Stuart Evans, partner at law firm BLM and specialist in commercial disputes and litigation examines the origins and fallout of the EU/AstraZeneca vaccine dispute and why the twin forces of COVID-19 and Brexit seem set to muddy the waters of cross-border pharma trade for some time to come.
Five months on from the first disgruntled rumblings, and the EU/AstraZeneca row has taken a very bitter twist, with the EU commission launching legal action against the British-Swedish pharma giant, for alleged breach of contract.
A legal battle is looming, the first ever over vaccine supply during this pandemic. What does it represent for EU/UK cross-border pharma relations going forward? It’s likely to teach us some interesting legal lessons, especially given AstraZeneca’s cross-border status within the UK and Sweden; it could well be the first major cross-border commercial cases post-Brexit. In looking at the dispute, we will comment on some of the initial steps businesses can take to start off on the right foot when litigation is imminent.
How did we get to this point?
The crux of the case lies in the contract between the EU and AstraZeneca, mixed with Brexit tensions and fears over a lethargic vaccine roll-out in the bloc – particularly given the UK’s much faster rate of vaccination.
The EU and AstraZeneca initially struck a deal for 300m vaccine doses back in August 2020, with the option for an additional 100 million for its 450 million citizens. Come February, AstraZeneca boss Pascal Soriot conceded the company could only deliver 40 million in the first quarter of 2021 following production issues within its EU plants – it represented less than half of the 90 million it initially pledged by the end of March.
Attention quickly turned to AstraZeneca’s agreement with the bloc, as the EU announced the organisation had been instructed to share doses from its UK plants, which AstraZeneca argued its UK contract prevented. In response, Commission President Ursula von der Leyen stated the company had “explicitly assured us in this contract that no other obligations would prevent the contract from being fulfilled”.
When questioned on the debate, Matt Hancock championed clauses in the UK’s vaccine supply contracts, saying that the vaccine should be supplied “preferentially”. This would mean that in the event of a production shortage, the UK’s order would be fulfilled first through diversion of supplies from other customers, with an inability or failure to do so resulting in fierce penalties. It perhaps kept the UK’s AstraZeneca supply better protected in the case of production issues.
The EU claimed AstraZeneca had, essentially, signed conflicting contracts with both the bloc and the UK – with supply to one negatively impacting supply to the other in the event of production problems.
Legal battle begins
This particular contractual battle may boil down to the interpretation of the wording of the contract, which is governed by Belgian law and is being litigated there. Within the EU’s AstraZeneca contract, shared online by the commission, particular focus was paid to the reference to “best reasonable efforts”.
Within English law, commercial contracts typically refer to the separate concepts of “best” or “reasonable” endeavours. “Best” is typically more stringent, requiring the party in question to take all possible and available measures to ensure the contract is fulfilled. “Reasonable endeavours” concerns what measures a prudent party, acting in commercial interests, could try to take to meet its obligations.
The introduction of “best reasonable efforts” implies something that falls between the two, although this may be a recognised term under Belgian law. It may well have been a reflection of the EU and AstraZeneca’s teams failing to agree on specific measures when drawing up the supply agreements.
Now that the EU has officially begun proceedings against the pharma giant, we’re likely to see this particular phrase pored over by Belgian courts during the case. It’s likely AstraZeneca’s legal teams will assert, in the strongest possible terms, that the organisation met the “best reasonable efforts” clauses, in circumstances where this concerns the supply of a vaccine produced in an incredibly tight timeframe, to be shipped to millions worldwide. We will await further reports.
If a company faces the prospect of significant litigation like this, either as a claimant or defendant, then at the risk of sounding self-serving, it is important to get advice early on. As part of case planning, an involved party must ensure that all potentially relevant documentation is preserved and not deleted, altered or destroyed. Many companies will have a “litigation hold” policy that provides for this eventuality. If making or responding to a claim, it’s vital to ensure that the first formalised position is firm, but conciliatory if possible, to allow for the parties to meet or consider alternative dispute resolution at an early stage.
Whilst it’s prudent to plan on the basis that a case will go all the way to trial, most do not, so keeping an open approach to settlement will be important. If there is no early resolution, budgeting carefully for costs of the case is also key. As part of that process, seeing whether third party litigation funding is available is a sensible option. Companies involved in litigation should always look at the risks/rewards of proceeding and be prepared to re-assess their own case (for better or worse) once they have assessed the merits of the parties’ respective cases, and more information and evidence has come to light.
Watertight contracts a must
The spectre of Brexit has loomed large throughout this particular fall-out, with relations between the EU and UK over vaccine supplies has remained particularly strained. EU politicians directed frustration towards UK politicians, accusing them of scoring political points over its vaccination success, with the EU Justice Commissioner stating 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 will continue to complicate business relations, contractual obligations and any litigation as a result of any alleged breach of those obligations. It should be a prompt to pharmaceutical companies to look at their commercial contracts in terms of cross-border trade.
The row has highlighted the absolute importance of watertight commercial contracts within pharmaceutical trade, especially when it comes to complex transactions, such as the supply of millions of doses of vaccines across multiple countries, in this case.
Given the ongoing trade disruption as a result of the pandemic, particular attention should be paid to force majeure clauses when dealing with both EU and non-EU counterparts. These clauses are usually in place to excuse performance of the contract by one or both parties, on the occurrence of certain events. It typically excludes foreseeable events, even if these place contract performance beyond control, as logic dictates that if something is foreseeable, parties should allow and plan for it.
Parties should consider expressly accounting for events in which their ability to perform – or the costs of performing – the contract are affected by Brexit. It’s wise to remember that trade can be affected not only by an inability to perform a contract, but also non-performance (whether driven by Brexit or otherwise) of businesses elsewhere in a 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 find ourselves in a legal grey area. The UK and EU are 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.The Lugano Convention is yet to take its place. Until there is a replacement regime that can clearly provide which national courts have jurisdiction in UK/EU 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.
What’s especially clear is that the forces of COVID-19 and Brexit are going to continue to cause trading complications. It’s more important than ever to ensure your interests are contractually protected, in your own jurisdiction, and those of the countries into which you are supplying.
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