Astrazeneca UK Ltd v Albemarle International Corp & Anor

A right of first refusal is construed from the contract and its commercial context. In a supply agreement, it ordinarily requires the grantor to disclose the material terms of a third-party offer which it is minded to accept and to give the holder a genuine opportunity to match it. The obligation arises before the third-party offer is accepted. The grantor must act in good faith and make full and fair disclosure, although detailed terms may remain for negotiation. A separate contractual obligation will be a condition precedent only where the contract so provides by necessary construction. Liability clauses are construed according to their wording; there is no special presumption excluding deliberate or repudiatory breaches. A clause requiring the buyer to purchase remaining stock on termination does not, without more, require the seller to sell it.

The claimant pharmaceutical company supplied Diprivan using active ingredient purchased from the defendants under a long-term supply agreement. Clause H gave the claimant’s supplier the first opportunity and right of first refusal to supply propofol if the claimant switched from manufacturing propofol from DIP to purchasing propofol directly. The claimant selected Sochinaz, disclosed only part of its offer, and later maintained that the defendants had not matched it. The defendants withheld some DIP deliveries and terminated the agreement. The principal issues were the construction and timing of clause H, whether the defendants’ delivery breach relieved the claimant of its obligations, the effect of the termination and stock clauses, and the contractual limitation of damages.

1. Clause H. Where the claimant was minded to accept a third-party propofol offer, clause H required it to disclose the material terms and give the defendants an opportunity to match the offer. If matched, the claimant had to award the business to the defendants. The clause did not merely require an invitation to participate in an ordinary tender process.
2. The right of first refusal carried an obligation of good faith, including full and fair disclosure of the proposed deal. The claimant’s obligation arose when it was minded to accept the third-party offer, and at the latest on 11 October 2007. The claimant was then in breach by accepting the Sochinaz offer without first giving the defendants the opportunity to match it.
3. The defendants matched the Sochinaz offer by their letter of 25 January 2008 and, in any event, at the meeting on 15 February 2008. The alleged distinctions between sole supply and exclusivity, and between three- and five-year terms, did not prevent matching.
4. The defendants were in breach by failing to deliver the full quantity under the 9 November 2007 purchase order. The consignment-stock limit entitled them to invoice excess stock, not to refuse delivery. That breach was not repudiatory. Performance of the delivery obligation was not a condition precedent to the claimant’s obligations under clause H: absent express wording, such a condition arose only if the first obligation had to precede the second or was its direct quid pro quo.
5. The defendants were entitled to terminate under clause K because the claimant’s breach of clause H remained unremedied. The alternative question whether the claimant’s breach was repudiatory therefore did not arise; the judge nevertheless considered that it was not repudiatory because clause H was not central to the long-term DIP supply agreement.
6. Clause D8 required the claimant to purchase remaining stock on termination. It imposed no corresponding obligation on the defendants to sell safety stock.
7. Clause M limited the claimant’s damages for non-delivery to the contractual purchase price of the undelivered DIP. The clause was not subject to a special exclusion for deliberate or repudiatory breach and would also cover damages in lieu of specific performance.
8. The second sentence of clause M did not exclude the defendants’ claim for loss of profits caused by breach of clause H. The issue of quantum was directed to a subsequent trial.