28th January 2021
Over at the Financial Times I have done a brief summary post on the ‘best efforts’ clause that features in the current public row between the European Commission and AstraZeneca – please click and read here.
This post sets out the ‘workings out’ for that summary, based on the information available to me this morning.
First, what is the public row?
The inkling of the row was on (Friday) 22nd January 2021: EU hit by delay to Oxford/AstraZeneca vaccine delivery.
The European Commissioner responsible in respect of the vaccine tweeted:
During today’s Steering Committee with Member States on the #EUVaccinesStrategy, @AstraZeneca representatives announced delays in the delivery of vaccines compared to the forecast for the first quarter of this year. /1— Stella Kyriakides (@SKyriakidesEU) January 22, 2021
Here, note two things.
First, the information comes from AstraZeneca – in effect, the European Commission is being formally notified of a delay.
Second, the delays are against a ‘forecast’.
As we will see below, both of those things may be significant.
We now move to (Monday) 25th January 2021, and to the published remarks of the commissioner.
In particular, this passage:
‘Last Friday, the company AstraZeneca surprisingly informed the Commission and the European Union Member States that it intends to supply considerably fewer doses in the coming weeks than agreed and announced.
‘This new schedule is not acceptable to the European Union.’
Here note the following.
First, the ‘forecast’ is now a thing which was ‘agreed and announced’.
Second, the information coming from AstraZeneca is described as ‘surprising’.
Third, the reference to a ‘new schedule’.
We will come back to these details.
Now the interview with the CEO of AstroZeneca at la Repubblica dated (Tuesday) 26th January 2021 (and I rely on that site’s English translation).
The CEO is quoted as saying in part of his response to a question as to whether there is a feasible basis for a potential legal action against AstraZeneca:
“I can only tell you what’s in their contract. And the contract is very clear. Our commitment is, I am quoting, “our best effort”.’
Now back to the European commissioner, on (Wednesday) 27th January 2021 and further published remarks:
‘The view that the company is not obliged to deliver because we signed a ‘best effort’ agreement is neither correct nor is it acceptable.
‘We signed an Advance Purchase Agreement for a product which at the time did not exist, and which still today is not yet authorised. And we signed it precisely to ensure that the company builds the manufacturing capacity to produce the vaccine early, so that they can deliver a certain volume of doses the day that it is authorised.’
Note here the ambiguous sentence about what was signed.
Did the commission not sign an agreement with a ‘best effort clause’?
(Which was my first impression.)
Or did the commission sign a ‘best effort’ agreement but this does not remove the obligation of AstraZeneca to deliver the vaccine?
(Which is also a possible meaning of the statement, but not a meaning that would be immediately obvious to most people.)
Also note the express reference to this being an ‘Advance Purchase Agreement’.
The advance purchase agreements are part of the European Commission’s vaccine policy announced last June.
In a detailed paper, both the nature and structure of these agreements are set out:
‘These agreements will be negotiated with individual companies according to their specific needs and with the aim of supporting and securing an adequate supply of vaccines. They will de-risk the necessary investments related to both vaccine development and clinical trials, and the preparation of the at-scale production capacity along the entire vaccine production chain which is required for a rapid deployment of sufficient doses of an eventual vaccine in the EU and globally. The conditions of the contract will reflect the balance between the prospect of the producer providing a safe and effective vaccine quickly and the investment needed to deploy the vaccine on the European market.’
The agreements were therefore (and were intended to be) balanced allocations of risk between the commission and the supplier.
These agreement would thereby not be bog-standard standard-form supply contracts, but agreements alert to and mindful of the particular risks in respect of the manufacture and the supply of the vaccine.
The agreement between the commission and Astra Zeneca is not in the public domain.
But what is in the public domain – helpfully – is a redacted version of an advance purchase agreement between the commission and another supplier.
The link to this agreement was (I am told by the commission press office) published on 19th January 2021 and so was published before this row.
This means that the redactions would not be informed by the subsequent row.
The agreement is here.
Of course, this is not the agreement between the commission and AstraZeneca, and it would only be sight of that contract that would mean you could say what was agreed with absolute confidence.
But, that said, a careful reading of this published contract is revealing.
Before we look at the contract, an assumption: the advance purchase agreement with AstraZeneca will be substantially similar to the published contract.
The contracts will not be absolutely identical, because there will be negotiated commercial and other terms (which are probably the redacted parts of the published contact).
