Insider dealing battle still has steam left after 73 days

The mammoth insider dealing battle between Fyffes plc and DCC plc has now sat for about three times the length it was supposed to, and has some steam left in it yet.run

When the case opened in early December 2004, the barristers told Ms Justice Mary Laffoy that the case would take six weeks.

That would have seen an end in February last. When the courts broke last Friday, it was the 73rd day of the action. With the case being heard four days per week, that means it was in its 19th week. The courts resume on May 25th, when there will be three days of hearings before Ms Justice Laffoy takes up some scheduled duties elsewhere for two weeks.

The case is hearing from a number of expert witnesses being called by DCC, and three more are yet to be called. After that, there will be an exchange of legal arguments between the two sides, and presentations to the court.

It is always hard to call court battles, but it would be surprising if the case was not completed before the court rises again late in July.

With three senior counsel representing each side, as well as solicitors, junior counsel, project managers and public relations consultants, the marathon hearing is at least serving to boost the bank balances of some individuals.

The loser will probably have to bear the costs of the case, which are likely to be in the €10 million to €15 million range. Also, further costs are likely to be incurred if there is an appeal to the Supreme Court.

If Fyffes succeeds, it could win up to €85 million from DCC, (€85 million being the profit DCC made on its Fyffes shareholding). However it is likely any such award would be lower.

It has been some time since new information of interest to the uninvolved onlooker has emerged.

This is because the hearing is continually circling two issues that are at the heart of the case. There are no ongoing disclosures in a developing narrative, just more and more opinions on a number of primary facts.

The two key issues are:

Was DCC chief executive Jim Flavin in possession of price-sensitive information when DCC sold the bulk of its shareholding in Fyffes for €106 million in February 2000?; and

Was Mr Flavin involved in the actual trade?

DCC argues that the answer to both questions is no.

Fyffes argues that the answer to both questions is yes.

There is no dispute that Mr Flavin, then a non-executive director of Fyffes, was in possession of confidential trading information concerning Fyffes in January 2000, and that this information showed that trading was proving difficult in the first quarter of Fyffes' 2000 trading year, (which began on November 1st, 1999).

In December 1999, Fyffes had released its preliminary results for the trading year 1999. Along with the results, it also issued an "outlook statement" wherein it said it expected 2000 to be a year of further growth.

Witnesses for DCC, including Mr Flavin, have argued that if, in late January 2000, Fyffes believed the first quarter was so poor that it had altered Fyffes' belief as to its prospects for 2000, then it was obliged to so inform the market. It did not so inform the market.

Also, DCC has said the first quarter is by far the least important for Fyffes, and that the budgeted figures for the first quarter, known at the time of the outlook statement, envisaged difficult trading.

Witnesses for Fyffes have argued that actual figures are a different matter from projected figures. David McCann has said the outlook statement did not reflect underlying trading concerns the company had in late 1999.

Mr McCann has also said that, by late January 2000, he was hoping the company could still make its budgeted figures for 2000, but that this would require a number of lawsuits it was taking to succeed.

This was why the company did not issue a profit warning to the market until March 20th, 2000. When it did, it blamed poor trading in November and December 1999.

Ms Justice Laffoy has now heard hours and hours of evidence as to whether the information Mr Flavin had was price-sensitive or not, including expert witnesses for both sides, eminent men all, who have come out with completely different interpretations.

The issue is further complicated by the fact that the dot.com boom was boosting the Fyffes share price in early 2000, because of its involvement in its worldoffruit.com project. Witnesses for DCC have argued that such was the dot.com mania at the time, the market was almost uninterested in Fyffes' trading figures.

The second key issue the judge has to rule on in the case is whether Mr Flavin was involved in the deal. Again the key facts are accepted by both sides.

As part of a tax structure, DCC had a Dutch resident Irish company, Lotus Green, established. Control over DCC's holding in Fyffes was given to Lotus Green so that it could avail of a Dutch law that would allow DCC avoid capital gains tax on the profit that would arise when the 20-year-old shareholding was sold.

For the scheme to work, Lotus Green had to control the shareholding from Holland. The company's board comprised a number of Dutch directors and one Irishman, DCC finance director Fergal O'Dwyer.

The market did not know about Lotus Green's role, as DCC feared the existence of the structure, if it became known, would harm the Fyffes share price as the shares would be seen as being on the market.

The sale occurred in three tranches with the first sale involving Goodbody and Davy stockbrokers and the second and third involving Goodbody. All of the sales occurred after contacts between the brokers and Mr Flavin. In the case of the first tranche, tapes of contacts between a broker in Davy, Ronan Godfrey, and Mr Flavin, were played to the court.

Mr Flavin had contacts with brokers in the period up to and including February 3rd, the date of the first sale. The broker handling the sale in Davy, Mr Godfrey, when he made a formal offer, was told by Mr Flavin that he had no authority to sell the shares, that authority rested in Holland, and to expect a call from there. A Dutch director of Lotus Green, Tom Diepenhorst, then contacted the broker and confirmed the sale. The two men had no dealings with each other prior to this contact.

Mr Flavin in his evidence said he acted as a "conduit" for Lotus Green but did not negotiate the sale. He said he had no authority to negotiate the sale and was very conscious of the fact that control had to reside in Holland if the tax scheme was not to be undermined.

He said he had received unsolicited offers from brokers and had passed these on to Lotus Green.

The second and third sales were at market price but the first sale was not. Despite all the evidence heard to date, it is still not clear how the €3.20 per share price of that sale was arrived at.

Mr Flavin informed Mr O'Dwyer of the approaches he had had in the run-up to the first sale, and Mr O'Dwyer in turn organised a meeting of Lotus Green in Amsterdam early on February 3rd, during which Mr Diepenhorst, who confirmed the subsequent deal, was given the authority to do so.

Mr Flavin told the court that, in fact, nobody on behalf of DCC or Lotus Green negotiated with the stockbrokers prior to the €106 million share sales. Mr Flavin said that if he had negotiated, he believed he would have secured a higher price.

Mr O'Dwyer in his evidence rejected a suggestion that Lotus Green spent its time waiting in Amsterdam for DCC to give it the signal to sell the shareholding in Fyffes.

Mr Diepenhorst said Lotus Green did not receive any instruction from Dublin to sell the shares.

Mr Diepenhorst said he had never been involved in such a large share sale before, and was unsure how to proceed when he made that first call to Mr Godfrey in Davy. He made no attempt to negotiate price.