Essential things you should know about contracts –
Even if you engage lawyers to draft or review your contracts,
there are some essential things you should know.
The contract document does not necessarily reflect the whole
Even if its heading includes the word "contract" or
"agreement", the document is merely evidence of
the existence of a contract between two (or more) parties. It is
not itself the contract. Other terms of your contract or
agreement may be found in other places.
Some terms may not be expressly stated but rather
implied. They may be implied by Courts or by statutory
regimes. For example, the Fair Work Act 2009 implies terms
in some contracts. Industry standards, customs or norms may also
form implied terms in a contract.
Conversely, some statutory regimes may render terms in your
document void and unenforceable. An example of this is the
prohibition on unfair terms in consumer contracts, which stems from
the Competition and Consumer Act 2010 and, in the case of
financial services, from the ASIC Act 2001. Similarly,
Courts will not enforce lengthy restraints of trade.
Other terms of the contract may be reflected in communications
between the parties such as letters, emails, telephone
conversations and meetings.
That said, the written contract is presumed to reflect the
agreement reached between the parties and it can be very difficult
to prove that it contains a mistake or omission.
A comprehensive written agreement prepared by lawyers is always
a good idea to document commercial arrangements.
The contract document can expressly state that it reflects the
Sometimes, a contract document will contain a clause stating
that the document reflects all the terms of the agreement between
the parties (an "entire agreement" clause). It is
tempting to use such a clause for the sake of certainty –
although it, obviously, will not help with statutory inclusions or
But be wary. You might want the other party to be bound by
representations it has made during negotiations or as part of a
tender process. If you use an entire agreement clause, they
As a corollary to this, be mindful of the representations you
make during negotiations, particularly if the contract document is
not going to include an entire agreement clause. You may be held to
The contract document should reflect the parties to the
Make sure that your document shows the names of the legal
entities which are making the agreement – not just their
If a party is contracting in its capacity as trustee of a trust,
the contract may reflect that but it doesn't have to. It is
also possible (providing the parties agree) for the trustee to
limit its contractual liabilities to recourse against the
The contract document should readily identify the essence of
Often, your contract document will contain a preliminary section
called "Recitals" outlining the key purpose of the
With a well drafted contract it should be possible to identify
the essence of the contract relatively easily from the first few
clauses. This key purpose or essence will consist of a combination
of obligations and entitlements for each party. Be aware that an
agreement may have more than one aspect to it. For example, a lease
agreement may also contain a personal guarantee from the
Many of the terms in a contract document (for example, dispute
resolution clauses and governing law clauses) are important to the
legality and functionality of the contract but extraneous to its
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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On 12th November 2016, new laws will commence to protect small businesses from unfair terms in standard form contracts.
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