Duress in Binding Financial Agreements

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Could a Binding Financial Agreement be set aside on the ground that a party to it had been subject to duress at the time of execution? To answer this, one must first consider what conduct amounts to duress in the eyes of the law. Not all forms of duress are unlawful.. For  ‘duress’ to be detrimental to the validity of the agreement, it must be unlawful. The case of Kennedy & Thorne[1] considered whether the presence of duress was sufficient to warrant setting aside of a binding financial agreement.

The Story

Mr Kennedy (‘the husband’) and Ms Thorne (‘the wife’) met on a dating site. The wife was at the time living outside of Australia, had no children and no substantial assets to her name. The husband was an Australian property developer, had three adult children and had at least $18 million in assets to his name. The parties made arrangements for the wife to come to Australia with the intention of obtaining a more permanent visa once the parties were married.

On 8 August 2007 and again on 14 August 2007 the parties met with the husband’s solicitor with the intention of drafting a pre-nuptial agreement. The husband was adamant during these conversations that the marriage would only proceed if the wife signed the agreement. The reason for this was that the husband intended his children to inherit his wealth.

On 20 September 2007, the wife sought independent legal advice about the particulars of the pre-nup and the husband’s financial position. The solicitor advised the wife that the agreement was “no good” and that she should not sign it. It was around this time that solicitors for the husband and the wife communicated and the wife’s solicitor raised the possibility of duress. Despite her solicitor’s advice, the wife signed the pre-nup (“the first agreement”). The agreement contained a provision which provided that another agreement would be entered into within 30 days.

The parties married in late September 2007.

On 26 October 2007 the husband visited his solicitor regarding the second agreement. The solicitor for the wife advised her not to sign the second agreement because it was “terrible and she should not sign it”. The wife again rejected this advice and signed the agreement (“the second agreement”).

The parties separated in late 2011.

The wife commenced proceedings on 27 April 2012 seeking an order that the agreements be declared non-binding and be  set aside on the basis of duress, undue influence and/or unconscionability.

The husband died in May 2014.

The decision at first instance

Judge Demack found that the wife had entered into both agreements under duress. Her Honour stated that to establish duress ‘there must be pressure – the practical effect of which is compulsion or absence of choice’ (at [87]). Her Honour found that there had been unequal bargaining power between the parties to the extent that no fair or reasonable outcome was available to the wife. That is, even though the wife had no choice that she could reasonably see other than to sign the agreement.

The decision on appeal

The Court of Appeal overturned the decision at first instance finding that Judge Demack had applied the wrong legal test for duress. The correct test is ‘whether there is threatened or actual unlawful conduct’. Applying this test, the Court found that the wife had not been subjected to the requisite degree of duress that would warrant setting aside the financial agreement. The Court gave a number of reasons for this finding including that:

  • whilst there was no doubt that she relied on the husband both financially and emotionally, the husband had met these expectations and the wife had accepted them;
  • the wife knew of the husband’s significant financial position and that it was his desire that his children benefited from this;
  • the wife had obtained her own independent legal advice;
  • she was advised not to sign the agreements and did so anyway; and
  • the wife’s solicitor had made changes to each of the agreements showing that they were not non-negotiable.

A finding of no unlawful duress meant that the appeal by the husband’s estate was allowed and the agreement was declared binding.

Lessons

In life many acts are done under pressure even some to the extent that one can say they had no choice but to act. However this is not the type of duress the law accounts for. A financial agreement will only be set aside on the basis of duress, where the duress involves threatened or actual unlawful conduct. In this case, the wife disregarded independent legal advice and was aware that the husband intended his wealth to fall to his children. Ultimately this meant that the duress she faced could not be considered unlawful in the eyes of the law to warrant the agreement being set aside.  A profound lesson that emerges from the decision is – not to disregard independent legal advice – especially when it is unpalatable or not what you want to hear!

For more information regarding duress and binding financial agreements

Call our Business Development Officers and make an appointment to speak with one of our Specialist Family Lawyers. Contact us on (07) 3252 0011.

[1] [2016] FamCAFC 189.