Download memoranda of understanding

MEMORANDA OF UNDERSTANDING
What is a MOU?
A Memorandum of Understanding (or MOU) records the common intent between parties
where they do not wish to assume legally binding obligations.
A contract is a legally binding agreement. If a contract is breached, the other party to the
contract is entitled to enforce the contract, or seek remedies under it, through the courts.
If a document is detailed, imposes conditions and includes important terms (for example,
details of insurance or indemnities) it is likely to be considered a contract by the courts
even though it is called an MOU. Such documents need to be reviewed by the Legal Office
prior to execution.
If the document provides a broad framework or set of principles to guide the parties in
undertaking a project or collaboration, and leaves the specifics of the project or
arrangement for later negotiation between the parties, it is an MOU and is unlikely to be
enforceable as a contract.
Why use an MOU?
MOUs can assist the University clarify roles and responsibilities and manage expectations
associated with collaborations that are to be undertaken with other universities or
organisations, without creating legally binding obligations.
The University may also wish to enter into an MOU where a project is being undertaken
and the detail for the project is yet to be fully determined. MOUs for this purpose describe
the key components of the project, the roles and relationships of the parties in relation to
the project, and the conditions precedent for the project to proceed.
The University may also enter into an MOU as an interim measure to progress a project
pending settlement of the terms of a formal contract. In these circumstances, the document
may contain a clause to the effect that the parties will continue to negotiate in good faith to
finalise a binding agreement between them.
At the time that an MOU is being prepared, consider whether or not the University intends
the document to impose legally binding obligations. If the University does intend to be
legally bound, a contract should be used and reviewed by the Legal Office prior to
execution.
What issues can an MOU cover?
An MOU might set out:

the objectives of the project or collaboration;

the principles of the project or collaboration;

mechanisms for consultation and communication;

mechanisms for the sharing of information; and

the manner in which disputes are to be dealt with between the parties.
LEG/POL/003
MEMORANDA OF UNDERSTANDING
A genuine MOU should not deal with issues such as:

the payment of money;

the provision of an indemnity;

an obligation to provide a service; or

remedies available to a party if the other party does not abide by the terms of the
MOU.
When will a MOU be legally binding?
The question of whether or not an MOU is legally binding is a question involving principles
of contract law. In general, a document is considered to be binding if there is an offer,
acceptance, an intention to be legally bound, and consideration (the exchange of
something valuable).
The intention of the parties at the time of signing the MOU is important to determining
whether or not the document is binding. If the intention of the University is unclear, but the
terms of the MOU are clearly defined and the MOU is supported by consideration, there is
a strong presumption at law that the University intended to create a legally binding
contract, despite the document being called an MOU.
If it is the intention of the University that a document be non-binding, the document should
provide explicitly that the parties do not intend to enter into a legally binding arrangement,
but nevertheless intend to comply with the framework provided by the document.
Sometimes an MOU will need to contain some legally binding clauses, despite the intention
of the parties for the majority of the document to be non-binding. Clauses which the parties
may wish to be legally binding include confidentiality and privacy provisions.
Despite expression of this intention, disputes can still arise as to whether other clauses in
the MOU are also intended to be legally binding. These disputes can arise from the use of
language in the MOU which conveys a binding intention. Use of phrases such as “the
parties must”, “the parties will” or “a party shall’ tend to convey such an intention. The use
of such expressions should be avoided, while expressions such as “the parties intend” or
“the objectives of the parties are” should be used instead.
Use of the term ‘MOU’ in an international context
Sometimes an organisation from an overseas jurisdiction will insist upon a document being
called an MOU, even though the document would be regarded under Australian law as a
legally binding contract. Under Australian law, it does not matter what the document is
called; it is the substance of the document that determines its status as either a legally
binding or non-binding document.
If in doubt, you should contact the Legal Office for advice to ensure that a document that
could create legally binding obligations upon the University is reviewed and approved in
accordance with the University’s governance and compliance policies and procedures.
Issued by the Legal Office of the University of Newcastle
11 November 2013
LEG/POL/003