When language is loose and best efforts is not good enough

With the United Kingdom, Ireland and the rest of Europe, having spent over four years anticipating the would be ‘fall-outs’ of the UK’s decision to approve Brexit, and subsequently trigger Article 50, it has taken less than four weeks for the first large scale post-Brexit political conflict to emerge.

Question marks surrounding the contract for the supply of vaccines by the company AstraZeneca to the EU has led to a very public spat between the European Commission and AstraZeneca and, perhaps even more worryingly for Ireland, a public confrontation and subsequent climb down between Ireland and the President of the European Commission Ursula von der Leyen over plans to create border restrictions between the Republic and Northern Ireland.

At the heart of all of this controversy is the agreement, or indeed, lack thereof, between AstraZeneca and the European Commission on the extent of the contractual obligations between them.

AstraZeneca (AZ), through a company statement[1] as well comments from Chief Executive Pascal Soriot[2] maintain that they have committed only to ‘best effort’ to meet their supply timelines, which in their view does not confer a strict contractual burden upon them to actually meet those supply commitments. By contrast, EU Commissioner for Health, Stella Kyriakides rejects this contention and argues that AZ are contractually obliged to use very significant efforts to meet delivery requirements including significantly tapping AZ manufacturing facilities in the UK.[3]

The very public disagreement between the two parties regarding the extent of contractual relations between them raises two key questions:

1. What does it really mean, to commit to a ‘best reasonable efforts’ or ‘best endeavour’? and

2. Is a ‘best reasonable efforts’ commitment good enough, to safeguard supply chains of a life-saving vaccine in the midst of a global health crisis?

This note will examine the first of these questions; the answer to the second will be revealed in time.

While the current dispute does not solely pertain to what constitutes “best reasonable efforts” it is central to the arguments put forward by AZ and is worth a closer look; it is used 15 times in the published contract.[4]

The term is defined within the contract as:

“The activities and degree of effort that a company of similar size with a similarly sized infrastructure and similar resources as AstraZeneca would undertake or use in the development and manufacture of a Vaccine at the relative stage of development.”

This in itself is an unusual step. Frequently, the term “best endeavours” is left undefined in a commercial contract and, in the event of dispute, left to courts to interpret the meaning of the term in the context of the particular contract. Indeed, having gone to the trouble of defining best reasonable efforts, it may prove difficult to apply this definition and consequently enforce the corresponding provisions in practice. The definition effectively requires one to measure AZ performance against contemplated market standard performance. However, from the perspective of a court called upon to interpret whether or not that standard has been met how does one define that standard when the issue at stake relates to cutting edge vaccine science being undertaken by a small number of market operators in the context of a public health challenge not seen for a century.

The contract is governed by Belgian law and a leading Brussels based law firm has commented that as a matter of Belgian law in any legal proceedings the European Commission would have to show that AZ had failed to meet normal standards of professional diligence. This note, of course, reflects the position in Irish law, and it must be remembered that Belgium operates under a civil and not a common law jurisdiction.

‘Efforts’

Any commentary on the dispute must first consider the extent of a best reasonable effort obligation?

The obligation falls somewhere between a reasonable effort and a full compliance obligation and where precisely it falls on that spectrum is open to interpretation and subjective.

David Allen Green noted in the Financial Times that the reason both parties feel they are in the right, is that they are both saying slightly different things.[5] He considered whether the inclusion of the term ‘reasonable’ serves to undermine what could otherwise be a stronger clause. He suggested that it could be construed as a level below ‘best efforts’ and as such, only requiring AstraZeneca to exert a sufficient effort without taking any actions that could be considered commercially unreasonable, in itself a subjective term.

Ursula von der Leyen has argued:

“'Best efforts' applies as long as it was not clear whether [AstraZeneca] could develop a vaccine. This time is now behind us ... With the development of a vaccine that works and is safe, there are then clear delivery quantities, both for December of last year as well as the quarters [of this year], the first, second and third quarters. They are in the contract."

