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That post is now superseded, for the AstraZeneca agreement has now been published, though in redacted form.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.
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.
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.
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.)
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.
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’.
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.
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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