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On Wednesday 21 December, Ms Justice Laffoy issued her long-awaited judgment in Fyffes’ multi-million euro insider dealing action against Jim Flavin and his company Development Capital Corporation plc (DCC) and two of its subsidiaries. The decision follows 87 days of evidence, which closed in July 2005. Ms Justice Laffoy ruled that the defendants were not in possession of price sensitive information at the time they sold their shares in Fyffes and as such, no civil liability to Fyffes arose. Background In early 2000, benefiting from the rise in stock prices from the “dot com” boom, Fyffes’ shares were trading on the Irish stock market at near all-time highs. On three dates in February 2000, DCC, an investment group with a shareholding in Fyffes, sold a total of approximately 35.8 million Fyffes shares through its Dutch subsidiary Lotus Green, making a profit of €85 million. On 20 March 2000 Fyffes issued a profit warning, largely due to underperformance in the banana trade and currency movements. Shares fell that day to €2.70 (from €3.16 on March 17) and continued to fall to €1.85 by the end of April. Fyffes brought a claim in January 2002 against DCC, Jim Flavin, and two DCC subsidiaries, S&L Investments Limited and Lotus Green, claiming that Jim Flavin used inside information to sell the shares prior to this decline. The claim was brought under insider dealing legislation, which states that anyone who deals in shares on the basis of unpublished materially price-sensitive information can be held liable for the difference between the market price of the shares and the price they would have been dealt in if the information was public, and to account to the company that issued the shares (in this case, Fyffes) for any profit from the deal. Fyffes’ legal team argued that Jim Flavin, as a director of Fyffes, was in possession of information about the trading performance of the company, which, if in the public domain at the time DCC sold its shares, would have reduced the value of the Fyffes shares. In their defence, the defendants raised two key points: First, they argued that the information possessed by Mr Flavin was not price-sensitive information. Expert witnesses produced by DCC’s advisers contended that the information Mr Flavin held was not price-sensitive, i.e. if made public, it would not have materially influenced the value of the Fyffes shares. Secondly, they argued that the shares were sold through the DCC subsidiary Lotus Green, of which Mr Flavin was not a director. Mr Flavin further argued that he had no authority to conduct the sale of the shares. Judgment In her 367-page judgment, Laffoy J. determined that the two critical issues to decide were the following: whether or not Mr Flavin “dealt” in Fyffes shares, and whether or not Mr Flavin possessed price-sensitive information at the time the shares were sold. On the first issue, she found that, from the evidence, Mr Flavin did “deal” in Fyffes shares in relation to the sales in February 2000, and that it was clear that he controlled the whole process of selling the DCC shareholding in Fyffes. She stated that “the relevant point is whether the specific transactions…would have occurred but for the fact that Mr Flavin acted as he did. In my view, the answer is that they would not.” On the second issue, however, Ms Justice Laffoy unequivocally held that Mr Flavin’s dealing in the shares was not an unlawful act, as Mr Flavin did not possess price-sensitive information regarding the shares. A key piece of evidence was a letter from Fyffes chairman Neil McCann to a shareholder in May 2000 which stated that Fyffes was satisfied an earlier profit warning would not have been merited, based solely on the performance of the company in November and December 1999. Ms Justice Laffoy held that there was a “glaring contradiction” between that letter and Fyffes’ case against Mr Flavin. She concluded that “the dealing was not unlawful…and no civil liability to account arises.” She also held that Mr Flavin had not acted in breach of his fiduciary duties to Fyffes because, in her view, Mr Flavin did not use the allegedly confidential and price-sensitive trading information in dealing in the Fyffes shares. The issue of costs in the matter, which are thought to exceed €15 million, will be dealt with in the High Court early in 2006.

 

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