Misunderstanding the European Commission’s dispute with AstraZeneca

Did AstraZeneca fail to fulfil its obligations under the now famous Advanced Purchase Agreement (APA[1]) signed with the European Commission? At least apparently, yes. The APA accurately quantifies the number of doses AstraZeneca had undertaken to deliver to the EU Member States in the first quarter of 2021. Although this figure was blanked out in the version of the contract made public by the Commission, in the declassified text of the APA which is now also available, it appears that that number of doses varies between 80-100 million. However, the exact figure is not particularly relevant, because AstraZeneca itself has explicitly stated that it would not be able to guarantee the doses promised to the Union, with a planned cut of at least 30%. So how can there be any doubt that AstraZeneca is in breach of its commitments to the Commission?

The defendants of the company point out that the contract in question does not simply state that AstraZeneca must deliver 90 million doses by 31 March 2021, but – more precisely – that it must make its ‘best reasonable effort‘ to reach that figure. Since this effort has been made, there is no breach of contract. Sam Bowman, in a post titled ‘Understanding the European Commission’s dispute with AstraZeneca’, explains AstraZeneca’s position as follows. If a company stocks 1,000 units of vaccine and promises 700 to Ursula (von der Leyen) and 600 to Boris (Johnson), the company will not be able to fulfil both contracts. So if the firm chooses to fulfil the contract with Boris, Ursula will understandably be annoyed (and vice versa). But this is not, Bowman argues, AstraZeneca’s contractual situation. At the time the EU and UK entered into supply contracts with AstraZeneca, the latter had no vaccine doses in stock, indeed the vaccine did not exist at all. What AstraZeneca promised both of them was to make its best reasonable effort to get vaccines approved and produced, and to deliver those it could produce. The UK had committed to purchasing the vaccine (at least informally) in spring 2020 and approved its use on 30 December 2020. The Commission signed the contract with AstraZeneca on 27 August 2020 and only granted approval for use on 29 January 2021.

In this context, according to Bowman, the UK and the EU are entitled to the doses that AstraZeneca can produce at its best reasonable effort under each contract. Therefore, the UK and the EU would in reality have acquired a place in AstraZeneca’s production flow, not a quantity of vaccine in its stock. From this perspective, the EU would only be entitled to those doses that AstraZeneca is able to produce within its best reasonable effort under its contract with the Commission, and would not be able to claim any rights to doses that exist by reason of the contractual commitment that AstraZeneca has with the UK, and previously concluded.

Frankly, the argument is unconvincing.

Firstly, to begin with, it should be recalled that the purchase of a good which does not physically exist at the time of the contract is not a circumstance which only characterises the purchase of vaccines, but is an issue well known in law (the emptio rei speratae has Roman law origins) and very common in modern industries. For example, in the vast majority of cases, cars are not in the vendor’s warehouse at the time the contract is concluded, but are assembled/constructed in the time between placing the order and the delivery date. The delivery date is of course set by the seller in the contract taking into account the orders previously placed. The idea that a distinction can be made between vaccines produced under the APA to be delivered later and those produced under the UK supply contract is rather eccentric, given the perfect identity of the vaccine. To take Bowman’s metaphor, suppose Boris buys a Mercedes car and, on the contractually agreed delivery date, the company tells him that it is not available because Ursula has previously ordered an identical one. Would Boris find it acceptable to continue to ride a bicycle, on the basis of the argument that the available car had been produced under Ursula’s purchase contract?

Secondly, and this is the tranchant argument, it is true that Article 5.1. of the APA states that AstraZeneca must use its best reasonable effort to produce the 90 million doses initially intended for the EU countries. However, the contract also defines the notion of ‘best reasonable effort‘. This covers: “the activity and the 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 or commercialisation 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” (see 1.9.(a) of the APA).

It is clear that the notion of best reasonable efforts defined in the APA would only allow AstraZeneca to reduce deliveries if this were due to production or distribution difficulties related to its size, infrastructure or resources and, moreover, taking into account the urgent need for the vaccine. That concept does not in any way allow that company to cut supplies promised to the other party in order to fulfil a contract previously signed. This conclusion is confirmed by the fact that when the parties wanted to provide for the possibility that AstraZeneca would limit its deliveries because of other contracts, they did so explicitly. For instance, in Article 6.2. of the APA it is foreseen that in the event that AstraZeneca’s ability to perform its obligations under the contract is impeded by a competing agreement entered into by or on behalf of the Commission, AstraZeneca must inform the Commission promptly and the Commission must endeavour to find a mutually acceptable solution for the performance of both the APA and the competing contract.[2] A similar provision is laid down in Article 5(h) of the APA Order form in relation to competing contracts which may be entered into by Member States (see annex to APA). Given that the problem of competing contracts had not been missed by the parties, if they had wanted to make deliveries to the EU conditional on AstraZeneca’s performance of the competing contract with the UK, why did they not make this explicit?

In conclusion, an analysis of the APA between the Commission and AstraZeneca shows that the reasons for considering that AstraZeneca is, at least partially, in breach are strong and, in any event, the ‘best reasonable effort’ clause is by no means conclusive to exclude such a breach.

The real problem posed by the APA is rather different, and consists in the express waiver by the Commission and the Member States, set in Article 15.1.(e) of that agreement, of the right to bring an action against AstraZeneca in the event of delays in delivery of the vaccine. Given its cumbersome consequences, it seems very unlikely that this waiver was due to inadvertence on the part of the Commission in the negotiations. Much more likely is that it was due to the objective contractual weakness of the Commission, which found itself negotiating the supply of vaccines in the midst of a devastating pandemic. But, I repeat, this is the problematic aspect of the contractual relationship with AstraZeneca, not that of AstraZeneca’s breach of contract, which is indisputable.

[1]  The Commission has so far signed APAs with six companies (AstraZeneca, Sanofi-GSK, Janssen Pharmaceutica NV, BioNTech-Pfizer, CureVac and Moderna), for a total of 2.6 billion doses. In addition, negotiations have been opened with two other companies.

[2] In more detail, the provision states that: “In the event AstraZeneca’s ability to fulfill its obligations under this Agreement is impeded by a competing agreement entered into by or on behalf of the Commission, AstraZeneca shall promptly inform the Commission. While AstraZeneca shall continue to use Best Reasonable Efforts to engage with its own contract manufacturers and suppliers to utilize the capacity and/or components, the Commission will assist in finding a mutually acceptable solution for this Agreement and the competing agreement. To the extent AstraZeneca’s performance under this Agreement is impeded by any such competing agreements, AstraZeneca shall not be deemed in breach of this Agreement as a result of any such delay due to the aforementioned competing agreement(s)” (see Article 6.2. of the APA).