I’ve been reluctant to write anything about the DCC\Fyffes\Flavin case (see here and here) despite my suspicion that it represented a very unfortunate precedent in an age in which corporate malfeasance in our leading businesses is a major issue in Irish public life. This is because I can’t claim to have read the 700 page Shipsey report and have a very limited understanding the complex legal issues involved. However, I think that Matt Cooper has done the public an important service in raising the potential implications of the case in this article and I’d be interested in hearing the opinion of some of our more legally-minded commenters as to whether Cooper’s concerns are well-founded.
Shipsey found that Flavin had done no wrong because he had taken legal advice prior to the relevant share dealings. Paul Abbleby of the Office of Director of Corporate Enforcement then concluded “There’s no way that any court would sanction a director for having followed the company’s legal advice.”
Cooper asks “So the question arises: has Shipsey set a precedent that legal advice trumps the law?” and points out how any future businessman wishing to do something illegal now only has to find a lawyer to tell him that what he wants to do is ok.
In relation to the banking crisis, Cooper points out that the defence that people believed they were behaving legally can now come to the aid of those who clearly behaved in an illegal fashion and that a public banking inquiry is likely to be our only chance to see certain individuals called to account for their actions.
As I say, I’m not a legal expert, so I’d like to hear whether those in the know think Cooper has this wrong.
31 replies on “Cooper on Implications of Flavin Judgment”
i point out regularly in investments classes how lucky we are in this country where we have uniquely honest people trading on the market. How else could it be that we have never, afaik, had a succesful prosection for insider trading – not like such awful places as , oh, New York…..
@Karl Whelan
Alan Ruddock also has good piece on the DCC-case in Today’s Independent
http://www.independent.ie/opinion/analysis/shipsey-cant-repair-damage-to-flavin-2029255.html
The key legal ruling was the Supreme Court judgment [unanimous – 5 to 0] which found that DCC acted on inside information. Flavin and the DCC board essentially ignored the implications of this judgment – albeit paying compo to Fyffes of 40 million or so …….. and ODCE and Irish Investment Group had to force Flavin to resign via public pressure. Yes, they gave the middle finger to our Supreme Court ………
Shipley is an High Court ‘inspector’ – and has no real teeth. His conclusions, however, are very surprising …….. but one must comend the ODCE for forcing the issue …….. whatever the perplexing findings …
What we have here, and Cooper is nearly on the ball, is the UpperEchelon Commercial Equivalent of Cardinal Connell’s ‘Mental Reservation’ …… in other words, the BIG BOYS around here can really do what they like ………. and legal subtleties are used as get-out of jail strategies ……… Worth noting that the members of the Board of DCC, when they decided that they could ignore the Irish Supreme Court’s findings, included former Chairs of Bank of Ireland and Allied Irish Bank.
Unfortunately, despair is not yet an option ………
@Karl
Can’t answer myself but have asked someone who can (but may not have the time)
I’d suggest getting Peter Oakes to do a “Guest post” on this one… he knows his stuff in this area (lawyer who worked fro FSA and now consults in Dublin)
http://www.complianceireland.com/
Cooper asks “So the question arises: has Shipsey set a precedent that legal advice trumps the law?” and points out how any future businessman wishing to do something illegal now only has to find a lawyer to tell him that what he wants to do is ok.
It’s not new to claim that since you were advised by your lawyer that it’s ok, then it’s ok – it’s the “John Yoo” defence for torture by the Bush administration.
Wrongdoing has been deeply entrenched in the culture for generations now. One commenter states that there has been no successful prosecution of an insider case in Ireland. Does that surprise anybody, what would surprise me is that an Irish regulator would even contemplate pursuing an insider trading case.
Likewise, I haven’t read the 900+ pages of the Shipsey report. It found “errors of judgement” but nothing illegal. The distinction seems to rest on Flavin’s intentions and the fact that he took legal advice is a major factor in protecting him.
What the report does not change are the basic facts: Flavin had price sensitive information which was not known to the market when he traded the shares.
He seems to be applying a criminal standard of proof i.e. a subjective test (did Flavin actually believe the information was price sensitive) rather than an objective test (would a reasonable investor have known the information was price sensitive)
As I understand it, the reason the High Court held that Flavin did not have price sensitive information was a letter from Neil McCann of Fyffes to shareholders denying this. The Supreme Court held that the letter did not trump common sense i.e. the information was clearly price sensitive because when it became known, the share price dropped.
Secondly, the Lotus Green company was a sham designed to avoid CGT. The Revenue Commissioners must collect their share now.
International investors will not be impressed. They will see that a major share dealing was conducted with the benefit of price sensitive information and the courts/regulators get tied down for years with no result.
When a single transaction leads to this, imagine what the banking inquiry could do!
