Vaccine supply row highlights the need to inject certainty into "best efforts" obligations
The row between AstraZeneca and the European Commission illustrates the complexities contracting parties can face when they agree to use "best efforts" to achieve a given outcome.

 

As the COVID-19 vaccine programme slowly gathers pace across Europe, a dispute between the European Commission and vaccine manufacturer AstraZeneca has been grabbing the headlines. The Commission has accused AstraZeneca of failing to live up to its vaccine supply obligations as set out in a deal signed in August 2020. In response, AstraZeneca has pointed out that its core obligation under that contract is to use "Best Reasonable Efforts" to manufacture the required number of doses, a standard which AstraZeneca says it is meeting.

The contract is not subject to Irish law and it remains to see how the dispute will be resolved. However, the controversy illustrates the complexities that "best efforts" or "best endeavours" obligations can cause.

Why use "best efforts"?

Most contractual obligations are absolute. This means the relevant party is required to achieve or procure a particular outcome. Other than in the case of force majeure (as defined in the relevant contract) or the contract being otherwise clearly frustrated in some way so as to render its performance impossible, the failure to satisfy an absolute obligation, even if this results from factors outside the party's control, gives rise to a breach of contract.

Absolute obligations give certainty. However, they can be a blunt instrument. Often, a contracting party will be willing to try to achieve a particular outcome but cannot guarantee that it will be able to do so, because some element of what is being promised is outside of that party's control. In these cases, a party will often agree to use "best efforts" (or perhaps the lower standard of "reasonable efforts") to achieve the desired outcome.

What does "best efforts" mean?

In many disputes it will ultimately fall to a court to determine what "best efforts" does and does not require a party to do. Although it falls short of an absolute obligation, under Irish law the term nonetheless imposes a relatively strong obligation on the contracting party to achieve the relevant outcome.

For example, a decision of the English Court of Appeal (which has persuasive effect in Irish law) held that best efforts obligations require parties "to take all those steps in their power which are capable of producing the desired results”, including all steps that a "prudent, determined and reasonable" party would take if trying to achieve the promised outcome for its own benefit. The same court has more recently confirmed that such obligation could require a party to take steps that are contrary to its own commercial interests.

Notwithstanding these decisions, many ambiguities remain.  While the case law sets out guiding principles, in practice it can be very difficult for contracting parties to work out exactly what practical steps they are required to take to satisfy "best efforts" obligations. This is particularly so when circumstances have changed since the contract was signed. Furthermore, courts are sometimes faced with variants on "best efforts", such as "best commercial efforts", "all reasonable efforts" or, as in the contract between the European Commission and AstraZeneca, "best reasonable efforts".  Unless these terms are expressly defined (see below), it can be difficult for courts to divine how much weight the parties' intended these terms to carry.  

Try a definition?

In their contract, the European Commission and AstraZeneca chose to define the term "Best Reasonable Efforts". The definition includes a standard of "a company of similar size with a similarly-sized infrastructure and similar resources as AstraZeneca" and requires that standard to be assessed in light of "the urgent need for a Vaccine … but taking into account efficacy and safety".

A definition can inject a great deal more certainty into best efforts obligations.  However, as we have seen over the past fortnight, a broad definition which is based on abstract standards of behaviour rather than specific actions still leaves room for disagreement. 

With this uncertainty in mind, it is often better to avoid "best efforts" obligations altogether and opt for specific and measurable contractual obligations.  For example, an obligation to use best efforts to resume production in the event of machinery failure could be replaced by a specific obligation to divert capacity from the manufacturer's own production, or to implement a detailed disaster recovery plan. 

Contracting parties cannot be expected to plan for every eventuality, but in many cases, it pays to have the difficult conversations before the contract is signed. 

If you have questions about specific contractional obligations or more general contractual issues, please contact John O'Connor, David Kirton, or your usual William Fry contact. 

Contributed by Elaine Egan 

 

Key Contacts

John O'Connor Partner

David Kirton Partner

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