Fyffes Plc (plaintiff) v DCC Plc, S&L Investments Ltd, James Flavin and Lotus Green Ltd

• Jurisdiction: Ireland
• Judge: Miss Justice Laffoy
• Judgment Date: 21 December 2005
• Neutral Citation: [2005] IEHC 477
• Court: High Court
• Date: 21 December 2005

[2005] IEHC 477

THE HIGH COURT

No. 1183 P/2002

FYFFES PLC v DCC PLC & ORS

BETWEEN/

FYFFES PLC

PLAINTIFF

AND

DCC PLC S & L INVESTMENTS LIMITED JAMES FLAVIN AND LOTUS GREEN LIMITED

DEFENDANTS

COMPANY LAW: Directors

COMPANY LAW: Insider dealing

COMPANY LAW

Directors

Shadow directors - Whether company can be shadow director - Direction or instruction - Test applicable - Advice - Whether non-professional advice can constitute direction or instruction - Whether directors of company can have discretion in relation to directions or instructions of shadow director - Whether directors required to always follow directions or instructions - Agency - Test for implied agency between related companies - Test for treating group of companies as single entity - Equity - Fiduciary duties - Re Worldport Ireland Ltd [2005] IEHC 467 (Unrep, O'Leary J, 16/2/2005), Australian Securities Commission v AS Nominees Ltd (1995) 13 ACLC 1822, Sec of State for Trade v Deverell [2001] Ch 340, In re Lo-Line Ltd [1988] Ch 477, Smith, Stone & Knight v Birmingham Corpn [1939] 4 All ER 116, Nedco Ltd v Clark (1973) 43 DLR (3d) 714, DHN Ltd v Tower Hamlets [1976] 1 WLR 852 and Munton Bros Ltd v Secretary of State [1983] NI 369, Power Supermarkets Ltd v Crumlin Investments Ltd (Unrep, Costello J, 22/6/1981), The State (McInerney) v Dublin County Council [1985] IR 1 and Lac Minerals Ltd v Chevron Mineral [1995] 1 ILRM 161 and Cahill v Grimes [2002] 1 IR 372 followed; Salomon v Salomon & Co [1897] AC 22, Harold Holdsworth & Co (Wakefield) Ltd v Caddies [1955] 1 WLR 352, Scottish Co-operative Wholesale Society Ltd v Meyer [1959] AC 324, Rex Pet Foods Ltd v Lamb Brothers (Ireland) Ltd (Unrep, Costello J, 5/12/1985), Adams v Cape Industries Plc [1990] Ch 433 and Allied Irish Coal Supplies Ltd v Powell Duffryn Int'l Fuels Ltd [1998] 2 IR 519 considered - Companies Act 1990 (No 33), s 27 - Plaintiff's claim dismissed (2002/1183P - Laffoy J - 21/12/2005) [2005] IEHC 477

Fyffes plc v DCC plc

COMPANY LAW

Insider dealing

Price sensitive information - Sale of shares - Information contained in management accounts received in capacity as director - Test applicable - Whether price sensitivity can be assessed through eyes of reasonable investor - Whether implied requirement of intention or motivation - Whether market factors can be offset against price sensitivity - Common sense approach - Whether court can identify comparator to consider effect of information on market - Test for evaluating comparator - Tippee liability - Test for tippee liability - Whether knowledge of source can be attributed to tippee - Body corporate - Whether body corporate can be liable under s. 108(1) - Dealing - Inducement - Test for inducement to deal - Agreement - Essential element of agreement in case of sale of shares - Causing or procuring another to deal - Tests applicable - Account of profits - Whether discretion to refuse relief having regard to conduct of plaintiff - Test for determining liability to account - Meaning of expression âÇÿprofit accruing' - Whether person who causes or procures another to deal liable for profits accruing to the other - Standard of proof - Equity - Liability to account in equity for insider dealing - Test applicable - SEC v Texas Gulf Sulpher Company (1968) 401 F 2d 833, TSC Industries Inc v Northway Inc (1976) 426 US 438, Public Prosecutor v Allan Ng Poh Meng [1990] 1 MLJ v, Public Prosecutor v Chua Seng Huat [999] 3 MLJ 305, SEC v Geon Industries Inc (1976) 531 F 2d 39, Potts or Riddell v Reid [1943] AC 1, The Queen v Saskatchewan Wheat Pool [1980] 1 CF 407, Haylock v Southern Petroleum NZ [2003] 2 NZLR 175, The People (DPP) v Byrne [1998] 2 IR 417, Verdonck and Others (Case C-28/99) [2001] ECR I-3399, Lennard's Carrying Company Ltd v Asiatic Petroleum Co Ltd [1915] AC 705, Meridian GlobalFfunds Management Asia Ltd v Securities Commission [1995] 2 AC 500, Superwood Holdings plc v Sun Alliance & London Insurance plc [1995] 3 IR 303, SEC v Bausch & Lomb Inc (1977) 565 F 2d 8, Elkind v Liggett & Myers Inc (1980) 635 F 2d 156, SEC v Lund (1983) 570 F Supp. 1397, SEC v Falbo (1998) 14 F Supp. 2d 508, Belmont Finance v Williams Furniture (No 2) [1980] 1 All ER 393, Ryan v Triguboff [1976] 1 NSWLR 588, A-G's Reference (No 1 of 1975) [1975] QB 773, R v Castiglione [1963] NSWLR 1, Alphacell Ltd v Woodward [1972] AC 824, Maguire v Shannon Regional Fisheries Board [1994] 3 IR 580, Wicklow County Council v Fenton (No 2) [2002] 4 IR 44, Diamond v Oreamuno (1969) 24 NY 2d 494 and Walsh v Deloitte & Touche Inc [2001] UKPC 58, (2001) 146 Sol Jo LB 13 considered - Companies Act 1990 (No 33), ss 107, 108 and 109 - Council Directive 89/592/EEC - Plaintiff's claim dismissed (2002/1183P - Laffoy J - 21/12/2005) [2005] IEHC 477

