Co-Operative Group (Cws) Ltd. (Formerly Co-Operative Wholesale Society Ltd.) v International Computers Ltd.

H.H. Judge Richard Seymour Q. C. :

Introduction

“ ….Neil Braithwaite, General Manager, Finance, and I discussed the position. We were aware that CRS was having difficulties and it occurred to us that a CRS/CWS merger offered CWS the opportunity to acquire a large number of medium and small size stores. It was that end of the market which the strategic review had determined was of most benefit to CWS, on the basis that it would allow us to concentrate on our strengths, which were seen as being the smaller convenience stores, as opposed to the larger supermarket side of the market. ”

Contact was made with CRS and, in due course, the transfer of engagements to which I have referred was agreed and implemented.

“ 6. Phil Davies (of CRS) and I were peers in terms of IT responsibility and Phil effectively had the same job in CRS as I had at CWS. In early 1999 I was aware that Phil was addressing the issue of Millennium compliance of the CRS estate. The entire CRS estate faced the potential problem of its EPOS system not working after the Millennium. CRS also had a problem in that it did not have a uniform IT system throughout the stores, using a number of different systems which makes it difficult to service and introduce new developments. I was aware that in 1999 Phil had negotiated with ICL for an EPOS harmonisation programme which would provide CRS with a uniform platform which was also Millennium compliant.

7. Although this meant that CRS had progressed towards EPOS harmonisation, this was only a first step. To advance further would involve CRS addressing its back office functionality which was relatively unsophisticated compared with the CWS estate…. ”

The CRS Agreement

“ The Agreement covers all types of business transactions which ICL may enter into with CRS including the supply of Equipment, licensing of Programs and provision of Services in connection with the overall CRS IT Convergence strategy.

It details the terms and conditions under which ICL agrees to perform these transactions, the various methods of ordering CRS may wish to use, and provides for the procurement under either leasing or purchase terms.

This Agreement details the pricing arrangements which ICL has agreed for certain Equipment, Programs and Services CRS wishes to order.

This Agreement also incorporates a binding contract between the parties for the STORE SYSTEM HARMONISATION & STOCK MANAGEMENT PROGRAMME

as detailed in Schedule Four hereto.

By signing below ICL and CRS each indicate their respective company’s acceptance of this Agreement and agree that future Orders accepted by ICL under this Agreement will be subject to its terms and conditions. ”

“ 2.1 The parties agree that the supply of Products to CRS will be by means of CRS placing Orders from time to time in accordance with this Agreement. Orders will only be valid when they have been accepted by ICL in accordance with Clause 4.1. All Orders will incorporate ICL Contract Conditions, September 1998 Edition (reference UKGC0998, UKSE0998, UKPL0998, UKES0998, UKPS0998). In addition, leasing arrangements will typically be subject to the Flexible Finance Contract Conditions, January 1999 edition (reference HRFF0199). Any special terms set out in Schedule Three hereto shall apply with precedence…

3.1 CRS agrees that all Orders will be placed in the format agreed in Schedule Two to this Agreement and in accordance with any other details set out therein…

4.2 ICL agrees to supply the Products detailed in Schedule One at the prices detailed therein and according to the terms of that Schedule and of this Agreement.

5.1 This Agreement will come into immediate force and effect on the date hereof and subject to Clause 5.2 below shall remain in force for a minimum of 3 years. Thereafter, either party may terminate this Agreement by providing to the other party not less than three months prior written notice of such termination…

5.2 Either party may by written notice terminate this Agreement at any time if the other party is put into liquidation (other than solely for amalgamation or reconstruction while solvent) or if a receiver administrator or administrative receiver is appointed over any part of the other party’s business or if any of the other party’s property is seized for non-payment of any debt or is unable to pay its debts as they fall due. A merger between CRS and another member or members of the Co-operative movement in the United Kingdom will not provide cause for the termination of this Agreement under this clause… ”

“ In return for a 3-year commitment ICL will adopt a services pricing strategy of occupancy cost plus 30%. The table below gives the rates at the date of this Agreement for each role envisaged within the 3-year programme….

In the event that this Agreement is terminated prior to completion of all work described in Schedule Four, then the Standard Daily Rates shown below will instead apply to all work carried out under this Agreement. ”

A table was then set out which indicated, for each of the “Core Team Roles” , amongst other things a “Standard Daily Rate” and a “Special Rate for ICL/CRS 3 Year Agreement” . The latter were substantially lower than the former.

“ Phase 2 – SSM Trial – Will provide the necessary Hardware, Software & Services required to deliver a 2-store trial of SSM. Conducted over a period from May 1999 to June 2000 this activity will provide a detailed definition of the operational and system requirements for the subsequent Pilot and Rollout phases. It will also establish the measurable business benefits expected from full implementation. SSM is as described in Section 4.1.1 below.

Phase 3 – SSM Pilot – During the period of the SSM Trial ICL will develop a GlobalSTORE Back Office application, to meet the needs of the Co-op and wider Convenience store market, which will include the required SSM functionality. This product linked to the ISS400 Front End will be available to Pilot in 5 to 10 stores by the end of June 2000. The Pilot phase will be used to demonstrate the achievement of the identified business benefits.

Phase 4 – Rollout – Subject to the successful pilot of the GlobalSTORE Back Office the system will be rolled out to all stores in the CRS estate. Rollout will be completed within 18 months of commencement. ”

The expression “pilot” , in the jargon of information technology, means the trial of software in a working environment in a sample location or locations. The expression “rollout” , which features quite a lot in this action, simply means installation of software in a working environment with a view to operational use.

“ SSM is aimed at improving the perpetual inventory and replenishment process. SSM consists of a consultancy methodology and also certain core applications.

SSM looks at existing processes and business rules and, by reference to the best practice, SSM targets five main areas: availability, stockholding, wastage, store staff workload and management information.

SSM considers the replenishment cycle, including

SSM addresses in-store inventory activities and interfaces to other systems which includes EpoS interface, RF interface and interface to other parts of the supply chain and existing central systems. SSM is a store-based system and as such it excludes supply chain systems outside the store (such as warehouse and distribution systems, etc.). ”

“ 9 ICL’s Liabilities

9.1 This clause 9 deals with the financial liability of ICL for any Claims for loss or damage made by the Customer and is the exclusive statement of the financial liability that ICL may have to the Customer for any Claims for the Acts or Omissions of ICL, including where any such Acts or Omissions constitute a fundamental breach of a contractual term or a breach of a fundamental term.

9.2 No limit of liability will apply in respect of Claims for death or personal injury as a result of any act or omission of ICL which is negligent (as defined by the Unfair Contract Terms Act 1977 section 1) and no limit of liability will apply to any proven fraud on the part of ICL or of others for which it is at law responsible.

9.3 ICL’s liability is limited to £1,000,000 in respect of any Claim for physical loss of or damage to the Customer’s property or other property for which it is at law responsible to the extent that such loss or damage is caused by or contributed to by any negligent act or omission of ICL (including any such act or omission in breach of a contractual duty of care).

9.4 If the Customer lawfully terminates the Agreement for the Equipment, Programs or Services by reason of a breach of contract by ICL, it shall be entitled to the return of any sums paid as part of the Contract Price (except as otherwise specifically provided in the Agreement [which limited the sum repayable to £2,500,000] ). For Equipment, Programs and Services which are subject to periodic charges the return of sums paid shall be limited to the sums paid over the previous twelve months’ period.

9.5 In addition to the rights expressed in Clause 9.4 and subject to Clause 9.6 below, ICL’s total aggregate liability under the Agreement for any and all Acts or Omissions which cause or contribute to financial or economic loss or damage to the Customer is limited to 15% of the Contract Price of the Equipment, Programs or Services giving rise to the liability regardless of the time such Claim or Claims may be made by the Customer, of how such Claim or Claims may arise and of what cause of action is used. In calculating the Contract Price for Equipment, Programs and Services which are subject to periodic charges it shall be limited to be the sums paid over the twelve months’ period immediately prior to the time the Act or Omission occurred. In calculating the sums that may be claimed as 15% of the Contract Price, no account shall be taken of any sums returned or to be returned to the Customer under Clause 9.4 above. Any such financial or economic loss includes any Claim other than a Claim for compensation for loss of or damage to physical property covered by Clause 9.3 above and in particular includes any Claim made by the Customer in respect of the following types of loss without prejudice to the generality of the applicability of this Clause 9.5, loss of profits, failure to make anticipated savings, additional expenses incurred, increased costs of working and loss of opportunity (including the loss of opportunity for earning additional profits or making savings).

9.6 In no circumstances will ICL be liable to the Customer for any Claim or part of a Claim which seeks compensation in respect of the cost of management time i.e. where a Claim is made by the Customer (by whatever means of calculation) in respect of the time spent by its employees as a result of any act or omission of ICL where that Claim is based on time spent and not based on any other specific proven loss or damage (including any loss of opportunity)…

13.7 The Customer is hereby put on notice that the Agreement does not impose on ICL any obligation to verify the suitability of the Equipment, Programs or Services for the Customer’s particular purposes, whether those purposes have been expressed to ICL or not and whether or not ICL could reasonably have been aware of any such purposes. It is therefore the Customer’s responsibility to ensure that the Products are suitable for its purposes. The Customer is hereby further put on notice that no employee of or agent acting on behalf of ICL (other than a director) is authorised to make any representation with regard to the suitability of the Equipment, Programs or Services for any purpose of the Customer. ICL is not acting in any fiduciary sense and it is agreed that the parties are acting at arm’s length. ”

By a special term of the CRS Agreement the liability of ICL under Clause 9.5 of the General Conditions quoted above was limited to the sum of £375,000 in any event.

“ ICL warrants that the Service will be performed with due diligence and professional standards of care and that the Service will conform in all material respects to the Product Description, provided that ICL will not be liable for breach of any such warranty unless the breach is reported to ICL within three months after completion of the Service and, having been given reasonable opportunity by the Customer to rectify any such breach, ICL fails to do so promptly and without additional charge to the Customer. This warranty excludes all other conditions or warranties, express or implied, statutory or otherwise (including but not limited to fitness for any particular purpose). ”

Clause 17.1 of those conditions was an entire agreement clause.

“ The Customer will pay charges for the Service in accordance with the appropriate ICL standard scales in force from time to time. Charges are payable quarterly in advance from the Commencement Date as described in Clause 3.1 above. With the first payment is also due the proportionate charge for the part period (if any) from and including the Commencement Date. ”

Clause 9.1 of those conditions was an entire agreement clause.

The provision of the Dividend in CRS stores

The claims made in this action

The case of CWS as to a contract

“ 20. In the course of the negotiations, ICL represented that:

20.1 ICL was capable of adapting the version of GlobalSTORE it was developing from Eurofood to incorporate the additional functionality required by CWS/CRS, including operation of the Dividend;

20.2 GlobalSTORE was sufficiently advanced in its development to permit a pilot project to be run in a former CRS store in August 2000 and the system as a whole to be rolled out across CWS’s network of former CRS stores by September 2000 so as to operate in harmony with and with equivalent functionality to the existing systems in the historic CWS stores;

20.3 GlobalSTORE would be capable of providing a stable and robust Microsoft environment.

21. In the course of the negotiations, it was agreed between CWS/CRS and ICL that, if CRS’ engagements were transferred to CWS and CWS entered into an agreement with ICL for the provision of a system for the former CRS stores, the CRS agreement would be cancelled without penalty. This was evidenced by a letter from ICL to CWS dated 22 December 1999 (a copy of which is attached to these particulars of claim at schedule 2).

22. In or about March and April 2000, CWS entered into an agreement with ICL for the provision of an integrated EPOS, back-office and stock management system operating in all CRS stores which had been or were about to be transferred to CWS. (“the CWS agreement”).

23. The CWS agreement was entered into by conduct and/or by implication by CWS and ICL in that:

23.1 the essential components of the agreement had been worked out by the parties in negotiations between December 1999 and April 2000;

23.2 by 10 March 2000 CWS had made a definitive decision to acquire the ICL system based on GlobalSTORE and install it in all former CRS stores as evidenced by a letter dated 10 March 2000 from CWS to PCMS Group Limited (a copy of which is attached to these particulars of claim as schedule 3);

23.3 after 10 March 2000 (and, in particular, after 2 April 2000 when the CRS stores were transferred to CWS) both CWS and ICL treated the CWS Agreement as being in force:

23.3.1 ICL supplied materials, carried out work and performed services, all of which were exclusively referable to the CWS agreement and not the CRS agreement;

23.3.2 ICL rendered invoices in respect of those materials, work and services and CWS paid those invoices, such invoices and payments being referable to the CWS agreement and different from and inconsistent with those referable to the CRS agreement;

23.4 no further performance of the CRS agreement took place after the transfer of CRS’ engagements to CWS and no further invoices were rendered by ICL in respect thereof.

24. Both CWS and ICL intended throughout that the CWS agreement should be reduced to writing but the parties never agreed the precise terms of the document and no written agreement was ever executed. Nonetheless, both parties treated the CWS agreement as being on foot from the date that the CRS stores were transferred to CWS.

25. The following were the essential terms of the CWS agreement:

25.1 ICL would develop, supply and install the hardware and software necessary to create an EPOS, back-office and stock management system operating in all former CRS stores;

25.2 The system would be based on an ISS/400 Lite platform;

25.3 The back-office and stock management functions would be performed by GlobalSTORE;

25.4 The system would contain (as a minimum) all functionality equivalent to that currently in operation in historic CWS stores using Vision on an ISS/300 platform;

25.5 The system would be capable of operating the Dividend in all former CRS stores;

25.6 The system would be ready for a pilot scheme in August 2000 and would be rolled out to all former CRS stores in September 2000;

25.7 As from the date of the transfer of CRS’ engagements to CWS, the CRS agreement would be treated as no longer operative and no further materials or work would be supplied or billed under it (but without prejudice to any rights which had accrued to either party before that date).

26. The following were necessarily implied terms of the CWS agreement:

26.1 ICL would exercise all proper and professional care and skill in the manufacture, supply and installation of all hardware and software supplied to CWS;

26.2 All hardware and software supplied by ICL would be reasonably fit for the purpose for which CWS required it and of satisfactory quality;

26.3 Insofar as a time limit for the performance of any part of the contract was not the subject of express agreement, such performance would be delivered within a reasonable time. ”

“ Should the merger between CWS and CRS go ahead we confirmed that the Global STORE trading agreement that is in place between ICL and CRS would be cancelled without penalty provided a new contract could be negotiated to reflect the new project. This is based on the assumption that any new project would generate similar revenue and cash flow profiles to the original agreement. ”

“ REQUEST

16. Please state whether each of CWS and CRS and ICL were parties to the alleged agreement. If not, please state who were the parties to the alleged agreement.

17. State which party or parties made an offer in relation to the alleged agreement, and provide particulars as to the nature of the alleged offer, and without prejudice to the generality of the foregoing state when, where and how the alleged offer was made.

18. State which party or parties accepted the alleged offer, and without prejudice to the generality of the foregoing state when, where and how the alleged offer was accepted.

19. Please identify the consideration for the alleged agreement.

20. State when the alleged agreement was executed.

RESPONSES

16. Yes.

17 & 18 CWS relies upon the contents of ICL’s own letter confirming that the agreement was reached in the course of discussions between the parties. That letter is admitted and relied upon by ICL in paragraph 30 of the Defence. In the circumstances, which party technically made the offer and which party accepted it is immaterial.

19. The consideration for the agreement is clearly and sufficiently stated and is apparent on the face of the letter of 22/12/1999.

20. Yes. As set out in the Particulars of Claim, it is CWS’s case that, following the merger of the societies, the CRS agreement was treated as having been terminated and replaced by the CWS agreement. ”

“ Under paragraph 22

Of: “In or about March or April 2000, CWS entered into an agreement with ICL…”

REQUEST

21. State which party or parties made an offer in relation to the alleged agreement, and provide particulars as to the nature of the alleged offer, and without prejudice to the generality of the foregoing state when, where and how the alleged offer was made.

22. State which party or parties accepted the alleged offer, and without prejudice to the generality of the foregoing state when, where and how the alleged offer was accepted.

23. Please identify the consideration for the alleged agreement.

24. State with as much precision as possible when the alleged agreement is alleged to have been executed.

RESPONSES

21 & 22 CWS’ case is clearly and sufficiently stated in paragraphs 22 to 26 of the Particulars of Claim.

23. The consideration for the agreement is self-explanatory: ICL was to carry out the work agreed for CWS and CWS was to pay for it.

24. This request is not understood. If by the word “executed”, the request seeks to know whether CWS alleges that the agreement was reduced to writing and signed by the parties, as is made clear in paragraph 24, that is not CWS’s case. If by “executed” the request means “performed”, as is pleaded at length in the Particulars of Claim, it is CWS’s case that ICL embarked on performance of the agreement but (in the manner and circumstances detailed in the Particulars of Claim) failed to perform it in accordance with its terms or (in any real sense) at all.

Under paragraph 23

Of: “The CWS agreement was entered into by conduct and/or by implication by CWS and ICL….”

REQUEST

25. Please provide particulars of all facts and matters that CWS will rely upon at trial to support the allegations that the alleged agreement was entered into (1) by conduct and/or (2) by implication.

RESPONSE

25. This request is not understood. The matters relied on in support of the general allegation in the opening sentence of paragraph 23 are set out in paragraphs 23.1 to 23.4.

Under paragraph 23.1

Of: “the essential components of the agreement had been worked out in negotiations between December 1999 and April 2000;”

REQUEST

26. Please confirm what is meant in the context of the pleading by “worked out”.

27. Please set out in full each of the essential components that CWS alleges had been “worked out”, providing, in each case particulars as to when the same occurred and the persons who were present or represented the parties.

RESPONSES

26. The expression means discussed and negotiated to a point where the matters referred to were agreed in principle.

27. The essential components were the terms set out in paragraph 25 of the Particulars of Claim. In addition to the negotiations which (as set out above) took place between October and November 1999, the parties continued negotiating the refining of the project up to the point of the merger of the societies. These components are fully documented in documents common to the parties including (by way of example only):

(a) documents produced and circulated by ICL relating to what ICL itself referred to as “the CWS/CRS Integration Project”;

(b) regular minuted meetings between the CWS team and the ICL team from 24/1/2000 onwards;

(c) the drafts of the proposed written agreement passing between CWS and ICL in which the details of the work to be carried out and its costing remain constant…..

Under paragraph 24

Of: “…both parties treated the CWS agreement as being on foot from the date that the CRS stores were transferred to CWS.”

REQUEST

34. Please provide full particulars of each and every act or omission by ICL that CWS intends to rely upon to support the allegation that ICL treated the alleged CWS agreement as being “on foot”.

RESPONSE

34. It is CWS’ case that the work carried out or purportedly carried out by ICL after the inception of the CWS agreement was the work provided for by that agreement and not that provided for by the CRS agreement. In outline, ICL was working to supply an EPOS, back-office and stock management system with equivalent functionality to that already existing in historic CWS stores built around the provision of the Dividend. All contemporaneous documentation is based on this premise and the relevant FRS were designed to specify this functionality. The invoicing referred to above was only one of the many facets of the documentation to make this clear.

Under paragraph 25

Of: “The following were the essential terms of the CWS agreement….”

REQUEST

35. Please provide full particulars of all terms of the alleged CWS agreement.

36. Please explain what is meant, in the context of this case by “essential”.

37. Is it alleged that the “essential terms” were expressly agreed by the parties and if so, in relation to each such term please state who on behalf of the parties agreed the said term and the circumstances in which the same was agreed, In each case state whether the term was evidenced in writing and if so provide a copy of the relevant document(s). If not expressly agreed, please provide full particulars as to the basis for the allegation that the term formed part of the alleged CWS agreement.

RESPONSES

35. CWS’s case as to the terms of the CWS agreement is as follows. Both parties were familiar with the CRS agreement and the modes of working provided for by that agreement. These provided (amongst other things) for the production of detailed FRS, project plans with delivery timetables, change control and a testing and acceptance regime. The negotiations between CWS and ICL proceeded on the basis that those terms would be carried forward to the CWS agreement and this was reflected by the draft written agreements passing between the parties. What had to be agreed in negotiation was:

(a) precisely what ICL was to deliver under the CWS agreement;

(b) dates of delivery;

(c) costing and modes of payment.

The terms agreed as to (a) and (b) are those set out in the sub-paragraphs of paragraph 25. As to the terms relating to (c), the parties agreed that ICL should be paid daily rates for the services of ICL personnel (varying according to grade) and fixed sums for named items of hardware and software. These went through a number of changes but reached their final form in the draft agreement Version 7 dated 14/6/2000. ICL was to invoice CWS (as happened) on the basis of actual work carried out and goods supplied rather than, as under the CRS agreement, on the basis of monthly payments.

These principal terms of the CWS agreement were agreed and the parties worked to that agreement throughout. Where the parties did not reach sufficiently final agreement to enable the written agreement to be completed and signed was in the areas of whether and to what extent ICL’s standard conditions should be incorporated into the agreement and whether and to what extent ICL should be liable to pay agreed liquidated damages for delays in delivery. The CWS agreement was, however, fully workable without terms being agreed in those areas and was so operated by the parties.

36. The word “essential” connotes the principal obligations of the CWS agreement upon which CWS relies for the purposes of this action.

37. This request is not understood. It is CWS’ pleaded case that the CWS agreement was formed in the manner stated in paragraph 23.4 of the Particulars of Claim.

Under paragraph 25.7

Of: “As from the date of the transfer ….the CRS agreement would be treated as no longer operative …(but without prejudice to any rights which had accrued to either party before that date).”

REQUEST

38. Is it alleged that the CRS agreement was terminated? If so, please explain the mechanism by which the alleged agreement was terminated.

39. Is it alleged that any rights accruing to CRS or CWS prior to the Transfer, subsist or are relied upon by CWS in this Action? If so, please provide full particulars thereof.

RESPONSE

38. Yes. This is expressly pleaded in paragraph 23.4 of the Particulars of Claim. There was no formal termination of the CRS agreement. Both parties simply treated it as having been superseded by the CWS agreement: they ceased to work to the former and commenced working to the latter.

39. It is CWS’s case (as clearly pleaded) that the CWS agreement superseded and replaced the CRS agreement. Neither party treated the other as having been in breach of the CRS agreement as at the date the CRS agreement was abandoned.

If, however, contrary to CWS’s primary contention, the court were to decide that the operative contract was the CRS agreement (as varied or novated to incorporate the terms said by CWS to constitute the CWS agreement) then it will be CWS’s case that the breaches of the CWS agreement on which it relies were breaches of the CRS agreement as varied or novated.”

“ Pending the provision of further information in respect of the alleged agreement pleaded in paragraph 21, ICL is unable to plead fully in respect thereof. Without prejudice to the foregoing, it is admitted that by a letter dated 22 December 1999 from John Pickett of ICL to Keith Brydon, General Manager, IT, of CWS Retail Limited, which was copied to Phil Davies, IT Director of CRS, Mr. Pickett confirmed ICL’ s proposal as follows:

“Should the merger between CWS and CRS go ahead we confirmed that the Global STORE trading agreement that is in place between ICL and CRS would be cancelled without penalty provided that a new contract could be negotiated to reflect the new project. This is based on the assumption that any new project would generate similar revenue and cash flow profiles to the original agreement.”

Save as aforesaid paragraph 21 is denied. ”

“ Save as admitted or not admitted below paragraphs 22, 23, 24, 25, 26 and 28 are denied. Despite negotiations, which started in or around late March or early April 2000 and were aimed at agreeing the terms upon which ICL would provide goods and services to CWS in relation to the new project in place of the Contract [that is to say, the CRS Agreement] , ICL and CWS never agreed upon the terms of such agreement. Such negotiations continued until at least mid-October 2000. Accordingly, no separate agreement was concluded with CWS. It is denied that any such agreement was concluded by implication or conduct. It is denied that it was necessary in the circumstances for the alleged agreement to be implied. In any event the alleged terms pleaded in respect of the alleged agreement were not agreed and are insufficiently precise to be capable of being enforced. CWS never communicated to ICL CWS’ alleged belief that the alleged “CWS agreement” had come into existence or set out what CWS understood to be the terms of that agreement. ”

“ quite clearly there was a contract; the parties treated there as being a contract afoot. ”

In his closing submissions Mr. Mawrey modified his original position in relation to offer and acceptance in the following passage:-

“ 16. If it were necessary to identify an offer, then Mr. Pickett’s letter of 22 ^nd December 1999 is such an offer. It sets out the work that ICL will undertake in “Phase 4a” and a timescale within which it will be performed.

17. Acceptance is more tricky to pin down but there clearly is a date by which acceptance has taken place and it is 3 ^rd March 2000 when the first project plan is produced and agreed. Thereafter until March 2001 both parties behave as if a new contractual relationship has come into existence and, as the presentation of 27 ^th June 2000 shows, actually spoke of “the new contract”. ”

I shall come to consider that analysis later in this judgment. Remaining for the present with how the case was opened, during the course of the opening I suggested to Mr. Mawrey that there were authorities which might be relevant to the issue whether, in law, a contract could be concluded in the circumstances which he was then asserting on behalf of CWS. I also pointed out that a possible conclusion was that no relevant contract at all was made. Mr. Mawrey explained:-

“ I accept of course that strict legal analysis may sometimes assist on pinpointing when a contract was made and what its terms were. But if one finds two parties working together in circumstances where quite clearly they both treat a contract as being on foot, then the function of the parties is to show to the court what the contract was and what its terms were. It serves no useful purpose to say, “Well, both of these parties were wholly mistaken. They never had a contract at all. They were all doing it for nothing.” That would not be a pragmatic or sensible solution to a problem if… The court may come to the conclusion that they were not working to a contract and they simply hoped that one would be signed, but once the court is convinced that they are working to a contract, then the question has to be asked, what was the contract and how did it arise. It may well be no more than a court says, “It is clear that by point X in time there was a contract because both parties believed there was, both parties were working towards it”. ”

I asked Mr. Mawrey whether he was intending to refer me to authority during his opening which supported the approach which he was urging me to adopt. He indicated that, at that time, he was not. I was left with the impression that he felt that I was just being difficult and that if I tried harder I would surely see the contract for which CWS contended. I have to say that I did not find that approach at all helpful. By the conclusion of the trial Mr. Mawrey had come to the view that some reference to authority might be of assistance. I consider relevant authority in the next section of this judgment.

Contract formation – the law

“ My Lords, there may be certain types of contract, though I think they are exceptional, which do not fit easily into the normal analysis of a contract as being constituted by offer and acceptance; but a contract alleged to have been made by an exchange of correspondence between the parties in which the successive communications other than the first are in reply to one another is not one of these. ”

“ The modern commercial practice of making quotations and placing orders with conditions attached, usually in small print, is indeed likely, as in this case, to produce a battle of forms. The problem is how should that battle be conducted? The view taken by the judge was that the battle should extend over a wide area and the court should do its best to look into the minds of the parties and make certain assumptions. In my judgment, the battle has to be conducted in accordance with set rules. It is a battle more on classical 18 ^th century lines when convention decided who had the right to open fire first rather than in accordance with the modern concept of attrition.

