The decision marks the end of a three-year battle for the Co-op, which has spent an estimated £1.8m in legal fees pursuing Fujitsu for compensation for the ill-fated project.
The case was due to go back to court for a retrial in February, after appeal court judges ruled that the original trial judge had mishandled the case.
Lawyers who have followed the case said it was a salutary lesson about the risks of litigation in IT disputes. "It is a recognition that both sides are battle-weary and that neither side can have felt supremely confident of the outcome of the retrial," said Mark Culbert, associate at Osbourne Clarke.
"Given the lack of certainty and looking at the cost that would be incurred, both parties have found a common ground - their distaste for another round of combat," he said.
The case saw the competence and integrity of senior Co-op directors and IT staff questioned by a senior Technology High Court judge.
Both sides also had to endure the publication of highly embarrassing internal e-mails that managers never expected would see the light of day.
In one, Fujitsu warned its staff that with three of its key people away and the delivery deadline for the next release of software approaching to, "Please be prepared for the shit to hit the fan."
The failure of the Globalstore Epos system was a serious blow to the Co-op, which regarded it as a key plank in the merger between the Co-operative Services Group and the Co-operative Wholesale Society to form a single UK-wide supermarket chain.
But when things began to go wrong, the Co-op found itself on difficult ground because it had begun work with Fujitsu on the project before it had finalised either the contract or the project requirements.
The case highlighted the need for IT departments to nail down contracts and specifications thoroughly before they begin work, said Allan Warton, managing director of the Best Practice Group.
"It clearly demonstrated that both parties should have their expectations clearly visible and the contractual relationships clearly delineated. Then the purchaser knows what to expect and what advice they can and cannot rely on from a supplier," he said.
In a statement the Co-op said both sides had withdrawn all allegations and had settled their differences without payment of compensation by either side.
Under the settlement, the Co-op has dropped its £11m claim against Fujitsu, in return Fujitsu has dropped a £1.4m counter-claim against the Co-op.