What is a Memorandum of Understanding?

*

Every so often you will hear of parties that have signed a Memorandum of Understanding (MoU).

There may be some earnest or even solemn ceremony.

The document may look very grand, with legal-sounding phrases in a legal-looking format.

To a general onlooker the impression conveyed is that some agreement has been arrived at, which each party intends to be binding on themselves and the other parties.

“There is now a Memorandum of Understanding,” someone will say nodding, and wanting you to nod-along too.

*

But.

From an English lawyer’s perspective, a Memorandum of Understanding is invariably intended to not be an agreement in any contractual sense.

A MoU can usually be described – even defined -in negative terms: it is an agreement which not intended to have any contractual effects between the parties.

(From time-to-time there will be a MoU which has contractual effect, though these are rare and come about mostly because of drafting errors, catching the parties by surprise.)

*

So if we now know what a Memorandum of Understanding is not, then what is it?

A MoU will normally come about in two situations.

*

The first situation is that there is actually no common understanding: for a MoU can merely assert there is an understanding rather than describe it, still less exactly particularise it.

A MoU can say the parties have reached an understanding on a thing, and then deftly not set that understanding out, and such ambiguity may well serve both parties.

And because of the lack of any exactness in what has been supposedly agreed there cannot be any enforcement, for what actually is to be enforced?

*

The second situation is when there has been a meaningful agreement but, for some reason, one or more of the parties do not (or cannot) want the agreement to have contractual effect.

This second situation is more common.

It may be that the parties want to negotiate further before there is a full contract. And so a MoU – like a Non Disclosure Agreement – is a ceremonial gesture of goodwill.

For public authorities a MoU can means they can avoid going through a formal public procurement practice. Here a government body may enter into a MoU with a supplier to say any purchases of [x] will always be at price [y], but the government body will not be able to enforce that as a contract, and nor can the supplier. Here a MoU is literally a memorandum of understanding, and nothing more.

Or it may be because one or more of the parties wants wiggle room, so as vary or even renege on what is agreed.

(Like someone once described a ‘gentlemen’s agreement’ as something that a party intends will bind the other side, but not themselves.)

Or it may well be that the negotiators know they cannot get approval from their masters to enter into a contract, and an MoU is the best they can show for their efforts.

Or it may be because the parties need to announce something, anything – and announcing a MoU will do.

*

In essence, when there has been a negotiation and a Memorandum of Understanding is an output, then there has been a deliberate decision by one or more parties for there not to have anything more binding. That decision can be for a good reason or a bad reason, or both. But there would have been a decision.

*

You may have noted that above there has been mention of there being no ‘contractual’ effect of a Memorandum of Understanding, rather than no ‘legal’ effect.

This is because a MoU can have (often unintended) legal effects – they can matter in a tort claim (such as showing there was notice or knowledge) and they can matter in an equitable action (meaning a party may be prevented from then doing something unconscionable).

And a MoU can have evidential value in any dispute over fact.

A thing not having contractual effect is not the same as it having no more general legal effect or evidential value.

And that is why a party entering into a MoU should always have legal advice: it may be a neat way of avoiding a binding contract, but it is not always a neat way of avoiding needing lawyers.

*

The above sets out the general position under English law, but of course Memoranda of Understanding can be used in other contexts such as international matters.

At the moment there is speculation that the United States and Iran may enter into a MoU in respect of the war that the United States recently lost against Iran.

If so, many of the above points hold true.

There will be a reason why the parties do not (or cannot) make this into a treaty.

And as set out above, this reason will usually be either that there is not actual agreement or that one or more parties do not actually want to be bound by what was agreed.

Or a bit of both.

If there is a MoU, and it is published, let us see what it says – and what it does not say.

***

Comments Policy

This blog enjoys a high standard of comments, many of which are better and more interesting than the posts.

Comments are welcome, but they are pre-moderated and comments will not be published if irksome, or if they risk derailing the discussion.

More on the comments policy is here.