The rules relating to a battle of this kind have been known for the past 130-odd years. They were set out by the then Master of the Rolls, Lord Langdale, in Hyde v. Wrench , and Lord Denning MR has already referred to them; and, if anyone should have thought they were obsolescent, Megaw J in Trollope & Colls Ltd. v. Atomic Power Constructions Ltd. called attention to the fact that those rules are still in force. ”

“ In considering this question, I do not much like the analysis in the text-books of inquiring whether there was an offer and acceptance, or a counter-offer and so forth. I prefer to examine the whole of the documents in the case and decide from them whether the parties did reach an agreement upon all the material terms in such circumstances that the proper inference is that they agreed to be bound by those terms from that time onwards. ”

That expression of opinion is, I think, if taken on its face, suggestive of the proposition that it is not necessary, in order to find a contract, to ask the traditional question, was there an offer which was unequivocally accepted, and answer that question in the affirmative. Rather, it is, or may be, enough to justify the finding of an agreement, that by trawling through correspondence or other exchanges between the parties one can find that at different times particular matters had been agreed which in sum could be said to amount to an agreement.

“ Secondly, it is true that the coincidence of offer and acceptance will in the vast majority of cases represent the mechanism of contract formation. It is so in the case of a contract alleged to have been made by an exchange of correspondence. But it is not necessarily so in the case of a contract alleged to have come into existence during and as a result of performance. See Brogden v. Metropolitan Railway (1877) 2 AC 666; New Zealand Shipping Co. Ltd. v. A. M. Satterthwaite & Co. Ltd. [1974] 1 Lloyd’s Rep. 534 at p.539 col.1 [1975] AC 154 at p. 167 D-E; Gibson v. Manchester City Council [1979] 1 WLR 294. The third matter is the impact of the fact that the transaction is executed rather than executory. It is a consideration of the first importance on a number of levels. See British Bank for Foreign Trade Ltd. v. Novinex [1949] 1 KB 628 at p. 630. The fact that the transaction was performed on both sides will often make it unrealistic to argue that there was no intention to enter into legal relations. It will often make it difficult to submit that the contract is void for vagueness or uncertainty. Specifically, the fact that the transaction is executed makes it easier to imply a term resolving any uncertainty, or, alternatively, it may make it possible to treat a matter not finalised in negotiations as inessential. In this case fully executed transactions are under consideration. Clearly, similar considerations may sometimes be relevant in partly executed transactions. Fourthly, if a contract only comes into existence during and as a result of performance of the transaction it will frequently be possible to hold that the contract impliedly and retrospectively covers pre-contractual performance. See Trollope & Colls Ltd. v. Atomic Power Constructions Ltd. [1963] 1 WLR 333. ”

“ But it is clear that the parties both intended to make a contract and thought they had done so. Businessmen often record the most important agreements in crude and summary fashion; modes of expression sufficient and clear to them in the course of their business may appear to those unfamiliar with the business far from complete or precise. It is accordingly the duty of the court to construe such documents fairly and broadly, without being too astute or subtle in finding defects; but, on the contrary, the court should seek to apply the old maxim of English law, verba ita sunt intelligenda ut res magis valeat quam pereat. That maxim, however, does not mean that the court is to make a contract for the parties, or to go outside the words they have used, except in so far as there are appropriate implications of law, as for instance, the implication of what is just and reasonable to be ascertained by the court as a matter of machinery where the contractual intention is clear but the contract is silent on some detail. ”

“ There are in my opinion two grounds on which the court ought to hold that there never was a contract. The first is that the language used was so obscure and so incapable of any definite or precise meaning that the court is unable to attribute to the parties any particular contractual intention. The object of the court is to do justice between the parties and the court will do its best, if satisfied that there was an ascertainable and determinate intention to contract, to give effect to that intention, looking at substance and not mere form. It will not be deterred by mere difficulties of interpretation. Difficulty is not synonymous with ambiguity so long as any definite meaning can be extracted. But the test of intention is to be found in the words used. If these words considered however broadly and untechnically and with due regard to all the just implications, fail to evince any definite meaning on which the court can safely act, the court has no choice but to say that there is no contract. Such a position is not often found. But I think that it is found in this case. My reason for so thinking is not only based on the actual vagueness and unintelligibility of the words used, but is confirmed by the startling diversity of explanations, tendered by those who think there was a bargain, of what the bargain was. I do not think it would be right to hold the appellants to any particular version. It was all left too vague. There are many cases in the books of what are called illusory contracts, that is, where the parties may have thought they were making a contract but failed to arrive at a definite bargain. It is a necessary requirement that an agreement in order to be binding must be sufficiently definite to enable the court to give it a practical meaning. Its terms must be so definite, or capable of being made definite without further agreement of the parties, that the promises and performances to be rendered by each party are reasonably certain. In my opinion that requirement was not satisfied in this case.

But I think the other reason, which is that the parties never in intention nor even in appearance reached an agreement, is a still sounder reason against enforcing the claim. In truth, in my opinion, their agreement was inchoate and never got beyond negotiations. They did, indeed, accept the position that there should be some form of hire-purchase agreement, but they never went on to complete their agreement by settling between them what the terms of the hire-purchase agreement were to be. The furthest point they reached was an understanding or agreement to agree upon hire-purchase terms. ”

The critical question, therefore, is did the parties intend, objectively, to conclude a legally binding agreement.

“ I quite agree with the Lords Justices that (wholly independent of the Statute of Frauds ) it is a necessary part of the Plaintiff’s case to shew that the two parties had come to a final and complete agreement, for, if not, there was no contract. So long as they are only in negotiation either party may retract; and though the parties may have agreed on all the cardinal points of the intended contract, if some particulars essential to the agreement still remain to be settled afterwards, there is no contract. The parties, in such a case are still only in negotiation. But the mere fact that the parties have expressly stipulated that there shall afterwards be a formal agreement prepared, embodying the terms, which shall be signed by the parties does not, by itself, shew that they continue merely in negotiation. It is a matter to be taken into account in construing the evidence and determining whether the parties have really come to a final agreement or not. But as soon as the fact is established of the final mutual assent of the parties so that those who draw up the formal agreement have not the power to vary the terms already settled, I think the contract is completed. ”

It is plainly inconsistent with the sort of mechanism of contract formation in the present case for which Mr. Mawrey contended that either party should be able to withdraw from that which he has agreed until agreement on all issues upon which the parties wish to reach agreement has been achieved. If Mr. Mawrey were right, once a party has agreed anything in principle, he is bound, no matter what has not been agreed.

“ As to the law, the principles to be derived from the authorities, some of which I have already mentioned, can be summarised as follows:

(1) In order to determine whether a contract has been concluded in the course of correspondence, one must first look to the correspondence as a whole (see Hussey v. Horne-Payne ).

(2) Even if the parties have reached agreement on all the terms of the proposed contract, nevertheless they may intend that the contract shall not become binding until some further condition has been fulfilled. That is the ordinary “subject to contract” case.

(3) Alternatively, they may intend that the contract shall not become binding until some further term or terms have been agreed; see Love and Stewart v. Instone , where the parties failed to agree the intended strike clause, and Hussey v. Horne-Payne , where Lord Selborne said at p.323:

“…The observation has often been made, that a contract established by letters may sometimes bind parties who, when they wrote those letters, did not imagine that they were finally settling terms of the agreement by which they were to be bound; and it appears to me that no such contract ought to be held established, even by letters which would otherwise be sufficient for the purpose, if it is clear, upon the facts, that there were other conditions of the intended contract, beyond and besides those expressed in the letters, which were still in a state of negotiation only, and without the settlement of which the parties had no idea of concluding any agreement [ My [Lloyd LJ’s] emphasis]

(4) Conversely, the parties may intend to be bound forthwith even though there are further terms still to be agreed or some further formality to be fulfilled (see Love and Stewart v. Instone per Lord Loreburn at p. 476).

(5) If the parties fail to reach agreement on such further terms, the existing contract is not invalidated unless the failure to reach agreement on such further terms renders the contract as a whole unworkable or void for uncertainty.

(6) It is sometimes said that the parties must agree on the essential terms and that it is only matters of detail which can be left over. This may be misleading, since the word “essential” in that context is ambiguous. If by “essential” one means a term without which the contract cannot be enforced then the statement is true: the law cannot enforce an incomplete contract. If by “essential” one means a term which the parties have agreed to be essential for the formation of a binding contract, then the statement is tautologous. If by an “essential” one means only a term which the Court regards as important as opposed to a term which the Court regards as less important or a matter of detail, the statement is untrue. It is for the parties to decide whether they wish to be bound and, if so, by what terms, whether important or unimportant. It is the parties who are, in the memorable phrase coined by the Judge “the masters of their contractual fate”. Of course the more important the term is the less likely it is that the parties will have left it for future decision. But there is no legal obstacle which stands in the way of the parties agreeing to be bound now while deferring important matters to be agreed later. It happens everyday when parties enter into so-called “heads of agreement”. ”

The case of ICL as to a contract

“ From the date of the Transfer and as evidenced by the payment by CWS of invoices in relation to work carried out prior to the Transfer and by CWS’ approval and acceptance of FRS in relation to the Contract, which acceptance varied the Deliverables to be provided under the Contract [that is to say, the CRS Agreement] , CWS accepted the benefit and burden of the Contract and stood in the place of CRS in respect thereof. ”

The misrepresentation case

“ 212. Although misrepresentation, if proved in this case, would provide tCG with a good cause of action both on the premise that there was an enforceable contract between the parties and on the premise that there was not, in practical terms it will make a significant difference only in the event that there was no contract. If there was a contract and ICL was in breach of it, no damages are likely to be recoverable for misrepresentation that would not equally be recoverable as damages for breach of contract. In that context, therefore, a finding of misrepresentation would add nothing concrete.

213. Similarly, although it is pleaded that tCG was induced to agree to the change from ISS400 to ISS300 by misrepresentations, this only bites if the court were to hold that there was, at the time, no enforceable contract between the parties.

214. The misrepresentations relied on as inducing the contract can be summarised as follows:

(a) ICL represented that it was capable of producing for the existing CRS stores an EPOS and back office system based on ISS400 and GlobalSTORE which would give the proposed new Group a harmonised IT capacity based on the functionality currently in place in CWS stores, including Dividend, ISAs, HISAs and electronic cash management;

(b) ICL represented that it was capable of delivering the new system to an agreed timetable;

(c) ICL represented that it was capable of delivering the new system within five months of FRS being signed off;

(d) ICL represented that it was capable to [sic] delivering the new system to timescales that would fit in with CWS’s expressed intentions to re-launch the new Group as soon as practicable after merger;

(e) ICL represented that it could deliver an ISS400/GlobalSTORE system more quickly and more cheaply than its rival, the ISS300/Vision system.

215. Those representations appear quite clearly from the presentations, especially the presentation of December 1999 and from Mr. Pickett’s letter of 22 ^nd December 1999.

216. If these representations were incorrect, then whether the onus is on tCG to show that they were made negligently or on ICL to show that they were made without negligence, the result is going to be the same, They were made negligently.

217. Events have undeniably shown these representations to be incorrect. ICL was not able to deliver a system based on ISS400 and GlobalSTORE within any measurable timescale and probably not able to do so at all. Whether the system was based on ISS400 or on ISS300 (allegedly introduced to speed the Project up), it was not delivered to any agreed timetable and was never going to be ready for rollout within five months of being signed off. Going down the GlobalSTORE route was a disaster for tCG; it was neither quicker nor cheaper than it would have been to decide on ISS300/Vision at the outset.

218. Were the misrepresentations negligent? As the evidence has turned out, this seems to be incontrovertible. The fact is that ICL carried out absolutely no internal feasibility exercise on the project. ICL had no idea whether adapting ISS400 to produce Dividend would be easy or difficult and had no idea whether they would be able to source the appropriately skilled staff from the USA to meet any agreed timescale.

219. More significantly, the moment CWS stated that the new system was to replicate the Dividend functionality of CWS’s existing system, ICL knew that

(a) it had to discover exactly what that functionality was;

(b) Dividend was going to have to communicate with CWS’s existing central systems including the SSC;

(c) although it had supplied the system as a main contractor, ICL’s own knowledge of the existing CWS system was partial; in particular it did not know the file formats for communication between the Vision back office system and the central systems including the SSC;

(d) given that reverse engineering was not a practical proposition, ICL would have to discover the relevant file formats and other information from PCMS;

(e) it had made no enquiries either of CWS or of PCMS itself as to whether, when and on what terms PCMS would be prepared to provide this information.

220. Furthermore ICL seems to have contemplated at that stage that it would be producing GlobalSTORE by some form of RAD process which would render any agreement of fixed timescales pointless.

221. In short, ICL knew that it had made none of the appropriate enquiries needed to be able to give the assurances it was giving and it knew that it could not deliver to the desired timescales or any fixed timescales.

222. ICL wanted desperately to persuade CWS to pay for it to develop GlobalSTORE and not to do the obvious thing namely to buy ISS300/Vision, a fully developed product which could be installed quickly and at an ascertainable cost. It revealed none of its difficulties (especially the difficulty with PCMS) to CWS because it knew that if it did so, CWS would almost certainly choose Vision.

223. As for the misrepresentations leading to the change from ISS400 to ISS300, they are relevant as to extending the period of loss. If, in May 2000, ICL had failed to persuade tCG to continue with the Project and tCG had abandoned GlobalSTORE to Vision, then the losses flowing from the December 1999 misrepresentations would have been crystallised. What tCG would have lost was the difference between going down the Vision route following the cancellation of the GlobalSTORE project in June 2000 and going down the Vision route ab initio – a loss of probably no more than 3 or 4 months (say March to June 2000).

224. By persuading tCG to persist with GlobalSTORE, ICL delayed tCG from moving to Vision for a further 9 months (May/June 2000 to February/March 2001).

225. The essence of the May/June misrepresentations was that ICL represented that, if tCG would agree to a change from ISS400 to ISS300, ICL had the ability to meet the August pilot and September rollout dates. This was clearly wrong, as events showed, but was ICL negligent in giving those assurances?

226. As with the earlier misrepresentations, ICL had failed completely to carry out any feasibility exercise before committing itself to delivery [sic] ISS300/GlobalSTORE in time for a pilot date. It had not assessed what work would be necessary, in particular to replace the back office functionality which was going to be removed with the removal of ISS400. If it was contemplating three drops of unvalidated (or only partially validated) software, ICL must have known that any commitment to a definite timetable was going to be impossible.

227. As Mr. Pickett’s evidence made clear, communication between the sales team and the technical team was sketchy. The technical team realised that meeting the time limits was not practicable but the sales team, realising that without the assurances, tCG might terminate the contract and buy Vision, chose either not to ask the right questions or not to listen to the answers.

228. The reality is that, at the time ICL’s sales team was attempting to persuade tCG that, if it consented to the change to ISS300, the agreed dates could be met, any rational assessment of ICL’s capability to achieve this must have indicated that it was not feasible.

229. tCG was undoubtedly misled into thinking that the change to ISS300, which, after all, had been used successfully in the existing CWS system, would put the project back on course.

230. The case on misrepresentation is straightforward and coherent both as to liability and as to damages. It is not contested that, if ICL had failed to persuade tCG to choose ISS400/GlobalSTORE in December 1999 or if ICL had failed to persuade tCG to continue with the project with a changed specification in June 2000, at either point tCG would have chosen the ISS300/Vision solution. ”

“ 235. Although there is mention of quantum meruit in ICL’s pleadings, neither party has ever contended for the proposition that there was no contract governing the Project. The course of the action has been predicated on there being a dispute between the parties as to whether there was a new contract – the CWS agreement – or a varied version of the CRS agreement.

236. It is still tCG’s case that these are the only two viable analyses of the situation but, as the court has raised the matter, the parties must address the consequences of their both being mistaken as to the existence of a contract.

237. One thing can be said with certainty: if there was no contract, both limbs of ICL’s counterclaim fail in limine because they are purely contractual claims.

238. What, however, of tCG’s claims?

239. Firstly, if there was no contract, as indicated above, tCG’s claims based on misrepresentation still hold good. They can succeed on the premise that no contract was entered into because the misrepresentations induced tCG to follow a course of action which it would not have followed if the misrepresentations had not been made at all or if (which comes to the same thing) ICL had correctly represented the position by telling tCG it could not deliver what tCG wanted.

240. Secondly, tCG would have a restitutionary claim, although, of course, tCG’s pleaded case, being based on different premises, does not contain one.

241. The way in which a restitutionary claim would be based would be to calculate the sums paid by tCG to ICL referable to the development of GlobalSTORE. Those sums would be recoverable as sums paid on a consideration which has wholly failed. Insofar as tCG has paid for hardware, then, if the hardware is utilisable for other purposes, it is irrecoverable on that basis: if it is not, then the cost is similarly recoverable.

242. ICL cannot set up a claim upon a quantum meruit or, more strictly, quantum valebat because it has not sought to show that any of the work relating to GlobalSTORE provided any benefit to tCG. On the premise that there was no contract, ICL’s work on GlobalSTORE must be treated as being speculative work undertaken in the hope that it would lead to a product that would be sold to tCG. Any payment by tCG must be taken as relating to the proposed contract and recoverable if the contract does not take place.

243. If, therefore, the court did come to the conclusion that there was no contract between the parties, the court would be invited first to consider tCG’s misrepresentation claim. If that succeeds, tCG recover’s [sic] damages and ICL’s counterclaim fails. If the misrepresentation claim does not succeed, then ICL’s counterclaim still fails but the court should order an account or enquiry into the sums paid by tCG to ICL for GlobalSTORE and for hardware not used by tCG in consequence of the change to ISS300/Vision. ”

“ 44. CWS’s case is self explanatory. As to paragraph 20.1 ICL represented that it was capable of adapting GlobalSTORE so as to incorporate the additional functionality required by CWS (including the Dividend). As set out in paragraph 27, it was not so capable and admitted as such. Similarly, as to the representation set out in paragraph 20.2, GlobalSTORE was not at the time of the representation (nor ever became) sufficiently advanced in its development to permit a pilot project to be run in August 2000 and the system to be rolled out across the network of former CRS stores in September 2000. So much was admitted as set out in paragraph 27.

45. It is not alleged that the misrepresentations were fraudulent. That said, if CWS establishes that the representations were made and were material, it is for ICL to show either that they were true or, if not, that it had reasonable grounds to believe that they were true. CWS will rely on the Misrepresentation Act 1967 s.2.

Without prejudice to CWS’s primary case as set out above, CWS reserve the right to argue that, had ICL however, properly and carefully investigated the current state of its GlobalSTORE system and evaluated the prospects of its being adapted to provide the required functionality, it would have realised that the system could not be adapted to provide that functionality on a platform of ISS/400 Lite within any timescale which would be acceptable to any customer, however indulgent, and, in all probability could never be so adapted. To that extent therefore, and if and insofar as it may be necessary to do so, CWS will contend that ICL was negligent in making the misrepresentations. ”

“ By reason of ICL’s misrepresentations, breaches of contract and repudiation of contract, CWS is entitled to recover back all monies paid to ICL under the CWS agreement and to damages. A schedule of CWS’s claims under these heads is attached to these particulars of claim at schedule 8 [in fact 7]”

Schedule 7 to the Particulars of Claim did not identify any element of claim which was expressly denoted as dependent upon any allegation of misrepresentation. Rather there were set out a number of elements which seemed to be common to all ways in which the case was put. That was confirmed by an “Alternative case” set out in the Further Information in response to a request under paragraph 42 of the Particulars of Claim numbered 73 in these terms:-

“ Please set out (in Scott schedule or other convenient form) in relation to each alleged item in schedule 7, whether it is alleged that the damage results from a misrepresentation or a breach of contract or (if it is different) a repudiation, and in each case identify the relevant contract and term or representation or act of repudiation relied upon. ”

The “Alternative case” was:-

“ CWS’s alternative case, based on misrepresentation, is that if the misrepresentations had not been made CWS would not have contracted with ICL to deliver a system based on ISS/400 Lite and GlobalSTORE (or even ISS/300 and GlobalSTORE). It would have opted to equip the former CRS stores with the existing system ISS/300 and Vision currently installed in historic CWS stores and containing the functionality of the Dividend. There is no reason why that system could not have been acquired and installed before (or, at worst, shortly after) the merger of the societies in April 2000.

On that premise, all the losses and expenditure incurred by CWS and claimed in Schedule 7, with the exception of the cost of acquiring the licences for ISS/300 would have been avoided. ”

“ It also follows that if there is no new agreement, CWS’ claims under the Misrepresentation Act 1967 must also fail. Such claims require misrepresentations to have induced a contract. CWS have neither pleaded nor relied upon any common law claim for negligent misrepresentation. ”

The material facts as to negotiations between CWS and ICL

“ Our case on that is that if the parties do not reach agreement on penalties, then there are no penalties, but it is not fatal to there being an agreement with regard to the essentials of the contract. ”

For the reasons which I have sought to explain, that solution just is not satisfactory. The real question is whether the parties had any intention of entering into any contract at all, whether a fresh agreement or by way of variation of the CRS Agreement, without the issue of liquidated damages being resolved, and so my consideration of the evidence will focus on what the positions of the parties was on that question. Mr. Mawrey’s suggested solution really amounts to no more than saying that in order to bring into existence a contract upon which it can sue CWS retrospectively did not seek to insist upon that which at the time was of fundamental importance.

“ 11. In October 1999, I was involved in reviewing the contractual documentation which CRS had already entered into with both ICL and ATOS [a company called ATOS Ltd., to which I shall refer in this judgment as “ATOS” , and the role of which I shall come to later] so that Keith Brydon (CWS’s General Manager of retail IT) could be appraised as to the potential risks and implications if, for whatever reason, it was not possible to integrate GlobalSTORE. There was a concern that it might not be possible to modify GlobalSTORE to deliver CWS functionality in the ex-CRS stores. As I have already mentioned, the CRS system worked largely on mainframe systems whereas CWS used open systems. GlobalSTORE had been designed to work on CRS’s mainframe system and we were not sure that the system could be adopted [sic] to integrate with CWS’s open systems and, in particular, with CWS’s banking system. My brief was to review these contracts and to provide feedback to Keith Brydon about the key contractual risks and issues to be considered prior to the proposed integration. This included highlighting the possible financial consequences involved if integration of the existing CRS IT systems (related to the specific contracts) was not possible.

12.When I reviewed the CRS Agreement, I noticed that there were significant penalty clauses for termination. I was aware, from previous involvement in other CWS contracts with ICL, that ICL tended to lean towards standard terms and conditions….

14. At around this time [October 1999] , I was aware from my discussions with Keith Brydon and the Project Beta team [that is, those involved the information technology issues arising on a transfer of the engagements of CRS to CWS] that negotiations were taking place between Adrian Marks, Peter Dennis, Mark Hale, Gary Collier and Chris Hardman with ICL as to how GlobalSTORE could be modified to deliver CWS functionality in the ex-CRS stores. I was not directly involved in the negotiations but was involved behind the scenes in liaising with the Project Beta team about the various issues surrounding this and other contracts and in providing advice in respect of risks to be addressed and actions required in the event of a merger going ahead. ”

Having heard the evidence of Mr. Brydon, and in the light of a number of references in contemporaneous communications to which I refer later in this judgment, I am entirely satisfied that CWS was a reluctant participant in the negotiations with ICL and that it was induced to enter into those negotiations, and, indeed, to deal with ICL at all, only because of the perceived need to avoid CWS having to pay the increased sums for which the CRS Agreement provided if no new agreement was made. Hence the identification by Mr. Brydon as early as December 1999 in his contact with Mr. Pickett of ICL of the issue of what was to happen to the CRS Agreement.

“ 50.1 Version 1… This is undated. My guess is it was produced by ICL around or after 24/02/2000….

50.2 Version 2…. This is dated 22/03/2000.

50.3 Version 4… This is dated 24/03/2000.

50.4 Version 6…. This is dated 31/03/2000.

50.5 Version 8…. This is dated 31/08/2000.

50.6 Version 9…. This is dated 06/09/2000. ”

There were, presumably, Versions 3, 5 and 7, but Mr. Dennis gave no account of being aware of them. It appears that Version 9 was the last draft to be produced. It seems from the terms of an e-mail dated 31 March 2000 sent by Mr. Howard Turner of ICL to Mr. Dennis and Mr. Marks to which was attached a draft trading agreement between ICL and CWS that it was only at that stage that ICL provided for the first time a draft agreement, so Mr. Dennis appears to be in error as to the date of what he described as Version 1. However, that detail is not particularly important.

“ 35. A review was undertaken of the likely cost of choosing ICL GlobalSTORE as against Vision. Phil Davies and Keith Brydon were the instigators of this review and Phil sent a memo to Keith dated 15/11/1999 … (copied to me) setting out the intention for myself and Gary Collier to carry out an “apples for apples” review of costs and technology for ICL (which I take to mean ICL GlobalSTORE) to be rolled out in the CRS stores in the CWS regions. Phil’s memo goes on to set out the plan for the continuing commercial negotiation with ICL which at that stage was based upon the possibility of GlobalSTORE in all 1,100 stores [that is to say, not only the former CRS stores but also the existing CWS stores] . Peter Dennis and Gary Collier were given the job of taking this forward and Phil set out certain basic requirements of the merged organisation for that negotiation, as follows:

35.1 no CWS/CRS commitment to roll-out;

35.2 fixed costs for whole roll-out from ICL;

35.3 performance penalties on ICL;

35.4 no penalty on CRS arising out of the existing contracts;

35.5 minimal penalty for termination of the CRS mainframe lease.

36. I think that the above are a fair reflection of the central principles of our continued negotiation with ICL although, in addition to those issues, I would also add the need for ICL to invoice on a “deliverables” basis rather than the set stage payments which had been agreed by CRS. ”

“ 42.1 tCG wanted to make payments in line with ICL’s delivery and was not prepared to make stage payments which bore no relation to ICL’s commitment to deliver. We wanted to pay ICL upon delivery of either equipment or achieved milestones. The various drafts of the CWS trading agreement which were exchanged between tCG and ICL reflect this and ICL eventually agreed to invoice on this basis.

42.2 It was taken as a given by both ICL and tCG that the CWS trading agreement needed to reflect the changed position of both parties in that (at its most basic) ICL were delivering ISS/400 GlobalSTORE (and subsequently ISS/300 GlobalSTORE) rather than a progression from ISS/400 lite to GLobalSTORE over a number of years as envisaged in the CRS Agreement.

42.3 There were terms in the CRS Agreement that I felt were biased towards ICL. There were also restrictive clauses which I felt were onerous and/or legally dubious. One such clause was included in that draft dated 02/04/2000 which sought to prevent tCG from purchasing Vision or any other products in the future: it would have tied us to GlobalSTORE and ICL for an indefinite period.

42.4 tCG wanted ICL to agree penalty clauses for late delivery. ICL had said that they were able to deliver the GlobalSTORE solution to commence roll-out at the end of September 2000 and tCG’s IT integration plan was dependent upon them delivering on time. ICL knew the importance of the timing of delivery of GlobalSTORE for the rest of tCG’s business and we wanted them to commit to the timing that they had promised, by agreeing to penalties.

42.5 ICL’s position on penalty clauses was that they felt they had proved themselves in the delivery of EPOS harmonisation to CRS and there shouldn’t therefore have been the need for penalty clauses in the agreement with tCG. ”

“ In order to achieve a mutually agreeable contract Adrian Marks requested that the contract be re-written incorporating agenda points 1 – 4 to replace the CRS contract and associated Side Letters. ”

“ I was slightly concerned that we did not have a signed agreement in place but at the same time I was adamant not to sign something I was not happy with. ”

That evidence, which I accept, strikes me as very important, for it indicates that the failure of anyone on behalf of CWS to sign any draft agreement produced by ICL was not an oversight, but a conscious decision not to conclude an agreement unless CWS was absolutely content with the terms. That is not a surprising position for CWS to adopt. It is a cautious and prudent one.

