England and Wales High Court (Technology and Construction Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEENS BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT

		St. Dunstan's House, 133-137, Fetter Lane, London, EC4A 1HD
		13 January 2003

HANDING DOWN


 


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

Introduction

1. The essential background to this action is the transfer, with effect from 2 April 2000, of the engagements of Co-operative Retail Services Ltd. ("CRS") to Co-operative Wholesale Society Ltd. ("CWS") pursuant to the provisions of Industrial and Provident Societies Act 1965 s.51. The Claimant changed its name subsequent to the transfer of engagements to its present name, but for the purposes of this judgment it is convenient to refer to it as "CWS" no matter what name it actually had at the time of which I am writing.
2. Prior to the transfer of engagements CRS carried on a retail grocery and supermarket business through some 460 or so stores located in regions called Central and Eastern, Northern, South East, South West and Wales and Borders. The precise number of stores operated by CRS immediately prior to the transfer of engagements is a matter of some controversy in the evidence in this action, but ultimately of no significance. The range was between 436, a figure as to which Mr. Neil Braithwaite, the General Manager, Retail Finance, of CWS spoke, and 464, a number put forward by Mr. Keith Brydon, the General Manager, Retail IT of CWS. Other evidence generally concentrated in the region of 460. CRS did not operate in Scotland or Northern Ireland.
3. CWS seems originally to have been, as its name suggests, a supplier of goods by wholesale, rather than by retail. However, over the years it appears to have spread its net into other areas, including providing a funerals service, to which aspect of its business I shall have to make further reference later in this judgment. By the 1990s CWS also carried on a similar retail grocery business to that of CRS. Immediately prior to the transfer of the engagements of CRS to CWS that retail business was carried on through some 650 or so stores. Again the evidence on behalf of CWS conflicted as to exactly how many stores CWS operated immediately prior to the transfer of engagements, but again the question of the precise number is of no significance. CWS operated in regions called Central and Eastern, North Eastern (including Cumbria), Northern Ireland, Northern, Scotland and South East. CWS did not operate in Wales or the South West of England.
4. Although the names Central and Eastern, Northern and South East were each used by CRS and CWS to describe regions in which they respectively operated stores, in fact only in the Greater Nottingham area and in the South East of England did CRS and CWS operate stores in close proximity to one another. It seems that there were in total some 25 CRS stores which were close to CWS stores.
5. It is notorious that in recent times a feature of the retail market in foodstuffs in the United Kingdom has been the presence of large supermarket groups, some of which have chosen to seek to attract custom by providing large out of town superstores. It seems that at one time CWS sought to compete with such groups by operating superstores of its own. However, in about 1997, according to the evidence of Mr. John Bowes, the Chief General Manager, Marketing of CWS, CWS carried out a strategic review of its food retail business and concluded that it should cease to compete with the operators of superstores on their own terms. Instead, CWS should concentrate on smaller supermarkets in market towns which would dominate the local trading area and on convenience stores. Against that background consideration was given within CWS to the acquisition of further stores to give effect to the new policy and achieve comprehensive national coverage.
6. Both CRS and CWS were formed as co-operative societies and were appropriately registered under Industrial and Provident Societies Act 1965 ("the 1965 Act"). It appears that the possibility of a merger of the two through the mechanism of a transfer of the engagements of one to the other in accordance with the provisions of the 1965 Act had, by 2000, been under consideration on and off for some 25 years. Following an abortive attempt on the part of CWS to acquire a group of stores called "One Stop", as Mr. Bowes put it at paragraph 15 of his witness statement:-

