SCENARIO

Pharma Heal Corporation was founded in 1995 by Akosua Sowa and Isabella Suarez, two PhD program classmates at a world-renowned technology institution.  In their graduate program, Akosua and Isabella researched methods for getting HIV-treating drugs manufactured, distributed, and properly administered in developing world nations. They collaborated intensely on these projects. After receiving their PhD degrees, Akosua and Isabella decided to translate that research and their deep personal commitments into a business enterprise.  Akosua and Isabella approached public health officials and prominent business leaders in their home countries of South Africa and Mexico. With their advice and financial support, they founded Pharma Heal Corporation to realize the practical application of their research to saving lives in developing world nations.

The President and Chief Executive Officer (CEO) of Pharma Heal Corporation is Akousa; the Chief Financial Officer (CFO) and Director of Technologies of Pharma Heal Corporation is Isabella. They both hold seats on the board of directors, a board which is comprised of an array of leading figures in international medical technology and public health.

Akosua and Isabella have devised a three-part business plan for Pharma Heal Corporation:

1. Partner with pharmaceutical manufacturers located in the developing world to manufacture lower cost drugs for treating HIV and working toward an HIV vaccine.

2. Establish key distribution channels in each developing world country to make the lower costing HIV treatments available efficiently and economically to those in each country needing treatment.

3. In each developing world country, partner with indigenous healthcare personnel as well as representatives of international, religious, and charitable organizations that support medical personnel.

Akosua and Isabella have retained you as their international business consultant to advise them about the growth of their business to achieve these three ambitious goals. They are aware of the many legal regimes and diversity of legal cultures in countries of the developing world where they aspire to achieve their three-part business plan. They are particularly impressed by your business education and are counting on you to give them excellent business advice and provide troubleshooting.

ASSIGNMENT

The government of Sustainia, a developing world country, approached Pharma Heal Corporation about leasing to the company a concession to run pediatric HIV clinics throughout the cities of Sustainia. Akosua and Isabella signed an agreement with Sustainia’s minister of heath, granting the concession and containing a stabilization covenant by which both parties agreed that the agreement could not be altered except by their mutual concurrence.

Shortly thereafter, Pharma Heal Corporation established a separate subsidiary company, Pharma Heal-Sustainia, to conduct the business of building, hiring for, and managing the pediatric HIV clinics. Pharma Heal-Sustainia accomplished these tasks very quickly and efficiently, establishing an excellent and effective network of clinics. However, a coup d’etat occurred, installing a fundamentalist theocratic government. The theocratic government condemned any effort to treat HIV sufferers, insisting that HIV was a heaven-sent plague upon earthly demons, and the righteous must refuse to intervene. The theocratic government had the military take over Pharma Heal-Sustainia’s clinics. Medical clinics of other countries, primarily countries that are members of the Red Crescent, were allowed to continue to operate—provided that they did not treat HIV-caused conditions. At the same time, the Sustainia court system was “suspended,” leaving no place for Pharma Heal Corporation to apply for reparations or compensation. Before Pharma Heal-Sustainia personnel could vacate the clinic in Sustain City (the country’s capital), students from a local university who supported the theocratic government captured, gutted, and burned the clinic, destroying hundreds of thousands of dollars worth of medical equipment and severely injuring half a dozen Pharma Heal-Sustainia doctors and nurses.

The minister of health has informally stated to Akosua that he is willing to move the government to provide some compensation. However, the minister has agreed to do so only if Akosua pays him a US$500,000 bribe for his intervention with the theocratic government.

Assume that Sustania is a party to an international arbitration treaty that requires the government to arbitrate claims filed against it.

Akosua seeks a memorandum from you to the board of directors that outlines your evaluation of the following issues:

Part 1: Is going to arbitration with the Sustainia government over the seizure of its clinics worthwhile? What are the odds of Pharma Heal Corporation prevailing?

Part 2: Should Pharma Heal Corporation file additional compensation claims with the arbitral tribunal to seek recovery for the equipment losses and the employees’ personal injuries caused by the local university students?

Part 3: Is a better course to obtain some compensation without legal proceedings by paying the minister of health the money he has demanded to act as an emissary to the theocractic government?