In the recent High Court case of Zaha Hadid Limited (“Licensee”) against the Zaha Hadid Foundation (“Licensor”), the judge refused to infer a termination right into an indefinite contract, despite arguments from the Licensee that its inability to terminate an indefinite brand licence was, in effect, a restraint of trade.

Mr Justice Johnson ruled that it is not for the court to imply terms into a contract in favour of a party simply because it has struck a bad deal.

Background

In 2013, the Licensor (who owns and controls the brand of the renowned architect Zaha Hadid) granted a licence to the Licensee to use various trade marks incorporating the name ‘Zaha Hadid’. The licence is expressed as operating indefinitely, subject to certain earlier termination rights exercisable by the Licensor only). Pursuant to the licence, the Licensee has to pay 6% of its annual taxed income, whether or not that income was earned using the licensed trade marks. Further, the Licensee has to use its best endeavours to sell products using the trade marks “on the maximum possible scale” in perpetuity. The Licensee has no right to terminate.

The Licensee brought a case against the Licensor arguing that: (i) the licence should be construed as including a right by either party to terminate the licence on reasonable notice (which the Licensee said should be twelve months); and (ii) without such a mutual termination right, the licence operated in restraint of the Licensee’s trade. The Licensee employed some creative theories to support this argument, including the suggestion that one clause should be severed halfway through a sentence.

Decision

There are a number of authorities supporting the position that, where a contract contains no express provision for termination, that contract may nonetheless be construed as being subject to termination by either party on reasonable notice. However, in this case, the licence did contain a termination right – albeit, a one-sided one – and so it was not appropriate for the court to infer termination rights over and above those which had been agreed by the parties. The judge found that if the parties had intended for the Licensee to have a termination right, such a right would have been explicitly included. Regardless of the one-sided nature of the licence, there was no ambiguity around what the words of the termination clause meant. When considering the wider factual matrix of the case generally, the judge found there was no compelling argument that the licence should be construed other than as drafted.

Despite the directors arguing that having to pay 6% royalties on all their revenues was like “somebody trying to swim with rocks in their pockets”, the judge dismissed the restraint of trade argument, finding that the Licensee was simply complaining about the bargain it struck. Striking a bad deal does not fall within the doctrine of restraint of trade (nor any considerations of public policy). The judge observed that the Licensee did not appear to have been fettered by the licence obligations – in fact the opposite seemed true, with the Licensee growing steadily and reporting a turnover of £69,401,831 in 2023 (compared to £34,478,661 in 2012).

The judge therefore dismissed the Licensee’s arguments and found in favour of the Licensor.

Conclusion

While there are no radical points of law to take away from this case, there are some practical considerations.

Firstly, don’t assume you have a termination right unless the contract says you do. Clarity is always king when it comes to contractual provisions.

Secondly (and notwithstanding our obvious vested interest in making this point), it is always a good idea to have high value, long-term or business critical contracts reviewed by independent lawyers. Had the Licensee sought legal advice prior to signing the licence, perhaps it would not be in this situation.

Finally, pay attention to the detail. In this case, royalties were payable on all revenue generated by the Licensee. A more reasonable position for the Licensee would have been to limit this only to revenue generated by use of the licensed marks. Had the Licensee engaged external lawyers this would potentially have been spotted before execution (certainly the Wiggin IP and commercial teams would have clocked this!).

If you have any questions about this case, please feel free to get in touch with Michael Browne, Bethan Lloyd or Sarah MacDonald.