In order to understand the lack of apparent basis for the European Commission’s claims that AstraZeneca is in breach of its contractual obligations to supply it with vaccine doses, it is necessary to understand the difference between stock and flow.
If I have 1,000 widgets in my warehouse, and agree to sell 700 of them to Ursula, and 600 of them to Boris, I will be unable to perform both contracts. They’re inconsistent with one another, and if I choose to perform my contract with Boris, Ursula will be understandably aggrieved. Is this what AstraZeneca have done? No.
At the time of the contracts AstraZenca entered into with the Commission and the United Kingdom no vaccine doses existed. What AstraZeneca promised was to use best reasonable efforts to acquire approval for and production of vaccines, and to deliver what it succeeded in making.
The United Kingdom was involved from an early stage (January/February) in the roll out of what was to become the Oxford/AstraZeneca vaccine. It was a third party beneficiary of the original licensing agreement of 17 May between Oxford and AstraZeneca, and provided the initial funding of £65 million (quickly greatly increased). Approval for use was given on 30 December, with the first dose given outside a trial on 4 January.
The Commission was slower to act. It entered into a contract with AstraZeneca on 17 August and granted authorisation for use on 29 January.
What each counterparty is entitled to is the doses that AstraZeneca succeeds, using best reasonable efforts, in producing under its contract. A metaphor is that each is buying a place in a production queue [Flow]. Neither was buying doses current in existence [Stock].
The metaphor of the queue is however somewhat misleading. It implies that the Commission is having to wait behind the United Kingdom. This is wrong. In fact, the Commission (and other parties) are benefitting from the earlier development and ramp up of production that occurred because of the United Kingdom’s contractual arrangements. Far from being prejudiced by the United Kingdom’s actions, the Commission and others have benefitted from it.
The Commission’s argument is not, and never has been, as some have supposed, that AstraZeneca has failed in its best reasonable efforts obligation to manufacture doses. Such an argument does the Commission no good. It would leave it with a claim for damages before a Belgian court in several years’ time. It is also seems unlikely that a claim that AstraZeneca have been dilatory in rolling out a vaccine in a fraction of the time anyone had achieved before this year, and which other suppliers failed altogether to do, has much prospect for success.
What it (and the Member States) want are doses today.
So, the argument instead is that AstraZeneca has succeeded and that there are doses in existence that the Commission is entitled to. This is based in part upon the frustration in seeing deliveries of vaccine doses to the United Kingdom from factories that the Commission’s contract says that AstraZeneca can deliver doses to it from.
Their position appears untenable. The Commission is entitled to those doses that its supplier succeeds, using best reasonable efforts, in producing under its contract with it. It is not entitled to doses that are only in existence because of earlier contractual arrangements with an entirely different counterparty.
In practice, which doses are being produced under which contract will be obvious from the fact that most production is being done by subcontractors (AstraZeneca is a relatively small producer). The shortfall in production under the Commission’s contract appears to have been caused by a failure of a sub-contractor in Belgium.
It is because the Commission’s arguments under its contract are so obviously weak that we are now seeing calls for export bans. If there really were any contractual entitlement to what has been produced, and AstraZeneca were in breach of contract in failing to deliver, then the usual civil recourse would be the obvious and easy path for the Commission. The nuclear option is being relied upon because of the lack of any such contractual right.
Conversely there is no equivalence between the United Kingdom requiring that doses that it is contractually entitled to are delivered to it, and the Commission’s proposed export ban.
Red Herrings
Two common objections to the above have been put forward that it is helpful to rule out. First the Commission’s contract is governed by Belgian law. However, there is no rule specific to any jurisdiction in play here. All that needs to be known is pacta sunt servanda, a principle applicable across Europe.
Second is that the UK’s supply contract was only actually formalised in August. The earlier agreement was however months before, as was the funding that has resulted in the doses that there are for anybody.
The author is an expert in English and European contract law.