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Binding Financial Agreements – What we can learn from Thorne v Kennedy

Since the High Court published its decision in the matter of Thorne v Kennedy [2017] 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.

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Taxing criminals to support victims – Here’s why I do not support it

The Herald Sun has reported on the Victims of Crime Commissioner’s plan to raise funds to support victims of crime.  He proposes  imposing a levy on criminals.

According to the report, the Premier of Victoria described this as a very important reform and said that the Government will work with the Commissioner to deliver the policy and to work out a number of details.

The Leader of the Opposition indicated that he is strongly in favour of the levy, and in fact proposed a rate that is much higher than the rate proposed by the Commissioner. The Commissioner recommended a levy of $20.00 for infringement notices (including speeding fines) and $50.00 for people who have to go to Court. The Opposition’s proposal is that there would be no levy on infringement notices, but people who go to Court would pay an extra $100.00 for charges heard in the Magistrates Court and $350.00 for charges heard in the County Court.

The Commissioner said he believes the levy will be supported by the public because only people who break the law will have to pay, adding “I don’t think too many level-headed people would be violently opposed.”

I am, of course, in favour of support being provided to victims of crime.  The current system provides limited support and I would love to see a substantial increase in the funds available to provide practical support to victims.  However, I do not believe that a levy on criminal offenders is a sensible policy.  Does this mean I’m not a level-headed person?  Let’s find out.

I understand that “making the criminals pay” will always sound good.  However, I do not believe there is any benefit in taking a “one size fits all” approach to crime.  The Magistrates Court can deal with a huge range of offences, from using indecent language in a public place (or my personal favourite, “flying a kite in a public place to the annoyance of any person”, which is still in the Summary Offences Act) to far more serious offences like recklessly causing serious injury, or aggravated burglary with intent to steal less than $100,000.  It makes no sense to impose the same levy on the person who broke into my house while I was home and stole $99,999 worth of stuff and the person who annoyed me by flying a kite in a park.  In other words, the punishment needs to fit the crime.

Then we have the proposal to include a levy on infringement notices.  This would make the policy much less popular, as I do not know anyone who has never been fined for speeding.  Most people who get caught driving at 63 in a 60 zone will not appreciate being lumped into the same category of “Law-breaker” with people who recklessly cause serious injuries.

I don’t mind if $20.00 gets added to my next speeding fine, particularly if I know that that money will go to helping victims of crime, but a person on minimum wage is already going to struggle to pay a speeding fine on top of their rent or mortgage, groceries, bills, school fees and shoes for the children.  In other words, flat taxes are unfair.

The other problem is efficiency.  After 20 years of representing people in the Courts, I can tell you that most of the people who come to Court do not have a spare $50 or $100 to pay.  A lot of people who are fined for minor offences end up doing unpaid community work because they can’t afford the fine.  If the government needs to enforce payment of this levy, there will be plenty of cases where the enforcement costs are more than the levy.  This doesn’t help victims of crime in any way, it just imposes an added burden on people who are already in very difficult circumstances.  It would make much more sense to put the money we would spend on enforcement straight into a fund to help victims.  We could also think about spending some of it on rehabilitation for offenders.

We already have a system where offenders who cause harm to their victims can be ordered to pay compensation.  If it is not working well, largely because those offenders often have limited resources, then of course we should have a system to compensate victims of crime, and of course we should fund it properly.  The efficient way to do this is through a tiny tax increase that most of us would not notice instead of a cumbersome, difficult to enforce and poorly targeted levy.

We need to get serious about helping victims of crime.  The answer is that we should have a small levy, only applied to people with a reasonably high taxable income who can afford it.  This is much harder to sell than a “tax on criminals”, but since it’s clearly a better idea, I would love to see a politician with the courage to run with it.

 

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Damages for Distress

People often ask me if they can sue for the inconvenience and distress that they suffer when a contract is breached.  The Court of Appeal in Victoria considered this issue in the recent case of Archibald v Powlett [2017] VSCA 259.

Most claims for breach of contract are limited to the actual economic losses caused by the breach, but there are some exceptions to this rule.  For example, in the High Court case of Baltic Shipping Co v Dillon passengers sued the operator of a cruise ship which sank on day 9 of a 14 day cruise.  The Court upheld an award of $5,000 for disappointment and distress, even though this was more than the tickets had cost.

The case of Archibald v Powlett dealt with a claim for distress, anxiety and depression caused by a different type of breach of contract.  The claim was made by Ms Powlett who owned a property in Daylesford.  Ms Powlett had arranged for two relocatable houses to be transported, restumped and placed on her property, where she planned to rent them out as holiday accommodation. Unfortunately, one of the houses was never delivered, and the other one was delivered several years late.  Ms Powlett gave evidence that she had borrowed money to buy the two relocatable houses and that she could not pay the interest on the loan because of the delay in delivery. This meant that she had had to sell one of her blocks of land in Daylesford, and her own home in St Kilda.

When the case first went to Court, Ms Powlett was awarded damages of $30,000 for “distress, anxiety and depression”, in addition to compensation for her financial losses.  However, the Court of Appeal ruled that she was not entitled to compensation for “distress, anxiety and depression.”  The result may have been different if there had been evidence of a “significant injury” (which would generally require a medical report from a doctor, a psychologist or a psychiatrist) but the Court did not address this in detail because Ms Powlett was not claiming to have suffered a “significant injury”.

The Court also said that Ms Powlett may have succeeded if she had made a claim for “physical inconvenience”.  The Court referred to past cases where building owners had been able to recover an amount for “physical inconvenience, anxiety and distress” caused by a breach of contract.

This means that a building owner who suffers loss as a result of a breach of contract cannot claim for “distress anxiety and depression” without proving they have a significant injury, but they can claim for “physical inconvenience, anxiety and distress”.

Does that distinction make sense to you, or is this something that only a lawyer would come up with?  Does this law need to change? Let me know what you think in the comments section below.