Supreme Court allows appeal finding insider dealing information price-sensitive contrary to High Court ruling.

THE SUPREME COURT

[S.C. No: 144/06]

Denham J.

Geoghegan J.

Fennelly J.

Macken J.

Finnegan J.

BETWEEN/

FYFFES PLC

PLAINTIFF/APPELLANT

AND

DCC PLC

S & L INVESTMENTS LIMITED

JAMES FLAVIN AND

LOTUS GREEN LIMITED

DEFENDANTS/RESPONDENTS

Judgment delivered the 27th day of July, 2007 by Denham J.

1. In this case the High Court was required to consider and to decide upon many complex issues. The case was at hearing before the

High Court for 87 days, and the judgment contains 368 pages. However, on this appeal there is a single issue, that of 'price-

sensitivity', in the context of alleged insider dealing.

2. Fyffes Plc, the plaintiff/appellant, and hereinafter referred to as 'Fyffes', has appealed from the judgment and orders of the High

Court (Laffoy J.), in which claims made by Fyffes were dismissed, and in which it was ordered that Fyffes pay to the defendants the

costs of the action (with a few exceptions). Fyffes is a public company, with shares listed on the Dublin and London Stock Exchange,

and business in the fresh produce trade, especially bananas.

3. DCC Plc, the first named defendant/respondent, is a public company limited by shares. Mr Flavin, the third named

defendant/respondent, has been Chief Executive of this company since 1976, and is Deputy Chairman. The second named

defendant/respondent and the fourth named defendant/respondent, S & L Investments Limited and Lotus Green Limited, are Irish

registered companies and are part of the DCC Plc group of companies. The defendants/respondents will be referred to collectively as

'the defendants'. Mr Flavin was a director of S & L Investments Limited, but not a director of Lotus Green Limited. Mr Flavin was a

director of Fyffes, until his resignation from 9th February, 2000.

4. Fyffes brought proceedings against the defendants claiming insider dealing in its shares. The central issue to be determined is

whether the learned trial judge erred in concluding that the information in the possession of Mr Flavin, relating to the business of

Fyffes, on three dates in February, 2000, when Mr Flavin dealt in the shares of Fyffes, was not price-sensitive vis-à-vis those shares.

5. Fyffes sought, inter alia, a declaratory order that certain share sales were unlawful dealings within the meaning of Part V of the

Companies Act, 1990 (the Act of 1990), and an account pursuant to s.109(1)(b) of the Act of 1990. In the High Court the parties

agreed that the Court should determine first, whether the share sales were in breach of s.108 of the Act of 1990; and, secondly,

whether, in principle, liability to account arose.

6. The High Court

6.1 Statutory Claim

The High Court held that Fyffes had not discharged the onus of proving that, on the dates of the share sales, Mr Flavin, by reason of

his connection with Fyffes, was in possession of information which, if generally available, would have been likely to materially affect

the share price. The High Court held that the statutory claim failed because Fyffes had not established the price-sensitivity issue:

Fyffes had not established that, if the information contained in the November and December 1999 Trading Reports was generally

available on 3rd, 8th and 14th February, 2000, it would have been likely to materially affect Fyffe's share price.

The High Court summarised the conclusions it reached on this aspect of the claim as follows:-

"Having regard to the manner in which I have construed the provisions of Part V 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?

I have answered the three questions as follows:

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

(b) DCC and S&L dealt as principals, so they cannot rely on s.108(9).

(c) Lotus Green dealt as principal.

(2) Mr. Flavin was not in possession of price-sensitive information at the dates of the Share Sales.

(3) Therefore, the dealing was not unlawful under s. 108 and no civil liability to account arises under s. 109. However, I

have concluded that, if the dealing was unlawful so as to give rise to a liability to account under s. 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 s. 109. That conclusion is redundant because I have found that the

dealing was not unlawful."

6.2 Non-Statutory Claim

On the non-statutory claim the High Court found:-

"It is worth reiterating that the basis on which the liability to account in equity may be imposed for insider dealing is that

the insider director, in breach of his fiduciary duty, has made use of information acquired by him in that capacity for his

personal advantage. To establish liability to account in equity against an insider, a corporate plaintiff bears a much

heavier burden than it bears in establishing liability to account under s. 109(1), in that it must establish that the profit it

seeks to attach was the result of the exploitation by the insider of the confidential price-sensitive information in issue for

his own benefit.

In my view, in this case, the evidence is not open to the interpretation that Mr. Flavin used the information contained in

the November and December Trading Reports which is alleged to have been confidential and price-sensitive, the negative

information in relation to Fyffes' trading and earnings performance in the first quarter of financial year 2000, so as to

enable the DCC Group to exit from Fyffes in manner which would avoid any share price impact which would ensue from the

disclosure of that information. In my view, on the evidence, it is clear that what motivated Mr. Flavin in his involvement in

the Share Sales and what motivated the almost total exit of the DCC Group from Fyffes in February, 2000 was the

opportunity to make a substantial profit because of the increase of the share price on the back of wof.com. The plaintiff

has not established any evidential nexus between the profit which the Share Sales generated for the DCC Group and the

use by Mr. Flavin, or the use by any of the boards of the corporate defendants, of the confidential information contained

in the November and December Trading Reports. On any view of the evidence, that information simply had no bearing on

the Share Sales."

The High Court concluded that Fyffes had failed to establish a breach of fiduciary duty on the part of Mr Flavin, and that Fyffes was

neither entitled to an account in equity, nor to damages, nor to compensation at common law. No appeal was brought from this

decision and so the matter is not before this Court.

7. Submissions of Fyffes

On this appeal it was submitted, on behalf of Fyffes, that the trial judge erred in three respects:-

(i) The trial judge failed to draw the correct inferences from a number of critical facts found by her and, in particular,

found that the information the subject of these proceedings was not price-sensitive on the basis of conclusions that,

properly viewed, did not bear on the price sensitivity of the information at all. Further, her conclusions were inconsistent

with her earlier findings.

(ii) The trial judge having identified what she stated was the kernel of the price sensitivity issue then failed to assess the

information in the possession of Mr. Flavin by reference to that test. Instead she purported to develop a “reasonable

investor” test, by reference to case law which did not support the test as formulated by her. In particular, instead of

applying a reasonable investor test to determine the materiality of the information, a different test was posed and applied

by the Court. This was a test based upon whether the reasonable investor (had he had the information in question at the

relevant time) would have concluded that that information would probably impact on Fyffes share price to a substantial or

significant degree. This question is significantly different from the question of whether a reasonable investor would have

viewed the information as material, and finds no support in any of the authorities. Furthermore, she failed to apply

properly the reasonable investor test. Finally, the reasonable investor test is not provided for by statute and is

inconsistent with what the Court is required to do under the statute.

(iii) The trial judge failed to pay any regard whatsoever to the actual impact upon Fyffes’ share price when the

information in the possession of Mr. Flavin on the dates on which he dealt (or information substantially similar thereto)

was ultimately released to the market on 20 March 2000. Furthermore, she disregarded the events of 20 March entirely

and failed to attach any weight to them, not only in determining the impact upon Fyffes' share price of the information in

Mr. Flavin’s possession, but also in determining the nature and speed of the market reaction to adverse trading news

concerning Fyffes.

Fyffes did not request this Court to disagree with any findings of primary fact made by the trial judge. However, it was submitted that

in determining, on the basis of the facts found, that the information in question was not price-sensitive, the trial judge fell into

fundamental error. This error arose in the tests applied, the decision to exclude certain evidence, and was reviewable on appeal.

8. Submissions of the Defendants

The defendants submitted that the judgment of the High Court was correct and should be upheld by this Court. It was submitted,

inter alia, as follows:-

(a) The intuitive approach to price-sensitivity permeates the entire of Fyffes' submissions and is wholly wrong.