Ireland has been corrupt at the top for soooo long that the idea that judges still can be found to say that any act was unlawful still comes a surprize.
The US Supreme Court Boston, not Brussels, has found that Obama can exclude all legal protection from anyone he chooses, if he deignates them an enemy combatant even if an “American” citizen. They now find that corporate persons have more rights than humans, nearly. We can do no better than to follow their lead and everything will be fine!
This will all end badly. Attracting foreigners to our shores to launder money has cost us a lot more than we have gained even if less than 54,000,000,000 is spent. “Foreigners” who have money have used it to take out what capital we had left, after our own stupidity in selling one another houses for twice what they were worth. Who exactly was fooling whom there? Did we win? I think not. The sheer stupidity of the shows put on and the fact that the dumb Irish voter puts up with it, really marks us out. As marks.
What an advert for foreigners? Who will we attract here to do business do you think? The hottest of hot money. It will buy everyone they need, in and out of the public service.
Where are the limits for this behaviour? When we have nothing left at all? What encouragement exists for any honesty?
The US Supreme Court Boston, not Brussels, has found that Obama can exclude all legal protection from anyone he chooses, if he deignates them an enemy combatant even if an “American” citizen.
You missed the boat there – that was Bush, not Obama.
They now find that corporate persons have more rights than humans, nearly.
A decision that relied on Scalia et al. for the majority, with the four ‘liberals’ voting against. Maybe you should take something away from this?
@ Karl
if the legal advice he received was faulty, as it now appears to have been, shouldn’t there be some sort of legal action against that legal advisor from DCC to regain the €40mn they had to pay out? Isn’t this why solicitors have professional indemnity insurance etc? Otherwise, as EWI noted, you could just use the John Yoo defence whenever you needed to. I personally prefer the Chewbacca defence…
Sometimes I despair too, but for different reasons.
David O’Donnell is wrong. Yes, wrong, no matter what the media unanimously say.
The Supreme Court judgment [unanimous – 5 to 0] DID NOT find that DCC acted on inside information. It found unanimously that Flavin possessed price-sensitive information. That is not a crime, nor even a tort, and the High Court found that he did not profit from the information, a finding that the Supreme Court was not asked to review, and did not question.
Unfortunately for Flavin, the law at the time – it had been recognised as excessively harsh and amended, even before the High Court case – was a trap for the unwary. He did at least partially recognise that, and took advice before proceeding. The advice said that he was within the law, a view with which the High Court agreed.
There is more on my website.
I understand the reasons why KW and others are perplexed by the Inspector’s Report and the ODCE response. Just a couple of issues of clarification:
The Inspector did not and could not disagree with or undermine the 2007 findings of the Supreme Court that DCC engaged held price sensitive information through connection to DCC at the time of trading in DCC shares, contrary to section 108 of the Companies Act 1990. This was a civil case and the question of intent and indeed the state of knowledge of the defendant was of limited relevance. On an objective test a person who has price sensitive information about a company through their connection to the company who deals in the shares of that company carries out an unlawful act.
There is also the possibility of criminal prosecution for the same wrong. Though no requirement of intent is specified in the legislation, the Circuit Court held in DPP v Byrne (2002), that the defendant must know that they have price sensitive information to be guilty of the offence. The subjective knowledge of a defendant is likely to be shaped by the advice they have received.
Such a reading into criminal legislation of a requirement of intent (mens rea) frequently occurs in common law countries and not just in Ireland. Thinking about regulatory legislation more generally I think it is appropriate to criminalise regulatory wrong-doing with strict liability (ie no requirement to prove intent) and, indeed, a requirement of intent frequently makes it extremely difficult to prove the offence to the appropraite standard. Discretion in respect both of prosecution and sentencing decisions can be used to address concerns that such strict liability offences might unfairly stigmatise some persons.
Whilst many regulatory offences involve strict liability, the use of strict liability in the criminal law generally requires the drawing of a line between offences for which this is appropriate and those for which intent must always be proven. We do not require proof of intent with respect to speeding and parking offences, but do in respect of theft and murder. There is a major debate amongst lawyers as to which side of the line particular kinds of regulatory wrong doing should fall, including in respect of The Market Abuse Regulations (2005 – implementing an EC Directive), which replace s.108 of the Companies Act 1990.
My previous post should, of course, refer to trading in Fyffes shares.
@Fergus O’Rourke
Yes – I must agree with you here – I’m always open to correction on my ‘errors of judgment’. I fully agree with you that the Irish Supreme Court found DCC, in the person of its CEO Mr Flavin, to be ‘in possession’ of price-sensitive information. When Alvin Price, an apparently astute member of the ruputable legal firm William Fry asked Mr Flavin to ‘examine his conscience’ ……… it appears that Mr Flavin did not fully inform Mr Price of the fact that he had ‘inside knowledge’ as he believed this price-sensitive knowledge to be confidential to Fyyfes: might I be correct in suggesting that Mr Flavin ‘mentally reserved’ in this case.