“ Once I had agreed all the commercial terms with ICL I would have forwarded the draft agreement to our legal department to review all the legal terms. Matters such as limitation of liability I leave to be considered by our legal department once I think an agreement has been reached on commercial terms. ”

Again it is not at all surprising, it seems to me, that following the agreement in principle of commercial terms, CWS should have wanted legal advice as to the precise wording of a draft agreement before it was executed. That is a very sensible way of proceeding. However, it does indicate that, from Mr. Marks’s perspective, at least, matters had some distance to go between him being content with whatever commercial terms were agreed in principle and the conclusion of a legally binding contract.

“ A Key issue regarding CWS’s draft agreement was penalties. This was never resolved. We had spent £1.78 million on GlobalSTORE licences and CRS had already paid for the ISS/400 licences which would be needed in conjunction with the GlobalSTORE licences. We therefore explained to ICL that we felt extremely exposed if they failed to deliver as promised and as a result we wanted them to make proposals to us as to what penalties they would agree to in order that it should be painful for them if they failed to deliver. At the time we did not mention any figures but we wanted them to be significant enough for it to be painful for ICL and to focus their minds on ensuring that they delivered everything that had been agreed within the timescale. I do not recall them ever saying no to our request for penalties, however they never truly responded. Each time I raised the issue with John Pickett he said he would discuss it internally at ICL and come back to me. However, he never responded with a firm yes or no, which led me to believe the issues [sic] was still open for negotiation. Looking back at the negotiation I believe John Pickett was not serious about reaching a concluded agreement in respect of all the aspects of the commercial negotiation. ”

“ We attempted to negotiate a new contract for many months but the draft provided to us never actually reflected the terms that we had agreed. Furthermore the specification kept changing because ICL kept changing what they said they could deliver and when, we were never able to pin-down the terms of the contract. ICL were well aware that we were totally unhappy with the old contract but we were pursuing in good faith a new contract that would reflect the “new world”. The contract negotiations fell apart as ICL continually failed to deliver over a six month period. ”

I do not accept that that is an accurate account of what happened. It was contradicted by the evidence of Mr. Howard Turner at paragraph 19 of his witness statement, which I accept, that:-

“The suggestion that it was because we omitted agreed changes from drafts of the agreement is simply false. Naturally enough, as a result of meetings, we often said that we would consider things, and after consideration we said no when we did not think that they were acceptable. It is typical of CWS’s attitude that they assumed that because they’d asked for something they would get it. To suggest that by resisting terms which were not acceptable to us, we were deliberately trying to block a new agreement being reached, is remarkable.”

From the contemporaneous communications between the parties to which I refer later in this judgment it is plain that there were certain points upon which ICL’s position was firm, such as not agreeing to any provision for liquidated damages. One could well understand that during negotiations there might be a temptation for ICL not to state its position clearly on such points in the hope that, with the passage of time and continued progress towards achieving success in the GlobalSTORE project, such issues would cease to be controversial. That analysis is in fact supported by the evidence of Mr. Marks at paragraph 53 of his first witness statement, by paragraph 14 of the first witness statement of Mr. Goodby and by what Mr. Dennis said at paragraph 46 of his first witness statement, to which I refer a little later in this judgment.

“ 12. There were a number of key reasons why we were not prepared to accept the terms of the CRS 1999 Agreement as they stood and concentrate simply on negotiating the revised work schedules which could be attached to it.

13. I understand from DLA [solicitors acting on behalf of CWS in this action] that various other witnesses for tCG in this case (notably Adrian Marks and Peter Dennis) deal with these in some detail, however, briefly they were as follows:…

13.2 Penalties There was no doubt that ICL had committed to a very tight timetable for the delivery and installation of GlobalSTORE. However much they might insist it was achievable, it was plain to us that any unforeseen delay or failure on their part could have a serious “knock-on” effect on the integration of the two businesses. We wanted penalties for late delivery or failure to perform by ICL to ensure they kept “their eye on the ball”. There were none in the CRS 1999 Agreement….

14….. The penalties issue was always resisted by ICL. Their negotiation tactic on this was usually to avoid rejecting penalties outright, point out that penalties could affect their project costings, claim they needed to think about the issue further, and then ignore it and hope it would go away….

30. The penalties issue was fairly constant. It was raised by Adrian and I at virtually every meeting or discussion we had with ICL around the draft trading agreement. This was particularly so as the project began to go wrong. Neither of us accepted ICL’s standard position on it (see paragraph 14). Adrian and I both felt very strongly that if ICL had the solution they claimed to have, and the skills and resources to implement it within their timeframe, they should be prepared to back this up with financial penalties of some description if they failed to perform. Although our discussions on this issue went on for many months, they never really “got off the ground”. At no time for example, was there any discussion between us concerning what amounts might be appropriate. We never got to that stage….

37. My email to Christine Walters (18/07/2000)… sets out my understanding of the position [as at the middle of July 2000] . It stated “ ….What Trading Agreement? – WE don’t have one!!!…” By this I meant that we had no signed contract (though as far as possible we were working to those terms which had been agreed). Payment schedules, deliverables and timescales were still not fixed and (following the problems with the Drop 1 code) the whole project was in the process of being re-planned out by ICL. We had not concluded negotiations, and we knew there were some very important sticking points. Christine’s email to me was seeking permission to renegotiate certain terms with ICL. I felt the main agreement should be resolved before anybody negotiated with ICL on anything else. That is what I meant by “… WE MUST NOT WORK TO THE PROPOSED TRADING AGREEMENT….”

39. To a certain extent from this point [about the end of August 2000] on the commercials were taken out of my hands. They were now being dealt with at a higher level (via Adrian Marks and Keith Brydon). I was aware (from discussions with Adrian at the time) that a total stalemate had been reached surrounding the issue of penalties. This issue became even more prominent from October 2000 onwards when HAT and UAT of the GlobalSTORE code revealed it was riddled with bugs and more replanning and more delays resulted….

46. A very important meeting with ICL took place on 19/01/2001. I was present, as were Keith Brydon and John Hevican. Dave Carlin and John Pickett (amongst others) attended for ICL. The minutes of this meeting confirm the total dissatisfaction with ICL’s performance which we expressed. On a number of occasions ICL were asked whether they accepted responsibility for the project failings. Each time they skirted the issue. Penalties were again raised but again this issue was not resolved. Eventually Keith Brydon told Dave Carlin that without penalties, tCG would “walk away”. ”

“ Another bone of contention was our desire for penalties against late delivery or poor performance to be introduced. There were no such penalties in the CRS 1999 Agreement. This was something that ICL never appeared prepared to accept though on a number of occasions they said they would go away and think about it. Their reasoning was always that they had not factored the risks involved in agreeing penalties into their project costings. ”

“ We discussed the contractual aspects of ICL’s proposal at the meeting, I told John Pickett that if a merger took place, tCG would require a new contract with ICL to replace the CRS Agreement and which would reflect the new trading relationship. In particular I required:

53.1 payment to be made on a different basis from CRS. I wanted tCG to pay ICL by reference to deliverables. CRS paid ICL an agreed amount each quarter irrespective of what ICL delivered;

53.2 I wanted penalties to be incorporated into the agreement as an insurance in case of late delivery of software. ”

“ Please describe your understanding of the arrangements that were discussed primarily around the CRS mainframe and other commercials. ”

“ Our current plan, which is subject to formal sign-off by CRS (urgently required), provides a delivery of the CRS Phase 3b ISS400 Lite software to CRS at the end of January. The main functional addition in Phase 3b is Unit Pricing. Under the normal CRS and Atos procedures this would be available for rollout on 3 April 2000. Rollout can be achieved in a relatively short space of time using remote software distribution, a normal process for Atos.

ISS400 Lite Phase 3c is planned for delivery into CRS in the first week of April 2000. The main functional addition in Phase 3c is Weekly Cash Statement. This statement is enhanced from that originally planned for Phase 3b in that it will now provide the information required by the CWS central systems, though not exactly in CWS current format. The format has been agreed with Paul Markey and the FRS for Phase 3c is due for sign-off this week. Phase 3c can be rolled out using remote software distribution and should be available for rollout in the 1 ^st week of May, depending upon the CRS and Atos processes.

Phase 4 is the delivery which provides Global STORE Back Office, POS Admin, Weekly Cash Statement to CWS format, ISAs, Waste recording, Dividend and Daily Capricorn Sales Extract. This delivery will take 5 months from sign-off to being ready for rollout. ”

Mr. Brydon contended that CWS relied upon the indication that Phase 4, including Dividend, could be rolled out, that is to say installed in the former CRS stores, starting five months after sign-off of the relevant Functional Requirements Specification, or “FRS” , in deciding to proceed with the GlobalSTORE project. I do not accept that evidence.

“ ….as the IT director it was easy for me to say wherever possible CWS systems and mechanisms will be used and CRS systems will be removed. This was in order for us to close down Sandbrook Park which was costing us £16 million a year. ”

While that comment, if it stood alone, might seem a flimsy foundation for a finding that, but for the existence of the CRS Agreement and the implications for CWS of being bound by that agreement, the decision to adopt GlobalSTORE in former CRS stores would not have been made, it does not stand alone. There are a number of indications in contemporaneous documents, to which I shall refer later in this judgment, that Mr. Brydon was antipathetic towards ICL, was dealing with ICL with reluctance, and was on the look-out for any serious opportunity for CWS to terminate its connection with ICL unless ICL provided in former CRS stores a mirror of the functionality available in former CWS stores in relation in particular to the Dividend very swiftly. The rigid insistence of Mr. Brydon and other senior executives of CWS upon the agreement of ICL to pay liquidated damages was, I am satisfied, largely a reflection of this animosity.

“ … We needed to make a choice between the two IT systems and a view was taken at the time that the CWS systems would be used as the basis for the IT system of the merged tCG. This followed the pattern of the merger, in that the merged business generally adopted CWS systems and structures. ”

“ At our meeting in Redfern House on May 12 ^th I committed to providing you with some information regarding the investigation currently taking place into the feasibility of providing CWS with a Global STORE/ISS 300 solution for CRS stores.

You will find attached: a GAP Analysis of ISS300 vs ISS400; an “Impact” document dealing with the technical considerations of the Global STORE/ISS300 solution against the solution which is currently planned; an Architectural Overview and a Development Plan for the Global STORE/ISS300 solution.

ICL has suggested the Global STORE/ISS 300 solution as a possible remedy to the difficulties in specifying in detail the technical requirements of Dividend for ISS400, which is threatening to delay the availability of a system with Dividend for installation in ex-CRS stores in September 2000. Global STORE is not late, it is on schedule, the risk is with the ISS400 element of the Phase 4 solution.

It is possible to suggest the Global STORE /ISS300 solution as an alternative to ISS400 because the Global STORE development is on schedule and has already been delivered to UNCL [United Norwest Co-operative Ltd.] in combination with ISS300 POS to provide an interim solution for UNCL stores. This will be used in UNCL stores whilst UNCL await delivery of their Global STORE POS application in October 2000. Note that Global STORE POS is not and has never been part of the proposed solution for CRS stores and that October 2000 has always been the scheduled date for delivery of the “Co-op” Global STORE POS application as defined with the Co-op Design Club.

Should CWS choose to move away from ISS400 and install Global STORE in combination with ISS300 there will be a commercial impact which will increase the short term cost of integration. However this short term cost will be outweighed by the longer term advantages of harmonising onto a single Point of Sale application. ”

Mr. Turner went on in the letter to explain that the commercial impact to which he referred was an increase in price of £1,093,500.

“ The recommendation to Malcolm and the executive was that, whilst the conversion of the CRS stores from ISS/400 to ISS/300 would involve additional work, it would have advantages for tCG in that there would be uniformity of the “front end equipment” throughout the estate. ”

As Mr. Brydon wished, so far as possible, to standardise throughout the whole of the merged business on pre-existing CWS equipment, it is not surprising that he should have been quite happy in principle to operate GlobalSTORE in the former CRS stores on a platform already in use in existing CWS stores. However, what his summary in his witness statement does not mention, but which is clear from the briefing paper itself, is CWS was not prepared to pay ICL any additional sum for the revised scheme using ISS300. He had, according to the paper, insisted on that and Mr. Pickett had indicated on 22 May 2000 that there would be no extra charge.

“ In addition to my earlier mail it is IMPERATIVE that we know exactly where we are with this project from here on in.

The debate around ICL & their ability to do anything successfully has gone right to the top of our organisation and will be taken up with the Chief Exec of ICL. There is complete distrust of ICL at senior levels in CWS.

I suggest, therefore, that we take a very sceptical view of ICL’s abilities to deliver a quality product on time. I want a weekly report of progress – showing milestones hit, missed, responsibility for the failure and remedial actions to be taken to get the project or milestone back on track. If there are any issues whatsoever regarding the capability of ICL project management or the team not doing the job, I want to know as soon as the problem occurs. Any slippage must be reported to me immediately. In addition, any unreasonable quotes for software development, charges for pre-sales activity, charges for people attending meetings etc – I want to know. ”

The terms of the e-mail do seem to me to be a considerable over-reaction to a problem which was the first significant issue to surface on the technical side and which had been solved in a way which met with Mr. Brydon’s approval and without additional cost, unless Mr. Brydon’s real view was that the matter of the change to ISS300 and the delay in the development of the ISS400 platform so that it could operated satisfactorily with GlobalSTORE to deliver Dividend functionality might provide the chink in the ICL corporate armour for which he was looking in order to justify putting an end to all further dealings with ICL without thereby exposing CWS to liability under the CRS Agreement. Essentially his instruction to those of his team dealing with ICL was, “Keep a very close eye on ICL and let me know if it does the slightest thing wrong” .

“ This was an indication that I was extremely nervous that ICL had singularly failed to deliver on store break fix issues, on system development, on kit refurbishment and now I had a situation where I was responsible for a merger project of which ICL were playing a major part and I was very nervous that they would not deliver on time or to quality. ”

“Store break fix issues” , “system development” and “kit refurbishment” were nothing to do with GlobalSTORE. As I have explained, they were matters in relation to which CWS had contracts with ICL in respect of which Mr. Brydon, and, it seems, others within CWS, in particular Mr. Hepworth and Mr. Melmoth, considered that the performance of ICL had been unsatisfactory.

“ As discussed with Howard Turner last Friday – he would not agree to the following but would, “if I put it in writing”, take it up with his “commercial people”.

My view is simple, we must protect ourselves from a solution that does not work, or that is late, or God forbid – both, so…

1. The plans must be robust, realistic and reliable – ICL must guarantee that the plans will be delivered and will be part of the contractually [sic] commitment made by them.

2. Failure to meet the deadline will result in non payment by CWS of at least 20% of the total purchase price of 1% for every day!!!

3. If the solution does not meet our requirements, this will result in non payment by CWS.

4. If ICL cannot provide a new total solution (at no extra cost to CWS) within 8 weeks of CWS knowing that the original solution does not work, ICL must refund all monies paid under the trading agreement.

I know we will not achieve all the above but we must “go in hard” to achieve some guarantees.

Keith, perhaps you could write to ICL with these sentiments and make them clear at your meeting on Tuesday – call me if you wish to discuss or need any information. ”

The terms of the e-mail do seem quite extraordinarily belligerent in the context of what should have been a civilised commercial negotiation. It is difficult to resist the conclusion that what Mr. Goodby had in mind was provoking a crisis in the negotiations which would be likely to lead to a breakdown.

“ I’ve given this [that is to say, Mr. Goodby’s e-mail of 29 May 2000, or the substance of it] in writing to John Pickett to take up with ICL. I have also told him to escalate the issues to Keith Todd [the chief executive at that time of ICL] who – can u believe it, is currently unaware of the issues we are having! Graham Melmoth is intent on getting his pound of flesh from ICL, so watch this space. ”

Mr. Brydon was cross-examined as to the use of the expression “his pound of flesh” , which one does not customarily find being used in the context of commercial dealings. He said that the expression was Mr. Melmoth’s, not his. His evidence went on:-

“ Graham Melmoth was the chief executive of CWS. I had had meetings with Graham Melmoth and Malcolm Hepworth where Graham had expressed his distrust of ICL, the fact that there was no working relationship at chief executive level with ICL and in fact that ICL had been responsible for two changes of direction on EpoS kit [nothing to do with the GlobalSTORE project, but possibly something to do with funerals] that Graham Melmoth thought were inappropriate and furthermore he thought that ICL had misled CWS in the purchase of those products.

Q. And “pound of flesh” meant making them pay.

A. Certainly making them aware of our problems, yes.

Q. That was before ICL had delivered any code [that is to say, software] at all.

A. On GlobalSTORE, yes. ”

“ We had discussed towards the end of last year the possibilities of penalties for late delivery and you have requested again that ICL look at this option.

When we originally negotiated the contract with CRS penalties were not included, there was however a clause that enabled CRS to cancel if ICL failed to deliver the harmonisation phase by November last year. This stage was successfully reached and all 200 plus strores [sic] where [sic] installed on time. The composition of the contract enabled ICL to take a large risk on Globalstore development which we believe will provide the Co-operative movement with a world class instore solution at well below normal market values.

Because of our exposure on software development and the cost of delay we would not wish to enter into a penalty clause contract. One months delay will cost ICL £400k. Software development on Co-op Globalstore is running at over £175k per month, the cost of the store implementation team will be over £200k per month, due to the size of the rollout this team has to be assembled early and can not be easily redeployed if delays are incurred.

Our financial exposure on late delivery is already high. The consequencial [sic] deterioration in customer relationships that a delay would cause we recognise as having severe knock on effects on future business with CWS. I believe that these factors alone will keep ICL determined to deliver to your timescales and achieve your business goals. ”

“ Whilst this may not have been John’s wish, I still wanted to press this point with ICL and Adrian and Peter continued to discuss this in their negotiations with ICL. ”

“ We can now officially accept the ICL offer of ISS300 across the whole estate and dump any work being done on ISS400. Graham will be writing to Keith Todd, we will meet with him in July. Malcolm and I will meet with John Pickett and John Bennett before then. The esscence [sic] of the conversations will be on:

“ A. Not at all, no. It was clear to me that there were many different aspects to this. The stage payments were inappropriate. The software being delivered was completely different from that envisaged from CRS. No, tearing up the CRS agreement did not mean that I thought it was in force, no.

Q. Did you not? Because we looked at the letter several times now where ICL told you that it would continue in force, would not be cancelled without penalty, unless you reached a new agreement.

A. I believe that a new agreement had been reached. It just has not been signed.

Q. But you have explained several times, and indeed it is reflected here, “Attempted to get ICL to get penalty clauses for late delivery”.

A. Correct.

Q. You knew that had not been agreed?

A. Yes, I did.

Q. And you knew that no agreement would be agreed or signed without it?

A. No, that is not the case. I knew that we had not reached the signature stage. I did not believe it had not been agreed. I thought by act or by deed ICL were working to the terms of a new agreement. They were accepting the changes in payment, they had accepted the changes to scope and they were delivering against project plans that did not in any way reflect what was required by CRS.

Q. But you were not going to agree to this without penalty clauses?

A. Correct.

Q. Therefore, unless one side or the other backed down on penalty clauses there was not going to be an agreement?

A. It was incongruous for me to believe that CRS could have penalty clauses for non delivery or failure to deliver and CWS could not. As part of the original CRS contract with ICL for phase 1 delivery of EPoS harmonisation ICL did accept penalty clauses should they fail to deliver.

Q. The answer to my question is that for various reasons you had, unless one side or other backed down on this there was not going to be an agreement?

A. We had many agreements with ICL over the years to do with break fix clauses where penalty clauses were included, to do with software development, where not so much penalties as rejection clauses were included. I saw no difficulty in getting this trading agreement agreed.

Q. But then you realised there was one because they would not agree to it?

A. And I could not understand why.

Q. Without somebody backing down, there was not going to be an agreement?

A. I believe there was an agreement, it just was not signed.

Q. No, Mr. Brydon. You did not believe there was an agreement because a sticking point for you was that ICL had to agree to penalty clauses. You have said so repeatedly.

A. Yes, they had to agree to penalty clauses. I did however understand that we were working under the spirit of the new agreement.

Q. Unless they had agreed to penalty clauses, you were not going to sign anything?

A. That is correct. It was made very plain to me by Mr. Hepworth and Mr. Melmoth that ICL were to be made in some way shape or form responsible. They had proved irresponsible in the past and we, as management, did not want that to be the case in the future.

Q. That was the sticking point?

A. Yes, it was. ”

“ deliverables & dates – we will be playing hard ball with ICL over deliverables & are trying to get them to agree to penalties for late/non delivery, so please be very clear that the dates and deliverables have been agreed with CWS and ICL management. Get ICL to commit in writing. ”

“ Late/non delivery of any item in the project should be liable to penalties. ICL to pay CWS a sum to be agreed for each occurrence. This will involve a complete review of the project and agreement of all parties to actions and dates by when deliverables are due and how they will be measured to be complete. ”

“ On the matter of the Funerals system and where we go from here, Keith Brydon will be following this up in conjunction with Chris Thompson, General Manager, Funeral Services Group. ”

Neither Mr. Melmoth nor Mr. Todd gave evidence at the trial.

“ good – I’ll let John Pickett know this afternoon that ICL fell at the first hurdle.

Meeting with Keith Todd/Graham Melmoth was amicable if a little frosty at the start. We have KT’s personal commitment to the delivery of the project on time (which means ICL will try every trick in the book to make out CWS are the ones at fault). Keep the pressure on. Let me know if you need my help at any time. ”

“ Rob [Young] had made it known to me immediately. I was congratulating Rob for his diligence. It was not “good, ICL have failed”, it was “good, thank you, Rob, for being so diligent. I will let John Pickett know that they fell at the first hurdle.” ”

I just cannot accept that explanation. It is plain, in my judgment, that by this stage Mr. Brydon was looking to ICL to slip up in a way which could be used as a justification for terminating all further involvement with it without exposing CWS to the need to pay any compensation for the termination of the CRS Agreement.

“ 117. From the point at which we had decided to run with GlobalSTORE there were a number of key commercial issues that I wanted to negotiate into the detailed commercial agreement which was going to be signed with ICL. I discussed these issues with Adrian Marks and Peter Dennis for them to raise during the negotiations with ICL. There were 2 principal commercial issues for me: …

117.2 Penalties for late delivery. The timing of the delivery of GlobalSTORE was crucial to our business and I wanted ICL to accept some of the risk if they failed to deliver on time….

121. I was updated at the weekly management meetings on progress with the commercial negotiation, by Adrian Marks and Garry Goodby. I have already outlined the key issues for me in the commercial negotiation and which I understand were put to ICL by Adrian and Garry. My understanding from them was that progress in the negotiations was slow for a number of reasons:

121.1.1 The subject matter of the negotiation had moved on a number of occasions. First, ICL had proposed a change from ISS/400 to ISS/300. There were then changes to their proposals for delivering code, regarding the timing of delivery and the number of drops of code that were going to be made. Thirdly, later in the project, the overall project plan changed from one which envisaged a pilot in August 2000, to anticipating a pilot in January 2001. All these issues needed to be reflected in the agreement which was being negotiated…

121.1.2 ICL were resistant to our request that they should agree to a penalty for late delivery. I did not accept ICL’s argument that they were already exposed on the project. I considered that tCG were being asked to take on a significant degree of risk in the event of ICL failing to deliver and I thought that this should have been reflected in ICL agreeing a penalty for late delivery…

123. I obviously wanted the commercial negotiation to be concluded as soon as possible. However, my understanding from Adrian and Garry was that it was not possible to reach a final agreement with ICL and, certainly by September 2000, that ICL’s attitude for the negotiation was non-committal…. ”

“ Good start – I would refer to the contract that ICL had with CRS not our contract and that both parties ICL and CWS have been in negotiations to replace this onerous/out of date contract (maybe not these words but …) and state that this is now pointless given ICL’s inability to deliver.

This would need to be checked out with Geoff [of the legal department] – I am sure he would have the words but I do think the point is worth making.

Also, what about all the other activity eg support, other development etc – we could mention these, again – to add weight to the argument that we have little or no confidence in ICL. ”

When Mr. Brydon was asked about this exchange during his cross-examination and why he was drafting a “go away” letter as of 8 December 2000, at which point software delivered by ICL had successfully undergone handover acceptance tests ( “HAT” ) and had entered into user acceptance testing ( “UAT” ), he said:-

“ Because we were absolutely convinced by this stage that ICL had no ability to deliver a quality release of code. That had been proven on two occasions now: once on 26 ^th June and again on 17 ^th October. We knew that ECR1 would not fix all of our problems. By this stage we were beginning to realise that the inability of ICL to deliver a quality project was going to affect the business plan. ”

“ECR1” was Error Correction Release 1, which was a release of software which was intended to deal with various errors ( “bugs” in the jargon of the information technology industry) which had been identified in the software which had been delivered on 17 October 2000. A little later in his cross-examination Mr. Brydon said that he hoped that software due for delivery early in January 2001 ( “ECR2” , that is Error Correction Release 2) would negate the need to send the “go away” letter. Once more I regret to say that I just cannot accept the evidence of Mr. Brydon which I have set out in this paragraph. No sane and sensible person, and certainly not a person with the duties and responsibilities of Mr. Brydon would, one month before it was anticipated that the need to send it might arise, spend time not only drafting, but also seeking comments upon and legal advice in relation to, a letter which might not need to be sent. It seems to me that the reality is that far from it being the anticipated failure of ICL to deliver software of satisfactory quality that prompted the drafting of the letter, it was exactly the opposite fear, that the software would be of satisfactory quality, that prompted the drafting of the letter. By this stage, in my judgment, Mr. Brydon, at least, had decided to use the GlobalSTORE project as a means of seeking revenge against ICL for the grievances real or imagined to which I have already referred. There is no other obvious explanation for steps being taken as early as the beginning of December to anticipate the termination of relationships between ICL and CWS or for the fact that when ICL was indicating a cast iron guarantee of delivery of software no later than 5 February 2001 CWS purported to terminate its supposed contract with ICL on 29 January 2001. Moreover, it is obvious from a consideration of the terms of the letter in fact sent to Mr. Christou on 5 January 2001, which contained references to a meeting arranged with Mr. Christou on 26 January 2001 and to events on and after 18 December 2000, that if it had been first drafted as early as 8 December 2000, the draft was substantially revised thereafter.

“ I have to say that this progress report doesn’t exactly read like a “throw ICL out or we’re doomed” type message ”

Mr. Brydon was cross-examined about that e-mail. Mr. Carr suggested to him that what he had been hoping for was a progress report which would justify throwing out ICL. His response, regrettably, was wholly implausible. The relevant part of the transcript reads:-

“ Q. What you were hoping for was a report that said throw ICL out or we are doomed?

A. No, quite the opposite. The information I was receiving through Mr. Marks and various other people indicated this project report was not the case, that in fact we had significant problems with ICL. I asked Mr. Hevican to go away and have a look at things; which he did and he replied to me on 15 ^th December I think.

