Echosense Jersey Ltd v Mr Eric Lawrence Schleelein
| Jurisdiction | England & Wales |
| Judge | David Elvin |
| Judgment Date | 01 November 2023 |
| Neutral Citation | [2023] EWHC 2700 (Comm) |
| Court | King's Bench Division (Commercial Court) |
| Docket Number | Case No: LM-2022-000145 |
[2023] EWHC 2700 (Comm)
David Elvin KC
(sitting as a Deputy Judge of the High Court)
Case No: LM-2022-000145
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
LONDON CIRCUIT COMMERCIAL COURT (KBD)
Rolls Building
Fetter Lane
London, EC4A 1NL
Marcos Dracos KC (instructed by Cooke, Young & Keidan LLP) for the Applicants/Defendants
Simon Colton KC (instructed by W Legal Limited) for the Respondent/Claimant
Hearing dates: 15 June 2023
Approved Judgment
This judgment was handed down by the judge remotely by circulation to the parties' representatives by email and release to The National Archives. The date and time for hand-down is deemed to be Wednesday 01 November 2023 at 14:00.
David Elvin KC (Sitting as a Deputy Judge of the High Court):
In these proceedings, the Respondent Claimant, Echosense Jersey Limited (“ Echosense”) seeks 4 declarations in connection with certain investment agreements concluded between the Applicant Defendants as investors (“ the Applicants”) and Echosense. There are 5 agreements entered into by Echosense with one or more of the Applicants between 2016 and 2021 (“ the Investment Agreements”) and which are particularised at paras. 11–16 of the Particulars of Claim (“ PoC”). For present purposes, nothing turns on the precise terms of those agreements other than the jurisdiction clause.
Each of the Investment Agreements contains a governing law and jurisdiction clause, providing for the application of English law and for the jurisdiction of the English court, to which jurisdiction each party irrevocably submitted (“ the Jurisdiction Clause”):
“(a) This Loan Agreement shall be governed by and construed and enforced in accordance with the laws of the [sic] England and Wales, without regard to principles of conflict of laws.
(b) The jurisdiction and venue in any action brought by any party hereto pursuant to this Loan Agreement shall properly lie in any applicable court located in the [sic] London, England. By execution and delivery of this Loan Agreement, each party hereto irrevocably submits to the jurisdiction of such courts for himself or itself and in respect of his or its property with respect to such action. The parties irrevocably agree that venue would be proper in such court, and hereby waive any objection that such court is an improper or inconvenient forum for the resolution of such action. The parties further agree that the mailing by certified or registered mail, return receipt requested, of any process required by any such court shall constitute valid and lawful service of process against them, without necessity for service by any other means provided by statute or rule of court.
(c) WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY KNOWINGLY, VOLUNTARILY, INTENTIONALLY, UNCONDITIONALLY AND IRREVOCABLY WAIVES ANY RIGHTS IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS LOAN AGREEMENT, ANY OF THE OTHER AGREEMENTS OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF THE INVESTORS.”
The context in which these declarations sought is the failure of investments in medical products and R & D and proceedings brought by the Applicants in Israel against Defendants 6–9. The vehicle for the investment was Echosense.
Echosense is registered in Jersey with corporate service directors, but no employees and its controlling shareholders are Defendants 6 – 9. Its purpose appears to be to hold investments and intellectual property rights (“ the Intellectual Property”) in medical products through research, development, and commercialisation of medical products (“ the Business”) are conducted through an Israeli subsidiary, Echosense Limited (“ Echosense Israel”). Echosense Israel is incorporated in and operates from Israel.
The Applicants are resident in the USA and Japan and, it is said, invested in the Business under the Investment Agreements with Echosense following discussions with Defendants 6 and 7, and principally relying on D 6, who is well-known in the field of medical research and development (“R&D”) and was known personally to D 5. Defendants 1, 3 and 5 invested after meeting D 6 in Israel. Defendants 2 and 4 invested after introductions by Defendants 1 and 5. The Applicants have no material connections with this jurisdiction and nor do the events which led to the Investment Agreements.
