31st January 2021
Was AstraZeneca under a firm obligation to supply the vaccine to the European Commission or was it only under an obligation to use its best efforts?
Only the agreement would tell us for certain.
And a few days ago it did not look like that politically controversial vaccine agreement between the European Commission and AstraZeneca was going to be published.
So, in that circumstance, this blog had a post which, on the basis of public domain information then available – including a published (and redacted) contract with another supplier – sought to put together what might be said about the AstraZeneca agreement.
That post is now superseded, for the AstraZeneca agreement has now been published, though in redacted form.
What this now-published agreement tells us, even more than before, is that AstraZeneca may have been wronged in the political row with the European Commission.
For, just as the European Commission was wrong in invoking article 16 (though that was promptly reversed), it looks as if it was also wrong in how it publicly characterised the contractual obligations of AstraZeneca.
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Before we get going, some assumptions and provisos.
The AstraZeneca agreement is under the law of Belgium and is subject to the jurisdiction of the courts of Brussels – and I am not a Belgian lawyer.
This means there will be law relevant to the understanding of the agreement of which I will be unaware.
But as I am not providing legal advice but instead mere commentary on an English language legal instrument in the public domain, the fact that the document is under foreign law is not an absolute barrier – though please bear in mind this limitation.
The agreement is also redacted, and there may also be other legal instruments or texts that may be relevant, and so this post is on the basis of the information which is available at the time of writing.
I am also aware that there are versions of the agreement on the internet which purport to show the redacted text but I have not looked at any of these and I respect the confidentiality of the parties: this post is on the basis of the text published by the European Commission.
What follows is an account of what the AstraZeneca agreement says by an English legal commentator with some experience as a lawyer in commercial contracts and public procurement matters.
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First, the parties.
The agreement is between the European Commission, acting on behalf of European Union member states, and AstraZeneca AB, incorporated in Sweden.
That this is the AstraZeneca entity that is party to the agreement may be significant, for (all other things being equal) only that entity will be bound by obligations on AstraZeneca in the agreement – and not any other AstraZeneca entity.
As we will see, this possible distinction may be important (or at least of interest) depending on which AstraZeneca entity is party to the prior agreement for the supply of the vaccine in the United Kingdom.
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Moving on from the parties, we come next to the recitals.
Recitals are curious things in legal instruments – and tend to be far more popular (and numerous) in continental Europe than in England.
(Some European Union legal instruments have recitals that go on for longer than the operative provisions.)
The notion is that a recital does not (or should not) create a legal obligation in and of itself.
Instead, a recital should tell those considering the instrument what the background is to the document and thereby it gives a steer to how the operative provisions should be construed.
Recitals are thereby (or should be) an aid to construction and interpretation of a legal instrument.
(That said, in twenty years of experience of practical commercial law, I have seen recitals used for all sorts of naughty purposes.)
The key recitals in the AstraZeneca agreement are the following:
These recitals set out the shared understanding of the European Commission and AstraZeneca as at the time of the agreement (which was signed by both parties on 27 August 2020).
A breach of a recital – that is, if a recital is not factually true – does not (at least under English law) trigger any automatic remedy.
But a recital can have effect when it comes to construing the effects of other provisions.
The first of the three quoted recitals is interesting in that it shows the European Commission is already aware that AstraZeneca is scaling up its capacity for the broadest possible availability, separately from this agreement.
The second quoted recital then expressly affirms that this agreement is only ‘part’ of that scale-up.
And the second quoted recital introduces the phrase that has become famous as part of the current political controversy: ‘Best Reasonable Efforts’.
In particular, the recital records that AstraZeneca is committed to using ‘Best Reasonable Efforts’ to build capacity to manufacture 300 million ‘initial’ doses.
The third quoted recital then says the supply of those ‘initial’ doses will be in accordance with the terms of the agreement.
(As these are only recitals, not that much – or perhaps anything – can be made of the second quoted recital not referring to ‘according to the terms of the agreement’ but the third quoted recital then doing so, but it is a curious omission.)
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So much for the recitals.
But before we go to the operative obligations, we need to look at the definitions and at one definition in particular: ‘Best Reasonable Efforts’.
Here, unlike in English law agreements which tend to leave ‘best endeavours’ and ‘reasonable endeavours’ to a court to sort out (though I did once catch one naughty ‘Magic Circle’ law firm trying to expressly define in a contract the more onerous ‘best endeavours’ to mean the less onerous ‘reasonable endeavours’), the parties in this agreement have agreed a definition of ‘Best Reasonable Efforts’.
Indeed, like New York, so enamoured are the parties of the concept, the parties have defined the term twice.
There are ‘Best Reasonable Efforts’ for the commission and ‘Best Reasonable Efforts’ for AstraZeneca.
As we are concerned with the supply obligations of AstraZeneca, we need to know what the term means for them:
Here we need to remember that a definition is only a definition, and that the important thing is how the definition is employed in an operative clause.
But when we do see the term in an operative clause, all of this definition will be applicable.
And so there is a significant difference between an absolute obligation (‘[x] shall do [y]’) and a qualified obligation ‘[x] shall use Best Reasonable Efforts to do [y]’ – for the latter comes with all the baggage of the defined term.
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Now come the operative clauses.
This being a bilateral supply agreement, the primary obligations will be for one party to supply a thing, and for the other party to pay for it.
In very (very) general terms, many of the other provisions of the agreement will be of secondary importance to these two primary obligations.
This post is not concerned with the payment obligations, many of which are in any case redacted, and so we will look at the supply obligations.
These mainly are in article 5.
The primary obligation of the supplier under this agreement is to do two things: to manufacture (so that the vaccine is ready for distribution) and to deliver.
And, in respect of the initial doses, this dual obligation is in article 5.1:
We can also see that this provision makes both the manufacturing-ready-for-distribution and delivery obligations for the initial doses of the vaccine subject to ‘Best Reasonable Efforts’.
(Articles 5.2 and 5.3 then deal with optional orders for further and additional doses.)
But then there is a further clause – which sadly warrants an Alan Hansen wince at its awkward drafting.
Article 5.4 provides:
Is this also a primary supply obligation?
Perhaps it is, and article 5.1 goes only to distribution and delivery, but it seems to me that the intention is that article 5.4 deals only with the location of the manufacturing (hence (a) the heading of article 5.4, though headings usually are not to be used for interpreting contracts, and (b) the text in the article which follows ‘provided’) – rather than it being the primary manufacturing obligation itself.
And the placing of the reference in that article to the United Kingdom is also odd, though this was probably a late amendment to make sure that the provision was Brexit-proof.
But for the purpose of this post, it does not really matter, as this obligation too is subject to ‘Best Reasonable Efforts’.
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But, as the jurist Jimmy Cricket would aver, there is more.
If we now go down to article 13 we will see the representations and warranties of AstraZeneca:
And we can see at article 13(1)(e) what may seem to be a relevant promise by AstraZeneca.
Did AstraZeneca fail to fulfil its contractual obligations to the European Union by reason of conflict with obligations to third parties?
Did such obligations to third parties impede AstraZeneca’s performance of its obligations under this agreement?
A breach of article 13(1)(e) by AstraZeneca would be legally consequential – this is not just a recital – and (at least under English law) a breach would entitle the European Commission to compensation, if it could show that it caused damage, or even to rescind the agreement.
But it is not clear that the fact that AstraZeneca did have a prior agreement in respect of the United Kingdom such that it would mean that AstraZeneca was in breach of article 13(1)(e).
Article 13(1)(e) does not say that AstraZeneca promises to not have any other such obligations but that those obligations will not conflict with this agreement or impede performance of the obligations under this agreement.
And the relevant obligations under this agreement are, as defined, simply to use ‘Best Reasonable Efforts’ – so the other obligations would have to conflict with or impede not some absolute obligation, but only an obligation to use ‘Best Reasonable Efforts’.
Furthermore, and as we have already seen with the recitals, the European Commission expressly acknowledged that AstraZeneca was scaling-up manufacture generally, and that only part of this was for the European Commission.
That AstraZeneca had a prior agreement in respect of the United Kingdom was also well-publicised and it cannot be seriously posited as something unknown by and unforeseen to the commission.
Indeed, AstraZeneca was in a position to scale-up and so on because of this prior agreement.
In all these circumstances, it would seem to me to be difficult for the European Commission to rely on article 13(1)(e), and even if it could, it is not clear where that would get the commission.
And, of course, there would also be the possible difficulty that the Swedish AstraZeneca entity that accepted the burden of article 13(1)(e) is not even the AstraZeneca entity that has entered into any obligations in respect of the United Kingdom.
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So, we can now go back to Wednesday 27th January 2021, when the relevant European Commissioner said:
‘The view that [AstraZeneca] is not obliged to deliver because we signed a ‘best effort’ agreement is neither correct nor is it acceptable.’
In view of what that agreement actually says – recitals, definitions, primary obligations, warranties, representations, and so on – there is reason to believe that this statement by the commissioner was incorrect and misleading.
As long as AstraZeneca fulfilled the definition of ‘Best Reasonable Efforts’ in respect of its obligations under article 5(1) of the agreement, then AstraZeneca has performed its side of the bargain.
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Don’t we also need to see the contract with the U.K. government to understand this the context of what may or may not be conflicting obligations? As I understand it this will not be published on grounds of ‘national security’.
The existence of the UK contract would go to whether the warranty/representation could be relied upon in a particular case, not to the construction of the warranty/representation. The latter one should be able to do on the basis of the contract alone.
Thank you for your analysis, which makes sense to me, except this part:
“And, of course, there would also be the possible difficulty that the Swedish AstraZeneca entity that accepted the burden of article 13(1)(e) is not even the AstraZeneca entity that has entered into any obligations in respect of the United Kingdom.”
I think the fact that the Swedish subsidiary contracted with the Commission could make things worse for AZ overall. I.e. AZ AB have committed to the UK sites being used for manufacturing (which must be assumed to include delivery – however bad the drafting – why else would such a reference be included?). If it was one AZ entity that was party to all the contracts, AZ may be able to say “we had other commitments that the Commission knew about so overall we have acted reasonably” – but if AZ UK’s commitments are completely separate, surely these wouldn’t be included in the reasonableness test for AZ AB?
The UK contract looks to be with both plc and AB. This page explicitly says that they are jointly and separately responsible for delivering on the contract. https://www.gov.uk/government/publications/regulatory-approval-of-covid-19-vaccine-astrazeneca/conditions-of-authorisation-for-covid-19-vaccine-astrazeneca
” I.e. AZ AB have committed to the UK sites being used for manufacturing ”
No they haven’t.
