Costs:A unanimous Supreme Court decision that DCC chief executive Jim Flavin had inside information on Fyffes when he sold the DCC stake in Fyffes for €106 million in early 2000 has cleared the way for the fruit distributor to secure multimillion-euro compensation from DCC.
Fyffes has argued that it is entitled to some €85 million from DCC over the share sales, while DCC insisted yesterday that its aggregate liability, inclusive of legal costs, is closer to €50 million. It is believed that the legal costs of the action will exceed €20 million.
In the first major insider trading case to be heard by the Supreme Court, the five-judge court all agreed yesterday that Mr Flavin had insider or price-sensitive information in breach of the insider dealing provisions of section 108 of the Companies Act 1990 when the DCC stake was sold on three dates in February 2000 and it unanimously granted Fyffes appeal against a High Court decision that he did not.
The information was contained in Fyffes's trading reports for November and December 1999, which contained bad news about Fyffes's trading performance in the first quarter of the financial year 2000.
The marathon case against Mr Flavin, DCC plc and other DCC subsidiaries, which ran for 87 days before the High Court, will now go back to that court to calculate what compensation is due to Fyffes. Ms Justice Susan Denham noted yesterday these were "not criminal proceedings" and the issue was whether there was "civil liability for unlawful dealing in shares".
The sole issue in the appeal was whether Ms Justice Mary Laffoy was correct in her December 2005 High Court decision that Mr Flavin did not have price-sensitive information - information likely to have a material impact on the Fyffes share price if known to the market - about Fyffes at the time of the share sales.
Ms Justice Laffoy found that Mr Flavin did "deal" in the Fyffes shares and "effectively controlled the whole process".
However, because she also found that he did not have price-sensitive information at the time, she ruled that he did not deal unlawfully in the shares and dismissed Fyffes's case.
The judge also said there was "a fundamental incongruity" between Fyffes's own conduct in early 2000, including Fyffes chairman Neil McCann's purchase of a bottle of champagne to celebrate the DCC sales, and its claim that Mr Flavin had price-sensitive information.
There was no cross appeal by DCC to the Supreme Court against Ms Justice Laffoy's finding that Mr Flavin did deal in the shares.
Ms Justice Denham, Mr Justice Nial Fennelly, Ms Justice Fidelma Macken and Mr Justice Joseph Finnegan delivered four separate judgments yesterday in which all agreed that Mr Flavin had inside information. Mr Justice Hugh Geoghegan agreed with his colleagues.
Ms Justice Denham said the High Court finding that the information in the trading reports was "unquestionably bad news" about Fyffes's trading and earnings performance in the first quarter of the financial year 2000 was at the core of the case.
The High Court had found that the information on its own was potentially price-sensitive and could lead to a reasonable inference that there was a "real risk" that the expectations of Fyffes and analysts for the company for the first half and for the full financial year 2000 would not be met.
However, the High Court then erred in applying a "reasonable investor" test to establish if the information was price-sensitive, Ms Justice Denham said.
The High Court found that a reasonable investor, having assessed the information and offsetted it against other information, including the market interest in Fyffes's worldoffruit.com internet portal, would not have concluded it indicated a lowering of expectations about Fyffes earnings in the first half of financial year 2000.
Ms Justice Denham said that the reasonable investor approach was neither an appropriate nor useful legal tool.
There was no reference to the reasonable investor in the insider dealing provisions of the Companies Act 1990 or anywhere in the Act, nor was there such reference in the 1989 EC Council Directive on insider trading which led to the passing of the Companies Act.
There were myriad factors and investors in the market and to choose some as representative of a reasonable investor appeared subjective or arbitrary, she said.
The correct test to be applied was an objective one, to assess the effect on the Fyffes share price if the information in the trading reports was generally available in the market on the days of the share sales, the judge said.
The subjective views of Mr Flavin or Fyffes's own directors about the information were not relevant, she stressed.
In this case, Mr Flavin had information not generally available to the market. This information was bad news, it was information on a risk and it would concern the market if available.
The High Court had erred in stating that "a common-sense" approach could not be applied to analysis of this information and had also wrongly found the trading reports could not be considered on a standalone basis. The information did require to be considered specifically.
The use of comparators was also helpful in weighing whether the information was price-sensitive and a profit warning issued by Fyffes on March 20th, 2000, was such a comparator. That profit warning contained very similar information to that available to Mr Flavin and led to an immediate drop in the share price.
It was wrong to exclude the profit warning as evidence as it showed the effect on the market of information similar to that available to Mr Flavin. The fall in the Fyffes share price after the profit warning also showed worldoffruit. com did not dominate the Fyffes share price to the exclusion of the core Fyffes business, bananas. That core business was still critical to the share price.
The March 20th profit warning illustrated the very negative effect on the Fyffes share price of release of information similar to the trading reports, the judge said.
As the March 20th information materially affected the share price, it followed that information was price-sensitive. Therefore, similar information in the 1999 reports was also price-sensitive.
Ms Justice Denham noted the High Court had found that the evidence was "not open" to the interpretation that Mr Flavin used the information in the trading reports to enable the DCC group exit from Fyffes in a way which would avoid any share price impact ensuing from the disclosure of the information.
The High Court had also found that what motivated Mr Flavin and DCC in the share sales was the opportunity to make a substantial profit because of the increase in the Fyffes share price on the back of worldoffruit.com. and that the trading reports information had no bearing on those share sales.
Ms Justice Denham said that the High Court had found no breach of fiduciary duty by Mr Flavin. Because there was no appeal against that finding, the matter was not before the Supreme Court, she said.
