Duress test for binding financial agreements

Duress test for binding financial agreements

Kennedy & Thorne

SUMMARY – BINDING FINANCIAL AGREEMENTS – Where the appellant trustees of the estate of the late husband appeal the orders made by the trial judge which found that the two financial agreements entered into by the parties were not binding on them and should be set aside – Where there is merit in four of the grounds of appeal – Where the trial judge applied the incorrect test in relation to duress – Where the reasons in relation to a finding of duress were inadequate – Where the trial judge did not provide procedural fairness to the appellant trustees before pronouncing an order for costs against them – Where the appeal should be allowed and the matter re-determined – Where the issues for re-determination are the fate of the agreements and the costs of the trial – Where it is not apparent on the evidence what the “threatened or actual unlawful conduct” of the husband was –Where the wife was “keen to acquiesce” with the husband’s requirements and accepted that his wealth was his own and intended for his children – Where the requirement of an agreement being entered into before marriage cannot be seen as a basis for a finding of duress and nor can the fact that a second agreement was required – Where the wife’s focus was always on what would happen to her in the event that the husband pre-deceased her – Where the agreements were not non-negotiable and the wife suggested changes which were accepted by the husband – Where the wife’s real difficulty in establishing duress is that she was provided with independent legal advice, she was advised not to sign the agreements, but she went ahead regardless – Where both agreements are valid and enforceable but only the second agreement need be considered because it terminates the first agreement – Found that the second agreement is binding on the parties.


  1. The husband and wife met in early to mid-2006 on a dating site. The wife was aged 36 years and the husband was aged 67 years at the time. The wife’s profile read as follows (at [32]):

I am single female with no children. I don’t smoke or drink. I am of Greek Orthodox religion and speak a little Greek and English. I wish to marry and have a good life.

(Original emphasis)

  1. The wife was born in Country A and lived in Country B at the time the parties met. She had acquired her English language skills informally. The wife had no children and no assets of substance.
  2. The husband was an Australian property developer from City E with assets of at least $18 million. The husband had three adult children from a previous marriage.
  3. The husband visited the wife in Country B on two occasions, and the two of them spent a couple of months travelling around Europe together. Whilst travelling, they made arrangements for an appropriate visa for the wife to come to Australia. It is clear that the visa which was organised was going to be valid for nine months, and the parties formed the joint intention that they would marry during that time, and a visa of a different nature would then be obtained.
  4. The parties arrived in Australia in February 2007 and began living in the husband’s penthouse in City E.
  5. On 8 August 2007 the husband and wife attended on the husband’s solicitor, Mr Jones, for the purpose of drafting a financial agreement prior to the wedding. Mr Jones spoke only with the husband on this occasion. The same occurred on 14 August 2007. The trial judge found that during these conferences, the husband’s solicitor was adamant that the husband maintained his view that the marriage would only go ahead if the wife signed the agreement.
  6. On or around 16 September 2007 (and most likely on 19 September 2007), the husband told the wife that they were going to see solicitors about the signing of some documents. The trial judge found that the wife had known for some time that there would be documents to sign before the wedding.
  7. The trial judge found that at this time, the wife knew that the only option was to sign the document or there would not be a wedding.
  8. On 20 September 2007 the wife met with Ms Harrison, her solicitor, for advice regarding the financial agreement. This was the first time the wife was advised on the contents of the agreement, and had information about the husband’s financial position.
  9. On 21 September 2007 the solicitors for each of the husband and wife communicated. It was on this date that the wife’s solicitor first raised the suggestion of duress.
  10. Ms Harrison provided her written advice to the wife on 21 September 2007 and explained this advice to the wife in person on 24 September 2007. The trial judge was satisfied that all advice given by Ms Harrison was consistent with the written advice in her letter of 21 September 2007. Her Honour set this letter out in full (at [52]). In effect, the wife was advised that the agreement was “no good” and should not be signed.
  11. Despite Ms Harrison’s advice, on 26 September 2007 the husband and wife each signed a document headed “Financial Agreement (Pre-Nuptial Agreement s. 90B Family Law Act 1975)” (“the first agreement”). This agreement contained a provision that within 30 days of signing, another agreement would be entered into pursuant to section 90C of the Act in similar terms.
  12. The parties were married in late September 2007.
  13. On 26 October 2007 the husband again visited Mr Jones seeking advice on the drafting of the second agreement. The draft of the second agreement was provided to Ms Harrison on 30 October 2007.
  14. On 5 November 2007 Ms Harrison advised the wife on the contents of the second agreement, again providing advice to the effect that the “agreement was terrible and that she shouldn’t sign it”.
  15. The second agreement was signed by both the husband and wife on 20 November 2007, and was headed “Financial Agreement (Agreement S.90C Family Law Act 1975)” (“the second agreement”).
  16. The husband signed a separation declaration in June 2011.
  17. The wife left the home in August 2011.
  18. The wife filed her Initiating Application on 27 April 2012 seeking declarations that the agreements be declared non-binding, or alternatively, set aside, or declared void. The wife also sought an adjustment of property in the order of $1,100,000, along with lump sum spousal maintenance of $104,000.
  19. The husband died in May 2014 and the trial was part heard at that stage. The executors and trustees of his estate (two of his three adult children by an earlier marriage) were subsequently substituted as parties in his stead.


