Legal saga brought arcane world of insider dealing into the media mainstream
DCC/Fyffes coverage 2000-2005
Jim Flavin: at a DCC annual general meeting
No less than 10 years passed between the unlawful transactions at the heart of the DCC insider dealing affair in February 2000 and the conclusion of the saga in January 2010. Criminal charges never arose, although DCC founder Jim Flavin lost the job he cherished and suffered reputational damage.
At issue was his sale in early 2000 of a major stake in the fruit importer Fyffes by DCC, a holding group with energy and healthcare interests. The sale, for €106 million, yielded an €85 million profit.
Flavin was then a non-executive director of Fyffes and held inside information about deteriorating trade that was not freely available to the market when selling DCC’s stake. Fyffes issued a profit warning the next month, after which its shares lost a quarter of their value.
Fyffes sued DCC in the High Court. After 87 days of evidence, Ms Justice Laffoy ruled in 2005 that trading information Flavin held was not price sensitive. Fyffes appealed. In 2007, five Supreme Court judges ruled unanimously that the information was indeed price sensitive.
The DCC board resolutely stood by Flavin, deciding the day the Supreme Court ruled that it would not serve justice or fairness to sack him.
At first, there was no public protest from the business community. Several months later, the Irish Association of Investment Managers declared it was not appropriate for Flavin to continue in his role.
This was shortly before the State’s corporate enforcer, Paul Appleby, went to the High Court to seek the appointment of an inspector to look into the affair. It was Appleby’s move which prompted Flavin’s departure.
In early 2010 the inspector, Bill Shipsey SC, reported that Flavin “genuinely believed he was not in possession of price-sensitive information” when selling the shares and made a “costly error”.
Appleby said on the basis of this report that his own inquiries were “at the end of the road”. Flavin was spared any further action.
The story in the media
The affair was a sensation, pitting pillars of the business establishment against each other in open court for all to see. This was a civil case, but insider dealing can lead to criminal prosecution.
The stakes were high for Flavin and for DCC, the company he established in 1976.
The case was no less important for the McCann family behind Fyffes, in which DCC had held a major shareholding for almost 20 years.
This was a tussle over money primarily. But the deep connections between the parties, forged over decades, and their public prominence brought drama and intrigue to the proceedings. The self-contained world of the Irish Stock Exchange had never seen the like.
There were several phases to the affair, many if not all of them marked by manoeuvres in the legal and public relations spheres. The main action in the High Court and Supreme Court was tracked in a vast volume of daily court reports and ancillary pieces to interpret the flow of information.
Most striking, however, was what happened after the Supreme Court handed down its ruling. In its defence of Flavin, DCC’s board selectively invoked the most favourable parts of the earlier High Court ruling and ignored the unfavourable parts.
The board found itself on the receiving end of claims that it had failed to hold him to account for insider dealing. Although it insisted to the last that there was no disrespect of the Supreme Court judgment, many saw it otherwise.
In the end, the intervention of the Irish Association of Investment Managers was seen as a declaration of no confidence in Flavin. The view was that the investment community had given DCC ample scope to put its own house in order and that it had failed to do that.
The DCC-Fyffes affair straddled the Ireland’s economic boom the depths of its bust. It was a landmark legal case, bringing arcane argument about insider dealing into the media mainstream.
Although the Supreme Court did not make any finding as to whether Flavin knew the information he held was price-sensitive, the question was pivotal to his ultimate fate.
In her ruling, Ms Justice Denham said it was “not lawful for a person who is connected with a company to deal in any shares of that company if by reason of his connection he is in possession of information that is not generally available and which is likely materially to affect the price of those shares”.
Later however, High Court inspector Bill Shipsey SC said “the suggestion that the dealing was intentionally wrongful, or that it was evidence of dishonesty on the part of Jim Flavin and of a culture of disrespect for the companies code in DCC, can be dispelled.” Inquiries by corporate enforcer Paul Appleby came to a halt.
If it was rare enough at the time of the litigation to see eminent business figures engulfed in court action, this became an all-too familiar image of the crash. In that respect, the case was a taste of things to come.
Arthur Beesley reported on the DCC-Fyffes affair as Senior Business Correspondent of The Irish Times. He is now Political News Editor.