Q. You thought that the project report that you were getting was wrong?

A. It did not read the same as that document that is referred to there.

Q. You were looking for something that said, throw ICL out or we are doomed.

A. No, I was looking for the truth. ”

“ the Co-operative Group (new CWS name from 15 ^th January) is deadly serious about pulling out of the GlobalSTORE contract due to ICL’s inability to deliver a working system to specified dates and considers that the continuing delay is a threat to the delivery of the 2001 Retail business plan, which is completely unacceptable. The following questions must be answered:

we consider that the system remains unfit for purpose and will, if necessary, proceed with a legal claim for reimbursement of software licences, system development monies and implementation/training monies paid to date

ICL must, before 26 ^th January, supply Keith Brydon with a document that describes how they will assure the Co-operative Group that they can deliver said system, to a specified date for a pilot implementation of phase 4a, and that future phases of software can be assured to be delivered to specification, to agreed delivery dates

ICL must show what financial penalties will be payable to the Co-operative Group if they fail to deliver a working system at any stage in the future. Delivery of phase 4a is not a guarantee of future delivery.

if any of the above cannot be provided to us, or are unacceptable to us once they have been reviewed then we will be forced to review the contractual implications”

Mr. Pickett told me in cross-examination that he understood that e-mail to contain an ultimatum. The reaction to it on the part of ICL was to request a meeting with CWS.

“ 1.78 KB [Mr. Brydon] said again that he had no confidence, he had heard it all a thousand times before. KB wants cast iron guarantees backed by hard cash and wants a refund of the money already spent.

1.79 RB [Mr. Brouwer] said that he cannot refund now. He also said that if quality is not delivered on 05 February 2001 then ICL will walk away.

1.80 KB asked where this would leave Co-operative Group – in the lurch?

1.81 RB said that ICL will not fail to deliver on 05 February 2001. He gave his cast iron guarantee for that. He referred to a meeting he had had with Tim Esculier (TE) at which he had agreed, that subject to the outcome of todays meeting, further discussions with TE/RB would take place to determine the way forward…

1.84 KB asked again what about penalties and gave an ultimatum to JP [Mr. Pickett] that without penalties the Co-operative Group would not wish to discuss this further.

1.85 RB added that there were no contractual obligations for penalties.

1.86 KB asked if he needed to involve the Co-operative Group Legal Department in respect of remedies, recourse and about penalties.

1.87 RB said that this would not be necessary.

1.88 KB asked how he could get ICL acceptance of penalties. He also asked whether or not he needed legal proceedings to commence.

1.89 JP said that ICL was two weeks away from delivery, and questioned whether or not the group wanted to look at penalty demands now. He added that it is impossible to do this before the later stages of the project, i.e. after 4A.

1.91 KB asked if JP understood the impacts on the business. He added that the business is losing money on a daily basis as a direct result of the delay. He went on to say that the Co-operative Group had already taken a hit of £750k and was standing the extended cost of bulk printing. KB added the point that RB had said that TE does not want penalties. KB commented further that the Trading Agreement was not signed because of the difficulties on agreement of the terms. KB told RB to go back to Richard Christou and tell him that the Co-operative Group wants penalties and if ICL cannot accept this then it will walk away.

1.91 RB stated that he is absolutely not allowed to make these commitments financially. KB reiterated that point about a one year delay.

1.92 JP asked if he could make some points about the plan. He added that a whole host of activities surrounding the plan were being bought into and agreed. He asked KB for agreement.

1.93 KB disagreed. He said that he had admired DC [Mr. Carlin] because of his past experience in project delay, but not now. He added that he cannot see what more can be done. He needs an answer on penalties. He added that it would be a complete waste of time Richard Christou coming to the Co-operative Group if penalties and the plan cannot be agreed. In the meantime ICL should carry on with the project as normal. KB asked RB if he could have assurances that the ICL Board will consider this as a priority, and when RB would be able to let him know.

1.94 RB agreed to provide feedback on Monday 22 January 2001….

1.95 DC asked if ICL can clear up the issue of penalties, could the project move forward.

1.96 KB confirmed that it could.

1.97 DC asked if these penalties were for the project going forward.

1.98 KB replied that if we do not get the penalties and the delivered code then there will be serious impacts and the Co-operative Group will want to walk away. ”

“ he will not discuss penalties. He wants this discussion to take place with Malcolm/Christou on 26 ^th . Apparently only Christou can agree to penalties. ”

“ A further meeting took place between Keith Brydon, myself and Richard Christou of ICL on 26/01/2001. Mr. Christou was not prepared to commit to penalties for late delivery. It was felt that ICL could not be trusted to deliver GlobalSTORE and that it would be necessary for tCG to look elsewhere for an IT solution for the historic CRS stores. Keith Brydon prepared a briefing note confirming this position …. and tCG subsequently purchased the Vision system from PCMS. ”

“ This has, as ICL has known, always been a time critical project and, in terms of delivery of the Society’s retail business plan, time is now at an absolute premium. Accordingly, and despite your offer of personal involvement, I must tell you that we have lost confidence in ICL to the point that the limited time we have at our disposal will not be best spent in giving ICL further opportunities to rescue the Global Store project form its present low point.

You said that, if the Society’s decision was to proceed no further with ICL, then we should turn the focus of our working relationship to an orderly disengagement process, and I would now wish to receive ICL’s proposals for this. However, you should understand that, as I do not see our respective organisations as having been equally culpable, I do anticipate the wind-down arrangements involving some compensation for the Society.

This is not a decision I have taken lightly and, given the hopes we have had in the past, it is a regrettable one.

I write, as you will well understand, without prejudice to the Society’s legal rights. ”

“ I have been asked to comment on whether at any point during the course of 2000 or early 2001 any new agreement was reached between ICL and CWS to replace the CRS agreement. Above, I have detailed a discussion that took place in March and April 2000 with a view to putting in place a new agreement to replace the CRS agreement. I would again underline the fact that I think all parties understood that, unless a new written agreement was in place between the parties, the terms of the CRS agreement would continue to govern the relationship, albeit that the exact scope of work which ICL was expected to perform, and the expected price at [sic] performing that scope of work, and the estimated timescale, were all different from that which was originally envisaged whenever the CRS agreement was entered into. I think if I had been asked at any point in the course of 2000 whether I thought that the old CRS terms continued to govern the relationship, I would certainly have answered yes. I believe that CRS would have answered in exactly the same way. …. ”

“ 94. As to whether any agreement had been reached as to a new price for the development and further activities which had been dealt with under the agreement between ICL and CRS. [sic] I think it is correct to say that, by 14 June 2000, when ICL had reissued a draft agreement to reflect comments which had been made by CWS …… we believed that CWS was probably in agreement with the pricing structure set out in Appendix A to Schedule 4 of that draft agreement. [sic] because we were not receiving any further comments from them on that Appendix. However, again, if I was asked whether in June 2000 I felt that ICL and CWS had reached an agreement to replace the existing agreement between ICL and CRS simply because it seemed that CWS had no further comments to make on the pricing. [sic] I would have said “no”. So far as we were concerned, everything in the draft agreement was part of a package, and if the entire package could not be agreed in detail by execution of new written terms between the parties, then we were not going to assume that a new agreement had been reached. As far as I was concerned the pricing under the draft agreement was entirely contingent upon appropriate agreement being reached on all other terms.

95. I think this is appropriately highlighted by the fact that at no point did I ever feel that a new agreement had been reached between ICL and CWS as to the timescales for the development. As set out above, under the agreement between ICL and CRS, a broad estimate had been put on the timescale for the development of GlobalSTORE, in the context of detailed contractual terms which made clear that ICL’s only obligation was to develop the software within a reasonable period of time. All subsequent discussions with CWS as to timescale involved CWS attempting to insist that ICL make a definitive commitment to produce developed software within a specified period of time, with liquidated damages (or “penalties” as CWS often referred to them) which would apply if ICL did not meet those timescales. What ICL anticipated was that the existing contractual obligation as to development within a reasonable period of time, but that with an estimate for that period of time stated in the agreement, would subsist in any new agreement between ICL and CWS. In the context of such a major difference between the parties as to what the obligations as to timescale would be. [sic] I cannot see how ICL could have been said to have agreed to the key terms of a new agreement between ICL and CWS to replace the agreement between ICL and CRS. If ICL had been bound to commit to a definitive timescale. [sic] other than development within a reasonable period of time. [sic] it would have been inevitable that we would have built in a large amount of contingency for the development. It may well also have been the case that we would have expected an increase in price to reflect any increased risk on ICL for being forced to accept such an obligation.

96. Throughout the course of 2000. [sic] after the June draft. [sic] a number of further discussions took place between ICL and CWS to attempt to resolve the terms of the agreement. Annexed hereto is …. an email from myself to Martyn Jansen on 14 September 2000, annexing a new draft of the proposed agreement. [sic] with changes being made by me. I think that the discussion resulted in the issuing of a new draft agreement to Adrian Marks of CWS shortly afterwards. Subsequently. [sic] further discussions took place with CWS to discuss that draft. The document annexed hereto …. reflects CWS’s comments being made at that stage. As can be seen. [sic] there were a very large number of comments made by CWS. Even at that late stage very substantial comments were being made by CWS as to the content of the agreement. So far as I was aware. [sic] no resolution was ever reached on those comments. [sic] and the agreement. [sic] other than the pricing schedule which to all intents and purposes remained constant after the draft 14 June 2000 [sic] was never resolved.

97. In the context of such substantial differences between the parties as to the terms which they were going to use to replace the agreement between ICL and CRS. [sic] I simply do not understand how it could be said that we had reached agreement. Even in January 2001. [sic] as has been set out above. [sic] CWS were again raising the issue of liquidated damages to be imposed on ICL if they did not meet a stipulated timescale. I think the very fact that that critical issue had not been resolved by that stage makes it abundantly clear that no agreement had ever been reached as to the exact timescale which would be followed under any new agreement between ICL and CWS. So far as I was concerned. [sic] ICL was operating on the basis of the contractual obligation under the agreement between ICL and CRS to develop a GlobalSTORE solution within a reasonable period of time. Of course. [sic] the exact scope of work for that development had changed. [sic] and a new price settled for that scope of work. [sic] but the old agreement between ICL and CRS still applied to the relationship between the parties.”

“ The current contract, which covers the development work, was agreed by the CRS and ICL in June 1999. As part of the agreement, the CRS accepted the ICL standard terms and conditions in place at the time of execution. These do not afford the best level of comfort to the CWS. Negotiations are currently underway to replace this contract with one which has terms more favourable to the CWS. ”

Mr. Carr submitted that the terms of the report which I have quoted represent the views of CWS internally at the time of the GlobalSTORE project, and are thus the best evidence that at the time CWS actually agreed with the analysis of Mr. Pickett and Mr. Carlin that the relations between the parties in respect of the GlobalSTORE project were governed by the CRS Agreement. It certainly is striking that the conclusion which Miss Taylor-Smith and Mr. Butt reached coincided with the view expressed in their respective witness statements by Mr. Pickett and Mr. Carlin. However, for the reasons which I have already set out, it seems to me that Mr. Pickett and Mr. Carlin were incorrect as a matter of law. The fact that Miss Taylor-Smith and Mr. Butt reached the same erroneous conclusion is thus ultimately of no relevance to the issue, even if those whom they interviewed at the time took the same view.

The repudiatory breach of contract alleged on behalf of CWS

“ In repudiatory breach of the CWS agreement, ICL failed to deliver at any time any working system/back-office system to the former CRS stores, whether comparable in functionality to that in operation at historic CWS stores or otherwise, and failed to produce or deliver at any time a system based on GlobalSTORE which would perform the functions required of it. ”

There was no express allegation that ICL was at any particular time in breach of an obligation to do by some particular date something which it had agreed to do by that date. Time ordinarily being of the essence in a commercial agreement, had there been some term that ICL would do something by some particular date, one could at least understand how the case was being put.

“ Although CWS will rely on the full course of conduct of ICL between May 2000 and March 2001, the principal milestones of ICL’s failure to perform the CWS agreement were as follows: ”

There followed an unstructured narrative, the effect of which can be summarised, broadly, as an identification of alleged aspects of ICL’s disappointing performance viewed from a CWS perspective. The culmination alleged was:-

“ 38. By the end of January 2001, it had become clear to CWS that:

38.1 ICL was not capable of delivering a working system;

38.2 ICL was not capable of making GlobalSTORE function with the Dividend and the other functionality requirements of CWS (whether on an ISS/400 Lite platform or on an ISS/300 platform);

38.3 ICL was not capable of and had no intention of meeting any deadline of CWS however vital to CWS.

39. In the premises, ICL had evinced an intention not to be bound by and repudiated the CWS agreement.

40. By letter dated 15 March 2001 CWS, as it was entitled to do, accepted that repudiation and terminated the CWS agreement. A copy of that letter is attached to these particulars of claim at schedule 6. ”

“ Re: The Agreement between the Society and International Computers Limited relating to the configuration and installation by International Computers Limited of the “GlobalStore” System within part of the Society’s Food Retail Estate (the “Agreement”)

We hereby confirm the Society’s termination of the Agreement on account of the failure of International Computers Limited to comply with its terms during the period July 2000 to January 2001. ”

“ MR. MAWREY: If a series of deadlines is agreed then it is failure to meet the last deadline that is, as it were, the termination, the repudiation issue. If there is a last deadline. If there is a refusal to meet it, either at the time by non-performance or in advance by saying, I am not going to meet that date, then the party, the other party has the right to say one of two things. He can say you have failed to meet the date I am terminating the contract, or he can say you have failed to meet the date, I will give you another chance.

Me: Right. 29 ^th January then on your client’s case is the critical date by which something had to be done.

MR. MAWREY: Yes.

Me: Did that thing have to be done as a result of it being agreed that that would be the date or as a result of a Rickards v. Oppenheim type notice making time of the essence in relation to that date?

MR. MAWREY: For the purpose of this case we would say it is irrelevant which, but we would say that date was agreed between the parties in December, and I am taking your Lordship to the documents, and that we resisted suggestions that it should be postponed. It does not matter though for these purposes. If a date is fixed, in view of the previous delays we were clearly entitled unilaterally to fix a date for delivery, Rickards v. Oppenheim point. That meeting which I took your Lordahip through, Mr. Brydon is saying time and time again, the 29 ^th is when we want this ready. Delivery ECR2, bearing in mind ECR 2 was meant to be delivery of the software that would enable pilot to take place; it was going to clear up all the outstanding bugs, that was the intention of it. ”

The progress of the GlobalSTORE project

“ To integrate all CRS stores into the CWS estate, providing consistency of store processes and information flow

I shall explain a little later in this judgment about “RetailBase 2” and “RSM” , but essentially the project as then identified involved integrating the existing CWS and CRS information technology systems and enabling the information technology systems in the former CRS stores to provide the same functionality as was available in the existing CWS stores.

“ The FRS (Functional Requirements Specification) for ISS400 Phase 4 describes enhancements to ISS400 required to bring the in-store system in line with the current ISS300 Vision system in CWS stores. The requirements for these enhancements have been based on ICL knowledge of the current differences between ISS400 and ISS300 Vision, and have to date had no input from CWS.

This document is intended to highlight the risks and issues which need to be addressed before the development proceeds.

The issues fall into three broad areas:

The risks can be summarised as:

The matters set out in the summary are really just plain common sense. In his cross-examination Mr. Young was asked about the Risks and Issues Document. He said that he had first seen it about the end of February or beginning of March 2000, at about the time he was appointed as project manager. He said that when he saw the Risks and Issues Document it was apparent to him that it had been put together without any input from CWS and that ICL’s understanding of the requirements of CWS was limited in various areas. Mr. Young does not seem to have thought that particularly important at the time. His evidence was that some of the risks and issues were discussed at a meeting on 10 March 2000 and encapsulated in a later document.

“ 4.1 File transfer mechanisms

Issues

New extract files will be created in a known place on ISS400. ICL strongly recommend these files are also sent back to the CRS host, via RSM. There is no route or mechanism for CWS to poll files directly from ISS400 stores. Can CWS not, over time, and as their central systems are developed, utilise RSM or an equivalent to perform this function? This applies to:

4.2 Hosting

The FRS assumed ISS400 stores would be hosted by CWS, using EAI hub interface. Our current assumption is that ISS400 stores will continue to be hosted by CRS. Extracts will be routed to CRS first, and CRS are responsible for any reformat and onward transfer.

Issues

“ If CWS insist on PCMS [that is to say, use of VHS as the medium of transfer of information relating to the Dividend] instead of Corema, would need change to all file transfer mechanisms to/from ISS400.

Requires a business decision from CWS as to how they want to use Dividend as a strategic tool. ”

“ That any enhancements to the ISS400 front end with relation to Dividend are to replicate the current scheme as is, and do not form part of the deliverables for this project. ”

“ can you please come prepared to this meeting with “what is the art of the possible”. I will need complete assurance that ICL can or cannot handle the additional work on the Harlech trial. A date for the delivery of CWS divi on global store [sic] for roll out would be useful – the business can then argue about how long it will take to roll out

Malcolm knows our position on the Harlech trial:

“ To persuade CWS and CRS that a radically focused approach needs to be taken to Epos developments and particularly Dividend during the integration stage of merger. The priority must be on integration at the expense of new Epos and Dividend functionality in either the CWS – Vision or CRS – Global Store estates. It is important that the Beta Steering Group and all areas of the Business sign up to this approach. ”

The “Conclusions” expressed in the memorandum included:-

“ In order to ensure successful systems integration is achieved and that both CWS and CRS store estates are running with comparable software, the following measures need to be taken:

“ The above issues have questioned the 4A FRS sign off date of 31/03/2000. ”

“ 3. Globalstore to Dividend SSC interface strategy yet to be agreed. Further delay could put key milestones at risk. Dividend FRS will not be available for sign off by 21/04/00.

4. Network architecture under discussion but not yet agreed. Delay could put key milestones at risk. ”

The first of these items concerned exactly that which Mr. Young was talking about reverse engineering in his Project Status Bulletin dated 20 March 2000. The question of which network architecture to employ was essentially the question whether to use the existing CRS information technology system, that is to say, RSM and RB2, or whether to use the existing CWS system. It is surprising, to say the least, that such a fundamental issue was still outstanding unresolved at such a late date if there was to be any serious possibility of meeting the 28 August 2000 date for a pilot installation of GlobalSTORE.

“ The question now becomes one of how the ICL estate will be integrated into the Dividend Scheme. This is probably the next assignment. In order to proceed, I believe that CWS need to assemble those parties delivering the operational system and the operation itself, the provider of the store application and the provider of the Scheme Service centre.

Delivering the scheme crucially depends upon the operational system and the operation itself, since they are responsible for delivering all information within the scheme as opposed to the applications which deliver the scheme processes. ”

“ This project has ground to a halt. I will kick start it by arranging the meeting referred to below asap, although I suspect it will not happen next week because Simon is on holiday. ”

“ 36. Dividend FRS. Terms of Engagement issues between ICL and PCMS are delaying the required discussions for Dividend FRS production. Unlikely that the FRS will be signed off by 21/04/2000. ”

The “Action proposed to rectify” that problem set out in the progress report was that Mr. Dennis was “to pursue issues around terms of Engagement” . That form of words to describe what could more appropriately have been rendered as something along the lines of “Mr. Dennis to agree appropriate commercial terms with PCMS” , seems to me to be merely indicative of Mr. Young’s command of “management speak” being regarded by CWS as a sufficient qualification for his role as project manager of an extremely important project and his own lack of the appropriate drive and initiative for the role which he was supposed to be carrying out.

“ One last point to follow up regarding our meeting on 11 ^th April is in connection with the PCMS position on providing a Dividend service for the ex-CRS stores. I informed the meeting that I had commenced commercial discussions with Simon O’Regan of PCMS to enable ICL & PCMS to provide this service in partnership but that PCMS had backed off from this when they were informed at the “feasibility” meeting on 31 ^st March that CWS intended to provide the RSM service using their own resources.

I understand that Garry Goodby telephoned Simon O’Regan following our meeting and gained a somewhat different impression, despite which we are still unable to make progress as PCMS will not release the file specifications for Dividend. As far as Dividend is concerned I cannot speak on behalf of PCMS as they operate entirely independently of ICL in the provision of the Dividend service. However, I would like to take the opportunity to put in writing my understanding of the current situation.

My understanding of the PCMS position is that if the RSM service is provided by CWS then PCMS will provide the Dividend service in ex-CRS stores directly to CWS, they will not see any value in working with ICL. ICL’s role will be limited to providing the software but ICL can only do this if the specifications are released by PCMS to ICL. PCMS will not release the specifications to ICL unless a commercial agreement is reached between PCMS and CWS for the provision of the service. In order to reach a commercial agreement with PCMS, CWS will need to accept that PCMS cannot be responsible for the end to end service and will need to ensure that CWS can manage this responsibility themselves.

ICL will provide what help we can in order to help CWS to move to a position where PCMS feel able to offer a Dividend service to the ex-CRS stores and to release the specifications to ICL. I am in the process of preparing a proposal with ICL’s Operational Services Division (OSD) for ICL to provide the RSM service. I believe that in the event of a contract for this service being awarded to ICL, it would then be possible for ICL and PCMS in partnership to offer a full end to end service for Dividend which would be the equivalent of the service currently provided by PCMS for Dividend in the CWS stores. I hope to be able to deliver this proposal by May 5 ^th . ”

“ 3. Globalstore to Dividend SSC interface strategy agreed in principle. Further delay could put key milestones at risk. Meeting with ICL/PCMS/ATOS scheduled for 28/4/00 to move project forward.

4. Network architecture under discussion but not yet agreed. Delay could put key milestones at risk. Meeting with ICL/ATOS scheduled for 28/4/00….

7. Detailed project plan needs to be developed/agreed with ICL to cover both Phases 4a and 4b.

8. RSM/Dividend meetings held with ICL/PCMS/ATOS 28/4/00. Meetings to define FRS’s scheduled for 4/5/00 (Divi), w/c 8/5/00 and w/c 15/5/00 (RSM). No firm dates yet for FRS release/sign off.

9. Concern increasing regarding ICL’s ability to deliver Dividend/RSM functionality in time for planned 28/8/00 pilot. ICL not prepared to produce/commit to project plan until FRS’s agreed. ”

“ several items have crossed my desk since my return which give me cause for concern. I realise that there had been much activity to sort out who does what and prioritisation for merger, but there remains much to do if we are to fulfil my objectives of delivering the merger AND move the organisation forward in 2000. You will, no doubt, have your own opinions and explanations for the following, but as a team, we need to understand what needs to be done and then move much more quickly than we are at the present time to stem the problems before they escalate much further:…

8. Divi – ICL tell me they are 6 weeks late with delivery – should have been end August, now likely to be mid October. How can this happen without anyone knowing? If you did know, why don’t I? This is unacceptable & I have told John Pickett so. I am determined not to get into another battle between ICL & PCMS & so will write to Pickett’s boss as to how they expect to resolve the problem. The first major delivery of Global Store software into the newly merged organisation & he blandly says that they haven’t been able to get the spec’s signed off – ridiculous!!! ”

That I find was a wholly disingenuous communication. It misrepresented what the problem in fact was, suggesting that what was presented as the problem was simply an excuse. I find that Mr. Brydon knew perfectly well what the nature of the problem was and that it was a genuine problem for ICL. It may be significant that the e-mail was not copied to Mr. Young, who had been aware of the problem for weeks and had done nothing effective to seek to resolve it.

“ Project is a sub-project to the GlobalSTORE rollout to CRS stores. We have major issues with availability of ISS400 Development resource and have devised an alternative strategy which will be presented to the Customer on 12/5/00. Outcome will impact revenue, timescales and cost of this project. ”

In the “Issues/Concerns” part of the report Mr. Ogston wrote:-

“ Customer uncertainty over requirement has seriously delayed production of specification

Third Party, PCMS are delaying specification by restricting access to necessary information

Lack of available ISS400 Development resource has made it impossible to meet required delivery date. ”

“ Confirmation received from A. Marks that National Vision is the preferred route for Multi-saves/Divi Multisaves. Adrian to ensure that K. Brydon informs PCMS/ICL of this decision to allow PCMS to release the required Multisave file format details. ”

That “High Light” unfortunately produced a number of “Low Lights” , namely:-

“ 42. CTS setup of ex CRS stores. To allow multisaves to be led by National Vision then the Price Matrix requires populating by CTS.

43. CTS setup of xCRS stores. The setting up of these stores on the NV matrix will have an impact on the VHS contract….

46. Multisave details not being released ASAP by PCMS. This could impact on the sign off date for the Divi FRS. ”

The “Action proposed to rectify” the latter was that the FRS be signed off without Multisave details on the basis that such details would follow. The target date for resolution was stated as 19 May 2000. However, in the “Plan to completion” part of the report it was recorded that the “Revised Plan Date” for signing off the Dividend FRS “M/Saves outstanding” was 19 May 2000. That sort of contradiction seems to me to show the inability of Mr. Young to assess properly and to resolve firmly the problems which were encountered with the project which he was supposed to be managing.

“ Due Date

The release will be available for joint ICL/CWS Validation on 19 ^th June 2000 and for integration testing with the PCMS Dividend SSC on 10 ^th July 2000. ”

“ Modular and integration testing will be carried out by the development staff before the software is passed to the validation team. Modular testing involves each unit of software being tested by the development team separately before they are all integrated on to a base platform. Naturally, modular testing will not identify certain issues which can only be picked up during integration testing. Integration testing is the next step. This involves fitting together all the modules of the retail software product correctly onto the base platform. The system is generally not formally tested using test scripts at this stage, but rather a person with good technical knowledge will carry out high level confidence testing on each general functional area of the system to ensure that it works broadly as a whole. Generally integration testing will not involve the use of a specific test script, and it will be done slightly differently from project to project, but its general purpose is to determine whether or not the software or the software components when packaged together are capable of operating together as a software release, and to determine whether the software is suitable for validation. Integration testing would normally be carried out by either a member of the development team, or by a member of the validation team with appropriate technical knowledge of the software. ”

“ Release Destination

This will be released into Validation by ICL in Reading and CWS in Manchester.

On completion of a 2 week period of ICL and CWS validation the release will be made available for integration testing with the PCMS Dividend SSC. ”

The latter testing was intended to evaluate whether GlobalSTORE operated effectively with SSC to deliver the desired functionality in relation to the Dividend. Section 4.4 of the Development Plan dated 21 June 2000 stated:-

“ Due Date

The release will be available for ICL Validation and release to CWS on 26 ^th June 2000 and for integration testing with the PCMS Dividend SSC on 10 ^th July 2000. ”

Mr. Young in his second witness statement maintained that he had expected Drop 1 to have been subject to a week’s validation before release to CWS. When he was shown the Development Plan dated 21 June 2000 he accepted that he had agreed to it and he accepted that it was plain from it that Drop 1 was not to be subject to any validation by ICL before release to CWS. He said that he had simply overlooked, when considering the Development Plan dated 21 June 2000, the fact that Drop 1 was not to be subject to any validation by ICL prior to release to CWS. If that were true it would postulate incompetence of a high order on the part of Mr. Young. If it were really important to CWS to have at the earliest possible date not merely GlobalSTORE to subject to UAT, but partially validated GlobalSTORE to subject to UAT, one would have expected Mr. Young to have been interested in reading carefully the Development Plan, which was not a long or very complicated document, and digesting accurately its contents. In fact I am satisfied that what Mr. Young said about having overlooked the indication in the Development Plan dated 21 June 2000 that Drop 1 would not have been subject to validation by ICL before release to CWS was not true. Mr. Ogston sent to Mr. Young an e-mail on 21 June 2000 which said this:-

“ I have updated the development plan to clarify the drop release dates to ICL Validation and to CWS. For Drop 1 both teams will receive the release on 26 ^th June. For Drops 2 and 3 ICL Validation will receive the release one week ahead of it being released to CWS. ”

When that e-mail was put to him in cross-examination Mr. Young agreed that the terms of it were clear. He said that he did not recall receiving it. I just do not accept that. If the e-mail set out something contrary to what he had expected up to the point at which he received it, I am confident that he would have remembered it. Its importance was obvious. Mr. Young in fact forwarded the e-mail to Mr. Dennis, Mr. Kevin Williams and Mr. Hevican of CWS on 18 July 2000, so there is no doubt that he received it. On this issue I am satisfied that Mr. Young is simply telling lies in order to try to support CWS’s case that ICL’s performance in relation to the GlobalSTORE project was lamentable.

