Sovereign Interests and Medical Obligations: Navigating Vaccine Supply Chain Disputes through ADR

INTRODUCTION

“Medicine is a science of uncertainty and an art of probability.”

•  William Osler

The field of medicine is a dynamic arena that caters to the health and well-being of citizens around the world. Over the years, medical practitioners and researchers have tackled and eradicated deadly diseases with their relentless efforts. The 21^st century has witnessed robust improvements being made in the field of medicine and pharmacy. Modern medicine is backed by the rise in pharmaceutical companies around the world that harbour the suitable environment for R&D, effective medical trials ultimately leading to rapid production and distribution of essential medicines on a large-scale

In current times, the field of medicine is not just limited to the production and distribution of medical products. Today, the field of medicine has become more dynamic and inculcates legal and political intricacies. It is a well-established fact that right to medicines is equated with right to healthcare, both of which are fundamental human rights. Thus, in the process of production and distribution of medicines, pharmaceutical companies are not just engaged in a commercial process but also in the process of facilitating social welfare. In this regard, the role of pharmaceutical companies in the process of production and supply of Vaccine is much discussed.

Vaccines have proved to become a major medical tool for prevention and protection against deadly diseases like H1N1 Flu, Smallpox, Malaria etc. Although, the very idea of vaccination is largely debated in many countries, it cannot be denied that vaccines form the backbone of health care around the world. The importance of vaccines was highlighted and understood yet again in the year 2020 due to the rise of the deadly Covid-19 pandemic.

The pandemic which has left a mark in the history of mankind as one of the worst medical catastrophes of modern times, changed the perception of vaccines and established the fact that the process of vaccine production, supply, and procurement is not just limited to scientific research and studies but also involves complex legal processes and contractual intricacies to facilitate a rapid yet hurdle free vaccination initiative on a large-scale. The pandemic brought the process of vaccine manufacturing and supply under the spotlight that made people aware about the existence of a complex Supply Chain Management System and Supply Chain contracts that govern the supply and procurement of vaccines around the world.

OVERVIEW OF VACCINE SUPPLY CHAIN

Supply chain is an extremely crucial network in the sector of manufacturing that govern the supply of goods and services to the consumer in the form of final product. Supply Chain Management, hereinafter SCM, deals with the management of material, information, and financial flows in a network consisting of vendors, manufacturers, distributors, and customers.¹ To attain coordination in supply chains, contracts have to be designed to align the incentives of supply chain members. This aligns individual interests with the supply chain system, which ultimately leads to achievement of optimal supply chain efficiency.² However, when it comes to vaccine supply, the contractual obligation goes beyond this system.

The World Health Organization, hereinafter the WHO, enlists the essential steps of vaccine supply chain, this includes Request for supply of requisite vaccine, arrival of vaccine, protocols governing storage facilities and waste management, and monthly records of supply.

Vaccine supply is managed primarily by pharmaceutical companies based on their mutual agreement and contractual obligations with the opposite party who can either be another company or another country. Although the primary nature of SCM is profit oriented, when it comes to vaccine supply, the nature of SCM is more inclined towards welfare. Vaccines are the backbone of global immunization programmes. Timely vaccine supplies and immunization efforts undertaken at national and global levels have prevented the spread of diseases like Ebola, H1N1 flu, Small Pox etc.

Thus, vaccines form the crux of global healthcare whose supply is managed by pharmaceutical companies and this supply is governed by a supply chain contract. Although the existence of such contracts gives a commercial nature to the process of manufacturing and supply of vaccine, pharmaceutical companies have a larger undertaking in the process of manufacturing and supply of vaccines in order to ensure that people around the world have access to better healthcare.

KEY FEATURES OF VACCINE SUPPLY CHAIN CONTRACT

Vaccine Supply Chain contracts, hereinafter VSC contracts, are complex legal documents that require collective deliberation and discussions amongst stakeholders in order to balance commercial gain and welfare of masses at the same time. A distinctive feature of VSC contract is the existence of a medical emergency that prompts rapid production, sale and distribution of vaccinations. The large-scale production in limited time calls for a systematic arrangement to ensure smooth production and distribution. Moreover, VSC contracts differ from regular contracts in terms of the parties involved. The parties to VSC contracts include:

•  The Promisor: The vaccine inventor who discovers the cure to the disease.

•  The Promisee: The government or sovereign authority who provides license to the Promisor for R&D, manufacturing and supply of the vaccine.

