Fyffes initially played down the significance of its poor trading, writes Colm Keena.

An exchange of letters between Fyffes and a private investor that followed its March 2000 profit warning deals with the issues at the heart of the current case. In particular, it sheds light on Fyffes' thinking before and after it took its insider trading action against DCC.

The fact that the correspondent was a former partner in Goodbody Stockbrokers who had 30 years' experience of observing the markets and a €500,000 investment in Fyffes makes it all the more interesting.

The former Goodbody partner, Mr Tom Cunningham, raised the issue as to why a crucial profit warning was not issued earlier if, as stated at the Fyffes annual general meeting on March 20th, poor trading in November and December 1999 lay behind the warning. The Fyffes share price fell by 25 per cent in the wake of its profit warning.

Either the company's controls were not what they should be, or the company had delayed making the statement, he implied. As Mr Carl McCann, then the deputy chairman and now chairman of Fyffes put it at the time, Mr Cunningham wanted to know if the directors of Fyffes were "fools or crooked".

All of this fleshes out the current case, which centres on the sale by DCC of Fyffes shares worth €106 million on February 3rd, 8th and 14th, 2000. At the time, Mr Jim Flavin, the chief executive of DCC and a director of Fyffes, was in possession of the management trading reports for Fyffes covering November and December 1999.

The November and December accounts covered the first two months of the 2000 trading year and pointed out that the company was trading both behind budget and behind the prior year. The narrative accompanying the December accounts said January was also looking to be significantly down on budget and prior year. Fyffes alleges this information was price-sensitive, a point being contested by DCC. The accounts were given to the Fyffes directors, including Mr Flavin, on two dates in January 2000.

In his initial letter to the then Fyffes chairman, Mr Neil McCann, Mr Cunningham said the profit warning of the previous day had surprised him.

"Of course, the warning highlights a potential problem at Fyffes. It suggests that if you only became aware of it very recently, controls are seriously at fault. We are talking 10 weeks after the event here. If, however, the problem was known earlier, it does raise the question: when was it known by the board? And by the full board?

"I have a view on this and I believe that, if good controls were in place, and the problem identified, the market should have been formally warned."

He said he was concerned that Fyffes would be "tainted by this episode. Examples are legion of companies who, through poor communication, have found that a long time has to pass before the market shows forgiveness."

On April 10th, Mr Cunningham wrote again, saying he had not received an answer. "I invited you to reply to the question. When did the board of directors know that the returns for November and December 1999 were below the previous expectations and were all of the board members made aware of the problem?"

Subsequent to this, Mr Carl McCann tried several times to contact Mr Cunningham by phone. On April 18th, he made contact. He kept a note. "He was very hostile. Said there were only two choices. Which is it? Wants an answer to his letter. He said he spent 30 years following markets... I asked him what he did. He called me stupid."

On May 9th, Mr Cunningham wrote to Mr McCann saying it "seems you are unwilling to address my enquiries regarding the profit warning at Fyffes a.g.m. on March 20th last. I do not consider the contact made by your son Carl (deputy chairman) to have been useful in any regard in addressing the problem. Quite the contrary."

He said he was sure Mr Carl McCann had reported back on the "content of that rather strange conversation". He said it was said that his original letter was "accusing the Fyffes board of being 'either fools or crooked'. Despite my saying this was not so; that my question was to determine whether or not Fyffes were efficient in their controls, your son's interest was where 'I was coming from in this matter'.

"It was suggested to me that there could have been other reasons why the profit warning occurred. 'Happy to hear them,' I prompted. 'Seasonal bias' was suggested. When I replied that seasonal bias would ordinarily be allowed for in budgets, a long silence ensued. Shortly afterwards, I was asked what I did for a living. I considered the question stupid, and addressing the subsequent petulance (my interpretation) pointed out that I was entitled to ask him what he did (deputy chairman!); he was not similarly entitled as he had not shares in me." Mr Cunningham signed off: "Your continued silence on the matter informs me and permits me to make a judgment."

The eventual written response from Mr Neil McCann was reviewed by a number of Fyffes executives and legal advisers, before it was sent on May 11th, 2000. It was not until a board meeting in late June 2000 that Fyffes began the process that led to the decision to sue DCC.

In his letter, Mr McCann said the company was acutely aware of its obligations to inform the market when there was a change in its expectations which, if made public, would be likely to cause a substantial movement in the share price. The company's internal controls provided accurate and timely information on trading, he said. November and December were typically the least profitable months. It had been the company's experience that a poor performance in those months had, in the past, not in itself resulted in a shortfall for the first half of the year, he said.

What happened that year was that the seasonal improvement in trading in "late January, early February", was not of the scale normally expected. "We are satisfied that an earlier announcement would not have been merited based solely on the performance in November and December."

The interim results for the half year to end April 2000 were disastrous and, in a letter on July 6th to Mr McCann, Mr Cunningham referred to the "fortuitous sale by DCC while Mr Flavin was a director" of Fyffes. "To me, the inference is plain, and as I warned in my letter... of March 21st last, the company could become tainted by the episode."

In a letter to Mr McCann on August 3rd, 2000, Mr Cunningham said that what Mr Flavin knew or did not know on February 3rd when the first of the DCC sales occurred "is, I think, likely to be speculated on at length over many a business lunch. That the conclusions arrived at are unlikely to be flattering either to Fyffes or DCC is an opinion I share with others."