Bad Bargains – Will the Court uphold them in Binding Financial Agreements?

by Andrew Lind on 15 June, 18

The viability of financial agreements which are a bad bargain for one of the parties has been questioned following the recent decision of the High Court of Australia in Thorne v Kennedy [2017] HCA 49.

Facts

Ms Thorne was a 36-year-old Eastern European woman of relatively insignificant means living in the Middle East. Mr Kennedy was a 67-year-old Greek Australia property developer with assets in the order of between $18 million and $24 million.

Ms Thorne and Mr Kennedy met online in mid-2006 on a website for potential brides. Arrangements were subsequently made for Ms Thorne to move to Australia to marry Mr Kennedy. Mr Kennedy made it clear that she would have to sign a pre-nuptial agreement if she wished to marry him as he intended for his children to inherit his assets.

She was taken to see a solicitor about the proposed pre-nuptial agreement on 19 September 2007. The solicitor gave her emphatic advice not to sign it as it was the worst agreement she had ever seen. The solicitor advised that the agreement was designed to protect the interests of Mr Kennedy alone. The agreement essentially provided that:

  • If the couple separated within three years of the date of marriage, Ms Thorne would receive nothing; or
  • If the couple separated after three years of the date of marriage, Ms Thorne would receive $50,000.00 from Mr Kennedy.

The terms of the agreement were said to be non-negotiable. Ms Thorne signed the agreement on 26 September 2007 – some four days before the wedding.

The pre-nuptial agreement also contained a term that they would each enter into and sign a second agreement within 30 days of signing the first. The terms of the second agreement were substantially the same on all essential points. Ms Thorne signed the second agreement on 20 November 2007 despite advice from her solicitor again to not sign the second agreement.

Decision

The High Court of Australia unanimously set aside the agreements on the basis of unconscionable conduct. The majority also set aside the agreements on the basis of undue influence.

Unconscionable Conduct

The majority of the High Court found that Ms Thorne was at a special disadvantage that was in part created by Mr Kennedy, because:

  1. He created the urgency with which the agreement was to be signed and the haste surrounding the second agreement.
  2. Ms Thorne had no reason to anticipate that he would insist upon terms of marriage that were as unreasonable as those contained in the agreements.
  3. Ms Thorne and her family members had been brought to Australia for the wedding. Mr Kennedy’s ultimatum was not accompanied by any offer to assist them to return home.

These matters increased the pressure which contributed to the substantial subordination of Ms Thorne’s free will in relation to the agreements. Mr Kennedy took advantage of this vulnerability to obtain the agreements which were, on the uncontested assessment of Ms Thorne’s solicitor, entirely inappropriate and wholly inadequate.

Undue Influence

Ms Thorne was thought to have been subject to undue influence on the basis of six factors:

  1. There was a lack of financial equality between the couple.
  2. Ms Thorne did not have a permanent status in Australia at the time.
  3. She was reliant on Mr Kennedy for all things.
  4. She was emotionally connected to the relationship. Her relationship with Mr Kennedy presented as an opportunity to fulfil her longstanding desire to have a child.
  5. Ms Thorne had prepared emotionally for the marriage.
  6. Their upcoming marriage was public. Her parents and sister had been flown to Australia from Eastern Europe, guests had been invited, her dress had been made and the reception had been booked.

There would be significant consequences to Ms Thorne if the wedding did not go ahead.

The majority of the High Court acknowledged that parties are free to enter into bad bargains. The very nature of these types of agreements is that their terms will often favour one party. However, the majority noted that bad bargains will not always be upheld. Bad bargains may be evidence of duress, undue influence and/or unconscionable conduct.

Written by Emario Welgampola and Brooke Nickerson.

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