(b) DCC did not suggest that appreciation of the total mix of information means that the market already knew precisely

how Fyffes was affected by difficult trading conditions in its core business. DCC recognised that the market did not know

precisely how currency weakness affected Fyffes or precisely how weak banana prices affected Fyffes. However, DCC

submitted that it is only with an appreciation of the total mix of information available in the market, and the market

conditions prevailing at the relevant dates, that one can assess what weight would be attached by the market to the

allegedly price-sensitive information. It was submitted that the learned Trial Judge accepted this and carried out her

assessment on that basis. The fact that Fyffes’ submissions failed to identify the total mix of information available, and

the wholly abnormal market conditions prevailing, and advanced the intuitive approach to price-sensitivity, demonstrated

the extent to which Fyffes wished to avoid this simple but hugely important proposition.

(c) It was submitted that there is no escaping the enormous significance of the finding of fact that no director or

executive of Fyffes ever entertained the possibility that the November and December Trading Reports contained price-

sensitive information. That finding undermines totally the intuitive approach to price-sensitivity advanced by Fyffes both

in the Court below and in this Court. It is a finding which prompted the learned Trial Judge to suggest that there was an

inherent or fundamental incongruity in the claim advanced by Fyffes. It was submitted that she might have described that

claim as opportunistic in the extreme.

(d) As to the submissions of Fyffes that inferences drawn were not consistent with the facts, it was submitted that the

most striking feature of this aspect of Fyffes’ submissions was the continued reliance upon a very small portion of the

facts as found by the learned Trial Judge for the purpose of suggesting that the reasons which led to her conclusions are

unsound. The whole approach was consistent with the mistaken intuitive approach to price-sensitivity. It was submitted

to be wrong because it ignored the total mix of information available to the market and the extraordinary market

conditions prevailing at the time of the Share Sales.

(e) As to the issue of price-sensitivity, it was submitted that this section of Fyffes’ submissions is characterised by some

very convoluted reasoning. and that it was also unfair to the learned Trial Judge. It was submitted that she was much

more careful and sophisticated in her analysis of the price sensitivity test than Fyffes’ submissions suggest. The emphasis

upon what Fyffes describe as “the reasonable investor test” is misplaced because it is not a test in itself and was never

expressed as such by the learned Trial Judge, but rather was an approach employed to emphasise the objectivity of the

analysis required.

(f) As to the issue of share price movement on or after 20th March, 2000 as a valid proxy, it was submitted that the test

adopted by the learned Trial Judge for evaluating an alleged proxy event is the correct test, both in law and in logic. As a

matter of fact in this case, there was neither parity of information nor parity of market conditions. That being so, the

share price movement on or after 20 March 2000 is not a valid proxy for the application of the statutory hypothesis, and

is evidentially irrelevant.

In conclusion, it was submitted on behalf of the defendants, that at the end of a lengthy and complex hearing, the learned trial judge

produced a judgment of enormous clarity, that her findings of fact are not in dispute, her statement of applicable legal principles is

correct, the inferences which she drew are inescapable, and that her conclusion is right.

In oral submissions, Mr Cush for the defendants submitted that:

(a) The principles stated by the learned trial judge, at p.231 of the judgment, were correct. (b) The approach of the learned trial

judge to the facts was correct. (c) The judgment followed the principles established by the learned trial judge. (d) The findings of

what the market knew on the dates of the share sales were very important findings of fact. (e) The findings as to the Trading

Reports were findings initially viewing items on their own and as an arithmetical exercise. These findings concluded that the Trading

Reports were potentially price-sensitive, but they must be seen as an arithmetical exercise. (f) Counsel submitted that the learned

trial judge made important findings of fact based on expert evidence. For example, her finding that worldoffruit.com could offset

current trading problems was grounded on the evidence of Mr Lawrie, Mr O'Brien and Professor Taffler. (g) Counsel referred to p.342

of the judgment where the learned trial judge stated that the key question was whether, as a matter of probability, on 3rd February,

2000, the reasonable investor, having assessed the negative news about Fyffes' performance in the first quarter in the context of the

total mix of information available about Fyffes' prospects, would have concluded that the information indicated a lowering of

expectations about Fyffes' earnings in the first half of financial year 2000 and in the full year of an order of magnitude that would

probably impact of Fyffes' share price to a substantial or significant degree. She stated "I think the answer to that question is that he

would not". Counsel reviewed the three reasons given by the High Court and submitted that they should be affirmed.

Counsel referred to the fact that the High Court had not given a fourth reason - the "fundamental incongruity" point. (This was

evidence of the view taken by Fyffes' directors at the time of the sale). He assumed this was because a 'reasonable investor' would

not have known of Fyffes' directors' views. However, counsel submitted that, the evidence of the views of Fyffes' directors at the

time of the sale of the shares is very probative.

Counsel submitted that it was a careful judgment and that this Court should not interfere with it. He submitted that it was not an

appeal pursuant to the Hay v O'Grady [1992] 1 IR 210 principles. However, he submitted that if he was wrong Hay v O'Grady does not

address what an appellate Court should do with findings of a trial Court based on expert testimony. He referred to Designer Guild Ltd

v. Russell Williams (Textiles) Ltd [2001] 1 All ER 700.

9. Law

These are not criminal proceedings. At issue is whether there was civil liability for unlawful dealing in shares.

9.1 Companies Act, 1990

The relevant Irish statute law is the Companies Act, 1990, referred to as 'the Act of 1990'. Part V of the Act of 1990 relates to

insider dealing. Definitions are given in s.107, and these include:

""dealing", in relation to securities, means (whether as principal or agent) acquiring, disposing of, subscribing for or

underwriting the securities, or making or offering to make, or inducing or attempting to induce a person to make or to

offer to make, an agreement—

(a) for or relating to acquiring, disposing of, subscribing for or underwriting the securities; or

(b) the purpose or purported purpose of which is to secure a profit or gain to a person who acquires, disposes of,

subscribes for or underwrites the securities or to any of the parties to the agreement in relation to the securities;"

As the learned trial judge pointed out, what constitutes 'dealing' for the purposes of Part V is primarily a question of the construction

of this term in s.107.

The word 'securities' is defined as:-

(a) shares, debentures or other debt securities issued or proposed to be issued, whether in the State or otherwise, and

for which dealing facilities are, or are to be, provided by a recognised stock exchange;

(b) any right, option or obligation in respect of any such shares, debentures or other debt securities referred to in

paragraph (a);

(c) any right, option or obligation in respect of any index relating to any such shares, debentures or other debt securities

referred to in paragraph (a); or

(d) such interests as may be prescribed;"

The key section in issue in this case is s.108, which governs civil liability for unlawful dealings in securities by insiders. It states:-

"108.—(1) It shall not be lawful for a person who is, or at any time in the preceding 6 months has been, connected with a

company to deal in any securities of that company if by reason of his so being, or having been, connected with that

company he is in possession of information that is not generally available, but, if it were, would be likely materially to

affect the price of those securities."

Section 109 of the Act of 1990 provides for civil liability for unlawful dealing, and for liability to compensate and to account. Section

110 makes provision for exempt transactions. Section 111 establishes an offence, stating that any person who deals in securities in a

manner declared unlawful by s.108 shall be guilty of an offence. Section 114 provides for penalties for offences under this Part: on

summary conviction to imprisonment for a term not exceeding 12 months or a fine not exceeding £1,000, or both; and on conviction

on indictment, to imprisonment for a term not exceeding 10 years or to a fine not exceeding £200,000, or both.

The Act of 1990 was passed by the Oireachtas to meet the State's obligations arising under Council Directive of 13 November, 1989.

