Zaha Hadid Limited v The Zaha Hadid Foundation

A contractual right to terminate on reasonable notice is not inferred where the agreement, read as a whole, provides for indefinite duration and expressly gives termination rights to only one party. The court must construe the agreement in its commercial context.

The restraint of trade doctrine involves three stages: identifying a practical restraint, deciding whether public policy excludes the agreement from the doctrine, and assessing reasonableness by reference to private and public interests. A commercially onerous or one-sided bargain does not itself constitute a restraint. The doctrine does not require the court to assess whether the overall allocation of burdens and benefits is commercially equal.

The claimant operated an architectural practice under a trade mark licence granted by Dame Zaha Hadid and subsequently transferred to the defendant Foundation. The agreement granted a non-exclusive worldwide licence, required payment of a 6% royalty on defined income, imposed quality-control and promotional obligations, and stated that it would continue indefinitely unless terminated under clause 12.

The Foundation could terminate on three months’ notice or immediately in specified circumstances. The claimant sought declarations that it could terminate on reasonable notice. Alternatively, it argued that the agreement, or particular provisions, operated as an unreasonable restraint of trade and sought modification of the termination clause.

The issues were whether clause 12 conferred a unilateral termination right on the claimant and whether the agreement engaged the restraint of trade doctrine.

1. Construction. The agreement had to be read as a whole, including its commercial context. Clause 12.1 provided for indefinite continuation unless terminated in accordance with clause 12. Clauses 12.2 and 12.3 gave termination rights only to the Licensor. Those express provisions were inconsistent with implying a corresponding right for the Licensee to terminate on reasonable notice. The claimant’s construction argument therefore failed.
2. Subjective intention. Dame Zaha’s subjective intentions could not be attributed to the Company as background knowledge because she was conflicted and the agreement was signed for the Company by Mr Schumacher. She was not, in that transaction, on both sides of the agreement.
3. Restraint of trade. The relevant question was one of substance, determined by the practical effect of the provisions rather than their form. The court adopted the three-stage approach identified in Quantum Advisory: whether there was a practical restraint; whether public policy excluded the provision from the doctrine; and, if engaged, whether the restraint was reasonable by reference to private and public interests.
4. The claimant had not identified a legally relevant restraint. The royalty, quality-control, marketing, indemnity and related provisions were rational and commercially defensible terms of obtaining access to a valuable trade mark. The fact that the claimant considered the bargain onerous, or wished to trade under another name without paying royalties, did not convert it into a restraint of trade.
5. The court was not required to determine whether the agreement as a whole gave the parties an equal or proportionate balance of burdens and benefits. Such an assessment would create uncertainty and was not demanded by public policy. The parties had dealt with each other at arm’s length, and the claimant could have negotiated protections that it later said were necessary.
6. Clause 5.1, requiring best endeavours to promote and expand the licensed services, was not a legally relevant restraint. In any event, it was reasonable in context. If it had been invalid, the appropriate relief would have concerned that clause rather than rewriting clause 12.
7. The claim was dismissed.