mr Kennedy and Ms Thorne met on an online dating site. Mr Kennedy (“the husband”) was a 67-year-old property developer, with a total net asset worth of $18 million dollars. Ms Thorne, (“the wife”), was a 36 year old and lived overseas when the parties met.
The wife received independent legal advice regarding the two binding financial agreements made by the husband’s solicitors. The wife received legal advice stating that the first binding financial agreement must not to be signed by the wife as it was “no good and should not be signed”. The legal advice on the second binding financial agreement was “terrible and … should not sign it”. The wife had signed two binding financial agreements, one in contemplation of the marriage (under s90B) and one after the marriage (under s90C).
After three years of marriage the parties separated and the wife filed proceedings in the Family Court to have the agreement to be set aside on the grounds of duress, undue influence, and/or unconscionability found under s 90K of the Act. Justice Denmark only excepted the first ground of duress. The husband passed away while the trial was part heard and the case was carried on by the husband’s estate.
Regarding the issue of duress, Justice Denmark stated there are two limbs to establish duress:
- ‘It is submitted on behalf of the [husband] … that to establish duress there must be pressure the practical effect of which is compulsion or absence of choice. …’
- ‘In those circumstances, the wife signed the first agreement under duress. It is duress born of inequality of bargaining power where there was no outcome available to her that was fair or reasonable.’
In applying this test, Justice Denmark came to the decision that both agreements were made under duress.
Appeal
The executors brought the appeal to challenge Justice Denmark’s decision, arguing her Honour applied the wrong legal test to the facts. The Full Court on appeal, comprising Justices Strickland, Aldridge and Cronin JJ did not agree with the executor’s submissions as to the law.
As to the issue of duress the Full Court cited the decision of Australia & New Zealand Banking Group v Karam [2005] NSWCA 344:
“The vagueness inherent in the terms ‘economic duress’ and ‘illegitimate pressure’ can be avoided by treating the concept of ‘duress’ as limited to threatened or actual unlawful conduct. The threat or conduct in question need not be directed to the person or property of the victim, narrowly identified, but can be to the legitimate commercial and financial interests of the party. Secondly, if the conduct or threat is not unlawful, the resulting agreement may nevertheless be set aside where the weaker party establishes undue influence (actual or presumptive) or unconscionable conduct based on an unconscientious taking advantage of his or her special disability or special disadvantage, in the sense identified in Commercial Bank of Australia Ltd v Amadio.
The Honours stated that the correct test is whether there is a “threatened or actual unlawful conduct” and that there needed to be a finding that the “pressure” was “illegitimate” or “unlawful”. The test identified by Justice Denmark was found to be incorrect. The Full Court, however, agreed with Justice Denmark that the “pressure may be overwhelming and that there is ‘compulsion’ or ‘absence of choice’”
Their Honours made the distinction that “inequality of bargaining power” cannot establish duress. On this point again, Judge Denmark made an error. Their Honour stated at paragraph 74:
“In any event, the trustees say that there was no ‘inequality of bargaining power’, and the trial judge erroneously found that ‘there was no outcome available to [the wife] that was fair or reasonable’. The facts are that the husband was at pains to point out to the wife from the outset, that his wealth was his, and he intended it to go to his children. The wife was aware of that at all times and she acquiesced in that position. Relevantly, the trial judge found that the wife’s interest lay in what provision would be made for her in the event the husband pre- deceased her, and not what she would receive upon separation. And we note that the agreements provided for the wife to receive what she sought in that regard.”
Decision
The Full Court concluded that the test to be relied upon for duress is whether ‘threatened or actual unlawful conduct’ occurred. Further, if it is said that pressure has been applied on the other party, that pressure needs to be ‘illegitimate’ or ‘unlawful’, and it is not necessarily sufficient if it is ‘overwhelming’ or there is ‘compulsion’ or an ‘absence of choice’.
The evidence relied on by the wife to establish duress is in summary was as follows:
- a) From the moment the parties met the husband expressed to the wife that he would provide for her and look after her for life if she came to Australia and married him.
- b) The husband made it clear that the wife would need to sign a document prior to marrying that acknowledged his wealth was his and it would go to his children.
- c) The wife was at all times financially and emotionally dependent on the husband having permanently left and cut her ties with Country B, and being in Australia on a limited visa.
- d) Just prior to the wedding, the husband arranged an appointment for the wife with a solicitor for the purpose of the wife obtaining legal advice about the financial agreement prepared by the husband’s solicitor.
- e) Before seeing the solicitor, the husband told the wife that if she did not sign the agreement the wedding would be off, and he told the wife and the solicitor that the agreement was non-negotiable.
- f) The wife’s parents and her sister had arrived in Australia for the wedding.
- g) The husband drove the wife and her sister to the appointment with the solicitor and waited outside.
- h) At the meeting with the solicitor, the wife became aware for the first time of the contents of the agreement and had information about the husband’s financial position.
- i) The solicitor provided her advice to the wife, and it was to the effect that the agreement was no good and she should not sign it. That verbal advice was followed up with detailed written advice by the solicitor, and at a subsequent appointment the solicitor went through that written advice with the wife.
- j) Despite the legal advice, the wife signed the agreement and the wedding went ahead. Conditions were imposed on the wife, but Justice Denmark found that the wife was “keen to acquiesce”. Meaning the wife was aware from the beginning that her husband’s wealth was to go to the children and document needed to be signed to make protect the husband’s and childrens’ positions.
The Full Court noted that the real difficulty for the wife establishing duress is that she was provided with independent legal advice about the agreements. The wife was advised not to sign them, but she signed regardless.
The Full Court were not persuaded that the wife entering into either agreement under duress. Their Honours found that both agreements were valid and enforceable. The Full Court noted that once the second agreement was valid and enforceable, there is no need to bother with the first agreement because the second agreement terminated the first.
The appeal was allowed and the s 90C financial agreement declared to be binding.