The Eilat Magistrate’s Court recently ruled that a business consultant must pay about 750,000 shekels in compensation to a client who opened a laundry business based on his guidance, only for the operation to collapse financially within a few months. Judge Liora Edelstein found that the consultant’s decision to give the project a “green light” despite the client having minimal equity of about 10% amounted to negligent advice warranting compensation.
About seven years ago, a resident of Kibbutz Eilot sought to establish a new laundry business. He hired the consultant's services after seeing his ads on Facebook. In August 2018, the two signed a consulting agreement that included a series of commitments by the consultant, among them conducting a feasibility assessment of the venture, commonly referred to as a “go/no-go” evaluation. As part of the engagement, the client paid the consultant 200,000 shekels directly.
The laundry began operating in January 2019 and closed in May of the same year. In the lawsuit he filed, the business owner alleged planned fraud by the consultant and sought about 2 million shekels in damages, including for excess investments in the business, lost profits and emotional distress.
The consultant, for his part, argued that he acted in accordance with the agreement and properly accompanied the project, claiming that the business failed due to mismanagement by its owner, who shut it down without an apparent reason.
Judge Edelstein rejected that argument, ruling that the consultant bore primary responsibility for the laundry’s collapse. She said he created a negligent — “and more than that” — false representation regarding the costs of establishing the business. She noted that he failed to provide a satisfactory explanation for the use of the 200,000 shekels he received, attempting instead to legitimize the sums retroactively through a generic invoice and an agreement drafted after the fact.
The ruling stated that the core negligence lay in approving the establishment of the laundry when it lacked economic viability from the outset. “Establishing a business whose real setup cost exceeds half a million shekels, when the entrepreneur is able to contribute only about 10% or even less from personal capital and the rest is based on interest-bearing debts or loans, is a dangerous venture that is almost certainly destined to fail,” the judge wrote.
She added that a reasonable consultant should have placed a clear “stop” sign — a “no-go” — at the outset. Had he done so, the plaintiff would not have invested his own capital, taken on burdensome loans or wasted his time in vain.
“Since the defendant failed to do so and presented an imprudent false picture of low costs and business viability, responsibility for the economic collapse rests primarily with him,” Edelstein wrote.
The court ordered the consultant to pay about 640,000 shekels to the failed laundry owner for reimbursement of excess investment, lost time and emotional distress. “The plaintiff is entitled to significant compensation for emerging from this adventure ‘with his hands on his head’ — without a business, without his money and saddled with heavy and oppressive debts,” the judge wrote. In addition, the consultant was ordered to pay 118,000 shekels in court costs and legal fees.
• This article was produced in cooperation with the Israeli legal website PsakDin
• Counsel for the plaintiff: Attorney Eyal Shvoger
• Counsel for the defendants: Attorney Ohad Shani
• Attorney Alon Aviv practices commercial law
• The author did not represent any party in the case
• The article was prepared with the assistance of the PsakDin editorial team
• ynet is a partner of the Paskdin website