Since the High Court published its decision in the matter of Thorne v Kennedy  HCA 49 on 8 November 2017, I’ve heard a few lawyers say that Binding Financial Agreements should not be used ever again. This seems like an overreaction to the Court’s decision.
I should start by saying that I don’t like Binding Financial Agreements, and I never have. Where there is an alternative, I generally recommend that people use it. However, for a couple who want to put an agreement in place before they get married, or during a relationship, a Binding Financial Agreement can be useful, as it means that there is at least some chance of avoiding a Court battle if the relationship ends.
In Thorne v Kennedy, the Court found that the Binding Financial Agreement between Mr Kennedy and Ms Thorne should be struck down. This was not actually all that surprising. Looking at the contents of the agreement and the circumstances in which it was signed, I would have thought that the outcome was entirely predictable.
Mr Kennedy was a 67 year old property developer with assets worth somewhere between $18 million and $24 million. Ms Thorne was 36 years old and she had moved to Australia to marry Mr Kennedy. She had no assets of any substance.
The Agreement said that if the relationship ended within the first three years, Ms Thorne would get nothing at all. If the relationship ended after three years but there were no children, Ms Thorne would get $50,000. This was indexed to CPI, but it would still be a tiny fraction of Mr Kennedy’s assets.
Mr Kennedy had the agreement drawn up without telling Ms Thorne what was in it, and told her that he would not marry her unless she signed it. Ms Thorne’s lawyer told her that it was the worst agreement the lawyer had ever seen, and it should not be signed. However, at that point the wedding was four days away. Ms Thorne decided to sign the agreement even though she had been advised that it completely failed to take her interests into account.
Ms Thorne signed another agreement, which was virtually identical, 30 days after the wedding. The Court found that she was still under pressure from Mr Kennedy to sign the second agreement, even though the wedding had already taken place.
When the case first went to trial, the Judge ruled in favour of Ms Thorne, and set out six matters which, in combination, led her to the conclusion that Ms Thorne had “no choice” or was powerless:
(i) her lack of financial equality with Mr Kennedy;
(ii) her lack of permanent status in Australia at the time;
(iii) her reliance on Mr Kennedy for all things;
(iv) her emotional connectedness to their relationship and the prospect of motherhood;
(v) her emotional preparation for marriage; and
(vi) the “publicness” of her upcoming marriage.
The Judge described Ms Thorne’s circumstances as follows:
“She was in Australia only in furtherance of their relationship. She had left behind her life and minimal possessions … She brought no assets of substance to the relationship. If the relationship ended, she would have nothing. No job, no visa, no home, no place, no community. The consequences of the relationship being at an end would have significant and serious consequences to Ms Thorne. She would not be entitled to remain in Australia and she had nothing to return to anywhere else in the world.”
Mr Kennedy appealed against the Judge’s decision, and that appeal was successful. Ms Thorne then appealed to the High Court, who restored the original decision.
The High Court went through a detailed review of the law of duress, undue influence and unconscionable conduct. The majority of the Judges in the High Court found that “undue influence” was the best description for Mr Kennedy’s conduct.
The High Court also set out a list of factors which need to be considered in relation to these types of agreements. Those factors were:
(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.
This is not a complete list of factors that can be considered but it is a useful guide to what a Court will look at as significant factors in future cases.
If an agreement is fair and both parties are given adequate time to think about the agreement and to consider the independent advice they receive, there is a good chance that the Agreement will stand up in Court. Instead of seeing Thorne v Kennedy as a reason to never use these agreements again, we should see it as a guide to how to do a better job of preparing these types of agreement and ensuring that our clients get proper advice before they sign them.