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Tuesday, 13 September 2011

Right of first refusal

There are many reasons why a contract might contain a right of first refusal. In a case a couple of months ago,
Astrazeneca UK Ltd v Albemarle International Corp & Anor [2011] EWHC 1574 (Comm) (21 June 2011) the Commercial Court considered such a provision in an agreement for the supply of a chemical used in the manufacture of the active ingredient of an anaesthetic. It provided that if Astrazeneca stopped distilling the active ingredient Albemarle would have "the first opportunity and right of first refusal to supply [the active ingredient] to [AstraZeneca] under mutually acceptable terms and conditions". Was that a (very weak) agreement to agree, or something stronger? No, said the court, Albemarle had the right to be allowed to match any third party offer, notwithstanding that with detailed terms to be agreed this was itself a little vague. The information about the third party offer has to be given to the party with the right of first refusal before the offer is accepted, which could be a practical difficulty. If you are in a situation where such a contractual right needs to be given, make sure it is clear in the contract - and that you understand clearly what it is that you have to do.

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