Fyffes plc v DCC plc

The plaintiff instituted proceedings against the defendants following a disposal of shares in the plaintiff company by the first and second named defendants which, the plaintiff claimed, was in breach of the prohibition on insider dealing under company law in that the third named defendant, who was a non executive director of the plaintiff company, had price-sensitive information which was used for their benefit. The share disposal netted a substantial gain to the said first and second named defendants. There were a number of share transactions involving the defendants between 3rd - 14th February 2000 during which 31.2 million shares amounting to 87% of DCC’s shareholding in Fyffes were disposed of by DCC. Among the reliefs sought by the plaintiff was a claim for an account under statute and an account in equity by reason of Mr Flavin, being a director of the plaintiff, owed certain fiduciary duties to them and ought avoid conflict of interests arising. The defendants denied there was any breach of fiduciary duty by them, that Mr Flavin did not pass on price-sensitive information and that they did not dispose of their shares while in possession of information.

Held by Laffoy J in dismissing the plaintiffs claim:

James Flavin did ‘deal’ in the plaintiff’s shares in the disputed transactions but he did not do so in an unlawful way as he was not in possession of price sensitive information.

There was a fundamental incongruity between Fyffes’ conduct in early 2000 and its claim that Mr Flavin had price-sensitive information at a time that would have affected the Fyffes’ share price had it been available to the stock market.

There was no objective evidence that Fyffes had concerns that Mr Flavin was in possession of price-sensitive information at the crucial times.

No breach of fiduciary duty by Mr Flavin had been established by the plaintiffs.

Evidence from recorded conversations between stockbrokers and Mr Flavin showed that there was agreement on who the buyer or buyers were and on the number, type and price of shares sold.

The plaintiffs failed to establish by fact or legal authority that there was a claim for an account in equity, the dealing was not unlawful under section 108 of the 1990 Act and no civil liability to account arises under section 109.

[Note: In a subsequent judgment dealing with costs, Judge Laffoy made an order that the defendants have the costs of the proceedings except for 80% of the costs of making discovery and the costs of 25 hearing days that the defendants’ approach to the dealing issue added considerably to the complexity and duration of the case and it would be just and fair to take that fact into account in the exercise of the court’s discretion in relation to costs. See FL12164]

Reporter: BD

1 Judgment of Miss Justice Laffoy delivered on 21st December, 2005 .

I. INTRODUCTION

The Claim

2 In these proceedings the plaintiff seeks the following reliefs against the defendants:

3 a A. a declaration that the sale by the first and second named defendants of in excess of 31 million ordinary shares in the plaintiff between 3rd February, 2000 and 15th February, 2000 constituted an unlawful dealing within the meaning of Part V of the Companies Act 1990(the Act of 1990);

4 b B. an order pursuant to section 109(1)(b) of the Act of 1990 requiring the defendants and each of them to account to the plaintiff for any profit accruing to the defendants from those sales;

5 c C. an account in equity of all profit accruing to the defendants or each or either of them from those sales; and

6 d D. damages and/or compensation for breach of fiduciary duty on behalf of the third named defendant.

7 The reliefs referred to at A and B are founded on alleged breaches of Part V of the Act of 1990 and the remedy sought at B is a statutory remedy. I will refer to these aspects of the claim as the statutory claim. The statutory claim is dealt with in Part II of this judgment.

8 The reliefs sought at C and D are founded on alleged breaches by the third named defendant of his fiduciary duties as a director of the plaintiff. The remedy sought at C is an account in equity and the remedy sought at D is damages or compensation pursuant to the court's common law jurisdiction. I will refer to these elements of the claim as the non-statutory claim. The non-statutory claim is dealt with in Part III of this judgment.

9 The provisions of Part V of the Act of 1990 have been repealed by s. 31 of the Investment Funds, Companies and Miscellaneous Provisions Act 2005 (the Act of 2005) with effect from 6th July, 2005, so far as they relate to a regulated market (Investment Funds, Companies and Miscellaneous Provisions Act (Commencement) Order, 2005 ( S.I. No. 323 of 2005)). However, the repeal does not affect the claims in these proceedings.

The Parties

10 In referring to the plaintiff as a litigant in these proceedings I propose calling it the plaintiff; otherwise I will refer to it as Fyffes. Fyffes is a public company, the...