HM Insights

Lessons to learn from the EU AstraZeneca contract

By Stephen Chan, Partner, Corporate and Tutor on Commercial Contracts, University of Glasgow

One can't ignore the somewhat ugly fallout between the EU and AstraZeneca when AstraZeneca put the European Commission on notice that first-quarter deliveries were likely to be well short of the 100 million vaccines the EU was expecting.

While cooler heads have now prevailed, with AstraZeneca agreeing to supply an additional nine million doses, the lessons to be learnt from this affair can apply to any manufacturing contract (or even any contract for goods or services).

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The contract is key

The scope of AstraZeneca's obligations, and the consequences if the production delay is a breach of contract, will depend on the legal interpretation of the full contract terms. This highlights the importance of having a suitable contract in place that both parties understand

In this case, AstraZeneca have emphasised the biological nature of the vaccine production process which means that the yield varies and cannot be precisely predicted. Unique factors such as this need to be reflected in the contract terms.

There is no such thing as a "standard" contract where manufacturing is concerned and there is a real danger in borrowing legal drafting from previous contracts or using a template without the necessary legal expertise to tailor it to the particular circumstances. It may be entirely inappropriate for the new transaction and there is also the risk that parties may not fully understand the implications of the "standard" clauses they have signed up to, leading to disputes further down the line.

"Best reasonable effort"

The European Commission and AstraZeneca have published a heavily redacted version of the Advance Purchase Agreement, each insisting that it supports their - polar opposite – positions.

The contract obliges AstraZeneca use its "best reasonable effort" to manufacture and deliver the vaccine doses. On the information available, this is fairly ambiguous territory, even with an attempt to define what "best reasonable effort" means and European Commission chief Ursula von der Leyen's statement that: "The contract is crystal clear."

There is a balance to be struck when dealing with circumstances outside the control of the contracting parties that may affect contract compliance. The generic terms, using "best endeavours", "all reasonable endeavours" or simply "reasonable endeavours", are common in Scots law but it is essential that parties are clear on what the agreed standard is, and what it covers, to avoid disputes over what a party is expected to do to fulfil the contract.

Best Endeavours and Reasonable Endeavours: how far do you have to go to meet a contractual obligation? | HM Insights (harpermacleod.co.uk)

On the other hand, there may be a temptation to avoid these legal concepts and be very prescriptive in the contract drafting, attempting to cover precise scenarios that may affect contractual delivery. The risk of this approach is, of course, that unforeseen circumstances arise that are not covered; leading to dispute.

Confidentiality and dispute provisions

This contract dispute is playing out very publicly. Although in this case both parties agreed to publish the contract, there are significant redactions to avoid disclosing commercially sensitive information on pricing and the delivery timetable.

Confidentiality will be a major issue for many manufacturing contracts and you can read more about the implications of confidentiality provisions and their potential breach here.

It is also clear that going to court to resolve this dispute would be counter-intuitive and likely to waste time and money better directed to the ultimate goal of the swift delivery of vaccines. Other remedies may be more appropriate to unlock the dispute and would also have the advantage of privacy – perhaps mediation or arbitration.

In any contract it is worth taking some time over the dispute resolution clauses. No one enters a contractual relationship with the intention of ending up in dispute but having the right mechanisms in place for early identification and resolution of problems may prove invaluable. So again, avoid template dispute clauses which have many pitfalls such as the wrong choice of applicable law or failure to include alternative dispute resolution options.

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