Case background
The dispute concerned the interpretation of wording in a trade mark licence between two entities established by the famous architect Dame Zaha Hadid: Zaha Hadid Limited (the “Company”) and The Zaha Hadid Foundation (the “Foundation”).
Under the licence, the Company was granted a right to use the ‘ZAHA HADID’ trade marks in return for a royalty. The Company, considering the royalty percentage overly onerous, wished to terminate the agreement on reasonable notice, with a view to renegotiating the licence.
The key point was interpretation of the following wording ‘the agreement shall continue indefinitely, unless terminated earlier’ which only granted the Foundation contractual termination rights. The High Court held that the clause effectively locked ‘the Company into the contract forever’.
The Court of Appeal disagreed, overturning the decision and concluding that the term “indefinitely” meant that both parties, and therefore the Company was entitled to terminate the licence on reasonable notice.
Court of Appeal’s Analysis
The central question was whether the agreement was intended to run in perpetuity or simply for an indefinite duration.
The Court applied the two-stage reasoning process from Winter Garden Theatre (London) Ltd v Millenium Productions Ltd:
- Did the parties intend the agreement to run in perpetuity? If so, no right to terminate on reasonable notice could be implied, unless there were express terms to the contrary.
- If the agreement was intended to be indefinite, it was expected that it would end at some point and it would be natural to infer that all parties could terminate the contract on reasonable notice.
The Court of Appeal also emphasised the importance of applying the established principles of construction to understand the intention of the parties.
Considering these principles, the Court considered that on its ordinary meaning, an “indefinite” term, rather than a “perpetual” one, denoted an arrangement without a fixed end date, not one incapable of termination, with nothing in the contract contradicted this finding.
Alongside the commercial reality, the Court of Appeal found it implausible that the parties intended to tie the Company permanently to the ZAHA HADID name, particularly in the context of a dynamic and evolving architectural and branding environment.
Court’s decision
The Court of Appeal held that:
- The agreement had no fixed end date but was not intended to run in perpetuity.
- To give proper effect to the parties’ intentions, the contract must allow both parties to terminate on reasonable notice.
- The Foundation’s express termination right did not exclude an implied termination right for the Company.
The result overturns the High Court’s interpretation and restores commercial pragmatism to the concept of “indefinite” contractual duration.
Practical implications
The use of clear and unambiguous wording is increasingly critical when addressing contractual duration and termination. There is an important distinction between “indefinite” and “perpetual”. Where parties intend an agreement to run in perpetuity, that intention must be expressed in unequivocal terms.
As the Court’s willingness to construct intentions is also based heavily upon the commercial reality, legal drafters must consider whether a perpetual agreement makes sense in light of the nature of the business and the market in which the parties operate. Where the commercial reality points away from permanence and the parties’ desire to be perpetually bound then, again, it should be made clear in the contract why a permanent licence is key.
Finally, the case confirms that express termination rights granted to one party will not necessarily exclude inferred termination rights for the other, if the overall construction of the agreement points away from perpetuity.