“ I have today spoken to John Bowes to advise that to date the Globalstore/ISS 300 roll out would in itself not facilitate the Dividend trial in HTV. This is because the roll out is based on current functionality. My understanding from our last conversation was that development work on the enhanced version had not yet started. Is this correct as John sounded somewhat dumbfounded when I suggested this? ”

“ You are quite correct. It is my understanding that development has not yet commenced on the “Harlech” Dividend development. I re-iterate that this project is outside the scope of the Merger IT Integration Programme. This was agreed by Malcolm Hepworth, John Bowes and Tim Marsden. I further confirmed this to Nigel Walters at a meeting on 14 ^th April where it was agreed that I would not be addressing this requirement as part of the Integration Programme and that Nigel would need to initiate a separate “non merger” IT development project thorough [sic] the normal channels i.e. via the IT Account Manager. This would then be progressed through the normal End2End Project Life Cycle process whereupon its development priority would be assessed. I am personally unaware as to what stage, if any, this has reached since it is outside my area of responsibility. ”

“ John Bowes has had a conversation with Alison Tracey, regarding the trial of “3&1” divi in the CRS stores. John’s intention (known to us) is to launch 3&1 in CRS stores from February next year. This has been discussed with IT, I remember Garry & Stephen getting involved at one point. Apparently Alison is being told that the functionality will not be delivered in time for this launch and it will be mid year before it is possible to launch the initiative.

This won’t be acceptable – John, if u remember, wanted to launch this as part of the merger process but we had to say Nooooo! IT will be in the firing line again if this is true. Can u advise me of the current situation? ”

“ I am looking for some way of doing 3&1 without impact on your programme. Keith is pushing hard for a solution which, if I cannot pull some solution out the hat, will result in a deep and meaningful discussion as to whether this does go into GS [that is, GlobalSTORE] or not. ”

“ CWS Drop 1 release is in full flow, but not yet complete or stable:

We will try to knock this one off tomorrow

Dave Chapman is working through the weekend to complete his areas

Cash seems to have intergated [sic] well – one area of happiness at least!

We must, very quickly, find a new mode of operation for the development of CWS Drop 2 and OSCG Drop 2 releases

Remember, the combination of these two releases will be harder than CWS drop 1 has been

No Anthony or Sue this week and no Peter tomorrow – so basically, the release is being looked at with zero understanding of the requirements!

We will do as much as possible tomorrow, however the there [sic] is no period of time to stabalise [sic] the release before Monday

I also suspect that the functionality we have developed will be a poor fit to CWS’s requirements/expectations (I can explain this feeling more if you like)

Please be prepared for the shit to hit the fan

CWS Drop 2 development

So, I think the crisis is on us. ”

“ As I said this morning, the drop1 is not in a fit state to be released to the customer. The dividend functionality is still being worked on by the development group and there is no prospect of checking that it works (in any meaningful sense of the word) before Monday. In my view, it will be a week before the dividend functionality is fit to be handed over from development and probably another week until it has been tested sufficiently to release to a customer.

It is possible that there is some value in providing an early development build to the customer. However, if we are to maintain any credibility we should be absolutely certain to ensure that the customer understand that this is what he is being delivered. We should not therefore be expecting the customer to formally accept this as a drop 1 delivery. ”

“ ICL check list for Module and Integration testing of the Drop 1 components.

Validation test scripts/expected test results and actual results (Handover upon completion of validation) ”

From the terms of his own e-mail Mr. Young plainly understood that validation had not been completed by ICL. There were put in evidence documents entitled, respectively, “GlobalSTORE/Combo – CWS GS ISS300 Release Notes” dated 27 June 2000 and running to some thirteen pages and “CWS GlobalSTORE /ISS300 Drop 1 Integration Report” dated 26 June 2000 and running to some six pages. From the terms of Mr. Young’s e-mail to Mr. Brydon dated 28 June 2000, to which I have referred earlier in this judgment, it is clear that both of these documents were provided to CWS by ICL on 28 June 2000.

“ The Global Store Development Team have now had enough time to assess the quality of Drop 1.

The current position with Drop 1 is as follows:

Conclusion

Way Forward

“ General quality of software is poor. ICL validation would normally take place before CWS receive software but due to timescales joint validation is being performed.

We cannot confirm that the software has successfully been tested prior to handover to CWS as no scripts/results were provided. ”

The terms of the passage quoted provide further confirmation that Mr. Young in fact understood perfectly well that ICL was not intending to undertake validation of Drop 1 prior to delivery of the software to CWS. However, Mr. Hevican cannot have understood the significance of that otherwise he could not have written as he did in his e-mail to Mr. Pickett of 5 July 2000.

“ In between the Thursday and the Monday evening I insisted (a) I would make the release myself, I wanted to be confident in my own mind that the release could be made. Normally we would send one of our (inaudible) up to the customer, but I wanted to be sure that the customer understood that we were right behind the release, so I went up myself. I had the developers in front of me go through the release module by module to convince me, and if not at the time to fix bugs that would then convince me, that the system was a workable system. It went through every programme of which there were 50 delivered, of which a small number were Dividend programs, but a large number of other programs I have previously mentioned that all loaded and ran reasonably well and executed cleanly. That was the criteria that I set. On the basis of that it was a very worthwhile thing to do for CWS providing they were on side and they wanted to go live in a reasonable time. ”

I accept that evidence. I am satisfied that ICL did indeed make considerable efforts to produce a Drop 1 in a useful condition, albeit not validated, and that the decision of Mr. Hevican to reject the drop was based on a misunderstanding as to what had been contemplated and discussed. Mr. Ogston and Mr. Jennings each told me that he had been surprised when CWS rejected Drop 1 and Mr. Hevican sought to insist upon a drop of “quality” software, because that meant a change in the philosophy to which ICL had been working up to that time. I accept that evidence also. Mr. Hevican seems to have been misled in part because of his familiarity with a CWS procedure set out in what was called the “CWS/Supplier Management Framework” (“the CWS Framework”) which involved, where it applied, a sequential approach to problem definition, solution design, solution development, implementation and support. Under that approach software would not be delivered by a supplier until it had been fully validated. But that was specifically not what had been contemplated in relation to Drop 1.

“ 50. Confidence testing of Drop 1 commenced immediately and lasted one or two days. A set of tests had been planned by tCG which would hit all the main areas of the software. Confidence testing is intended to review whether (and hopefully confirm that) the software “hangs together”. The purpose of confidence testing is to form a view as to whether it is worth continuing to the next stage of testing involving full test scripts.

51. In this case, the next stage was formal UAT, rather than Handover Acceptance testing. This represented a compromise by tCG on the strict “waterfall” methodology [contemplated by the CWS Framework] rather than a deviation from it. We had agreed to forgo HAT early in the project in order to ensure the strict timetable to pilot was achievable. This was before my involvement in the project, but in discussions I had with Rob Young when I joined, he explained that ICL felt it was unnecessary. We both knew there was a risk involved in accepting code straight into UAT, however on the assumption that good code would be delivered by ICL with full supporting test documentation, it was a risk we were prepared to take.

52. Confidence testing revealed no serious concerns. In fact, the Drop 1 Code seemed to be bearing up very well. We therefore went into UAT on 03/07/2000. ”

I accept the evidence of Mr. Cook that confidence testing of Drop 1 revealed no serious concerns. That evidence supports the evidence of Mr. Jennings and Mr. Ogston as to what was done between 22 June 2000 and 27 June 2000 at ICL, and undermines the suggestion of Mr. Mawrey that Drop 1 was “rubbish” .

“ A = complete system breakdown;

B = critical jobs prevented/held up/lost;

C = important jobs put at risk;

D = progress is hampered;

E = no current impact on user. ”

That grading scheme was that used by ICL generally to assess the significance of bugs, but it was common ground between Mr. David Baker, a software expert retained on behalf of CWS for the purposes of this action, and his opposite number on behalf of ICL, Dr. Gillian Hunt, that the grading in fact carried out by CWS of the 43 alleged bugs in Drop 1, and, indeed, of other bugs detected later in the history of the GlobalSTORE project, reflected commercial priorities as well as the system significance of particular bugs. CWS contended that it had identified in 10% of Drop 1 8 category A bugs, 3 category B bugs, 6 category C bugs, 10 category D bugs and 16 category E bugs. All of the alleged category A bugs related to a single SSC file definition, HMEO. In those circumstances none of them met the criteria for a category A classification because none of them – not even all of them taken together – could have caused a system breakdown. They simply impacted on one part, albeit an important part, of the software delivered in Drop 1 and prevented the HMEO file being tested at SSC. According to the evidence of Dr. Hunt, which I accept, four of the alleged category A errors were in any event known to ICL at the time of Drop 1. Both Mr. Baker and Dr. Hunt reassessed the significance of the errors alleged by CWS in Drop1 using a different classification system. That system categorised as Class 1 a bug which would have a severe impact, preventing other tests in the relevant functional area, having a major business impact and preventing testing of other functional areas. A Class 2 bug was one which had a major impact, preventing many other tests in the relevant functional area and/or having a major business impact. Class 3 described a bug having a minor impact, preventing some other tests in the relevant functional area and/or a minor business impact. A Class 4 bug was one which would not prevent other tests and had no business impact. The remaining classes were U, a bug the priority of which could not be determined, N, which was not a bug at all, C, which was a change request, and D, a duplicate. It was, I think, common ground between Mr. Baker and Dr. Hunt, that the classification of bugs is a somewhat subjective exercise. A bug is, when reduced to its essentials, a respect in which software does not perform as expected. In considering what was expected one has to have regard to what was specified as the functionality to be provided. Vagueness of wording of the relevant specification is the first area in which different assessors may reach different conclusions as to whether a supposed bug really is a bug or not. A conclusion that what it is said the software should do was not covered by the specification as written could lead to the view either that what was complained of was not a bug at all, or that it was really a request for the software to be modified to provide a different functionality, in other words, a change. There is obviously also great scope for difference as to the business impact of a particular alleged bug. Mr. Baker, having no experience of the retail grocery trade, candidly told me that he relied upon CWS to tell him of the alleged business impact of particular alleged bugs. That was understandable from his point of view, but introduced a significant element of unreliability into his grading of bugs, in my judgment, not least because those at CWS whom he consulted were not involved at the coalface of retailing but were Mr. Young and Mr. Cook. On the evidence of the original grading of bugs by CWS, it was plain to me that CWS was inclined to exaggerate the business effect of bugs. How else could eight alleged bugs which only affected testing of one file, HMEO, possibly have been graded as causing a complete system breakdown? There was some difference between Mr. Baker and Dr. Hunt as to the appropriate regrading according to the scheme which they used of the 43 alleged bugs in 10% of Drop 1, but they both agreed that, for reasons about which they differed in detail, ten at least of the alleged forty-three bugs were not bugs at all or requests for changes or related to functionality not included in the software delivered in Drop 1.

“ The Co-operative Wholesale Society (CWS) is one of ICL’s top five retail accounts worldwide and generated last year well in excess of £25m revenue. We have just completed two days of senior level discussions involving the new head of IT, the director of their retail operation and their chief executive. At the chief executive meeting Keith Todd joined the session and we had a very constructive discussion on history, today and opportunities for the future. John Pickett has a full report on all our actions.

The summary is that we have enormous potential in this major enterprise in both retail, banking, insurance, travel and a whole range of e-Commerce and e-Business opportunities. However, for these opportunities to become available they are absolutely dependent on our ability to help the CWS through its recent merger with CRS which was consummated in April this year. In short, our role is to implement the new global store back-office systems and the ISS 300 applications on their front-end systems in all 450 of the CRS stores and to do this on time, on budget by the end of March 2001.

None of this is new to the people involved on the day to day activity, however, I want to underline that ICL’s total reputation with this customer is on the line for this good delivery, so let’s all make this a success, use this challenge to impress CWS on our ability to delivery [sic] with pace and speed and lets [sic] use this to give us the chance for these longer term opportunities. ”

“ Just to confirm the actions from the meeting on the 17/7 with John Pickett/JH/Kevin Williams & Peter Dennis:

1. As at the 17/7 we were still waiting for a revised project plan in order to assess the impact of the rejected Drop 1 software on the store pilot date and store roll out dates.

Action: ICL to provide an updated full project plan by the 18/7 in order to assess the impact on the Implementation dates of the project.

2. Due to problems with Drop 1 quality, concern was raised again by JH that CWS would miss the window for testing Dividend software in the PCMS environment.

This date was scheduled for 31/7, for a period of 2 weeks. If this date was missed there would be a significant impact on the overall plan.

Action: ICL to own the resolution of this problem i.e. to contact PCMS and agree a new window for the testing of this software.

3. Concern was raised by John Pickett that the 2 change requests raised by CWS had significantly impacted the ICL ability to deliver to plan. JH questioned this view and suggested these changes were only minor.

Action: John Pickett to provide a detailed breakdown of the impact of each of these changes. i.e. Number of Days effort/Where is the effort incurred.

Reviewing the progress for these 3 actions:

1. ICL have produced a development plan but have failed to assess the impact on the overall pilot date and roll out dates. The plan that has been provided assumes significant compromise on the CWS testing times.

NOTE – This is NOT acceptable. CWS will NOT compromise on the length of time that is required to acceptance test ICL software. (Especially given the poor quality to date)

After a project meeting on the 19/7 Dave Carling [sic] was actioned to produce the complete project plan by 20/7 which also includes the requirement by CWS to do FULL User Acceptance Testing. On the 20/7 CWS to review the impact on overall project timescales.

2. No feedback.

3. No feedback. ”

“ I picked up Keith’s email at about 3pm today having been out of the office until then. I’ve put a call in to Keith, Joyce said he had just started a meeting, I’ve asked Joyce to get Keith to call me as soon as his meeting is finished.

I can assure you and Keith that ICL is as keen to issue firm delivery dates as you are and my information is at odds with Keith’s in a couple of areas. I’m sure you are aware that Dave Carlin and Geoff Ogston met with Rob Young & Kevin Williams on Monday and that they had a conference call yesterday. My latest information from Dave Carlin, as of around 3.15 pm today, is that Rob and Kevin are this afternoon reviewing their planned validation and test cycle in an effort to see whether this can be reduced from the 67 man days which it has now grown to and that they will be getting back to Dave Carlin later today. That will remove one blocker from issuing the plan.

Also (again I think you are aware of this) PCMS supplied the wrong file formats for a couple of files (HMES & CLOI?) which has caused a delay. We have now received the correct file formats and we have lodged some queries about these with PCMS. Dave Cook of PCMS is due to answer these queries in a conference call set for 9 am tomorrow (Thursday). Assuming that Rob & Kevin are in accord with Dave on validation and PCMS are able to answer these queries then Dave expects to be able to issue a plan on Friday. I will propose to Keith that Dave & I come to CWS on Friday at Keith’s convenience to present the plan.

The plan will undoubtedly put back the delivery dates and therefore I think that it is important that we are able to sit down together to review the impact of this upon the CWS business and to understand where contingency will be required. ”

“ I do not want to review the plan. I want ICL to guarantee delivery of quality doftware [sic] on a date that has been agreed by all parties and that does not compromise the levels of testing that we have come to expect to have to do.

This delay is a very serious matter that is bound to be escalated. Yet again I find myself at the mercy of ICL & late delivery of code that is not fit for purpose. This is clearly unacceptable. I suggest you review your position very carefully and make sure that the next time dates are mentioned they can be achieved. ”

“ I write in response to your emails of 26 ^th July and 27 ^th July regarding delivery dates for Global STORE Phase 4a.

Following “Drop 1” on 27 ^th June ICL undertook a complete design review which resulted in a slip of approximately 2 weeks to both “Drop 2” and “Drop 3”. Since your Project Managers were informed of this on July 18 ^th there has been considerable joint activity in an effort to secure the agreement of all parties to a new set of dates. Our respective teams are now at a point where they have a plan, which requires close co-operation between the ICL & CWS teams, for example joint validation, and includes a considerably extended validation period for CWS. As you know this joint approach to development and testing has been key to other successful Global STORE projects.

However, your email requests firm assurances on delivery of quality software. We believe that phased delivery reflects best practice but in response to your email requests we have now drawn up a plan which provides for one delivery, or drop, of a fully validated Phase 4a. The planned date at which this single drop would be available to CWS to participate in joint confidence testing will be Tuesday 10 ^th October 2000 with formal handover to CWS planned for Thursday 12 ^th October 2000.

The plan requires that the outstanding FRSs are signed off as they stand today and that any amendments to these will be dealt with as change requests which we would plan to deliver as part of the later Phase 4b release. ”

“ for the sake of clarity and my own sanity, I thought it would be useful to note down the current state of affairs with the above, in relation to store revamps and Divi rollout. The reason for the communication is that 2 of my staff have asked the same question this week and have received different answers:

For the moment, I am trying to make sure the picture is clear between now and (say) March next year. Current (not confirmed) verbal plans from ICL indicate that they will be unable to deliver a working set of software before Christmas. ”

That e-mail was important. First, it made plain that from the point of view of the information technology department of CWS Retail there was no definite plan for the carrying out of the Harlech trial. What was being looked for from GlobalSTORE was simply the functionality to offer the Original Dividend. Second, it was clear from the e-mail that it was well-understood that the Harlech trial would provide no information of any value to an assessment of the likely impact of introducing the Revised Dividend in place of the Original Dividend in stores in which the Original Dividend had been offered. The making of an assessment of that likely impact was the purpose of what was called the “Milton Keynes 12” . That in due course became what was known as “the Hatfield trial” . Third, the motivation for what came to be called the “Vision 32” project, the installation of Vision in former CRS stores in existing CWS regions, was the desire to be able to offer the Original Dividend in those stores as soon as possible, allegedly as a result of the non-delivery of GlobalSTORE in useable condition earlier than was then anticipated. There had been no previous indication by CWS to ICL, and of course this internal e-mail was not itself an indication to ICL, that any particular urgency was attributed to the offering of the Original Dividend in former CRS stores in existing CWS regions. Fourth, for reasons personal to himself, Mr. Brydon sought to suggest to the addressees of the e-mail that ICL had indicated that it would not be able to deliver working GlobalSTORE software before Christmas 2000, when in fact what ICL had said was that it would seek to provide validated software by 10 October 2000.

“ Your note of 3 ^rd August is almost right but not quite. So, to be pedantic;

1. CRS stores in the South West and West will not have Dividend switched on at this stage. In these regions the introduction of Welcome and the new market towns format will not, at this stage, be accompanied by the introduction of a Dividend offer.

2. CRS stores in the established CWS Regions will have the current Dividend offer introduced as and when stores are revamped to either the Welcome format OR the new market town format.

3. The Harlech 3 &1 trial is a necessity and not an option, It will be introduced in February and, in order to achieve this, it is accepted that the functionality will be pretty basic BUT it must be sufficiently robust to facilitate its extension into the South West in the second half of next year on the assumption that the Harlech trial is a success.

4. During the course of 2001 the functionality for the 3 & 1 route will need to be further developed to reflect the requirement for a full National roll out in early 2002 again on the assumption that the Harlech trial is a success.

These four points summarise the discussion that Neil, Mike, Iain, you and I had at our meeting of the 18 ^th July.

5. As the National roll out in 2002 will be a change of offer in the established CWS regions, rather than an introduction of offer, customer response might be different. Nigel Walters has suggested, since we had our meeting, that we could test this by taking a small number of CWS stores in an area discreet from the current television commercials and trialing 3 & 1. This is an option and not an absolute necessity. If it can be operated sensibly, practically, and inexpensively it makes sense to pursue. Nigel is evaluating. ”

What Mr. Bowes thus seemed to have been contemplating at that time was that the Harlech trial would be facilitated by some fairly basic information technology simply to enable it to proceed in February 2001, and that if the trial was successful, the Revised Dividend would be introduced on a national scale early in 2002. The Hatfield trial, on the other hand, was simply an option.

“ 1.2 The Key Conclusions of the Review

The conclusion of the review is that there are no potential “show stoppers” at this stage of the GlobalSTORE applications development plan. Lessons learned from the issues found in August 2000 have meant that both CWS and ICL are now in communication and managing the process in a more pro-active manner.

This significant progress made since August – by both CWS and ICL – indicates that the delivery of a quality GlobalSTORE product to schedule should give sufficient contingency for both parties to forward plan and achieve a successful Pilot and Roll Out programme.

However, a number of significant risks and issues have been identified, as summarised in the paragraphs below.

1.3 Key Risks and Issues

The major findings of the review identified a number of potential high risk areas and issues.

“ 4 Acceptance Criteria

CWS will accept GlobalStore Phase 4A into User Acceptance Testing provided the tests detailed in this document perform to the expected results.

If any performed test does not produce the expected result, then a joint CWS/ICL decision by the personnel performing the test will determine the level of priority to be given to the incident. The established ICL bug management process will apply to the incident.

CWS User Acceptance Testing will proceed unless the CWS and ICL personnel performing the tests set out in this document agree that the volume or severity of high priority incidents make it impractical for any particular area of functionality to undergo UAT until the incidents have been attended to and re-testing has been carried out in accordance with this document…

6 Restrictions

…

Output files which do not exactly match the corresponding output from Vision will not be classed as failing to meet the expected result, provided these files comply with the file format and definition agreed in the relevant FRS. ”

The agreements recorded in the Acceptance Criteria document that UAT should continue notwithstanding the finding of bugs unless both the CWS and ICL personnel performing the tests agreed that continuation was impractical, and that the yardstick for testing should be the relevant FRS and not the corresponding output from Vision are very important in the light of what subsequently happened.

“ Meeting with ICL this morning has identified the following:-

An overall impact analysis will be performed soon. ”

In cross-examination of a number of the witnesses called on behalf of ICL Mr. Mawrey suggested that ICL had agreed at the meeting described by Mr. Young in that e-mail that there would be no A, B or C category bugs in the software delivered in October 2000, that is to say, in effect that ICL warranted that there would be no such bugs. It seems to me that that is a complete misreading of Mr. Young’s e-mail. The reference to correction and testing of the remaining category A, B and C bugs can only sensibly have referred to those bugs in such categories of which ICL was aware. It is wildly improbable, in the light of the history of the GlobalSTORE project up to this point, that ICL should have even contemplated asserting that there would be no category A, B or C bugs at all in the software as delivered.

“ I confirm that we will be ready for your team to start your acceptance testing on Tuesday 17 ^th October. This is one day later than previously advised – this additional time is being used by the development team to take on, adjust and install your test data and also to include in Hot Fix 4 the bulk of the bug fixes previously intended for Hot Fix 5. ”

“ The commencement of GlobalSTORE handover has been rescheduled to take place on Tuesday 17/10/2000 (further day slippage). As you can see from ICL’s note, they will be in a position by Tuesday to provide a cut of software fit for acceptance testing (based on the correction of the 3 outstanding bugs required for start of Acceptance testing).

The handover test’s [sic] will take place on Tue, Wed, Thur and Friday with the further demonstration of the remaining A, B, C bugs taking place the following Monday. ”

“ Handover commenced as scheduled on Tuesday with core testing to be complete by close Friday. Monday was scheduled as an additional day to allow ICL to demonstrate the outstanding bugs prior to acceptance.

As at Friday 20/10 @ 14:00:-

Total of 27 Bugs raised due to execution of CWS acceptance scripts.

Cash 10

POS 13

Dividend 4

Of the above the following require correction prior to acceptance:

Cash 8

POS 3

Divi 4

The bugs raised have impacted on progress and as a result have highlighted the requirement for the process to run into next week.

1 extra need [sic] required for cash testing

2 extra days required for Divi testing

1 extra day required for PoS testing

2 extra days required for Resilience

+ 1 day for demonstration of remaining 50 bugs identified as required prior to handover

The handover testing is therefore due to be complete on Wed 25/10 with CWS travelling to Reading on Sunday in readiness for early Monday start. Plans have been made to absorb the slippage within our testing window which will result in CWS UAT starting on mon 30/10/2000 as per the agreed reschedule. Generally, progress is being made and confidence is high that the above is achievable. However, if further problems are found early next week and the Acceptance testing is not complete by Wednesday then CWS will return to Manchester without the GlobalSTORE application. ”

“ I find myself in the disturbing position of having to put in writing CWS’s frustration at yet another missed deadline from ICL. I am sure that you have been made aware of the position with the implementation of Global STORE in CWS, but briefly;

Whilst I appreciate that ICL have worked very hard to try to meet these latest deadlines the quality of the software remains unacceptable. I know my own people have striven tirelessly to support ICL in achieving this date. But once again a critical date in the merger between CWS and CRS has been missed and the roll out of GlobalSTORE is now, inevitably, even further delayed.

The impact of this goes far beyond any further slippage to the acceptance of the software; our refit programme is already being complicated by the implementation of Vision/ISS300, which is having to be retrofitted into stores due to the unavailability of GlobalSTORE; the testing timetable agreed with PCMS is now defunct and will need to be renegotiated; ATOS have commitments to release key resources as part of the CRS exit programme which are vital to successful testing and implementation of the system.

All in all a very grim picture!

The question I put to you, is what are ICL prepared to do to:

I await your response with considerable urgency. ”

“ I refer to your letter dated 30 ^th October relating to the GlobalSTORE project at CWS and your frustration and concern that the delay is having on your merger plans.

Firstly I would like to stress the level of importance that this project has within ICL. It is one of our major retail projects and we fully recognise the significant business implications this has for your company.

We have been constantly reviewing the progress of the project, the resources deployed and the planned delivery dates. As you state in your letter both our organisations have worked very hard to try to meet the latest deadlines.

The Globalstore solution being developed for CWS has three major modules. Cash management, POS administration and a bespoke development for CWS known as 4A. The 4A module consists of 20 developments unique to CWS, the principle module being the dividend scheme. At close of play on 27 ^th October we believed that all elements of the system could have been released into user acceptance testing with the exception of dividend module.

The dividend system has a number of issues for both of us and I have asked John Pickett to prepare a status report, which he will review in more detail with you.

We have however now reached the position that user acceptance testing can commence and I have asked my team to work closely with your project group to prepare a detailed plan which will highlight the impact that the delay has had on the overall project goals. We will be able to review and present this plan week beginning 13 ^th November and to confirm the position regarding the CWS store refit programme and ATOS resources.

It is very important to us that we re-establish confidence in Globalstore. The investment ICL is making into the Co-op Globalstore solution is significant, particularly in the area of inventory management, which we believe will create for you significant competitive advantage. We are now seeing the first releases of Globalstore being rolled out into other Co-op societies and we are close to reaching this position with CWS.

It is important that our two teams continue to work together closely. A significant amount of progress has been made since your letter was sent and this should continue as we move into the user acceptance phase. ”

“ The acceptance testing of the final elements of Dividend have highlighted other critical bugs (yet to be documented). It would appear that the corrections supplied by ICL last night have adversely impacted on other areas of the Dividend functionality. Nik/Peter and ICL have continued the testing tonight and as at 10:45 have concluded that the outstanding fixes are NOT imminent. Based on this “viscous [sic] circle” of retesting, I have asked both Nik and Peter to leave ICL Reading on Thur am, return to Manchester and subsequently allow ICL to fix, Unit test and Validate the areas of functionality and provide 100% reassurance that all bugs are corrected before re-inviting CWS to complete the final elements of Dividend acceptance testing.