However, a quick glance at Section 5.1 of the contract pertaining to Manufacturing and Supply arguably contradicts this assertion, stating:

“AstraZeneca shall use its Best Reasonable Efforts to manufacture the Initial Europe Doses within the EU for distribution, and to deliver to the Distribution Hubs…”

The Irish and English Courts have had cause to interpret the term “best endeavours” and the related terms “reasonable endeavours” and “all reasonable endeavours”. While Ireland and the UK are common law systems and Belgium is a civil law system, these cases serve as a useful illustration of the approach taken by courts to “endeavours” type obligations.

In the interpretation of these clauses, the Courts focus on the individual facts of each case at hand and the particulars of the contract at issue. It is worth referring to the judgment of Patten LJ in Abbeygate where it was stated that these obligations are “heavily dependent on the particular wording used”.

The English High Court cases of Arsenal FC v Reed (2014) [6]and Bristol Rovers Ltd v Sainsbury’s Supermarkets Ltd (2016)[7] examined the endeavours clauses. Furthermore, in Jet2.com v Blackpool Airport (2012)[8], the Court held that such clauses must be interpreted on their own facts, while also holding that such clauses were “not too uncertain to be capable of giving rise to a legally binding obligation.”

Language is a key component in the construction, and importantly, interpretation of contracts. However, distinguishing ‘best’ from ‘reasonable’, a simple linguistic issue, becomes almost an irrelevance in legal terms. This was the conclusion the Court came to in the Rhodia case.[9] The concept of reasonability is implied in a best endeavours clause, and as such it is submitted that its inclusion in the Advance Purchase Agreement with AZ should not lower the threshold construed by the term ‘best efforts’.

Conversely, the use of the term ‘best’ does work to elevate the level of contractual obligation extended. There can be considered to be three ‘endeavours’ or “efforts”, ‘best endeavours’, ‘all reasonable endeavours’ and ‘reasonable endeavours’.

A simple conceptualisation of the three terms and the extent of the obligation imposed by each of them might be as follows:

• Best endeavours requires the obligor to explore all possible routes to the desired end result, even those that could be commercially detrimental – Jet2.Com established that a best endeavours “obligation may well require a party to act to its own commercial detriment”. This of course is qualified by reasonableness and a party would not be compelled to act towards its own financial ruin, however this is interesting nonetheless.
• By comparison, reasonable endeavours does not require a party to act in any way towards its own detriment. It could in fact be sufficient to explore just one route to the desired end, if this is the most that could reasonably be expected. In a case concerning “all reasonable endeavours”, Finlay Geoghegan J. accepted a suggestion that ‘reasonable endeavours’ lay below an obligation to ‘best endeavours’ in the leading Irish case of Drocarne Ltd v Seamus Murphy Properties and Developments Ltd.
• Of the interpretation of ‘all reasonable endeavours’, the position in law is even more uncertain. On one view, all reasonable endeavours can be said to lie in the middle ground between “reasonable endeavours” and “best endeavours”. However, there is also a school of thought that it lies closer to best endeavours end of the spectrum than the reasonable endeavours end. Even more so than reasonable endeavours or best endeavours, this ‘halfway house’ has been interpreted on a particularly case sensitive basis.

Conclusion

The case law points towards endeavours type obligations being enforceable but it is also well documented that what exactly an endeavours type obligation demands determined on a case by case basis. Accordingly, there remains an air of uncertainty surrounding the question of who is ‘in the right’.

Indeed, when questioned about the potential effect of a “best effort” limitation on this contract, Ursula von der Leyen rejected any criticism, stating:

“There are binding orders and the contract is crystal-clear. AstraZeneca has expressly assured us in this contract that no other obligations will stand in the way of fulfilling the contract."

In fact, the only thing that is crystal clear about this entire debacle is the complete lack of clarity.

If there is but one lesson to be learned from the fallout in this incidence, it is that clearly identifying the extent of the obligations for parties should always be the cornerstone of effective drafting and while the drafter does not have a crystal ball they can and should make their own “best reasonable efforts” to see around corners. Where delivery or performance may be critical and cognisant that we cannot always see around corners, it may be advisable to impose an unqualified obligation to meet that timeline or other performance indicators, rather than relying on inherently uncertain terms like “best endeavours”, “reasonable endeavours” or any combination.