I recently revisited the recent High Court decision of Thorne v Kennedy[i]. Although this case is in the context of Binding Financial Agreements (BFAs) I was struck by the importance of many of the comments made by the High Court for professionals assisting in the resolution of family disputes.
There is no doubt in this decision that both parties had received robust legal advice prior to entering into the agreement that was incorporated into the BFA. There is no doubt that the requisite duty of disclosure had been complied with, and that all of the required technicalities had been completed pursuant to the relevant legislation. If a BFA is properly prepared and executed, there is generally an expectation under the Family Law Act that the Financial Agreement will be binding thereby providing clarity and finality as to the financial relations between the parties.
However, in this case the Agreement was set aside by the High Court on the basis of s 90K (e) of the Family Law Act. They determined that the Husband’s actions were unconscionable and that the Wife was at a special disadvantage.
Background
In this case the Husband was 31 years older than the Wife, had substantial assets whereas the Wife had none, and he had invited her to come to Australia from eastern Europe to marry him. They had met on the internet, but both spoke the same language, had a similar background, and shared a religious connection.
The couple were married on 30 September. The Wife was presented with a draft BFA on 19 September and signed this on 26 September on the basis that she would sign a document in similar terms one month after the marriage. She received independent legal advice and signed both documents the first pursuant to s 90B (a pre-nuptial agreement) and the second pursuant to s 90C (an agreement in the course of an intact marriage) of the Family Law Act.
Essentially these documents provided that in the event that the parties separated, the Wife would not receive a share of the Husband’s assets. She was being asked to sign a document that provided that she would give up her just entitlements in the event of a dissolution of the marriage. There was no doubt in her mind that the marriage could break down, her major concern being for her financial security should the Husband predecease her. All her family had travelled to Australia to attend the wedding, which was to be a very public event.
Test
The High Court appears to regard “unconscionable conduct” interchangeably with duress and undue influence. They developed two criteria to successfully establish this:
- That the innocent party is subject to a special disadvantage. There is unconscionable conduct that seriously affects the ability of the innocent party to make a judgment of what would be in their best interests.
- That the other party unconscionably takes advantage of this special advantage.
(This is reminiscent of the court’s attitude to the family dynamic in the case of Amadio. [ii])
In this situation the High Court regarded the following factors as crucial in establishing both limbs of this test:
- The lack of financial equality (the Wife had no assets and the Husband had $18-24 million)
- The lack of permanent status of the Wife in Australia at the time (she had a fiancee’s visa)
- The Wife’s reliance on the Husband for all things (she had given up her home and friends to travel half way around the world to begin a new life with the Husband)
- The Wife’s emotional connectedness to the relationship and the prospect of motherhood (she saw this as her chance to have a family and live a good life)
- The publicness of her upcoming marriage (all of her family, and the Husband’s family and friends were expecting the wedding).
The Wife was regarded by the High Court as powerless and that she had no choice but to enter into the Agreement. She knew that if the marriage ended she would walk away with nothing, and she had received robust written advice from her lawyer that she was not making a decision in her best interests.
The Husband had created the document and waited until 11 days before the wedding to present this to her. He could not argue that he was unaware of the special disadvantage that the Wife was subject to, nor that he was unaware that he was taking advantage of this.
Factors to look out for
The High Court decision provides a number of important factors to consider when assessing the capacity of a more disadvantaged person to enter into an agreement:
- Whether the Agreement is offered and not subject to negotiation
- The emotional circumstances in which the agreement was entered into
- Whether there is any time for careful reflection
- The nature of the parties’ relationship
- The relative financial positions of the parties
- The independent advice provided and the time available to reflect on that advice.
I suspect that any one of these factors on their own would not be sufficient to satisfy the High Court test. In this case the FBA was signed again one month after the marriage in similar terms, which would indicate that the argument of insufficient reflection time could not be sufficient grounds on its’ own.
General Application
Most financial situations that require the intervention of family lawyers and FDRPs are complicated and involve various differing levels of inequalities. These might include:
- Knowledge-Differing knowledge of the financial circumstances during the marriage
- Understanding-Differing capacity to understand complex financial transactions or factors
- Ability-Differing ability to put needs and concerns into words and promote their best interests
- Resources-Differing availability or access to funds to assist with these factors
- Readiness-Differing emotional states to discuss and make good decisions regarding the consequences of the separation
- Support-Differing contexts to draw upon to assist in getting through this difficult stage in a separation
It can take quite some time for a professional assisting the transition from separation to resolution and implementation, to gain sufficient insight and knowledge of where a client is at, and to best assist them. It can also take considerable sensitivity and professionalism to do this in a way that maintains a good working relationship, and at the same time promotes a realistic and pragmatic approach that complies with professional responsibilities.
Conclusion
The High Court in this case provides some very useful questions and avenues of investigation to explore the unequal bargaining position that generally exists to some extent in family disputes. The next step is to then assess the impact of this upon any individual, and whether they legally and emotionally have the capacity to make good long lasting decisions.
As an FDRP and family lawyer I have amended my Intake Checklist to ensure that this covers the areas highlighted by this High Court decision. Research has shown that if the parties are not specifically directed to all areas by an appropriate question, important information can easily be missed. If you are interested in comparing ideas arising from this case and the impact on Family Dispute Resolution or family law practice, please contact me at Creative Family Law Solutions.
[i] Thorne v Kennedy [2017] HCA 49 (8 November 20170
[ii] Bank of Australia v Amadio (1983) 151 CLR 447 (at 462)