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Crisis Management: EU-style


An object lesson on how not to deal with a problem

The EU Commission has given us a quite astonishing master-class in the last few days of how not to deal with a problem: panic, untrue or incomplete public statements, trying to negotiate in public, invitations sounding like threats, displays of wounded amour propre, petulant complaining, shrill demands, recourse to legal arguments, followed by peremptory action taken without proper consultation with those affected, only to be withdrawn – somewhat humiliatingly – shortly thereafter. 

Much attention has been given to the AZ contract with the EU as if this would provide the answer to the problems the EU is facing. It does not. For a very simple reason: the problem is not primarily a legal one. If you want to solve a problem, it is essential to diagnose it properly first. That has been the EU Commission’s primary failing (second, if you count its slowness in signing vaccine contracts). 

Production of vaccines is a slow and technically difficult process. It is not like producing widgets from a mould. This article explains the difficulties and timing involved. One of the UK’s advantages is that, at an early stage, it invested in the necessary manufacturing capacity which has given AZ the time to develop and refine the vaccine manufacturing process. It built (we assume) a good relationship with AZ. No contract, however expertly written, can make up for a poor relationship between parties. Even so, AZ’s production is nowhere near it should be. This is not for want of determination. AZ, Pfizer and all the other pharmaceutical companies which have come up with effective anti-Covid vaccines have achieved magnificently in creating and testing vaccines to a standard permitting licensing in less than a year. But it is unrealistic to expect them to scale up production overnight so as to produce hundreds of millions, billions even, of vaccines in record time – without any delays or manufacturing difficulties – whatever their best intentions and however wonderful their facilities and expertise. 

As was likely, this has happened to AZ. There have been delays in its supply to the UK as well to the EU, a point conveniently forgotten by the latter. The UK was first promised 30 million doses, then 4 million by December. It actually received 2 million in January. Ms Bingham’s response this week is instructive: “The predictions that were made in good faith at the time were assuming that absolutely everything would work and that there were no hiccups at all.” If the government had a tantrum at these delays and difficulties, it kept it well-hidden.

Everything has not worked and there have been hiccups. The sensible response is to work with the companies to help resolve these. Not berate them with clause X or Y of a contract. Whatever such clauses say will not magic up vaccines. At best, they may give the aggrieved party a remedy in law – damages or, possibly, an order for specific performance. But a court order immunises no-one against anything (while creating an allergy to lawyers and legal fees). So the problem – the lack of sufficient vaccines as soon as possible – remains.

Is there any point then analysing the AZ contract? If it is to get a definitive legal ruling on its interpretation: no. If it is to understand a bit better what is going on with the EU: yes. So, some thoughts:-

  • It’s subject to Belgian law. A Belgian lawyer has opined on it here. He does not support the Commission’s interpretation.
  • The EU’s contract is not linked to Britain’s contract. They are two separate contracts and it is probable that they are with separate legal entities within the AZ group. The Commission’s arguments ignore this.
  • The EU does not have an exclusivity clause. It is not AZ’s only client. Indeed, it is obvious from the contract, specifically the warranties, that the EU knows this. Again, the Commission has been speaking as if it is AZ’s only client or, in its view, its most important one.
  • Even if the EU were to get an order against the Swedish entity in Belgium, that does not necessarily entitle it as a matter of English law to require AZ in the UK to comply with such an order or to breach its contract with the UK. 
  • The contract’s preamble refers to AZ “scaling up” its operations to provide the initial doses. The EU therefore knew that it was not getting instant production of everything, that there was a process and time necessary to get there.
  • The definition of “Best Reasonable Efforts” is heavily caveated. Note, for instance, the reference to “relevant stage of development”.
  • The obligation to manufacture is to do so within the EU (with the UK only deemed to be part of it for the additional 100 million doses). Clause 5.4 says that if AZ seeks to manufacture the vaccine outside the EU, the EU will suggest alternative sites within the EU. In short, far from supporting the Commission’s claim that vaccines made in Britain should be used, it seems to reflect the EU’s desire to ensure that as much vaccine manufacturing as possible is done within the EU. Whether this is “vaccine nationalism” or a sensible focus on onshoring key manufacturing capacity seems somewhat moveable, rather depending on what point a party is trying to make and at whose expense at any particular time.
  • The warranty (clause 13(1)(e) if you’re interested) stating that there is nothing preventing AZ from fulfilling its contract with the EU does not bear the very heavy meaning given to it by the Commission. It is a warranty not a delivery obligation, for one thing. More importantly, the existence of the UK contract does not, per se, prevent AZ from delivering vaccines to the EU. What is doing so are the manufacturing difficulties – difficulties which have affected AZ’s delivery obligations to both clients.
  • Clause 8.1 allows AZ to notify the EU “in good time” of what it estimates will be available for delivery and when. This is very far from an absolute guarantee to deliver x number on y dates.

So we are back to the realities. AZ – for whatever reason – is taking longer than anticipated to build up the manufacturing capacity and ability to manufacture at scale the number and quality of vaccines needed. It will get there no doubt. The Commission, piqued by Britain, for once, being competent at one aspect of its Covid response, and doubtless under pressure from Member States, decided to adopt a “use vinegar to attract flies” strategy with AZ and talk of export bans aimed at the UK. More worryingly, it has abandoned all pretence of compliance with the legalities (let alone the intention) of the Northern Ireland Protocol. For the moment, AZ has managed to find another 9 million doses for the EU. The Commission has explicitly conceded that it will not stop Pfizer from complying with its contractual obligations to Britain. If its word can be trusted.

It has been an unedifying spectacle, not least for people in the EU who are suffering and dying while waiting for vaccinations. The sooner the parties involved stop turning to their lawyers and focus on vaccine production the better. But the damage to trust, especially with regards to NI, and what this means for the EU, the pharmaceutical sector and EU-UK relations remains to be seen.

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