  1. In relation to the evidence of the parties, her Honour explained that the “husband’s oral evidence had many difficulties” as he “was 74 at the time, and seriously unwell”, and as a result, “wasn’t always responsive to questions, and at times, his evidence seemingly contradicted something that he had said only moments earlier”. Further, her Honour considered that the husband “seemed not to understand questions posed as suggestions, or when based upon someone’s earlier affidavit evidence, even his own”. However, her Honour explained that, though the evidence was difficult, she “did not form the view that he was trying to be evasive or unhelpful” (at [23]). There were no similar concerns about the wife’s evidence.
  2. Her Honour then set out the contentions of each of the parties and the background leading to the signing of the agreements. It is important to detail a number of her Honour’s findings in this regard.
  3. At [35], her Honour found that the husband was “at pains from the outset to make it clear to [the wife] that his wealth was his, and he intended it to go to his children”. Her Honour was satisfied that the wife “was certainly aware of that position from the outset”. Her Honour rejected the evidence of the husband that the wife had introduced the concept of signing an agreement, and found that it was the husband, and the wife had been “keen to acquiesce” as “she understood [the husband’s] need to ensure that his children’s financial position was protected”. The trial judge was satisfied that the wife’s concern was not “what would happen to her financially while her husband-to-be was alive, but, as to what would happen to her financially if he died without making proper provision for her in his Will” (at [35]).
  4. In relation to the extent of the husband’s wealth, the trial judge found that at the time the wife moved into the husband’s City E penthouse it could be “expected that [the wife] would have been aware that this was an expensive home”. However, her Honour accepted “the husband’s evidence that he didn’t ever specifically advise his future bride as to his exact wealth” (at [37] – [38]).
  5. The husband asserted that he had provided the wife with a copy of the agreement he drafted for his previous partner, and that this should have “alerted [the wife] to the terms of the agreement that he was wanting her to sign, and to some specifics as to his wealth and particular assets” (at [38]). The wife “denied ever being given a copy of that document and denied any knowledge of the content of that document”. Her Honour held that it was “improbable” that the document was ever given to the wife, and there was “no reason for [her Honour] to form the view that it informed her as to the likely contents of any agreement that she might be asked to sign” (at [40]).
  6. Nevertheless, the trial judge considered that the wife knew the husband was wealthy through his actions and what he had said to her.
  7. Her Honour found that, at the time the wife signed both the first and second agreements, the wife believed that the agreement would “only take effect if she left her husband and that as she was never going to do that she wasn’t concerned about that issue but remained concerned about what provision would be made for her in the event that her husband predeceased her”. The trial judge noted the “impression” of the wife’s solicitor that “the wife was being pressed to not spend too long on this issue but to get the document signed” (at [57]).
  8. Her Honour then turned to Part VIIIA of the Family Law Act 1975 (“the Act”). Her Honour noted that the “legislative provisions at the time of the agreement being signed are the operative law”, and that the “amendments made in 2009 to s90G (including s90G(1A)) were not retrospective”.
  9. The trial judge recorded that only s 90G(1) was relevant to this matter. Her Honour then stated (at [68]):