•  Third Party Beneficiary: The producer, who is given the license under contractual terms to produce and supply the promisor’s patented medicine in specific regions.³

The number of vaccines ordered and distributed in one country can determine the evolution of an outbreak in another country due to transmission across the borders. A VSC contract reduces inefficiencies in this respect. ⁴ As discussed earlier, contracts involving supply of vaccines balance both commercial and welfare aspects. Commonly referred to as ‘procurement contracts’, it aims at providing large-scale immunization to citizens of a country suffering from an epidemic or pandemic. It is therefore essential that a VSC contract contains certain key provisions that affect the manufacturing and supply of vaccines prior to an outbreak or during an outbreak.

Advance Purchase Agreements

During the Covid-19 pandemic, various pharmaceutical companies had entered in Advance Purchase Agreements or APA. APAs are legally binding documents that enable purchase of products that are not yet available or which will come into existence if, certain conditions are met, whether or not expected demand for the products materializes and whether or not the products would still be needed after being manufactured.⁵ Most companies and governments around the world entered into an APA as the vaccines being produces by pharmaceutical companies were still in trial stages and the APA ensured that the vaccines will be made available to beneficiary countries as soon as the trial is successful. APA is similar to a contract and is legally binding on both the parties in case of supply, payment and dispute resolution. However, APA was a safer alternative to a contract during Covid-19 as it accounted for the uncertainty created during the pandemic due to lockdown and quarantine and explicitly mentioned the possibility of the success and failure of discovery of the right vaccine.

COVID 19 AND FORCE MAJEURE CLAUSE

Force Majeure, a French term which means ‘superior force’, can be understood as happening of certain events, that are beyond the control of the parties to a contract, which may inhibit the parties from fulfilling their duties and obligations under the project agreements.⁶ This may include occurrence of any natural calamity, wars, or other hurdles which make it impossible to fulfil contractual duties. Under the principles of Force Majeure clause, non-performance by a party is excused if that party proves that the non-performance was due to circumstances beyond its control and that it could not reasonably be expected to have taken such circumstances into account at the time of the conclusion of the contract or to have avoided it, overcome it or its consequences.⁷

Almost all supply chain contracts include a Force Majeure clause wherein, parties can take the defence of Force Majeure in case of, non-delivery, delay in delivery, or damage to the product. Therefore, the clause essentially protects parties from being sued for breach of contract.

The most recent example where several parties invoked the Force Majeure clause was during the Covid-19 pandemic. The year 2020 to early 2022 was a period when the entire world had come to a stand-still and trade restrictions overshadowed commercial activities due to the unforeseen outbreak of the Covid-19 pandemic. The pandemic, that forced governments to enforce worldwide lockdowns, made it impossible for companies engaged in supply chain to perform their contractual duties. This led to many individuals and companies using the defence of the pandemic, as Force Majeure for their non-performance.

Although the defence of Force Majeure was accepted by many companies engaged in supply chain, the same could not be used in Vaccine procurement contracts. The pharmaceutical companies that undertook the task of R&D, manufacturing and supplying of vaccines during the outbreak of Covid-19 pandemic had to perform their contractual obligation regardless of lockdown and trade restrictions around the world. During the pandemic, medicines, pharmaceutical products and vaccines were not seen as commercial products but were considered as life-saving essentials. Although products like Personal Protective Equipment (PPE), masks and other medications could be manufactured within a country, what could not be manufactured by many countries was a vaccine that produced 100 per cent efficiency in protecting the human body against the SARS-CoV-2 Virus. Pharmaceutical companies around the world were engaged in a race against time to manufacture and supply an effective vaccine to fight this deadly virus.

Pfizer and Serum Institute of India (in partnership with AstraZeneca) became the two major pharmaceutical companies that achieved the goal of manufacturing and supplying Covid-19 vaccines across borders. While Pfizer, in collaboration with BioNTech undertook the supply in developed Western countries, Serum Institute in partnership with AstraZeneca and Novavax supplied vaccines to the developing countries in Asia and Africa. These companies therefore signed a Vaccine procurement contract directly with the ruling governments of the receiving countries.

It is a fundamental understanding of contract law that where there is a contract, a dispute is but obvious, and VSC contracts signed during the pandemic were also subject to such disputes. However, the situation then was not conducive for resolution of such disputes in court of law. With the pandemic causing large-scale deaths around the world, disputes related to VSC contracts required faster resolution which was only possible if these disputes were settled through non-litigation mediums. There were two major such disputes that were resolved out of court through amicable settlement.

