Financial Agreements and Undue Influence: an unfortunate relationship

The High Court of Australia in Thorne v Kennedy [2017] HCA 49 found that the binding financial agreements between wealthy Sydney property developer Mr Kennedy and his ex wife Ms Thorne, were invalid on the grounds of undue influence and unconscionable conduct.

Prior to their 2007 wedding, Mr Kennedy prepared 2 binding financial agreements to be signed by Ms Thorne. Mr Kennedy provided the first agreement to Ms Thorne 10 days before the wedding and the second, 30 days after the wedding. Mr Kennedy made it clear to Ms Thorne that if these agreements were not signed, the wedding was off. Ms Thorne took these agreements to an experienced family law practitioner for review. The practitioner described the agreements to Ms Thorne as “the worst agreements I have ever seen” and “wholly inappropriate” but despite strong advice against signing the agreements, Ms Thorne signed them nonetheless. The agreements stipulated that if the couple separated within 3 years of marriage, Ms Thorne would receive nothing from Mr Kennedy’s $20 Million asset pool. If the couple separated after 3 years, Ms Thorne would receive a one off payment of $50,000.

In 2011 the couple separated. Proceedings were commenced by Ms Thorne, who sought to have the 2 agreements set aside and sought an adjustment of property order in the amount of $1.1 million and a spousal maintenance payment of $104,000. Both the trial judge and the High Court of Australia (on appeal) found in favour of Ms Thorne, setting aside both agreements.

The High Court reaffirmed the trial judge’s finding that the terms of a financial agreement and the provision of independent legal advice are both relevant considerations in determining whether an agreement was entered into as a result of undue influence. After reviewing the terms of the agreements, the High Court held that the only explanation as to why Ms Thorne would sign such a grossly unreasonable agreement, even after receiving independent advice to the contrary, was the relationship of undue influence between her and Mr Kennedy. “Even within that class of agreement, the agreements which Ms Thorne signed involved gross inequality”.

Further to this, the High Court found that pressure emanating from the surrounding circumstances in which an agreement is signed can be indicative of undue influence. The High Court supported the trial judge’s conclusion that the surrounding circumstances, including: Ms Thorne’s emotional connectedness to their relationship; her reliance on Mr Kennedy for all things; her lack of permanent status in Australia; the ‘publicness’ of her upcoming marriage; her financial inequality with Mr Kennedy; and her emotional preparation for marriage effectively deprived Ms Thorne of any free choice and were all indicative of undue influence.

You can read the full decision here:

Consumer Credit Legal Service (WA) Inc. has taken a particular interest in this decision as it has the potential to influence the laws surrounding consumer credit and financial service agreements. As many consumers throughout Western Australia have entered into consumer credit or financial services agreements as a result of undue influence, broadening the scope of considerations to include: the terms of the agreement; departure from independent legal advice; and the surrounding circumstances of the agreement could see a significant shift in client outcomes and the conduct of credit and financial service providers.

Consumer Credit Legal Service (WA) Inc. assists a number of clients who found themselves in a position where they were asked by a friend or family member to sign a guarantee or other consumer credit agreement. The client often received independent legal advice against signing the agreement, but chose to sign nonetheless. These clients will often sign the guarantee or consumer credit agreement out of a sense of family obligation, undue pressure from the person requesting their signature or pressure from the circumstances surrounding the agreement. In these cases, the fact that a client had obtained legal advice and the lender had complied with the ‘formalities’ would make it difficult to challenge such an agreement, despite clear ‘red flags’ that the client was not acting in their own best interest. Being able to assess these additional factors as indicative of undue influence has the potential to bolster the legal position of vulnerable individuals who were unable to act in their own best interest and to see more credit and financial service providers held accountable for their wilful ignorance of ‘red flags’.

If you are experiencing issues related to a guarantee, home loan or other consumer credit agreement, please call Consumer Credit Legal Service (WA) Inc. on (08) 9221 7066 for free and independent legal advice. Our telephone advice line is open Monday to Friday from 9am to 4pm.

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