Co-op wins £11m appeal against ICL ruling

Ruling in the Co-op's appeal against ICL at the Technology and Construction Court has implications for the effectiveness of the...

Ruling in the Co-op's appeal against ICL at the Technology and Construction Court has implications for the effectiveness of the court in handling such disputes.

IT staff at the Co-operative Group supermarket chain had more reason than usual to celebrate over the festive season.

After more than two years of legal battles, three appeal court judges threw out the January 2003 ruling by the Technology and Construction Court that had left the Co-op £11m out of pocket and the reputations of its senior IT staff tarnished.

The decision represents a victory for the Co-op's former general manager for IT and other senior Co-op IT staff, who were pilloried in the original trial and accused of lying in court to support the retailer's claim for damages against ICL.

But the crucial question of whether the Co-op or ICL, now part of Fujitsu Systems, was to blame for the failure of the Co-op's £12m electronic point of sale project remains unanswered.

The Appeal Court's decision, rushed out after four days of hearings, will inevitably raise questions about the effectiveness of the courts in handling complex technology disputes.

Some lawyers are concerned that the Technology and Construction Court, which was created for precisely this sort of dispute, has seen too many of its decisions overturned by the Court of Appeal.

The trend not only erodes confidence in the court, but also means that companies in dispute with suppliers face protracted legal battles and mushrooming costs, which can often dwarf any compensation or damages a successful organisation might gain.

Judge Richard Seymour, who tried the original Co-op/ICL dispute, has been criticised for his personal attacks on witnesses and his reliance on evidence not argued in court - in several cases including the Co-op's. These judgements have been overturned by the court of appeal in recent years.

In cases involving the Royal Brompton Hospital and Miller Construction, for example, the appeal judges concluded Seymour had decided the case on issues not presented in the evidence.

In the Co-op's case, the appeal judges concluded that Seymour had allowed his judgement to be coloured by an improbable conspiracy theory.

The Co-op's general IT manager, Keith Brydon, and its chief executive, Graham Melmouth, set about plotting the downfall of ICL because of a "festering grievance" with ICL's performance on an earlier contract in the funeral business, the judge said. They wanted to find an excuse to end the deal so it could avoid paying £1m in uplift fees to ICL, due on an earlier contract, he added.

The judgement contained a series of personal attacks on the Co-op staff and its legal team taking both sides by surprise. The judge consistently claimed that the principal witnesses for the Co-op had lied or had acted in bad faith. However, he treated inaccuracies in the evidence of the ICL witnesses as "lapses of memory" or "the result of an innocent mistake".

It was common ground between ICL and the Co-op that they had some sort of contract. The dispute was over which contract and whether ICL or the Co-op had breached it. But the appeal court questioned the decision by Seymour that both sides were wrong. He said there was no contract in place, and therefore no contract for ICL to breach.

The appeal court decided the judge's conspiracy theory made no commercial sense. Why would Co-op managers want to place the most important IT project in the organisation's history at risk because of a past grievance with the supplier? The suggestion that managers were trying to scupper the project to save £1m on a £12m project also did not add up, the appeal judges said.

"Reluctant as we are to reach these conclusions, and mindful as we have been throughout this appeal of the damaging and inherently undesirable consequences of the retrial, we have nevertheless decided there is no alternative," the appeal judges said.

Nick Eyre, secretary of the Co-operative Group, told Computer Weekly that the company was now preparing to challenge ICL again in the High Court.

"This decision vindicates the group's management team, who were treated shamefully by Seymour. He chose to disregard their testimonies and instead appeared to construct his own theories, which we felt had no basis in the evidence before him," Eyre said.

The retrial will decide where the blame lies for the failure of the Co-op's £12m project. The Co-op argued that ICL was in breach because it failed to deliver software either on time or of sufficient quality, but ICL claimed that the Co-op failed to provide it with the information it needed to complete the work. The disagreements were exacerbated because both sides had a different view of what ICL was meant to deliver.

ICL is currently considering its position on the Appeal Court verdict, but both companies could face another showdown in the courts this year, with high legal costs and the spectre of further appeals - perhaps as far as the House of Lords - before the matter is finally settled.

Lessons learned       

The Co-op and ICL's mistake was to press ahead with the project before they had finalised the terms of the contract. Neither side had agreed a mechanism for resolving disputes when they happened. 

As a result, said Allan Watton, managing director of consultancy Best Practice Group, the Co-op had only two alternatives in the face of unsatisfactory work: continue with the project or terminate it.  

The Co-op terminated the project just weeks before ICL was due to deliver the final version of the till software, when the supplier refused to agree penalty clauses. 

Organisations should agree penalties for late delivery before beginning work on a project, said Watton. Penalties for any failures of acceptance testing or missed project milestones should also be agreed in advance. 

Another approach is to ensure that any agreement includes clauses for alternative dispute resolution if things go wrong. These clauses are increasingly favoured by courts and lead to resolution much more quickly and at a fraction of the cost of a trial. 

"This is not just a purely contractual issue. It is a way of creating a workable, less stressful way to resolve arguments with suppliers. The Co-op had only one way to express dissatisfaction and that was by terminating the project," said Watton.

What the court of appeal said       

The judge's finding of what amounted to a malevolent conspiracy to manufacture and present a false case went far beyond any fair or legitimate view of the Co-op's case. 

His treatment of the Co-op witnesses was in marked contrast to his treatment of the ICL witnesses. He treated inaccuracies in the evidence of ICL witnesses as lapses of memory or the result of an innocent mistake.

The Co-op witnesses were repeatedly not believed. 

The judge demonstrated "an inability to grapple objectively with the issues of fact and law presented to him". His "objective vision" was distorted.  

Apart from ordering a retrial, there is no other way to ensure that justice and fairness are seen to be done.

What the judge said about Co-op staff       

The Co-op's behaviour was driven at the highest level by a "festering grievance" to exact revenge with ICL. The Co-op dealt with ICL only with reluctance and antipathy.  

From the very first the Co-op had been looking to cause a complete breakdown of its relationship with ICL. Co-op managers, from the chief executive downwards, wanted the deal to fail so they could avoid paying ICL £1m in uplift fees. 

The Co-op's general IT manager, Keith Brydon, was antipathetic towards ICL and attempted to plot its downfall. He was "on the look-out for any serious opportunity for the Co-op to terminate its connection with ICL". He deliberately made "misrepresentations to his colleagues " to portray ICL in a bad light. 

Robert Young was "completely out of his depth as a project manager". His only qualification for the role appeared to be his command of "management speak". He lacked the appropriate drive and initiative. His approach to problem solving was simply to have a meeting. Young "was simply telling lies" to support the Co-op's case. 

Software tester Kevin Cook gave evidence of his role in a decision to reject the ICL software. He was prepared to support the Co-op's case with evidence he knew to be false.

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