Documents dating from March 1998 showed that senior executives of Fyffes plc intended that any disposal of the DCC plc shareholding in the fruit company should be done with the consent of the Fyffes chairman and that Fyffes should have prior knowledge of such a disposal and have a role in relation to it, it was argued before the High Court yesterday.

Mr Michael Cush SC, for DCC, made the suggestion when reading various letters and memoranda arising from a decision by DCC in March 1998 to opt for a scrip dividend (where dividends are taken in shares rather than in cash).

Mr Cush was cross-examining Fyffes group finance director Mr Frank Gernon on the 19th day of proceedings in which Fyffes claims that DCC and its chief executive, Mr Jim Flavin, organised a €106 million sale of a shareholding in Fyffes in a manner that breached "insider dealing" provisions of the Companies Acts. The action is against DCC plc, Mr Flavin and two wholly owned subsidiaries of DCC.

The defendants deny the claims and plead the share sales were lawfully organised by Lotus Green Ltd, one of the defendant subsidiaries.

Yesterday, Mr Cush read a series of documents into the record. These showed that Mr Flavin phoned Fyffes chairman Mr Neil McCann on March 2nd, 1998, to say that DCC was taking up its final dividend for the year to the end of October 1998 in shares rather than cash.

Mr McCann then wrote to Mr Flavin asking him to drop Mr McCann a note requesting permission to accept shares in lieu of the cash dividend.

Mr Flavin replied that the decision did not require Mr McCann's permission and also stated that the DCC group was not subject to the Irish Stock Exchange's Model Code regarding its dealings in Fyffes shares.

A memo by Mr Gernon of March 10th, 1998, showed that Fyffes consulted lawyers on Mr Flavin's letter and were advised that Mr Flavin was correct that "dealings" by DCC were not caught by the Model Code, "which gives a general health warning regarding insider dealing".

Fyffes also received advice that, if Mr Flavin was in possession of price-sensitive information, DCC could not deal in Fyffes shares and the requirements for directors' dealings should apply to DCC as well as Mr Flavin.

Fyffes was also advised that a director should always consult the chairman in advance of any dealing by that director or any dealing by a company with which the director was connected.

Mr Gernon also noted the legal advice was that scrip dividends were not governed by the 1990 Companies Act and were not an exempt transaction under that Act. The legal advice was also that Mr Neil McCann's request to Mr Flavin to seek permission was "entirely appropriate".

Mr Gernon said he had regarded a letter drafted by a lawyer acting for Fyffes, to be sent by Mr Neil McCann to Mr Flavin, was not appropriate and suggested an alternative which included a statement that "my own advice... is that the insider-dealing restrictions of the Model Code and the Companies Act 1990 would apply to DCC for dealings in Fyffes shares by virtue of the directorship which you hold in Fyffes".

Mr Gernon agreed the letter, which was ultimately sent by Mr McCann to Mr Flavin, contained no reference to the Companies Act. He said he did not know what was in Mr McCann's mind on the issue and the matter was addressed by Messrs Neil and Carl McCann and Mr Flavin. Mr Gernon said he did not have the whole picture at the time.

Mr Cush suggested the various documents from March 1998 showed that what was happening under the guise of "a not very significant scrip dividend issue" was an exchange of views between Fyffes and Mr Flavin on an issue of real concern to Fyffes - "the level of control it could exercise over a sale of the DCC shareholding".

Mr Gernon said the issue was not the level of control. He said the issue of whether DCC came within the spirit of the Model Code on share dealings was never resolved. He agreed there was attention within Fyffes to the issue of whether DCC came within the Model Code and Fyffes had consulted lawyers on the matter.

Mr Cush suggested that it was a real concern of Fyffes deputy chairman Mr Carl McCann that DCC's 10.5 per cent shareholding, a block of shares equal to the shareholding of the McCann family, could be offloaded with no notification to or knowledge of Fyffes.

Mr Gernon said he did not know whether that was a concern for Mr Carl McCann.

