The Court of Appeal’s judgment in Zaha Hadid Limited v. The Zaha Hadid Foundation[1] concerns the question of whether parties to a contract of indefinite term have a right of termination.
Background
The dispute was between Zaha Hadid Limited, which operates the renowned international architecture practice founded by Dame Zaha Hadid (the company), and The Zaha Hadid Foundation, which became the owner of the ZAHA HADID trademarks following Dame Zaha Hadid’s death (the foundation).
Under a licensing agreement between the parties, the company was required to pay the foundation a royalty of 6% of net income for “licensed services” – a definition broad enough to cover any and all services provided by the company, not limited to services actually using the trademarks. The critical clause, 12.1, provided that the agreement “shall continue indefinitely, unless terminated earlier in accordance with this clause 12”. Clause 12.2 conferred on the foundation alone a right to terminate on three months’ written notice, and Clause 12.3 allowed the foundation to terminate in the event of the company’s breach. The company asserted that it was entitled to terminate on reasonable notice; the foundation disagreed.
The High Court held that the contract contained no term giving the company such a right to terminate, meaning the company was locked into the contract forever. The company appealed.
The Court of Appeal’s decision
The Court of Appeal allowed the appeal.
The court, having considered the line of authorities on the point, confirmed a two-stage approach:
- A decision as to whether the agreement was intended to run in perpetuity or not. A contract which is not intended to be perpetual and has no other explicit duration is one of indefinite duration (and therefore may be terminated at some unspecified point). The court emphasised that this is a matter of construction as to the common intention of the parties, not a question of implying a term (which would be subject to the rigorous tests in case law for finding implied terms in commercial agreements).
- Having decided that the contract may be terminated at some unspecified point, the only way to give effect to that common intention would be for the court to infer that all parties have the ability to terminate on reasonable notice.
The court noted the first and obvious point that the word used in clause 12.1 was “indefinitely” and not “perpetually”. While it acknowledged that it could not be said that the former may never be understood as meaning the latter, the court concluded as a matter of principle that to describe the duration of a contract as indefinite is fundamentally different from describing it as perpetual and, therefore, the word “indefinitely” is not, without more, to be read as meaning “perpetually”.
The court rejected the argument that the one-sided nature of the termination provisions (that only gave the foundation express termination rights) supported an inference of perpetuity. The court considered that such express rights were to be expected in a licensing agreement where the licensor has a clear interest in ensuring the trademark is used appropriately to ensure goodwill accrues to it, and it is not invalidated.
The court also considered that the conclusion that the contract was intended to be indefinite rather than perpetual accorded with business commonsense. While it emphasised that no presumptions should be either way, it commented that one might expect commercial parties not to lock each other into a relationship in perpetuity.
Crucially, the court held that to infer a power to terminate on reasonable notice would not be inconsistent with the express rights of termination conferred on the foundation under clauses 12.2 or 12.3 on three months’ notice or in the event of the company’s default.
Finally, the court explained that what amounts to reasonable notice depends on the circumstances at the time notice is given, so that in the early stages of the contract a very considerable period of notice might have been required (much longer than the three months’ notice required of the foundation under clause 12.2), whereas as the contract advanced, that period may reduce considerably (to significantly less than the three months required of the foundation).
Key takeaways
Certainty is usually what contract drafters strive for, but it can come at the cost of flexibility. There are circumstances in which an open-ended contract (and the degree of uncertainty it brings) is preferable to the rigidity of a fixed term, but even in those instances, the relevant terms should be drafted to avoid ambiguity as far as possible. Silence in this context is far from golden. Contracts – even open-ended ones – must address exactly what rights of termination each of the parties have, and if they have none, they must address that.
[1] [2026] EWCA Civ 192.
Contributors
Ben Sharrock-Mason