Contract lessons from the EU's legal row with AstraZeneca

posted by Kathryn Rogers
3 June 2021

The European Union has launched legal action against AstraZeneca claiming that the coronavirus vaccine manufacturer has failed to comply with its obligations under the vaccine supply contract.

The dispute stems from the vaccine advance purchase contract the EU Commission signed last August for millions of doses of the Oxford-AstraZeneca vaccine. Whilst AstraZeneca admitted earlier this year that its supplies would be reduced because of production problems. It has responded that the Commission’s claim is "without merit" and has said that it would "strongly defend itself in court".

On the question of whether AstraZeneca has breached its EU contract, the answer is, possibly. Lawyers for both sides will no doubt raise robust arguments in their side’s favour. A key question is likely to concern whether the contract contained an absolute obligation on AstraZeneca to deliver 90 million vaccine doses by 31 March 2021 or whether its obligation was to use its ‘best reasonable effort‘ to reach that figure. And if the obligation were to use ‘best reasonable efforts’, had AstraZeneca taken sufficient steps to discharge that obligation?

There are further questions as to whether AstraZeneca should have reduced its supplies to the UK, potentially putting itself in breach (or further breach) of the UK contract, and whether the location at which the vaccine was manufactured had an impact on where that vaccine should be supplied.

The case is by no means clear cut and there are numerous issues to be considered, including the fact that the EU contract was entered into by AstraZeneca AB, a company incorporated in Sweden. Whereas the UK contract was entered into by AstraZeneca (UK) Ltd, a company incorporated in England.

Whilst the issue of large scale manufacture of a lifesaving vaccine against the backdrop of a global pandemic is somewhat novel, contractual disputes relating to late or incomplete deliveries are not unusual. Many of these disputes are settled out of court and compromises are made by the parties in the interests of preserving commercial relationships and limiting legal spend. But where a case does come in front of a judge, the crucial consideration is going to be the wording of the contract.

A important defence for AstraZeneca and a hurdle for the EU’s legal team is the fact that advance purchase contract contains a waiver given by the Commission of claims against AstraZeneca arising out of or relating to delays in delivery of the vaccine. The UK contract does not contain such a waiver.

This highlights the importance of well-drafted supply contracts which contain provisions incentivising strong performance and imposing sufficient sanctions for non-performance. Without both of these elements, if a supplier were party to two contracts and only had sufficient capabilities to fulfil one of those contracts, it would likely look at its potential profit and liability under each contract when deciding where to direct the majority of its efforts.

☛  Kathryn Rogers is partner at law firm Cripps Pemberton Greenish.

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