The Business was not a success and despite proposals to restructure, which came to nothing, there was a resolution in August 2021 to wind up Echosense. This has not yet occurred and while Echosense may not be insolvent, it does not appear to be worth anything. The Applicants allege that they invested in the Business in reliance on the Defendants 6–9's reputation and, when the business failed to progress, consider that they had deliberately misstated aspects of the business including the stage of development of certain medical products.
Pre-action correspondence in Israel was issued against Defendants 6–9 and not against Echosense nor was it suggested that any claim would be brought against Echosense. The letter before action dated 28.4.22 sent by Goldfarb Seligman in Israel (“ the GS letter”) was addressed to Defendants 6–9 only, began (after setting out certain formal matters):
“As set forth in the non-exhaustive list below, by purposely distorting information and misrepresenting facts in order to induce investment by the Investors in the Company to fund the operations of its wholly owned Israeli subsidiary Echosense Ltd. (“ESL”), Yoram Palti, MD, Ph.D. as Co-Founder, Chairman and CEO of the Company, Lennart Perlhagen as Co-Founder and Chairman of the Company, Richard Perlhagen as Director of the Company and Alon Palti as Director and CFO of the Company, have personally breached their fiduciary duties to the Investors and have personally deceived them. To this day, the Investors have not received any explanation as to how the Company consumed USD 10M in five years with nothing to show for its efforts, despite having a product that Yoram Palti described to the Investors prior to their investment in the Company as a technological breakthrough already in promising clinical trials in the U.S.”
It ended:
“In view of the multiple misrepresentations and acts of civil fraud perpetrated by the Paltis and the Perlhagens, the Investors hold them personally liable for their losses and demand receipt of the following within 14 days of your receipt of this letter by e-mail: (a) full refund of their investments in the Company plus that amount multiplied by the increase in the S&P 500 from the date of each tranche of their investments in the Company until actual payment and (b) payment of their legal fees.”
Although Mr Michael Olley in his witness statement on behalf of Echosense points out that at various points in the GS letter Defendants 6–9 are described as being officers of Echosense (as can be seen from the passages I have quoted) rather than suggesting individual liability, it seems reasonably clear that the liability that is being claimed is personal liability, not liability acting in their capacity as representatives of Echosense.
That conclusion is fortified by the proceedings subsequently issued in the District Court in Tel-Aviv on 23 April 2023 and notified to Echosense by letter dated 15 May 2023 which seek remedies against Defendants 6 and 7 only (the Paltis). Mr Colton KC, for Echosense, objects to Mr Dracos' late submissions (not reflected in any amendment to the notice of application) regarding to conflict with the Israeli proceedings which postdate the proceedings in this Court and points to the omission of Defendants 8 and 9 and the issue of whether these have been drafted to avoid jurisdiction since those Defendants are resident in England. However, for reasons given below, I do not consider it necessary to consider this as part of the submissions relating to paras. 26(1) and (3) of the PoC.
The scope of the remedies can be seen from Section B in the filed Complaint (“The Defendants' Personal Liability”), which includes allegations of tortious misstatements involving negligence and fraud, and the prayers for relief in Sections A and B which state:
“6. The Court is asked to order the Defendants, jointly and severally, to compensate the Plaintiffs by paying each of the Plaintiffs a sum equal to the amount that same Plaintiff invested in the Echosense Business, plus interest, as well as to impose on the Defendants the Plaintiffs' reasonable costs for the filing of this lawsuit, plus VAT, plus interest and linkage differentials.”
“137. Due to the Defendants' negligent misstatements and fraudulent actions against the Plaintiffs over the course of the years, starting in 2015 and until the date of the resolution to liquidate Echosense Israel and shut down the Echosense Business, and the resulting eradication in full of the value of their investments in the Echosense Business, all as set forth in this complaint, the Court is asked to order the Defendants, jointly and severally, to compensate the Plaintiffs by paying each of the Plaintiffs an amount equal to the amount that same Plaintiff invested in the Echosense Business plus statutory interest accrued from the date of investment until April 18, 2023”
However, Mr Olley also contends at para. 12 of his witness statement that the target is clearly the investment in Echosense, though the GS letter is said to have “chosen deliberately to exclude Echosense” (which would be...
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