And I think it is safe to assume that the agreement will not be on AstraZeneca’s own terms, given the importance the commission placed on the advance purchase agreements being a careful balance for all concerned.
Therefore I am assuming that the the advance purchase agreement with AstraZeneca and the published contract will have many identical and similar terms, even if not absolutely the same.
If we look at the published contract, and search, you will quickly find that ‘reasonable best efforts’ is a defined term.
(Some commentators, who have also seen the agreement, start and then sadly finish with just this definition – but as you will see, a defined term is only one step in understanding what is going on.)
The definition of the term is detailed, and indeed rather elaborate:
The size and scope of the definition tells us two things.
First, the parties did not want to leave it to the court (which in this case is the Belgian court) to construe what is a ‘reasonable best effort’ – the parties have defined it for themselves.
And second, such a detailed and elaborate definition in respect of a key component of the contract is likely to have been used in all the advance purchase agreements, not just the published one.
The fact it is not redacted in the published contract also indicates it is not a bespoke definition for just that particular contract.
Any defined term is only as important as the operative provision in which it is used.
(This is where some other commentators have not taken the further step.)
A defined term does not exist in a vacuum.
‘Reasonable best efforts’ is not a free-floating term, to be produced like a joker in a card game.
It will be used, and its effect limited, in particular provisions.
And a search of the published contract shows that this detailed and elaborate definition is used only once (at least in the not-redacted text).
This is article 1.3 of the published agreement:
Here we will see that ‘reasonable best efforts’ is used for two things:
‘(i) to obtain EU marketing authorisation for the Product and (ii) to establish sufficient manufacturing capacities to enable the manufacturing and supply of the contractually agreed volumes of the Product to the participating Member States in accordance with the estimated delivery schedule set out below in Article I.11 once at least a conditional EU marketing authorisation has been granted.’
This means that ‘reasonable best efforts’ is only relevant for two specific purposes.
If the published contract is similar to the AstraZeneca contract, then it would be the second limb of this provision which would be relevant.
AstraZeneca would have an obligation to use ‘reasonable best efforts’ to ‘establish sufficient manufacturing capacities’ for the manufacture and supply of the vaccines ‘in accordance with the estimated delivery schedule‘.
Note the mention of the schedule, which ties in with the commissioner’s published remarks.
And note also the mention of ‘to establish sufficient manufacturing capacities’ – which would not mean, say, a diversion of what is manufactured once there are capacities.
And there is more.
If we now look at what happens with delays to the ‘estimated delivery schedule’ we go down to article 1.12 of the published agreement:
Here – significantly – both parties explicitly agree in article 1.12.1 that there is a risk of delays in production.
And in the event of such a delay there is an obligation under article 1.12.2 on the supplier to notify the commission and to provide a revised schedule.
Going back to what has happened in the last week, and assuming the contract with AstraZeneca is on similar terms to the published contract, we can see this is exactly what happened.
AstraZeneca informed the commission that it could not keep to the estimated delivery schedule on Friday 22nd January 2021 – and this accords with the mentions of ‘forecast’ and ‘schedule’ by the commissioner.
There was then push-back (to say the least) from the commission, and AstraZeneca – as described by the CEO – sought to rely on the estimated delivery schedule being subject to the ‘best efforts’ provision.
And the commission responded by denying that that ‘best efforts’ provision covers the delay – presumably because AstraZeneca has the capacity but is diverting it from the EU.
Of course, without the actual contract entered into with AstraZeneca we cannot be certain.
But it is telling how neatly the details provided in the public row fit with the steps of the terms of the published contract.
Unless there is something significant about which we do not know, it is more likely than not that the details provided in the public row mean that the contract with AstraZeneca are materially the same as that in the public contract.
If the reasoning in this post is correct then the following two things can be contended.
First, the remark of the commissioner that ‘[t]he view that the company is not obliged to deliver because we signed a ‘best effort’ agreement is neither correct nor is it acceptable” is capable of giving a misleading impression – for the agreement did have a ‘best efforts’ provision.
And second, the existence of that ‘best efforts’ provision may not be that helpful to AstraZeneca, if the correct construction of the contract is that it does not cover diverted capacity as opposed to lack of capacity – and so citing the ‘best efforts’ provision will not be enough to meet the commission’s complaint.
The moral of the story, of course, is that such public supply contracts should be published as a matter of course – and there is no good reason for such contracts not to be published.
The benefit of access to public money should be the burden of transparency.
But that is a far wider issue to which this blog may return.
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