Heads of Agreement Review: Binding vs Non-Binding Clauses

You signed a Heads of Agreement to capture the deal points before the formal contract was drafted. Both parties wrote “non-binding” at the top. Then the deal soured, the other side walked, and your lawyer told you the Heads might actually be legally enforceable. Welcome to the Australian doctrine of binding preliminary agreements — one of the most misunderstood areas of commercial law.

The Masters v Cameron framework

The High Court in Masters v Cameron (1954) 91 CLR 353 set out three categories for preliminary agreements. Category 1: parties have agreed all terms and intend to be immediately bound, with the formal contract just restating the deal — fully binding. Category 2: parties have agreed all terms and are immediately bound, but performance is conditional on execution of a formal contract — binding now, conditional later. Category 3: parties intend not to be bound until the formal contract is executed — not binding. A fourth category from later cases (Baulkham Hills Private Hospital v GR Securities) covers parties who intend to be bound now while contemplating that further terms may be added — binding.

Why “subject to contract” is not enough

Writing “subject to contract” or “non-binding” at the top does not automatically make the document non-binding. Courts look at the whole document, the conduct of the parties, the level of detail, whether any terms were left genuinely open, and what was said in negotiations. A detailed Heads of Agreement that the parties acted on for months will frequently be held binding regardless of the disclaimer.

Clauses that are almost always binding

Even within an otherwise non-binding Heads, certain clauses are routinely held binding by Australian courts: confidentiality, exclusivity / no-shop, costs allocation, governing law and jurisdiction, dispute resolution, and any deposit or break fee. If you intended these to bind, label them as such; if you did not, exclude them carefully.

The exclusivity trap

An exclusivity clause (“Party A will not negotiate with any other party for 60 days”) is enforceable as a matter of contract even in an otherwise non-binding Heads. Breach can give rise to damages — historically modest but not negligible. If you want to keep your options open, do not sign an exclusivity clause.

The confidentiality overlay

A confidentiality clause in a Heads is enforceable independently of the rest of the deal. If the deal collapses, the confidentiality obligation survives — and the disclosing party can sue on it. Equally, a Heads without an explicit confidentiality clause leaves all your disclosed information exposed.

The “agreement to agree” doctrine

An “agreement to agree” — a Heads that leaves essential terms to future negotiation — is generally unenforceable in Australia (Coal Cliff Collieries v Sijehama (1991) 24 NSWLR 1). But if every essential term is in fact captured, even loosely, the agreement may be binding. The test is whether a court could give the document meaningful effect.

The document that protects you

A formal Heads of Agreement Review before you sign gives you watch points and questions to raise with the other side. The points to settle include explicit binding/non-binding labels, severability, exclusivity carve-outs, deposit treatment, and dispute resolution mechanics.

What Claim Done delivers

For a flat fee, Claim Done reviews your Heads of Agreement and returns an A4 PDF with good, fair and watch points, key obligations, fees and penalties found, and questions to raise with the other side.

What happens after

You enter (or revise) the Heads with eyes open — with questions to raise about what is binding now, what is conditional, and what survives if the deal collapses. If the other side later tries to enforce a clause you intended to be non-binding, your documentary record positions you cleanly to defend.