Zaha Hadid Foundation: architects forced to pay royalties indefinitely to a charity

Case update: Zaha Hadid Ltd v Zaha Hadid Foundation [2024] EWHC 3325 (Ch)

The High Court has ruled that a trade mark licence which provided only the licensor with a right to terminate it could not be interpreted as giving the licensee a right to terminate it on reasonable notice.  Consequently, the licensee was bound by the terms of the licence (including the obligation to pay royalty fees) in perpetuity or until the licensor said otherwise. Neither did the licence amount to a restraint of trade. 

Background: 

The renowned architect, Dame Zaha Hadid, had entered into a licence agreement (the “Licence”) with Zaha Hadid Ltd (the “Company”), the architectural practice through which she carried on business, enabling the Company to use the Zaha Hadid name and associated trade marks in return for royalty payments and obligations to promote and develop the business throughout the world. The royalty amounted to 6% of the Company’s world-wide taxed income earned either by the Company or any entity associated or affiliated with it, whether it was earned using the licensed trade marks or otherwise.

Following Dame Zaha Hadid’s death, the benefit of the Licence passed to The Zaha Hadid Foundation (the “Foundation”), a charity established during her lifetime whose objects include the preservation of her work and legacy. The Foundation therefore became the licensor and the Company carried on business using the trade marks.

The claims:

The Company, believing the obligations in the Licence to be oppressive and to have a sterilising effect on the Company’s commercial activities, wished to terminate the Licence and gave notice that it would treat the Licence as terminated within 12 months. The Foundation denied that the Company had any right to terminate the Licence. The Company therefore sought a declaration from the Court that it was entitled to terminate the Licence on the basis of two points of law: firstly, that the Licence should be interpreted as giving both parties termination rights on reasonable notice or, alternatively, that the Licence amounted to a restraint of trade in the absence of a right for the Company to terminate it because it was tied into the continuing effect of the provisions of the Licence indefinitely, whilst only having a non-exclusive right to use the trade marks and knowing that the Licence Agreement might be terminated at any time on three months’ notice.  

The outcome:

The Court’s approach was to consider all the provisions of the Licence together to understand the overall meaning and effect of the contract. It was relevant to consider the parties’ intentions in entering into the Licence. The marks were valuable assets of Dame Zaha and the terms were consistent with the intention that the Licence should provide Dame Zaha with a means of exercising close control over the Company’s use of her valuable trade marks and that she should continue to have the right to use those marks herself. 

One means of exercising control was reflected in the unilateral right for Dame Zaha to terminate the Company’s entitlement to use the trade marks. It was common ground between the parties that Dame Zaha had intended that certain senior staff members be given equity in the business, so the desire to maintain control over the use of the trade marks was particularly relevant in circumstances where there was likely to be a relinquishing of control of the Company over time. The Court therefore agreed with the Foundation that only it had the right to terminate the Licence.  

As to the Company’s restraint of trade claim, the Court had to consider:

(i) whether the alleged restraint (the royalty and promotion obligations in particular) amounted to a practical restraint of trade; 

(ii) if it did, whether there was any basis for subjecting it to a public policy test of reasonableness; and 

(iii) whether, applying such a test, the royalty obligation would be reasonable by reference to a balancing of the private interests of the parties and the public interest.  

The Court took a very different view to that of the Company, noting that, for so long as the Licence endured, the Company received something of significant value, namely access to the name “Zaha Hadid”. There was no doubt that the prestige associated with the name had contributed to the Company’s success. The parties were not of unequal bargaining power and had entered into the contract at arm’s length. The Company’s complaint essentially amounted to a complaint about the nature of the bargain which it had made, which was not a ground for invoking the law on restraint of trade. If anything, the Company’s obligations were an encouragement to trade rather than a fetter on its commercial activities. It had the opportunity to take legal advice before signing the contract, but it chose not to. 

What this case demonstrates is that is it not only vital for parties to an agreement to record the terms of their agreement clearly, but also for them to make sure that the terms meet their respective expectations, bearing in mind that their circumstances might change over time. Termination provisions in particular frequently give rise to problems for one party when relationships break down. 

Key take-aways:

• Trade mark licences are often one-sided in nature. In any agreement, the licensor has developed its trade marks and generated the goodwill which attaches to those marks. The licensor then enables a licensee to use the marks to develop the licensee’s business or other undertaking for a fee. There will naturally be expectations surrounding the licensee’s use of the marks to protect the interests of the licensor, and adverse consequences applied if those expectations are not met.
• Initial intentions do matter. When asked to interpret a contract or consider claims of restraint of trade as in this case, the Court will almost always look to the wider context surrounding the agreement and what it can make out to be the parties’ intentions at the outset. Although it is not a deciding factor, it is best practice to set out the parties’ positions and intentions in the drafting of agreements to try to avoid lengthy disputes.

Future-proofing is important. If an agreement is completely devoid of any termination provisions (unlike this case, which granted rights only to one party) it is likely that the Courts will imply a term that enables either party to terminate the agreement on reasonable notice. That was not appropriate in this case, where the licensor clearly intended to maintain control over the use of the marks and to try to preserve her legacy and where there was a clear commercial benefit to the licensee in having access to the licensor’s valuable trade marks.