The Court of Appeal's decision in Zaha Hadid Limited v The Zaha Hadid Foundation is likely to become a landmark case for businesses operating under intellectual property licence agreements and other long-term commercial contracts. The judgment provides important guidance on whether a party can exit an agreement that appears to have no end date and no express right of termination.
For companies that feel locked into outdated royalty arrangements, trademark licences, franchise agreements, branding arrangements or other indefinite commercial relationships, the decision may offer a valuable route to renegotiate or even bring those arrangements to an end.
In this article, we explore the Court of Appeal’s decision in Zaha Hadid Limited v The Zaha Hadid Foundation, highlighting what businesses need to know about exiting long-term agreements.
The dispute arose from a trade mark licence entered into by the late architect Dame Zaha Hadid (the licensor) and her architectural practice Zaha Hadid Limited (the licensee). The agreement granted the practice the right to use the Zaha Hadid brand in return for a royalty payment of 6% per year. Following Zaha's death, the rights passed to the Zaha Hadid Foundation.
The licence stated that it would "continue indefinitely" unless terminated in accordance with specific contractual provisions. Those provisions gave termination rights to the licensor but did not contain any express right for the licensee to terminate. When the architectural practice sought to renegotiate the commercial terms and served notice to terminate, the foundation argued that the company had no right to bring the agreement to an end.
At first instance, the High Court agreed with the foundation, effectively finding that the company was bound by the agreement indefinitely unless the licensor chose otherwise.
The Court of Appeal overturned that decision.
The key finding was that a contract expressed to continue "indefinitely" is not necessarily the same as one intended to continue "in perpetuity". The court held that the licence was of indefinite duration and that it could be terminated on reasonable notice by either party, despite the absence of an express termination right for the company.
Sir Colin Birss, giving the leading judgment, emphasised that "indefinite" and "perpetual" are different concepts. An indefinite contract may continue for an unknown period but can still be brought to an end, whereas a perpetual contract is intended to last forever unless a contractual mechanism provides otherwise.
The court considered the commercial context and concluded that rational parties would not ordinarily be assumed to have bound themselves forever unless the contract clearly said so.
Many businesses operate under licence agreements that were negotiated years, or even decades, ago. Market conditions change, business models evolve and royalty structures that once appeared commercially sensible can become burdensome.
Examples include trademark licence agreements with percentage-based royalty payments, technology or software licensing arrangements, distribution agreements, franchise relationships, or brand licensing and endorsement agreements.
Where contracts contain no clear end date or provide termination rights to only one party, licensees often assume they are effectively trapped. The Zaha Hadid decision suggests that this may not always be the case.
Businesses should therefore revisit agreements that continue for an "indefinite" period, contain unclear duration provisions or give one party termination rights but remain silent as to the other where market conditions have changed.
Depending on the drafting and commercial context, there may be scope to argue that the agreement is terminable on reasonable notice.
The practical significance of the judgment may extend beyond actual termination.
Where a licensee can demonstrate a credible right to terminate, the balance of negotiating power shifts significantly. Licensors that previously relied on the assumption that the agreement could not be ended may now face pressure to renegotiate royalty rates, performance requirements or territorial restrictions.
In many cases, the threat of termination may be sufficient to bring parties back to the negotiating table. This is especially relevant where royalty payments have become disproportionate or the brand has diminished in value.
The decision also contains an important lesson for licensors and intellectual property owners.
If the commercial intention is that a licence should continue indefinitely and not be terminable by the licensee, the drafting must be explicit. Reliance on wording such as "indefinite" duration may be insufficient whereas "perpetual" appears to be more favourable.
Following this judgment, licensors should consider reviewing existing agreements and updating template licences to ensure that termination provisions accurately reflect commercial intentions.
Businesses operating under long-term licensing arrangements should consider undertaking a contractual audit.
Particular attention should be paid to the duration of each licence, the express termination rights of each party, the royalty obligations and any restrictions that may have become commercially onerous.
The fact that a contract appears to lack an exit mechanism does not necessarily mean that no exit exists. As the Court of Appeal has demonstrated, the courts will look carefully at the language used and the commercial context in which the agreement was made.
The Court of Appeal's ruling represents an important clarification of English contract law. It reinforces the principle that courts are generally reluctant to conclude that commercial parties intended to bind themselves forever unless the contract clearly says so.
For businesses burdened by historic licence agreements, the decision may provide a valuable opportunity to reassess their position, pursue renegotiation or, in appropriate cases, bring an otherwise open-ended arrangement to an end. Conversely, licensors should review their contractual documentation to ensure that the duration and termination provisions achieve the commercial outcome they intended.
For any support or further information, please contact our commercial and IP team.
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