EUROPEAN COMMISSION–ASTRAZENECA DISPUTE (2021)

The use of ADR for dispute resolution in supply chain contracts during a global emergency can be aptly understood through the case of European Commission–AstraZeneca Contract Dispute.

Brief facts of the case

In August 2020, the European Commission, hereinafter the Commission, had entered an Advance Purchase Agreement (APA) with AstraZeneca for a supply of 300 million vaccine doses in three quarters. However, in the first quarterly order of 2021 AstraZeneca delivered only 30 million doses instead of the promised 90 million. In the second quarter, the company delivered 70 million out of the promised 180 million doses ⁸. This prompted the Commission to sue AstraZeneca for not fulfilling their contractual obligation during a global medical emergency.

The said dispute involved both political and legal complexities as it again gave rise to the debates over United Kingdom’s Brexit decision. Although AstraZeneca had entered into a Vaccine procurement contract with both UK and EU nations, the terms of both these contracts were starkly contrast. The manufacturing of the vaccines was undertaken at Oxford Biomedica in England and at Novasep in Brussels, Belgium. The company’s contract signed with UK explicitly mentioned that since the vaccines were being manufactured on the Britain soil, the vaccines being supplied through the UK supply chain will first be distributed across UK and the remaining doses will be exported to Commission nations.⁹ This resulted in UK receiving “preferential doses” of about 100 million supplies from the company.

AstraZeneca attributed this mismanagement to disruption in production at the Belgium site which led to lower output subsequently leading to a drastic reduction in the manufacturing and supply of vaccine across EU. Since the plant in Brussels was burdened with providing doses to all of EU nations on a large-scale, it led to a drastic reduction in the vaccine output at Brussels plant leading to the company providing about 60% lesser doses of what it had agreed with the Commission.

Commission’s Arguments and Role of UK:

All the 27 members of the Commission unanimously argued that the UK received the benefit of receiving about 100 million doses, which was more than ten times higher than the doses supplies to EU nations and that AstraZeneca had no reasonable excuse to justify this disparity in vaccine supply.

The dispute stirred up political debates wherein the Commission claimed that during a global pandemic, the company was engaged in mass production and supply of vaccine doses in UK while undermining the requirements of the EU nations. In the said contract, AstraZeneca had stated that it will take best reasonable efforts to accelerate vaccine production and supply in EU nations through the UK plant if it is deemed necessary. The Commission claimed that the EU was justified for insisting that the production was not contractually limited to the plant in Belgium where the company claimed to have suffered difficulties. It also clarified that Brussels could rightly expect that some deliveries would come from plants in the U.K.¹⁰

The UK and the EU are entitled to the doses that AstraZeneca can produce at its best reasonable effort under each contract. Therefore, the UK and the EU would in reality have acquired a place in AstraZeneca’s production flow, not a quantity of vaccine in its stock. From this perspective, the EU would only be entitled to those doses that AstraZeneca is able to produce within its best reasonable effort under its contract with the Commission, and would not be able to claim any rights to doses that exist by reason of the contractual commitment that AstraZeneca has with the UK, and previously concluded.¹¹

What did AstraZeneca claim?

In its defence, AstraZeneca reiterated the exact wordings of its contract with Commission which stated that:

“WHEREAS, as part of that scale-up, AstraZeneca has committed to use its Best Reasonable Efforts to build capacity to manufacture 300 million Doses of the Vaccine, at no profit and no loss to AstraZeneca……….”¹²

Here, “Best Reasonable Efforts” meant the best efforts that the company will take to manufacture and supply vaccine doses in order to meet the urgent need of vaccines to beat the pandemic. Although said contract mentioned the total number of doses that AstraZeneca will be supplying to Commission, it was implicitly agreed that whatever number of doses the company supplied, even if it is lesser than the agreed number, the company had taken Best Reasonable Efforts to reach that number and thus, the company claimed that it could not be sued for breach of contract.

Legal Proceedings: Best Reasonable Efforts vs Force Majeure:

In accordance to the dispute resolution clause of the contract, the Commission sued Astra Zeneca at the Court of First Instance of Brussels in Belgium. The crux of their argument circled around the mention of the Best Reasonable Efforts clause. The Belgian law distinguishes between “obligations of result” and “obligations of means”. In case of obligations of result, the failure to attain the promised result can only be defended by attributing to force majeure. In case of obligations of means, the onus is upon the beneficiary to prove that the promisor did not act in a prudent and diligent manner in order to obtain the desired result. The principle applied by the Belgian courts is that any prudent person who, placed in the same circumstances to that of the promisor, would have taken all reasonable efforts to achieve the expected result.¹³

In the said dispute, the court applied the principle of obligations of means, thus, the defence of Force Majeure was completely expelled. The court drew a distinction between ‘impossibility’ and ‘hardship’. It was pointed out that the circumstances faced by the company created ‘hardships’ in the process of vaccine supply. There were still other possible ways through which the company could have supplied the required number of vaccine doses to EU nations thus, Force Majeure could not be used as an excuse.

