The High Court differed with the DCC board

Although the insider-dealing finding against Jim Flavin, the executive chairman of DCC, is stark - he dealt in Fyffes shares worth €106.7 million at a time when he was in possession of price-sensitive information - there is another aspect to the Fyffes/DCC saga that is equally, if not more, troubling, writes Colm Keena.

When Fyffes took the case against Flavin and DCC, the defendants argued not only that the information in Flavin's possession was not price-sensitive, but that Flavin had not dealt.

The Supreme Court has ruled that "common sense" prompted it to come to the finding that the information Flavin had was price-sensitive, although in fairness to Flavin, the High Court judge who listened to the case for more than 80 days, Ms Justice Mary Laffoy, came to the opposite conclusion.

Her finding in relation to the issue of whether Flavin dealt, however, was against Flavin and DCC, and was very forthright. She described the position adopted by the defendants in relation to the matter as an "absurdity".

On the basis of tax advice, DCC had put into place a scheme whereby the control over DCC's shareholding in Fyffes would be transferred to a Dutch-resident company called Lotus Green. In order for the scheme to work, control of Lotus Green's affairs had to reside, and be seen to reside, in Holland.

There was quite a bit at stake. When DCC sold the bulk of its Fyffes shareholding, for a very good price, in February 2000, it made a profit over cost of €85 million, but created no tax liability because of the Lotus Green scheme.

When Fyffes informed DCC in January 2002 that it had initiated proceedings, the DCC board issued a statement to the stock exchange in which it said: "The board of Lotus Green made a wholly independent judgment in its decision to accept offers made to it in February 2000 for 87 per cent of its shareholding in Fyffes, and no other person or company caused or procured Lotus Green to effect such disposals."

Ms Justice Laffoy found otherwise. She said Flavin "professed to have no authority to act as agent on behalf of Lotus Green. However, the reality is that he assumed authority to act exclusively in the negotiations leading to the sales. In fact, he assumed total control on the sell side and the prospective buyers did not have any access to any other decision-maker, if there was any. I infer from the evidence that there was none.

"The evidence discloses that Mr Flavin's executive authority from the board of DCC at the time extended to transactions up to a level of €3 million. The only reasonable inference which can be drawn from the evidence is that Mr Flavin acted with the tacit, if not express, approval of the board of DCC. Having regard to the magnitude of the transaction, I infer from the evidence that he must have had express approval of the members of the board, although it was not formalised in a board resolution. This conclusion is consistent with evidence which I will outline later, when dealing with the relationship of the board of DCC with the board of Lotus Green.

"The shares in Fyffes were a significant component of the assets of the DCC Group. In my view, on the evidence, Mr Flavin made the three agreements to dispose of the shares as agent for the DCC Group."

The judge's finding on the Lotus Green issue was not appealed by DCC or Flavin. Last week the senior independent director of DCC, Michael Buckley, granted an interview to this newspaper in which he said he was speaking on behalf of the DCC board. He said that, in the wake of the Supreme Court decision that the information Flavin had at the time of the share sales was price-sensitive, the board reviewed the matter in its entirety, and decided that "neither justice nor honesty nor fairness would have been served" if Flavin had resigned or been "pushed out by the board".

Flavin made a great call when he opted to sell the Fyffes shares at a time when their value was hugely inflated as a result of the dotcom boom. The price rather than the price-sensitive information was what motivated him. Nevertheless, Flavin negotiated a €106.7 million share sale while in possession of price-sensitive information.

Furthermore, the position adopted by him, his company and his board, in relation to the Lotus Green issue, was contrary to the evidence heard by the High Court and was found by the judge to be an absurdity.

The role Flavin and the board played was in conflict with the terms of a tax scheme that saved the company from approximately €17 million in capital gains tax. The board issued a statement to the stock exchange, a key element of which the High Court subsequently rejected in very blunt terms. Flavin gave evidence in the High Court that the judge found absurd.

It is hard to square all these matters with Buckley's synopsis of the view the DCC board arrived at, having considered the matter in its entirety.