5.4 says that the EU has accepted that the UK sites can be used to deliver the Additional and Optional Doses without having to ask the EU’s permission in advance. If AZ AB want to use Indian sites then permission is required from the EU.
Why would it be drawn up this way (even poorly).
Well, the EU want to control the manufacture of the Initial Doses i.e. has to be done on EU territory by an EU registered company. This lets them guarantee First Come First Served.
When it comes to the Additional/Optional Doses, they are saying they accept the quality of the UK Doses will be acceptable and UK Doses can be delivered without additional permission. If AZ AB wants to fulfil the order with doses from, eg, India then EU permission is required.
AZ AB can decide whether to manufacture Additional/Optional in the EU, or sub-contract with (presumably) AZ UK to manufacture the doses for them in the UK. Or have them done in the USA, if the EU gives permission, and they can find somebody in the USA to do it.
AZ AB is only required to use “Best Reasonable Efforts” to do so. In the pharma/biotech world this means nothing is guaranteed. At all.
AZ has committed UK sites to EU production. The APA itself only lays out the framework where AZ is supposed to make the vaccine (in the EU, the UK being considered EU for the purpose of this), but in Schedule A specifies production sites, some of which are in the UK.
For the specified Dutch sites it turns out that it is under an exclusive obligation to fulfill UK demand since long before AZ put in writing that no competing obligations exist.
No idea about Belgium law, but under German law such a lie can easily be fraud.
Spot on
This was my reading too.
Another element that I think would make it more difficult for the EU to show breach is that limb (a) attempts to establish an objective standard for AstraZeneca’s conduct by defining this in terms of what a company just like AstraZeneca would do in the current circumstances.
AstraZeneca will argue that what such a company would so is what AstraZeneca has done – and I would think that it would be difficult for the EU to show that such a company would act in a different way, in order to demonstrate that AstraZeneca has not met the Best Reasonable Efforts bar.
I also note that this contract refers to “Best Reasonable Efforts” versus the previous example’s “Reasonable Best Efforts” which is on the face of it (but not in substance, given the use of the defined term) a lower standard. I would love to know if there was a meaningless fight over the drafting!
I agree on the objective standard point
This agreement is more favourable to the EU than the other agreement that was published on line, which only imposed an obligation to deliver doses in line with an estimate which was subject to revision by the manufacturer. The Best Reasonable Efforts standard, although arguably so specific to AZ as to mean nothing more than whatever AZ actually manages to do, makes no mention of existing contractual commitments. Any claim that the standard should take such commitments into account is contradicted by the warranty and the Recital.
The argument that the contract requires AZ AB to give the EU equal priority to, or even greater priority than, the EU is much stronger than you suggest, though in construing the obligation, much depends on what resources AZ AB actually has. As you note, a significant question is whether AZ AB is the same company as the one that contracted with the UK Government.
But just as important as establishing the meaning of the contractual terms, which could only be determined with certainty by a Court ruling, is to establish the consequences of breach. I doubt that in a not-for-profit contract for the manufacture of a vaccine that was still under development, AZ would have exposed itself to significant liability in the event of a failure to deliver, whatever the cause. If there is no liability for breach, then from a legal perspective the Commission’s complaints are just so much hot air. Speaking of hot air, I should add that I have no qualifications in, and little experience of, Belgian law.
In a civil law jurisdiction the default remedy for a breach of contract is an order to perform the contract. (I.e. what the English would call specific performance.) Damages is only a backup, in case performing the contract is not possible anymore.
Thanks for putting me right. How long might one expect it to take to get an order requiring performance in circumstances where the meaning of the contract is contested?
Secondly, would I be right in thinking that rather than interpreting the warranty at Article 13(1)(e) in light of the definition of ‘Best Reasonable Efforts’, as DAG has done, a Belgian court would interpret ‘Best Reasonable Efforts’ in light of the warranty at Article 13(1)(e)? DAG’s argument feels to me a very formalist, Anglo Saxon take. I am not convinced that AZ can justifiably claim that using BREs to deliver, after having tried equally hard to satisfy commitments previously entered into with the UK, amounts to complete fulfilment of AZ’s obligations under the contract which are (to use BREs) to deliver specific volumes of vaccine by specified dates.
Thanks as ever.
It would be interesting to understand what you would expect to see in the UK contracts. We appear to have ordered enough vaccine to vaccinate the population about 6 times over. This might be prudent if the expectation is that one of the suppliers might slip up or their vaccine might not work against a new variant of the virus.
But what would the contract say? Is the UK obliged to take all the doses it has ordered? Would we have paid yet? Can we decline stuff we have ordered, and under what circumstances?
Perhaps an article from an experienced public procurement lawyer setting out what he would expect to see in such contracts would be very welcome.
This is the “at cost” vaccine – so small change compared to the rest. Over-ordering this one (or indeed any of them) isn’t likely to outweigh the enormous benefits (economic and societal) of having the majority of the population vaccinated ASAP.
It might be of little cost to the UK government. It might be of great cost to other countries unable to take delivery of vaccines.
I think that the UK will donate or redirect doses to other countries, as requested by WHO, if we end up with too many.
Except we’re hardly likely to sit on them. We’re more likely to direct manufacturers to deliver the surplus to third countries, whether as a gift or having sold our contractual rights to them.
Orders aren’t product in hand, and not much use when priority is for vaccinations over the next 4-5 months (including the second dose of course). Some of those orders are against vaccines that might never pass clinical trials. The Sanofi is one (which the EU has bought into) is now not scheduled to deliver until the end of 2021 even. There’s the Novavox vaccine which has just produced very good phase 3 results and is to be made in Stockton-on-Tees, but that isn’t going to come on stream until the end of Summer.
There’s the Johnson & Johnson vaccine, which has also just produced some reasonable results, but that has to be approved and I don’t think there will be deliveries until late spring at best.
We were late to the game with the ordering the Moderna vaccine (not one of the 6 we bet on), so we will have to wait until April for the first batch assuming, that is, it doesn’t hit production problems (and there have been some).
So, at the moment, all we have is Pfizer/BioNTech deliveries of a few million a month (supplied from Belgium) and the AstraZeneca/Oxford vaccine delivering about 2m a week at the moment. Maybe 10-11m doses a month. In April we start having to give second doses.
Are you willing to trade the bird-near-hand that is the AZ vaccine (of which we’ve ordered 100m) for some of those future deliveries which may not even arrive, and for which we don’t have confirmed dates?
“Over-ordering” may actually be forecast need over a number of years. The UK will not be planning just to vaccinate everyone in 2021 but rather, like the ‘flu vaccine, repeatedly for years.
All vaccines I believe have a shelf life even in cold storage plus as with flu virus how do we know what the mutated version of the CV19 virus will be in 5 years time.
Such over procurement could actually be to the detriment of the UK if by doing so poorer countries especially are denied the vaccine allowing the virus to maintain existence and future spreadability.
Is AZ under any kind of obligation to supply the EU from its UK operation in your opinion?
AZ have said explicitly in the published interview with the CEO that they were contracted last May to deliver to UK first from UK supply line that was set up for that purpose. So AZ have said explicitly that they have a contractual obligation to supply to UK from first.
After this is done all parties have said that UK sites can supply to EU.
Thank you for this, I find your blogs very well written and enlightening. In all my years of contract negotiating I never came across “Best Reasonable” or “Reasonable Best Efforts”. Although “Best Endeavours,” “Commercially Reasonable Endeavours” were more common, I guess as most my contracts were under UK law. I am amazed the Procurement folk or Lawyers for the Commission did not ensure the definition of Astra Zenca AB included other AZ entities, I agreed my contracts as “A Blue Chip Pharma Unlimited” (which was our only trading entity in the UK) and would always seek to ensure I was contracted with the parent, rather than some subsidiary. I always wanted to know who to kick if things went pear shaped. I wonder if there is any reference to Affiliates, Subsidiaries etc? As for 13 (e) Neatly worded I see. ” not under obligation.. in respect of the Initial European Doses” well – that’s just like saying ” I haven’t already sold goods I made for you to anyone else” surely? More important is what follows which says.. “or that conflicts with….” In that case I would guess they cannot claim, “nope sorry, booked for UK manufacture if being made in UK” I would have to see the schedules to see where they stated the vaccines were being made though. Like all agreements, you spend ages negotiating and crafting them and then.. put them in a draw and hope you don’t need them to be referred to.
Schedule A is heavily redacted but does list U.K. sites. It also references “reserved capacity” seeming to imply there is other capacity that is not reserved for the contract at (at least some) sites, and provides that the schedule is estimated based on this reserved capacity.
It’s also not evidently stipulated what portion of delivery tranches is intended to be supplied from which sites, and it seems a leap to suggest this lack of specificity implies a uniform entitlement to the supply from the listed sites.
I think you’ll find AZ would never have signed a contract which covered both entities. Why would they? This is an extremely high risk project with supply on a not-for-profit basis so there’s not even any money to be made at this stage.
The not-for-profit part is in the partnership deal between Oxford and AZ and is intended to make the vaccines more affordable for low and middle income countries. There are now partner companies in a dozen or more countries in the world.
Very interesting.
It seems like a major oversight to have not included AZ affiliates as parties to the agreement. For a scheme such as this you would think you would expect the full might of the PLC and subs to be available to supply but instead it’s a what I assume is a material entity (with manufacturing capability?) but still subsidiary of PLC.
On the Best Reasonable Efforts point, (1) would the entity point impact how an entity of “similar size” can be determined and (2) go to breach (or not) of the warranty about performing it’s obligations under the Agreement?
AZ would never have signed such a contract. Why would they? It’s a high risk, not-for-profit deal due to the Oxford tie-up.
Thank you for your post.
What I am puzzled by most is why the Commission or AZ signed a contract on a product that has yet to be proven – to be so ambiguous.
My own 2 cents is that this contract provides neither the seller or the buyer any clear guarantee that would protect them if the vaccine either did not work or in this particular case – been unable to produce at effective scale. My feeling is that in August the Commission were aware that they were behind and that their route out would be to have a contract with enough ambiguity to save them politically if AZ were unable to deliver the goods. When I read the contract initially I got the feel of an in-house counsel failing to deliver. But they delivered a contract that could be politically defended. I don’t doubt that the Commission were fully aware of the implications of the contract – however were confident that it could be politically defended. (I do wonder if they took any external legal guidance on this and what that guidance would have said!).
My hunch is that there is very likely a good amount of information from the pre-contract discussions that would likely embarrass the Commission rather than AZ. However as both the Commission and AZ know that this is never going to go near a court room that information will never be disclosed (although I do think a leak might be coming).
I do feel for AZ though.