During the proceedings, the court took into account the uncertain global atmosphere due to the pandemic which could have caused considerable delay in vaccine approval and manufacturing process at Belgium leading to reduction in final output. However, the court also highlighted that the said pandemic cannot be used as Force Majeure to justify the reduction in vaccine doses when the company had other means to increase their supply. In this case, the means meant redirecting vaccine doses produced in UK to EU nations in order to meet the required number of doses as mentioned in the contract.

The court further declared that AstraZeneca was in fact in breach of its contract with the European Commission as, despite stating that the company will take best reasonable effort to fulfil its contractual obligations, it failed to do so. This effort clearly included the use of the company’s UK based plant which could have helped to manufacture and supply the remainder of doses to be supplied to EU nations to meet the required number. The court therefore arrived at an interim decision and ordered AstraZeneca to supply 15 million doses by July 2021, 20 million doses by August 2021 and a final 15 million doses by September 2021.

Another hearing was scheduled in September 2021 to determine whether the company has complied with the court’s order. However, it was realised by both the parties that further legal proceedings would only prolong the dispute which would ultimately jeopardize public health during the pandemic. Therefore, the European Commission and AstraZeneca engaged in an out of court settlement through Negotiation before the hearing. This paved way for methods of Aleternate Dispute Resolution to resolve contract dispute in VSC Contracts.

NEGOTIATION AS THE FINAL SETTLEMENT

The latter half of 2021 was dominated with world-wide panic over a new variant of SARS-CoV-2 known as the Delta Variant. At this juncture, further delay in vaccination would have costed more lives and the European Commission, being the apex governing body for the EU nations would have been responsible for it. The court proceedings in Belgium had already delayed the vaccination process in EU nations and there was a possibility further hearing would have reduced the supply of vaccines, ultimately jeopardizing public healthcare.

Keeping the above factors in mind, the European Commission and AstraZeneca engaged in Negotiation procedures in order withdraw the case from the Belgian Court and arrive at a settlement. In early September 2021, both the parties agreed to end the legal proceedings and arrived at a settlement through common consensus. Under their new settlement agreement, AstraZeneca agreed to deliver 60 million doses of the vaccine by the end of the third quarter 2021, 75 million by the end of the fourth quarter 2021 and 65 million by the end of the first quarter 2022.¹⁴ This paved way for rapid production and supply of Vaxzevria vaccine in the EU nations.

Why Negotiation?

It is pertinent to note that the mode of dispute resolution chosen by both the parties was that of Negotiation. While most methods of ADR involve a third party to decide or provide a solution to disputes, Negotiation only involves the parties to the dispute, who deliberate over the dispute and arrive at a final settlement, without involving a third neutral person. Through negotiation, the contracting parties engage in one-to-one discussion and try to resolve their disputes. This becomes extremely crucial from the legal point of view as, the parties to the contract are the ones who are well versed with the contractual terms and conditions which eliminates the possibility of ambiguity or misleading during negotiation. Further, any other mode of ADR requires involvement of a third person who should be legally qualified or should be appointed by the court of law to resolve dispute. This process is rather time consuming and involves various legal formalities to be fulfilled even before the beginning of the dispute resolution proceedings.

Both AstraZeneca and the European Commission arrived at their final settlement through negotiation proceedings and one-to-one discussions over the cause of dispute and future recourse for increasing vaccine supply. Not only was this a time saving decision but also a cost-efficient procedure and engaging in such a dispute resolution procedure was the need of the hour for both the parties. It is a well-known fact that the Covid-19 pandemic was not just a global health catastrophe but also a global financial crisis. The Commission was answerable to the EU nations for the allocation and utilization of funds for medical equipment and vaccines and at the same time, AstraZeneca was on the verge of losing its contract with EU for vaccine supply at the time when the global market was doomed with financial uncertainty. The involvement of millions of dollars in the said dispute further prompted both the parties to engage in negotiation proceedings that saved them from loosing the millions they had invested and were going to gain in the future. It also saved them from spending any additional amount in future court proceedings, which could have taken decades to resolve.