I strongly believe that the above is the only sensible way forward.

Again, no impact on pilot can yet be ascertained until dates are received for the above corrections and SSC reschedule. ”

What is particularly curious about this e-mail is that the terms of it are really quite inconsistent with Mr. Young, whom one might have expected to know if the software under HAT had in fact been rejected, believing that there had been a rejection. Neither Mr. Young nor Mr. Brydon in their evidence dealt with this conundrum.

“ The official point of GlobalSTORE Acceptance testing completion is here. Based on outstanding bugs the GlobalSTORE application will NOT be formally accepted into CWS testing! ”

There followed in the e-mail an account of the number of bugs allegedly found since the commencement of HAT on 17 October 2000 and suggestions as to what should happen. However, those suggestions all involved action along the lines:-

“ ICL to provide a realistic date for correction/testing of the above to allow Acceptance testing to complete.

Some of the GS team will remain in Reading to assist with the Acceptance testing and provide the required input/knowledge/experience required to assist with ICL correction. ”

It does not appear that there ever was a rejection. Whether Mr. Brydon genuinely believed that there had been was not something explored in evidence. However, it is difficult to resist the conclusion that it was convenient to Mr. Brydon to be able to assert to Mr. Christou that there had been a rejection in order to manoeuvre for advantage in his continuing campaign to relieve CWS of the need to deal with ICL without incurring any additional liability under the CRS Agreement.

“ The acceptance testing of the final elements of Dividend have highlighted other critical bugs (yet to be documented). It would appear that the corrections supplied by ICL last night have adversely impacted on other areas of Dividend functionality. Nik/Peter and ICL have continued the testing tonight and as at 10:45 have concluded that the outstanding fixes are NOT imminent. Based on this “viscuous [sic] circle” of retesting, I have asked both Nik and Peter to leave Reading on Thur [2 November 2000] am, return to Manchester and subsequently allow ICL to fix, Unit test and Validate the areas of functionality and provide 100% reassurance that all bugs are corrected before re-inviting CWS to complete the final elements of Dividend acceptance testing.

I strongly believe that the above option is the only sensible way forward.

Again, no impact on pilot can yet be ascertained until dates are received. ”

“ It is now 23.40. DJ [Mr. Jennings] and I are still in REA24 [ICL’s Reading premises] having just received your Email. I have to say I am deeply disappointed in the content of your Email. Peter/Nik and Sue/DJ have worked closely together throughout the evening to achieve what I believe to be the first line by line/character by character comparison of GlobalSTORE and Vision HMEO throughout this current testing cycle. 7 issues have been identified as a result, only 2 of which may impact SSC testing, and one of these is effectively a Change Request as it is not correctly defined in the FRS which was countersigned by PCMS. 2 other issues need checking with PCMS as Vision appears to behave in a strange way. The remainder do not appear to be critical to the SSC testing.

NONE of the issues identified tonight have been introduced by recent bug fixes, they have been present for some time and could have been found sooner if tonights [sic] activity had taken place earlier. They can all be addressed in very short timescales if they are deemed to be critical.

As at the time they left REA24 tonight (23.15) NIK/Peter intended to return tomorrow AM to complete their cycle tests and print out all the reports. Are they still doing this?

In summary, while I appreciate and share your frustration, I feel your Email was both innaccurate [sic] and unhelpful. I will ring you in the morning to discuss the way forward before I respond to the same audience. ”

“ Following discussions today with Garry, Adrian, Stephen and Peter the following has been deemed necessary for the continuation of the GlobalSTORE acceptance testing:-

I have attached two documents for your reference, which relate to:-

Synopsis of the GlobalSTORE situation including our view of the bug situation – detailed analysis yet to be performed.

Letter from H. Turner to KB dated 28/07/2000 which relates to guarantee of Quality software. ”

Again the terms of that e-mail seem totally inconsistent with there having been any rejection of the software prior to the date of the e-mail. A “GlobalSTORE delivery synopsis” attached to the e-mail referred to a rejection of software on 5 July 2000, but contained no other reference to rejection. There were two entries for 25 October 2000, the date stated by Mr. Brydon in his letter to Mr. Christou of 30 October 2000 as the date of rejection, but all that those entries recorded was:-

“ Acceptance testing not complete due to issues found and as a result project slippage declared.

Acceptance testing continues with an aim to complete and sign off on 31/10/2000. ”

“ Following our discussion yesterday on GlobalSTORE acceptance, please find my view of the situation:-

Current

All A, B, C priority bugs relating to Dividend have now been resolved and tested by ICL. Electronic/Hard copies of the test results from this process have been supplied to CWS.

The bugs raised during the Acceptance process which have been deemed as “not necessary for handover” will be released with the Generic EC1 release [that is, Error Correction Release 1, sometimes called contemporaneously, as it will be in this judgment, “ECR1” ] to CWS no later than 11/12/2000.

These correction [sic] will have been fully validated by ICL and will be supported by results of successful testing.

Any issues found during the two day SSC testing this week will be corrected/tested by ICL and released as part of a required Hot fix prior to SSC retesting which will be scheduled for 27/11/2000.

The remaining six bugs found as a result of the Acceptance Criteria testing fall into the D/E priority camp and will not impact on the CWS UAT.

Way Forward

CWS to continue with the final elements of Dividend Acceptance Testing on Tuesday am at MAN27 – Wythenshawe.

The final element of this process will be complete by 12:00 Wednesday 8/11/2000.

Based on successful testing of these final elements of the Acceptance process and written confirmation from ICL on the above, then CWS will accept the GlobalSTORE 4A application into CWS formal testing.

The final two days of the SSC slot will be utilised this week in an attempt to “flush out”, Dividend bugs prior to retesting during the rescheduled slot of w/c 27/11/2000 for 8 days – CWS/ICL to pursue confirmation of this slot with PCMS based on CWS internal priorities.

The acceptance of the GlobalSTORE 4A application into CWS formal testing does not remove the right to reject the application if the quantity of high level bugs is excessive.

Please confirm all of the above by 12:00 Wednesday. ”

“ To confirm our telephone conversations yesterday and this morning ICL accept the status and actions agreed as described below with the following exceptions:

(1) Issues raised as a result of the SSC testing this week should be reviewed by CWS & ICL on Monday 13/11 before ICL can commit to resolution by 27/11.

(2) The final paragraph which reads: “The acceptance of the GlobalSTORE 4A application into CWS formal testing does not remove the right to reject the application if the quantity of high level bugs is excessive.” is not acceptable to ICL as worded. Could we discuss. ”

“ Please see reply from ICL. They appear to have some concerns with the last paragraph. The paragraph was introduced to remind ICL that we have only accepted the application into formal testing and if we find crucial issues/high level of bugs during testing then we could still return – the reality is that this would not happen as the major components of ISS300/GlobalSTORE have been tested within the Acceptance Criteria testing. ”

Thus it seems that at that stage, from the standpoint of Mr. Young and those involved in the testing of the software on behalf of CWS, the quality of what had been delivered, as corrected up to that point, was satisfactory.

“ The Dividend plans are as follows –

1. Launch in all Harlech Region stores in 1 hit, supported by media/in-store communications, operating a 3% + 1% offer. I am aiming for c. May – please advise of any issues on this.

We have recently re-started discussion around the Pilot Rollout Strategy for GS. J Fowler provided some input here with respect to HTV 3-1-0 trial, where he indicated that the “Line management” expectation for all 128 store pilot is end April with an overall realistic expectation of end May. JF is to identify the actual stores to be involved in the HTV trial.

The rollout schedule is now being reviewed to see if we can accommodate the requirement, and will incorporate the above from JF) – aiming for end April…

2. Test the 3 + 1 offer in 11 CWS Vision stores to measure relative impact vs 5 + 0%. I am aiming for the end-March Dividend payout for this…

3. Assuming the Harlech test is successful, the plan is then to launch Dividend throughout South West Region next, ideally Q4 2001, rather than piecemeal across the CRS estate generally. This is currently an overlay to the Budget rather than a core element of it, given that itis [sic] dependent on the success in Harlech.

Assuming GC is referring to 3-1-0 then this will also need to be taken into account with the rollout schedule. However, this has not previously been discussed. ISS400 will be replaced by GS on a store by store basis – is GC wanting to turn on all Vision SERG stores to 3-1-0 and then as we convert to GS switch on 3-1-0 store by store or wait until all stores in that region have been converted to GS – will we only be offring [sic] 3-1-0 once the ex CRS store has been refit??? ”

“ Being positive, Ged has taken the message that we have not committed to dates on this. We will need to watch the date for rolling to more than Harlech (ie the “full monty”) as we do not know that we can do it by the end of 2001. ”

“ Generally the project is progressing well, all be it [sic] there is significant complexity & there are issues but these are being well managed. We have issues around the performance of the software but the quality is ok.

The low lights 117 & 118 highlighted in the status reports are the key issues. Basically if the EC1 bug fixes are delivered on 18/12 there is no impact on the pilot date.

If ICL fail to meet this revised date there will be a subsequent impact on timescales. Note that Dave Carlin was reasonably confident that ICL would deliver to this revised date.

I thought the main reasons we were “throwing ICL out” was [sic] the concern about ICL’s future and their ability to support/develop global store once it has been implemented. ”

“ Just a note to confirm that I am unable to attend this afternoon but the section will as usual be represented by Joanne. Following on from my previous note, I can confirm that we are attempting to devise a training schedule, In order that Joanne is not placed in a situation in which she is asked to give undertakings about matters not within her control I would draw attention to the following possible difficult areas.

It seems highly likely that the reorganisation of the business will lead to the departure of many of the current training officers. At the latest they will depart on 26.1.00 which means their participation in the pilots will be minimal. Although they will be replaced with a view to a new compliment being in place by 29.1.00 there is some doubt as to exactly how ready the newcomers will be to be involved in this project. In any event trainers willnot [sic] be mobile and will therefore be based in their training stores.

One further possible difficulty concerns the training stores, it is still not absolutely clear that the proposed training stores will be ready or suitable for the installation of the relevant training kit, should the worst come to the worst that will obviously impact on the project, meaning that alternative venues will need to be found. The alternative option will solve the back office problem but not the issue of till training.

Sorry to read like aprophet [sic] of doom, but I know everyone is working hard to make the project a success and I merely want to ensure that all pitfalls are tackled with the appropriate people. ”

“ The attached note from Grenville has raised some concerns with the feasibility of store trainers delivering the GlobalSTORE till training. The project is based on a number of workstreams, all of which need to be delivered together to ensure smooth delivery of the GlobalSTORE product. Late/Non delivery of any of the workstreams will result in pilot/rollout slippage.

At this point I am looking for confirmation of:-

Clearly the above raises some concern over the timescales/resource involved with the delivery of the till training programme. Please advise. ”

“ 1) The training team will be in a state of transition as the new structure is launched on 29 ^th Jan. I expect we will lose half of the training team. Those that are left will then focus on their new jobs but can assisst [sic] in Global training checkout supervisors posiible [sic] one or two days per week. There are no plans to bring in additional resources but we will recruit to replace those we lose. The only alternative is for operations to supply supervisors to cover the training role.

2) I do not know when the training stores will be ready. In some cases building work is needed and change of use has fire regs implications. Castleford is however ok as from now.

3) The training stores are to be used as the main training resource in the area and will be used for inductions and small workshops. It would therefore be better to get an alternative venue, the problem will be that where we do have trainers they are based in the training store and are not a mobile resource, so if we have another venue we cannot supply a trainer.

4) I am still waiting to hear if we have a budget for store supervisors to have time off to train store staff, if they still have their day job then staff training will be poor.

5) Why is so much training kit needed, why can’t we train checkout supervisors on live kit in the store, i.e. convert Castleford first and then use the store normal kit for training. ”

“ Please see Adrian’s responses to my original mail below. I have major concerns over the till training programme. Clearly the training department are not taking responsibility for the till training. Adrian’s comment in point 3 re locations and resource demonstrates this.

The whole till training schedule needs to belong to the training/operations department. Decisions like, where the till training will be performed needs [sic] to be agreed now as it impact [sic] on Rollout schedule and more importantly the qty of tills required. ”

As ever, Mr. Young seemed to be failing to take a firm grip on the problem and its resolution.

“ This is a complete shambles in my opinion. Unless the business start to take this seriously we will be faced with the biggest embarrassment in the history of CWS IT. At present there is a zero chance of success with this project. It is clear that the Training Dept. restructure is totally incompatible with delivering GlobalSTORE Phase 4a on time. What organisation in their right mind, having committed to delivering their biggest single till training programme ever, would choose to restructure, risk losing half their staff and make the rest totally immobile? If Training are unable to meet the requirement then we should immediately contract with ICL to obtain the additional resources to do the job. I don’t have a great deal of confidence in ICL’s ability to deliver, and this rollout is more aggressive than any ever attempted before by ICL or CWS, but we are running out of time if we want to give ICL any chance of success. There will clearly be more expensive [sic] but what choice do we have? ”

“ I was not content with the position in November and December but I was content with the fact that we had the right guys and girls in positions in order to resolve this. I had also received clarification from Mr. Ian McLeod that the resource would be there. We just had to purely ensure that the training plans and the rollout plans reflected when these training stores were going to be available. ”

I am not satisfied that CWS ever properly addressed or resolved the problem of providing training for staff in the use of the technology which was to be provided under the GlobalSTORE project so that it was practicable for installation in pilot stores to have occurred on or shortly after 29 January 2001 in any event.

“ As agreed with John Hevican & yourself the following is an ICL response/recommendation on the BDS [that is, Business Data Services] issue highlighted last week:

Problem Description:

In order to improve the performance of GlobalSTORE, the Co-op GlobalSTORE Development team upgraded two of the US components to new versions. These two components are Application Services and Business Data Services. The Application Services change is required to reduce the use of the Microsoft ActiveSTORE services and consequently improve performance. The Business Data Services (BDS) change is also required for performance improvement.

After this upgrade, both development and unit testing discovered that, whilst the new BDS was indeed faster than the older, it also sometimes failed to write success units (groups of database updates) to the underlying database. An error was reported and (if supported by the application) a subsequent re-try might succeed. This problem was seen mainly in the application of large overnight batches. At no time did the fault cause data to be corrupted – either the data was written, or not.

Problem Resolution:

A Hot Fix to this BDS fault was produced by the GlobalSTORE Development team US and tested in the UK. The original BDS fault was pin-pointed, recreated and demonstrated using a development-environment test program. This test program also confirms that the fixed version of BDS does resolve the write problem.

BDS provides an interface into the database for GlobalSTORE applications (note, it does not define the data model). Moving to the newer, faster version of BDS at ECR1 does not impact application functionality. Full confidence in the new BDS will be confirmed by normal system running during ICL’s validation exercise.

In summary the changes described above require system confidence testing, but in ICL’s opinion do not require any specific functionality regression testing by CWS.

I trust this clarifies the position. ”

“ 2. With ECR1 about to be delivered minds are now being turned to ECR2. As you know, the CWS stance at present is that all remaining bugs should be resolved in this release. It is our assumption that ECR2 is already being worked on, on the basis ECR1 has been delayed only because of the performance upgrade issues. We originally discussed Jan 8 ^th as the delivery date for ECR2, which should reflect the formal plan date. However, it is now clear to us that we need EC2 a week earlier, i.e. immediately after Christmas on Tues 2 ^nd Jan in order to stand any chance of completing regression testing on time for our current UAT sign-off and pilot dates. I believe Rob has already discussed this possibility informally. I now need a definitive date from ICL for delivery of ECR2, with 2 ^nd Jan being the preferred/target date from CWS perspective. Please can you provide a plan date by close of play Friday? ”

“ 2. EC1 Bug Fixes and Performance improvements

Summary

“ You are absolutely right – this should all have been done a long time ago – but as they say, we are where we are. ”

Thus as at the beginning of January 2001 it seems that CWS was, in relation to any prospect of being ready itself for installation of GlobalSTORE in pilot stores on 29 January2001, behind in respect of UAT, behind in respect of organising training and behind in respect of having RSM tested with GlobalSTORE.

“ apologies for my not meeting the ICL review today.

I am increasingly concerned at the inability of ICL to provide accurate and consistent answers to the questions that are being raised on the above project. You are very well aware of the pressures me and my team are under to deliver a working system into the business, and are aware of the other business pressures being caused by the inability of ICL to deliver a working system.

By lunch time tomorrow (Thursday 4 ^th Jan) you will confirm that a pilot date of 29 ^th Jan 2001 is achievable as stated at our meeting on 18 ^th December 2000. If this cannot be met you will provide me with an accurate date by which the software will be delivered to an acceptable standard. An update of the number of incidents raised since the CWS UAT commenced, by category, the number of bugs fixed in release EC1 and EC2 will also be provided. ”

“ Just to confirm receipt of your E mail.

A meeting took place between ICL and CWS project teams yesterday afternoon to resolve some of the issues that came up at the service review meeting.

A further conference call is taking place this morning to finalise the pilot details and also the system integration issues on RSM.

We will be in a position to provide feedback and impact on pilot dates latter [sic] today as requested.

I am meeting this morning with Rob Brouwer in Reading to brief him on the current status.

I have asked Dave Carlin to call you also to give you a high level report from yesterday afternoons meeting. ”

“ Dave has called me and I am sure he has relayed to you my considerable discontent. Clearly, we will not receive the EC2 release as planned this week and the bugs / retesting necessary in EC1 lead me to believe that we are far from having a stable system. This puts the pilot date of 29 ^th Jan, which was discussed with you/Dave on 18 ^th December at risk, which I will have to relate to the executive. Their obvious next question will be “when will the software be ready?” and I cannot answer that question due to my lack of confidence in ICL delivery of quality code to an agreed date. I cannot, therefore, be confident that the software will work. My belief is that we are living in hope, rather than knowing that fixes will fix the issues and not cause further problems. I consider that this is totally unacceptable.

I await the presentation of the ICL plans for this software before I consider my approach to the future. ”

“ I am writing to you for the second time in three months, to express my Society’s deep concern over the ability of ICL to deliver quality code to agreed time scales on the GlobalSTORE project and to express more general concerns regarding performance from ICL.

In the circumstances my Chief Executive, Graham Melmoth, believes he can justifiably insist on a meeting with you to get to the bottom of ICL’s performance problems. Malcolm Hepworth and I will meet with you on 26 ^th January in Manchester. Graham Melmoth cannot be present due to a commitment which cannot be rearranged, but it is vital that we meet to discuss the issues that exist between our organisations. Our view, unsurprisingly, is that things cannot be allowed to continue in the same vein.

GlobalSTORE

We have today received a revised plan, which indicates that the pilot date for the implementation of GlobalSTORE has slipped once again, despite assurances that the previously revised pilot date of 29 ^th January 2001 could be met.

The poor quality of the error correction software release, EC1, together with the quantity of bugs found during the testing process to date indicates that much more time will be required in the testing process than was originally envisaged. Regression testing of the whole suite of software will be necessary if CWS is to be confident that the software is fit for purpose. These delays are completely unacceptable to the Society. Following my previous letter of 30 ^th October, I had hoped that an improvement in both focus and commitment from your organisation would occur. Unfortunately, this is not the case.

To refresh your memory CWS acceptance testing of the GlobalSTORE software finally began on 8 ^th November 2000, delayed from June 2000. The original plan from ICL suggested a pilot date during August 2000, which moved to end January 2001 and is now indeterminate due to the poor quality of ICL software.

We have tested the software and have found faults which have been returned to ICL for rectification, as described below;

Delivery of EC1 – a bug fix release, was promised for delivery on 11 ^th December, but arrived one week later on 18 ^th December, but there was no documentation with the software. The documentation arrived on 19 ^th December 2000, but was incorrect. A revised version has, to date, not been received. This, on top of delays already suffered indicate that ICL are not capable of delivering a software solution to meet the specified needs of the Society, to a previously agreed timetable. Despite assurances from ICL that CWS was a valued account and the project would have ICL Board level focus to ensure its delivery we appear to be living in hope not expectation that eventually, things will come together.

As I explained in my 30 ^th October 2000 letter, many CWS business initiatives are directly dependent on timely delivery of the software and are being delayed due to the inability of ICL to deliver.

Store equipment maintenance

The level of service being offered by ICL continues to spiral downwards, with stores experiencing excessive downtimes and trading in difficult circumstances when kit is broken for prolonged periods. Service offered now regularly breaches the Service Level Agreements we have had in place for some considerable time and has been as low as 66% in our South East region. Our expectation would be a target of 95%, with slippage to 90% being tolerated on an occasional basis.

Kit refurbishment

Throughout 2000 we have been in the process of changing the portfolio of stores, which has involved the removal of kit from stores, having the kit refurbished and then re-implementing it in different locations. The kit that ICL are refurbishing is arriving in a very poor state, so much so that printers do not work, hard disks fail and store staff generally distrust the service and ICL. This matter has been taken up with John Pickett directly, who openly admits that the service is poor and in need of immediate rectification.

I hope you would agree that the situation cannot be allowed to continue. Your comments on the above would be welcome, before the suggested meeting. However, most pressing of all is the statement of your availability to sit down with Graham Melmoth, Malcolm Hepworth and myself. ”

The terms of the letter are curious. It amounts to an ultimatum requiring Mr. Christou to present himself in Manchester on a date apparently fixed without reference to him to meet executives of a rank lower than his equivalent, Mr. Melmoth. That alone seems calculated to cause offence. Apart from anything else, it strikes me as just plain bad manners to treat the chief executive of a major company in this way. The letter was written in a rather hectoring tone. Further, instead of presenting Mr. Christou with a single, if important, grievance with which to deal, other matters of less significance than the GlobalSTORE project were included in the letter, for no obvious reason other than that suggested by Mr. Goodby in his initial comments on the draft “go away” letter, namely to provide apparently greater justification for CWS terminating relationships with ICL. The summary of allegedly relevant events in relation to GlobalSTORE was, to say the least, contentious and misleading. In particular, the question whether regression testing was actually necessary was controversial between ICL, which considered that it was not, and CWS, which was looking for a fight. The only definite complaint about ECR1, apart from a vague allegation that it was of poor quality, was that incorrect documentation had been supplied with it and had not been replaced. In addition, the way in which the alleged dates for the original testing of software by CWS and original pilot were presented was calculated to suggest longer delays than was actually the case. It would have been more accurate to render each of the relevant dates as, respectively, “end June 2000” and “end August 2000” . It is difficult to resist the conclusion that the letter was deliberately drafted with a view to upsetting Mr. Christou.

“ Current position:

The attached document (v 27) details the CWS view of the discussion, of which balances back to your figures with a few minor exceptions – Kevin and Mark will reconcile.

In response to your mail:-

Hot fixes

EC2a

EC2b

ECR3

Further discussions are required around the ECR3 fixes (current count 53), however, during our discussions today we have identified an area of flexibility with the moving of ECR2b cut off. By moving this cut off by 2 weeks (19/01/2001 to 02/02/2001) we can generate a slot for further ICL corrections which could result in the remaining 53 being released to CWS as part of the ECR2b release.

Way forward

Based on the above changes and the new opportunity of correcting the remaining 52 bugs in the close 09/01/2001.

The CWS requirement for testing completion coupled with the other dependencies will then be released to ICL to provide sufficient information for updating and re-release of the GlobalSTORE development plan. ”

It is notable that, in contrast to the attitude adopted by Mr. Brydon in his correspondence, Mr. Young did not seem from this e-mail to be overly concerned about the rate of progress then contemplated.

“ Attached is a revised plan as requested which reflects our discussion yesterday. 2 points to make:

1) ICL cannot commit to bringing forward bug fixes from ECR3 into ECR2-B until all 53 of these bugs have been reviewed. This review cannot take place until early next week as our focus this week is on Hot Fixes and ECR2-A.

2) ICL do not believe that the Hot Fixes required for 15/1/01 are currently impacting your testing of OLA/EFT, Unit Pricing or testing of ECR1 fixes but may impact testing of Hosting. Could you please confirm that this is the case. ”

The plan attached to the e-mail analysed the position in relation to some 214 identified bugs set out in CWS-SQF Control Document Issue 26. Of the 214, 26 were said to be “Additional agreed closures”, 67 were said to have been fixed by ICL and to require testing or retesting by CWS, 53 were indicated as not required for Pilot but necessary for Rollout, and 15 were recorded as required by CWS to be the subject of a “Hot Fix”. The balance of 53 bugs included 44 which could be addressed immediately for ECR2 and 9 which, one way or another, required further discussion. The plan was for the bugs for which CWS required a “Hot Fix” and six bugs relating to RSM which could be addressed immediately to be dealt with by 15 January 2001, the balance of the bugs which could be addressed immediately plus any which required discussion and in respect of which the discussion could take place by 12 January 2001 to be dealt with in ECR 2a, which was to be released to CWS on 29 January 2001, with ECR 2b following on 26 February 2001. No date was indicated for ECR 3.

“ Just to confirm I am progressing in line with our discussion earlier and your E mail.

The first action we are addressing is the Globalstore plan with Rob Young, this is almost complete and will be ready for me to review at board level within ICL on Tuesday.

At this point we will also address the commercial points raised in our call today and during the meeting with Malcolm.

I should be in a position to review with you from Wednesday onwards the full plan from the current position to pilot and through to full roll out. I will also respond on the commercials at this point also. All the above will be clearly documented.

I will make contact early next week to update you further on progress and arrange to meet to review the plans etc. ”

“ JP [Mr. Pickett] wanted to bring Globalstore to the front of the meeting, stating that he was only qualified to comment on issues already raised on this project but was not prepared with sufficient back up information to address additional points raised. ”

It is clear from the minutes that Mr. Brydon was not minded to concentrate on the GlobalSTORE project. The minutes went on:-

“ 1.10 KB [Mr. Brydon] replied that if we cannot get it right today then we cannot even consider the future. KB went on to say that there is a significant risk of business plans not being achieved due to the failings on the part of ICL. KB added that he felt that he had not been hard enough on ICL in the past.

1.11 GG [Mr. Goodby] asked if ICL accepted the impact of its failures in respect of the Co-operative Group’s business.

1.12 JP did not feel that ICL had been hard enough on the Co-operative Group to date. He went on to say that ICL is trying to give satisfactory performance and cited skills gaps, learning curves, etc., as being contributory factors.

1.13 JH [Mr. Hevican] reiterated the points made by KB and GG.

1.14 RB [Mr. Brouwer] asked JP to answer the question.

1.15 JP felt that he accepted that there had been poor performance against the SLAs [Service Level Agreements – that is to say, “break fix” or maintenance support agreements] but stated that he felt that some of the blame was on the Co-operative Group’s part. ”

It is unnecessary to set out further extracts from this section of the minutes. It is enough to record that the minutes went on for some time setting out the effect of discussion concerning the “break fix” arrangements and how they had functioned or not, and other questions which had nothing to do with the GlobalSTORE project, such as what was called “the Oracle developments” .

“ 1.35 JP handed out a presentation (Appendix 2) and introduced BD [Barbara Dixon of ICL] as the person within ICL (UK) Retail who is responsible for all ICL Retail contracts. BD has experienced problems with Globalstore previously whilst working on the M&S [Marks & Spencer] project. He referred to correspondence relating to revised project plans which had been sent to Rob Young, and referred to an agenda within the hand-out. He said that he wanted to address the issues raised during the previous week’s meeting. JP went on to state that the discussions during today’s meeting were without prejudice, adding that the points had been raised with ICL’s Legal Department but there was no legal representation present at the meeting.

