We wrote last year (see blog here) about the High Court decision in the case of Zaha Hadid Limited (the “Licensee”) against the Zaha Hadid Foundation (the “Licensor”), in which Mr Justice Johnson refused to imply a right for the Licensee to terminate, where no such express right had been included in the contract.  

Background 

By way of brief background, in 2013, the Licensor granted the Licensee a licence to use the ‘Zaha Hadid’ trade marks. Under that agreement, the Licensee is obliged to pay 6% of its annual taxed income (i.e. not just income generated using the licensed marks) and use its best efforts to sell products using the marks ‘on the maximum possible scale’. The contract contains various termination rights for the Licensor, but there are no such rights for the Licensee. The Licensee brought a claim against the Licensor, arguing that the agreement should be interpreted as allowing termination on reasonable notice (which both parties agreed in principle would be twelve months) and that, without this right, the licence amounted to a restraint of trade. 

The Judge at first instance held that, as the licence did include termination rights (albeit for the Licensor only) there was no need for additional termination rights to be included. The restraint of trade arguments also failed (not least because the Licensee was generating a significant amount of revenue).  

First instance decision overruled: Licensee can terminate the agreement 

However, the Court of Appeal approached the contract differently, and found that the Licensor is able to give notice to terminate, and that – in the circumstances – twelve months is a reasonable notice period.   

In reaching this conclusion, the court found that when considering the construction of contracts, it was necessary to examine the intention of the parties as to whether (or not) such contract was intended to be perpetual in nature. If it is not perpetual, it must be revocable. The next step was therefore to ask how revocation could be effected. This second question is a matter of construction, but also requires consideration of what term should be implied to give effect to the intention of the parties. 

In the present case, the judges found that the licence to the Licensee was intended to be of an indefinite duration, and could, within its own terms (i.e. pursuant to the termination rights for the Licensor), be brought to an end at ‘some unspecified time in the future’. The only way to give effect to a common intention that the agreement is of an indefinite duration and not perpetual, would be that both parties had the ability to terminate it on reasonable notice. As to whether or not such a term need be implied within the contract, Mr Colin Birss C. found that such a term existed ‘as part and parcel of the construction exercise’. However, he acknowledged that granting the right for either party to terminate on reasonable notice is a ‘kind of’ implied term; but one which follows directly from the true construction of the agreement. 

While the Court of Appeal declined to make presumptions, the judgement acknowledged that, if presumptions were to be made, one might expect commercial parties not to lock each other into a relationship in perpetuity. Looking at the facts of this case practically, it was entirely within the realms of possibility that the Licensee may have elected to change its name at some point in the future. Similarly, it could have been discovered that one of Dame Zaha’s buildings was beset with structural problems, leading the Licensee to want to distance itself from that brand. In either scenario, it would be commercially reasonable for the Licensee to escape the contract. 

In considering what is a reasonable notice period, while the parties were in agreement that twelve months was reasonable (and so this wasn’t considered further), the Court of Appeal ruled that it would not have been reasonable for twelve months’ notice to be given immediately after execution (given the licence was intended to provide Dame Zaha with an income during her lifetime) and that what constitutes a ‘reasonable’ period will be fact specific.  

As the appeal was granted on the first ground, the Court of Appeal declined to address the second limb of the appeal regarding restraint of trade.  

Take Aways 

Our comments on the first instance decision stand: when you are negotiating high value, business critical or long-term contracts, these should always be reviewed by lawyers prior to execution to ensure key terms are captured (and captured accurately). Although the Licensee has achieved its intended result, this is only after lengthy (and presumably costly) litigation.  

However, this decision provides comfort to those who find themselves locked into commercial contracts without an apparent termination right; as a general position (and subject always to the particular facts) it seems the courts will be inclined to construct such agreements as being indefinite (and therefore terminable on reasonable notice) rather than perpetual.