There was no guarantee any of the vaccines would work. The UK signed six such deals based on the assessment on how likely they were to deliver. In the case of the AstraZeneca deal, the UK government even stumped up 90% of the capital cost of building the UK factories. That was back in May.
So much of the cost was “at risk”, and it’s not theoretical as the Sanofi vaccine development has been plagued with problems and, at best, will not deliver until the end of 2021. The EU had big orders too.
The priority at the time was to get vaccines as quickly as possible and hence the UK pre-ordered from six companies. Fortunately 2 out of the 6 (Pfizer and AZ) have come through. Moderna, which missed and did not pre-order, will deliver (if we are lucky) starting in March. Novavox (just produced phase 3 clinical trial results) is to be manufactured in Stockton-on-Tees, but not until late summer. Johnson & Johnson deliveries (another early bet) starting, maybe in spring
The UK vaccine program was well thought out. They spread orders across 3 technologies. Their biggest “oversight” was not ordering Moderna – it will fascinating to find out why in due course. But they balanced Sanofi with Novavax and invested in Valvena which the EU still has not even ordered. So they have 2 successes, a third quickly ordered, two more looking solid and only one failure. The supply seems to be about the amount they can actually administer at this stage.
Seems pretty obvious that they over order to cover failures, perhaps hedge for annuals and definitely to release/give the surplus to others. After all the UK is by far the most generous door to Covax based on pro rata measures.
The UK is the largest national donor to COVAX in absolute terms. I’m not sure if it is per capita.
My notes on the APA (and apologies for repetition):
* The APA is governed by Belgian law (clause 18.4). Therefore, a definitive view of the APA can only be given by Belgian lawyers and ultimately the Belgian courts.
* Under the APA, the Member States, not the EU, are to acquire vaccine doses from AZ (2nd recital).
* Best Reasonable Efforts, as used in the APA, is a defined term (clause 1.9). For AZ, it means “the activities and degree of effort that a company of similar size with a similarly-sized infrastructure and similar resources as AZ would undertake or use … having regard to the urgent need for a Vaccine to end a global pandemic …”.
* Best Reasonable Efforts appears to focus on the place of manufacture. AZ gave its Best Reasonable Efforts to manufacture vaccines for Member States within the EU (8th recital and clause 5.1). Under clause 5.4, this includes the UK. In the words of the 8th recital: “AZ has committed to use its Best Reasonable Efforts … to build capacity to manufacture 300 million Doses”.
* As to supply of vaccine, AZ contracted to “supply the Initial Europe Doses to the Participating Member States according to the terms of this agreement” (9th recital). There is no reference to supply being subject to a Best Reasonable Efforts obligation.
* Under the APA, the European Commission would deliver to AZ a “final and binding” allocation of 300 million doses as Initial Europe Doses, termed “the Binding Allocation” (clause 8.3). From that amount, the European Commission would make allocations to each Member State (clause 8.3), pursuant to which Member States can submit Order Forms for vaccine doses: “In order to maintain the right to purchases [sic] Doses of Vaccine as contemplated by this Agreement, an EU Member State must execute and deliver an Order Form …” (clause 3.1(a)). A pro forma of that Order Form is appended to the APA.
The EU member states have an option on a further 100 million doses (8th recital and clause 5.2). This would appear to be on the same terms as the Initial Europe Doses. Beyond that number, the EU could order Additional Doses, but AZ’s obligations would only be to “consider [those] in good faith … but shall not be required to manufacture and supply Vaccine Doses in excess of the Initial Europe Doses and Optional Doses” (clause 5.3).
The drafting isn’t great, but I read it as putting on AZ a binding obligation to supply a total of 300 million to 400 million doses to EU Member States that have submitted Order Forms and been allocated a quantity by the Commission.
I agree, I believe there is an obligation to provide the doses. The question is the timing? I don’t think AZ have said they won’t ever supply the agreed number, just fewer will be delivered in Q1 than previously anticipated.
I don’t think anyone believes they are not bound to deliver those doses. But are they bound to deliver them within a certain timeframe?
It’s not the volume that is at issue, but the timing of deliveries that is the problem. 300 million doses delivered over 5 years is of little use.
Would you agree that if the total output from all the sites in Schedule A is less than expected, that it doesn’t follow that the UK get what the UK sites produce and the EU have to make do with only what the EU sites produce? Especially if, as has been alleged (and on reflection makes sense), that some of the output so far from the EU sites has gone to the UK.
The EU clearly don’t have an absolute claim to all the doses but I do think ‘Best Reasonable Efforts’ means they are entitled to a share of output from the UK factories and they can query how large that’s going to be. The fact that this has gone so public is a bad sign tho, a sign that trust has broken down.
aah but what happens if those UK factories are not a party to the Agreement? It is between AstraZeneca AB and the EC, not Astra Zeneca UK Ltd or plc and whatever and the Commission, we would need to know the actual entity definitions to understand that I guess. But UK sites may be owned by an unrelated entity.. Always understand who you are contracting with !
Well, that merely closes one issue but opens another. 5.5 indicates that AZ had to submit a list of manufacturing sites to the EU as soon as they were chosen (or if any changed). Without having seen the list, I presume the EU would not be expecting production there if the UK sites were not on the submitted list. At that point it doesn’t matter if the sites are contractually bound to AZ ab or the EU – AZ has undertaken in writing to use them and if it cant AZ is in breach. Even worse if AZ knew this beforehand, and accepted payment based on this
Surely if they’re in the Schedule, then we can assume that the AstraZeneca entity that signed the APA has control over them? If not, that’s a huge deception on AZ’s party
Exactly.
This is indeed one gap in the blog post’s reasoning: if the AZ entity does not have control over those sites, then it should not have committed them in the contract it signed.
Another gap in the blog post’s reasoning is the following: even though the existence of a contract with the UK may have been public knowledge, the terms of that agreement are not. In particular, there was no public knowledge of exclusivity or first-come-first-served.
Not a lawyer btw
The UK Vaccine task force announced back in December that the European plants provide the initial AZ supply to the UK, so it’s not disputed.
No, they did not. They used an unrelated Dutch facility for fill and finish of the U.K. produced drug substance.
The Vaccine task force said the initial UK doses came from the Netherlands & Germany . See Reuters article
https://twitter.com/NaomiOhReally/status/1354731311479607297?s=19
So, the BBC[1] claims both were to Fill&Finish UK drug substance. Pascal Soriot an AZ deny any diversion occurred.
Notably, there is no NL site in Schedule A of the contract, so it is impossible for any doses from a NL supplier to be relevant to this dispute. It appears that according to [3] (and perhaps [4]) I may have been mistaken, and that there may have been drug substance manufactured in NL intended for the UK, but this would not have any bearing on the EU contract, given this site is not listed as supplying them.
The most likely explanation at present seems to be that AZ is not misrepresenting its position, and that it has not diverted any supplies from the EU supply chain, given the only evidence that it has is that some supplies came EU.
However, while it appears unlikely to be the case, even were it to come to light that some of the same suppliers supplied yhe UK, it would still be unclear any breach had occurred. Much like the UK capacity, Schedule A makes no statement about relative priority of access to the reserved manufacturing capacity. Having an agreement that was expected to complete before your estimated schedule of doses would not seem to impede completion of a contract whose timelines can be revised.
[1]https://www.bbc.co.uk/news/uk-55838272
[2]https://www.openaccessgovernment.org/vaccine-feud/102349/
[3]https://twitter.com/adamjohnritchie/status/1355791613067481089?s=20
[4]https://www.halix.nl/2020/12/08/halix-signs-agreement-astrazeneca-commercial-manufacture-covid-19-vaccine/
No doubt that is what really happened, and that is why the EU is upset. However, as far as I know, Mr Soriot has not yet acknowledged this in public?
Mr Soriot is insisting on AZ having separate production lines for supplying separate markets; i e what is produced in the UK stays in the UK. But apparently, what has been produced within the EU also goes to the UK. And there lies the problem.
But unfortunatetly for the EU, the contract between the EU and AZ seems very vague indeeed.
In retrospect I think it would have been wiser if the EU and the UK should not have invested in the same vaccine project.
But we do not know this for sure, do we? As far as I know, Mr Soriot has not acknowledged this in public?
Mr Soriot is insisting on AZ having separate production lines for supplying separate markets; i e what is produced in the UK stays in the UK. But what the EU suspects is that what has been produced within the EU also goes to the UK.
But unfortunately for the EU, the contract between the EU and AZ seems very vague indeeed.
In retrospect I think it would have been wiser if the EU and the UK should not have invested in the same vaccine project.
They most certainly did not. The vaccine batches produced in the UK were shipped to Germany & Netherlands for fill-finish i.e. bottling, before being shipped back to the UK. Nothing more.
Apparently AZ shipped vaccine from the UK to have it filled and finished in the EU. There doesn’t seem to be an absolute source that the UK received any vaccine that was produced in the EU.
In any case, those EU factories were being set up in February with British money, and production began there before the EU had even signed a deal.
The EU has directly benefitted from British money, and the British contract which was signed three months before theirs.
*If* the EU is actually entitled to supply from the UK, should any benefit the EU has gained from the pre-existing UK contract be deducted first? And should the UK’s shortfall be taken in to account? We were due our first 30m doses in September.
On the other hand Mr Gove was quoted yesterday in The Guardian, commenting on EU vaccine exportation controls, saying that the government expected corona virus vaccines manufactured by Pfizer and Astra Zeneca on the continent being supplied to the UK without any disturbance.
Reuters
https://twitter.com/NaomiOhReally/status/1354731311479607297?s=19
The supply to the UK government from the factories (90% funded by the UK government) will be under English Contract Law. AZ will have no power to breach that prior contract, and if they tried it by diverting supplies, it would quickly end up in a British court which would undoubtedly stop it happening.
A Belgian court order would not override what I suspect is an entirely bullet proof prior contract under English Contract Law.
Astra Zeneca CEO has explicitly said that:-
“First of all, we have different plants and they have different yields and different productivity. One of the plants with the highest yield is in the UK because it started earlier. It also had its own issues, but we solved all, it has a good productivity, but it’s the UK plant because it started earlier. Anyway, we didn’t commit with the EU, by the way. It’s not a commitment we have to Europe: it’s a best effort, we said we are going to make our best effort. The reason why we said that is because Europe at the time wanted to be supplied more or less at the same time as the UK, even though the contract was signed three months later. So we said, “ok, we’re going to do our best, we’re going to try, but we cannot commit contractually because we are three months behind UK”. We knew it was a super stretch goal and we know it’s a big issue, this pandemic. But our contract is not a contractual commitment. It’s a best effort. Basically we said we’re going to try our best, but we can’t guarantee we’re going to succeed. In fact, getting there, we are a little bit delayed”.
