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AstraZeneca contract with EU

Chris McDonough

Chris McDonough

The EU have published a redacted version of the Advanced Purchase Agreement it entered into with AstraZeneca AB for the supply of Covid 19 vaccine. This article considers the terms of the redacted version of the Agreement in light of the claims made by the EU Commission, the threats made by the Commission and the actions taken by the Commission.

I am a commercial contracts lawyer of over 20 years’ experience who has worked on contracts in the bio medical and pharmaceutical sector, and on Government and EU supply contracts for much of that period.   I caveat the contents of this article on the basis that I am an English qualified lawyer and the Agreement is subject to the laws of Belgium.  As such, some of this article by necessity is approached from an English law perspective.

Some rights however apply across most civilised nations where there is a separation of powers, of law and Government.  One of these which applies in most such jurisdictions is that if party ‘A’ is in breach of an agreement, then Party ‘B’s rights are as set out in the agreement and otherwise as provided by the law of the applicable jurisdiction.  The three basic threads that run through many jurisdictions are that if a party is in breach, then subject to the terms of the contract, the affected party may: (i) seek compensation/damages; (ii) seek an order from the court to require the party in breach to comply with its obligations (specific performance); or (iii) terminate the contract.

With the above in mind and looking at the words and proposed actions of the EU Commission, it should be noted that the rights which it purports to enforce would not be provided for in a contract.  Whether the EU is legally entitled to take such actions are for others to consider.    The agreement in question provides a dispute mechanism to be followed and ultimately reference to the Courts of Belgium whose decision would then apply.

The Agreement and its terms

The Agreement was entered into on 27th August 2020.  It gives the EU member states who are participating in the arrangement to apply for a proportion of up to 300 million doses described as the ”Initial Europe Doses” .  There is an option to increase this to 400 million doses.

The agreement requires, for certain obligations, that AstraZenca is to use “Best Reasonable Efforts” to achieve such obligations.  This, whilst similar sounding to what we may use in English law, is not a term we would generally use.  Fortunately, it is defined in the agreement as:

“…the activities and degree of effort that a company of similar size with a similarly-sized infrastructure and similar resources as AstraZeneca would undertake or use in the development and manufacture of the Vaccine at the relevant stage of development or commercialization having regard to the urgent need for a Vaccine to end global pandemic which is resulting serious public health issues, restrictions on personal freedoms and economic impact across the world but taking into account efficacy and safety”   

Two immediate points to take from this definition are that such efforts are required “to end global pandemic”, not specifically the global pandemic as it affects EU member states;  and secondly,  “taking into account efficacy and safety”.  At the time of writing, we do not know to what extent efficacy in production in the plants within the EU is affected, for example if new lines of production are required and the time this takes, and safety, which could arguable apply to the safety of the vaccine and the safety of the staff producing the Vaccine.  As to ending the global pandemic, that could be argued to say that there is an overriding obligation on AstraZenca not to concentrate on solely supplying to the EU but to supply further afield.

“Best Reasonable Efforts” would in my view suggest it is the highest measure of what would be considered reasonable.

The requirement to use “Best Reasonable Efforts”, applies to the manufacture, supply delivery and distribution of the Initial Europe Doses within the EU.  The agreement sets out “approximate” volumes (actual number redacted) in periods of 2020, Q1 of 2021 and thereafter.  Reference to “approximate” provides scope to order and deliver more or less than the amount for each measurement period, though would not in itself entitle a party to deliver substantially less where the EU requires the full amount for a given period.  The additional optional 100 million doses merely require AstraZeneca to consider the order in good faith.  It is not obliged to use the same efforts required for the Initial Europe Doses and it is accepted that AstraZeneca may not manufacture the additional doses before a given date (date redacted).

The agreement states that AstraZeneca is to use Best Reasonable Efforts to manufacture the Vaccine at sites within the EU and the UK.  It goes on to state that where AstraZeneca “is unable to deliver on its intention to manufacture the Initial Europe Doses/Optional Doses under this agreement in the EU…”  members states may propose other manufacturing organisations.  If we consider whether the wording is to be construed as conjuntive or disjunctive, there is scope to argue that use of the word “intention” could apply to the manufacture of the doses, as a separate issue to manufacture within the EU.   If this could be argued, then it further reduces the element of certainty in the obligation to supply the doses.

AstraZeneca is obliged to secure supply of the materials and packaging to produce the Vaccine.  This obligation is not subject to Best Reasonable Efforts and so could be considered as absolute. AstraZeneca also warranted that it was not subject to any obligation that conflicted with the obligation to supply the Initial European Doses.   The EU may feel it has some argument that the orders to the UK may affect this ability.   It could however, be argued that this should be measured against the need to combat the global pandemic.

It is also worth noting that the Commission reserved a contractual right to audit AstraZeneca in relation to the cost of the product, but this is not a general right to audit, the audit which took place during the last week of January and used to assess capacity and delays did not arise from a right within the agreement.

Conclusion

AstraZeneca is obliged to secure supply of the materials and packaging and has warranted that it is not prevented by other obligations from supplying the Initial Europe Doses in accordance with the agreement.   The agreement requires that the efforts to be used by AstraZenca are that of a similar business with similar resources.  Though it does not caveat that the efforts be subject to the extent reasonably possible during a pandemic, the ability of any “similar” business to fulfil the obligations (against which AstraZeneca is measured) must be considered in that regard.  The definition also refers to the need to end the global pandemic and so it is open to argue that the need to supply the EU is part of a wider obligation.

There are arguments on both sides.  A recital, which is not a contractual obligation, refers to AstraZeneca building capacity to manufacture and not strictly to supply the 300 million doses.  The agreement requires the same measure to manufacture within the EU but it can be argued whether it also applies to supply within the timescales required by the agreement.   On balance, the position of the EU Iooks less certain than it is suggesting.

 

Dated:  2nd February 2021

 

Contact

Chris McDonough

Partner and Head of Commercial

e: chris.mcdonough@bermans.co.uk

t: 0151 224 0551

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