Insights | High Court decision summary – prenups and postnups

The purpose of this article is to provide fellow practitioners and our readership with a working summary of the recent High Court decision in Thorne v Kennedy [2017] HCA 49.

In case you are looking for a one-liner conclusion: the rumours of the prenup’s/postnup’s demise are greatly exaggerated.

Preliminary matters

A few preliminary considerations arise before we get into the details of the case.

Firstly, this is a rare High Court decision where the Court has deigned to consider a family law issue.  It is worth pointing out that special leave applications require applicants to establish the significance of the issues on appeal and their broader ramifications.  In this case, we have a family law case which influences principles of law and equity thanks to the importation of those rules into family law in December 2000 under section 90KA of the Family Law Act 1975 (the FLA).  It is a little surprising that cross-pollination of the three jurisdictions hasn’t already occurred but it may be a matter of time until the right fact patterns arise.

Secondly, I recently commented that the Court’s s 44 Constitutional law case (which has set a cat amongst the political pidgeons in Canberra) might indicate a trend of cases which involve unanimous decisions.  In this case, the plurality was constituted by five justices under the Chief Justice, with Justice Nettle and Justice Gordon agreeing to the plurality’s proposed orders but delivering separate decisions.

Thirdly, the plurality has used the non-technical terms “pre-nuptial” and “post-nuptial” to describe the relevant financial agreements.  Whilst those terms do not appear in the legislation, they better accord with ordinary understanding of how financial agreements tend to be described.  This is helpful in aiding understanding but should not be used in technical drafting of financial agreements unless seeking to create those expression for drafting convenience.

The facts

A summary of the facts may be found in the plurality’s judgment at [4] to [15].

Put briefly, it involved a whirlwind courtship of a couple who met online, cohabitated after 7 months; the wife was an Eastern European woman with no assets to her name and no home after breaking up from an earlier relationship.  The husband instructed his lawyers to prepare a prenup less than a month away from the wedding date, which was then the subject of an independent review by a family law specialist just 10 days from the wedding date.  It was presented to the wife who at that time had “No job, no visa, no home, no place, no community.”  The husband’s estate was worth between $18 to $24 million but the agreement gave the wife nothing if she separated without children in the first 3 years of marriage or else around 8% of the husband’s estate value if the husband died during their marriage.

If there was ever a set of facts designed to call equity’s assistance, this would be it.

Overview of the findings

Their Honours’ findings may be summarised as follows:

  • Duress: unanimously decided that duress was not established on the facts and for now duress still requires proof of threatened or actual unlawful conduct (more on this further below)
  • Unconscionable conduct: unanimously held that there was a “special disadvantage” which attracted equity’s intervention
  • Undue influence: plurality decided there was undue influence, Justice Nettle did not consider it (on the basis unconscionable conduct was made out) and Justice Gordon dissenting on this issue

Additional points for consideration

When working through the plurality’s citations and Justice Nettle’s reasoning, there is a sense that the Court, should the right case and submissions present themselves, may be prepared to take a further step in developing the law of duress in a manner which better aligns the Australian concept with its overseas counterparts in England and the US.  Justice Nettle’s reasoning further suggests that equitable principles have an even greater role to play in disputes over financial agreements.

There is also the matter that sections 90K and 90KA of the FLA permit an aggrieved party to attack financial agreements on a range of grounds which were not considered in this decision, including fraud, misrepresentation, mistake, unenforceability and so on; to presume that duress, unconscionability and undue influence are the only vitiating factors available to set aside a financial agreement would be a clear mistake.

Conclusion

This case turned very much so on its particular facts.

Whilst there is a lot of complaining in the profession that the decision has killed the prenup or postnup in Australia, in our view, this is not true.  What it does however is emphasise that lawyers drafting and advising on such agreements must be skilled common law practitioners versed in the FLA provisions but also armed with the foresight and capabilities of a seasoned equity lawyer; attempting to draft “watertight” (and plainly disadvantageous) agreements which are then foisted upon an unwitting party on the eleventh hour is more likely than not to attract equity’s intervention.   There is much to be said here about the benefits of timely estate/family law planning, but as Justice Nettle foreshadowed at [75], a marriage of convenience, in this case between a wealthy party and a younger penniless party) is likely to attract equity’s intervention where the wealthier party effectively seeks to deny the penniless party an equitable distribution of property; perhaps the issue is not so much the law of prenups/postnups being broken, but rather, the nature of such a relationship and an attempt to oust equity’s jurisdiction cannot be permitted in equity and good conscience.

Disclaimer

This article is intended to provide commentary and general information. It should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this article.

Acknowledgement

The High Court of Australia image which appears in this article is from the High Court of Australia website http://www.hcourt.gov.au/.


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