Fact: DCC sold Fyffes shares and trousered €80million or so ……
Fact: DCC paid ‘compensation’ [whatever for I don’t know] to Fyffes after the supreme court judgment.
Correction of one of my other errors – The BoI and AIB members of the board of DCC – those who gave the proverbial midddle digit to our Supreme Court – are ex-CEOs of those banks. Do we not begin to get a little grasp of certain cultures at the top in all of this …………
@Colin Scott
Very useful post – keep it up.
Seeking legal advice may exonerate one from a charge of negligence. That is often a primary function of taking legal advice. This does not extend to criminal matters.
To suggest that legal advice may provide “an out” in terms of regulatory wrongdoing or criminal matters would put extraordinary pressure on legal advisers. This is bad for the legal professions’ independence, integrity and reputation.
Is it desirable that a private practitioner should be commissioned to carry out an investigation that could lead to a prosecution? The case involved actions (not inadvertence) based on advice by other private legal practitioners. The advice from such legal advisers appears to have been central to the facts of the case.
How can a private legal barrister, who works in a collegiate system and who cannot accept instructions directly from the public save in limited circumstances, be expected to investigate such matters? The advisers are one of the largest commercial law practises in the country. I have no idea whether the investigating barrister had received many instructions from that firm in the past but, due to the size of their commercial business, I would be surprised if he had not.
The issue of Mens Rea is that one must intend to carry out the act and do the deed, not to break the law. If one decides to kill somebody and makes good on the intention then one is guilty of murder notwithstanding that one was not aware of the law. The fact that one genuinely thinks the act is lawful is wholly beside the point. Indeed, a jihadist might feel it was against the law not to commit the deed.
Mr. Shipsey may have felt that the fact of the advice may have affected the “culpability” of the Directors but really this is a matter for a Court and Jury to decide. In any event, it was Mr. Appelby’s decision not to prosecute and it was Mr. Appleby’s analysis that a Court would never convict somebody who relied on legal advice. At least we are being informed of Mr. Appelby’s logic, spurious though it is. The DPP would not tall us even that much.
Correction – “actions (not inadvertence)” above is incorrect as the matter in question was failure to notify pursuant to s. 67 of the Companies Act 1990
@Colin Scott
Any chance you will follow in Philip Lane’s footsteps and create an equivalent website for Irish Law for academics to post to?
@zhou
There are already some very active blogs run by my learned academic friends, the first two addressing human rights issues, the third IT Law and the fourth higher education (including higher educaiton law):
http://www.cearta.ie/
http://humanrightsinireland.wordpress.com/
http://tjmcintyre.com/
http://9thlevelireland.wordpress.com/
These blogs would not so frequently address the economic law issues which readers of this blog might be interested in, so I guess there may be gap in the market.
Absence of mens rea might best be dubbed the Thierry Henry defence (did’nt handle it deliberately, your honour).
The possession of an opinion from a Senior Counsel stating that a proposed course of action is not illegal strikes me as an extraordinary get-out-of-jail card to introduce into cases of this kind. The SC is doing what precisely – predicting what the judges are likely to find? Why should the SC’s forecast be given such an important status? What if the first SC advised differently, and we found another one?
Of course mens rea makes sense in manslaughter versus murder, for example, but possession of a, possibly mistaken, opinion as to what the courts may ultimately find in a company law context is hardly analogous.
Has Mr. Shipsey come up with something new here? What would his finding imply should it emerge that window-dressing of a bank’s accounts was indeed deemed to be illegal by the courts, but the window-dressers had equipped themselves with a legal opinion to the contrary? The verdict would be, er, that’s OK folks since you had the foresight to secure the (bad) advice of the learned silk? Erroneous advice is elevated to the status of 100% mitigation. Purveyors of good advice (accurate forecasts) do no business.
I am not competent to offer any view on the Jim Flavin case, and he may well have made an honest mistake. But if the press reports are accurate, Shipsey’s approach seems to imply that bad advice would have been valuable to him. Am I missing something?
Is it any wonder, reading this, and reflecting on m’learned pals refusal to act with a shred of honor on taking the pain along with the rest of the ps, that the law is so deeply held in disrepute? Honestly….
@Zhou_EnLai re Colin Scott
Zhou – this blog is in the field of ‘Political Economy’ – and as the socially constructed System of Law mediates the relationships between the Systems of Money (economy) and Power (political and economic) and the Lifeword of Joe and Joan Citizen (Democracy) – it follows that discussion of Law, and especially company law in this case, are relevant here. The big issues of the day are inter-disciplinary, or so says the Tao! ……….