"….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.
7. A feature of the Co-operative movement at retail level from early in its history in the nineteenth century was the distribution to members of a share of profits by means of what was called a "dividend". In the marketing conditions of the late twentieth century the distribution of dividend in what had been the classic manner seems to have ceased to be a characteristic of trading in retail co-operative societies. The evidence of Mr. Bowes and Mr. Braithwaite was that it had disappeared in the late 1960s.
8. In his first witness statement, in evidence which I accept, Mr. Bowes explained that, having decided to concentrate food retailing in the small supermarket and convenience store sector, CWS was faced with the need to try to differentiate itself from other stores in that sector. In paragraph 5.5 of his first witness statement Mr. Bowes said that from about 1995 CWS had run various trials of loyalty schemes. It was decided, following the strategic review, according to Mr. Bowes, to introduce, "as a key differentiator between CWS stores and our opposition in the market place", a loyalty card scheme, which in broad general terms entitled holders of loyalty cards to build up an entitlement having a cash value on purchases of certain types of items – Co-op brand products and fresh produce – and to use such entitlement in payment for goods or to redeem it for Sterling currency. Because of the nostalgic appeal of the classic dividend scheme this loyalty card scheme was called "the Dividend". I shall refer to it by that name in this judgment. In its original form the rate at which entitlement could be accumulated under the Dividend was 5% of the retail price per item on Co-op brand products and fresh produce. Purchases of other products were not eligible for entitlement. In various of the documents put before me during the trial the original Dividend scheme, to which I shall refer as "the Original Dividend", was described as a 5% + 0% scheme. Subsequently the Original Dividend was revised so that the rate at which entitlement could be accumulated on purchases of Co-op brand products and fresh produce was reduced to 3%, but other brands of products became eligible for entitlement on purchases at a rate of 1% of the retail price per item. Some purchases of goods remained ineligible for entitlement, so the revised scheme, to which I shall refer as "the Revised Dividend", was referred to as a 3% + 1% + 0% scheme.
9. CRS did not, up to 1999, have a loyalty card scheme which operated in all its stores, although it too no longer distributed dividends to members in the classic fashion. CRS had experimented with loyalty card schemes on a trial basis. At paragraph 16 of his first witness statement Mr. Bowes told me about a scheme called "Points Plus" operated as a pilot scheme at five CRS stores, namely those in Pontllanfraith, Pyle, Porth, Keynsham and Leytonstone.
10. The efficient conduct of modern retailing depends upon the use of computer systems for a number of functions. At the till, or "point of sale" in the jargon of the trade, the ability to pay quickly and easily by means of a credit or debit card being "swiped" depends upon the till in question having an "electronic point of sale" or "EPOS" facility, which requires computer support. A loyalty card scheme requires the same sort of support, so that the relevant purchases of a particular card holder can be attributed correctly to his or her entitlement account. With appropriate software other options are available in relation to what are called "back office" functions, such as cash management, ordering and stock control.
11. In the period immediately prior to the transfer of the engagements of CRS to CWS CWS used computer software to provide an EPOS facility at the tills in its stores and to perform various back office functions. The platform, as it is called, was a product of the Defendant, International Computers Ltd. ("ICL"), called "ISS300". I shall refer to that product in this judgment by that name. In addition, operating off that platform, and in particular providing the means, or "functionality", to enable the Dividend to operate, was a software application of a company called The PCMS Group Plc ("PCMS") which was known as "Vision". Again, in this judgment I shall refer to "Vision" by that name.
12. ICL is one of the leading computer companies based in the United Kingdom, if not the leading company. It seems that the name of the company was changed recently to Fujitsu Services Ltd., no doubt to reflect the fact that the company is now owned by the Fujitsu Corporation of Japan. However, in this judgment I shall refer to it as "ICL".
13. At paragraphs 6 and 7 of his first witness statement Mr. Brydon, in a passage which I accept, said this about the position of CRS in relation to computer facilities in 1999:-

"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…."

14. The negotiations between CRS and ICL in fact resulted in the making of a written agreement ("the CRS Agreement") to which I must now turn.

The CRS Agreement

15. The CRS Agreement was dated 7 June 1999. The first page identified the parties and their respective addresses. It bore signatures on behalf of both. The remaining text of the first page was as follows:-

"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."

16. The main body of the CRS Agreement included these provisions:-

"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…"

17. Schedule One to the CRS Agreement was concerned with pricing. Section 1.2 provided, so far as is presently material:-

"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.
18. Schedule Four to the CRS Agreement set out details of a "Store System Harmonisation & Stock Management Programme". That programme was divided into four phases. In the first phase the EPOS systems in all CRS stores were to be replaced with what was called "the ISS400 Lite EpoS system" ("ISS400"). That was done successfully before the transfer by CRS of its engagements to CWS and nothing turns on it in this action. The other phases related to what was called in the schedule "SSM", which is an abbreviation of "Store Stock Management". SSM was an existing software application of ICL, but it was contemplated in the CRS Agreement that CRS would conduct a trial using SSM as it then existed, and, if that trial persuaded CRS of the benefits of SSM, the characteristics of SSM should then be developed as part of a new software application which was being evolved by ICL and which was called "GlobalSTORE". I shall refer to "GlobalSTORE" in this judgment by that name. The brief description of phases 2, 3 and 4 given in the schedule was:-

"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.
19. The GlobalSTORE software application features large in the circumstances which have given rise to this action.
20. Section 4.1.1 of Schedule Four to the CRS Agreement contained an "SSM Overview". That included:-

"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

The ordering process – what and when, what algorithms and techniques are used, how are changes dealt with etc.