So the CEO of AZ is clear here what their legal position is. He also says the following:-
“The UK agreement was reached in June, three months before the European one. As you could imagine, the UK government said the supply coming out of the UK supply chain would go to the UK first. Basically, that’s how it is. In the EU agreement it is mentioned that the manufacturing sites in the UK were an option for Europe, but only later.”
So unless he is unaware of his legal position or is lying, the UK based production is not going to the EU any time soon.
https://www.repubblica.it/cronaca/2021/01/26/news/interview_pascal_soriot_ceo_astrazeneca_coronavirus_covid_vaccines-284349628/
Dear David,
We have to determine what was the common intention of the parties. The contract shall be executed in good faith.
Along with the « best reasonable efforts » definition and the pandemic context, it is notable that the contract is at no profit and at no loss to Astrazeneca.
On the other hand, did the European Commission meet its own obligations in the contract execution ?
Thanks for the enlightenment, its very informative. I can see a few issues though that don’t make it as straight forward as you imply.
Firstly, on 5.4: AZ is obligated to deliver the required doses to the schedule agreed, OR notify the EU it can’t as soon as they realise they cannot meet such schedule, and at that point use best reasonable efforts to produce the vaccine using other facilities. It’s not clear AZ has done this, and as they have not publicly pointed it out, despite having an additional 4 weeks after provisional authorisation in the UK to do so.
Secondly, on 13.1(e) I disagree somewhat on the interpretation – the wording implies that any previously agreed contract will not have a material impact on production. But, in conjunction with 5.4 and AZ saying on Jan 14th that they are ramping up production from 1 to 2 million doses per week for the UK, using facilities they agreed could be used for EU vaccine production you have a problem. You cant say there is a production issue if the facilities being used are ramping up production for another party you said would not have an effect on production.
I don’t think the EU have handled this well, but I think AZ are in more trouble than you think
IANAL.
There seems to an issue regarding 5.1 and 5.4. The former would imply the first 300m (Initial Europe Doses) are required to be produced in the UK.
5.4 says the inclusion of the UK is for the purposes of 5.4 only. It seems worded so that it does not override 5.1.
So does the contract even obligate AZ to use the UK supply until the Initial Europe Doses are complete?
If it does, do BREs require them to potentially break the UK contract? (Assuming the UK contract does guarantee the UK the first 100m doses).
I’ve also seen another lawyer argue than 13.1(e) doesn’t apply because AZ’s previous commitments have actually been a benefit to the fulfillment of the EU contract, not a hindrance. Dan also noted this too. @adamjohnritchie on Twitter noted that production was being set up in February with British money and that production started before the EU even signed a deal.
There is a question though as to whether the UK facilities would be producing anything if it weren’t for the UK contract. Even if they would have been, it’s possible, that the quicker ramp up in the UK has materially helped the ramp up generally. Therefore, the situation in the EU might be even worse if it weren’t for the UK contract allowing valuable lessons to be learnt about the manufacturing process.
It’s speculation, but not any more speculative than assuming the UK contract has made the EU situation worse.
Agree
So why do you think that the Astra Zeneca CEO said explicitly that this is not true, that they are only committed to a best reasonable effort, and that the UK production is for the UK.
“As you could imagine, the UK government said the supply coming out of the UK supply chain would go to the UK first. Basically, that’s how it is. In the EU agreement it is mentioned that the manufacturing sites in the UK were an option for Europe, but only later.”
He seems very certain of the legal position here for someone that is behind on production to his biggest customers.
“Best reasonable efforts”. My understanding is that the EU will have to prove that AstraZeneca (AZ) did not use best reasonable effort by showing that AZ’s production was somehow “tilted” to supplying another third party contract in preference to, or to cause confliction with, the EU’s contract.
I see in this blog there is no mention of the raid on AZ’s premises in Belgium which by all accounts suffered a “glitch” in the production of their vaccine and I believe is being used as AZ’s reason for the reduced supply of vaccine to the EU.
If this glitch is proved to be genuine then short of every other nation publishing their contracts I can not see what else the EU can do.
However, if the raid and close scrutiny of AZ’s documents and computer system currently being investigated by experts in Belgium, Spain, Italy and The Netherlands reveal untoward practices then it represents a completely different ball game.
I suspect a great many are awaiting the results of the investigation.
I believe the raid happened 3 days ago and I saw a quote I think that said it should take a couple of days to go through the documents. Given they appear to have not found a smoking gun document and that the EC appear to have now accepted 9 million extra doses from AZ that, it is claimed, they previously rejected I think we are not going to be visiting that different ball game (if we were allowed in).
[Layperson, but with some contract experience]
But everything you’ve written makes sense with my understanding of it. When I read it, I was amazed that the EU was a) stating that there was an absolute requirement on AZ, and b) that it was the EU that was demanding the publication of the contract.
It was like they were trying to undermine their own positon. I can only think that those making the statements were being badly advised or perhaps under such pressure as to act carelessly. Whatever the reasons, the Commission are not covering themselves with glory right now (I say as ardently pro-EU.)
I cannot comment or critique the legal analysis. However, I am puzzled that the analysis does not consider broader context, which seems relevant to me (but may not be?). Specifically, we know that:
(a) Initial UK vaccinations were delivered in part from EU supply lines. (This is certain and matter of public record).
(b) Currently AZ is delivering large quantities (not sure how much) to UK but says “sorry” to EU, citing the fact that UK contract was signed earlier (also a matter of public record). Does “earlier” have any legal standing?
(c) So if EU contract says all European (including UK) lines are to be used to fulfill contract, but now AZ is not exporting to EU from UK, how can this be “reasonable best effort”? (I believe this to be the case but am not certain, so this is partially hypothetical).
(d) What if AZ *currently* were using EU lines to meet UK demand (I am asking as a hypothetical), would this satisfy “reasonable best effort” vis-a-vis EU?
I have no idea how (b)-(d) play out in law but to me those are relevant questions. I know how the Commission works, I spend quite a bit of time in Brussels. They have always been cool, calm, and collected and evidence driven (if slow and boring). Until now. *Something* happened and they have 100s of lawyers advising them, so I feel there is a backstory here that your analysis does not (yet) capture.
“(a) Initial UK vaccinations were delivered in part from EU supply lines. (This is certain and matter of public record).”
If that were true, the EU could argue that AZ did not use “best reasonable efforts” to supply their order from EU (not including UK) production sites, as required in 5.1.
However this claim appears to be disputed. Do you have a reference to the public record?
An alternative claim (reported in https://www.bbc.co.uk/news/uk-55838272) is that last year, AZ sent drug substance from a UK production site to sites in the EU. There it was put into vials and then returned to the UK. This was done because a UK “fill and finish” site was not ready.
Both could be true. But given their similarity, it’s plausible that (a) is just a misunderstanding.
Are you sure that “Initial UK vaccinations were delivered in part from EU supply lines.” This seems questionable. Astra Zeneca have said explicitly that UK supply line producing much greater yield than EU.
we know that UK only received 1.1 million doses by 13 January, according to this parliamentary testimony.
https://committees.parliament.uk/oralevidence/1505/html/
My understanding was that the shipment from the EU was vaccine manufactured in UK but they did some of the fill and finish in the EU for speed, at a time when the EU factory was standing idle. AZ sat explictly that the UK supply line is being used to supply UK.
Dear David – an appreciated and thoughtful analysis.
I feel we need to understand AZ’s communication and transparency regarding ‘seniority’ or priority within the queue for supply better or this may happen again.
If three parties are awaiting supply and there is a 10% reduction versus expectations, do three parties have a 10% reduction, or does the ‘junior’ party have a 30% reduction?
It is still not clear if the 60% reduction for Feb/March to EU that AZ announced in late Jan is completely due to the plant production problems, or is exacerbated by prior delivery of vaccine to the UK, or even ongoing delivery to the UK.
For disclosure, I am a former AZ employee and I have ‘high-risk’ family in Ireland and Sweden (covered by the EU agreement) and family in Canada (also in the queue for AZ vaccine from EU plants, but now uncertain how many other countries AZ has agreed are ‘senior’ to them in the queue for the supply).
AZ should clarify this asap and minimise short notice supply shocks.
Regarding your 10% reduction scenario: it depends on whether the contracts provide for what is to happen in that scenario. But say the contract imposed and absolute (rather than conditional contract) to supply 100 widgets to three parties (300 total) by 31 March and you realise you can only supply 270, as a matter of English law you are going to be in breach of contract whatever you do. So you do whatever is likely to minimise your liability the most. If A could sue you for £10 for each widget for which there is a shortfall (because that is the market value of the widgets), but B and C could sue you for £20 per widget, because they’ve told you about the losses they would incur if there’s a shortfall, you’d choose to make a full delivery to B and C. In other circumstances, where there’s no difference in liability, you might prefer to keep everyone as happy as possible and deliver 90 widgets to each.
In English law there’s no priority of obligations arising from different contracts. That said, the UK *may* have extracted a promise to be prioritised at UK plants, in which case exports to the EU *could* be a breach of contract between UK and AZ.
The CEO of AstraZeneca has stated that there is priority. It’s a very reasonable reason to believe from that statement and the politics of the situation (given the production capacity) are 90% directly publicly funded) that it’s been bolted down into the contract with the British government. It would take a legal and political mistake of an epic order for that not to be the case.
The default assumption that there is such a contract under English law is extremely reasonable. I would say, given what we know now, we’d need evidence to the contrary not to work on that assumption.
Plenty of epic order mistakes around! But you may be right, which is why I said, while there is no priority as a matter of general law, the UK may have negotiated one in their contract.
Thank you Mr Green, interesting to see what the document rather than the second-hand loudhailer stuff from the media.
I do think whoever went public on this made a mistake, as by so doing have turned a contractual issue into a political football.
If AZ are not yet able (for whatever reason) to increase production quickly enough then the EU should be doing all they can to help AZ. And they could do a lot. With all due respect to the Brussels lawyers, they are not going to produce a vaccine themselves any time soon. Or ever.
Your last point is a very good one, and I read the latter part of section 5.4 as meaning the EU and member states would assist with manufacturing facilities if AZ were struggling.
Given AZ are providing this vaccine on a non-profit (or loss) basis, you’d think causing a stink by threatening to sue would be counterproductive to achieving the important objective of delivery!
All political. BBC’s Katya Adler gives an interesting take on this.
[layperson, in EU, with some experience in running projects involving ramp-up of industrial production, though in electronics, not pharma]
I second this. I was quite flabbergasted by the EU commission response to AZ announcement of slower-than-hoped-for production ramp-up.
