The Director of Corporate Enforcement v DCC Plc and Others

• Jurisdiction: Ireland
• Judge: Mr. Justice Kelly
• Judgment Date: 29 July 2008
• Neutral Citation: [2008] IEHC 260
• Date: 29 July 2008
• Court: High Court
• Docket Number: [2008 No. 189

Director of Corporate Enforcement v DCC Plc & Ors

IN THE MATTER OF DCC PLC, S&L INVESTMENTS LIMITED AND LOTUS GREEN LIMITED AND IN THE MATTER OF THE COMPANIES ACTS 1963 - 2006 AND IN THE MATTER OF AN APPLICATION BY THE DIRECTOR OF CORPORATE ENFORCEMENT PURSUANT TO SECTION 8(1) OF THE COMPANIES ACT 1990

BETWEEN

DIRECTOR OF CORPORATE ENFORCEMENT

APPLICANT

AND

DCC PLC, S&L INVESTMENTS LIMITED AND LOTUS GREEN LIMITED

RESPONDENTS

[2008] IEHC 260

[No. 189 COS/2008]

THE HIGH COURT

COMPANIES ACT 1990 S8

COMPANY LAW ENFORCEMENT ACT 2001

COMPANIES ACT 1990 S108(1)

COMPANIES ACT 1990 S160(2)

COMPANIES ACT 1990 S19

COMPANIES ACT 1990 S21

COMPANIES ACT 1990 S67

COMPANIES ACT 1990 S91

COMPANIES ACT 1990 S108

COMPANIES ACT 1990 S108(1)

COMPANIES ACT 1990 PART II

COMPANIES ACT 1990 S7

KEANE COMPANY LAW 4ED 2006 PARA 35.15

PERGAMON PRESS LTD 1970 3 AER 535

DUNNES STORES (IRL) CO & HEFFERNAN v RYAN & MIN ENTERPRISE 2002 2 IR 60

COMPANIES ACT 1990 S8(1)(a)

COMPANIES ACT 1990 S8(1)(b)

COMPANIES ACT 1990 S8(1)(c)

SAGE HOLDINGS LTD v UNISEC GROUP LTD & ORS 1982 1 SA 337

AHERN v MAHON & ORS UNREP KELLY 8.5.2008 2008 IEHC 119

COMPANIES ACT 1990 S22

1 Mr. Justice Kelly delivered the 29th day of July, 2008

Introduction

2 The applicant (the Director) seeks an order pursuant to s. 8 of the Companies Act 1990 (the Act) for the appointment of inspectors for the purpose of investigating the affairs of the respondents.

3 The application is opposed by the respondents and also by their directors, all of whom were named as notice parties to this application.

The Director

4 The Director was created by the provisions of the Company Law Enforcement Act 2001. His principal functions are to enforce the Companies Acts and to encourage compliance with that legislation. He is also empowered to investigate instances of suspected offences under that code.

The Respondents

5 The first respondent (DCC) is a public limited company registered in Ireland. It has a portfolio of interests in manufacturing and other business sectors.

6 The second respondent (S&L) is also registered in Ireland and is a wholly owned subsidiary of DCC.

7 The third respondent (Lotus Green) is also registered in Ireland and is a wholly owned subsidiary of DCC.

Background

8 This application relates to events concerning the acquisition and disposal by the respondents of interests in another public company called Fyffes Plc (Fyffes). It is also an Irish registered company involved in the importation and distribution of fruit.

9 The events in question took place over two periods. The first was in 1995 and the second between November, 1999 and April, 2000.

10 In August, 1995 DCC and S&L agreed to sell their combined 10.5% stake in the ordinary shares of Fyffes to Lotus Green. Although that was an Irish registered and wholly owned subsidiary of DCC it was ostensibly resident in Holland. Lotus Green acquired the beneficial ownership of that shareholding but legal title was not transferred to it. Thus DCC and S&L remained the registered owner of the shares.

11 On 3 ^rd, 8 ^th and 14 ^th February, 2000 DCC, S&L and Lotus Green sold their entire shareholding of 31.2 million ordinary shares in Fyffes in three tranches. That disposal realised proceeds of some €106m, a profit on cost of about €85m and a profit on book value of some €76m.

12 Mr. James Flavin had been a member of the Board of Fyffes since 1981. He resigned from that position with effect from 9 ^th February, 2000. At the time of his resignation he served as a member of the audit committee of Fyffes and as chairman of its compensation committee. While serving as a board member of Fyffes he was also deputy chairman and chief executive of DCC and a Director of S&L.

13 On 20 ^th March, 2000 Fyffes issued a statement to the Irish Stock Exchange which was in effect a profit warning. Fyffes share price dropped in the following days. Concern grew that Mr. Flavin was aware of Fyffes poor trading before the DCC group's shareholding was sold.

