What Is A Memorandum Of Understanding (MOU) In Australia?

If you’re reading this article chances are you’re wondering what exactly a memorandum of understanding (MOU) is and how it differs from a regular contract.

Simply put, a memorandum of understanding (MOU) is a written document outlining the agreements between two or more parties. This document usually isn’t very detailed as it only captures the essential details binding the parties.

In most cases, MOUs aren’t legally binding and are more of a stepping stone towards a legally binding contract.

If you have a query regarding an MOU or want to get a proper contract drafted up, get one of our expert contract lawyers to take a look at your matter. And if you just want to learn more about Memorandums of Understanding and how they work in Australia, then read the rest of this article.

What Is A Memorandum Of Understanding (MOU)?

A memorandum of understanding defines the relationship between the involved parties. It outlines the type of partnership between the parties, the terms and conditions, and the responsibilities of each involved party.

The document acts as a stepping stone towards a formal contract, outlining the main elements of the future agreement. An MOU shows that two or more parties intend to sign a formal contract in the future. However, the parties aren’t bound to enter into a partnership.

What Are The Main Components Of An MOU?

Each MOU is unique and different, depending on the parties involved and the type of partnership they’re entering. Generally, the memorandum of understanding will contain the following:

  • Basic details like the names and information about each party
  • How long the agreement is valid
  • The type of relationship/partnership between the parties
  • The purpose of the agreement
  • Duties and responsibilities of each party
  • The agreement’s governing law
  • How to resolve disputes (if any)
  • Financial terms

What Is The Purpose Of A Memorandum Of Understanding?

Memoranda of understanding are mostly used in commercial relationships/partnerships. It serves various purposes, including:

  • Outlining the framework for future negotiations
  • Defining the goals and objectives of a commercial partnership
  • Acts as a preliminary step before signing a formal agreement or contract
  • Show commitment to a particular project

How Is A MOU Different From A Contract?

Understanding the difference between contracts and a memorandum of understanding in Australia is important. The two documents are different in terms of their intention, purpose, and legality.

Before signing either document, it’s crucial to study the details and involve a commercial lawyer to avoid future legal liabilities. That said, let’s look at the difference between contracts and an MOU.

Intention

A contract intends to legally bind two or more parties into a formal agreement. On the other hand, an MOU intends to clarify the type, purpose, and terms of a partnership without forming any legal bounds.

Purpose

The primary purpose of a contract is to form legal grounds between parties. It shows that the agreement is certain and complete, and the parties must abide by it. An MOU’s purpose is to outline the agreement between the parties. The agreement isn’t necessarily complete since the parties might still be negotiating and haven’t signed any legal agreement.

Legality

The main difference between a contract and an MOU is the legality. A contract is legally binding, and breaching it can have legal consequences. It’s also essential to note that contract terms are enforceable.

But, an MOU (in most cases) isn’t legally binding or enforceable by courts. Therefore, breaching it might not carry any legal consequences.

Is An MOU Legally Binding in Australia?

Usually, an MOU isn’t a legally binding document in Australia. However, that’s not always the case. Any document, including an MOU, can be legally binding if it has all the elements of a contract. These elements are:

  • Offer
  • Intention to form legal relations
  • Acceptance of the offer
  • Consideration: Exchange of value between the involved parties
  • All parties must have the legal capacity to join an agreement
  • Clear and certain terms

If the MOU doesn’t contain these elements, it isn’t legally binding, and the terms aren’t enforceable by a court. The involved parties must include a clause mentioning their intention to make the MOU legally binding.

How Long Does A Memorandum of Understanding Last?

The involved parties determine the validity of a memorandum of understanding. It can last from when the parties form it until they sign a formal contract. In other cases, the MOU may be valid for an indefinite timeframe. The involved parties usually agree on how long the memorandum of understanding will last.

Can You Cancel Or Terminate A Memorandum Of Understanding in Australia?

Yes. Any involved parties can cancel the MOU at any point in the agreement. The cancellation process depends on the nature and terms of the MOU. You can cancel the agreement by issuing a written notice to the other parties. However, depending on the agreement, all parties must agree before the cancellation is valid.

Likewise, the parties can terminate a memorandum of understanding in Australia without fear of legal consequences (unless the MOU is legally binding). Either party can notify the others via a clear written document indicating their intention for termination.

After the notification, the agreement is automatically considered terminated. However, depending on the MOU’s terms, you might need to meet certain conditions before terminating the agreement. Read the terms and conditions of the MOU carefully before starting the termination or cancellation process.

What’s Next?

Hopefully, you’ve now gained a clear understanding of what a memorandum of understanding is, its purpose, and its main components. We have also discussed how an MOA differs from a formal contract.

As a business owner, you may be wondering whether to draft an MOU or a contract. Either can be fine, depending on your situation, but hiring a lawyer to advise you and draft these agreements will ensure that you and your company are aware of possible legal ramifications.

Book a free consultation with our commercial law experts at Aditum Lawyers for clarification on your legal agreements to safeguard your business today.

Resources & Further Reading

  1. https://www.finance.gov.au/about-us/glossary/pgpa/term-memorandum-understanding-mou
  2. https://businesskitz.com.au/the-memorandum-of-understanding-business-guide/
  3. https://legal.thomsonreuters.com/blog/the-essential-elements-of-a-contract/
  4. https://lawpath.com.au/legal-documents/memorandum-of-understanding

Disclaimer: The information provided in this article is for general informational purposes only and should not be construed as legal advice. Consult with a qualified commercial lawyer for personalised advice regarding your specific situation.