9.2 Council Directive of 13 November 1989

Council Directive of 13 November 1989 was adopted to coordinate regulations on insider trading and is the Directive relevant to this

case. The aspirations and objectives of the Council may be seen in the recitals. For example, reference is made to the necessity of

having confidence in the market, to protection against improper use of inside information, to the fact that insider dealing is likely to

undermine confidence in the market and thus prejudice the smooth operation of the market. The recitals point out that necessary

measures should be taken to combat insider dealing. It was recited as being advisable to adopt coordinated rules at a Community

level in this field, as such coordinated rules would make it possible to combat insider dealing more effectively. The objectives are

clearly stated, as being to protect the market from insider dealing.

"Inside information" was defined in Article 1 as:-

"1. 'inside information' shall mean information which has not been made public of a precise nature relating to one or

several issuers of transferable securities or to one or several transferable securities, which, if it were made public, would

be likely to have a significant effect on the price of the transferable security or securities in question;"

"Transferable securities" was defined as follows:'-

"2. 'transferable securities' shall mean:-

(a) shares and debt securities, as well as securities equivalent to shares and debt securities;

(b) contracts or rights to subscribe for, acquire or dispose of securities referred to in (a);

(c) futures contracts, options and financial futures in respect of securities referred to in (a);

(d) index contracts in respect of securities referred to in (a), when admitted to trading on a market which is

regulated and upervised by authorities recognized by public bodies, operates regularly and is accessible directly or

indirectly to the public."

The Directive sets out prohibited behaviour:-

"Article 2

1. Each Member State shall prohibit any person who:

- by virtue of his membership of the administrative, management or supervisory bodies of the issuer,

- by virtue of his holding in the capital of the issuer, or

- because he has access to such information by virtue of the exercise of his employment, profession or duties,

possesses inside information from taking advantage of that information with full knowledge of the facts by acquiring or

disposing of for his own account or for the account of a third party, either directly or indirectly, transferable securities of

the issuer or issuers to which that information relates.

……

Article 6

Each Member State may adopt provisions more stringent than those laid down by this Directive or additional provisions,

provided that such provisions are applied generally. In particular it may extend the scope of the prohibition laid down in

Article 2 and impose on persons referred to in Article 4 the prohibitions laid down in Article 3.

……

Article 13

Each Member State shall determine the penalties to be applied for infringement of the measures taken pursuant to this

Directive. The penalties shall be sufficient to promote compliance with those measures.

Article 14

1. Member States shall take the measures necessary to comply with this Directive before 1 June 1992. They shall

forthwith inform the Commission thereof."

It was agreed by the parties that the Directive should inform the proper construction of the Act of 1990, Part V, which was

introduced in Ireland to comply with the Directive.

9.3 Hay v O'Grady

Reference was made by the parties to Hay v O'Grady [1992] ILRM 689. Hay v O'Grady is an important precedent on the function and

jurisdiction of this Court in relation to findings of fact in the High Court, the inferences drawn in the High Court, and inferences

(including contrary inferences) which may be drawn by this Court as an appellate Court. However, I am satisfied that this case turns

on the construction and interpretation of statute law and the application of legal principles, and that Hay v O'Grady principles are not

at the heart of the decision.

10. Relevant Matters

There are matters in this case which are relevant to any consideration of the terms of s.108 of the Act of 1990. Section 108(i)

provides that it shall not be lawful for a person, who is connected with a company to deal in securities of that company, if by reason

of his being so connected with that company, he is in possession of information that is not generally available, but if it were, would be

likely materially, to affect the price of these securities.

11. "Person"

The person in issue is James Flavin, the third named defendant. Following on the findings of fact of the High Court, there is no issue

on this matter.

12. "Connected"

Similarly, no issue arises on this factor. Mr Flavin was connected to Fyffes, he was a director of Fyffes until his resignation from 9th

February, 2000. In such capacity he received information in the November and December 1999 Trading Reports.

13 "Dealt"

The High Court has held that Mr Flavin dealt in the shares on the three relevant dates in February, 2000. There was no appeal from

that finding of fact and law.

14. "Securities"

The DCC Plc Group's shareholding in Fyffes dated from January, 1981, when it acquired a 9.46% stake in the company. On foot of

that acquisition Mr Flavin joined the board as a non-executive director. Through the 1980s DCC Plc and S & L Investments Limited

made additional investments in Fyffes, as a consequence of which the DCC Plc Group's stake increased to approximately 10.5%.

Following the flotation of DCC Plc in May, 1994, its strategy from 1995 or 1996 was to exit from Fyffes when a suitable opportunity

arose. The learned trial judge found that, with a view to mitigating its tax liability, in particular liability from capital gains tax on a

future disposal of the shares, in August 1995 DCC Plc and S & L Investments Limited agreed to sell their shares in Fyffes to Lotus

Green Limited. The agreed purchase price was paid by Lotus Green but legal title was not transferred, so DCC Plc and S & L

Investments remained the registered owners of the shares. The High Court found that there was an accretion to the holdings in

March 1998 through the medium of a scrip dividend and the new shares allocated then were registered in the names of DCC Plc and S

& L Investments. There was no change thereafter to the ownership of the holding which contained both ordinary and preference

shares, until February 2000 when all the ordinary shares were sold.

The shares were approximately 10.5% of the issued share capital in Fyffes when they were disposed of on the 3rd, 8th and 14th

February, 2000, for a sum in excess of €106 million. This gave a substantial profit to the DCC Plc Group. The prices obtained for the

shares varied according to the dates, but were €3.20, €3.60 and €3.90, being an average price of €3.42.

However, after the 20th March, 2000 Announcement, when the markets closed, the share price was €2.70 per share, and on 21st

March, 2000 the share price was €2.46 per share.

15. Information

When Mr Flavin traded in the shares on the three dates in February, 2000, he had received in his capacity as non-executive director,

the internal Trading Reports of Fyffes of November, 1999 and December, 1999. The December 1999 Trading Report was circulated to

Board Members of Fyffes on 25th January, 2000. The November 1999 Trading Report had been circulated on 6th January, 2000. These

Reports contain the information which Fyffes submitted was price-sensitive. This information is at the core of the case.

In a nutshell, the issue on this appeal is whether the information which Mr Flavin had from the November and December 1999 Trading

Reports was price-sensitive. Therefore it is necessary to consider that information carefully, and the information generally available in

the market.

The High Court pointed out that up to the year 2000 Fyffes' financial year extended from 1st November to 31st October in the next

year. On 1st November, 1999 Fyffes announced the launch of wof.com. This was enthusiastically greeted on the market and it drove

the share price. It reflected the sentiment in the market. Fyffes reported its preliminary results for the financial year ended 31st

October, 1999 on 14th December, 1999 (the Preliminary Announcement). Fyffes reported that profit before tax had increased over the

previous financial year by 5.1% to €82.9 million. It also reported that while turnover had decreased marginally, the total operating

profit was €80 million, up 3.8%. In the outlook section it recorded that the Board believed that 2000 would be "another year of further

growth for Fyffes". These documents gave information to the market as to Fyffes' expectations for 2000. The information was positive

for growth and increased dividends.

Between Board meetings, the Board Members of Fyffes were sent monthly management accounts, accompanied by some narrative

commentary. The management accounts for November 1999, referred to as 'the November 1999 Trading Report' was circulated to

Board Members on 6th January, 2000. This was the first of the two documents which Fyffes submitted contained price-sensitive

information. The December 1999 Trading Report was circulated to Board Members on 25th January, 2000. As this is the information

which is submitted by Fyffes to be price-sensitive, I set it out in detail.

16. The November 1999 Trading Report stated:-

"FYFFES PLC - MANAGEMENT ACCOUNTS - NOVEMBER 1999

Sales of €122.0 million are €10.1 million below budget and €1.7 million lower than last year.

Losses of €2.6 million are €2.3 million worse than budget, and €4.1 worse than last year, and are due primarily to weaker

Banana prices.

