Test used by court to decide Fyffes case challenged

The High Court applied the wrong legal test when deciding that DCC chief executive Jim Flavin did not have price-sensitive information about Fyffes in February 2000, the Supreme Court was told yesterday.

DCC sold its stake in Fyffes for €106 million in early February 2000 and Ms Justice Mary Laffoy had applied a test involving how a "reasonable investor" would have reacted if given the information available to Mr Flavin. No such test was provided for in the relevant provisions of the Companies Act and there was no definition of what a reasonable investor was, Brian Murray SC, for Fyffes, argued.

He also submitted that the High Court had made "a fundamental error" in deciding not to consider the impact of a March 20th, 2000, profit warning from Fyffes when considering whether the information available to Mr Flavin at the time of the share sales was price sensitive (likely to have a material effect on the share price of known to the market).

The information in the profit warning - which led to a sharp drop in the Fyffes share price - was of "critical relevance" because it "gave the lie" to the claim by DCC that Fyffes' internet portal, Worldoffruit. com, dominated the Fyffes share price in February 2000 and negative news relating to Fyffes' core business would have had diminished importance.

The information in the profit warning bore an "overwhelming similarity" to that available to Mr Flavin at the time of the sale and market conditions were also similar in early February and on March 20th, 2000, Mr Murray argued. The profit warning should have been considered in assessing the price sensitivity of the information in Mr Flavin's possession, he said.

Mr Murray, with Paul Sreenan SC, for Fyffes, was beginning his reply to submissions by DCC in the continuing hearing of the appeal by Fyffes against the High Court's dismissal of its claim for some €85 million compensation over alleged insider dealing by Mr Flavin and DCC in connection with the sale of the DCC stake on three dates in February 2000.

The appeal is expected to conclude today before the five-judge court, which is expected to reserve judgment.

In her December 2005 judgment rejecting the Fyffes claim after a marathon 87-day action, Ms Justice Laffoy found Mr Flavin did "deal" in the Fyffes shares and "effectively controlled the whole process" but did not do so unlawfully.

She found there was "a fundamental incongruity" between Fyffes's own conduct in early 2000 and its claim that Mr Flavin had price-sensitive information which would have materially affected the Fyffes share price had it been made available to the stock market.

That information consisted of Fyffes trading reports for November and December 1999 indicating negative trading performance in the first quarter of the financial year 2000.

Earlier yesterday, Michael Cush SC, with Michael Ashe SC, for DCC, said that in considering the High Court's finding of "fundamental incongruity", a preliminary announcement by Fyffes to the stock market on December 14th, 1999, was of critical importance.

That statement went through five drafts and stated that Fyffes expected 2000 to be a year of "further growth", he said. This had to be seen, he added, in the context of Fyffes having a responsibility under stock market regulations to issue a trading statement if they had concerns.

This statement by the company itself was based on the same information available to Mr Flavin, then a non-executive director of Fyffes, at the time of the share sales, Mr Cush said. It supported DCC's claim that the information was not price sensitive, and that Fyffes never considered at the time that it was, he said.

Mr Flavin, he added, had gone through a compliance procedure prior to the share sales but such a procedure was mandatory and involved him asking himself the question whether the information he had was price sensitive, counsel added.

The fact Mr Flavin asked that question did not give rise to an implication that he suspected he had price-sensitive information, counsel said.

The trial judge was also correct not to consider the March 20th profit warning in deciding whether Mr Flavin had price-sensitive information, Mr Cush said. The information in the March 20th statement was different and conditions in the stock market were also different and the judge would not have been comparing "like with like".