A Memorandum of Understanding or more commonly referred as MOU is a document often used, wrongfully, in the belief that a MOU is not binding. Quite often, to keep costs low, a MOU is drafted without the advice of a competent commercial lawyer. Problems will arise if parties enter into a MOU in the mistaken belief that it is not binding but has committed to binding matters that tie the party down.
The law is clear that the court will assume parties have the intention to enter into a contract in commercial matters, unless proven otherwise. Even the more commonly term in some MOU which reads something like “This Memorandum shall NOT be binding upon the parties herein”, by itself, would not make a MOU not binding. The court will still look at the terms of the MOU. If all the terms reflect and fulfill the requirements of a contract, that MOU will be binding on the parties.
When drafting a MOU (or engaging the services of a commercial lawyer), here are some tips to help you along.
- What is the purpose of the MOU? Is it for parties to be tied down but to discuss further? Are you really just stating your intention to start negotiations?
- Be clear in the MOU – depending what the purpose of the MOU is.
- Be clear what terms are discussed and agreed and what has not been agreed.
Always remember that what matters is the content, not the heading.
Get in touch with us to find out more on MOU.
Nik Erman Nik Roseli
Commercial & Sports Lawyer | Mediator