The background and narrative of this ugly dispute has been widely reported of late, and the ‘vaccine nationalism’ that has ensued has further damaged an already fragile relationship between the EU and the UK, with pharmaceutical companies and the vulnerable populations of the whole of Europe and the world unceremoniously caught in the middle.
What has been largely missed between the nationalistic rhetoric and political wrangling is that this is fundamentally an argument about a contract, and specifically about 3 or 4 clauses in a fairly short contract. What is AstraZeneca obliged to do and are the EU being fair about their demands?
The Advance Purchase Agreement (APA) was signed between the EU and AstraZeneca on 27 August 2020 (some three months after a similar contract between the UK and AstraZeneca). It is worth mentioning that the APA is subject to the laws of Belgium, and as a UK lawyer I have read and interpreted it subject to English law. Thankfully, the APA is in English and the relevant clauses are fairly straight-forward, so if any of my Belgian lawyer friends disagree with my interpretation please do put me right!
In short, AstraZeneca has had issues getting its EU manufacturing sites up to speed to manufacture the full quantity of ordered EU doses on time. Vaccine development and manufacture is an extremely complex process and it took time to get the UK sites working correctly (again, the UK placed its order some months earlier than the EU). The EU ordered three ‘batches’ of vaccine doses: 300 million Initial European Doses, 100 million Optional Doses, and an undetermined number of Additional Doses. The dispute relates to the 300 Initial European Doses.
Because AstraZeneca cannot deliver the 300 million Initial European Doses on time, the EU has demanded they use stock produced at their functioning UK sites rather than the slow-producing EU sites. This has led to ‘vaccine nationalism’ and actions and retractions on border controls and blocking vaccine and ingredient movements between the EU and the UK – most notably between the Republic of Ireland and Northern Ireland.
As I said this comes down to a legal contract dispute, despite the rather simplistic arguments put forward in some sections of the UK press (I particularly enjoyed an article which talked about Europe’s lack of understanding of the very British approach to queuing!).
To understand AstraZeneca’s obligations we need to look at three definitions (Vaccine, Initial Europe Doses and Best Reasonable Efforts) and two key clauses (5.1 and 5.4 under ‘Manufacturing and Supply’).
Let’s look at the definitions first:
Best Reasonable Efforts
This is the ‘effort’ that AstraZeneca is required to make to produce the vaccine on time. In an English law contract you would not typically define what this means, relying instead on case law and previous interpretations given the nature of the contract, the position of the parties and the circumstances that arise. Here we have a defined term that says AstraZeneca must apply the degree of effort that a company of its size and infrastructure would undertake to produce the vaccine on time, given the circumstances of the global pandemic. In short, they need to try their best and use their full resources to do it.
This is very simply defined as the ChAdOx1 nCov-19 vaccine.
Initial Europe Doses
This part is really important, and is limited to the initial 300 million Doses of the Vaccine to be made at no profit and at no loss to AstraZeneca for distribution within the EU.
So now we know what these defined terms mean, how is AstraZeneca obliged to make the vaccine? Usefully this has been set out at clause 5 (Manufacturing and Supply).
The clause says:
“AstraZeneca shall use its Best Reasonable Efforts to manufacture the Initial Europe Doses within the EU for distribution, and to deliver to the Distribution Hubs, following EU marketing authorization…”
The key words here are “…within the EU…”. The contract is clear that the intention was to manufacture the Initial Europe Doses within the EU. One may question why this was the EU’s intention given the knowledge that the UK sites were further ahead in ramping up production, but you may want to consider the situation back in August 2020 with ongoing negotiations on the EU/UK Free Trade Agreement and the very likely possibility of a no-deal Brexit. The last thing the EU would have wanted was the delivery of vaccine to be used as a bargaining chip in EU/UK trade negotiations.
Here is gets very interesting. Clause 5.4 says:
“AstraZeneca shall use its Best Reasonable Efforts to manufacture the Vaccine at sites located with the EU (which for the purposes of this Section 5.4 only shall include the United Kingdom)…”
There appears to be a conflict between the obligations to manufacture the Initial Europe Doses in the EU which does not include the UK (clause 5.1) and to manufacture the Vaccine in the EU including the UK (clause 5.4). The EU argues the use of the broad term ‘Vaccine‘ in clause 5.4 includes the ‘Initial Europe Doses‘ in clause 5.1, but if so why did the contract include the specific wording for Initial Europe Doses in 5.1? What is the purpose of 5.1 if not to limit AstraZeneca’s Best Reasonable Efforts for manufacturing the Initial Europe Doses at AstraZeneca’s sites in the EU alone?
Clause 5.4 has further interesting conflicts, such as the use of the term ‘Europe’ where it also uses ‘EU’. Use of such confusing and contradictory terms when the interpretation of what constitutes ‘EU’ (i.e. to include or not include the UK manufacturing sites) is so crucial seems odd to say the least, particularly when you consider the strengths of the respective legal teams at their disposal.
What does it mean?
My view is that clause 5.4 requires AstraZeneca to manufacture the Vaccine in the EU and UK (not surprising given it is a UK-Swedish company and has large manufacturing capability in the UK), but specifically the Initial Europe Doses (the EU’s first 300 million doses) were to be manufactured solely within the EU, not the UK. Clause 5.4 says that the UK is included within the EU only for that clause, not clause 5.1. As I say above, I suspect the EU took this measure back in August 2020 to secure its initial supply in the event of a no-deal Brexit.
Developing vaccines and ramping up manufacturing is extremely difficult, costly and time-consuming. I have negotiated and drafted Master Research Agreements for clients in the last year for similar drugs and treatments where the research term alone envisaged a 10-year process. The fact that AstraZeneca and Oxford University have done this all in a matter of months is quite simply astounding, and it is hardly surprising that there are some delays to the huge orders that the EU have placed. It is also worth remembering that they are not alone with experiencing production difficulties, and the EU’s US-German Pfizer/BioNtech order is also delayed.
So far as I can tell from the contract, AstraZeneca is not obliged to distribute doses from its UK sites to fulfil the EU’s Initial Europe Doses order. It might, however, be obliged to do so for the Optional Doses and Additional Doses. As such the aggressive focus, the anger and the pressure that the EU and the European Commission are putting on AstraZeneca – an Anglo-Swedish company producing this vaccine for the EU for no profit – seems ill-placed at best and a diversion from their own failings at worst.
The UK have already committed to sharing left-over vaccine reserves with developing nations, and I would not be surprised (and would fully support) if the UK extended this to our EU neighbours. I have elderly and clinically vulnerable relatives and friends in the UK who are waiting their turn for the vaccine, and I am not sure how I would feel if UK doses were diverted early knowing they may have to wait longer because of the EU’s failure to negotiate and conclude a contract in a timely manner and with the required drafting.
What this highlights to me is the absolutely critical importance of getting your contracts right. It is easy to draft a contract for the circumstances you have at that moment in time, but a good contract is one that is flexible and adaptable to circumstances that may arise in the future. The EU failed to do this, and sadly it is the good people and businesses of the EU who are paying the price, with terrible ramifications and consequences not just to them, but also to the UK and the rest of the world.
Neil Pfister, Commercial Partner at Druces, advises technology clients on areas including software, FinTech and MedTech. If you would like further information on this and other services, please contact him:
- Neil Pfister on +44 (0)20 7216 5589 or firstname.lastname@example.org