This precedent has been authored by Ilija Vickovich, Lecturer, Macquarie Law School and updated by Dr. Gordon Hughes, Principal, Davies Collison Cave Law.
The purpose of background is to set out any necessary factual background to the agreement. It is separate from the operative provisions, which are understood to be legally binding. Background is often included in deeds in order to explain the purpose or rationale for the agreement that follows, especially where the terms may be unusual, voluntary or unsupported by consideration. They are often of evidentiary importance.
Because background may be used subsequently to interpret the operative terms of a contract and place it in proper context, care should be taken to avoid imbuing the background with contractual or promissory intent. Background should use a different numbering system to the operative parts in order to distinguish them from the agreement itself. Care should similarly be taken to avoid representations in the background. Factors to consider
• Background should avoid expressions such as "the parties have agreed" in case they are construed as indicating a pre-existing agreement that simply is evidenced by the document.
• A party making an unequivocal representation (such as about skill or expertise) in a background may later be prevented from denying the statement by estoppel. An inaccurate representation may expose a party to liability under section 18 of the Australian Consumer Law (Misleading or Deceptive Conduct).
• Do not repeat all the key covenants in the background; it should be a background not a summary. Let each part of the agreement fulfil its own purpose.
• Three longstanding rules of construction in relation to background are as follows:
o if the background is clear and the operative part is ambiguous, the background governs the construction;
o if the background is ambiguous, and the operative part is clear, the operative part must prevail; and
o if both the background and the operative part are clear, but they are inconsistent with each other, the operative part is to be preferred (see Re Moon; Ex parte Dawes (1886) 17 QBD 275).