The now published contract between EU and AZ is quite similar to what I expected. I don’t comment on the legal language; I comment the content as I perceive it. In my opinion, AZ would have been crazy if it had committed to a delivery schedule of specific numbers of doses of vaccine on specific dates – signed at a time when the phase 3 trials were only starting, and it was yet not at all clear that the developed vaccine is even viable, or if it has to be modified and trialed again. Such a commitment would be so risky that if I was in the EU side negotiating, and some vendor were to offer it, I would consider it an attempt to fraud or something. Serious companies with serious production plans and lawyers hired simply would not offer such a contract.
And yet the EU Commission purports to lead the public to believe that such a contract would have been made, now that they are disappointed with the delivery schedules.
It seems to me that particularly the health commissioner Kyriakides felt her position so weak that she started a panic reaction, trying to blame AZ (“Big Pharma”) for problems. This is the reaction of a politician trying to play the public opinion, not a serious position in a contractual dispute.
We should remember that EU has made similar contracts about vaccines with other parties besides AZ. They’re not delivering yet. And even the approval for AZ vaccine came only on Friday, many days after this hullabaloo started.
Member countries also only indicate that they clear it only for under-65-year-olds. To me this seems yet another face-saving measure: the public is now left with some doubt about the efficacy and safety of the vaccine, making it more acceptable that it is delayed. The countries can afford to do this without major harm because they have ongoing supplies of Pfizer-BionNTech and Moderna vaccines, so they can say that they vaccinate older people with these.
All in all, to me this looks like the EU health commissioner is not overly concerned about sustained investment and production of vaccines in the EU within the commission term of next three years; she is concerned about retaining her own position for the next three months.
This is a fantastic comment – very thoughtful
To me the issue turns on whether Astrazeneca acted in bad faith by including UK factories for the planned manufacture (Appendix A), when those factories are unviable because of Astrazeneca’s exclusivity agreement with the UK government.
I can’t see that being an issue. How can it be considered bad faith to allow for the possibility that some of the vaccine (not the doses!) might be produced in the UK?
The UK order is far smaller than the EU one and will presumably be fulfilled well in advance of the EU one. It’s a pretty safe assumption to bet that AZ expected the UK factories to shift to EU production in due course. If they hadn’t included UK production as a possibility in the contract it could have resulted in the need for an additional agreement later on. Why not just deal with it in the initial one?
1 The title of the agreement is the “ADVANCE PURCHASE AGREEMENT FOR THE PRODUCTION, PURCHASE AND SUPPLY OF COVID-19 VACCINE WITHIN THE EU” ( Note that, clearly right from the outset, the prior intention of the EU was to have all of vaccine supplied by AZ manufactured inside the EU, and see how this compares with the UK who were only too happy to sign a deal with Pfizer for the supply of vaccine manufactured wherever, so long as we had access to it.)
2 The agreement refers to three separate delivery quantities of the vaccine namely the Initial Europe Doses, (300 million) as defined in Section 5.1 of the agreement, the Optional Doses (100 million) defined in Section 5.2, and an unspecified number of Additional Doses, defined in Section 5.3, which might be negotiated at some future date.
Clearly, since the EMA have only just approved the AZ vaccine, and AZ are way behind their original anticipated manufacturing and delivery schedule, the current dispute is about the 300 million “Initial Europe Doses” rather than any others. Therefore the relevant Section of the agreement is 5.1, the wording which reflects the title of the agreement itself, namely that AZ shall use its Best Reasonable Efforts to manufacture the Initial Europe Doses in the EU. Neither Section 5.2 nor 5.3 specify a manufacturing site, and since they were for a future negotiation this is irrelevant.
3 There is a further Section, 5.4, which covers the possibility of AZ needing to use manufacturing facilities outside the EU in order to expedite deliveries of the Initial Europe Doses, but from its wording the intent of this section is clearly to deter AZ from doing so. Thus it requires prior written warning of such a move to facilities outside the EU and a full explanation of the circumstances behind it. Thereafter, the EU would be entitled to provide a list of alternative manufacturing sites within the EU, and AZ would be required to employ its Best Reasonable Efforts to use these EU facilities rather than going outside the EU.
It should be noted here that Section 5.4 states that “for the purposes of this section only” the definition of the EU should include the UK. The reasoning behind this insertion is clearly to free up AZ’s ability to switch manufacture of the Initial Europe Doses from the EU to the UK. However, it does not in any way impose a requirement for AZ to make such a switch in any circumstances!
I agree. The concept of good faith underpins contracts law under the Civil Code ( & is strongly enforced in Belgium law) . In civil law systems it is fundamental ( contrary to English law) And in this context the warranty in clause 13.1 (e) would be a big problem for AZ.
– It undertook to use Best Reasonable Efforts to manufacture & distribute including from its UK plants
– it warranted that it did not have any pre-existing contractual obligations which would ” impede the complete fulfillment ” of this obligation
– how can it be both reasonable & best efforts to tell the EU that it will not be provided with products from the UK due to prior contractual obligations under the UK contract?
Thanks, Marie-Caroline. If you are an expert on Belgian law, could you comment on what implications might flow from this APA being signed by the Swedish company AstraZeneca AB, and not for example by the group’s parent company AstraZeneca plc or AstraZeneca UK Limited (which appears to be the main UK operating company).
The obligations to manufacture and supply Doses of the Vaccine under this contact fall on that Swedish company alone, and not on any of its “Affiliates” (defined as a person that Controls it, is Controlled by it, or under common Control with it). Affiliates are only mentioned in clauses dealing with audits (7.6) indemnification (14.1, 15.2) confidentiality (16) and force majeure (18.7)
Under Belgian law, can a contract impose obligations on parties who are not signatories, and who are not even named in the contract?
From my layman reading of the contract, that’s essentially the conclusion I came to. I was 99% certain that AstraZeneca lawyers will have been all over this document, and wouldn’t have left the company exposed in such a risky project (and on non–profit basis).
A lot of those ambitious delivery schedules will have been put there to put gloss on the numbers for the politicians. They are under huge pressure, and to say we’ve order X million doses by Y date helps with relieving that. What the numbers probably represented was the maximum possible achievable if everything had gone perfectly. I’ve seen far too many project plans of that sort.
In any event, even if a court order was made by a Belgian court for AZ to divert supplies from a UK factory it would surely have been unenforceable. The prior contract to supply the UK government, with its priority clause, will have been drawn up using English contract law. Even if the entities were the same, AZ would have been in breach of that earlier contract and any British court would surely have sided with the UK government and that supplies could not be diverted.
So, it would have been very bad for AZ to lose a case in Belgium, but apart from applying more pressure on the company (and maybe the UK government), it would have achieved nothing in the way of speeding up supplies to the EU.
This thread from somebody who was deeply involved in setting up the AZ factory facilities tells us the non-legal side of what’s involved in delivering this lot.
https://twitter.com/adamjohnritchie/status/1355136430402580482?s=20
It appears that AZ also charged a drug substance and drug product reservation fee. See Schedule A. That would suggest that any diversion of supply would at least be highly questionable and almost certainly would run afoul of “best reasonable efforts” as well as the implied good faith and loyalty requirement under Belgium law.
Very nice post David.
I’m struggling a bit with this, tbh.
A couple of points, if I may.
1. Re the problematic relationship of 5.1 and 5.4, I think you need to pay a bit more attention as well to 5.2, 5.3, and Schedule A.
To state the obvious 5.1 deals with the ‘Initial European Doses’, 5.2 the ‘Optional Doses’, and 5.3 the ‘Additional Doses’ , but all these different ‘Doses’ are – drumroll – ‘Vaccine’ – the word used in 5.4, which suggests 5.4 is meant to condition ALL of the different obligations of 5.1-5.3.
If that is right the apparent hurdle of reading the extension of the ‘in the EU’ wording in 5.4 to the UK plants back into 5.1 seems to me to diminish, notwithstanding the wording in 5.4
‘which for the purposes of this Section 5.4 only, shall include the United Kingdom.’
That’s because, on this reading, Section 5,4 is essentially to specify the manufacturing location for ALL those other sections, as it’s title suggest.
Thus it seems to me ‘the purpose of 5.4’ (to quote the relevant words in that above quoted wording) is, precisely, to condition each of 5.1 to 5.3.
That’s also, surely, why it was placed after them, and talks of ‘Vaccine’ generally which covers all the different types of ‘Doses’ in those preceding Sections.
The last sentence of Section 5.4 (after the guff before which is not really relevant) is then the laconic ‘The Manufacturing site planning is set out in Schedule A.’
So what about that Schedule?
If we then turn to Schedule A then, despite the heavy redactions, it seems reasonably clear from the first few lines the UK plants are explicitly intended to be used to supply (part) of the ‘Drug substance manufacturing’ (the bit of the process the CEO has told us is the problematic bit in the other plants in Belgium and The Netherlands) that is to be used for the Initial European Doses.’
This reinforces that both parties at the time when they wrote the obligation in 5.1 for the Initial European Doses fully intended that the UK plants would contribute to the production of those doses, and the contention that the wording of 5.4 suggests otherwise is weak.
To that extent the EU’s contention that that was the explicit understanding at the time seems to stack up.
2. So, the big question.
Is AZ then permitted to say, in effect ‘Sorry chaps, we did produce enough Vaccine to deliver all the Initial European Doses to you if you had been our only customer, but unfortunately we had already sold off some of them to the UK?’.
That as you say takes us to Section 13.1(e).
If you will indulge some additional punctuation to break that Section down, it seems to me we could usefully clarify that Section without materially altering its meaning as follows:
‘it is not under any obligation, contractual or otherwise, to any Person or third party, (AA) in respect of the Initial European Doses OR [emphasis added) (BB) that conflicts with or is in any material respect inconsistent with the terms of this Agreement OR [emphasis added] (CC) that would that would impede the complete fulfilment of its obligations under this Agreement.’
In other words the ‘or’s that break up that warranty seem to me pretty important and would seem to indicate each of AA, BB and CC are standalone promises. How else can you give ‘or’ meaning?
If that is right, then taking account of my previous comments on 5.1 – 5.4 and Schedule A, the bit of the warranty in AA seems a bit of a problem, no?
Especially as that it seems harder to utilise your ‘13.1 just takes us back to ‘best reasonable efforts in 5.1’ as that only really seems to work with the BB and CC bits of the warranty, or at least it is surely a bit more of a stretch to read it back in AA just on the basis of the definition of ‘Initial European Doses’, and especially as this bit of the warranty must presumably have been intended to have some additional purpose over the rest of it in BB and CC?
Stepping back … absolutely not ‘crystal clear’ for the EU, I agree that, but I can’t help feeling they may have a bit of a stronger case than you allow….
