Mr. Serg Bell (formerly known as Serguei Beloussov) v Ms. Ratna Singh
| Jurisdiction | England & Wales |
| Judge | Nigel Cooper,Mr. Nigel Cooper |
| Judgment Date | 21 December 2022 |
| Neutral Citation | [2022] EWHC 3272 (Comm) |
| Docket Number | Case No: LM-2021-000192 |
| Court | Queen's Bench Division (Commercial Court) |
[2022] EWHC 3272 (Comm)
Mr. Nigel Cooper K.C.
sitting as a Judge of the High Court
Case No: LM-2021-000192
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
KING'S BENCH DIVISION
LONDON CIRCUIT COMMERCIAL COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr. Jason Robinson and Ms. Julia Gibbon (instructed by Quinn Emanuel) for the Claimants
Mr. David Drake and Mr. Mark Wraith (instructed by Aavagard) for the Defendants
Hearing dates: 18, 20, 21, 22, 25 and 26 July 2022
Approved Judgment
I direct that no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Nigel Cooper KC SITTING AS A JUDGE OF THE HIGH COURT
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 21 December 2022 at 10:30am.
Mr. Nigel Cooper K.C. sitting as a Judge of the High Court:
Introduction
At the time of the events with which this action is concerned and when this action was commenced, the First Claimant was named Sergei Beloussov. However, he has since changed his name by deed poll and is now known as Serg Bell. An Amended Claim Form was issued on 15 July 2022 amending the name of the First Claimant to Serg Bell. I shall refer to the First Claimant hereafter as Mr. Bell notwithstanding that at the time of the events with which I am concerned, he appears in correspondence and other documentation as Sergei Beloussov.
In this action, the Claimants seek to recover damages for alleged breach of warranties and fraudulent misrepresentation in respect of the Claimants' investments (totalling US$2.5 million) in a start-up company, Integrated Health Partners Limited (“IHPL”). IHPL sells a fitness bike, “CAR.O.L”. The Claimants were part of a third round of fund-raising by IHPL and were known as the “Round 3” investors. Each Claimant subscribed for shares in IHPL. Mr. Bell was an original party to a subscription agreement dated 31 December 2019 (“the Subscription Agreement”). The Second Claimant (“Mr. Zubarev”) agreed to purchase shares in IHPL pursuant to a Deed of Adherence and Subscription Deed made in around February 2020, the effect of which was that he became bound by and entitled to the rights conferred by the Subscription Agreement. Mr. Bell claims a direct loss of US$650,001.00 and a consequential loss of US$143,975.00. Mr. Zubarev claims a direct loss of US$975,000.00 and a consequential loss of US$215,962.00.
The Defendants are spouses who founded and managed IHPL. The First Defendant, (“Ms. Singh”) developed the original idea for the bike in around 2012 and was the Chief Executive Officer of IHPL prior to the Claimants' investments. Ms. Singh remained the CEO of IHPL until 05 November 2020 when she was summarily dismissed. Dr. Bernath was a non-executive director of IHPL and also a partner in PwC, IHPL's accountants. Dr. Bernath resigned as a director of IHPL on 02 December 2020.
Ms. Singh and Dr Bernath together with Mr. Ulrich Dempfle formed IHPL's executive management and were collectively “the Founders” as defined in the Subscription Agreement.
The Claimants allege misrepresentations, which fall into three broad categories:
i) Misrepresentations made by each of the Defendants in their answers to Founders' Questionnaires supplied on 27 November 2019 (“the Founders' Questionnaires”) before the Claimants' investments.
ii) Misrepresentations made by each of the Defendants during negotiations and due diligence as to whether and on what basis their existing (Round 1 and 2) investors were willing to participate in Round 3.
iii) Misrepresentations made by the Defendants in Schedule 5 to the Subscription Agreement.
The Claimants also say that each Defendant warranted the truth and completeness of the representations made in their Founders' Questionnaire both in the body of the Founders' Questionnaire and in the Subscription Agreement.
The Claimants plead that the Defendants failed to explain in answer to Questions 30 and 31 of the Founders' Questionnaires and in their representations as part of the due diligence process that:
i) By around November 2018, the relationship between (a) the Defendants (as the founders of IHPL) and (b) existing Round 1 and 2 investors (and the Board more specifically) had broken down or was extremely strained;
ii) There was tension or acrimony between the Founders and Existing Investors; and
iii) Existing Investors were unwilling to invest further in IHPL (including by participating in the Round 3 fund-raise) unless:
a) As part of a down round (i.e. at a lower share price than their original investment); or
b) Ms. Singh was replaced as CEO or her role changed materially because Existing Investors lacked confidence in her ability to lead IHPL.
