Australia: Reasonable endeavours to negotiate - valid for a MOU (Memorandum of Understanding)?

Business negotiations sometimes end with the parties signing a Memorandum of Understanding (MOU) – contemplating further negotiations, with the intent that the MOU will be followed by a 'formal agreement' down the track.

The recent Supreme Court of Queensland case of Baldwin v Icon Energy Ltd [2015] QSC 12 has considered a situation where the parties did not ultimately agree on the terms of a formal agreement – with one side alleging a breach of a MOU obligation to use 'reasonable endeavours to negotiate'.


Southern Fairway Investments Pty Ltd (SFI) entered into a MOU with the defendant companies (together referred to as Icon) under which the parties agreed to use reasonable endeavours to negotiate an agreement for the supply of gas.

Icon was the proposed supplier of the gas and SFI was interested in purchasing that gas.

The MOU contained the following term:

1.3 Negotiation of terms and conditions

The parties agree to use their reasonable endeavours to negotiate by 30 August 2008 (and in any event no later than 30 October 2008) a Gas Supply Agreement using the principles set out in schedule 2 and including the following key factors...

Schedule 2 of the MOU was entitled 'Key terms and conditions for the purchase of gas from Icon Energy'. It set out a number of potential terms for a gas supply agreement but concluded as follows:

These terms and conditions are indicative only and are submitted as a means of encouraging discussion...It is understood that for the avoidance of doubt that this document does not obligate any party to enter into any further agreement.

The parties were ultimately unable to agree on a gas supply agreement.

Court case

SFI started a court case in the Supreme Court of Queensland claiming that Icon did not negotiate as required by the MOU and that as a result SFI lost the opportunity of reaching a gas supply agreement worth $221 million.

Icon applied to the Court to strike out SFI's claim, arguing that the claim was unsustainable because the obligation to negotiate the gas supply agreement was uncertain and unenforceable.

SFI relied upon the 2014 High Court case of Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640 where a gas supply agreement obliged the sellers to supply certain amounts of gas and to use 'reasonable endeavours' to make a further quantity of gas available. In that case, the obligation to use 'reasonable endeavours' was held to be valid.

SFI argued that the obligation in clause 1.3 of the MOU was similarly valid because the use of the term 'reasonable endeavours' in the context of an obligation to negotiate further gave the MOU a legal content that was certain.


Justice McMurdo stated that Australian law does allow scope for the enforcement of an obligation to negotiate. However, his Honour was of the view that this did not extend to agreements where the subject of the negotiation is as open-ended as to the formulation of the agreement itself.

The Court noted that in the Electricity Generation case (relied upon by SFI), the relevant agreement concerned an obligation to use 'reasonable endeavours' to make available further quantities of gas, rather than an obligation to negotiate the creation of a new agreement. The existing contract terms could therefore be used to determine what was meant by the obligation to use 'reasonable endeavours' and how far that obligation extended.

Conversely, the Court said that where the obligation concerned the negotiation of an entirely new agreement, the parties would not have the benefit of an existing contractual framework of rights or obligations to which the parameters of the obligation could be anchored. In these circumstances, it would not be possible to determine what was required by the parties with the necessary degree of certainty.

Ultimately, his Honour found that the provisions of the MOU requiring the parties to use reasonable endeavours to negotiate were legally unenforceable due to uncertainty. His Honour struck out SFI's claim in its entirety.


MOUs often have an important role to play in commercial negotiations, particularly where parties need to move towards a final agreement in stages.

However, it is important to understand the limits of MOUs and to have terms drafted in a way that accords with the understanding of the all parties involved.

This particular case demonstrates that a term in a MOU requiring the parties to use reasonable endeavours to negotiate an entirely new agreement will be invalid and unenforceable.

Significant caution therefore needs to be taken in the drafting of MOUs or 'informal' agreements to avoid a costly legal battle about the negotiations that may follow the signing of a MOU or the terms of MOU itself.

It is always best to be very clear about the legal obligations that apply to the parties to the MOU including covering off important issues such as:

  • the terms that have been finally agreed and are binding;
  • the terms that need to be negotiated further;
  • what things (specifically) the parties need to do as part of the further negotiations; and
  • how disputes over the MOU might be resolved (e.g. by reference to an independent expert).

Winner – EOWA Employer of Choice for Women Citation 2009, 2010, 2011 and 2012
Winner – ALB Gold Employer of Choice 2011 and 2012
Finalist – ALB Australasian Law Awards 2008, 2010, 2011 and 2012 (Best Brisbane Firm)
Winner – BRW Client Choice Awards 2009 and 2010 - Best Australian Law Firm (revenue less than $50m)

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.