[co-author: Arthur Goemans]
Now that the COVID-19 vaccine contract between the EU and AstraZeneca has been published, we take a look at it and the “Best Reasonable Efforts” provisions.
The production issues facing the roll-out of the EU vaccination programme have led some to question the centralised approach taken by the European Commission in its procurement of the vaccines for EU Member States. Not least because the vaccination rates in the EU have trailed behind many other advanced economies: on 26 February 2021, according to ourworldindata.org, the cumulative number of COVID-19 vaccination doses administered per 100 people was 21.29 in the US, 30.13 in the UK, 92.19 in Israel and only 7.22 in the EU.
This came to a head in late January 2021. Citing production issues in its European facilities, AstraZeneca notified the European Commission that there would be delays in fulfilling its orders, while jabs continued to be administered in the UK and in South Africa. The European Commission asked that AstraZeneca redirect batches produced in the UK to make up for the shortfall. It claimed that AstraZeneca has a binding obligation to deliver the vaccines to the EU and alleged breach of contract.
The contract says that AstraZeneca shall use its “Best Reasonable Efforts” to manufacture the 300 million “Initial Europe Doses”. This standard might make an English lawyer recoil, but (luckily) the contract is governed by Belgian law. Like other civil law systems, such as French law, Belgian law distinguishes between what are known as “obligations of result” and “obligations of means”. If the promise is an obligation of result, and the result is not achieved, the person making the promise can only escape liability by proving that the failure to perform was caused by force majeure. If the promisor has an obligation of means, however, it falls upon the beneficiary to prove that the promisor did not act in a prudent and diligent manner in order to obtain the desired result. The standard applied by the Belgian courts is that of the prudent person who, placed in the same circumstances, would have expended all reasonable efforts to achieve the expected result.
The contract clarifies this principle of Belgian law further by defining “Best Reasonable Efforts” 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 a Vaccine at the relevant stage of development and commercialization having regard to the urgent need for a Vaccine to end a global pandemic which is resulting in serious public health issues, restrictions on personal freedoms and economic impact, across the world but taking into account efficacy and safety”.
This is not an absolute obligation on AstraZeneca, and it also does not seem to require AstraZeneca to subordinate any other consideration that a reasonable company would have to the European vaccination efforts. This appears to reflect the default position under Belgian law and more broadly the standard that you would expect from a commercial operator.
Turning then to the question of what went wrong and whether there was a breach of the “Best Reasonable Efforts” definition. The cause of the manufacturing problem in Seneffe (Belgium) appears to be reduced yields of the cells dividing in bioreactors (cells are grown in a bioreactor and subsequently infected with the virus, which reproduce and serve as the basis of the vaccine). The definition in the AstraZeneca contract offers little guidance. In contrast, the advanced purchase contract the EU entered into with CureVac expressly mentions “yield of process” as part of the definition of “Reasonable best efforts”. The fact that another vaccine advance purchase agreement with the Commission explicitly recognizes “yield of process” as a variable to be taken into account when evaluating whether the efforts standard is met, could be an important argument in favour of AstraZeneca’s position.
AstraZeneca warrants that “it is not under any obligation, contractual or otherwise, to any Person or third party in respect of the Initial Europe Doses or that conflicts with or is inconsistent in any material respect with the terms of this Agreement or that would impede the complete fulfillment [sic] of its obligations under this Agreement.” Would entering into advance purchase agreements with other countries run foul of this warranty? You could argue that priority given to another country may be seen as an inconsistency or impediment, but that is not necessarily the case, especially if the other contracts are also silent on priority. AstraZeneca may have reasonably believed that it would be able to fulfil all its commitments at the time the contracts were entered into, which makes this argument even more difficult to run.
On one view AstraZeneca is going further than its contractual obligations given it has agreed to provide vaccines to the EU without making any profit. The price per dose is different under each contract. These are not directly comparable because the UK and EU have chipped in on the development costs. However, the development costs have already been incurred, and the contract contains no obligations on AstraZeneca’s part to give priority to the EU beyond the warranty discussed above. The contract contains provisions for the allocation of the vaccines within the participating Member States, but it does not contain anything in respect of the allocation between the EU and other buyers. The definition of Best Reasonable Efforts requires AstraZeneca to have regard to a global pandemic and not a European one.
Interestingly, the reported claims by the European Commission were that AstraZeneca had a binding obligation to deliver certain quantities of vaccine to the EU Member States. However, on closer inspection, there is no such binding delivery schedule for AstraZeneca. AstraZeneca must use “Best Reasonable Efforts” to deliver [redacted] quantities of vaccine to certain distribution hubs following EU marketing authorisation, but the definition of “Best Reasonable Efforts” does not mention delivery. It only refers to development and manufacture. In the section of the agreement on delivery, it has been agreed that AstraZeneca and the individual Member States “shall work together to identify the final delivery schedule for such Doses”. This inconsistency raises questions as to what standard of performance is required of AstraZeneca in relation to delivery. Belgian law imposes the principle of “good faith” in the interpretation and performance of a contract. It also allows the courts to give effect to the intention of the parties even if this intention is not (clearly) expressed in the terms of the agreement. Therefore, although there is no absolute obligation on AstraZeneca to deliver the agreed quantities of doses, the Commission could argue that AstraZeneca should at least try in good faith to provide the doses within the intended delivery schedule and not give those same doses to another (third) party.
So, what if a court found AstraZeneca to be in breach of its Best Reasonable Efforts and good faith obligations to be able to deliver the vaccines within the EU or the warranty? The contract allows the European Commission to terminate it for cause if AstraZeneca is in material breach of its obligations (with an opportunity to remedy). From the Commission’s perspective, this does not look like a helpful remedy as the bloc would end up without any jabs, though it may have a claim for damages. Belgian law has a remedy of specific performance for breach of contract. In theory a court could order AstraZeneca to deliver vaccines to the European Commission, but it is very doubtful that a court would be able to order the redirection of vaccines intended for other customers.
The reason for centralising procurement was to avoid Member States competing with each other and to ensure that the best price is obtained. This was successful. However, by obtaining the best price the Commission has created a disincentive to prioritising European patients. Commercial negotiators need to be aware of the incentives they create, or they will find themselves in the world of unintended consequences.