For sure as you and Spinning Hugo say, they and the world knew the UK had a prior deal. But so what?
Isn’t Counsel for the EU just going to say (if that sort of thing happens in a Belgian Court) ‘Yes of course my clients knew that, and of course as they wanted to use the UK plants as the contract explicitly states they agreed with AZ for (some of) the Initial European Doses, so that was precisely why they asked AZ to assure them that AZ had no other obligations to anyone else that would prevent that, and AZ indeed promised them that in 13.1(e)(AA), and told them “yes, that’s right”?….
What’s the reply to that argument…..?/What am I missing?
Finally, re the two company point, I’ve sort of been assuming there must be some documents somewhere clarifying that all AZ obligations are ‘group’. Standard stuff, surely? And a bit of an omission by either or both the UK and/or the EU if they didn’t get an AZ group covenant? But maybe I am wrong. I did know it once but I’ve lost track of the AZ group structure.
Thank you for this comment. I’m very much in line with your analysis, particularly with the 2 AZ companies being, in effect, the subsidiaries of the same parent and therefor unable to simply wave off obligations under the respective contracts as being by a different legal person.
With regard to clause 5, the literal reading of clause 5.4, limiting its meaning only the the words of that subclause render it virtually (or actually) nonsensical. Your argument for the intentions of the draftsman via its inter-action with 5.2, 5.3 and 13 (plus the schedule) turn it into a subclause with sensible meaning. It’s possible that it was only ever intended to mean “this clause”, but was either poorly drafted or the draftsman failed to realise that his intention would not be obvious to others. One thing, among many, that I don’t know is whether a Belgian court would seek to infer a more natural wording for a clause to ‘rescue’ its meaning or take a more literal interpretation.
Indeed. Clause 5.4 is poorly drafted and I think it is reasonably clear that the inclusion of the UK in Clause 5.4 was intended to extend to other operative provisions in Clause 5. I echo David’s point above that the outcome will depend on whether the Belgian courts take the clause at face value or will strive to read it harmoniously and contextually with the other provisions in the contract, even if that involves ignoring the express wording of Clause 5.4.
However, I can’t agree with your analysis that Clause 13.1(e)(AA) (to adopt your references) has been breached. Initial European Doses is defined in the Recitals (it happens but it’s not best practice from an English law perspective) as the 300m doses that the EU has ordered. So all Clause 13.1(e)(AA) really does is warrant and represent that AZ was, at the time the agreement was executed, not under an obligation to somebody else in respect of those 300m doses. The UK’s order of 100m doses has, of course, all along been separate, so on the face of it there is no conflict.
Naturally, the EU will argue that some of its 300m doses were ‘diverted’ and hence there was a breach of Clause 13.1(e), but AZ’s response would be that the doses that it is manufacturing are not ear-marked for the EU and therefore there was no diversion of EU vaccines to the UK. Accordingly, there is no breach by AZ. The question which then arises is this: what is the extent of AZ’s obligation to manufacture and deliver the Initial European Doses? And I think the response to that is that AZ is only obliged to use its best reasonable efforts to do so, which brings us back to DAG’s point.
More fundamentally, I question whether Art 13(1)(e) can really be relied upon if production issues, and their attendant effect on AZ’s ability to fulfil its EU order, only arose after the warranty/representation had been given. Based on the parties’ understanding of the facts at the time the agreement was signed, the statements in Art 13(1)(e) could well have been true then, in which case there is no breach of the clause.
Of course, if Art 13(1)(e) is somehow construed as a promise to ensure a future state of affairs (and I note the header of Art 13 includes the word ‘covenants’), or it’s a repeating rep and warranty, then that is a different matter entirely. But based on the drafting, which on my reading fixes it to a particular point in time, I doubt the former is the case. I also cannot comment if it is the latter because I have not read the contract in full.
Caveat: I am not a Belgian lawyer.
Thanks JJ and David F.
As of this morning I am more and more confident in my reading of 5.4.
The key I think therefore is (in the IMHO wholly unlikely event this ever gets to court) 13.1(e), and as respects that, I find your reading, JJ, of what we’ve called the 13.1(e)(AA) point persuasive – you may have seen Spinning Hugo is making the same point, I think, on twitter. This, I think, is the crux.
I think your points here would ‘probably’ prevail.
That said, where I am is I think the wording here is sufficiently open that the points you very ably discuss in relation to it ‘could’ be decided either way, probably depending on how the court viewed the merits on, very crudely put, whether they think 13.1(e) was ‘meant’ to be talking about quantities of vaccine doses generically or those earmarked to be produced for the EU in particular, and at a point in time or time to time. Depending on your view of those questions then on what we have at the moment I think there are ways to read it to underpin that result, maybe sometimes at a stretch, but not too violently so.
Any record of negotiations at the time might be illuminating. I’m genuinely open minded about what they might reveal. I’ve no idea whether Belgium courts are meant to concern themselves with such things. In the UK of course they aren’t – but where they are helpful to you then naturally there is usually a way to get them in….
Crazy that the answer to this question is not 100% clear beyond argument. But on the other hand not surprising given it’s probably first time for this sort of situation. And, after this, the future contracts will no doubt have it fully nailed down.
Thanks again to you both, very good points, nicely made.
Thanks for the discussion and your insight SJXT. I agree entirely with you that it’s not clear-cut either way and much would depend on how the Belgian courts approach the issues – but I guess that’s what makes law interesting! Although one would think a pharmaceutical giant and a supranational body would be able to hire better lawyers to draft their contracts for them. The patent ambiguities on the face of the document are just embarrassing, but perhaps they were a result of unnecessarily (for this is a manufacturer selling at cost) tough and protracted negotiations.
If the estimated dates are based on the capacity that would be available once the other contract completes, and the dates can be revised, are they really in conflict?
If the estimated dates are based on using capacity actually _created_ by the other contract, are they in conflict or in concert?
If the contract makes no warranties about the relative capacity reserved at each site, on what schedule, can any claim be made on a specific site at a specific time? If not, are the contracts in conflict?
Hi to all,
I would like to give my view, from EU (from Italy, pardon my English) as a lay person (I am not a lawyer, I have only university-level knowings of EU laws). Also, some rebuttal or comment will be greatly appreciated.
1) I would like to submit to the analysis of the fellow poster this article from the AZ-EU contract:
—–
6.3. Reporting and Notification to the Commission. AstraZeneca will report to the
Commission in regular intervals on whether it has been able to secure the supply of all
drug substances needed and drug product capacity (if required) as well as components
critical to the development, manufacture, and supply of the Initial Europe Doses (e.g.
glass vials/stoppers, media, etc.). AstraZeneca will promptly notify the Commission if
it encounters difficulties in this regard that place at significant risk AstraZeneca’s
ability to manufacture or sell the Vaccine Doses as contemplated by this Agreement.
—–
Well. I believe that discovering that you cannot deliver 61% (or more) of the promises doses just a week before the approval date (that was known for awhile) it is very strange and/or suspect.
Why AZ didn’t comply to article 6.3? It’s not that you open a pot and discover at the last minute you forgot some ingredient or you don’t put enough water for the recipe.
2) Also, read here:
https://www.vrt.be/vrtnws/en/2021/01/31/belgian-pm-says-that-ban-on-vaccine-exports-is-not-on-the-cards/
—–
The inspectors found that there are indeed production issues at the Seneffe factory. “It appears that there is a shortage of the raw materials needed to make the vaccines. The analysis of the situation there is still ongoing. Is it a typical production problem […]
Well… from a lower yield now this source claim a “shortage” of raw materials? This is a whole different notes. Where are gone those materials?
Preparing vaccine in a bio-reactor is a lenghtly process, I still can’t understand why the problems were notified so late, and we are not talking of some weekly batch… but a whole 60-75% production for a quarter missing!
3) I don’t have ready the link where AZ declares (november 2020) that they are saying that a lot of doses are bulk-frozen and ready. Also I follow this crisis from the beginning (from January 2020 to be exact) and I have always read about the pharma companies wanting/preparing to produce “at risk”. So, while that defense of EU being late can be used? You are to provide the vaccine to the whole world, orders will rain from everywhere (3 billions doses estimate to produce) and all is blocked by the EU lateness on their 300/400 million orders? Could be that the trial instilled some doubt in the AZ management and then they didn’t go full steam like Serum Institute of India did having 50/100 millions doses ready the first day of approval and organizing to have a production of 50/70 millions per month?
4)Another round of suspect facts:
On Italian TV the 16 and 18 january our Commissar for Vaccination mister Arcuri sai about 16 millions doses of AZ for Q1 (that was in the parliament approved-plan).
On 19 january Saudi Ariabia approves AZ
On 21 january Arcuri said the doses for Q1 are 8 millions (I start to being puzzled)
On 22 january AZ pulls his trics and the Q1 doses for italy Q1 stand now at 3.4 millions…
(after 22 january Saudi Arabia says that their AZ vaccines will come from India).
So, to summarize my points:
1) It is not credible that a 60/75% fall in deliveries is discovered a week (3 because they said 15 feb) before those deliveries must start.
2) The world will buy your vaccine, so why you are not going full force (best effort?), based on your promises, to upgrade and expand the infrastructure? EU or not.
3) I have some doubt, like the poster “Also a Dan” above, that some production or raw ingredients were diverted to the UK or for some large impending order for Saudi Arabia or the US (the one countries so important you can screw EU for them).
Cheers to all
It is entirely credible that AZ could discover in a week that 60% of their production from a site or sites is not available. The frozen material they were producing last year was not necessarily released drug product, and there are many ways that could now not be available, and very suddenly too.
Once a drug is produced it needs to undergo testing to ensure it is correct and safe, to allow successful Disposition. At that point it can be used in the clinic. 60% reduction in supply within a short period of time could represent failure of a single batch at any point between start and Disposition. If not a single batch, then some systematic quality issue with batches using the same materials, processes or equipment could also prevent successful Disposition of an entire campaign.
If it is a process issue, or an issue of material supply, then that could easily reduce the number of batches being produced or successfully Dispositioned in a quarter.
The key issue in all of this is how a Belgian court would interpret the expression “best reasonsable efforts”. In this case, it is helped by the fact that there is a contractual definition.
In this case, based on the contractual definition, the Belgian court is very likely to consider that AZ AB was under an “obligation de moyens renforcée” which means that it really had to do all that a leading pharma company would reasonably be expected to do in oder to meet a contractual commitment for a desperately needed vaccine to meet the most severe pandemic Europe (or the World) has experienced in over a century.
It could not invoke productivity problems as an excuse, especially if, as appears to be the case, such problems did not exist elsewhere in the business. Nor could it invoke prior undisclosed contractual commitments by another group company (if that is indeed the case) for not meeting the supply targets.
