A heads of agreement is a tool used in negotiation to record the broad terms of an agreement quickly when there is not the time or information readily available to record a more thorough and final agreement.
In a sense, a heads of agreement is just a communication tool or at best an agreement to agree later rather that what us lawyers would consider a finalised agreement.
But are heads of agreement binding or enforceable?
In terms of contract law, the answer depends on the particular facts of the case. Like any contract, it needs to tick a few boxes at law to be binding.
- Was there offer and acceptance?
- Is there consideration given for the obligations provided?
- Do the parties intend the agreement to be binding?
- Do the terms of the agreement provide sufficient certainty?
- Are there any factors that might vitiate the agreement such as fraud or duress?
One might assume that by their broad and uncertain nature, a heads of agreement would fall short of something that a court is willing to enforce, however, be cautious. It is always prudent to document somewhere in the heads of agreement that the parties do not intend for it to be binding.
In terms of the Family Law, a heads of agreement does not meet the requirements of the Family Law Act to be considered a Binding Financial Agreement that ousts the Court’s jurisdiction to make property orders.
If they are not binding, then what use are they?
As stated above, they are a useful tool used to keep parties on the same path to reaching a final agreement.
Coming back to the Family Law context, it might be preferable that a self-represented litigant negotiating or attending mediation record any agreement as a heads of agreement. This will enable them to firstly, take some more time to consider the terms, and secondly, either instruct a lawyer to draft the final agreement or provide advice on the heads of agreement.
Depending on whether the heads of agreement are expressed to be ‘without prejudice’, they could also be admissible as evidence in any future court proceedings. If you are forming a heads of agreement during a mediation, even though mediations are usually conducted on a without prejudice basis, make sure to check the mediation agreement because these agreements will often provide that any heads of agreement or written agreements formed at the mediation are not without prejudice.
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