14 In early April, 2000 both the London and Irish Stock Exchanges informed Fyffes that they were investigating certain dealings in its shares and in particular the share disposals made by DCC and Lotus Green in early February, 2000. At the end of 2001 the Irish Stock Exchange reported the matter to the Director of Public Prosecutions. The Garda Bureau of Fraud Investigation carried out an investigation into possible insider dealing but no prosecution was initiated by the DPP.

15 In 2002 Fyffes commenced civil proceedings against the respondents and Mr. Flavin in which is was claimed that the disposal of the shares in February, 2000 was unlawful because it was effected at a time when Mr. Flavin was in possession of price sensitive information by reason of his directorship of Fyffes.

16 Those High Court proceedings went to trial before Laffoy J. over a period of 87 days in 2004 and 2005.

17 In December, 2005 that judge delivered a comprehensive judgment running to some 368 pages. She summarised her conclusions as follows:-

"Having regard to the manner in which I have construed the provisions of Part IV of the Act of 1990, essentially the following three questions remain on the statutory claim:"

1. Who dealt in the share sales and in what capacity?

2. Did Mr. Flavin have, by reason of his connection with Fyffes, price sensitive information on the dates of the share sales?

3. What are the consequences of the answers to the first and second questions?

18 I have answered the three questions as follows:-

19 a 1. (a) Mr. Flavin dealt as agent of the DCC Group

20 (b) DCC and S&L dealt as principals so they cannot rely on section 108(9)

21 (c) Lotus Green dealt as principal

22 2. Mr Flavin was not in possession of price sensitive information at the date of the share sales.

23 3. Therefore, the dealing was not unlawful under section 108 and no civil liability to account arises under section 109.

24 However, I have concluded that, if the dealing was unlawful so as to give rise to a liability to account under section 109, it would have been proper to treat the three corporate defendants, DCC, S&L and Lotus Green, as a single entity for the purposes of accounting for the profit accruing from dealing under section 109. That conclusion is redundant because I have found that the dealing was not unlawful.

25 In relation to the non-statutory claim, I have found that the plaintiff has failed to establish a breach of fiduciary duty on the part of Mr. Flavin. The plaintiff is neither entitled to an account in equity nor damages or compensation at common law."

26 Fyffes appealed this judgment to the Supreme Court. It did not challenge any of the findings of fact made by the trial judge. The appeal dealt solely with the manner in which the judge had interpreted the statutory provisions relating to insider dealing. Fyffes made the case that the judge was in error in concluding that the information which was in the possession of Mr. Flavin and which was not generally available would not be likely to materially affect the price of Fyffes shares if that information were generally available.

27 In July, 2007 the Supreme Court allowed the appeal. It concluded that all three respondents to this application and James Flavin had engaged in insider dealing in February, 2000 contrary to s. 108(1) of the Act and that Fyffes was entitled to have an assessment of damages undertaken by the High Court in respect of its claim. That assessment of damages was remitted to the High Court. In the event it never proceeded to trial and the matter was settled.

The Director's Involvement

28 The Director took a keen interest in the litigation as it was proceeding through the High Court and Supreme Court.

29 The Director made application to the Supreme Court subsequent to its judgment seeking to be joined for the purpose of adverting to the power conferred under s. 160(2) of the Act which permits a court of its own motion to make a disqualification order in any proceedings against a person, provided that it is satisfied that certain matters are established. The Supreme Court determined that such an application fell to be dealt with by the High Court.

30 Subsequently the Director applied to be joined at the hearing of the assessment of damages against the respondents in the High Court. The purpose of that application was again to advert to the power of the court of its own motion to make a disqualification order. That motion was heard by McMenamin J. on 6 ^th March, 2008 but no order was made.

31 On 14 ^th April, 2008 it became apparent that the damages claim had been settled, with Fyffes being paid in excess of €37m by the respondents. When the case settled, the High Court had not acted ex proprio motu to make a disqualification order under s. 160(2).

Mr. Adrian Brennan

32 The Director's interest in the earlier litigation was not confined to a mere attendance in court or perusal of the transcripts of each day's evidence. At the commencement of that litigation in 2004 he asked one of his officers Mr. Adrian Brennan to monitor the proceedings with a view to identifying potential areas of non-compliance with the Companies Acts.

33 In December, 2005 Mr. Brennan presented the Director with a draft report into such possible breaches. That report, along with the judgment of Laffoy J. of 21 ^st December, 2005 were considered by the Director and the advice of Senior Counsel was sought in respect of them.

34 In August, 2006 the Director delegated powers under ss. 19 and 21 of the Act to Mr. Brennan so as to enable books and documents of Lotus Green to be examined. That was done.

35 In June, 2007 Mr. Brennan presented a final draft report into two possible breaches by DCC and...