Delivery processes – size of deliveries, timing

Shelf replenishment

Perpetual inventory

Processes for handling wasted items

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.)."

21. The "ICL Contract Conditions, September 1998 Edition (reference UKGC0998, UKSE0998, UKPL0998, UKES0998, UKPS0998)" mentioned in clause 2.1 of the main body of the CRS Agreement were in fact a number of separate sets of conditions. UKGC0998 was a set of conditions entitled "General Conditions of Contract for the Supply of Equipment, Programs and Services". It included:-

"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.
22. The conditions which bore the reference UKPS0998 were entitled "ICL Contract Conditions Professional Service". Clause 11.1 of those conditions contained a warranty in the following terms:-

"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.
23. The conditions which bore the reference UKSE0998 were entitled "ICL Contract Conditions Equipment Service". Clause 6.1 of those conditions dealt with the payment of charges as follows:-

"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

24. As I have already recorded, Phase 1 of the work contemplated by the CRS Agreement was completed satisfactorily. Before the question of carrying out the work required under the succeeding phases seriously arose CRS and CWS became involved in the discussions which led ultimately to the transfer of the engagements of CRS to CWS. An aspect of the possible merger of CRS with CWS was the anticipated need to harmonise the computer systems used in the stores operated by CRS immediately prior to the transfer of engagements (to which stores I shall refer in this judgment as "the former CRS stores") and those used in the stores operated at that time by CWS (to which stores I shall refer in this judgment as "the existing CWS stores"). In particular, it was anticipated that it would be necessary, or at any rate desirable, to introduce the Dividend into the former CRS stores after the transfer of engagements had taken place. Other features of what was on offer in the existing CWS stores which it was desired should also be available in the former CRS stores included the ability to make payments at tills in-store into Individual Savings Accounts ("ISAs") and High Interest Savings Accounts ("HISAs"), which I think were in fact operated for customers by Co-operative Bank. ICL and PCMS was each invited to make proposals to CWS as to how, from the point of view of provision of appropriate computer software, the computer systems of CRS and CWS could be harmonised, and the Dividend, and other desired facilities, introduced into the former CRS stores. One possibility was to replace the recently installed ISS400 in the former CRS stores with ISS300 and Vision, which were used successfully by CWS in the existing CWS stores. Another possibility was to replace Vision in the existing CWS stores with GlobalSTORE which, under the CRS Agreement, ICL had undertaken to develop for use by CRS so as to provide the functionality of SSM, at the same time as that software was installed in the former CRS stores. A third possibility was to leave the existing CWS stores as they were, but to instal GlobalSTORE, developed to provide in conjunction with ISS400 all the functionality provided to the existing CWS stores by the combination of ISS300 and Vision, in the former CRS stores. In the event it was the latter course which CWS decided to adopt. In this judgment I shall call the project to develop GlobalSTORE for installation in the former CRS stores with the capacity to offer the Dividend and the other desired facilities "the GlobalSTORE project".
25. In short, the attempt to develop GlobalSTORE so as to provide the functionality required in the former CRS stores, and in particular the ability to offer the Dividend, had not, by the end of January 2001, achieved success. At that point CWS decided to adopt the alternative solution of replacing ISS400 in the former CRS stores with ISS300 plus Vision. That was done successfully.