INDIAN SCENARIO: VACCINE DIPLOMACY AND CONTRACTUAL OBLIGATIONS

The Vaccine Maitri initiative launched by the Government of India during the pandemic had brought India under the global spotlight. The initiative aimed at exporting the Covishield vaccine to its neighbouring countries along with South Asian and African countries. The said vaccine was manufactured by Serum Institute of India, hereinafter SII, who were licensed by AstraZeneca and Novavax, and was supplied globally in partnership with Global Alliance for Vaccines and Immunization, hereinafter Gavi, and aimed to deliver over 100 million vaccines to 64 lower-income economies. Till February 2021, SII had supplied about 28 million vaccine doses and was expected to supply 40 million doses by March. The Vaccine Maitri initiative is considered to be a great diplomatic move by India as it established India in the global medical field. However, with its growing popularity, the initiative also attracted legal repercussions.

With the outbreak of the Delta variant in 2021, the number of cases and deaths due to Covid-19 in India reached an all-time high. This called for speeding up the vaccination process in India and prioritize domestic demands. Therefore, the Government of India imposed temporary restrictions on the export of vaccines in order to combat vaccine shortage faced in various states. The restriction led to a delay in delivery of vaccine doses to the beneficiary nations and was met with a cold shoulder by both Gavi and AstraZeneca.

In their argument, Gavi stated that it had provided an at-risk funding of $300 million which meant that their relation was not just a partnership but a legally binding contract and the foundation asserted that in its supply agreement, SII had pledged to balance supply in India, while prioritising equitable distribution of vaccines to other countries.¹⁵ AstraZeneca too had also served legal notice to SII for not fulfilling their contractual obligation as their licensed manufacturer and supplier. These retaliations raised further questions as to whether SII was obligated to fulfil its contractual promise when state-imposed restrictions prevented it from doing so? Whether the Act of State could be a ground to establish impossibility of performance of contract?

Act of State v/s Force Majeure: Role of Negotiation and Creation of Vaccine Credit

It is a well-established fact that an Act of State cannot be superseded by any citizen. In the case of SII, it had to be determined whether it was Force Majeure or Act of State which was rendering it impossible for the company to export vaccines. While the sudden surge in the number of Covid-19 and and deaths could be attributed to Force Majeure, it was the governmental ban placed on exports that was causing delay in vaccine delivery. The company could not go against the government and continue its exports and at the same time it faced global backlash and a threat of future legal consequences for breach of contract. The restriction placed on the export was an Act of State which could not have been questioned by SII, Gavi or any court of law without a strong defence. In this context, the distinction between ‘hardship’ and ‘impossibility’ was discussed again. The Act of State is not a hardship but rather a legally binding order which every citizen must follow. Going against such orders would have categorized SII’s actions as illegal. Thus, in this regard, the temporary ban on exports of vaccines had made it impossible for SII to meet its delivery commitments. The company therefore relied on the defence of Act of State to defend itself for not performing its contractual obligations.

Suing SII for the amount paid would not have been beneficial for Gavi as the complications created due to these parameters would have projected the foundation to be anti-Indian, which would have created diplomatic hurdles between India and Western countries. Moreover, Gavi had also realized that they themselves had been at fault for being solely dependent on SII in their mission of vaccine supply in Southeast Asia and other lower-income countries, especially when they had an alternative of involving the European Commission and UK in their mission. If Gavi would have initiated legal proceedings against SII or Novavax, the court would have pointed out the predictability of supply related problems due to Gavi’s overdependence on India for such large-scale vaccine supplies. Since they had also received similar criticisms from the general public and media outlets around the world, Gavi refrained from initiating any legal action against Serum Institute.

The dispute was therefore resolved through multi-layered negotiation which resulted in creation of a ‘Vaccine Credit’. The settlement to this dispute was reached in February 2024 wherein, Novavax made an initial payment of $75 million to Gavi for future vaccine supplies and agreed to offset Novavax’s annual cash obligation to an $80 million annual ‘vaccine credit’, under which, vaccines worth of $80 million would be used for qualifying sales of any Novavax’s vaccines funded by Gavi which would be supplied to low-income and lower-middle income countries. These included manufacturing and supply of Covid-19 and influenza vaccines which would be supplied across the world till 2028.¹⁶ Here, Serum Institute was responsible for manufacturing and supply of Covid-19 and R21/Matrix-M malaria vaccines. The vaccine credit would be used to compensate for the payment made by Gavi to Novavax and SII under the APA and which was the crux of their dispute in 2021.