Divisional Trading:

Bananas:

The loss for the month was €2.7 million compared to a budget profit of €1.2 million, and last years profit of €2.8 million,

was due to weaker banana pricing in the UK and European markets, low market value for licence, and the weaker

exchange rate of the Euro vis-à-vis the US Dollar.

Prices for UK multiple customers have been consistently below prior years for many months now, but the

November/December prices are also well below the budget levels. 130,000 boxes of Suriname fruit were diverted to

Portugal to ease the pressure on the market.

Partners:

Trading was quite good overall with profits on Cuban Florida Grapefruit compared to losses last year, improving Velleman

and Anaco. Profits in Spain were very solid, helped by a 25% reduction in Canary Island Banana volumes. Lembcke

includes €100,000 interest refund on tax.

Produce:

Trading in Ireland was in line with budget with the expected improvement between Swords and Beresford St. materialising.

However, losses in Multifresh were €200,000 higher than budget due to lower multiple, and service provision volumes. This

was due to lower Cape volumes, and lower French apple volumes which were affected by the beef dispute. Iceland have

given notice to cease using the Chandlers Ford depot at the end of January, reducing volume throughput by 60%. France

has improved with the elimination of Terre de Fruit and Bredifrais and the absence of Swithenbanks has reduced losses by

€436,000.

Capespan:

The accounts do not include any Capespan figures as we are looking at the possibility of treating the November and

December losses as pre-acquisition, under the matching concept, since they relate largely to the completion of the

previous season.

The loss for the month of €1.6 million compares to a budget loss of €1.2 million due mainly to a disimprovement in the

Sterling/Euro rate from budget. There is very little sales in November (€9 million) and December, and the loss is all

overhead.

WorldofFruit:

Losses are only staff and travel costs with no decision yet on write-off of development costs.

December:

The banana market has improved a little in December although the UK was affected by snow this week. December losses

are still expected to be €1.6 million which would be €1.6 million worse than budget, and €4.9 million worse than last year.

Cumulative losses at end December are expected to be €4.2 million which is €3.9 million worse than budget, and €9 million

worse than last year.

There is some optimism that the banana market will improve from January due to cutbacks in production by the major

producers. This should not in theory impact on the EU Market but it is expected to improve sentiment."

17. The December 1999 Trading Report was as follows:-

"FYFFES PLC SUMMARY TRADING REPORT - DECEMBER 1999

Sales:

Total sales of €149 million were €11.3 lower than budget due to the non consolidation of Capespan and €6.1 lower than

last year due to lower UK produce throughput and the disposal of Swithenbanks.

Net Profit:

The pre goodwill loss for the month of €1.3 million compared to a breakeven budget and last year's profit of €3.3 million,

bringing the cumulative pre goodwill loss to €4 million compared to last year's profit of €4.8 million. This can be analysed

as follows:

MONTH CUMULATIVE

Variance on: Variance on:

Profit/ Budget Last Profit/ Budget Last

Loss Year Loss Year

Bananas (2.6) (2.1) (4.2) (5.0) (5.6) (9.4)

Partners 1.2 (0.2) (0.2) 1.5 (0.4) 0.1

Produce 0.5 (0.2) 0.4 0.2 1.1

Other 0.2 (0.1) (0.2) 0.3 (0.2) (0.1)

Capespan - 1.2 - - 2.4 -

Group Exps (0.8) (0.1) (0.2) (1.4) (0.1) (0.2)

W.O. Fruit (0.2) 0.2 (0.3) 0.2 (0.3)

Interest 0.4 0.1 (0.2) 0.7 0.2 (0.2)

Total: (1.3) (1.3) (4.6) (4.0) (3.7) 8.9

(The brackets, which indicate loss not profit, were omitted around the figures 8.9.)

"Capespan:

The commencement date for the consolidation is under review as we are looking at the possibility of treating the

November/December losses as a pre acquisition under the matching concept as they relate largely to the completion of

the previous season.

The Capespan loss for November/December is €3 million compared to a budget of €2.5 million. The variance is due mainly

to lower volumes.

Bananas:

December showed very little improvement in market prices or sentiment with a multiple price war affecting an already over

supplied market. The UK result was very disappointing even after the diversion of fruit to Europe.

Urgent contract negotiations are required with ACP suppliers to correct the imbalance in the supply/demand curve which

occurs in November/December in the absence of autumnal natural disasters.

The European market has improved quickly in January with prices at budget levels going into February but the UK market

continues to be affected by competitors seeking to increase their multiple market share.

Partners:

Trading was solid in Spain and well improved in Italy where volumes were particularly good. The Velleman procurement

business, which has not yet be restructured, was improved on last year which suffered from unusual losses on Florida

grapefruit. Results were lower in Denmark and in Greece and Anaco, due to weaker banana pricing.

Produce:

Ireland enjoyed its best trading for some time with new structure between Swords and Beresford Street working well.

However, the UK distribution business has been severely affected by lower Cape volumes and loss of CRS. Total UK losses

were €323,000 lower than last year which included losses of €856,000 for Swithenbanks which has since been disposed

of. We are examining the possibility of merging the Multifresh business with Capespan.

The improvement in France of €209,000 is due in the main to the elimination of loses in Terre de Fruit and Breidifrais.

WorldofFruit.Com:

All staff and overhead costs have been expensed but development expenditure of €540,000 has been capitalised and the

depreciation has not been decided.

Other Activities:

Margins in Allegro are lower than expected but good sales volumes have been achieved and the transfer of the business

from Sandyford to Finglas/Clonmel has been completed on schedule.

January 2000:

Current forecast is for a profit of €1.3 million compared to a budget of €5 million and €6.3 million last year. The shortfall is

mainly due to weaker UK banana pricing."

18. The High Court Judgment on the information

The High Court described the information in the November and December 1999 Trading Reports, inter alia, at p.254, and found as a

fact, as follows:-

"The information contained in the November and December Trading Reports was unquestionably bad news about Fyffes’

trading and earnings performance in the first quarter. Taken on their own, a reasonable inference could be drawn from the

figures that there was a real risk that Fyffes’ own expectations and analysts’ expectations for the first half and for the full

year would not be met. It is true that the market did not know what Fyffes’ expectations for the first half were, although

it did know what was achieved in the first half of the previous year. Nonetheless, given the size of the loss in the first

quarter against the modest budget for that quarter, that there was a risk was a reasonable deduction." [emphasis

added].

The High Court described the Trading Reports, at various stages in the judgment, as detailed, precise, authoritative, and confidential

and not generally available. The Court stated, as quoted above, 'that there was a risk was a reasonable deduction'. On the question

as to whether, if the information had been publicly available at the date of the sale of the shares, it would have altered investors'

expectations of Fyffes' future earnings and cash flow, the High Court held, at p.340:-

"Although there was some controversy on this point, on the evidence, I consider that investors would have been

concerned about the outcome, not only for Fyffes’ full financial year, but also the outcome for the first half." [emphasis

added].

The High Court described an arithmetical approach and stated, inter alia, at p.255:-

"The absence of interpretation or a narrative explanation from management did not hinder the arithmetical exercise which

enabled deductions to be made in relation to the likely adverse impact of the first quarter results on the half year or the

full year and, to that extent, was immaterial. That the fresh produce business, including the banana business, was, and

was known in the market to be, seasonal with the first quarter being the least profitable quarter, was also immaterial, to

the extent that seasonality was factored into the prior year figures and the budget figures contained in the documents

and was also built into analysts’ forecasts. The plaintiff suggested that a reader of the information would discern a

worsening negative trend.

The figures in the above table for variances from prior year and budget bear this out, in that they were getting larger in

absolute terms, but whether this should be regarded of any significance, in my view, is doubtful. In general, the narrative

gave very little inkling that matters would improve, except the statement that the European market had improved quickly

in January with prices at budget level going into February. Conversely, there was nothing in the narrative to indicate that

matters were getting worse.