The claims made in this action

26. In this action CWS claimed damages for alleged repudiatory breach of an alleged contract by which, so it seemed to be contended, ICL agreed to develop GlobalSTORE by 29 January 2001 into a condition in which it could provide the functionality required by CWS in the former CRS stores, including in particular the ability to make available the Dividend. The case of CWS was that it accepted that alleged repudiatory breach as terminating the contract for which it contended. There were also allegations that ICL made misrepresentations in order to induce CWS to enter into the contract contended for. The damages claimed amounted to a little less than £11,000,000.
27. It was accepted on behalf of CWS that the transfer of the engagements of CRS to CWS would otherwise have meant that the obligations of CRS under the CRS Agreement passed to CWS, but it was contended that it was a term of the contract which was asserted on behalf of CWS that the CRS Agreement was thereby discharged.
28. ICL resisted the claim of CWS. The position adopted in the Re-Amended Defence and Counterclaim was that the contract alleged on behalf of CWS in the Particulars of Claim was denied. Rather, so it was said, the work done to seek to develop GlobalSTORE for CWS was undertaken pursuant to the CRS Agreement after the obligations of CRS under that agreement had passed to CWS. On this basis ICL sought to rely upon clauses 9 and 13.7 of the conditions having the reference UKGC0998, clauses 11.1 and 17.1 of the conditions having the reference UKPS0998 and clauses 6.1 and 9.1 of the conditions having the reference UKSE0998. Alternatively, it was contended that there was no contract under which the work was done, the position being that it was anticipated that a contract would be agreed as a result of negotiations in which CWS and ICL engaged over an extended period, but that that never happened. It was asserted on behalf of ICL that, whichever of the foregoing was the correct analysis, the CRS Agreement did not run its full course, with the result that the provisions in Schedule One for revision upwards of the charges made for the services actually provided to CRS came into effect. ICL thus counterclaimed a sum of £1,018,034 under this head. Further or alternatively, so it was contended, the termination by CWS of the continued involvement of ICL in the development of software for the former CRS stores itself amounted to a repudiation of the CRS Agreement in respect of which ICL was entitled to damages by way of compensation for loss of profits calculated at some £1,473,000.

The case of CWS as to a contract

29. The summary set out in the preceding paragraphs of the claims made in this action is brief, but sufficient to indicate that an essential plank of the case of CWS, whether based on breach of contract or on the assertion that it was induced to enter into a contract by misrepresentations, was the existence of the contract for which it contended.
30. The case pleaded on behalf of CWS in the Particulars of Claim as to the contract for which CWS contended and the representations immediately preceding it was as follows:-

"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."

31. The letter dated 22 December 1999 written by Mr. John Pickett, Client Director at ICL, to Mr. Brydon, a copy of which was attached as Schedule 2 to the Particulars of Claim, included:-

"Should the merger between CWS and CRS go ahead we confirmed that the GlobalSTORE 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."

32. A Request for Further Information was made under CPR Part 18 on behalf of ICL in respect of various of the allegations contained in the Particulars of Claim. A response to the Request was given in a document served on behalf of CWS entitled "Further Information and Clarification of the Claimant's Particulars of Claim" ("the Further Information").In relation to the alleged agreement set out in paragraph 21 of the Particulars of Claim that the CRS Agreement be discharged the relevant requests and responses set out in the Further Information were:-

"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."

33. There were a number of requests for further information made on behalf of ICL in relation to the alleged contract upon which CWS based its pleaded claims. Those allegations in the Particulars of Claim in respect of which further information was sought which are presently material, the requests for information made, and the responses given in the Further Information were these:-

"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."

34. The reference in the Further Information given in respect of requests 17 and 18 to paragraph 30 of the Defence was to this plea:-

"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 GlobalSTORE 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."

35. The case pleaded in the Re-Amended Defence and Counterclaim in response to the allegations as to a contract contained in paragraphs 22 to 26 inclusive of the Particulars of Claim was summarised in paragraph 32 thus:-

"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."

