Fyffes and DCC landmark case starts today

One of the largest corporate clashes in recent years opens today in the High Court and is expected to run until early next year.

Witnesses due to give evidence include principals from Fyffes plc and DCC plc, brokers from Goodbody and Davy stockbrokers, and more than 20 expert witnesses.

The case is being billed as the biggest Irish corporate courtroom clash since the Irish Distillers/Pernod Ricard case in the early 1980s.

In that case Mr Neil McCann, former chairman of Fyffes, and Mr Jim Flavin, founder and chief executive of DCC, were on the same side of the fence.

In the case due to start today, they are in a head-to-head clash.

The trial is likely to cost in excess of €1 million.

Fyffes is suing Mr Flavin and DCC for the full amount of the profit made by DCC on Fyffes shares DCC sold for €85 million more than it paid for them.

DCC bought the shares in 1981 and sold them in 2000. Fyffes is alleging insider trading.

At the time of the sale, the shares were held by Lotus Green, a Dutch subsidiary of DCC. Dutch tax law meant that the sale did not result in a capital gains tax bill. The management of Lotus Green, which existed almost solely to hold the Fyffes shares, had to be located in the Netherlands to avail of this tax concession.

At the core of the case will be questions as to;

whether Mr Flavin, who was a non-executive director of Fyffes, was a key figure in the trade;

whether he was in possession of price-sensitive information at the time of the share sale;

whether he conveyed any confidential information to a third party;

the extent to which Lotus Green was acting independently.

The case is being heard by Ms Justice Mary Laffoy, though not in the new Commercial Court.

DCC is an industrial holding company with a turnover of more than €2 billion. It was founded as a venture capital company by Mr Flavin in 1976, and began to evolve into an industrial and commercial group in 1990.

Fyffes is a major international fresh fruit business, built up by Mr McCann. At the time of the share sales in early 2000, there was added interest in Fyffes shares because of its project worldoffruit.com, which was to create an online wholesale market in fresh fruit. The project never got off the ground.

The share sales at the heart of the case took place in the period from February 3rd to February 14th, 2000. The shares had been growing in value, and on February 18th they hit a high of €3.98, after which the price began to ease off again.

At the Fyffes a.g.m. on Monday March 20th, 2000, the company issued a trading statement. The shares had by then fallen to €3.30. By the following Monday they were priced at €2.55, and by April 17th they were at €1.93.

The action by Fyffes against Mr Flavin and DCC was initiated some 20 months after the share sales at the heart of the case.

After the first tranche of shares was sold on February 3rd, Mr McCann urged Mr Flavin to sell the remaining shares held by DCC, so that they would not overhang the market.

Following the share sales, the Dublin stock exchange conducted an inquiry, and a report was forwarded to the Director of Public Prosecutions.

The Fyffes board learned of this through media reports. The board discussed the matter and decided to seek legal advice. Barristers Mr Dermot Gleeson SC and Mr Paul Gallagher SC are believed to have advised the board that there was a case to be made by Fyffes against DCC and Mr Flavin on insider trading grounds.

The board is then believed to have decided it had no choice but to take the case. Not to do so could leave it exposed to a suit by shareholders, or one or more of the parties who purchased the shares from DCC.