Thus, the dispute, stemming from a multi-national partnership that involved several government entities and had put India’s diplomatic ties at stake, was finally settled through a one-to-one negotiation between the parties. The settlement helped in avoiding further legal procedures which would have halted vaccine supply and would have incurred further financial loss for both the parties.

COVID 19: A TURNING POINT FOR VACCINE SUPPLY- CHAIN CONTRACT

The Covid-19 pandemic has proven to be a turning point for every single professional field. In the field of law, it became a turning point in contractual transactions. In the case of M/s Halliburton Offshore Services Inc. vs Vedanta Limited & Anr. (2020),¹⁷ the Indian judiciary recognized the pandemic and the lockdown imposed due to it as unprecedented and unforeseen thus, establishing the fact that the pandemic falls under the purview of Force Majeure. This enabled many companies to use the defence of pandemic to justify non-performance of contractual obligations. The abovementioned cases serve as classic testimony as to how the pandemic increased reliance on ADR mechanisms to resolve disputes arising out of Force Majeure circumstances. The pandemic also redefined Force Majeure clause by including terms like ‘pandemic’, ‘epidemic’, ‘quarantine’ and ‘lockdown’ as unforeseeable and unprecedented circumstances that might make it impossible to perform the contract.

However, the pandemic also redefined the outlook of VSC Contracts. Although, the pandemic was considered to be Force Majeure, it was established that contracts dealing with Vaccine supply must be able to differentiate between hardship and impossibility. Since vaccines became the products that determined life and death of millions around the world, any excuse made for non-supply or delay in supply needed to be strongly defended by pharmaceutical companies. By analysing the abovementioned disputes, it can be established that pharmaceutical companies cannot defend their delay and non-delivery of vaccines solely on the basis of Force Majeure or Best Reasonable Efforts especially during global health crisis. If there are alternate modes to improve efficiency of vaccine production and supply, then non-utilization of such alternatives would still amount for breach of contract.

Post-pandemic it has been realized that contracts between vaccine developers and governments should not only address the volume of doses but also keep in mind that there is an equitable distribution of vaccines without jeopardizing needs of any contracting party.¹⁸ Moreover, it was also understood that contractual dispute was inevitable even during a global medical emergency and merely mentioning dispute resolution clause for the sake of administrative requirements would prove to be risky in the future.

In current times, VSC contracts and administration of such contracts have applied several changes to ensure smoother manufacturing and procurement process. Pharmaceutical companies are now cautious of not being over dependent on a single manufacturing unit for production and supply of vaccines and therefore, multiple units are being involved in procurement contracts to create back-up units in case of shortage of supply. Moreover, pharmaceutical companies were made to realize that during pandemic, they must not incline towards earning monetary profit through vaccine production but in fact should strive towards collaborative efforts to combat life-threatening diseases. It was established that whether during pandemics or even in normal circumstances, pharmaceutical companies should inculcate a welfare-oriented approach rather than a commercial approach and should ensure that their commercial disputes do not jeopardize public health care.

Keeping the same in mind, many pharmaceutical companies have relied on ADR mechanisms to resolve their contractual disputes related to vaccine supply in present times. The idea behind this decision lies in the mindset that “anything can happen”, which is rooted to the uncertainty created during the pandemic. Pharmaceutical companies have realized that a global healthcare crisis is still a possibility in the 21^st century and the coming years require better contractual and legal administration in order to ensure rapid production and supply of medical products to combat deadly diseases.

USE OF ADR IN PHARMACEUTICAL CONTRACTS BEFORE COVID-19

The Covid-19 pandemic was a global healthcare crisis that had affected almost all countries around the world. This led to pharmaceutical companies and vaccine manufacturers garnering significant attention on an international level related to disputes over their procurement agreements.

However, the pre-pandemic era too had observed several disputes related to supply chain contracts of pharmaceutical companies. These disputes occurred during outbreaks of epidemics in specific regions or specific countries. These disputes were especially prevalent in early 2000s when countries were experiencing outbreaks of region-specific diseases which increased the demand for medicines. These disputes again observed the use of Negotiation as a legal tool for dispute resolution between pharmaceutical companies and beneficiary countries. Given below are a few relevant cases:

•  Hazel Tau & others v. GSK & others, 2002¹⁹: The case is related to HIV/AIDS Crisis in South Africa. The country had witnessed a surge in cases related to HIV/AIDS in 2001. The Respondent companies GlaxoSmithKline and Boehringer Ingelheim were accused of abusing their dominant position as the only suppliers of antiretroviral (ARV)medications due to their overpriced medicines. During the pendency of the case, both the companies arrived at separate settlement agreements with the South African Competition Commission agreeing to various terms including grant of licenses to generic manufacturers; and limiting their royalties to 5% of the net sales.