If AZ AB were able to deliver 75-80% of the amount contracted for, they would have a good case and it is doubtful if the Commission would even be arguing the point. However, if, as reported, they told the Commission they were only able to deliver 25 – 30%, it really would be up to AZ AB to demonstrate that they had used their “best reasonable efforts” as defined in the contract.
If the 25-30% figure is correct, I have some doubts about AZ AB´s ability to make that demonstration.
Thanks – this gets to the crux of the legal point. If the matter came to litigation, who would the Belgian court say has an obligation under this contract to do what and when, and have they done it or not.
AZ AB was the signatory. Does it (or indeed anyone else) have an absolute cast-iron obligation under this contract to deliver a specific amount of vaccine on specific dates, as the EU Commission seems to be arguing? If so, which provision of the contract or Belgian civil law says so? If not, has AZ AB discharged whatever other somewhat less onerous obligation it has: speaking loosely, it seems to me AZ AB is obliged to try as hard as it can to deliver doses of the vaccine according to the [redacted] estimated delivery timetable in Schedule A.
I doubt the Commission really wants to litigate: all of this sabre rattling is an effort to (a) get as much of the vaccine as quickly as possible, and (b) deflect blame for the slow process of vaccination approval and delivery in the EU, at least compared to the UK (although the UK won’t be so smug if it turns out that delivering just one of the two doses of vaccine to people aged 70+ does not achieve the protection we are all hoping for).
It isn’t the first and won’t be the last time that the threat of legal action – which may or may not have a firm legal foundation – has been deployed in an attempt to secure a commercial or political advantage.
The main argument missing in the analysis, in my opinion, is this: We know from AZ’s own press release in December, that they did deliver doses manufactured in the EU to the UK because the the UK plants were not ready.
Now there are production issues at the EU plants and AZ says they won’t compensate with doses manufactured in the UK.
How can this satisfy ‘best reasonable effort’? At the least, shouldn’t the EU be entitled to a compensation for the doses AZ shipped to other countries?
As the contract includes the 2 UK plants in the manufacturing facilities, how can it be “Reasonable Best Efforts” on the part of AZ to flatly refuse to deliver to the EU vaccines manufactured in the UK?
What do you make of the “… following marketing authorization…” provision in Article 5.1? The syntax of Article 5.1 is incredibly clumsy, and it is not entirely clear which activity/activities are qualifed by the marketing authorization provision. On balance I believe it is likely intended to refer to delivery of doses to distribution hubs after authorization has taken place. However, it could also be read as requiring AZ to use Best Reasonable Efforts to *manufacture and deliver* after authorization.
Given that the European marketing authorization was not even granted until Friday – around a week after this row blew up – could this be of significance?
On another matter, assuming for the sake of argument that the co-existence of the UK contract is potentially relevant in the context of Article 13(e), it would still need to be shown that the UK supply impeded AZ in fulfilling its obligations under the EU contract. At the moment nobody appears to have made out a good case for this. The only case which seems to have been advanced against AZ here is based on reports that some of the earliest doses supplied to the UK were manufactured at AZ’s European facilities. In effect, this is an accusation that AZ diverted to the UK parts of the supply which were manufactured under its contract with the Commission. However, it is not clear when that supply is supposed to have taken place (was it prior to signature of the EU contract?), or on what scale (would it have materially affected, or been expected to materially affect, the projected scale of delivery to the EU?).
If anything, the supposed delivery of some shipments from EU facilities to UK facilities at an early stage of the UK’s vaccination programme (if this was indeed to make up for a shortfall in the UK rather than, say, for a more mundane purpose such as comparative testing to assist in troubleshooting) rather appears to support Mr Soriot’s contention that scaling up the production capacity is not a straightforward task and takes time, which we are now seeing reflected in the problems at their Belgian plant. This does not, in itself, suggest a (reciprocal?) obligation to make up for a shortfall in Europe by diverting supplies from UK facilities, nor does the contract clear this up unambiguously. At any rate, it certainly does not support the implication of some of the more excitable pronouncements of recent days from pro-Commission commentators, apparently suggesting that they should be entitled to a share of *any* AZ vaccine manufactured at UK facilities.
Indeed, as has been suggested elsewhere, were it not for the existence of the earlier UK contract, AZ would in fact be much further behind in its scale-up of production overall, and would not have the benefit of its experiences from the UK manufacturing scale-up to assist with troubleshooting the European manufacturing scale-up. Against that backdrop, an argument that AZ is not employing BRE in performing its contract with the EU seems flimsy to me.
I wonder why no consideration has been given to section 5.5…. ‘Reporting. AstraZeneca shall notify the Commission as soon as (a) it selects the initial manufacturing sites and (b) if it changes any of its manufacturing sites for its Vaccine’
Does this not change the position? Any sites listed in the APA had not been fully identified and can thus be changed, even part way through. We don’t know the reporting but does this section means the EU cannot rely on the sites listed in the APA as they had yet to be reported on and were subject to change?
I don’t pretend to be a lawyer but I take Article 5.4 to relate only to Article 5.4 as it states. In other words, the point of this part of 5.4 is to say that the vaccine can be produced either in the EU based plants or the UK ones without further authorisation whereas plants in other parts of the world have to be approved.
The manufacturing site planning is to be given in Schedule A (names of sites and planned production) but the beginning of Schedule A is heavily redacted.
I would have assumed that the second paragraph gives the list of manufacturing sites and the third the finishing sites. However, this might be the possible and not necessarily actual sites because paragraph 4 states that “Following execution of manufacturing arrangements for the Initial Europe Doses, AstraZeneca will provide the names of the contracted suppliers to the Commissioning / Participating Member States” which indicates that the names of the actual suppliers will not be known until later.
Interestingly, the Schedules have not been signed in the version released. Does this indicate that this is an old version or that they have not yet been agreed and signed?
Incidentally, I think that all of the vaccine production in the UK and EU is sub-contracted. That must affect the best reasonable efforts.
Thank you, David.
Could you take a moment to consider remedies please?
Does Belgian law provide a remedy like specific performance in a contract such as this and is there some sort of interim remedy that would allow this to be forced before a full trial? Quite unlikely I think, so even specific performance, if available, would not happen before Astra had got its brewing tanks together and delivered the contracted doses, albeit late.
And how could a Belgian court enforce their order in the UK?
And even if you are wholly wrong and the EC were to prevail in some sort of emergency trial and obtain such an order surely the UK would slap on an export ban and that part of the contract would be frustrated.
BUT I think this may be the crux of the EC behaviour. They hoped UK would shoot from the hip and slap on an export ban thus legitimising an export ban on Pfizer and AZ and allowing them (but how????) to confiscate Pfizer vaccine ot even better AZ vaccine to make up the shortfall.
“And even if you are wholly wrong and the EC were to prevail in some sort of emergency trial and obtain such an order surely the UK would slap on an export ban and that part of the contract would be frustrated.”
That would not be how it happened. If AstraZeneca were to divert vaccine production from the UK and there is a prior contract under English law to supply the UK first then that will take precedence in a British court. What would no doubt happen is that if UK supplies from AstraZeneca fell short because of diversion it would rapidly end up in a court case, the merits of which would be decided by a judge. Unless the lawyers that set up the contract between the UK government and AstraZeneca, the judges will rule that the company must honour the contract with the UK government. Whilst breach of contract issues are often resolved after a failure, that is not the only remedy. Courts can order parties to act in a particular way.
So there would be no export ban by the UK government which would, of course, be incredibly controversial given the public statements. All that would be happening is the normal operation of commercial contract law.
In short, it would almost certainly be impossible for a Belgian court to enforce an order for AstraZeneca to divert supplies from UK factories in the face of a prior UK government contract under English law.
It does not, of course, mean that AZ wouldn’t suffer but what it does mean is the UK government doesn’t have to be seen to be blocking exports.
Thank you David. What I still don’t understand is, how AZ were sending vaccines to the UK in December when they must have had some inkling they would not meet their EU commitment? Surely this is a breach of ‘best efforts’?
https://mobile.reuters.com/article/amp/idUSKBN28I1NH
When reading the contract it seems to me that the EU put the most of its efforts on where the production should take place (within the EU par préférence) instead on focucusing on speedy deliveries to the EU,
But even if it seems like this is a row about the contract between the EU and AZ, I think this is mainly a reflection of the very bad relations between the EU and the UK; the lack of trust, the mutual anger and resentment.
In retrospect it seems like a really bad idea that the EU and the UK should invest in the same vaccine project.
I think we do not have evidence that it is the same vaccine project.
As I understand it, the EU made an advance purchase agreement, rather than “investing” in the project.
The UK first invested in the Oxford Vaccine in Feb 2020 (I think).
I think you might be missing my point so I rephrase: I think it was a very bad idea that the EU and the UK should engage economically in the same vaccine producing company, AZ. (Even if it would turn out that there are engaged in different entities of the same company) .
Because of the infected relation between the UK and the EU, I guess something like this was bound to happen sooner and later, and now AstraZeneca finds itself in between the two rather angry and distrustful parties.
The discussions that have arisen about who paid the most, and exactly for what and when and where, makes me really sad for mankind. And to me that is another example of how the infected the relation between the EU and the UK has become; that the discussion has regressed to a very childish level of arguments.
My choice of words:
To me an advance purchase agreement is a kind of (uncertain ) investmest, of engaging economically, but maybe the word ”invest in” has broader meaning in Swedish than in English, and if that is the case, I am sorry. English not my first language, it is my third.
“AstraZeneca finds itself in between the two rather angry and distrustful parties”
I don’t think it is. AstraZeneca’s issue is with the EU Commission, not with the UK government, and nor is the UK government in dispute with the EU Commission over the AstraZeneca vaccine.
As far as the EU Commission deciding not to buy the AstraZeneca vaccine, then they could have decided not to do so, but that would have meant not having available what was one of the early and most promising contenders for an effective COVID-10 vaccine. Nobody knew which vaccines would actually work, which is why countries and organisations spread their bets over multiple suppliers. As an example of one that has, so far, failed in which both the EU and UK have invested, look no further than Sanofi vaccine which, at best, might only start deliveries at the end of 2021 as it’s so far failed its clinical trials.
I don’t think it was ever an option not to include the Oxford AstraZeneca vaccine as a candidate. Unfortunately was that two months were lost when the EU Commission took over the contract negotiations when Germany and a number of other EU countries were ready to sign in June. The actual contract was not agreed until the 27th August with, according to AZ, no substantive changes. That was two months lost which could have been spend ironing out production problems on what are complex and delicate biological products.
