It is not unheard of for parties to an agreement to refer, in the agreement itself, to additional documents. These additional documents are sometimes, although regrettably, not always annexed or attached to the actual agreement.
In adopting this course of action the parties may be endeavouring to streamline or simplify the body of the primary agreement and at first glance this approach may appear appealing.
However, a number of potential areas of risk may arise as a result of the reference to an unattached document or documents, not the least of which is the potential for confusion as to the operative terms of the agreement. In addition, there is a distinct possibility that rather than streamlining matters the reference to an unattached document may unnecessarily complicate the interpretation of the scope of the agreement.
Further, the unattached document may contain clauses or provisions that are in direct opposition to the primary agreement and they may also cause unforeseen complications or confusion around just what are the operative terms of the agreement.
Failure to properly incorporate terms
One obvious issue that arises when documents are referenced in an agreement but not actually physically attached to the agreement is whether the terms encompassed by the additional unattached document have been brought fairly and reasonably to the attention of the other party.
This issue will be particularly relevant if any terms of the additional, non-attached document are particularly onerous or unusual.
In those circumstances the party intending to rely on the additional unattached document will need to be able to demonstrate that those particular terms were brought fairly and reasonably to the attention of the other party. If this cannot be demonstrated then any terms encompassed by the unattached document will almost certainly be found not to be binding on the other party.
Australian Consumer Law
In this context is important to be aware that the Unfair Contract Terms provisions provided for in the Australian Consumer Law (“ACL”) for standard term contracts were extended to cover small businesses from 1 November 2016.
The effect of this extension is that if a term of a contract is found to be unfair by a Court or Tribunal will be void and will not bind the parties. While the rest of the contract will continue to bind the parties it can only do so to the extent that it is capable of operating without the unfair term.
The ACL provides that in deciding whether a consumer contract is unfair, it will be presumed that a contract is a standard form contract unless the party who prepared the contract is able to prove a position to the contrary.
In addition, under the ACL a Court may take into account such matters as it considers relevant but must take into account the extent to which the term is transparent and the contract as a whole.
A term will be found to be transparent if it is:
- expressed in reasonably plain language; and
- legible; and
- presented clearly; and
- readily available to any party affected by the term.
It is not difficult to foresee a situation where an unattached document is referred to in an agreement and where a party to the agreement may well be successful in arguing that a term, or terms, in the unattached document were not readily available to them nor were they necessarily clearly presented.
Special requirements for certain contracts
Certain types of agreements may also have specific documentation requirements that will not be met if unattached documents are referred to in the primary agreement or contract.
For example, Sale of Land documents in Australia ordinarily require that all documents need to be attached to the core contractual document. There is a substantial risk that a contract for sale may be avoided if the necessary documents, such as a copy of the title documents, drainage diagrams and a zoning certificate, are found not to have been attached.
Depending on where a property is located, if it includes a swimming pool the contract may also need to have a valid certificate of compliance or an occupation certificate and evidence that the pool has been registered or a valid certificate of non-compliance attached to the contract for sale. A failure to meet this requirement is likely to mean that a purchaser can rescind the sales contract within a stipulated period of time (or until settlement).
Enterprise agreements are another potential minefield as far as unattached documents are concerned.
The Federal Court has held that although a particular enterprise agreement referred to the terms of an internal company disciplinary policy document, the terms of that document had not in fact been incorporated into the agreement. While the policy document was referred to in the agreement, it was not attached to it, nor did it form part of the agreement. The policy document was found not to form part of the enterprise agreement.
Additional potential problems
Whenever an agreement refers to an unattached document there will always be an element of uncertainty. Where multiple unattached documents are referred to in an agreement this uncertainty increases exponentially.
If parties intend that the terms of any external or additional document are to be incorporated into the enterprise agreement then, ideally, the document should be annexed to the agreement. It is not enough to simply to rely on custom and practice.
Confusion may arise as to exactly which unattached document is being referred to especially if the document is named incorrectly. Multiple versions of the same document can cause confusion even if the agreement correctly names the unattached document in the first place.
In the quest for simplicity it is not difficult to see how substantial uncertainty can result from the failure to attach all documents referred to in the agreement to the physical document. Contract law and the drafting of agreements are not areas where it is wise to “go it alone”.
Seeking legal advice prior to entering into a contract may well be the most cost effective approach and could potentially save considerable amounts of time and money further down the track.
If you or someone you know wants more information or needs help or advice, please contact us on 02 9790 7000 or email [email protected].