•  Gilead v. Roche (Tamiflu Dispute)²⁰: The dispute between the two pharmaceutical giants revolved around the drug Tamiflu(R), which was the only drug that could prevent and cure Influenza A and B, including H5N1 virus (Bird Flu). Gilead had invented Tamiflu and partnered with Roche for marketing the same. The dispute arose in early 2000 when the Petitioner accused the Respondent company for not marketing the drug effectively and the matter was scheduled for arbitration. In 2005, both the companies declared that they have arrived at a settlement through negotiation and decided to withdraw the case from arbitration proceedings. The companies arrived at an agreement to establish joint committees to oversee manufacturing, commercial and planning for the product in case of pandemic.²¹

CONCLUSION

Right to health is part of Right to life and every living organism is entitled to it. Access to medicines and vaccines forms a part of this right. In this regard, government authorities and pharmaceutical companies become the facilitators of this right and in order to ensure this access, these establishments must work collectively to smoothen production and supply of medical products and resolve any contractual disputes at a rapid pace.

However, in retrospection, one must ponder upon whether such disputes can be foreseen and resolved at the initial stages of contract. The answer is yes. It can be understood through the example of the European Commission and AstraZeneca dispute. The APA entered by the party involved court proceedings for dispute resolution. The APA was entered at a time when the pandemic had created global uncertainty and thus, it was obvious that dispute resolution in court of law would have prolonged the production and supply of vaccines. Instead of recommending courts, if the parties would have agreed on ADR mechanisms, the supply and procurement dispute could have been resolved faster, without garnering public attention. In case of the Vaccine Maitri dispute, the over-dependency on a single company to supply vaccine doses across several countries was unreasonable, especially during a global pandemic where supply chain across global market was doomed with uncertainty. In both these cases, the parties to the contract underestimated the possibility of occurrence of a dispute, which ultimately backfired.

It is therefore essential that contracts dealing with supply of vaccines and pharmaceutical products explicitly mention modes of Alternate Dispute Resolution for resolving contractual disputes. In this regard UNICEF’s ‘Memorandum of Understanding (MOU) for the Provision of Procurement Services’²² serves as the perfect example. The MOU states that in case of any dispute, the parties must first resolve to conciliation and amicable settlement of dispute and further refer their dispute to arbitration if no settlement is arrived. The MOU also specifies that only on failure to arrive at a settlement using these modes can the parties approach higher tribunals and court of law to resolve their disputes. Moreover, it provides for a limitation of 72 hours for the promises to report any mismanagement that is subject to dispute. Thus, the MOU emphasizes on using non-litigation methods for dispute resolution in order to ensure smooth functioning of supply chain transactions and its features can be adopted in VSC contracts around the world.

The need of the hour is the enforcement of an international legislation that makes it compulsory for pharmaceutical companies and government establishments to engage in non-litigation and fast-paced procedures, particularly one-to-one negotiations, and use of Alternate Dispute Resolution mechanisms, to resolve their disputes related to manufacturing, supply and procurement of Vaccines and other medical products. This will be beneficial in the coming years where there is a possibility of re-occurrence of global healthcare crisis, which might require rapid production and supply of vaccines around the world. In such circumstances, when public health care is at stake, pharmaceutical companies and governments around the world can only provide rapid and equitable healthcare facilities only when their manufacturing and supply systems function smoothly. This is only possible when there is a transparent contractual dealing between the parties and explicit provisions are mentioned for use of ADR for dispute resolution in order to accelerate resolution of contractual disputes. This would ensure efficient production and supply of medical equipment which will ultimately ensure that, every citizen around the world gets access to equitable healthcare facilities.

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Footnotes

1. Anupindi, R. & Y. Bassok., Supply Chain Contracts with Quantity Commitments and Stochastic Demand, Quantitative Models for Supply Chain Management, 1 Springer, 7-10 (1999).

2. Yingxue Zhao et al., Contract Analysis and Design for Supply Chains with Stochastic Demand, 234 International Series in Operations Research & Management Science 1 (2016).

