The Co-operative Group, one of the UK's largest retailers, has lost a legal battle for £11m in damages from IT services company ICL, now Fujitsu Services, after a judge ruled that Co-op's IT staff lied to the court about the supplier's performance in a failed IT systems project.
The Co-operative, which operates about 1,100 supermarkets across the UK, has been ordered to pay ICL £1m in compensation and will be expected to meet a significant proportion of ICL's £1.6m costs, following a damning judgement from the Technology and Construction Court.
The Co-operative Group, formed two years ago through the merger of Co-operative Retail Services and the Co-operative Wholesale Society, brought the action against ICL after a project to introduce a common point-of-sale system ran into difficulties.
The supermarket group claimed that ICL had breached a contract to supply a Globalstore point-of-sale system that would bring the IT infrastructure in 400 former CRS stores up to the same level as the CWS stores and enable the CRS stores to run the Co-op dividend loyalty scheme.
But in a judgement that has surprised commentators by the strength of its criticism, Judge Richard Seymour QC, said that the Co-operative Group had no case because it had failed to agree a contract with ICL.
Although ICL pressed ahead with work on the project, talks between the supplier and the Co-operative Group, which were meant to hammer out a new contract following the merger, floundered.
The two parties were unable to reach agreement over proposals that ICL should pay penalty clauses if it failed to meet deadlines and quality standards, effectively leaving no contract in place for the work.
The highly critical judgement accuses two of the Co-operative Group's three key witnesses of lying to the court in an attempt to justify the retailer's case.
Co-operative Wholesale Society project manager, Rob Young, was "simply telling lies" in order to justify claims that ICL's performance in the Globalstore project was lamentable, the judge said.
He also called into question evidence given by Kevin Cook, an IT contractor responsible for testing the ICL software. "It is impossible to resist the conclusion that Mr Cook was prepared to support the case of CWS . . . with evidence which I am satisfied he knew to be false."
The judge accused Keith Brydon, general manager for IT at CWS, of "plotting the downfall" of ICL by drafting a letter criticising the quality of its software a month before it had been delivered.
Brydon's judgement was coloured by an earlier grievance with ICL, the judge decided.
Stephen Castell, a specialist in IT litigation, said the case was highly unusual but would serve as a warning to any companies that were tempted to cut corners in order to complete IT projects by a tight deadline.
"I have never come across a case of someone bringing an action to establish a contract. One would hope this case is not very representative of the industry as a whole.
"For two very reputable companies to go ahead without a contract, and then go to court to establish one, seems to show a dereliction of duty somewhere along the line."
The Co-operative Group said it was considering whether to appeal against the ruling.
"We thought the judge's approach to the evidence we put forward was unusual and a lot of what was said was highly subjective. There were a number of instances in the judgement where he was making personal attacks on witnesses which we consider wholly unwarranted," the group said.