As to whether a financial agreement is valid, enforceable or effective, is determined according to the principles of law and equity that are to be applied when determining the validity and enforceability or effectiveness of contracts and purported contracts (see section 90KA of the Act). Conduct which is unconscionable would have a bearing on the validity or enforceability of an agreement. Duress is a form of unconscionable conduct.

  1. In light of these principles, her Honour began to consider the two financial agreements by analysing first whether there were “[a]ny Deficits in the Legal Advice Given to either Party”, and whether there were any “[s]ubsequent Issues of Enforceability”.
  2. The trial judge commenced by discussing the certificates from the parties’ respective lawyers which were attached to both financial agreements. Her Honour noted that the “certificates for the first agreement for each of the lawyers [were] worded identically except to the name of the lawyer and their professional address”. Her Honour quoted the respective certificates in full (at [69]) and explained that the reference in the certificates to s 90D of the Act “is wrong” as this section “refers to financial agreements after a divorce order is made”. Her Honour considered this reference to be a mere “drafting error” as the correct section, s 90CB, had been referred to on the “coversheet and in the body of the document” (at [70]).
  3. Another drafting error which her Honour noted was the reference in the certificates to s 90MH which her Honour considered was “unnecessary and … wrong” as it related to superannuation interests, which were not relevant to either agreement (at [71]).
  4. In relation to these errors, her Honour found:
    1. I am not satisfied that a drafting error of this nature is sufficient to offend s90G(c) which requires the provision of a signed statement by the legal practitioner stating that [sic] the advice about the effect of the agreement on the rights of that party and about the advantages and disadvantages, at the time that the advice was provided. The fact that the lawyers used an incorrect short hand reference by way of referring to a section of the Act does not take away from the advice that was given. It is unfortunate for the reference to be wrong, but in the circumstances of this case, I do not consider that it is terminal to the agreements.
  5. Next, the trial judge considered whether there were any errors in Part “C” of the agreements, which set out the “Property, Financial Resources and Liabilities of [the husband], as at the dates of the Agreements”.
  6. The trial judge began by explaining that during the adjournment of the hearing the parties had received “valuations of the husband’s interests at the time of the signing of the financial statements”, and that such valuations had demonstrated that the husband’s previous attempt to value his assets “was not completely accurate”. Despite this, her Honour did not consider that the husband was “doing anything but his best to reflect his financial position at that time and that he “did that without the benefit of any independent valuations”. In relation to the wife’s knowledge of the husband’s wealth at the time he valued the property, her Honour found that the wife “could infer wealth from [the husband’s] words to her, and his actions and their circumstance, but not from any firm basis of knowledge” (at [73]).
  7. Her Honour noted that the husband had “some complex business interests in 2007”, and that he had given evidence in cross-examination to the effect that he “didn’t think it was necessary to mention all of his companies and trusts when setting out his assets but that he did understand that the assets that he was declaring were is [sic] and his companies’ assets” (at [74]). Her Honour then detailed the major assets of the husband, the valuations he ascribed to those assets, and the valuations provided by the independent valuer (at [75]). Her Honour noted the wife’s concern that “the husband’s use of the expression ‘shares in public companies’ may reflect his shareholdings in companies for which he [had] no personal interest rather than companies of which he lawfully [held] an interest”. This was rejected by her Honour as she was satisfied that the husband only meant “shares in his own companies”. It was notable that the husband’s “then estimate was not too far off the mark of the $11 million which seems to now be accepted” (at [76]).
  8. Significantly, her Honour recorded that the husband’s “schedule, if anything, [inflated] his worth”, and her Honour was not satisfied the husband had “any intention to defraud or misrepresent his true situation”. Her Honour noted that there is no requirement for independent valuations to be conducted prior to the signing of financial agreements (at [77]).
  9. Having analysed whether there were any deficits in the agreements themselves, her Honour then discussed “[t]he Wife’s Proficiency in English and Any Bearing this has on her Capacity to Understand the Nature and Effect of the two Agreements”.
  10. Her Honour noted that the husband and wife “spoke with each other in English and Greek” and appeared “to have been able to make themselves understood well enough”. The wife was also found to have spoken to the husband’s family and friends in English and “appeared to others to be able to participate in conversations” (at [78]).
  11. Ms Harrison gave evidence that the wife spoke to her in English and she was “not concerned about the [wife’s] capacity to understand her”. She formed the “view that her client was understanding her” as “she was able to answer the solicitor’s question’s and able to give her information” (at [79]).