1.36 KB stated that the correspondence from the Co-operative Group did not say that the Globalstore contract was going to be cancelled.

1.37 RB/JP confirmed that ICL believes this action (i.e. Cancellation of the contract) is implied. BD also agreed with this observation.

1.38 JP said that the “bugs schedule” had been agreed with Rob Young (RY). He also stated synchronisation of the “bugs schedule” had been agreed in the main but accepted that there had been blip over the Christmas period. DC [Mr. Carlin] agreed with this point.

1.39 DC confirmed that rejection in UAT is assumed to be at a rate of 20% (approx. 50 bugs), no assumption has been made for the number of category “A” bugs which may be raised as part of this 20%.

1.40 JP stated that the presentation assumes that classification of existing bugs will be unchanged.

1.41 DC circulated a further handout “Draft Joint Plan” (Appendix 3). ICL does not believe that the Catagory [sic] “A” bug is as such a “show stopper” but agreed to leave it as such for now. He referred to the first Microsoft Project Plan within the handout as being within ICL planning control. He also stated that RY had seen and agreed this plan.

1.42 JH rejected the statement about RY’s acceptance of the plan.

1.43 KB raised issues around ATOS and PCMS involvement with the plan. DC said that RY was liaising with PCMS to agree the SSC testing slot. JH said that this was not RY’s responsibility. JH went on to question the past experience with ICL plans and PCMS involvement.

1.44 DC said that ICL had previously only picked up the financial side of dealings with PCMS and suggested that the group should move on to page 6 of the handout.

1.45 KB noted that there had been further slippage by one week since the meeting with Malcolm Hepworth and ICL the previous week.

1.46 DC said that the slip was to enable ICL to provide an absolute guarantee that the code for ECR2 could be delivered.

1.47 JH revisited the point that there was still no buy in from all parties so ICL could not commit to the revised date.

1.48 KB raised a point that during the previous week’s meeting the plan went to Malcolm Hepworth and Graham Melmoth with guarantees that 29 January 2001 would be achieved. One week later, and the same plan had slipped by one week as a result of issues which have been entirely within ICL control.

1.49 DC/RB stated that this was the last plan and it will not change.

1.50 KB asked what had changed since the previous guarantees of no slippage.

1.51 DC replied that every single bug has been reviewed by the same people who have reviewed the plan and these same people are now offering this guarantee. DC stated delivery on 05 February 2001 was a cast iron guarantee.

1.52 KB said that he had no faith in the delivery guarantee. JH reiterated this point.

1.53 BD said that on the back of the previous meeting ICL went away and reviewed the plans, and decided that the guarantee of 29 January 2001 could not be achieved. Hence there is a one week slip in the revised plan.

1.54 KB asked if ICL understood the implications of last week’s meeting including the potential penalties.

1.55 DC replied “Yes”.

1.56 RB asked JP and DC what could be done to get 29 January 2001 back on track.

There was a pause for a few moments and then RB asked DC the question again.

1.57 DC said he was thinking what could be done.

1.58 GG asked whether or not the plans had ever previously been checked and forecasted on this basis.

1.59 DC replied “no”, not to this level of detail but this had had to be done this time because of the requirement for a cast iron guarantee to be given.

1.60 BD commented that it was part of the normal ICL planning and project process to estimate and re-forecast the dates.

1.61 JH circulated a handout showing the slippage on the previous Globalstore plans. (Appendix 4). JH commented about the issues surrounding previous delays, including further problems which had been identified with each bug fix received. He said that the slippage which had occurred was purely down to ICL’s failure to deliver quality code.

1.62 GG asked again whether or not ICL accepted this.

1.63 JP said that he would like to add other “low lights” to the list, e.g. the failure by the Co-operative Group to sign-off the specifications on time.

1.64 RB raised the issue about teamwork, or lack of it and the lack of opportunity for ICL to raise problems which ICL has had with the Co-operative Group’s failures.

1.65 DC said that he had never committed to the pilot date of 29 January 2001.

1.66 JP added the point that ICL has had quality issues, but these are not the only issues which have been causing delay. ICL is addressing the quality issues, but does not accept these are the only factors causing delay.

1.67 GG reiterated the point that quality has impacted the whole programme delivery.

1.68 JP reverted to the point about teamwork saying that he had been working with DC for the last 4 days to work towards delivering the plan on time. JP thinks that there may be a relationship issue but cannot put his finger on what the exact issue is.

1.69 KB reiterated the point that the main issue relates to poor quality code therefore confidence in ICL ability is very low.

1.70 RB said that he has a strong idea that there is a relationship issue with the Co-operative Group but he felt that the ICL relationship is better with the other Co-ops.

1.71 KB said that the other Co-ops have fundamentally different systems. No ISA’s, no Dividends etc., but could not understand why there was a problem with the Co-operative Group’s code.

1.72 RB raised the point about project issues e.g. a misunderstanding of functional specifications and said that this had been addressed with DC.

1.73 KB asked JH if the same problems occurred with Oracle developments. JH confirmed that they did not, in fact the quality and code delivery was good. JH added the point that during the latter half of 2000 ICL developers seemed to have lost the plot.

1.74 DC asked how often has the Co-operative Group tried to replicate an entire system.

1.75 KB replied that the Trading systems had been completely redeveloped on HP UNIX from the old mainframe. JH agreed.

1.76 KB added that release 4a is only the basic functionality. He said that he had concerns over the Inventory project, a point which was reiterated by JH. KB added that he had no confidence in ICL. KB went on to say that he felt that the group was going round and round in circles. He added that he had no confidence in the revised plans and dates.

1.77 RB added that there was no point in going over old ground. He wanted to be able to give guarantees and he hoped that the ICL team will not let the Co-operative Group down. He added a comment that he wants to look at being able to deliver quality as required and when promised. ”

I have already quoted most of the rest of the minutes. However, it is material in the present context to quote also minutes1.100 and 1.101:-

“ 1.100 BD commented that it was a shame that the group were walking away from the meeting without reviewing the issues brought to the table. She added that she does not consider 100 bugs as serious an issue as the Co-operative Group do. She went on to ask if the group could discuss these.

1.101 KB replied that the group could not, adding if the code is delivered on 05 February 2001, these issues will be discussed then. ”

“ Claims ICL DO want us as a valued customer & will work as hard as possible to prove that they can deliver

He openly admits there are massive problems in ICL – from Senior managers not managing to an inability to get programmers, analysts, engineers

Openly admits that GLobalSTORE project management has been poor & must be improved. Barbara Dutton [sic –presumably Barbara Dixon was the lady intended to be referred to, although the error made in recording her name is perhaps indicative of the interest, or lack of it, which Mr. Brydon took in her possible contribution to resolving problems] – Development Director, has been appointed to look after our project from here on in. GUARANTEES delivery of the next release of code, with quality, on 5 ^th February

the removal of Active Store – a Microsoft product which didn’t work properly, took longer than anticipated and thus delivery dates could not be met, but the customer was not told. Wake Forest in the states [sic] is the development area responsible, not UK staff

CWS is the first organisation to run without the active store component – guinea pig for the future of Global Store, which Rob claims is the only retail offering that ICL will market from here on in….

Sainsbury have an even worse relationship with ICL than we have….. ”

“ 14. In paragraph 133 [of his first witness statement] Keith Brydon goes on to describe a telephone conversation which I had with him subsequent to the above meeting. I did refuse to discuss penalties because I could not agree to them. CWS were insistent that they be considered and I explained that the person they would have to convince would be Richard Christou.

15. As to whether I conceded that ICL had had “massive problems” I never said anything about lack of development resource or senior managers not managing as Keith Brydon alleges. We had an excellent team on the project and were totally committed to developing software to work. As I have explained above, if I felt that the project management should be changed, it was more in the way that I wanted project problems to be presented to CWS – to avoid the “sorry culture” which I felt had been ongoing.

16. As to the conversation about ICL’s relationship with other customers who had taken a GlobalStore product, I never said anything about the relationship which ICL had with these customers because it frankly wasn’t relevant. Keith tried to raise several times that he had heard “noises in the marketplace” that ICL also had problems with Sainsbury. I consistently told Keith that I would not discuss that because it was not relevant – in fact, the relationship with Sainsbury was as far as I was concerned perfectly alright”

“ Research into the incidence of errors in bespoke software indicates typical error levels far higher than those revealed so far for GlobalSTORE. Research also confirms what is widely understood in the IT industry about the persistence of errors well beyond the testing stages into live operation, as stated in the axiom “Testing reveals the presence of bugs, it cannot confirm their absence” . ”

Dr. Hunt in her report proceeded to review the research data to which she referred. It is not necessary for the purposes of this judgment to set out that review. Suffice to say, that I accept the evidence of Dr. Hunt on this point and I find that the data which she set out supports the conclusion which she reached. Mr. Mawrey did not really contest Dr. Hunt’s view, other than by suggesting that the software industry had unacceptably low standards. Dr. Hunt emphasised that the research data to which she referred simply recorded what actually happened in practice. She said:-

“ This is not about buying software off the shelf. This is about having software developed for a specific purpose which is quite different. If you specify software to be developed as bespoke solution, then there is a process you go through and it is normal for errors. I believe that these numbers of errors [shown by the research] are actually rather too high and I have said so in my report. I think the numbers of errors quoted by these authorities is really a bit on the high side and that actually the numbers that we have arrived at for this project are much lower than that. ”

“ I can confirm that the ECR2A release was stable and robust and that as far as I have been able to determine ICL’s statement of which errors were fixed is accurate. I did not discover any significant new errors, although as might be expected, I did record one or two minor cosmetic errors during testing. In my opinion ECR2A would have been capable of running successfully in a pilot store. This does not mean that no further errors existed in ECR2A, just that all significant errors with operational impact had been resolved. Part of the purpose of pilot running is to find exactly those errors that have not been found in testing but which come to light when the system is used in an operational setting by real users. ”

I accept that evidence. It follows that had CWS only waited and accepted delivery of ECR2A on about 5 February 2001 it would, so far as anything needing to be provided by ICL was concerned, have been able to proceed to a pilot installation in stores. However, as I have indicated, CWS would not actually have been able to proceed to a pilot installation for want of things which it had to do, specifically complete UAT, arrange training of staff and organise testing of GlobalSTORE with RSM.

“ M2 ICL’s original RAD-type approach was at odds with client’s expectations. Although changed, ICL never achieved customer confidence in s/w [software] development process. ”

That Mr. McFall considered had two sets of consequences. The first set was:-

“ ICL’s solution needed to be developed; it did not already (even partly) pre-exist ”

because

“ GlobalStore in early 2000 was more of a concept than a product or solution kit. ”

The second set of consequences identified by Mr. McFall was:-

“ ICL did not realise the significance to CWS IT Director of their End2End process ”

because

“ Development team not close enough to Senior IT management. Client Manager also not convinced of merits of dev’t approach ”

because

“ CWS IT Director would not let PM or dev’t team come close ”

because

“ No strong relationship in existence (and not desired?) ”

“ P2. Senior customer managers had no confidence in ICL’s development team to produce software which performed to their expectations – in terms of functionality and bug content. ”

That Root Cause was also said to have had two sets of consequences. The first set was:-

“ Their first experience of software provided for “user acceptance” contained a high number of bugs. ”

because

“ ICL had not conducted validation testing in advance, expecting to do this jointly with customer ”

because

“ ICL were initially following a RAD-type approach, believed to have been successful with other G’store client developments. ”

because

“ GlobalStore in early 2000 was more of a concept than a product or solution kit. ”

The second set of consequences was:-

“ Subsequent deliveries of software contained bugs. Many of which related to the replacement of M’soft Active Store routines. ”

because

“ ICL encountered significant difficulty in replacing these routines without detrimentally affecting existing functionality ”

because

“ Degree to which Active Store was at the heart of common GlobalStore code from Wake Forest. ”

“ Microsoft Active Store routines built into Globalstore caused such severe performance problems that they had to be replaced. ”

The reason given in the Post Mortem Report for that conclusion was:-

“ Technically not appropriate for the job. Microsoft had advised against their use. ”

“ E2. ICL’s change of solution to ISS300 from ISS400 made it easier for PCMS (competitor) to find a way back into the account. ”

The reasons given in the Post Mortem Report for that were:-

“ ICL changed because integration of Dividend into ISS400 was proving extremely difficult. ”

because of

“ Lack of appropriately skilled resources. ”

Loss – the pleaded case

“ 1. additional costs incurred by CWS as a consequence of ICL failing to deliver the GlobalSTORE back-office system in accordance with the terms of, and within the timescales agreed under, the CWS agreement;

2. costs incurred by CWS, pursuant to the CWS agreement, that have been wasted as a consequence of ICL failing to supply the GlobalSTORE back-office system in accordance with the terms of, and within the timescales agreed under, the CWS agreement; and

3. loss of profit incurred (during mitigation) as a consequence of the delay in installation of a back-office system into the historic CRS stores. ”

Additional costs

“ The delivery of GlobalSTORE ready for pilot in August 2000 and to be rolled-out to all former CRS stores in September, would have coincided with CWS’s store refit Programme. GlobalSTORE was not available for installation in stores in September 2000 and it was therefore necessary to install Vision in certain stores in order that the store refit programme could continue. ICL installed Vision into 25 such stores (the Vision 32 programme). The cost per store of the Vision 32 installation was greater than the cost per store that would have been incurred had all of the CRS stores been fitted with Vision as a single project. CWS claims the additional costs of installing Vision under the Vision 32 programme. ”

“ The former CRS stores utilised bulk printing services provided by Atos Origin UK Limited (“ ATOS ”). Following the merger of CWS and CRS an agreement, described as a Memorandum of Understanding, was entered into between CWS and ATOS, dated 31/05/2000 and printing services were provided to CWS, for use in the former CRS stores, pursuant to that agreement. Under the terms of the Memorandum of Understanding CWS had the right to extend the provision of services by ATOS to 31/03/2001 but, after that date, ATOS was to cease providing services to CWS. If ICL had complied with the terms of the CWS agreement, GlobalSTORE would have been installed into all the former CRS stores by the end of March 2001 and the bulk printing service would no longer have been required. As a consequence of the delay in delivering GlobalSTORE (and the further consequent delay in the installation of a back-office solution for the former CRS stores) CWS entered into a new agreement with ATOS dated 18/01/2001, for the continued provision of bulk printing services. CWS claims the additional charges incurred in respect of bulk printing, from 01/04/2001 to 30/10/2001. ”

“ Former CRS stores operated in conjunction with a product and price maintenance database known as retail base two (“ RB2 ”). GlobalSTORE would have operated in conjunction with the corporate trading system which served the former CWS stores. The operation of RB2 required support services which were provided to CRS and, following the merger, to CWS, by Aim Commercial Systems Limited (“ AIM ”). CWS claims the out-of-hours support costs charged by AIM from 31/05/2001 (being the date on which CWS would have terminated the out-of-hours support service, had GlobalSTORE been delivered on time) to 28/02/2002 (being the date on which CWS ceased paying AIM for the out-of-hours supports [sic] service. ”

“ ICL agreed (pursuant to the variation of the CWS agreement pleaded at paragraph 34 of the particulars of claim) that no additional sums would be payable from CWS in respect of the change from the ISS/400 to the ISS/300 platform. Accordingly, under the terms of the CWS agreement (as varied) the ISS/300 licences should have been supplied to CWS free of charge. CWS claims the cost of ISS/300 licences purchased from PCMS, for use in conjunction with Vision. ”

Sums of £131,853 and £635,240, respectively, were claimed as alleged costs of running Vision on GlobalSTORE hardware. How the two sums were said to be recoverable was said to be:-

“ The purchase of Vision in place of GlobalSTORE necessitated software modifications and the purchase of additional hardware in order to operate Vision in the former CRS stores. These costs would not have been incurred had GlobalSTORE been provided by ICL in accordance with the terms of the CWS agreement. CWS seeks to recover the following costs:

1. Four items of software modifications and associated contractor and employee costs. The software modifications were carried out by PCMS in respect of Item File Conversion; OLA/Allied Teleyson router development work; electronic journals; and remote software distribution. PCMS charged £100,000 for all 4 items of software development. CWS also incurred contractor costs associated with the developments, of £19,750. CWS’s employees Brian Denning, Nik Wadsworth, Stephen Reid and Steven Males were also engaged working on these developments at a cost of £12,103.

2. Additional hardware purchased for use in conjunction with Vision which would not have been required had the former CRS stores used GlobalSTORE. The hardware consists of modems, DAT drives, routers, Stallion ports and additional memory. PCMS charged CWS £535,000 for these items of equipment. In addition, PCMS charged an agreed mark-up which, apportioned against the above mentioned hardware, amounts to an additional £100,240. ”

The Harlech expedite costs claim for £63,885 was put in this way:-

“ CWS incurred a cost of £50,000 in respect of a charge raised by PCMS for the additional cost and inconvenience of installing Vision in the Harlech region within CWS’s deadline for the launch of the Harlech Dividend trial, of 01/07/2001.

CWS also seeks to recover additional charges incurred in respect of the contractor, Robin Withey whose services were required for an extended period in order to allow Kevin Williams (a CWS employee) to assist with the developments and testing required for the beginning of the roll-out of GlobalSTORE. The additional charges which CWS seeks to recover in respect of Robin Withey’s contract, are £13,885. ”

“ The former CRS stores used an RF radio based communications system to allow the tills to communicate with the back-office. The RF operated in a satisfactory manner in conjunction with the ISS/400 platform, prior to the merger of CRS and CWS, and would have continued to operate in conjunction with ISS/400 under the original proposal for GlobalSTORE. However, the RF was unreliable when used in conjunction with the ISS/300 platform (which was used with Vision and would have been used under the CWS agreement, as varied). As a consequence, CWS had to install cabling in place of RF. This cost would not have been incurred under the original proposal for GlobalSTORE to be used in conjunction with the ISS/400 platform and, under the terms of the CWS agreement, CWS would not have been obliged to pay for the cost of hard wiring as it was a cost consequent upon the change from ISS/400 to ISS/300. ”

Wasted costs

Loss of profits

“ CWS claims the lost profit caused by the delay in the introduction of Dividend into the former CRS stores and the former CWS stores. It was CWS’s intention, following the merger, to launch an improved Dividend offer of 3%+1%+0% throughout the former CRS and CWS stores, following trials of that new offer which were to take place in selected groups of stores. The trials were to take place as soon as possible following the installation of a back-office system into the former CRS stores which was capable of supporting Dividend. The board of CWS would not approve a change of offer without the completion of successful trials. It was not possible to run the trials until such time as the former CRS stores had a back-office system capable of supporting the trials.

If GlobalSTORE had been delivered for installation to commence in September 2000, CWS would have been in a position to run the Harlech trial on 08/01/2001 and to launch a revised offer of 3%+1%+0% throughout all of its stores, on 08/07/2001. As a consequence of the delay in installation of a back-office system into the former CRS stores, the launch of Dividend at 3%+1%+0% was delayed until the dates set out below:

1. Harlech trial stores: 02/07/2001.

2. Remainder of stores within Southwest and Wales and Borders regions (excluding Harlech): 25/03/2002.

3. Northern region: 01/05/2002.

4. Remaining stores: 27/05/2002.

The claim for loss of profits is divided into 3 parts, as follows:

1. Loss from the delay in the roll-out of Dividend in the Harlech trial stores. CWS claims £145,000 under this head.

2. Loss from the delay in the roll-out of Dividend to former CRS stores (other than Harlech stores). No loss is claimed under this head.

3. Loss from the delay in converting stores from the old Dividend rate of 5%+ 0% to the new Dividend rate of 3%+1%+0%). CWS claims £5,486,000 under this head,

Had CWS been in a position to launch Dividend at the new rate of 3%+1%+0% on 08/07/2002 this would have necessitated an additional mailing to existing Dividend card holders. When Dividend at the new rate was launched an additional mailing was not necessary because the launch coincided with the mailing for the Summer 2002 pay out. CWS gives credit in respect of this saving of £310,000. ”

“ The Dividend scheme is administered by PCMS who charge CWS an ongoing administration fee for each Dividend card. CWS was able to negotiate a more favourable administration charge to take effect from the launch of the Harlech trial on 01/07/2001. If GlobalSTORE had been delivered for installation in September 2000 the Harlech trial would have commenced on 08/01/2001 and it would have been possible to negotiate the more beneficial rate with PCMS, to commence from 08/01/2001. CWS claims the cost of the administration charges paid at the higher rate from 01/01/2001 to 01/07/2001 as a consequence of the delay in the Harlech trial. ”

The philosophy underlying the claims

“ 200. If ICL had performed its contract then:

(a) GlobalSTORE would have had all the requisite functions;

(b) GlobalSTORE would have operated efficiently and would have done so on the appropriate platform;

(c) GlobalSTORE would have been ready to pilot in August 2000 and ready to roll out in September;

(d) the Vision 32 project would have been unnecessary;

(e) the HTV region trial would have commenced in January 2001, as a long-planned exercise and not as an urgently expedited measure;

(f) roll out to all former CRS stores would have been completed in March 2001;

(g) the project to trial and, if successful, adopt the “3%+1%+0%” version of the Dividend would not have been delayed;

(h) tCG would have been able to discontinue the contracts of ATOS and AIM at a much earlier date.”

Wasted costs – the law and the facts

“ 246. Before dealing with the individual items. tCG will address the question of whether there is an overlap between its claims and whether tCG is obliged at some time to elect between claims – the situation that arose in Anglia Television v. Reed .

247. The ratio of cases such as Reed is that, when a contract has terminated prematurely for breach, the innocent party may recover his wasted expenditure or his loss of profits but not both. The reason for this is that the two bases of assessment are mutually exclusive:

(a) “wasted expenditure” is designed to put the innocent party into the position in which he would have been if the contract had not been made;

(b) “loss of profits” is designed to put him into the position in which he would have been if the contract had been fully performed.

248. If, as in (b), the underlying premise for calculation is that the contract has been fully performed, then some or all of the expenditure which the innocent party has suffered would have been incurred in arriving at full performance of the contract. Thus what it would have cost the innocent party to perform the contract if it had been properly performed cannot be recovered if that party is to be compensated on the basis that it was properly performed.

249. The key to understanding this line of authority is the assumption underlying a loss of profits claim with its consequent irrecoverability of wasted expenditure is that the contract has been properly performed by the party in breach. If expenditure has been incurred by the time the contract comes to an end which arises from further breaches of contract by the party in breach, then that is not expenditure that would have been incurred in any event and it is recoverable as well as loss of profits.

250. Take a contract under which, if it is fully and properly performed, B will supply A with a software system which will enable A to make additional profits of £1m per annum. In the course of that contract if it is properly performed by B, A will incur expenditure of £2m. B grossly fails to perform the contract so that by the time A accepts B’s repudiation, A has already incurred £3m expenditure (i.e. £1m more than it would have cost him if the contract had gone to plan). A claims his lost profits calculated at the rate of £1m per annum until such time as he can get a substitute system up and running. He cannot recover £2m of his expenditure, following the Reed line of cases, because he would have spent that anyway but he can recover the additional £1m because he would not have incurred it if the contract had been performed.

251. A loss of profits claim is almost always accompanied by a mitigation loss claim. If A, in the example above, simply did nothing to replace the system B should have supplied and claimed his loss at £1m per annum as infinitum , he would be met by B saying that he should have mitigated his loss by obtaining a substitute system as soon as practicable.

252. Thus the cost of acquiring a substitute system if additional to the costs properly to be incurred in acquiring the original system can be recovered together with the loss of profits claim. A’s continuing loss of profits are capped by the time he takes or should take to obtain a substitute system but the additional costs of obtaining that system are also recoverable.

253.tCG has been careful to avoid an overlap. By way of example, if the GlobalSTORE contract had been fully and properly performed , tCG would have paid ICL a licence fee for GlobalSTORE. After tCG terminated the GlobalSTORE contract, it had to buy in Vision to replace GlobalSTORE. tCG cannot claim both what it paid ICL towards GlobalSTORE and what it paid PCMS for Vision. It has elected to recover what it has paid ICL towards the development of GlobalSTORE but not the cost of Vision. ”

Other heads of claim – the Rule in Hadley v. Baxendale

“ We think the proper rule in such a case as the present is this: where two parties have made a contract which one of them has broken, the damages which the other party ought to receive in respect of such breach of contract should be such as may fairly and reasonably be considered either arising naturally, i.e. according to the usual course of things, from such breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it. Now, if the special circumstances under which the contract was actually made were communicated by the plaintiffs to the defendants and thus known to both parties, the damages resulting from the breach of such a contract, which they would reasonably contemplate, would be the amount of injury which would ordinarily follow from a breach of contract under these special circumstances so known and communicated. But, on the other hand, if these special circumstances were wholly unknown to the party breaking the contract, he, at the most, would only be supposed to have had in his contemplation the amount of injury which would arise generally, and in the great multitude of cases not affected by any special circumstances, from such a breach of contract. For, had the special circumstances been known, the parties might have specially provided for the breach of contract by special terms as to the damages in that case; and of this advantage it would be very unjust to deprive them. Now the above principles are those by which we think the jury ought to be guided in estimating the damages arising out of any breach of contract. ”

The particular point of relevance to the present case which emerges from that passage is that in order to be able to recover damages other than those arising in the ordinary course of things from a breach of contract it is necessary that the particular type of loss sought to be recovered should have been in the contemplation of the parties at the time the contract was made as likely to result from a breach of the contract.

Loss of profits – the facts

“ When testing marketing initiatives it is tCG’s practice to exclude stores from any analysis where factors might come into play which could interfere with the purity of the results of the analysis. The remaining stores are considered to be “like for like” stores. The principal factors which could interfere with the results, and which are relevant to this claim, are store refurbishment and competitor activity. The refurbishment of a store will affect sales and the results of a refurbished store would not be comparable to the results of a store that has not been refurbished. Similarly, if a store is the subject of particular competitor activity, for example the opening of a superstore in its vicinity, then that store should also be excluded from the analysis. ”

“ to explore attitudes to the Co-op Dividend and understand how it is used

to understand reasons for non-usage, infrequent usage and non-ownership

to understand why card presentation rates are low

to explore ways in which the card offer can be improved. ”

The problems identified in those research objectives of low presentation rates of Dividend cards, non-usage and infrequent usage do not suggest that at the time the research was commissioned the perception within CWS was that the Original Dividend was considered by consumers to be a particular attraction of patronising a CWS store.

“ All were regular users of their local Co-op

Main purchasing occasions were:

All respondents across the sample used Co-op stores primarily for “emergency” or “top-up” shopping purposes

Regular purchasing therefore focused on “basics”/”essentials”:…

Reported average spend per visit varied

“ The majority of respondents owned a number of loyalty cards

Currently, varying degrees of commitment evident

Overall, general view that one “might as well” take advantage of any benefits available ”.

“ 5.2 The experiences of other retailers

186. Whilst each retailer is different, it is perhaps relevant to consider how other grocery retailers (those competing with tCG) have dealt with the issue of loyalty schemes. This is because one would imagine that any universal link between sales levels and loyalty schemes would be exploited by all.

