You might well be aware of the dispute between AstraZeneca (AZ) and the European Commission (EU) over supplies of AZ’s COVID-19 vaccine. (Go here for an account from the Guardian.)
The EU has made the contract available the public (here). AZ’s obligation to use “Best Reasonable Efforts” has attracted attention, but no one is suggesting we’re dealing with the fatuous notion of a hierarchy of efforts standards, so I was prepared to sit this one out. But then Alex Hamilton started tugging at my sleeve.
So here’s section 13.1 of the contract between AZ and the EU, except for clauses (g) and (h):
And here’s Alex’s question to me:
Section 13.1(e) of the EU and AstraZeneca agreement seems to raise a thorny problem for AZ:
AZ entered into the agreement three months after it had contracted with the UK. AZ probably thought that the agreements weren’t, and wouldn’t be, in conflict. But with the reported delays in production at its EU-based sites, it appears that it might have found itself in the unfortunate situation of having enough vaccine to support in full either the UK order or the EU order, but not both. If AZ allocates supplies of vaccine to the UK at the expense of the EU, that would seem to have the effect of rendering section 13.1(e) inaccurate.
The agreement is governed by Belgian law, is redacted, and we don’t know all the facts, but it seems to me that section 13.1(e) is worth looking at in terms of how statements of fact can unexpectedly land you in trouble.
In considering Alex’s question, my starting point is that a statement of fact is either accurate or inaccurate—it cannot become inaccurate. If one could say that AZ’s assertions in section 13.1(e) became inaccurate, that could only be because they’re not statements of fact regarding circumstances at signing but instead look to the future—in other words, that they’re what I call “future facts.” Here’s an example of a future fact: The Units will comply with the Specifications.
Future facts are in effect predictions or risk-allocation mechanisms. It would be clearer to express either meaning directly instead of couching it as a future fact. (For more about future facts, see this 2020 blog post.)
AZ would presumably argue that its statements in section 13.1(e) pertain to circumstances at signing—that because at signing its production problems hadn’t materialized, there wasn’t anything inconsistent between its commitment to the UK and its commitment to the EU. That argument has some appeal. If WidgetCo’s factory can produce one million widgets a year, there’s nothing inconsistent in WidgetCo agreeing to sell 400,000 widgets a year to Alpha Corp. and then agreeing to sell another 400,000 to Beta Inc. If a fire subsequently cut WidgetCo’s annual output by 40%, that doesn’t render illegitimate WidgetCo’s calculus on signing the contract with Beta Inc.
Similarly, AZ would presumably argue that at signing there wasn’t any indication that the UK commitment would impede AZ from performing under the contract with the EU. If the contract with the EU had said “might impede,” that would have meant that AZ wasn’t aware of any circumstances—including possible production problems—that could conceivably impede its performance. As it is, section 13.1(e) refers to circumstances that AZ knew at signing were an impediment. That’s a narrower standard.
So AZ could argue with a straight face that its statements for act in section 13.1(e) were accurate. But the current mess shows that the contract did a poor job of handling risk. Specifically, the contract should have addressed the implications of a shortfall in production. For that failing, both AZ and the EU—and their respective lawyers—are to blame. That AZ could argue that its narrow statements of fact in section 13.1(e) are accurate might end up being cold comfort.
Bonus
While I’m at it, the structure of section 13.1(e) is unhelpful, in that the verb structures in the lead-in (“Astrazeneca represents, warrants and covenants”) signal that two categories of contract language follow, namely what I call language of declaration (for asserting facts) and language of obligation. (Go here for an introduction to my categories-of-contract-language framework.) Sure enough, clauses (e) and (h) are obligations; the rest are statements of fact. Why commingle the two? Instead, put obligations in one place and statements of fact in another. See this 2019 blog post for more about this kind of commingling.
And the verb structures the drafters chose are lame. Covenant is archaic. And represents and warrants is catastrophically, weirdly legalistic for no purpose, as I explain in this 2015 article. (No one has offered anything approaching a meaningful critique of my argument. I’m not surprised—I don’t think meaningful critique is possible.)
So throw covenant in the dumpster. It’s harder to get rid of represents and warrants, as it’s so entrenched and for the most part is silly rather than dangerous. On the other hand, let’s not exaggerate how hard it is to get rid of represents and warrants; see this 2020 blog post.
I agree that a statement of fact in a contract is either accurate or inaccurate.
I agree that statements of fact are either of ‘past facts’ (before the contract takes effect) or of ‘future facts’ (after the contract takes effect). Better nomenclature, in my view, is ‘facts’ and ‘predictions’, respectively.
Standing alone, predictions are never risk-allocation mechanisms. If the contract specifies the remedy for (or other consequences of) falsity of some fact, no ‘prediction’ is necessary, just a conditional obligation.
For example: *(1) The Units will conform to the Specifications. (2) If the Units do not conform to the Specifications, Widgetco shall promptly replace each nonconforming Unit with a conforming Unit*.
The first sentence is surplusage; the second sentence does all the work, setting up a conditional obligation, or as MSCD puts it, using language of obligation to express a condition.
If a fact or prediction later proves false when it was made, the contract should specify the remedy or non-remedial consequence (such as non-arisal of a right or duty). The contract reader should be able to ascertain what rides on whether these statements are true or not.
Analyzing the AZ-EU contract against that background, it looks as if AZ wins. AZ’s contract with the UK does not ‘impede’ AZ from performing its duty to the EU; AZ is free to perform one and breach the other or vice versa. The prediction of no impeding duty proved true.
The EU might have had a stronger hand if the contract had said, ‘AZ has no obligations to third parties *the performance of which* will (would/might) impede AZ’s performance of this contract’. That would be a straight prediction, and no ‘remedy’ or other stated consequence.
Under my scheme above, what might have helped the EU is something like this:
‘If AZ has or develops competing obligations to deliver vaccine to the EU and to one or more other parties, AZ shall prioritize the performance of its obligations to the EU until AZ’s obligations to the EU are completely performed. If AZ fails to so prioritize, then [the following consequences ensue]’.
I don’t address how to distinguish (1) damage from nondelivery of the vaccine as promised because AZ sent it to the UK from (2) damage from nondelivery of the vaccine as promised for any other reason, so I don’t know what to put in the square brackets. Liquidated damages?
Best wishes to all for good health and much vaccine soon!