  12. Ms Harrison also provided evidence to the effect that the wife was unconcerned about the “separation provisions” in the agreement, though she was aware of them, as she claimed she would never leave the husband and was “not interested in the idea that [the husband] might ever leave her”. Rather, it was asserted that the wife was only concerned with the “testamentary provisions” as she wished to “ensure that the agreement contained protection for her from [the husband’s] Estate, should he predecease her” (at [80] – [81]).
  13. Ms S, an expert witness, gave evidence about the wife’s proficiency in English. Ms S claimed that, though the wife was “not fluent in English” she would “be capable of understanding words to the effect of ‘this is a bad agreement; do not sign it’. And, in short, that is what Ms Harrison’s advice was” (at [83]).
  14. Thus, the trial judge found that Ms Harrison had made “her points clearly and plainly to the wife, and that the wife was understanding the final effect of the advice”. This was particularly in light of the wife’s evidence that Ms Harrison told her “[i]t is the worst contract I have ever seen. Don’t sign” (at [84]).
  15. Her Honour noted that in this regard there was a significant gap “between the level of understanding of the advice, and the actions of the [wife]” (at [85]).
  16. Therefore, her Honour held:
    1. I am not satisfied that there is any basis for me to consider that the wife’s poorer English can be associated with that outcome. If I am satisfied that her English was sufficient to understand the purpose and effect of the agreement, and to understand the solicitor’s advice about those matters, then I cannot attribute her lack of proficiency in English to her signing the agreement despite the advice.
  17. Finally, the trial judge turned to the issue of “Duress or Undue Influence and noted the husband’s submission that “to establish duress, there must be pressure the practical effect of which is compulsion or absence of choice” (at [87]).
  18. Thus, her Honour considered whether the wife had been subject to duress when she signed the first financial agreement. It is convenient to set out in full her Honour’s findings in this regard:
    1. The [wife] knew that there would be no wedding if she didn’t sign the first agreement. The husband’s position about that was plain.
    2. The husband did not negotiate on the terms of the agreement as to matters relating to property adjustment or spousal maintenance. He did not offer to negotiate. He did not create any opportunities to negotiate. The agreement, as it was, was to be signed or there would be no wedding. Without the wedding, there is no evidence to suggest that there would be any further relationship. Indeed, I am satisfied that when [the husband] said there would be no wedding, that meant that the relationship would be at an end.
    3. The [wife] wanted a wedding. She loved [the husband], and wanted a child with him. She had changed her life to be with [the husband].
    4. She was in Australia only in furtherance of their relationship. She had left behind her life and minimal possessions in [Country B]. 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 [the wife]. She would not be entitled to remain in Australia and she had nothing to return to anywhere else in the world.
    5. Every bargaining chip and every power was in [the husband’s] hands. Either the document, as it was, was signed, or the relationship was at an end. The husband made that clear.
    6. [The husband] knew that [the wife] wanted to marry him. For her to do that, she needed to sign the document. He knew that she would do that. He didn’t need to open up negotiations. He didn’t need to consider offering something different, or more favourable to [the wife]. If she wanted to marry him, which he knew her to want, she must sign. That situation is something much more than inequality of financial position. [The wife’s] powerlessness arises not only from her lack of financial equality, but also from her lack of permanent status in Australia at the time, her reliance on [the husband] for all things, her emotional connectedness to their relationship and the prospect of motherhood, her emotional preparation for marriage, and the publicness of her upcoming marriage.
    7. In those circumstances, the wife signed the first agreement under duress. It is duress born of inequality of bargaining power where there was no outcome available to her that was fair or reasonable.
  19. Having arrived at this conclusion in relation to the first agreement, her Honour turned to the second financial agreement. Her Honour explained that the second agreement was entered into “to allow the time pressure of the impending wedding to be released and for the agreement to be signed absent that time pressure”. Thus, her Honour considered that the only difference between the first and second agreements was the “time pressure … for the parties, and particularly the wife” (at [95]). In light of this finding, her Honour held:
    1. In all respects the second agreement was simply a continuation of the first – the marriage would be at an end before it was begun if it wasn’t signed.
    2. The wife plainly had no choice that she could reasonably see, but to sign the agreement. In those circumstances the second agreement was plainly signed by the wife under duress.
    3. I’m satisfied that, in the circumstances, the operative second agreement was signed by the wife under duress. The agreement must be set aside.