On the basis of the foregoing, the court was invited to conclude that intuitively the information appeared on its face to

price-sensitive. The statutory test does not warrant drawing any conclusion in relation to the information contained in the

trading reports standing alone. The furthest the court can go is that the information was of a type and quality that was

potentially price-sensitive. Whether it was or was not, falls to be judged by applying the principles which I have

adumbrated earlier."

The High Court further stated, at p.340:-

"In applying the statutory hypothesis, having regard to the expert opinion, the basic premise is that share price

movements reflect changes in investors' expectations in relation to a company's future earnings and cash flows. So the

kernel of the price-sensitivity issue here is whether, had it been available on the dates of the Share Sales, the information

contained in the November and December Trading Reports would have altered investors’ expectations about Fyffes’ future

earnings and cash flows. Although there was some controversy on this point, on the evidence, I consider that investors

would have been concerned about the outcome, not only for Fyffes’ full financial year, but also the outcome for the first

half.

In summary, the information contained in the November and December Trading Reports pertinent to Fyffes’ future earnings

and cash flow was that, leaving Capespan out of the picture, Fyffes had incurred losses of €2.6m in the first quarter of

financial year 2000, leaving it €13.7m behind its actual performance in the corresponding period in the previous financial

year and €7.5m behind its own budget. As stated previously, a simple deduction from the figures is that Fyffes’ earnings

for the remaining three quarters would have to be up €2.6m on its earnings for the whole of the previous year and simple

arithmetic quantified that at €85.5m. The reasons given for the poor performance were weak banana prices in the U.K.

market and competition in the multiple sector of that market, weak banana prices and oversupply in European markets,

and the weakness of the euro against the dollar. The only information in relation to Fyffes’ expectations beyond the first

quarter was that the European market was improving, whereas the weakness in the U.K. market was continuing."

19. Findings of fact on the information

The High Court made findings of fact in relation to the information in the November and December 1999 Trading Reports. These

included the following:-

(a) The information in the November and December 1999 Trading Reports was bad news about Fyffes' trading and

earnings performance in the first quarter.

(b) Taken on their own, a reasonable inference could be drawn from the figures that there was a real risk that Fyffes'

expectations and analysts' expectations for the first half of the year and the full year would not be met.

(c) Given the size of the loss of the first quarter against the modest budget for the quarter, that there was risk was a

reasonable deduction.

(d) The November and December 1999 Trading reports were detailed, precise, authoritative, confidential, and not

generally available.

(e) Investors would have been concerned about the outcome, not only for Fyffes' full financial year, but also for the

outcome of the first half.

(f) The information in the November and December 1999 Trading Reports was of a type and quality that was potentially

price-sensitive.

20. Deducible

The findings of fact by the High Court were made from the November and December 1999 Trading Reports, which documents which

were before this Court. I am satisfied that the findings of fact on those reports, as stated by the High Court, are deducible from the

Reports themselves. The documents disclose loss by Fyffes, bad news about Fyffes, a real risk that Fyffes' expectations for the year

would not be met. It was information which was potentially price-sensitive. All of these facts are deducible from the Trading Reports

on their face.

21. Cross Roads

Having made findings of fact the High Court proceeded to enunciate and apply legal principles. I am satisfied that this is the cross-

roads of the judgment. The basic facts as found by the High Court are not in dispute. In issue are the legal principles and the

application of those principles. I am satisfied that the High Court fell into error in the identification and application of legal principles.

22. Reasonable Investor

The High Court used a legal principle referred to as 'the reasonable investor'. The learned High Court judge analysed, at p.342

whether, as a matter probability, on the 3rd February, 2000, the reasonable investor would conclude the information would impact on

Fyffes' share price. It was held:-

"The key question is whether, as a matter of probability, on 3rd February, 2000, the reasonable investor, having assessed

the negative news about Fyffes’ performance in the first quarter in the context of the total mix of information available

about Fyffes’ prospects, would have concluded that the information indicated a lowering of expectations about Fyffes’

earnings in the first half of financial year 2000 and in the full year of an order of magnitude that would probably impact on

Fyffes’ share price to a substantial or significant degree. I think the answer to that question is that he would not. I think

he would conclude that it was too early in the financial year to make a judgment about the outcome for Fyffes’ existing

business in the first half. That conclusion is consistent with what Fyffes told the disgruntled shareholder in the letter of

11th May, 2000, which I have quoted earlier. But more importantly, I think he would have concluded that prospects for a

merger or a major acquisition, and the potential of the wof.com venture, which were the main focus of the interest of the

market at the time, would offset the impact of the current trading problems. In particular, the strength of the sentiment

for Fyffes’ wof.com venture at the time, as evidenced by what was happening to the share price, was such that he would

have concluded that an adverse share price reaction was not likely. Moreover, he had no reason to suppose that Fyffes’

own expectations about future earnings had changed. On the contrary, the announcements in relation to the sale of Mr.

Ellis’s shares and the grant of options to Mr. Halpenny suggested they had not, as did the fact that no announcement had

been made under the Listing Rules.

Accordingly, I hold that [Fyffes] has not discharged the onus of proving that, at the dates of the share sales, Mr Flavin,

by reasons of his connection with Fyffes, was in possession of information which, if generally available, would have been

likely to materially affect the share price."

I am satisfied that the learned trial judge erred in the principles identified and stated in the High Court judgment at pages 230-232.

The High Court stated, on foot of the said principles, that the test to be applied, was, at p.232:-

"In applying the foregoing principles in the context of the factual matrix of these proceedings, the hypothetical test is

whether on 3rd February, 2000, 8th February, 2000 and 14th February, 2000, had it been available to him, the information

contained in the November and December Trading Reports, viewed by him against the “total mix” of information about

Fyffes’ trading and earnings available on those dates, would have impacted on the judgment of the reasonable investor in

relation to an investment decision about Fyffes’ shares to the extent that he would have concluded that the information

probably would have a substantial effect on Fyffes’ shares."

The learned trial judge profiled 'the reasonable investor' at p. 233:-

"It seems to me that, if the concept of the reasonable investor is to be meaningful in assessing objectively whether the

availability of the November and December Trading Reports was likely to materially affect the Fyffes share price, it must

represent the type of investor who was typically found in the market at the time. If that investor, on the evidence, was

one who was anxious to own internet stocks or stocks with an internet element, the likely consequences of such

predilection are a relevant factor."

Thus the High Court, and counsel, referred to, and used the approach of 'the reasonable investor'. I do not find this to be an

appropriate or useful legal tool. There is no reference to the 'reasonable investor' in s.108(i), or indeed anywhere in the Act of 1990.

Nor may it be implied from the Council Directive. It is a method of interpretation which removes the analysis required one step from

the law as stated. It creates a system where the law is being looked at through the eyes of a notional person and it renders the

situation opaque. It is not a legal principle appropriate to the section. Indeed, as it is not expressly or impliedly in the section there

would be a danger of legislating on the issue if this test were applied. In addition, there are a myriad of factors and investors in a

market, and to choose some or either as representative of a reasonable investor appears subjective and arbitrary. The issue is the

effect on the share price in the market of the information if the information were generally available.

23. Offset

For the reasons given, I am satisfied that the reasonable investor test does not apply, nor is 'the reasonable investor' an appropriate

approach in construing s.108(1) of the Act of 1990.

However, even if the reasonable investor test were to be accepted for the purpose of legal argument, which I do not consider to be

the appropriate test, I find that there was a further erroneous approach by the learned trial judge. The High Court concluded that the

information was not price-sensitive on a number of grounds.

"The key question is whether, as a matter of probability, on 3rd February, 2000, the reasonable investor, having assessed

the negative news about Fyffes’ performance in the first quarter in the context of the total mix of information available

about Fyffes’ prospects, would have concluded that the information indicated a lowering of expectations about Fyffes’

earnings in the first half of financial year 2000 and in the full year of an order of magnitude that would probably impact on

Fyffes’ share price to a substantial or significant degree. I think the answer to that question is that he would not."

