Beware how you ‘build’ your contracts

Ambiguous contract clauses are often the bane of many lawyers’ lives, and the judgment in Zaha Hadid Ltd v The Zaha Hadid Foundation [2024] EWHC 3325 (Ch) amplifies the importance of ensuring contract terms are clear.

Background

Before her death in 2016, renowned architect, Dame Zaha Hadid, licenced the use of her namesake trade mark to Zaha Hadid Ltd (the company for her architectural practice). The Zaha Hadid Foundation, a charity set up by Hadid, later become the licensor of this licence under Hadid’s Will. A dispute arose following the company’s attempt to terminate the licence in March 2024 by giving 12 months’ notice to the charity. The charity argued that the company did not in fact have a right to terminate the licence within the wording of the agreement.

Interpretation of the termination clause

The first part of the termination clause in dispute stated that:

"This agreement shall commence on the Effective Date and shall continue indefinitely, unless  terminated earlier in accordance with this clause 12.”

The following sections of the clause listed out the various situations in which the licensor, originally Hadid and later the charity, could unilaterally terminate the licence. The company sought to argue that the termination clause should be interpreted as allowing them a right to terminate the agreement on reasonable notice in any event, or alternatively that the clause was an unlawful restraint on their trade.

The judge referred to previous cases in which the courts interpreted contracts as to allow a party to terminate upon reasonable notice where there had been no express wording to this effect (such as in Staffordshire Area Health Authority v South Staffordshire Waterworks Co. [1978] 1 WLR 1387). The key considerations in prior cases were the circumstances in which the agreement was made and the intention of the parties at the time. Given the commercial context of the present case, the judge determined that it had in fact been the intention of the parties for there to be no bilateral right of termination, despite that seeming one-sided on the face of it.

Limits on restraint of trade arguments

The company’s alternative argument was that the unilateral termination clause functioned as a restraint of its trade. Applying the three-point test from Quantum Advisory Ltd v. Quantum Actuarial LLP [2021] EWCA Civ 227, the judge felt that there was no practical restriction on the company’s trade, but rather that it had over time come to dislike the commercial terms of the agreement. The judge put it quite frankly at paragraphs [68] and [69]:

“As I see it, the real nub of the Company's complaint is that it has come to think it is paying too much for the right it has acquired… The trouble is that that is really the same as saying it wishes the terms were more generous, but almost every contracting party could say the same thing; and if the test for the existence of a restraint were whether, had a more favourable package of terms been agreed, the relevant party would be able to manage its affairs differently, then commercial life would become inherently unpredictable.”

Moving forward

From a public policy point of view, the judge was reluctant to “pass judgment on the overall commercial reasonableness of the parties’ bargain,” and found that no unilateral right of termination could be read into the agreement, nor could the termination clause be said to restrain the company’s trade. This decision is therefore a stark reminder of the need when entering contracts to ensure that clauses have a clear meaning and that they will not necessarily be interpreted differently by a judge later on when circumstances have changed.

Although parties to a contract may not want to think about termination when they first enter into a new contract, this decision also flags the need to understand what your exit route is going to be. Do not assume that the court will let you out of a contract if you have not given yourself clear express rights.

If you have any questions about drafting or interpreting contracts, please contact our Commercial and Technology team or our Dispute Resolution team.