Analysis: The unanimous ruling of the Supreme Court yesterday is probably good news for business and society generally as it lowers the bar for those who would wish to take action arising from suspected insider trading.
For many who followed the marathon Fyffes/DCC case in the High Court, it was obvious that the information Jim Flavin had in his possession, when his company sold its substantial block of Fyffes shares, showed Fyffes was in trouble. This information was not in the market at the time.
Ms Justice Mary Laffoy, in her very lengthy High Court ruling, stated that the information Mr Flavin had in his possession was "unquestionably bad news about Fyffes' trading and earnings performance". Furthermore, she said the information showed there was a "real risk" that the company's performance would be below market expectations.
Ms Justice Laffoy then went on to create a creature called the "reasonable investor" and to decide, for a number of stated reasons, that this reasonable investor would not assess the information, which had been in Mr Flavin's possession, as being price-sensitive.
The judges of the Supreme Court have now said that it would have been better to simply apply a common sense measure, and come to the conclusion that very bad trading information, such as that which was in Mr Flavin's possession, would be likely to affect a share price if it was made known to the market.
Ms Justice Laffoy's ruling seemed to have set a high threshold for what could be shown to be price-sensitive information. The Supreme Court's ruling returns matters to a more common sense level, which can only be a good thing.
As Mr Justice Nial Fennelly of the Supreme Court said in his ruling: "To trade on the use of inside information is recognised for what it is. It is a fraud on the market."
While the consequences for Fyffes would seem relatively clear cut - it is set to have all its substantial legal costs paid by DCC, and is also likely to recover a substantial wedge of cash from DCC - the picture is not so clear in relation to Mr Flavin and DCC.
Procedurally what happens next is that the Supreme Court will, in October, give a ruling as to how the High Court should go about deciding how much money DCC should have to pay to Fyffes. The matter will then be fought out in the High Court, possibly before Ms Justice Laffoy.
The case taken by Fyffes was taken under section 109 of the Companies Act 1990. That section says that where a party profits from insider dealing, it may be liable "to account to the company that issued or made available those securities [ eg, Fyffes] for any profit accruing to the first-mentioned person from dealing in those securities".
In the case of DCC's sale of Fyffes shares, the sale netted in excess of €106 million and a profit over the purchase price of approximately €86 million for DCC. The shares sold constituted approximately 10.5 per cent of Fyffes's issued share capital at the time.
The average price received for the shares was €3.42, but after a profit warning a month later, in March 2000, the share price fell to €2.46.
Fyffes will now go to the High Court and argue that it should be entitled to the entire profit made by DCC. This is virgin territory as the section concerned has not been tested in the courts before.
Sources yesterday indicated that DCC, for its part, will argue that Fyffes should only be given the difference between what DCC achieved for the shares and what it would have achieved for the shares if the information Mr Flavin had in his possession, had been available to the market.
DCC, in a statement issued yesterday, said it did not expect the affair to cost it more than €50 million. Total legal costs are currently running at approximately €25 million, so DCC is indicating it expects to be hit with a €25 million bill from the court.
On the face of it, the law would not seem to be on the side of DCC. The section quoted above seems clear enough, though no doubt it will be teased out at length in the High Court.
Another aspect of the section covers the case of parties who purchase shares from the party who had the insider information, eg in this instance the companies that bought the Fyffes shares from DCC.
This aspect of the section states that such parties should be able to claim the difference between the price paid and the price the shares would have had if the insider information had been generally known.
In the Fyffes/DCC case saga, four institutions that bought the shares from DCC had initiated legal proceedings. These are: Eagle Star, Hibernian Asset Managers, and two US institutions, Putnam and Founders. Other parties that bought the shares cannot now seek damages.
Fyffes was represented in the Supreme Court by Paul Gallagher SC, who is now the attorney general. The solicitor was Conor McDonnell of Arthur Cox. DCC was represented by Michael Cush SC and solicitor Owen O'Sullivan of Arthur Cox.