The learned trial judge arrived at the conclusion that the information was not price-sensitive on a number of stated grounds.

I am satisfied that it was erroneous to 'offset' the information against certain factors. Further, even if the factors were 'offset' they

would not negate the price-sensitivity of the information.

There were several factors referred to by the High Court. First, the High Court held that it was too early in the financial year to make

a judgment about the outcome for Fyffes' existing business in the first half. However, that is inconsistent with the earlier findings of

the High Court, and contrary to the information on the Trading Reports themselves. Also, it is never too early to make a judgment

about profits. This is so especially in the 24/7 world of markets and modern communications.

Secondly, the learned High Court judge held:-

"I think that he [the reasonable investor] would have concluded that prospects for a merger or a major acquisition, and

the potential of the wof.com venture, which were the main focus of the interest in the market at the time would offset

the impact of current trading problems."

At the time Fyffes was a company which advanced mergers and acquisitions and wof.com. All of this, including sentiment, was

already in the share price, in the market. In fact wof.com was driving the price. But the core business of Fyffes was produce,

bananas, and this information related to that core business. This information was at the top of the November and December 1999

Trading Report, in more ways than one.

Thirdly, the High Court held that in particular the strength of the sentiment for the wof.com venture at the time, as was evidenced by

what was happening in the share price, was such that the reasonable investor would have concluded that an adverse price reaction

was not likely. However, sentiment for wof.com was already in the market, in the share price. This approach would involve double

counting the sentiment for wof.com.

Fourthly, the High Court held that the reasonable investor had no reason to suppose that Fyffes' expectations for the future had

changed, because of the sale of Mr Ellis's shares and the grant of options to Mr Halpenny. I am satisfied that while these movements

of shares are factors in the scene, they are not determinative. While information as to these transactions was available and in the

market, it would not negate an effect on the market of the information in the Trading Reports, it would be a question of weight.

The legal principle of 'offset', applied by the learned trial judge, to determine what the reasonable investor would have concluded of

the market, and then used to determine share price and price-sensitivity, is not in the statute, and there is no legal authority for it in

this jurisdiction. Nor is it in the Council Directive.

Rather than take such a circuitous route, the appropriate approach is for the Court to consider whether the information would be

likely to affect the price of the shares on the market. There is no reason in law to view the market through the prism of a 'reasonable

investor'. Quite apart from the fact that the use of such an approach requires viewing the market through the notional eyes of a

'reasonable investor', it raises the query of what factors would such a reasonable investor apply. The learned trial judge referred to

four factors, as set out above, but this is an arbitrary choice. There are myriad of factors at play in a market. Experts analyse and

differ each day. I am satisfied that the High Court erred in choosing factors and then applying them to 'offset' the information in the

Trading Reports. The information disclosed a risk, and bad news for Fyffes, and this was not altered by making it generally available to

the market. Other information, including the 'offsets' was already in the public domain.

24. Common Sense

Throughout the High Court judgment there was reference to an "intuitive" approach to the information. The learned trial judge referred

to the Court being invited to conclude "that intuitively the information appeared on its face to be price-sensitive". However, this was

dismissed, and the High Court stated that the statutory test does not warrant drawing any conclusion in relation to the information

contained in the Trading Reports standing alone. I am satisfied that this is an erroneous approach.

First, the term 'intuitively' more appropriately may be termed as the 'common sense' approach. This is in keeping with the common law

approach to commercial issues. Applying that term the effect is that the High Court held that applying common sense, the information

was of a type and quality that was price-sensitive. There is nothing in the statute that excludes common sense from the analysis as

to whether or not information would be likely materially to affect the price of the shares. Consequently, it was an error to exclude

common sense from the analysis.

Secondly, the High Court appeared to exclude consideration and application of the Trading Reports standing alone. This is not an

appropriate approach, as the issue is whether the information in the Trading Reports would be likely materially to affect the price of

Fyffes' shares. The information does require to be considered specifically. The information in the documents disclosed a risk, and that

is not altered by putting it on the market.

25. Arithmetic Exercise

It was submitted by the defendants that the initial findings by the High Court in the judgment, which were negative to the

defendants' case, were made as a purely arithmetic exercise and that as such were superseded by the subsequent findings of the

High Court. I am satisfied that is not a correct analysis, either by the High Court or by counsel. The findings as to the bad news, risk,

etc, in the two Trading Reports, are at the core of the case. What has to be determined is whether this information, if generally

available, would be likely to affect the price of Fyffes' shares. Having made these findings of fact the High Court then considered legal

principles. The findings of fact should not be excluded or diminished by legal principles.

26. International Jurisprudence

The learned trial judge and this Court were invited to consider jurisprudence from around the world, on insider dealing. I find this to be

of little or no value to the analysis of Irish law on this issue. The facts of the cases opened were readily distinguishable from the facts

of this case. More importantly, the cases referred to related to decisions on specific statutory and regulatory laws which laws are not

the law in this State, nor are the foundation for Irish law.

What is of assistance is Council Directive of 13 November 1989. The Directive assists the identifying of the objective of the statute.

The Council Directive in this case makes it clear that the objective is to protect the market from insider dealing. However, the words

of s.108)i) of the Act of 1990 are clear and plain, are not ambiguous, and so it is not necessary to go to the Directive to apply a

purposive approach to the interpretation of the Irish law.

The words of s.108(1) are clear and plain, and it is not necessary to go further than the words of the Act in construing the section.

Consequently, I do not require assistance from decisions of other jurisdictions on the construction of s.108(1). I respectfully disagree

with legal principles enunciated by the High Court, which follow upon the analysis of law from outside Ireland and the European Union.

Specifically, I find no assistance from the cases of the United States relating to the term "material information", the subjective

approach, and the reasonable investor test. I respectfully disagree with the adoption by the learned trial judge of a test grown upon

such cases. Irish statute law is different to that of the United States.

27. "Likely Materially"

Section 108 of the Act of 1990 provides that it shall not be lawful for a person who is connected with a company to deal in any

securities of that company if by reason of his connection with the company he is in possession of information that is not generally

available and which is 'likely materially' to affect the price of those securities.

The test is objective. Thus, the subjective view of Mr Flavin is not the test. Nor is the subjective view of the company directors: (I

shall return to the issue of the directors' view when considering what was referred to as the 'fundamental incongruity').

The information falls to be considered as if it had been generally available to the market on the days of the share sales. The test to

be applied is objective, as to whether the information was likely materially to affect the price of the shares. The test is not whether a

reasonable investor, if he had the information, would have concluded that the information would probably impact on the price of

Fyffes' shares to a substantial or significant degree. I respectfully disagree with the approach of the High Court.

The word "likely" is defined in the Oxford Dictionary as 'probable', 'such as well might happen …', 'to be reasonably expected'. It is a

word in common usage and meaning and is not a term of art. It envisages a situation which would probably arise.

The word 'materially' is also not defined in the Act of 1990. It is a word in common usage, not dissimilar to 'significantly'. Thus the

phrase 'likely materially', refers to a situation where information would probably significantly affect the price of shares, if it were

generally available. I agree with the analysis of Fennelly J., built on the decision in Case 14/83 Von Colson and Kamarn [1984] ECR

1891, and his conclusion, that s.108 must be interpreted in the light of the Directive, and that the expression 'likely materially to

affect those securities' must have the same meaning as 'likely to have a significant effect on the price of securities' in the Directive.

Thus the nature of the information in the November and December 1999 Trading Reports has to be considered and its likely effect on

the share price analysed. It is for the Court to determine whether the information is likely materially to affect the price of the shares.

