Background: The core issue in the Fyffes/DCC insider dealing case was, of course, whether insider dealing had occurred, and Ms Justice Mary Laffoy has now ruled on that matter.
However the evidence heard in the course of the marathon hearing caused damage to the reputations of both Fyffes and DCC and raised significant questions about the Irish Stock Exchange and its role as regulator of the Irish market.
The massive bust-up between the two plcs was all the more unfortunate given that the relationship between the two stretched back so far. Jim Flavin, founder and managing director of business support services group DCC, was a non-executive director of Fyffes for more than 20 years.
He and his company had helped Fruit Importers Of Ireland to the market and he had been a key adviser to Niall McCann when Mr McCann was transforming Fruit Importers Of Ireland into Fyffes plc, one of the largest fruit distribution companies in the world.
During the course of the trial it became clear that relations between Flavin and McCann's sons, David and Carl, were far from ideal. Flavin was opposed to Niall McCann handing the torch on to his sons when the older man began to bow out of the company. David McCann became managing director of Fyffes, and Carl McCann became executive chairman, despite Flavin's views. Flavin's role on Fyffes's remuneration committee, where he at times raised questions about the amount being paid to the McCanns, did not help relations either.
Also Carl McCann had concerns about Flavin and DCC getting "creeping control" over Fyffes - meaning that by way of an increased shareholding and increased weight on the company's board, DCC could take over Fyffes at a lower cost than would be the case if it bought it in a straightforward way.
Flavin told the trial that his difficult relationship with the McCanns "provides part of the explanation for the timing, manner and mode of prosecution of these proceedings". The McCanns did not agree, saying the motivation was purely commercial.
Flavin and DCC argued that the information given to Flavin in January 2000 did not constitute price-sensitive information, as alleged by Fyffes. The information in question was two sets of management trading accounts. Mr Flavin and DCC argued that the actions of Fyffes at the time showed that it did not then consider the documents to be price-sensitive, and that Fyffes had since changed its view for the purposes of pursuing the court case.
price-sensitive information is information that would be likely to affect a company's share price if it became generally known. A person in possession of price-sensitive information cannot trade.
price-sensitive information is usually information that would indicate that a company's performance is likely to be better, or worse, than is being expected in the market. A plc must inform the market if there is a significant change in its expectations and so, if a company's trading is significantly worse than the market believes it to be, it must consider issuing a profit warning.
Mr Flavin and DCC pointed out that a senior Fyffes executive in the UK was given permission by Fyffes to sell shares in early 2000, and also that share options were issued to persons who had the same information that Flavin had. Furthermore, they pointed out that in December 1999 Fyffes had issued an "outlook statement" for the financial year 2000, predicting further growth. At the time information similar to that contained in the trading statements, was available within Fyffes, the defendants argued.
It was not until March 20th, 2000 that Fyffes issued a statement to the market advising it that it did not believe it would reach its previous year's half-year result. The share price fell 25 per cent.
The share sales at the heart of the case occurred over three dates in early February 2000 and netted €106 million for DCC. On the evening of the first share sale Niall and David McCann treated Flavin to a bottle of champagne and he was later encouraged to sell off the rest of the DCC stake.
Fyffes response to these various issues was to say that giving permission to the UK executive was a mistake. That a company must exercise judgement on timing in relation to issuing profit warnings. That Flavin did not seek clearance for the share sales from Fyffes and that Flavin had to bear responsibility for his actions.
Perhaps the most difficult issue was the outlook statement. At the time it was issued the company had drawn up its budget for the year 2000 and was aware that the early months of the year were going to be difficult. This same picture, though in more hardened form, was contained in the management accounts sent to Flavin in early and late January 2000. By claiming these documents were price-sensitive, Fyffes was saying that if they'd become generally available, the share price would have fallen. So why had the company issued a positive outlook statement in December 1999?
When the question was put to him, David McCann said the outlook statement did not in fact reflect the trading concerns that Fyffes had at the time the statement was issued.
He said the company had been hoping trading would improve in January 2000 and that when this did not occur, he began to hope that the fruits of two law suits would boost Fyffes's figures for the first half of 2000. When it became clear that this was not going to happen, the company made its profit warning, he said.