In support of the above pleas, the Claimants allege that the deterioration in the relationship between the founders of IHPL and the existing investors and Board members involved the following matters:
i) Ms. Singh had failed to materialise the sales revenue she had promised the existing investors, such that they had concerns over her ability as a CEO.
ii) Ms. Singh was unable to put aside her own interests and accept help from investors for the betterment of IHPL. Rather she was difficult to work with and harboured an “us versus them” mentality. They say that she was unprofessional and rude to existing investors and her behaviour was often, if not always, histrionic and combative.
iii) The Defendants wanted to run IHPL as a family business and not as a serious and professional organisation.
iv) The Defendants resisted attempts by existing investors to hire professional personnel in the United States to promote the bike in such a way as to be able to break into that country's market. Instead, the Defendants subsequently appointed Rahul Bernath as head of the US sales operation and used IHPL to pay for his accommodation in New York, fund his expenses and fund his per diems (at a rate of $102.50 per day).
v) At a meeting in October or November 2018, at a time when tensions were already strained between the Defendants and the existing investors, one of those investors, Mr. Gal, had a meeting with Dr. Bernath. At that meeting, Mr. Gal explained that there were two options available. IHPL could continue to function as Ms. Singh wanted, in which case the existing investors could not agree to assist IHPL further. Alternatively, if the Defendants wanted to continue to use the resources and connections of the existing investors, then the Defendants needed to employ a professional management team to run the company. Mr. Bernath subsequently informed Mr. Gal that Ms. Singh wanted to run IHPL her own way without the continued help and assistance of the existing investors.
vi) At a board meeting in November 2018, the existing investors made clear that they were unwilling to inject more money into IHPL unless as part of a down round or a professional CEO was hired to run the company or Ms. Singh's role was changed materially. The Claimants say that Ms. Singh was particularly rude during the meeting using foul language in her exchanges with the Board members. They also say that as the existing investors were unwilling to invest further in IHPL and Ms. Singh was unwilling to accept their conditions for further investment, Ms. Singh resolved to find new funding herself which culminated in the Claimants' investments.
vii) Thereafter Ms. Singh attempted to have Mr. Gal and Mr. Kalimtzis removed from the Board.
viii) The position did not improve during 2019. By around 2019, the Board members representing the first round of investors still refused to invest further in IHPL. Ms. Singh accused Mr. Bensoussan, the Chair of the Board, of always berating her and being “always angry” and encouraged him to resign. By around October 2019, Mr. Gal's position remained that he would only invest in IHPL further if Ms. Singh was replaced as CEO or role was changed materially. The rift between the Defendants and Mr. Gal continued until after the date on which the Claimants acquired shares in IHPL.
The Claimants further plead that the Founders' Questionnaires contained additional misrepresentations. They say that the answers to questions 22, 30 and 31 failed to disclose to the Claimants that Ms. Singh and Dr. Bernath had been serially misusing (or had authorised the misuse of) IHPL funds to finance personal expenses and to lavish gifts or gratuities on their friends, which were then misrepresented in IHPL's accounts and records or to the Board. More specifically the Claimants allege:
i) That in September 2018, the Defendants authorised and approved the use of £1,330 of IHPL funds to finance Rahul Bernath's application for UK citizenship recording the sum in IHPL's accounting records as ‘General Expenses’. The Claimants say that Rahul Bernath did not become an employee until 17 September 2018 and that his duties did not require him to hold UK citizenship. They say that the Defendants misrepresented the expenditure as ‘General Expenses’.
ii) That in October 2018, the Defendants used IHPL funds to purchase mobile telephones for her mother and her daughter at a total cost of around £2,600.
iii) That in November 2018, Dr. Bernath authorised expenditure to pay for Rahul Bernath's flights and six bottles of Louis Roederer Cristal.
iv) That in April 2019, Dr. Bernath authorised the use of IHPL funds to reimburse Rahul Bernath for unidentified expenditure.
v) That in May 2019 to November 2020, the Defendants authorised the use of IHPL funds to pay for the rent of one or two apartments...
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