The facts found of this information have been set out earlier in the judgment. They are findings of bad news.

Apart from applying a common sense approach to a warning as to profits, it is useful if a comparator is identified and the effect on

share prices, of similar information being released on the market, considered. In this case in issue was whether the 20th March

Announcement could be admitted in evidence, and the immediate reaction of the market to that Announcement which was a

significant drop in the share price.

28. 20th March Announcement

The learned High Court judge excluded Fyffes' 20th March Announcement from having any evidential value. I am satisfied that this

was an erroneous ruling.

On 20th March, 2000 Fyffes gave a profit warning. This was described by the High Court, at p.14-15 of the judgment, as:-

"Fyffes’ Annual General Meeting was held on 20th March, 2000. On that day the chairman made a statement at the AGM

and Fyffes issued a stock exchange announcement which was, in effect, a profit warning which, adopting the terminology

used by counsel for the plaintiff, which I will refer to as the March 2000 Trading Statement. It was headed “Fresh

produce trading” and stated as follows:

'The trading environment in the early part of the current financial year has been difficult. In particular, market conditions

in the last two months of calendar 1999 were significantly below expectations. The usual recovery in the first month of

calendar 2000 has been slower than anticipated, particularly because of the continuing weakness of the Euro against the

dollar. As a result, we expect that the performance for the first half of the year, on a like for like basis, will be below that

achieved during the same period last year. Present trading is slightly improved but, at this stage, it is too early to predict

whether the shortfall can be recovered in the second half.

Despite the exceptional market conditions so far this year, we remain confident about the future prospects of the fresh

produce sector and of the Fyffes business in particular. The Group’s strategy remains the active pursuit of further

opportunities for consolidation in our industry.'"

This 20th March Announcement had an immediate effect on the share price. The trajectory of the share price was described by the

High Court, at p.16 of the judgment:-

"Following the Preliminary Announcement on 14th December, 1999, Fyffes’ share price was on a upward trajectory for

about two months, peaking on 18th February, 2000, when it closed at €3.98. Thereafter it fell back. It closed on the

London Stock Exchange at €3.16 on 17th March. The Irish Stock Exchange was closed on that day. Following the profit

warning in the March 2000 Trading Statement it closed on 20th March at €2.70. By the end of March it was at €2.20 and

by the end of April it had fallen to €1.85."

Evidence of a comparator does not require parity of information and market. The degree of similarity of the information in the Trading

Reports and the 20th March Announcement requires to be analysed, as do the relevant markets, and the consequences to the share

price of the comparative information becoming generally available. According to the degree of similarity of the information in the

Trading Reports and the comparator, and in the markets, the weight to be accorded to the comparator may be determined.

How does the information in the 20th March Announcement compare to that in the November and December Reports? The November

and December 1999 Trading Reports referred to sales of €122 million being €10.1 million below budget and €1.7 million lower than the

previous year, losses of €2.6 million being €2.3 million worse than budget, and €4.1 million worse than the previous year, due primarily

to weaker banana prices. The loss for the month (November Trading Report) was €2.7 million compared to a budget profit of €1.2

million, and the previous year's profit of €2.8 million, due to weaker banana prices, European markets, and weaker exchange rate for

US dollar. In December it was reported that total sales of €149 million were €11.3 million lower than budget due to non consolidation

of Capespan and €6.1 million lower than the previous year due to lower UK produce throughput and the disposal of Swithenbanks. The

analysis indicated a loss. As to January 2000, the forecast was for a profit of €1.3 million compared to a budget of €5 million and €6.3

million in the previous year. The shortfall was explained as being mainly due to weaker UK banana pricing. The 20th March 2000

Announcement referred to "trading environment … difficult …, market conditions … below expectations … recovery slower than

anticipated …, performance for first half of the year … will be below that achieved last year." I am satisfied that the information in the

20th March Announcement was significantly similar to the information in the Trading Reports of November and December 1999. This

was illustrated by a useful table given in Fyffes' submissions identifying the similarities as follows:-

December 1999 – Management Accounts Stock Exchange Announcement –

Circulated to the Board on 25 January 20 March 2000

2000

(In relation to the performance of the banana “The trading environment in the

division) “December showed very little early part of the current financial

improvement in market prices or sentiment year has been difficult.”

with a multiple price war affecting an already

oversupplied market. The UK result was very

disappointing even after the diversion of food

to Europe. Urgent contract renegotiations are

required with ACP Suppliers to correct the

imbalance in the supply/demand curve which

occurs in November/December in the absence

of Autumnal natural disasters…the UK market

continues to be affected by competitors

seeking to increase their multiple market

share…the short fall (in the January forecast

against budget) is mainly due to weaker UK

banana pricing.”

(For November/December 1999 there was a “…market conditions in the last two

loss of €4 million which was €3.7 million worse months of calendar 1999 were

than budget and €8.9 million worse than last significantly below expectations. The

year.) “Current forecast (for January 2000) is usual recovery in the first month of

for a profit of €1.3 million compared to a calendar 2000 has been slower than

budget of €5 million and €6.3 million last anticipated…”

year.”

(By inference) At the end of the first three “As a result, we expect that the

months, we expect the company to be €13.9 performance for the first half of the

million behind the prior year, €7.4 million year, on a like for like basis, will be

behind budget and to have incurred a loss of below that achieved during the same

€2.7 million. period last year. Present trading is

slightly improved but, at this stage,

it is too early to predict whether the

short fall can be recovered in the

second half. Despite the exceptional

market conditions so far this year,

we remain confident about the

future prospects of the fresh

produce sector and of the Fyffes

business in particular. The group

strategy remains active pursuit of

further opportunities for

consolidation in our industry.

The High Court excluded any reference to this announcement of 20 March, 2000. This was considered and described as not a 'valid

proxy' in the judgment. The issue was analysed, from p.333 to p.338.

The learned High Court judge stated:

"As I have indicated previously, I am satisfied, on the evidence, that it was the March 2000 Trading Statement, which

was released by Fyffes on 20th March, 2000, the date of Fyffes’ AGM, that precipitated the adverse share price

movement on that day and the following day and that the information released contemporaneously in relation to wof.com

had no bearing on the share price movement.

Earlier in this judgment, in considering the legal principles applicable to the price-sensitivity issue, I accepted as correct in

principle the submission made by the defendants’ counsel that a post-market event is only of evidential value for the

purpose of resolving the statutory hypothesis if two factors are present: that there is parity of information between the

alleged price-sensitive information and the information which precipitated the putative proxy share price effect; and that

the market conditions were the same on the date the hypothesis is being applied and the date of the putative proxy

event."

Having analysed the situation from those parameters the learned High Court judge held:-

"In the light of the foregoing, I have come to the conclusion that what happened on and after 20th March, 2000 is not a

matter which is evidential value in applying the hypothesis posited in s.108(1)."

I am satisfied that the High Court erred. For the purpose of this analysis I will refer to the two factors raised by the High Court. I am

satisfied that there are significant similarities between these documents, between the information contained in the November and

December 1999 Trading Reports and the Announcement of 20th March, 2000. The Trading Reports indicated that there was bad news

about Fyffes' tradings and earnings performance. The March, 2000 Announcement was a profit warning. All the documents came from

Fyffes. The market on each of the relevant dates requires to be considered. It is the market as a whole which has to be considered,

and the effect on the market of the information becoming generally available. I am satisfied that there were no significant differences

between the market in February, 2000 and March, 2000. However, any differences which existed would affect the weight to be given

to the evidence, but would not exclude the evidence.

The Announcement of 20th March, 2000 being relevant, even if it is not given a heavy weighting, alters the balance of the evidence.

It illustrates the effect on the share price of the release of information very similar to that in the November and December 1999

Trading Reports. This effect was very negative as, after the March 20th Announcement, the share price dropped.