36. The way in which the contract contended for on behalf of CWS was pleaded in the Particulars of Claim, as amplified in the Further Information, is very curious. The contract in question was said to have been made in or about March or April 2000 by conduct or implication. That suggests that it was not said that it was formed by the acceptance on the part of one side of an offer made on the part of the other. I shall turn in the next section of this judgment to consider the law of England in relation to contract formation, so far as is relevant to this case. Suffice for the present to say, that, while a contract can theoretically come into existence either by conduct or by implication, these are not the means by which commercial contracts are usually made.
37. The fundamental notion underlying a contract in English law is agreement. While an objective approach to the issues whether particular parties have reached an agreement and, if so, upon what terms, is adopted, it is not usually suggested that agreement itself is unnecessary. It is therefore surprising to find the plea in paragraph 24 of the Particulars of Claim that, "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…". The conclusion which, conventionally, one would expect to follow from a plea in those terms is that set out at paragraph 32 of the Re-Amended Defence and Counterclaim, namely that, for want of agreement, no contract was made.
38. What, on analysis, the basis for the contract contended for on behalf of CWS seemed to be said to be was that, during the course of negotiations between CWS and ICL for a contract, various matters said to be "essential" for the conclusion of a binding contract were "agreed in principle", and that, notwithstanding that other matters discussed in the negotiations, in particular as to whether ICL's standard conditions were to be incorporated and whether ICL was to be liable to pay liquidated damages for delay in completing the work the subject of the contract under negotiation, were not agreed, somehow a contract came into existence.
39. At the start of the trial, on the morning of the first day, I expressed to Mr. Richard Mawrey Q.C., who appeared with Mr. Terence Bergin on behalf of CWS, some difficulty in understanding how the case as to the formation of the contract sued on was put. Mr. Mawrey accepted that the present was not a case in which it was possible to identify an offer and an acceptance of such offer in a way which a law student would recognise. He assured me, nonetheless, that:-

"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

40. The approach which Mr. Mawrey contended I should adopt to the resolution of the issue whether the contract upon which CWS sought to rely had in fact been concluded is significantly at variance from the English law of contract as conventionally understood. The particular problems thrown up by the approach which he advanced are, first, whether it is appropriate in the circumstances of the present case to address the question whether a binding contract was concluded on some basis other than by seeking to identify an offer made by one party which the other had accepted unequivocally and in its entirety, and second, what is the relevance of contractual intention in a case in which the parties are still in negotiation.
41. It is convenient to begin this review of the law by considering the significance of offer and acceptance, to which Mr. Mawrey attributed little importance.
42. In the context of an agreement said to have been made in correspondence Lord Diplock said in Gibson v. Manchester City Council [1979] 1 WLR 294 at page 297, in a passage to which Mr. Mawrey drew my attention:-

"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."

43. The approach of considering whether a contract has been concluded by asking and answering the question has one party made to the other an offer which the other has accepted unequivocally was described trenchantly by Lawton LJ in Butler Machine Tool Co. Ltd. v. Ex-Cell-O Corporation (England) Ltd. [1979] 1 WLR 401 at page 405 in this way:-

"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. "

44. The submission of Mr. Mawrey that a binding contract was made between CWS and ICL in relation to the GlobalSTORE project depends fundamentally upon the proposition that an agreement in circumstances such as those of the present case can be made other than by the demonstrated acceptance by one party of an identified offer made by the other. It may be that Mr. Mawrey had in mind the words of Lord Denning MR in Port Sudan Cotton Co. v. Govindaswamy Chettiar & Sons [1977] 2 Lloyd's Rep. 5 at page 10, although Mr. Mawrey did not specifically refer to those words. What Lord Denning said was:-

"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.
45. There is also a passage in the judgment of Steyn LJ in G. Percy Trentham Ltd. v. Archital Luxfer Ltd. [1993] 1 Lloyd's Rep 25 at page 27 which contained a suggestion that, at least in the case of an executed, that is to say, performed, project, it may not be appropriate to seek to resolve the question whether a binding contract was made by reference simply to whether an identifiable offer was the subject of a demonstrable acceptance. What Steyn LJ said, in the passage upon which Mr. Mawrey relied, was this:-

"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. "

46. Mr. Mawrey accepted that the present was not a case of a fully executed transaction. What was said to have given rise to the claims in the action was the fact that ICL had not done that which it was contended it had agreed to do. Mr. Mawrey's submission on analysis was that I should extract from the exchanges in correspondence and in discussion between CWS and ICL any element ever apparently agreed and aggregate such elements so as to make an overall agreement at the end. Mr. Henry Carr Q.C., who appeared with Miss Jacqueline Reid on behalf of ICL, submitted that on a consideration of the correspondence and other exchanges between the parties as a whole it was plain that there never was an agreement because of the matters as to which the parties wished to reach agreement but did not. The parties did not, submitted Mr. Carr, intend to enter into any binding contract unless or until they had reached complete agreement on all issues about which they had been in negotiation. That submission leads to a consideration of the second of the two problems to which I have referred.
47. If satisfied that parties did indeed intend to enter into a binding agreement and sought to do so, it is no part of the function of the court to seek to frustrate that intention. At the same time it is no part of the function of the court to impose upon the parties a contract which they did not, objectively, make for themselves. Lord Wright said in Hillas & Co. Ltd. v. Arcos Ltd. (1932) 147 LT 503 , at page 514:-

"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."