The issue as to whether the information available to Mr Flavin in February 2000 was price-sensitive or not, was complicated by the fact that at the time there was strong interest in Fyffes shares because of its worldoffruit.com (wof) project. This was at the height of the dot.com boom and, it was argued, such was the excitement that investors were more interested in the wof project than in fruit trading figures.
Also, the defendants argued, the market knew in a general way that banana prices were poor and that companies such as Chiquita and Dole were suffering. In other words, the undoubtedly poor trading information in the management accounts, would have come as no surprise. Fyffes in response said that this was not so, that people were expecting good results from Fyffes given the good results it had achieved for 1999, and that solid figures were very different to general understandings.
The defendants also argued that, even if the information that was available to Mr Flavin was price-sensitive, this did not matter as the trading in the Fyffes shares was done independently by a Dutch-resident DCC subsidiary, Lotus Green.
Much evidence was heard about Lotus Green, a company established as part of a tax structure devised by DCC to save it having to pay capital gains tax on the Fyffes shareholding, once it was sold. In order for the scheme to work, Lotus Green had to be independent and had to be located and managed in Holland. It had a number of directors, only one of whom - Fergal O'Dwyer, finance director with DCC - was not Dutch. However the Dutch directors could not make a decision without the consent of the Irish director.
Tapes of conversations between Flavin and Davy stockbroker Ronan Godfrey, on the day of the first sale, were played to the court. After a number of discussions about a possible sale, Mr Flavin said he had no authority in the matter. A call then came through from a Dutch director who confirmed the sale without discussing any details. Mr Flavin said he did not deal but acted as a conduit for Lotus Green.
Davy Stockbrokers was, and is, stockbroker to both Fyffes and DCC. Goodbody stockbrokers was also involved in the DCC trades.
Fyffes argued that Lotus Green was in fact controlled from DCC HQ in Dublin, a charge that DCC and Mr Flavin rejected.
Fyffes's profit warning in March 2000 led to questions about the earlier DCC share sales and a resultant stock exchange investigation. When Davy learned that the Stock Exchange was investigating the DCCtrades, its compliance officer, Pamela Downey, had a copy made of the Flavin conversations from the firm's master tape of traders' conversations with clients. She kept this copy tape in her office but, when she was out of the office for a number of days, the deputy chairman of Davy, Kyran McLaughlin, had a copy made and faxed transcripts of the taped conversations to Mr Flavin. At the time, December 2001, the Exchange and the Director of Public Prosecutions (DPP), were conducting inquiries into the trades. Mr McLaughlin was not called by either side.
The court also heard of contacts between Mr Flavin and Roy Barrett, head of Goodbodys, in the context of the Stock Exchange inquiry into the trades. Six days after Goodbodys had been contacted by the Exchange in 2000, a fax was sent from Mr Flavin to Mr Barrett. The fax read in part: "Further to our discussion, I attach extracts from our report to the Stock Exchange with references to Goodbodys Stockbrokers highlighted and relevant faxes from Lotus Green."
Mr Flavin told the court he had wanted to ensure the Exchange had "proper information on which to make a judgment" and it was for this reason that he had contacted Goodbodys.
The Stock Exchange report was sent to the DPP without DCC being given a chance to respond to its findings (a practice by the Exchange that has now been revised). "The reputation of DCC and my reputation are in tatters because of that particular approach," Mr Flavin told the court, referring to the actions of the Exchange.
During the case there were related hearings concerning access for Fyffes to certain reports drafted by DCC. During these hearings it emerged that DCC had launched a campaign to have the exchange reassess its view of the case and convey this new view to the Director of Public Prosecutions. When considering the approach it might take, one of DCC's advisers suggested it might be able to make better progress with the board of the exchange rather than its executive, "given the personalities and the vested interests involved".
Mr Justice Brian McCracken, of the Supreme Court, noted that "oddly enough" at one stage an executive of the exchange seemed to have suggested it might look at reports that might be submitted by DCC and, if it deemed they would not help DCC's case, would return them to the company. If the reports were deemed helpful, they might be forwarded to the DPP. The suggestion was never progressed with.
