Fyffes has lost its massive €106 million insider dealing case against its former director, DCC managing director Jim Flavin. However, the Revenue is now expected to investigate the way DCC used a Dutch subsidiary to avoid a tax bill of about €17 million.
Ms Justice Mary Laffoy ruled yesterday that Mr Flavin was not in possession of "price-sensitive information" at the time of the share deals in February 2000, and so the share sales were not unlawful.
Mr Flavin said afterwards he was "obviously pleased" by the decision. "We have been cleared. Vindicated. I hope the reputation of DCC and my reputation are back to where they were when the case started."
The chairman of Fyffes, Carl McCann, said he was "surprised" by the decision and "a little bit disappointed, but that's how it goes".
Legal costs in the case, which ran for 87 days with three senior counsel on each side, are expected to be close to, or in excess of, €20 million. A hearing in the new year will consider the matter. Mr Flavin noted that "generally the loser pays the costs". Fyffes is considering whether it will appeal the decision to the Supreme Court.
The DCC share price rose €1.10, or 6.6 per cent, to €17.70 on the Dublin Stock Exchange. Fyffes ended the day down 4 cent, at €2.29.
Ms Justice Laffoy, in a 367-page ruling, found that Mr Flavin had in fact dealt in the shares. Mr Flavin and his company, DCC, had argued that he had merely acted as "conduit" to a Dutch resident subsidiary, Lotus Green, and that that company did the deal.
Lotus Green was set up by DCC as part of a tax avoidance scheme. The Revenue is now expected to examine whether the ruling has tax implications for DCC.
Lotus Green was given DCC's shareholding in Fyffes as part of a legitimate tax scheme designed to allow the DCC group to avoid paying capital gains tax on any profit it made from the eventual sale of the shares. Mr Flavin said it was the belief of the DCC board, having considered the judgment, that it did not have tax implications.
The tax advisers to DCC at the time it set up the structure emphasised that the affairs of Lotus Green must be managed from Holland. Ms Justice Laffoy at one stage referred to the "absurdity" of the DCC case that Lotus Green, and not Mr Flavin, had dealt in the shares.
She said Mr 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."
A profit of €85 million was made when the Fyffes shares were sold in February 2000 for €106 million. In March Fyffes issued a profit warning and its share price fell 25 per cent. Fyffes was seeking to win this €85 million by taking the case, and said it had acted on legal advice.
Ms Justice Laffoy said there was an "incongruity" in the case taken by Fyffes. It had alleged that trading information given to Mr Flavin in January 2000, in his capacity as non-executive director of Fyffes, constituted price-sensitive information, or information that would have a substantial effect on the share price if it became generally available.
However, there was nothing to indicate that Fyffes had itself considered at the time that the information was price-sensitive.
The judge ruled that "a reasonable investor" would not have thought the trading information available to Mr Flavin meant the company's expectations for the year had changed to an extent that would affect the share price to a substantial degree.
She said a reasonable investor would have thought it too early in the trading year to come to such a conclusion. Moreover, she said, the interest at the time in Fyffes' dotcom venture, worldoffruit.com, was such that the investor would have concluded that an adverse share price reaction, based on the trading figures, was unlikely.