187. The Competition Commission’s inquiry into supermarket retailing found that:

“CWS, Sainsbury, Somerfield and Tesco offer customer loyalty cards. In May 2000, Safeway announced the discontinuation of its ABC loyalty card scheme that had been in operation since 1995. Other parties (such as Asda, Morrison, Waitrose, Budgens and Iceland) do not offer loyalty schemes, preferring to use their overall grocery offer to enhance customer loyalty”

188. In discussing the Safeway decision to withdraw its loyalty scheme in 2000, an article in the marketing press commented:

“Research revealed that Safeway customers were confused about the advantages of the scheme and that using the card did not change their views on the store. “We found that loyalty is earned, rather than something that can be manipulated through a loyalty card scheme” says Safeway’s head of marketing service Carl Nield.”

189. The decision by so many grocery retailers not to offer loyalty cards suggest to me that there is no universal sales benefits from such schemes. The decision by Safeway to drop its card in 2000 suggests that it had reassessed the long-term value of such a scheme and had decided it was not worth the cost.

5.3 The views of industry commentators

190. In addition to seeking evidence from retailers, the Competition Commission inquiry into supermarkets also undertook a consumer survey to assess the impact of loyalty schemes. It found that “81 per cent reported that cards had not changed their grocery shopping behaviour”.

191. Similarly, a paper by East, Hogg and Lomax reports the results of a survey in Stroud, Gloucestershire, in January 1998. Customers who shopped at Tesco and Sainsbury (both of which had loyalty schemes) and Waitrose (which did not) were asked about shopping behaviour. The authors conclusions were that:

“Respondents were asked where their last main shopping trip took place. Ninety-seven per cent of Waitrose shoppers last shopped at Waitrose (despite the absence of a loyalty scheme); this contrasts with an average of less than 80 per cent for the rest. Nine out of ten shoppers held the card for their main store group but many also held cards from other groups, for example 59 per cent of Sainsbury card holders also possessed a Tesco card. This pattern …. suggests that customers join the schemes of stores that they use rather than the stores whose schemes they have joined.”

192. Similarly, in an article on the decision by Safeway to drop its loyalty card scheme, WestLB Panmure, a financial institution, commented that:

“Loyalty cards have become something of a blunt instrument: shoppers use the card and shop the promotions, but don’t necessarily buy more than they would have done otherwise.”

193. Unless tCG customers were very different to the average shopper, industry opinion appears to suggest it is unlikely that anything but a minority of customers would have changed their shopping behaviour following the rollout of Dividend. ”

“ 2.14 tCG’s claim for loss of profits is based on the average increase in total sales after the introduction of the “3 and 1” Dividend Scheme. No attempt has been made to identify and analyse the sales made to loyalty card holders to establish whether sales changes were due to either existing loyalty card holders spending more money on their cards under the new “3 and 1” scheme, or new customers joining the scheme. This analysis would have been clearly relevant to the claim. For example, if the majority of sales increases were due to non-loyalty card holders spending more money at tCG stores, then it would be illogical for tCG to argue that any increase in sales was due to the new “3 and 1” scheme. Such a result may simply reflect a sales increase due to the intense marketing and promotional activity around the time of the introduction of the “3 and 1” scheme, and possibly other factors.

2.15 When my staff visited tCG at its premises in Manchester, they were informed by Andrew Weeks that it would be possible for tCG to identify how much of the sales income, both before and after the introduction of the “3 and 1” scheme, came from loyalty card customers, but that tCG had not done this in respect of the claim because it does not do it as part of its usual sales data review.

2.16 At paragraph 10.70 of his 13 September 2002 report, Mr. Boothroyd confirms that it would be possible to analyse the sales transactions in order to identify which sales were made by a customer with a loyalty card and for what purchases. However, he states that he would not consider this information to be “appropriate” to the calculation of the increase in tCG’s sales, due to the introduction of the new Dividend scheme, because the use of a loyalty card does not signify whether the customer is a new or existing customer, the spending pattern of an existing customer can only be determined once they obtain a loyalty card and customers may not use their loyalty card on every visit to the store. ”

Despite having almost two months from the date of the report in which the points were made to digest them and to undertake the work necessary to put in evidence the available material which was plainly relevant to any assessment of the impact of the introduction of the Revised Dividend, CWS elected not to do so.

“ At the end of the first half year, in June, inflation fell to just 1.5%, the lowest level for 27 years, driven particularly by lower food prices. Despite this, consumer spending nationally remained positive, with the Golden Jubilee and the World Cup together helping to give a strong finish to the period. Away from food retailing, however, the picture was far more mixed, with non-food doing well to hold its own, while the difficult trading conditions in the travel industry resulted in both sales and profits in Travelcare being below expectations. ”

I accept that the impact of the Golden Jubilee celebrations of Her Majesty the Queen and of the football World Cup was positive so far as what is loosely called food retailing is concerned. I therefore accept that the attribution of CWS in its interim report for 2002 of those events assisting in a strong finish to the period under review is correct. The interim report did not attribute the performance of Co-operative Group Trading during the relevant period in any way to any beneficial effect of the introduction of the Revised Dividend, although that that had happened was mentioned in the report. It was accepted by Mr. Boothroyd in cross-examination that the beneficial effect upon trade of events such as the Golden Jubilee and the World Cup would be likely to be smoothed out over time. Thus, it seems to me to follow that a reduction in the average increase in weekly sales turnover the longer the period after the introduction of the Revised Dividend one took was exactly what one would expect if it were attributable in substance to special events such as the Golden Jubilee celebrations and the World Cup. It may also be material that, as Mr. Braithwaite accepted in cross-examination, the fact that the Revised Dividend was introduced nationally some two weeks after a Dividend payout, would tend to increase sales during the period immediately following.

“ If it did not introduce a negative impact, if the pre and post research was reasonably positive towards 3 and 1 and if in real terms the cost went down, that would have given me the reassurance that I was seeking. ”

“ By definition if we are going to communicate a change we are not going to communicate it as being anything other than an improvement from a customer perspective. ”

“ As regards the ideas for improvement suggested by CWS, there is widespread approval for the “all brands” route (especially the 3%/1% option). However, none of the tiered options, even in conjunction with “all brands”, engender much enthusiasm, being seen as too complex and unlikely to be a real benefit to the shopper. ”

In other words, instinctively the olfactory senses of the research sample detected the rodent.

“ The provision of Helpline facilities supporting the receipt of up to 12,000 answered calls per week. This includes the use of automated call service techniques, where appropriate. These services will be available on working weekdays between 09.00 and 17.00 hrs. This is supported by an out of hours answering service where callers can leave their number for call-back or call again during service hours. Activity levels will be specifically reviewed each September, December, March and June, to measure the actual average. ”

Clause 6 of the Original PCMS agreement was concerned with charges. Provision was made for a charge for registration of each new Dividend card holder. Provision was also made for levels of charge by reference to the number of card holders for the time being. For 1,250,000 cardholders the charge was £1.38 per member per year. If there were 1,500,000 card holders the annual charge dropped to £1.20 per member. For in excess of 1,750,000 card holders the charge was “£1.16 to £1.10 per member/year, depending upon economies achieved by PCMS” . For “Helpline services as described herein” there was no additional charge. However, there was an additional charge for “Helpline Services in excess of 12,000 answered calls per week, based upon current average duration of 5.12 minutes per call.”

“ A new agreement was negotiated with PCMS at the outset of the Harlech trial, in anticipation of the national roll-out of a new offer [that is, the Revised Dividend] . The agreement has not yet been signed but I understand from Nigel Walter that PCMS have raised the charge per card on the basis of the prices set out at schedule 3 to the agreement. We agreed with PCMS that the agreement would be effective from 01/07/2001 to coincide with the launch of the Harlech trial. Under the terms of the new agreement PCMS raise a charge of £0.09 per month [£1.08 per cardholder per annum] for the first million, and £0.08 per month [£0.96 per cardholder per annum] if the cardholders exceeded 2 million. I understand from Nigel that it was possible to negotiate more favourable per card charge with PCMS for the administration of Dividend because of the imminence of the Harlech trial and the corresponding likelihood of tCG expanding the Dividend offer into the historic CRS stores. I believe from my own understanding of events and from my discussions with Nigel Walter that it would not have been possible to negotiate this new agreement without the ability to tell PCMS that the Harlech trial was imminent, as they wanted the reassurance that the number of cardholders (and hence their overall annual administration fee) would increase before agreeing more favourable rates. ”

“ The claim is for the 25 week delay in the implementation of the new PCMS Dividend Administration contract, from 8 January 2001 to 1 July 2001, caused by the delay in the Harlech Trial and planned roll-out of the Dividend into the CRS Estate. ”

It is implicit in that way of putting the claim that, but for the alleged delay in the undertaking of the Harlech trial, it would have been possible for the New PCMS Agreement to have come into force on 8 January 2001.

Additional costs – the law and the facts

“ When in the course of his business he [the claimant] has taken action arising out of the transaction, which action has diminished his loss, the effect in actual diminution of the loss he has suffered may be taken into account even though there was no duty on him to act. ”

At page 690 of the report Viscount Haldane said:-

“ Provided the course taken to protect himself by the plaintiff in such an action was one which a reasonable and prudent person might in the ordinary conduct of business properly have taken, and in fact did take whether bound to or not, a jury or arbitrator may properly look at the whole of the facts and ascertain the result in estimating the quantum of damage. ”

The course contemplated by Viscount Haldane, and conventionally taken in a case such as the present, of considering whether, on a net basis, as it were, CWS was financially worse off as a result of adopting the ISS300 Vision solution for the former CRS stores than it would have been had the GlobalSTORE project been carried to a successful conclusion within whatever was the appropriate time scale, has not been undertaken. Rather it is implicit in the way in which the claims for additional costs have been formulated that, with the exception of the elements specifically raised, the cost of the ISS300 Vision solution was identical with what the cost of a successful GlobalSTORE project would have been.

Vision 32

Bulk printing

RB2

“ Contract is payable quarterly in advance and is subject to a 13-week notice period for any review or termination. ”

“ 8. Had GlobalSTORE been rolled out on a programme to complete the installation in stores by the end of March 2001 [that is, assuming pilot on 28 August 2000] tCG would have given AIM 13 weeks’ notice to terminate the arrangement for out of hours support, prior to the beginning of the quarter period commencing 01/03/2001. This would have rendered tCG liable for charges only until 31/05/2001.

9. tCG paid AIM the total sum of £53,535 for Retail Base out of hours support for the periods 01/06/2001 to 28/02/2002 inclusive. The relevant invoices are their invoice numbers 10890, 10999 and 11134. I signed off each of those invoices to approve payment to AIM. ”

“ Your intention to cease the Retail Base Out of Hours support is noted but please note that any notice should in fact coincide with the renewal period. ”

“ The cancellation can take affect [sic] from the 1 ^st December 2001 and this correspondence can be taken as your intention to serve notice. ”

Software and hardware

(a) ISS300 licences

“ The payment of the sum of £300,000 plus VAT shall be in full and final discharge of PCMS’s obligation to pay ICL licence fees in respect of PCMS’s deployment of ICL modules at the locations and for the number of lanes per store set out in Schedule 2 to this letter and ICL acknowledges that any such sub-licences issued by PCMS in respect thereof are valid. ”

That provision related to the ISS300 platforms supplied by PCMS in the former CRS stores included in the Vision 420 programme. Mr. Boothroyd, in paragraph 8.22 of his second report, listed a number of different figures derived from a variety of different documents which were said to be indicative of the charge actually made by PCMS for the licences in question. The figures ranged from £586,500 to £977,500. Curiously, two of the documents emanated from ICL and were addressed to CWS. They therefore indicated what ICL had in mind at May and June 2000 to charge CWS for ISS300 licences. Why they should be considered relevant, but not the evidence of what ICL actually charged PCMS for the relevant licences I confess I fail to understand. In a document entitled “Heads of Agreement for provision by PCMS to tCG of the Vision 420 project installing Vision in 420 ex-CRS Stores” ( “the Vision 420 Agreement” ), a copy of which was put in evidence, was set out a list of “projected costs” which included an amount of £1,900,000 for “ISS Vision licences” . That presumably covered not only ISS300 licences which would need to be obtained from ICL, but also Vision licences, which would need to be granted by PCMS. On the totality of the evidence, if I had to determine what was the cost to CWS of the ISS300 licences granted in relation to the former CRS stores included in the Vision 420 programme, I could only hold that it was at least £300,000, the sum paid by PCMS to ICL for the licences. I imagine that it is to be expected that PCMS would have applied some sort of mark-up to its actual cost figures, but there is no worthwhile evidence before me as to what the mark-up, if any, in fact was, or what a reasonable mark-up would be.

(b) Costs of running Vision on GlobalSTORE hardware

“ As part of Vision 420 it was necessary to carry out software development to ensure that pricing information on the Vision back office server was the same as the existing in-store prices. This entailed the development of a program to overwrite the price information on the back office with the information on ISS/400. The initial ISS/400 proposal for GlobalSTORE, from ICL, did not require any item file conversion work. However, following the change in ICL’s proposal from operating on a ISS/400 to ISS/300 platform, ICL had to carry out an item file conversion, due to the change in the operating platform. As far as I am aware this was the consequence of the change to ISS/300 and, given that this change was proposed by ICL in order to make up lost time on GlobalSTORE , I would not have expected tCG to have been charged for the conversion. This requirement is referred to in the FRS for Item file conversion from ISS/400. ”

Mr. Garner, on the other hand, at paragraphs 24, 25 and 27 of his first witness statement, gave this explanation:-

“ 24. It was necessary to ensure that, when the Vision back-office was installed under the Vision 420 project, the pricing information held on the Vision back-office was the same as the pricing information held on ISS/400 in the historic CRS stores. Store staff in the historic CRS stores were able to make their own price changes in store which could create variations between the CTS price and the store price. It was therefore possible that, on installation of the Vision back-office, the information held on the back-office might not be the same as prices held on ISS/400 in that store. After installation of Vision, the price shown at the till would be maintained by the Vision back-office so the information on each Vision back-office needed to reflect the pre-existing pricing information in each store.

25. It was therefore necessary for PCMS to develop a programme which would lift prices from ISS/400 and drop them into the Vision back-office. This ensured that, when Vision was up and running, the prices shown at the till would be the same as the prices that had been shown at the till the previous working day.

27. I understand from Kevin Cook that this work would not have been necessary under the initial ISS/400 proposal for GlobalSTORE. ”

These explanations are not mutually consistent. Mr. Cook described the work in question as being undertaken by ICL and charged for by, and presumably paid to, ICL. Mr. Garner’s explanation has the merit of at least involving some work on the part of PCMS, but has the deficiencies that in itself the description of the work does not link it to any alleged default on the part of ICL, and that insofar as it purports to make any link with alleged deficiencies on the part of ICL, it relies on information coming from Mr. Cook, whose own explanation was different. ICL’s case was that the item file conversion work was rendered necessary by the decision of CWS eventually to use CTS rather than RB2 as the relevant central system. In this state of confusion I am simply not satisfied that, even if there had been a contract between CWS and ICL and ICL had been in breach of it, the item file conversion work had anything to do with any breach of contract on the part of ICL.

“ …The historic CRS estate used CISCO routers. Had tCG been supplied with GlobalSTORE, it was proposed that the historic CRS stores (using GlobalSTORE) would continue using RSM which (amongst other things) facilitates the communication between the in-store routers and banks for the purposes of on-line authorisation. The CISCO routers were compatible with RSM and, as far as I am aware, the CISCO routers would have remained in-store in the historic CRS estate, to be used in conjunction with GlobalSTORE and RSM. ”

Mr. Garner in his first witness statement gave an account consistent with that of Mr. Cook, but again said that the source of his information was Mr. Cook. Mr. Garner went on:-

“ 31. Vision in the historic CWS stores uses TPAD Functionality (rather than the RSM) to communicate with banks, in conjunction with either 3com501 or 3com531 routers. By the time of the Vision 420 programme these routers were in very short supply and were not available in the quantities that would have been required for the historic CRS stores.

32. In order for the historic CRS stores to deal with OLAs it was necessary to either

32.1 adapt Vision so that it could utilise the CISCO routers in conjunction with the RSM; or

32.2 purchase new routers, which would in turn necessitate software development by PCMS to provide TPAD functionality; or

32.3 use terminals provided by the bank.

33. We considered each option. The possibility of adapting the existing CRS routers was thought to be too time consuming. It would have necessitated the integration of a link with Vision or ISS/300 and also engaging ICL to carry out development work (because RSM is their product and tCG does not have the code to work on it). The terminals provided by the bank were not seriously considered due to the time it would have taken to develop Vision to pass transaction values to the bank’s terminal and accept authorisation messages back from the bank’s terminal. It would also have required bank approval, which itself can take 2 to 3 months alone. PCMS were of the opinion that to develop TPAD functionality within routers produced by Allied Telesyn was possible within the timescales required for Vision 420. tCG therefore purchased replacement routers which were manufactured by Allied Telesyn and engaged the services of PCMS to carry out software development work. ”

It was not disputed on behalf of ICL that it had been necessary to tackle the problem that, as a result of the change from GlobalSTORE to Vision, OLA could no longer be performed directly via CISCO routers to RSM. It was, however, contended that, as a matter of mitigation, CWS should have pursued the first of the options dealt with by Mr. Garner at paragraph 32 of his first witness statement. I am not persuaded that that is correct. On the assumption that there had been a contract between CWS and ICL and that CWS had validly terminated that contract for breach on the part of ICL in failing to provide satisfactory software by an agreed date, it does not seem to me that it would in any way have been unreasonable for CWS to consider that whatever the solution to the problem of the routers, it did not have to pursue one involving ICL.

“ 35. Historic CWS stores had printers on tills which allowed the tills to produce both the customer receipt and an audit roll. Historic CRS tills produced only one roll for the customer receipt: they did not produce a paper audit roll. Instead, they collected audit information electronically which could be reviewed on screen. Historic CWS tills and back office did not have the means of reviewing audit information on screen.

36. When Vision was installed, in conjunction with the historic CRS tills, it would not have been possible to retrieve and view electronic audit rolls. Vision simply does not have the ability to do this. tCG therefore had the option of either replacing all the printers within the historic CRS stores (which would have been prohibitively expensive) or of developing software to allow electronic audit files to be viewed on screen in the historic CRS stores. PCMS were therefore asked to carry out this development work.

37. My understanding is that GlobalSTORE was being developed to cater for the printers in-store and to provide an electronic audit roll facility, utilising the existing till printers. ”

The basic point seems to be that in the former CRS stores the existing ISS400 tills did not produce a paper audit roll but stored the information which would otherwise have been shown on such a roll electronically. GlobalSTORE, had it been developed satisfactorily, would have provided the facility for a viewing of such electronically stored information in the back office. Vision did not have that functionality, and so, when Vision replaced GlobalSTORE as the application for the former CRS stores, that functionality had to be developed in Vision. In principle, therefore, on the hypothesis adopted in relation to all the alleged items of additional cost, this element of loss would be recoverable.

“ 48. The historic CRS stores needed to use a modem. The modem needs to be connected to the back-office server via a communication port. The back-office servers in the historic CRS stores had 2 communications ports on them. One of those was used for the HHTs [Hand Held Terminals – effectively a radio device communicating with the back office server] and the other for the UPS batter [y] power supply. This needs to be connected to the back-office server as it is a “intelligent” UPS which monitors the power supply and provides warnings in the event that there are problems with the supply.

49. The additional requirement for a modem meant that tCG also had to purchase communications ports for the back-office servers in the historic CRS stores. The additional communications port was provided by the purchase of a card which can be attached to the back-office server and used as an expansion to the existing ports. The cards we purchased were produced by Stallion. The smallest Stallion card (which we purchased) provides 4 extra communications ports. ”

“ Under the original plan for GlobalSTORE tCG would have utilised the till hardware already existing in the historic CRS Stores, which would have been used in conjunction with ISS/400. Following the change to ISS/300 tCG has had to utilise those tills in conjunction with ISS/300 software. The draft installation procedures note that till memory upgrades were required. This additional requirement was a consequence of the change to ISS/300. ”

(c) Harlech expedite costs

RF

“ 51. As stated above, I was involved in the Vision 32 roll-out, installing Vision into 25 historic CRS stores, some of which were installed with RF. RF is generally only used within the historic CWS estate if there are logistical reasons which make it difficult to cable, for example, in petrol stations. In the historic CRS estate RF was more prevalent. Problems were encountered during the roll-out of Vision 32 stores which utilised RF. RF is the means by which the tills communicate with each other and the back-office server. In the ISS/400 stores the tills all communicate individually with the back-office server and each till either needs to be physically attached to the server by wiring or by RF transmitters. In the ISS/300 stores, the tills operate on the basis of having one master till which communicates with the back-office and several “slave” tills. The master till communicates with the back-office server and then information is fed to the other tills (or from the other tills) via the master till.

52. The RF stores in the Vision 32 programme exhibited problems when we tried to operate them in conjunction with Vision back-office and ISS/300 in that tills dropped out of the network, went off line or ran slowly.

53. The Vision 32 programme involved the installation of Vision in conjunction with an ISS/300 platform. This was the first time, therefore, that RF had been used in conjunction with ISS/300 in historic CRS stores.

54. My perception was that the combination of RF and ISS/300 produced a more unstable platform than ISS/400. I am unsure as to why this was the case although at the time there were discussions as to whether ISS/300 put more traffic through the RF system because information was being transmitted by each till to the master till and then relayed to the back-office. Matters were also not helped by the fact that ISS/300 tends to find it difficult to recover once it finds a break in the network. Essentially, the Vision 32 project showed that RF was not as stable when used in conjunction with ISS/300, as it had been working on an ISS/400 platform with the tills in the historic CRS stores.

55. The implementation of Vision 32 was being carried out by ICL. I put this problem to ICL’s project manager Geoff Williams. He was reluctant to admit that there was a problem with the RF and proposed a solution known as a time-out change, which makes it easier for an application to recover when it loses the network. By the time this solution was available we had already hard-wired most of the stores. At the request of ICL we did leave one of the stores (at Yeading) on RF so that they could see where a problem was occurring in the system and to allow them to install their time-out change solution. However, this did not make the system as stable as it had been with ISS/400 and the store was eventually hard-wired.

56. All of the Vision 32 RF stores ended up being hard-wired. Yeading store was left on RF for longer to enable ICL to try out their time-out change solution but eventually even that store was hard-wired.

57. When we came to discuss the Vision 420 project internally I was nervous about RF in the historic CRS stores because of my previous experience with Vision 32 stores.

58. I recall several discussions with Keith Brydon on the subject. I knew that there was a possibility that the RF could disrupt the Vision 420 programme and sought to persuade Keith to agree to hard-wire all of the stores. Keith eventually took a decision based principally upon trying to achieve the most cost effective solution, of trying to install Vision with the existing RF and seeing how we got on. It was agreed that the matter would be reviewed depending on any problems that were encountered in the field.

59. The first couple of RF stores that we converted to Vision were in Harlech. We could see that the tills were dropping out of the network and failing to recover, along with the other symptoms that we had encountered with Vision 32. My overall view was that RF in conjunction with ISS/300 was fragile. I say this particularly because I recall that in some stores, the location of fridges and other electronic equipment had a bearing on when the RF would fail. Similarly, I recall that one of the stores was close to a fire station and thought that the proximity of the radio communications in the fire station was having a bearing upon the RF. It became difficult to predict whether we would have a problem in store or not, but if a problem occurred then it caused a lot of disruption. Once Vision is installed, if tills go down, they have to be recovered and attempts made to make the system work. If this doesn’t work then you have to make arrangements for the store to be hard-wired, which causes further disruption, a second visit from engineers, etc. It was also extremely difficult to identify which stores might or might not have a problem with RF. It was not possible to spot stores which would have a problem, hard wire those stores and leave the others on RF.

60. The email from Liam Rowlands dated 31/05/2001 gives a flavour of the problems we were encountering with RF in the Pontycymmer store in Harlech.

61. PCMS also refer to the problem in their document dated 21 June 2001 in which they give an update on the costs of the Vision 420 project. The document (at paragraph 3.0) refers to a large proportion of RF sites being exceptionally difficult and occasionally impossible to switch from ISS/400 to Vision.

62. We were trying to resolve the problem on a “fix on fail” basis but it became increasingly clear to us that this was causing too much disruption to the business. Our approach can be seen in the email from Mel Dutton to Keith Brydon dated 04/06/2001 which resulted in John Hevican giving us authority to operate on a fix on fail basis.

63. By August/September 2001 it was clear that dealing with RF on a fix on fail basis was having a serious impact on the businesses [sic] ability to serve customers because of the disruption being caused on installation and subsequent attempts to fix the problem. Eventually Keith Brydon made a decision to hard-wire every store. The installation work for the cabling was carried out by Baronn McCann and PCMS. PCMS’s charges for the cabling relate to the stores which required immediate attention whilst we were working on a fix on fail basis. Mel Dutton arranged for the invoices to be paid. ”

“ 4. My involvement came about because ICL, through Geoff Williams, the project manager on the ICL side for the Vision 32 rollout, had become aware that there were difficulties being experienced with the operation of the RF network in a number of stores to which ISS300/Vision had been installed. I was asked to carry out a technical investigation into exactly why this was happening – the Yeading store was chosen as the subject store for my investigation. In January 2001 I therefore began this task – my job was to “troubleshoot” these issues, and in particular to work out whether or not the ISS300 software was causing greater network traffic to be generated which would impact on the efficient operation of the RF network. A copy of the report which I produced from this investigation is annexed to this statement as Exhibit CK1.

5. The report showed that the problem was nothing to do with any fundamental difference between ISS300 and ISS400, because the network traffic being generated by ISS300 was if anything less than ISS400. What I actually discovered was that the way ISS300 had been set up was causing a problem and also that the tills were all trying to back themselves up continuously due to problems that occurred during a master/alternate swap. This was causing them to slow down somewhat in their operation.

6. As a result of this discovery, ICL introduced a timeout change into the configuration of the ISS300 software, which was trialled in the Yeading store. I do not know what the results of that trial were, but I do know that the problem which we had identified was a small configuration problem, which, even if the Yeading solution hadn’t worked, was quite capable of resolution both cheaply and quickly. It was not a big technical issue.

7. A further important point to make is that the efficient operation of a RF network can be affected by a huge number of factors, its interaction with the till software being only one. A common cause of RF network problems is any change of store layout, which can easily affect the radio transmission – the network may then fail, and cause knock on problems with the tills when they cannot communicate over the network. I have no idea whether any of the stores either in Vision 32 or the subsequent Vision 420 rollout had any changes made to them, but any refit of those stores or change to their layout or to the facilities in them generally could have affected the operation of the RF network….

12. Stephen Garner states at paragraph 54 of his witness statement that the combination of RF and ISS/300 produced a more unstable platform than ISS/400.

13. There is no reason why this should be the case. The LAN analysis at Exhibit CK1 shows that there is no significant increase in network traffic, if anything ISS300 seems to send less data, although the set-up or configuration issues with ISS300 when it was installed were causing slow operation of the tills. ICL has provided perfectly stable solutions to other customers using ISS300 and RF. I would reiterate the points made above, that lots of other factors could have impacted on the operation of the RF network outside the till software, and in particular changes to store layout or content. RF hardware is fundamentally sensitive to objects placed near it (in the same way as any radio based hardware), hence any refit or change to store layout could affect its operation, and no doubt did. From Stephen Garner’s statement, it doesn’t look as though any effort was made by CWS to investigate this possible problem. If ex-CRS stores had had their layout changed, the operation of the RF equipment would have been affected irrespective of whether the till software was ISS300 or ISS400. ”

Conclusion

Organisation of trial bundles