Fyffes Plc v DCC Plc & Ors,  IEHC 477 (2005)
|Docket Number:||2002 1183P|
THE HIGH COURT 2002 No. 1183 PBETWEEN/FYFFES PLCPLAINTIFFANDDCC PLCS & L INVESTMENTS LIMITEDJAMES FLAVIN AND LOTUS GREEN LIMITEDDEFENDANTSJudgment of Miss Justice Laffoy delivered on 21st December, 2005.I. INTRODUCTIONThe ClaimIn these proceedings the plaintiff seeks the following reliefs against the defendants: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);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;C. an account in equity of all profit accruing to the defendants or each or either of them from those sales; andD. damages and/or compensation for breach of fiduciary duty on behalf of the third named defendant. 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.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non-statutory claim is dealt with in Part III of this judgment.The provisions of Part V of the Act of 1990 have been repealed by s. 31 of the Investment Funds, Companies and Miscellaneous Provisions Act 2005 (the Act of 2005) with effect from 6th July, 2005, so far as they relate to a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 PartiesIn 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 shares of which are listed on both the London Stock Exchange and the Irish Stock Exchange. It is involved in the fresh produce trade, bananas being the core of its business. From its flotation in 1981 to 2003 Neil McCann was its chairman. Other members of the board and management of Fyffes in 1999 and 2000 who will feature in this judgment are Carl McCann, who was deputy chairman from 1988 until 2003 when he became chairman, David McCann, who became chief executive in 1995, and Frank Gernon, who was appointed as group finance director in January, 1998, all of whom were executive directors of Fyffes in the period which is relevant to these proceedings. Another executive director at the relevant time was John Ellis, who was involved in Fyffes' operations in the United Kingdom and based there. The non-executive directors included the third defendant and Gerry Scanlan. The company secretary was Philip Halpenny. Fyffes' advisers at the relevant time who feature in this judgment were its solicitors, Arthur Cox, and its Irish stockbrokers, J. & E. Davy (Davy).In referring to the defendants in this judgment individually I propose to refer to the first defendant as DCC, to the second defendant as S&L, to the third defendant as Mr. Flavin and to the fourth defendant as Lotus Green. DCC is a public company. Its shares are listed on both the Irish Stock Exchange and the London Stock Exchange. DCC was originally incorporated as Development Capital Corporation Limited in 1976. At that stage it was primarily a venture capital company and its functions included the provision of corporate finance advice to investee companies through a subsidiary. Later in the 1990s it changed direction and developed into an industrial group. It was floated as a public company in 1994. Alex Spain has been the chairman of DCC since 1976. Mr. Flavin has been chief executive for the same period and he is deputy chairman. Morgan Crowe was an executive director and Tony Barry and Paddy Gallagher were non-executive directors of DCC in the relevant period. The company secretary, who also filled the role of compliance officer, was Michael Scholefield. The chief financial officer was Fergal O'Dwyer. The advisers to DCC at the relevant time who feature in this judgment were its auditors and tax advisers, PricewaterhouseCoopers (PwC), formerly Coopers & Lybrand, its solicitors, William Fry and its Irish stockbrokers, Davy.S&L and Lotus Green are Irish registered companies which are part of the DCC group of companies (DCC Group). S&L is a wholly-owned subsidiary of DCC. Mr. Flavin at the relevant time was a director of S&L. The relationship of Lotus Green to DCC will be considered in depth later in this judgment. Mr. Flavin was not at any time a director of Lotus Green.The factual background in outlineDCC'S Shareholding in FyffesThe DCC Group's shareholding in Fyffes dated back to January, 1981, when Development Capital Corporation Limited acquired a 9.46% stake in that company, which was then known as Fruit Importers of Ireland Limited. On foot of that acquisition, Mr. Flavin joined the board of Fyffes in 1981 as a non-executive director. In 1981 a subsidiary of DCC sponsored the public flotation of Fyffes on the Dublin and London Stock Exchanges. Through the 1980s DCC and S&L made additional investments in Fyffes, as a result of which the DCC Group's stake increased to approximately 10.5%.Following the flotation of DCC in May 1994 its holding in the plaintiff, another public company, was perceived as being anomalous. Its strategy from 1996, and probably from 1995, was to exit from Fyffes when a suitable opportunity arose. With a view to mitigating its tax liability, in particular, liability for capital gains tax, on a future disposal of the holding, in August, 1995 DCC and S&L, which held part of the holding, agreed to sell the shares in Fyffes of which they were respectively the owners to Lotus Green. The agreed purchase price was paid by Lotus Green, but legal title was not transferred, so that DCC and S&L remained the registered owners of the shares. Just over a fortnight after the agreement, Lotus Green became resident for tax purposes in the Netherlands. The transactions and processes by which this happened will be considered in greater depth later. It was acknowledged by DCC in these proceedings that what happened was wholly tax driven.There was an accretion to the holding in March, 1998 through the medium of a scrip dividend. The new shares allocated at that time were registered in the names of DCC and S&L.Thereafter there was no change in the ownership of the holding, which comprised ordinary shares and preference shares, until February, 2000 when all of the ordinary shares were sold in three tranches - on 3rd February, 8th February and 14th February. The three sales (the Share Sales) grossed in excess of 106 million, resulting in the accrual of a substantial profit to the DCC Group. In broad outline, the basis of the statutory claim is that the Share Sales were unlawful because, the plaintiff alleges, they were effected by Mr. Flavin who at the time was in possession of price-sensitive information by reason of his directorship of Fyffes.After the Share Sales Mr. Flavin, who had been a member of the Audit Committee and the chairman of the Compensation Committee of Fyffes, resigned from the board of Fyffes with effect from 9th February, 2000.Fyffes' preliminary results for financial year 1999Up to the year 2000 Fyffes' financial year extended from 1st November in one year to 31st October in the following year. In common with other Irish public companies it announced its results at half-yearly intervals.Fyffes reported its preliminary results for the financial year ended 31st October, 1999 on 14th December, 1999 (the Preliminary Announcement). In the "highlights" section of the Preliminary Announcement Fyffes reported that profit before tax and exceptional items in that year had increased over the previous financial year by 5.1% to 82.9 million. It also reported that, while turnover for the period decreased marginally, the total operating profit was 80 million, up 3.8%. In the outlook section, which I will consider in greater depth later, having recorded that the results for the year had maintained the Group's record of continuous growth, it was stated that the board believed that 2000 would be "another year of further growth for Fyffes".Fyffes' budget for financial year 2000Fyffes' budget for the financial year 2000 had been considered at a board meeting held on 29th October, 1999. Mr. Flavin attended the budget meeting. The document entitled Budget Presentation which was before the meeting contained a table which showed the anticipated spread of profits (excluding exceptionals and amortisation) for the financial year 2000 as follows:Pre-Tax Profits QuarterBudget 2000 Cumulative - m1 7.8239.4365.8484.1At that time, just two days short of the end of financial year 1999, it was anticipated that the pre-tax profit for that year would be 79.8 m. In fact, the outturn, as announced in the Preliminary Announcement, was 82.9 m.Subsequent to that meeting Mr. Gernon changed the spread of profits and reduced the budgeted profit for the first quarter from 7.8 m. to 4.7 m., and the budgeted profit for the first half-year to 37.9m, to reflect more accurate information in relation to Fyffes' recently acquired interest in Capespan, the South African fresh produce group. The acquisition by Fyffes of 50% of Capespan International Holdings, the exclusive European supplier of the Capespan and Outspan brands, together with 10% of the South African parent company, Capespan Group Holdings...
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