26-27 - The first fallout

Earlier this year we saw reports of the EU commission and AstraZeneca coming to loggerheads over vaccine roll-out across the bloc. Amidst criticism of the speed of the EU’s vaccine roll-out programme, AstraZeneca reported production problems in its Netherlands and Belgium plants, claiming it as a reason for a shortfall in vaccine delivery to the EU.

An initial deal was struck in August 2020 for 300 million doses to be delivered into the EU, post-regulatory approval, with the option for an additional 100 million. Come late January, EU projections showed a potential shortfall of around 75 million doses by March.

Amongst growing pressure to speed up its vaccine roll-out, production issues at AstraZeneca’s European plants threatened delivery further. As attention turned to the company’s agreement with the bloc, the EU announced AstraZeneca had been instructed to share doses from its UK plants, though AstraZeneca argued its UK contract prevented this.

The EU maintained that its own contract meant AstraZeneca was obliged to send UK-produced supplies to account for a shortfall within the EU. Commission President Ursula von der Leyen claimed the company had “explicitly assured us in this contract that no other obligations would prevent the contract from being fulfilled”, subsequently sharing extracts of its contract with the company.

At such a critical time for the industry, with all efforts focused on vaccine delivery, does this row represent one of the first major contractual fall-outs in our post-Brexit world, and what could it mean for cross-border pharma going forward?

Much attention has been paid to whether the wording of the initial contract was open for debate. The 42-page document, of which portions were redacted, endeavoured to deal with a large and complex transaction for the supply of millions of vaccines across multiple countries. There has been particular focus on the contract’s reference to ‘best reasonable efforts’. Whilst this particular contract is governed by Belgian law and is therefore subject of detailed local advice, English law by comparison also wrestles with the concepts of ‘best endeavours’ and ‘reasonable endeavours’, with the former more stringent than the latter.
In broad terms, 'best endeavours' requires the responsible party to take all available steps to achieve the desired results, whilst “reasonable endeavours” requires the responsible party to act by reference to what a reasonable person, acting prudently and commercially, could do to get such results. The AstraZeneca contract introduces slightly different wording, ‘best reasonable efforts’, in a lengthy definition for each party, which may fall somewhere between the two. What this means in the particular circumstances of this case is a matter for debate, reflecting the possibility that the parties could not agree on something more specific.
Ultimately, should this be one of the issues litigated by the parties in the Belgian courts, interpreting what exactly that term means under Belgian law is likely to tax legal minds and generate vast amounts of argument. And that’s just one provision in a 42-page document.

As the debate escalated, the EU Justice Commissioner stated the UK was in danger of starting a ‘vaccine war’ between itself and the 27 members of the bloc, claiming that Brexit had made it clear ‘the UK doesn’t want to show solidarity with anyone’. Setting aside how true that assertion is, what is clear is that Brexit may complicate contractual obligations and litigation as a result of any alleged breach of those obligations.

Whilst in this instance, this was a dispute between the EU and a Swedish company, this should be a prompt to pharmaceutical companies to look at their commercial contracts in terms of cross-border trade.

For example, given the problems caused by the pandemic, firms should look closely at force majeure clauses, whether doing business with an EU or non-EU counterpart. A force majeure clause typically operates to excuse performance of the contract by one or both parties upon the occurrence of certain events. Force majeure clauses may exclude foreseeable events, even if such events would put performance of a contract beyond the control of a party. The logic being that if an event is foreseeable, the contracting party should allow and provide for it, rather than relying on a force majeure clause.

In respect of contracts which might be affected by Brexit-related developments (which again could include contracts with non-EU counterparts), parties should also consider expressly providing for situations in which their ability to perform – or their costs of performing – the contract are affected by Brexit. Parties are wise to remember that their business could be affected not only by their inability to perform a contract, but also non-performance (whether driven by Brexit or otherwise) of businesses elsewhere in their supply chain. A force majeure clause or a so called ‘Brexit’ clause may be helpful in forgiving non-performance were this to occur, but protection from litigation is likely to be small comfort if a wider supply chain collapses. This is aside from the need to be on top of EU procurement and public law issues.

If litigation with an EU counterpart does become necessary, we currently find ourselves in a legal grey area. The UK and EU are now in a situation where reciprocal arrangements when dealing with jurisdiction, and the recognition of judgments under the Brussels Recast legislation, are no longer applicable for cases begun in 2021. Until there is a replacement regime that can clearly provide which national courts have jurisdiction in cross-border disputes, and depending on the dispute resolution terms agreed by the parties, it is possible that litigation with an EU counterpart may become more costly and time-consuming, both to get it up and running and then to enforce any judgment.

After much back and forth once the contract was made public, the EU and AstraZeneca have now come to a resolution. The company agreed to supply an additional nine million doses by March, and the EU sought to distance itself from the possibility of legal action at this stage. The bloc will no doubt be focused on seeking to regularise the supply of vaccines from AstraZeneca and looking at viable contingency plans, rather than taking a lengthy route through the courts.

There is a resolution clause in the contract that requires the parties to go through an informal dispute resolution process, and there is now at least a short term solution focused on a programme of delivery that representatives from both sides have signed up to, possibly leaving important but less pressing contractual issues to another day.
Whilst this particular row looks to be resolving, it’s clear that the forces of COVID-19 and Brexit could continue to cause complications in cross-border pharma trade. In the particular race to control COVID-19, people ultimately want vaccines, rather than to hear about contractual wrangling by their respective governing bodies and external contractors, so in these situations there will be pressure on the affected parties to reach a workable solution if that is feasible.