Fourteen years ago, Fyffes chairman Neil McCann and DCC chief executive Jim Flavin stood shoulder to shoulder in both the High Court and Supreme Court, allies against a case taken against Fyffes by Pernod Ricard over the ownership of the company's crucial stake in Irish Distillers.
In possibly less than 18 months, the two men who have been close business associates for more than 20 years will square off against each other in what is the first civil action alleging insider dealing under the 1990 Companies Act.
Mr McCann and his sons Carl and David may be the ones most closely associated with Fyffes, but Jim Flavin is also inextricably linked with the development of a company which has transformed itself in the past 20 years from a small Irish fruit distributor to one of the world's biggest fresh producers competing with the likes of American giants Dole and Chiquita.
Given the nature of the proceedings, legal sources believe that there is little room for compromise between the two parties, as any settlement by DCC could be seen as a tacit admission of liability by the company and could leave itself it open to subsequent litigation from the mainly overseas institutions who bought its Fyffes shares at prices between €3.20 and €3.90.
The extent of what is at stake in this unprecedented litigation between two Irish public companies is indicated by the detail included in the DCC statement to the Stock Exchange yesterday evening. Fyffes itself restricted its public utterances to a brief seven-line statement, but the fruit company's side of the story is expected to be revealed in detail on Monday when it submits its statement of claim to the High Court.
In effect, what Fyffes is stating is that DCC and Jim Flavin used knowledge of allegedly adverse price-sensitive information to make a killing on selling its stake before the Fyffes share price fell from the unprecedented levels reached in the wake of the worldoffruit.com-triggered boom in the shares in early 2000.
... Financially, what is at stake is the €85 million profit that DCC is thought to have made on its 20-year investment in Fyffes.
The basic claim from Fyffes is that DCC and Mr Flavin were in possession of negative price-sensitive information when it sold its 10.2 per cent stake in Fyffes in February 2000. DCC and Mr Flavin have emphatically rejected this suggestion and has argued in its Stock Exchange statement that the action of Fyffes and its own directors showed that they believed that the directors, including Mr Flavin had no such adverse price-sensitive information about the company. "Two years on, the board of Fyffes has totally changed its position," DCC has stated.
DCC has also emphasised the statement from chairman Neil McCann in the Fyffes annual report on January 31st, 2000 - three days before the first share sale by DCC - where he stated: "Your board believes that from this position of strength 2000 will be another year of further growth for Fyffes."
DCC has also pointed out the letter from Neil McCann and Fyffes chief executive Mr David McCann which actively encouraged DCC to sell its remaining shares in Fyffes after the sale of the first tranche on February 3rd, 2000. "It would be helpful if the remainder of the shares are disposed of, so that they will not be overhanging the market," Fyffes said in that letter. DCC states that if Fyffes thought it was inappropiate for DCC to sell more shares, then Fyffes should have sought to discourage rather than encourage DCC to sell.
In addition, DCC has stated that Fyffes executives and directors were involved in extensive investor presentations both before and after the sale of the first tranche of the DCC-owned shares and that these presentations were instrumental in causing the unprecedented demand for Fyffes shares at that time. DCC has claimed that Fyffes executives would have been duty bound to inform the market of any adverse price-sensitive information as they were encouraging the sale of a significant portion of DCC's shares in Fyffes.
For its part, sources close to Fyffes have indicated that the statement of claim next Monday will deal in detail with all of the points raised by DCC in its statement to the Stock Exchange.
In addition, DCC has stated that the company and Mr Flavin took an explicit action to, in effect, "ring-fence" the Fyffes shares by holding the shares through a Dutch subsidiary Lotus Green. DCC sources claim that the company used Lotus Green as the holding vehicle for the Fyffes shares as a tax planning measure devised in 1995 by accountants PricewaterhouseCoopers.
Under this arrangement, the three non-executive directors of Lotus Green and a fourth director, DCC finance director Feargal O'Dwyer, had sole authority over the management and control of the Fyffes shareholding.
According to DCC sources, when approaches from stockbrokers were received by DCC to sell the Fyffes shares at the height of the dotcom boom, those approaches were redirected to the four Lotus Green directors who then took the decision to sell the shares without any input or guidance from the DCC board or Mr Flavin personally.
Finally, DCC claims that the collapse in the Fyffes share price after the sale of the shares was down to unforeseen events. These include: the failure of worldoffruit.com and the collapse of the dot.com sector in March 2000; the poor performance of the Capespan joint venture; the absence of any consolidation in the fresh produce industry; the difficulties in the banana market on which Fyffes depended for a large portion of its income and two profit warnings in March and June.
"Neither the DCC Group nor any of its officers had any prior knowledge of these preofits warnings," DCC stated last night.
Ultimately, the outcome of this action - if it finds its way all the way to High Court hearing - will come down to the question of what did Jim Flavin and DCC know and when did they know it. Fyffes will claim that DCC used price-sensitive information to dump its shares before adverse factors lead to the collapse in the shares. DCC and Jim Flavin will claim that they possessed no such information.
The scene is set for a legal battle royal.