Another undated document, which appeared to be compiled after April 30th, 1998, posed a number of questions. It stated: "Model Code - is it credible that DCC could dispose of an investment of £70 million without JF [ Jim Flavin] as chief executive/deputy chairman not being deeply involved? A disposal on such a scale would surely require plc board and perhaps shareholder approval even if held by a subsidiary for tax purposes."

It also said: "Jim says 'we... are tending towards the sale direction' (30/4/1998). Does this put us in possession of price-sensitive information?"

In a letter of May 5th, 1998, to Mr Carl McCann, Mr Flavin said Mr McCann had been seeking to bind DCC to the Model Code for directors' dealings. Mr Flavin said he was "authoritively advised" that DCC is not and should not be asked to be bound by that code.

Another document of May 22nd, 1998 was a file note by Mr Carl McCann regarding a lunch meeting that day with Mr Flavin. The note recorded that Mr Flavin said he was "essentially neutral concerning his attitude in regard to continuing as Fyffes shareholder. At the moment they have no plans to divest and, provided they were wanted, they would be happy to continue..."

The note also stated that Mr Flavin had said that, "in the event they wished to dispose of this block, this would be done in full co-operation and consultation with the company".

Mr Flavin wrote to Mr Neil McCann, also on May 22nd, enclosing legal advice to Mr Flavin on the issues raised. That advice stated that DCC did not fall within the Model Code and that it was not appropriate that DCC should treat itself as being bound by the "perceived spirit" of that code. The advice concluded: "Dealings by DCC may be precluded from time to time by virtue of the company law provisions relating to insider dealing, but I know from our discussions that you are fully conscious of that point."

Mr Gernon said he did not believe Mr Neil McCann was annoyed about the share sales of February 2000 at that time. Mr Gernon said it was a very big transaction and Mr McCann had concerns about it.

He agreed that the issue of price-sensitive information was not mentioned in a note of Mr Gernon's of February 4th, 2000, concerning the share sale.

Earlier yesterday, Mr Cush put to Mr Gernon that Mr Flavin's request in late January 2000 for a review of a Fyffes plc board decision that he could not be considered an independent director of the fruit company was inconsistent with Fyffes' claim that Mr Flavin had planned an "exit strategy" from Fyffes.

Mr Gernon said he didn't know if Mr Flavin's request to Mr Neil McCann to review the December 21st, 1999, board decision was inconsistent with Mr Flavin planning an exit strategy for DCC from Fyffes.

Mr Gernon said he knew that Mr Flavin was anxious about his being identified as a non-independent director in the Fyffes annual report, which was distributed in February 2000.

He said Mr Flavin was annoyed about the board's decision and had communicated that in a number of phone calls to Mr Gernon.

Mr Gernon also said that a detailed report by KPMG of December 21st, 1999, had concluded that Fyffes did comply in large measure with standards of corporate governance. Those standards, Mr Cush said, required that companies should present to shareholders and regulators a balanced and understandable assessment of their position and prospects.

He agreed with Mr Cush that the KPMG report was issued seven days after Fyffes issued a statement of its results for 1999 and predicting that 2000 would be a year of further growth for the company. He saidthat statement reflected the view of the board on December 14th, 1999.

Mr Cush asked Mr Gernon whether, if Fyffes chief executive Mr David McCann said otherwise, Mr Gernon had a view on that. Mr Gernon said he did not.

Asked about a handwritten note which he had used when addressing a Fyffes board meeting on December 9th, 1999, Mr Gernon said this was a speaking note on which he had made some extrapolations regarding the business in December and January.

He said no-one at the meeting had asked him about the figures he presented. He said the figure he put down for January was a "back of the envelope guesstimate". He said he would have talked with Mr Tom Murphy, finance director of the banana division, about the situation. They would have looked at pricing and made "an extrapolation" as to the figure for January. It was a calculation.

The case resumes before Ms Justice Laffoy on Wednesday when Mr Carl McCann will begin his evidence.