Ground 7

That the learned trial judge erred in applying the wrong legal test to the facts namely that:
a. “to establish duress, there must be pressure the practical effect of which is compulsion or absence of choice” (Reasons [87]); and
b. “duress was born [sic] out of the inequality of bargaining power where there was no outcome available to [the wife] that was fair or reasonable” (Reasons [94]).

  1. Although as pleaded the wife sought relief (i.e., the setting aside of the agreements) on the basis of duress, undue influence, and/or unconscionability (both under s 90K(1)(b) and s 90K(1)(e) of the Act), her Honour only accepted the first ground, namely duress.
  2. At [68] her Honour said that “[d]uress is a form of unconscionable conduct”, but there is nothing in the reasons that indicates her Honour set aside the agreements on the basis of unconscionability under s 90K(1)(b) or s 90K(1)(e).Similarly, although in the heading immediately above [87] of the reasons there is reference to “Undue Influence”, there is no analysis thereunder, or elsewhere in the reasons, directed to a finding that there was undue influence, and the agreements should be set aside on that basis.
  3. Thus, to repeat, the issue is duress, and her Honour made two statements about what needs to be established in that regard. First, at [87] her Honour said this:

It is submitted on behalf of the [husband] through his Outline of Case, that to establish duress, there must be pressure the practical effect of which is compulsion or absence of choice.
(Footnote omitted)
Secondly, her Honour said this at [94]:
In those circumstances, the wife signed the first agreement under duress. It is duress born of inequality of bargaining power where there was no outcome available to her that was fair or reasonable.

  1. As can be seen, the first statement came from the trustees, but it seems to have been adopted by her Honour. The second statement though is the relevant one because, as can be seen, that appears in the paragraph where her Honour found that the wife signed the first agreement under duress. Further, in the following paragraph her Honour applies this test in finding that the wife also signed the second agreement under duress.
  2. That brings us to the complaint raised in this ground, that her Honour applied the wrong legal test to the facts, and we agree that that is the case. Indeed that was effectively conceded by the wife’s senior counsel in oral submissions before us. However, we do not necessarily agree with the trustees’ submission as to the law. The reliance on Crescendo Management Pty Ltd v Westpac Banking Corporation (1988) 19 NSWLR 40 at 45 – 46 is not entirely justified. There McHugh JA was discussing the conceptual basis of the defence of economic duress, albeit in terms in which the other members of the court did not join, and said this at 45:

The rationale of the doctrine of economic duress is that the law will not give effect to an apparent consent which was induced by pressure exercised upon one party by another party when the law regards that pressure as illegitimate.
His Honour continued at 45 – 46:
A person who is the subject of duress usually knows only too well what he is doing. But he chooses to submit to the demand or pressure rather than take an alternative course of action. The proper approach in my opinion is to ask whether any applied pressure induced the victim to enter into the contract and then ask whether that pressure went beyond what the law is prepared to countenance as legitimate? Pressure will be illegitimate if it consists of unlawful threats or amounts to unconscionable conduct. But the categories are not closed. Even overwhelming pressure, not amounting to unconscionable or unlawful conduct, however, will not necessarily constitute economic duress.

  1. Although the remarks of his Honour have been picked up in subsequent decisions, there has also been some difficulty in fitting the doctrine of economic duress within the equitable doctrines. Indeed, the court of appeal in Australia & New Zealand Banking Group v Karam [2005] NSWCA 344; (2005) 64 NSWLR 149 said as much. At [61] the court said this:

How the doctrine of economic duress fits with the equitable doctrines is unclear. The reference to “unlawful” conduct, read in context of the earlier authorities, was originally a reference to unlawful detention of goods. Concepts of “illegitimate pressure” and “unconscionable conduct”, if they do not refer to equitable principles, lack clear meaning, outside, possibly, concepts of illegitimate pressure in the field of industrial relations.

  1. Further, the uncertainty around the terminology led the court of appeal to make the following comments at [66]:

The vagueness inherent in the terms “economic duress” and “illegitimate pressure” can be avoided by treating the concept of “duress” as limited to threatened or actual unlawful conduct. The threat or conduct in question need not be directed to the person or property of the victim, narrowly identified, but can be to the legitimate commercial and financial interests of the party. Secondly, if the conduct or threat is not unlawful, the resulting agreement may nevertheless be set aside where the weaker party establishes undue influence (actual or presumptive) or unconscionable conduct based on an unconscientious taking advantage of his or her special disability or special disadvantage, in the sense identified in Commercial Bank of Australia Ltd v Amadio.

  1. The correct test is whether there is “threatened or actual unlawful conduct”, and not the test identified by her Honour. There needed to be a finding that the “pressure” was “illegitimate” or “unlawful”.
  2. It is not sufficient as her Honour says in [87] that the pressure may be overwhelming and that there is “compulsion” or “absence of choice”. As is pointed out by the trustees in their written summary of argument at paragraph 35:

The law’s tolerance for at times intense pressure in relation to the making of agreements was long ago identified by Lords Wilberforce and Simon of Glaisdale in Barton v Armstrong [[1976] AC 104 at 118] (although in the minority generally, consistent with the majority on this issue):
‘…in life, including the life of commerce and finance, many acts are done under pressure, sometimes overwhelming pressure, so that one can say the actor had no choice but to act. Absence of choice in this sense does not negate consent in law: for this pressure must be one of a kind that the law does not regard as legitimate.”
(Emphasis omitted)

  1. As to the different test set out at [94] it is beyond doubt that “inequality of bargaining power” cannot establish duress. Thus, again, her Honour has erred.
  2. In any event, the trustees say that there was no “inequality of bargaining power”, and the trial judge erroneously found that “there was no outcome available to [the wife] that was fair or reasonable”. The facts are that the husband was at pains to point out to the wife from the outset, that his wealth was his, and he intended it to go to his children. The wife was aware of that at all times and she acquiesced in that position. Relevantly, the trial judge found that the wife’s interest lay in what provision would be made for her in the event the husband pre-deceased her, and not what she would receive upon separation. And we note that the agreements provided for the wife to receive what she sought in that regard.
  3. Finally, we note that the error by her Honour in applying the incorrect test arises in respect of both agreements, and not just the first agreement.
  4. We find there is merit in this ground of appeal.



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