48. It is clear from what he said in the later case of G. Scammell and Nephew Ltd. v. Ouston [1941] AC 251, that Lord Wright in the passage quoted in the preceding paragraph was not seeking to do more than emphasise that it is not the function of the court to seek to frustrate on technical grounds the achievement by commercial parties of their objective aim of concluding a contract, if that indeed was objectively what they had done. If the parties were still in negotiation about the terms of an intended contract and not intending to be bound until those negotiations were concluded, they had not entered into any contract. In G. Scammell and Nephew Ltd. v. Ouston Lord Wright said this, at pages 268-269:-

"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.
49. In the context of the question of the relevance of agreement of matters in principle during the course of unconcluded negotiations it is instructive to consider the decision in Rossiter v. Miller (1878) 3 App Cas 1124. In the course of his speech in that case Lord Blackburn said at page 1151:-

"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.
50. A convenient statement of the principles to be applied to the question of whether there was a concluded contract in the present case is to be found in the judgment of Lloyd LJ in Pagnan SpA v. Feed Products Ltd. [1987] 2 Lloyd's Rep. 601 at page 619, in a passage upon which Mr. Carr placed considerable reliance:-

"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"."

51. In my judgment the fallacy in the approach for which Mr. Mawrey contended is graphically explained in paragraph (6) of the summary of relevant principles set out in the passage from the judgment of Lloyd LJ quoted in the preceding paragraph. It seems to me that that for which Mr. Mawrey was contending is exactly that which Lloyd LJ pointed out was not legitimate, namely that it was for the court to decide which terms it regarded as important and which terms it regarded as less important or as matters of detail, and on that basis to decide whether the parties had agreed all that which the court considered necessary for there to be a workable agreement. That, in my view, is a total misapprehension as to the correct principle. The correct principle, as Lloyd LJ put it, is that, "It is for the parties to decide whether they wish to be bound, and, if so, by what terms, whether important or unimportant." Applying that principle, it is plain, in my judgment, that the analysis set out in the Particulars of Claim and amplified in the Further Information is wholly unsustainable. I find it difficult to understand how it could ever seriously have been put forward.
52. On the first day of the trial I mentioned to Mr. Mawrey as possibly being relevant to the issues which I have to decide the cases of Gibson v. Manchester City Council, Butler Machine Tool Co. Ltd. v. Ex-Cell-O Corporation (England) Ltd. and Pagnan SpA v. Feed Products Ltd.. Mr. Mawrey did not seem to find that of assistance. Nor did he think it appropriate at that time to seek to help me in relation to the possible significance of these decisions. A couple of days later, after I had had an opportunity of reading the witness statements served on behalf of CWS, I suggested that Mr. Mawrey might like to consider further, sooner rather than later, the passage from the judgment of Lloyd LJ in Pagnan SpA v. Feed Products Ltd. which I have quoted, and in particular paragraph (6), in the context of a number of paragraphs of the witness statements of Mr. Brydon, Mr. Adrian Marks, Mr. Peter Dennis and Mr. Garry Goodby which I identified to him. I cannot say whether he did so, but the trial did not thereafter take a course which indicated that he had. By the end of the trial Mr. Mawrey had still not sought to grapple with the statement of principles set out in the judgment of Lloyd LJ to which I have referred.
53. It was in my mind at the close of Mr. Mawrey's opening to consider whether it was appropriate to exercise my management powers to seek to deal in a summary way with the issue of the contract for which Mr. Mawrey contended. Mr. Mawrey reminded me that the action was listed for trial of all issues and that it had not seemed to anyone, including the judge who had had responsibility for managing the case up to that point, that a trial of any issue preliminary to any other was appropriate. Mr. Carr did not suggest that any course should be taken other than that all issues should be tried. I was conscious that ICL had an interest in vindicating, if it could, its commercial reputation in relation to serious allegations of almost a professional negligence character which had been made against it by CWS. In the end I decided to let the trial run its course. However, it is clearly necessary to consider what should be the costs consequences of claims being advanced on behalf of CWS against ICL which were, from a legal point of view, doomed from the start, and those claims being persisted in notwithstanding a transparent indication from me on more than one occasion at the beginning of the trial what the difficulties were.