The 20th March Announcement also assists the issue of materiality. As the information in the 20th March, 2000 Announcement

'materially' affected the price of the shares, it follows that the information was price-sensitive. Therefore, similar information (in the

November and December 1999 Trading Reports) was also price-sensitive.

In the circumstances of this case the 20th March, 2000 Announcement was relevant evidence to the consideration of whether or not

the information in the November and December 1999 Trading Reports was price-sensitive, and should not have been excluded. Other

factors do not alter the fact that the information was price-sensitive.

Further, the immediate effect on the share price of the bad news in the 20th March, 2000 Announcement as to the core business of

Fyffes, showed that wof.com did not dominate the share price to the exclusion of the core business. This confirmed that whereas

wof.com may have driven the shares, the core business was still critical to the share price.

29. Conduct of Fyffes' Directors

The defendants relied upon evidence before the High Court that at the time of the sale of the shares the Directors of Fyffes did not

regard the information as price-sensitive. However, I am satisfied that this has no relevance to the issue before the Court. On this

appeal the query is whether the information in the November and December 1999 Trading Reports was price-sensitive. The fact that

evidence indicated that no director of Fyffes considered the possibility that the November and December 1999 Trading Accounts

contained price-sensitive information is not relevant to the issues arising on s.108(1) of the Act of 1990.

The test to be applied is objective, not the subjective views of the Directors. Nor, specifically, the subjective view of Mr Flavin. This

law protects the market with an objective test.

The High Court found that the reasonable investor might have regard to the absence of action by the company and to the decisions

made in relation to Mr Ellis and Mr Halpenny. But that is not determinative. They may have been factors in the market but they did

not alter the effect on the market of the information in the Trading Reports. While the issue of estoppel was raised, it was not

pursued.

This is not a case where Fyffes sold shares on the dates in issue. Thus no evidence is available as to any view it had as to price-

sensitivity on those dates. Fyffes' directors were addressing different issues at that time, related to internal matters, such as the

negative effect on shares of a profit warning, and regulatory issues. These considerations were not the analysis necessary to

determine whether information was price-sensitive. The High Court erred in failing to have regard to this difference, and to the fact

that it is possible to have price-sensitive information in advance of an announcement. Indeed, it seems reasonable that there is of

necessity a time lag between obtaining price-sensitive information and the taking of the appropriate regulatory steps for the market.

However, in any such situation there should be an abundance of caution in dealing in the shares of the company.

30. Fundamental Incongruity

The term 'fundamental incongruity' was developed during the hearing of the case in the High Court to refer to the submitted

difference in the position of the directors of Fyffes in February, 2000 (when they did not appear to regard the information as price-

sensitive) and their later action is bringing these proceedings which seeks an order declaring that the information was price-sensitive.

This matter concerned the learned trial judge, although she made no actual findings. She stated:-

"That outcome on the price-sensitivity issue obviates the necessity to confront the fundamental incongruity in the

plaintiff’s position, which I have highlighted earlier. However, it is difficult to see how a statute outlawing, and providing a

remedy for, insider dealing could accommodate such a fundamental incongruity. That it could, would seem to be at

variance with fairness and justice."

However, the test is objective. The subjective views of the directors is not the issue. Section 108(1) protects the market. The object

of the law, as described in the recitals to the Council Directive, is to protect the market from insider dealing. Fyffes' directors' view is

irrelevant. The company is regulated by other rules. In fact at the time the directors were concerned with different issues - relating

to Rule 9 and whether consents were necessary.

31. Test

The test, as set out clearly in s.108(1), is an objective test. Was there information? Was it generally available? If it was made

generally available, would it be likely to materially affect the price of the shares on the market? The answer is equally clear. There

was information. It was not generally available. It was bad news, it was information of a risk, it would concern the market. It was

information likely to affect the price of the shares on the market. In considering the information it is not appropriate to offset that

with information already in the market. The use of comparators is helpful. In this case there was a comparator in the 20th March,

2000 Announcement, which contained similar information. The 20th March Announcement, being a useful comparator, illustrated the

effect on the market of similar information - which was price-sensitive, there was a significant drop in the share price.

32. Conclusion

In conclusion, this is an appeal by Fyffes from a decision of the High Court. The High Court held that information which Mr Flavin had,

as a Director of Fyffes, on the 3rd, 8th and 14th February, 2000, when he dealt in Fyffes' shares, was not price-sensitive, and

consequently that he had not dealt illegally in the shares. On this appeal Fyffes submitted that the information was price sensitive

and that the High Court had erred.

The relevant Irish law governing the appeal is s.108(i), Companies Act, 1990, which may be interpreted by reference to Council

Directive of 13 November, 1989, which was adopted to coordinate regulations on insider trading to protect the market.

There was no appeal from the primary findings of fact of the High Court. These facts are the basis for this decision and include the

following. Mr Flavin was the person in issue, he was connected to Fyffes being a director of that company, he dealt in the shares on

the 3rd, 8th and 14th February, 2000, when he had the information contained in the November and December, 1999 Trading Reports;

which information was not generally available.

The core issue on the appeal is whether the information in the November and December 1999 Trading Reports was price-sensitive.

The nature of the information has been analysed in this judgment.

The High Court found that the information contained in the Trading Reports was very bad news for Fyffes; that taken on their own a

reasonable inference could be drawn that there was a real risk that both Fyffes' and analysts' expectations for the half and full year

would not be met; that there was a real risk was a reasonable deduction; that investors would have been concerned about the

outcome for Fyffes full and half year; that the information was of a type and quality that was potentially price-sensitive; that the

information was authoritative and was not generally available.

I am satisfied that the High Court erred in the identification and application of legal principles. The 'reasonable investor' approach does

not apply in this jurisdiction, it is not a principle to be found in Irish law. However, even if it were an appropriate approach (which I do

not consider it to be), I am satisfied that there was an error in 'offsetting' factors against the recognised price-sensitivity of the

information.

Also, common sense should not be excluded from the analysis. A finding that 'intuitively the information appeared on its face to be

price-sensitive' is an important factor.

The words of s.108(i) of the Act of 1990 are plain and clear. The section provides that it shall not be lawful for a person who is

connected with a company to deal in any shares of that company if by reason of his connection with that company he is in

possession of information that is not generally available and which is likely materially to affect the price of those shares. The test, as

to whether the information is likely to affect the price of the shares, is objective. Thus the subjective view of Mr Flavin is not the

test, nor is the view of the directors the test. The test is whether the information would be likely materially to affect the price of the

shares, if it were generally available.

The effect of such information on the market may be analysed with the assistance of a comparator. I am satisfied that the

information in the 20th March Announcement was similar to that in the November and December 1999 Trading Reports, and that the

effect of its release on the market is a valid comparator. The weight to be applied to such a comparator would depend on the degree

of similarity of the information and of the market. In this case I am satisfied that the comparator, the 20th March Announcement and

its effect on the share price in the market, was relevant evidence and should have been considered by the High Court. The High Court

erred in excluding such evidence. In the circumstances of this case the 20th March, 2000 Announcement was relevant evidence in

considering whether the information contained in the November and December 1999 Trading Reports was price-sensitive, and such a

comparator should not have been excluded. Once introduced, the fact that the 20th March, 2000 Announcement materially affected

the shares was relevant evidence, as was the immediate drop in the share price. This evidence is such that, taken with the findings

of fact, it is an inevitable conclusion that the information was price-sensitive.

For all these reasons I am satisfied that the information was price-sensitive. This finding determines the appeal.

For the reasons given I would allow the appeal. I am satisfied that the November and December 1999 Trading Reports contained

price-sensitive information. Consequently, the learned trial judge erred in concluding that the information in the possession of Mr

Flavin, relating to the business of Fyffes, on three dates in February, 2000, when Mr Flavin dealt in the shares of Fyffes, was not

price-sensitive vis-à-vis those shares.