AstraZeneca vs European Commission: contractual interpretation 101

Guy Wilmot, Partner in the Russell-Cooke Solicitors, corporate and commercial team.
Guy Wilmot
5 min Read

The publication of the disputed advance purchase agreement for vaccines between the European Commission and AstraZeneca ("AZ") has led to both sides claiming vindication. Each side has partisans providing supportive legal analysis which strongly suggests that the contract itself is flawed, ambiguous and lacking in clarity.

While the news agenda has already moved on, the contract is worthy of a 'contractual interpretation masterclass' of its own.

With so much legal analysis and stipulation thrown into the fray, it would be useful to take a pause to assess the grounds of the dispute, the context in which it is being fought and how it is likely to progress.

The 'best reasonable efforts' clause #1

The reason for the confusion is that there are two provisions in the contract which are inconsistent.

Clause 5.1 states that AZ will use "best reasonable efforts" to manufacture the vaccine doses to be delivered under the contract in the EU (not including the UK, as it had left when the contract was signed last August). A point to note is that this provision does not require AZ to use 'best reasonable efforts' to deliver the vaccines wherever made. The contractual obligation is specifically tied to the manufacture of specific vaccine doses in the EU. It would seem that the Commission would struggle to assert that this provision requires doses to be diverted from the UK (which is definitely not in the EU).

Whether AZ's efforts to create manufacturing capacity in Belgium are sufficient to meet the 'best reasonable efforts' standard is a separate question of fact but it does seem relevant that, according to AZ's press briefings, UK manufacturing capacity was ramped up due to the additional time afforded by signing the UK contract several months earlier.

The 'best reasonable efforts' clause #2

The problem for AZ is that there is a separate and somewhat contradictory provision in the contract dealing with manufacturing sites – clause 5.4. This clause repeats the earlier obligation requiring AZ to use 'best reasonable efforts' to manufacture in the EU, then goes on to say that "for the purposes of that clause" the EU "includes the United Kingdom."

That would seem to be a problem for AZ if this is read either as a separate obligation which extends the obligation in 5.1 to use best efforts to manufacture the doses to sites in the UK or if it is read as varying clause 5.1 to include the UK (which is in fairness to AZ contradicted by the text).

The distance between the clauses

One point we have not seen referred to in the analysis published to date is the difference in the subject matter of the two clauses. The first clause refers to the "Initial Europe Doses" – i.e. the actual vials to be delivered to EU Member States under the contract. The second clause refers to the "Vaccine" – i.e. the vaccine in general. This could be a problem for the Commission as AZ could argue that their obligation in relation to the specific doses in dispute is captured by clause 5.1 which only requires manufacture and deliver from EU sites. AZ might argue that clause 5.4 which does refer to the UK deals with manufacturing capacity in general. The Commission would surely argue in response that "Vaccine" must have been intended to refer to the vaccine to be delivered under the contract as there would be no point in including clause 5.4 if it was not intended to deal with manufacture of the doses under the contract.

The EU Commission's position

The Commission's position has been that the 'best reasonable efforts' obligation requires diverting the vaccine which is manufactured in the UK under the earlier contract with the UK Government to the EU, a strict reading of clause 5.1 only requires best reasonable efforts to manufacture in the EU and deliver those doses so manufactured in the EU, so it seems the Commission will have to rely on clause 5.4. 

Alternative interpretations

The contract is subject to Belgian law. We can't comment as to whether Belgian law allows the two clauses to be interpreted in such a way as to impose an obligation on AZ to divert supply from the UK. Even if that were the case and a court found against AZ, enforcement and remedies would be another question to be resolved and there would be a possibility of competing judgements from courts in the UK and Belgium.

Some analysis has suggested that the UK contract reserves UK manufacturing capacity for UK deliveries, and that, as the UK contract was signed first it takes priority legally. Unless a contract specifically states that an earlier contract takes priority that is not relevant to whether the later contract has been breached. Each agreement should be looked at independently. If AZ has entered into two contracts which are contradictory then it may face the choice of having to breach one or both of the contracts. The EU contract which has been published does not refer specifically to the obligations under the UK contract.

There is a clause under which AZ agrees that it is not under any contractual obligation with any other party in relation to the "Initial Europe Doses" which is inconsistent with its agreement with the Commission. Our own view is that the existence of the UK contract when this agreement was entered into would not represent a breach by AZ if a literal reading of clause 5.1 and 5.4 is applied, because according to clause 5.1 the "Initial Europe Doses" are to be manufactured in the EU, and it is just the wider manufacturing capacity for the vaccine which includes the UK.

This analysis does take a relatively direct approach to the text of the clauses, which is often the right approach in common-law based legal systems, but a Belgian court in the civil law tradition may not be tied to such a literal interpretation of the relevant sections.  

Any litigation will take time to be resolved and in the meantime we must all hope that manufacturing capacity in the EU is expanded quickly enough to make the dispute an issue of damages only.

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