3. Sung-Pil Park et al., Designing the global vaccine supply chain: balancing intellectual property rights with post COVID-19 vaccine equity, 8, 1-7 BMJ, (November 30, 2023)

4. Evelot Duijzer et al., Literature Review – The Vaccine Supply Chain, EI 10 (2017)

5. Ian Thornton et al., “No Regrets” Purchasing in a pandemic: making the most of advance purchase agreements, BMC, 1-14 (2022)

6. World Bank PPPIRC, Force Majeure Clauses Checklist and Sample Wording (Issued on April 2008).

7. UNIDROIT Principles of International Commercial Contracts, 2016, art. 7.1.7(1)

8. Covid vaccine: Why did EU take AstraZeneca to court?, BBC (June.19 2021), https://www.bbc.com/news/56483766

9. Rob Davis, Why the EU and AstraZeneca are stuck in a Covid vaccines row, THE GUARDIAN (Jan 27, 2021, 15:09 PM), https://www.theguardian.com/business/2021/jan/27/eu-covid-vaccines-row-astrazeneca-boss-reveals-problems

10. D. M. Herszenhorn & J. Deutsch, Redacted contract fails to clear up EU-AstraZeneca vaccine row, POLITICO (January 29, 2021 5:12 pm), https://www.politico.eu/article/eu-astrazeneca-coronavirus-vaccine-contract-dispute/

11. Pietro Manzini, Misunderstanding the European Commission’s dispute with AstraZeneca, EUROPEAN LAW BLOGS (April 08, 2021) https://www.europeanlawblog.eu/pub/misunderstanding-the-european-commissions-dispute-with-astrazeneca/release/1

12. European Commission-AstraZeneca Advance Purchase Agreement, Advance Purchase Agreement (“APA”) for the Production, Purchase and Supply of a Covid-19 Vaccine in the European Union.

13. Marton Eorsi et al., Best Reasonable Efforts to end a global pandemic, A&O SHEARMAN (February 28, 2021) https://www.aoshearman.com/en/insights/ao-shearman-on-contract-law/best-reasonable-efforts-to-end-a-global-pandemic

14. Adrian Kemp, AstraZeneca and European Commission reach settlement agreement over vaccine supply, ending litigation, AstraZeneca (September 3, 2021, 09:00 am) https://www.astrazeneca.com/media-centre/press-releases/2021/astrazeneca-and-european-commission-reach-settlement-agreement-over-vaccine-supply-ending-litigation.html#!

15. Amid India Surge, Gavi Asserts Serum Institute’s Obligation to Supply Vaccines, THE WIRE (September 4, 2021) https://science.thewire.in/external-affairs/world/amidst-india-surge-serum-institute-legally-bound-to-supply-vaccines-to-covax/#:~:text=Gavi%20told%20Reuters%20that%20its,Gavi%20told%20the%20news%20agency.

16. Novavax, Inc., Novavax and Gavi Reach Settlement on 2021 COVID-19 Vaccine Advance Purchase Agreement. (February 22, 2024) https://ir.novavax.com/press-releases/2024-02-22-Novavax-and-Gavi-Reach-Settlement-on-2021-COVID-19-Vaccine-Advance-PurchaseAgreement.

17. Halliburton Offshore Servs. Inc. v. Vedanta Ltd., O.M.P. (I) (COMM.) & I.A. 3697/2020 (Del. HC May 29, 2020) (India)

18. B. Praštaloand & Pin Lean Lau, Procurement of COVID-19 vaccines: Exploration from the negotiation and contracting perspective, 7 JSCN, 27-32 (June 2023)

19. Hazel Tau & others v. GlaxoSmithKline, Boehringer Ingelheim & others, 2002, South African Competition Commission, Competition Commission Case No. 2002Sep226

20. Gilead Sciences, Inc., Gilead and Roche End Tamiflu(R) Dispute; Expanded Collaboration Includes Gilead Role in Oversight of Manufacturing and Commercialization, https://www.gilead.com/news/news-details/2005/gilead-and-roche-end-tamiflur-dispute-expanded-collaboration-includes-gilead-role-in-oversight-of-manufacturing-and-commercialization

21. Gilead Sciences, Inc., Gilead and Roche End Tamiflu(R) Dispute; Expanded Collaboration Includes Gilead Role in Oversight of Manufacturing and Commercialization, https://www.gilead.com/news/news-details/2005/gilead-and-roche-end-tamiflur-dispute-expanded-collaboration-includes-gilead-role-in-oversight-of-manufacturing-and-commercialization

22. Memorandum of Understanding for the Provision of Procurement Services, Between UNICEF, The United Nations Children’s Fund and Name of The Government/Governmental Agency, UNICEF https://www.unicef.org/supply/media/1061/file/MOU-memorandum-understanding-governments.pdf