Forming a Legally Binding Contract in Australia

 

Pretty much any business at some will enter into a written contract, either requiring others to enter its contract or others requiring your business to enter their contract.

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A contract is a legally enforceable agreement between two or more parties. Generally, courts will enforce a contract, only voiding clauses it finds as unlawful.

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For a contract to be valid, several essential elements must be present:

1. Offer and Acceptance: One party must make a clear and definite offer, and the other must accept it. This mutual agreement forms the foundation of the contract.

2. Consideration: Each party must provide something of value — such as money, goods, services, or a promise — in exchange for the other’s commitment. This exchange is known as consideration.

3. Intention to Create Legal Relations: The parties must intend for their agreement to be legally binding. In commercial contexts, this intention is generally presumed.

4. Capacity: All parties must have the legal capacity to contract. This typically excludes minors, individuals of unsound mind, or those under the influence of substances at the time of agreement.

5. Certainty and Completeness: The terms of the contract must be clear, specific, and complete enough to be enforceable. Vague or ambiguous terms may render a clause or the contract void.

6. Genuine Consent: Consent must be freely given. A contract may be invalidated if obtained through misrepresentation, duress, undue influence, or mistake.

 

While contracts can be oral or written, written contracts are preferable for clarity and evidentiary purposes. In some cases, such as property transactions, a written form contract is legally required.

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Unwritten contracts create ambiguity and confusion.  If a problem arises and you have an unwritten contract the cost to resolve the issue can be significantly greater.

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Understanding these elements is crucial for drafting enforceable agreements and avoiding disputes. Legal advice is recommended when entering into a contract to ensure compliance with relevant legislation and common law principles.

 

Tips when considering a contract

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Clarity in contract drafting is where legal precision meets strategic communication. Some practical tips to help ensure your contract terms are both enforceable and easy to navigate are outlined below:

 

• Use plain, direct language

Avoid legal language where possible. Clear, everyday language reduces ambiguity and makes obligations more transparent — especially for clients or non-lawyers.

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• ​Be specific and unambiguous

Define key terms and avoid vague phrases like “reasonable time” or “as soon as possible” unless contextually necessary. If a term could be interpreted in more than one way, it probably needs refinement.

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• Structure for readability

Use headings, numbered clauss, and bullet points to break down complex provisions. Short sentences and paragraphs with consistent formatting make contracts easier to scan and reference.

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• Draft in the active voice

“Party A must deliver the goods by 1 July” is clearer than “The goods shall be delivered by 1 July.” Active voice assigns responsibility directly.  The use of particular words creating an obligation is important, otherwise the clause imposing the obligation may fall short in terms of enforcement.

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• Avoid redundancy and doublets

You don’t need to try and enforce a point by using phrases like “null and void” or “cease and desist”.  These can often be reduced to one word without losing meaning.

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• Anticipate edge cases

Always look for the missile coming over the horizon.  Think through “what if” scenarios — delays, disputes, non-performance; address them explicitly. This reduces the risk of future litigation.

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• Tailor templates thoughtfully

Sure generic templates can be a helpful starting point, but they are not the panacea and should always be adapted to the specific circumstances surrounding your transaction, particularly the parties, and the jurisdiction where the contract is to be enforced.  Other matters include unfair contract terms which under recently introduced legislation can be fraught with danger.

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• Review from the reader’s perspective

Always ask yourself: Would a reasonable person unfamiliar with the deal understand this clause? If not, revise.  Also ask would I enter into this contract.

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If you are considering entering into, drafting or reviewing a contract it is best to seek advice.  The cost to do so may save some heartache if the relationship for some reason ‘goes south’.