I think to see what has happened as the result of a battle between the EU and UK is a misreading of the situation. In that is has escalated and be perceived as such was a result of the export licensing system introduced by the EU and was seen, but some, as a means that might be used to delay the delivery of Pfizer vaccines which had been ordered much earlier (and before the EU finalised its order in November).
As it is, the AstraZeneca vaccine is being produced, or is about to be produced in a dozen different countries using local partners all across the world. It is unfortunate that almost inevitable teething troubles in production facilities in a Belgian partner factory has turned into a high-decibel dispute and it has overflowed into supplies of an entirely different vaccine.
Of of course I am aware that the conflict is between the EU and AZ, and that the UK has nothing to do with that contract. And I do understand that the UK and AZ do not have a conflict. Why should they?
But what I am trying to say is that why this conflict escalated, why the EU was so enraged, has not so much to do with deliveries being delayed, as about the UK getting their deliveries on time. Thus, the bad relation between the EU and the UK is what added fire
and fueled this conflict.
And in thread there are some very strong feelings too. About which of the EU or the UK invested the most and when and in what plant and so on, and who has the most rights to the doses produced here and there. And the heat is clearly directed at the EU or the UK, not so many people seem very emotional or upset about AstraZeneca itself.
So I do understand that this question ewokes strong feelings and that the relation between the EU and the UK this is a heated question.
But for me it is not. I am not on anyone’s side. I am merely pointing out that for the moment it seems rather difficult for the EU and UK to cooperate, since the wounds are so deep.
And that saddens me. Because conflicts like this is not what humanity needs right now. We need to cooperatate, but instead this crisis is driving us further apart, against each other. And to me that is more depressing than virus itself.
The UK, US and EU ordered from the same drug companies, more out less. There was noting special about AZ other than its ambition to supply the less developed world on a massive scale. So it had plans for plants across the world while Pfizer and Moderna for example were EU and/or US only. So the fact the EU and UK orders from AZ was neither unusual nor likely to create conflict.
What may have been a factor is that this was the first order by DG Sante, the EU body charged with buying vaccines. The EU had persuaded/told France, Germany and two others to drop their contracts and to let DG Sante negotiate for the whole EU. This might have injected a certain amount of competition and pressure: the EU had already had a scare that the US would buy Curevac or its vaccine development rights and needed to show it could do better than the leading EU members’ efforts.
As for investment, an advanced purchase is form of investment: you are paying in advance for something that in this case didnt exist and had no factory. But the difference between the EU and UK programs is that the UK invested in the normal sense in production facilities and infrastructure to help development and giving vaccines. It invested in the development of the vaccines aside from making APAs.
The EU did not. Germany belatedly made grants and loans to BioNTech and Curevac in September but this were not the sort of coordinated and targeted investments made by the UK (and US Warp Speed).
Interesting analysis. However, I think most jurists have missed what 5.4 actually does (which surprises me)
It is simply the mechanism by which AZ must get EU permission to manufacture outside of the EU. The reference to the UK is very clunky, but all it is doing is saying that EU includes UK for the purposes of “non-UK” permissions
In other words, the clause simply says if AZ have to use non EU sites, AZ need permission but not for the UK
5.1 is the main clause. 5.4 just sets out the process of getting permissions it it cannot be bet on BRE basis
This point I hope was implicit in my post.
That’s how I read it as well. From what has been discussed, rather than what is in the contract, I think AZ was trying to keep production separate for each customer. Considering the state of the Brexit negotiations and distrust between the EU and UK at the time of signing, I expect that it suited the EU very well to have EU vaccines produced in EU facilities and a dependency on the UK would have been the last thing they would have wanted. What I don’t understand is how two organisations with significant legal expertise at their disposal agreed a contract that, in some regards is so poorly worded. Especially AZ who were providing something the EU wanted desperately for no profit. AZ could have insisted on a much less onerous contract and the EU would have little choice but to accept.
I take your point about recitals but the term ‘Initial Europe Doses’ is *defined* in one of those recitals, so to that extent at least that recital *is* part of the operative provisions.
It’s not entirely clear to me how much of the recital is meant to be included in the definition of ‘Initial Europe Doses’ (or IED, unfortunate acronym), but you could argue that *all* of the preceding sentence (and it is a single sentence) is part of the definition. In which case IEDs are explicitly those vaccine doses that result from AZ’s undertaking to *build capacity for this contract*.
On this reading any doses produced from manufacturing capacity that does not result from this undertaking (capacity built as part of the UK contract, for instance) are *explicitly excluded* from this contract.
No, a recital should not be regarded as an operative provision and you placing an asterisk either side of ‘is’ does not change this.
Thank you for that very clear explanation. A fascinating three days detective work.
Away from the law it makes sense that AZ is right because unless Soriot is extremely rash, he would have been mad to tell Republicca in effect that the EU was wrong.
It seems K and UvL were hopelessly out of their depth. I would like to think that their disgraceful behavior is just them but I am afraid that this has all the hallmarks of being sanctioned by the EU commission and many of the member states. Merkel quietly tried to warn them off but her Health Minister stirred doubt about the vaccine and Macron’s slander was unforgivable, all the more so since he faces a huge anti-vaxx problem.
It is another example of how ill suited the EU is to crisis management. Schaüble lambasted it for its inability to move on the 750bn, the refugee crisis was a mess, and the handling of the EZ crisis was a disaster that needlessly damaged Greece and inflicted a far longer and more sever recession on the EU.
The EU is a worthy idea, the SM is a fantastic if unfinished project but the federal dream is a damaging fantasy that threatens what the EU has achieved. The UK was wrong to leave. The benefits of the EU far outweigh its faults and the UK had a strong voice to correct the worse. But this week has seriously damaged its image. Sadly, it is unlikely to cause much reflection. It is notable that a number of comments on your blog are now trying to downplay Article 16 and the rest. The apologias are in full flood.
I’m pleased and interested to see that you have now addressed 13(1)(e)
I found the debate regarding ‘Best Reasonable Efforts’ somewhat tedious and irritating.
In a nutshell it seems to come down to the Swedish AstraZeneca entity being a separate legal entity.
5.5. implies that when the agreement was made the manufacturing sites were TBD.
Seems a very reasonable assumption that the EU negotiators knew that AstraZeneca had to establish greater capacity to fulfil this agreement and that there was an existing prior obligation to the UK.
From my limited understanding ‘contracts’ don’t exclude common knowledge and common sense – please tell me otherwise (not withstanding an ‘Entire Agreement Clause’).
I believe that clause 5.1 “Initial Europe Doses” AstraZeneca shall use its Best Reasonable Efforts to manufacture the Initial Europe Doses within the EU for distribution, and to deliver to the Distribution Hubs, following EU marketing authorization….” is two separate obligations.
The first obligation is about manufacturing, and as the UK is not in the EU, UK production is expressly excluded. This is in essence a market protectionist provision. On this matter, Clause 5.1 is at first apparently contradicted by Clause 5.4, but Clause 5.4 has two characteristics; firstly the re-interpretation of “EU” as including the UK that is limited to Clause 5.4 itself, and secondly it is more general in that it is not limited to the Initial Europe Dose.
I interpret these two clauses as meaning that:
(i) UK production sites are excluded from the Initial Europe Dose; but having completed the Initial Europe Dose,
(ii) AstraZeneca may use UK production sites for Additional Doses and any Further Doses, and (iii) may also use non EU and non UK sites with the specific permission of the EU for Additional/Further Doses.
I note that Clause 5.1’s second obligation to deliver only comes in to effect after market authorisation which I assume was Friday 29 January 2021.
The first obligation means that there is no entitlement to source any of the Initial Dose from the UK.
The second obligation started Friday 29 January 2021 and means that there was no restriction on exporting filled vaccine (or merely vials filled with UK sourced vaccine, or whatever) to the UK, or to anywhere else, prior to 29 January 2021.
And regarding Best Reasonable Efforts; that only applies to the distribution element of the contract from 29 January 2021.
My comments are made on the basis of the contract text in the blog; I have no idea what Section 7.1 says that might invalidate my logic.
There are different perceptions of the first phrase out of Section 5.1.
The phrase “use BRE to manufacture the Initial European Doses within the EU”
does not state
“use BRE to manufacture IED. And this is (under any circumstance) to be done in the EU”. (As consequence of this interpretation the meaning and purpose of Section 5.4. seems unclear.)
But it rather means “try reasonably hard to manufacture those IED in the EU”.
(Term EU in section 5.1. is excluding the UK on purpose. Cf. Section 7)).
Section 5.1. (and its BRE-clause) is about the type of service provision. Not the scope of delivery of the IED at all.
Thus Section 5.4. ( explicitly referring to Schedule A) makes total sense. It’s the general section regarding to all “doses”.
The BRE clause is – howsay – context sensitive.
Hence a reduction of the amount of the IED by AstraZeneca is according to contract, if it fullfilled Section 5.4. using BRE
to produce those doses including the UK manufacturing sites.
In view of Section 13, the “BRE excuse” doesn’t work if obligations by AstraZeneca can’t be met due to obligations resulting from the contract with the uk.
As final consequence AstraZeneca is very far from “using BRE”.
So AstraZeneca – somehow a bit understandable – does not breach the contract with the UK, but instead breaches the contract with EU.
N.B. I’m not lawyer and not that into it, hence i didn’t regard any “Legal Entity” stuff and frankly i haven’t read all of the APA and maybe missed something, so forgive me if i’m therefore wrong.
Addendum:
The posts here were originally downright semi-objective, which is a miracle on the internet. That is why I decided to leave out the introduction to my contribution;
which I want to add now
“I express my assessment of the contract and ask anyone who reads this, as far as possible, to omit all subtexts and connotations in the perception.
E.g. it’s not about we want to take your vaccine away.
Thank you. “
This LSE blog makes pertinent points about the UK/EU vaccination programmes and the implications of Astra Zeneca’s contracts.
https://blogs.lse.ac.uk/europpblog/2021/03/25/has-the-uk-really-outperformed-the-eu-on-covid-19-vaccinations/
It reaches rather different conclusions to yours of 31 January 2021.
Is there anything in the blog that leads you to revisit your earlier thoughts?
No. Davies studiously avoids any serious review of the clauses of the two contracts that have been published, relying instead in moral hyperbole. He also avoids any serious review of VTF vs EU vaccine program, misses expenditure that has not been contested by anyone else about the level of investment by the uk, and sneakily treats investment by Germany as by the EU. He also avoids any comment in the very late pattern of orders (BioNTech was concluded in November 2020, Novavax still pending, Moderna and Curevac “exploratory” as of November 2020). The article is essentially an variation in the new EU theme of reciprocity and proportionality.