@Colin Scott
Thanks for the links. I wasn’t thinking in terms of economic. It would be great if there were a site like this where law school academics could post articles they have prepared as well as comments on topical matters. I think this website has shown the way. It might be best not to allow comments on the law blog though given that lawyers are somewhat more risk averse than economists!
@Colm
You will note my view that the introduction of a mental element into many regulatory offences is undesirable (and this is a view shared by many legislative bodies, judging by their output).
Addressing your point about intent there may be occasions even with crimes against person and property where some knowledge as to a state of affairs.
Take this definition from the the Theft fromt the CRIMINAL JUSTICE (THEFT AND FRAUD OFFENCES) ACT, 2001
‘a person is guilty of theft if he or she dishonestly appropriates property without the consent of its owner and with the intention of depriving its owner of it’
What if a person reasonably believes :
a. they are the owner (and possibly with legal advice to that effect)?
b. they have the consent of the owner (when in fact they have the consent of another person)?
c. they have the consent of the true owner, but this was induced by fraud?
d. they have the consent of the owner to take goods as part of a sting operation to catch a fellow employee?
Would we ever want to permit subjective beliefs to limit the scope of offences like theft and insider trading? In each instance there is potential not simply to offer a defence but rather to deny that an offence has taken place because an element of the necessary intent is missing.
These may be Law School hypotheticals in respect of theft offences (which we might enliven with discussion of umbrellas in restaurants), but they do suggest that intent may extend beyond simply intent to perform the prohibited act (in this case taking the item of property) and have elements which relate to the reasonable knowledge of the defendant.
“What if a person reasonably believes :
a. they are the owner (and possibly with legal advice to that effect)?
b. they have the consent of the owner (when in fact they have the consent of another person)?
c. they have the consent of the true owner, but this was induced by fraud?
d. they have the consent of the owner to take goods as part of a sting operation to catch a fellow employee?”
They are all fine because they remove an element of the offence. What about another scenario?, viz:
– What if a person believes, on foot of defective legal advice, that it is not illegal to dishonestly appropriate property without the consent of its owner and with the intention of depriving its owner of it?
The issue of strict liability is a thorny one and goes beyond the net point of the present case where the legal advice was simply defective.
Unfortunately, I do have time to address all points made above just now, but once again I am depressed at the quality of the analysis and understanding. I will probably comment further when I can later this week on my own website.
For now, I will just say that Colm McCarthy for one appears to have a completely misconceived idea of Bill Shipsey’s function in this matter. It is hard to blame him for that, when the same mis-conception is ubiquitous.
Iraq war – Goldsmith oinion(AG) says ‘not legal’ – Blairites disagree – Goldsmith then changes opinion to ‘legal’ – Blair accepts – at war 2 days later -which piece of advice was correct?
@Fergus O’Rourke
Note that colm mccarthy [all lowercase] is not Colm McCarthy, the renowned economist.
@Zhou
If someone came on here “posing” as a well-known individual such as Colm McCarthy (or colm mccarthy …) and their details showed they were not who they claimed they were, then I would delete the post.
@All
Just now read Matt Cooper’s piece – and I thought I was clever seeing the equivalence to ‘Mental Reservation’ – we both found the same connection.
The point I found most troubling with this case, c’mon insider dealing is common enough – was the way the Board of DCC tried to ignore The Irish Supreme Court – and keep Flavin in his position. As Colin Scott has pointed out – the Supreme Court judgment was a ‘civil action’ ……….
I still hold faith in the Irish Supreme Court’s ability to handle any upcoming ‘criminal actions’ arising from recent upper-echelon Criminality …………. first, of course, one has to get them that far ……….
@KW
My bad – I thought the official contributors’ names turned up in blue and cmc lowercase was just another cmc, it being a comon enough name. (I must pay more attention to cmc lowercase’s posts!)
I remember following the original high court case through the media(radio/newspapers) at the time. Fyffes had price sensitive info about themselves and misled their shareholders around the time DCC got rid of their shares. No one has brought up this by the McCanns, surely misrepresenting a companies position to its owners is morally and ethically wrong? if not legally suspect.
Fintan O’Toole argues that this report provides us with the self-image of Irish capitalism, i.e. a system where rules are subjective. He also points to the silence of the organised business community as evidence that it doesn’t actually believe in the (capitalist) system
http://www.irishtimes.com/newspaper/opinion/2010/0126/1224263113389.html
He has an important point here. I can find no-one who has expressed public support for Shipsey’s report (apart from DCC and Jim Flavin, of course). Business journalists have widely criticised it but the business and legal communities seem to be keeping their heads down. They may hope it blows over but I think it will do lasting damage at a time where the credibility of the business community is at its lowest (and the legal world is faring little better).