The case of ICL as to a contract

54. I have already set out the terms of paragraph 32 of the Re-Amended Defence and Counterclaim which, in summary, indicate the nature of the response on behalf of ICL to the allegation that a contract in the terms for which CWS contended had been made between the parties. Mr. Carr, in a brief, but helpful, opening on behalf of ICL, made plain that one of the alternatives for which ICL contended was that there was no relevant contract between ICL and CWS in relation to the GlobalSTORE project. He reminded me of the analysis of Lord Goff of Chieveley, then Robert Goff J, in British Steel Corporation v. Cleveland Bridge and Engineering Co. Ltd. [1984] 1 All ER 504, in particular from page 511 onwards, of the implications of there being no relevant contract between parties who had had mutual dealings, namely that there could be no question of any breach of any obligation of a contractual character by one side or the other because neither side owed the other any obligations of a contractual character at all. However, as Mr. Carr made clear, it was actually ICL's primary case that the work done in relation to the GlobalSTORE project was carried out under the CRS Agreement, the obligation of CRS to perform which had transferred to CWS upon the transfer of the engagements of CRS to CWS. That case was pleaded at paragraph 31 of the Re-Amended Defence and Counterclaim as follows:-

"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."

55. The way in which the case was put in paragraph 31 of the Re-Amended Defence and Counterclaim rather ran together two issues which are logically separate. The first is whether, after the transfer of engagements, CWS became under the obligations arising under the CRS Agreement which it fell to CRS to perform prior to the transfer. As to that there has been no dispute before me. It was accepted on both sides that the effect of s.51 of the 1965 Act was that that result was achieved. The second issue is whether, the burden of performing the obligations previously falling to be performed by CRS having passed to CWS, the CRS Agreement should be treated as governing the work undertaken by ICL in relation to the GlobalSTORE project for CWS. That, as was implicitly acknowledged in paragraph 31 of the Re-Amended Defence and Counterclaim, depends upon whether the CRS Agreement was varied after the transfer of engagements so as to apply to the work carried out for CWS in relation to the GlobalSTORE project in place of the Phases 2, 3 and 4 for which the CRS Agreement provided initially. As a matter of law an existing agreement can only effectively be varied by the making of a further legally binding agreement by which the parties to the original agreement, or, in this case, the parties for the time being bound to perform the obligations for which the original agreement provided, agree to the variation. In other words, exactly the same issues in respect of the mechanism by which the agreement can in law be made and as to contractual intention arise in relation to an agreement to vary the CRS Agreement as arise in relation to the contract for which CWS contended. Applying the principles discussed in the preceding section of this judgment ICL's primary case that the CRS Agreement was varied so as to apply to the work done for CWS in relation to the GlobalSTORE project seems unpromising given that it is common ground that the parties engaged in extensive negotiations for a new agreement, which negotiations did not come to fruition as a result of failure to agree on issues regarded by CWS as fundamental, namely that ICL should agree to pay liquidated damages in the event that it failed to deliver what it should deliver by some date which also needed to be agreed, and as to whether the standard conditions of ICL should be incorporated into the agreement. Whether a variation of the CRS Agreement was agreed is ultimately a question of mixed fact and law, but it is ironic that the answer to the question whether such a variation was agreed seems, in advance of considering the evidence of fact, likely to be negative for the reasons summarised in paragraph 32 of the Re-Amended Defence and Counterclaim.

The misrepresentation case

56. In his opening Mr. Mawrey placed little emphasis upon the case pleaded in the Particulars of Claim in relation to alleged misrepresentations. His focus was almost entirely upon the contract for which CWS contended, and more particularly upon the allegations as to gross and flagrant breaches of that contract. By the end of the trial the issue of misrepresentation had acquired a much higher profile. A lengthy passage in the written closing submissions of Mr. Mawrey and Mr. Bergin dealt with it.

"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."

57. The passage which I have quoted in the preceding paragraph from the closing submissions of Mr. Mawrey and Mr. Bergin traversed much controversial ground, notwithstanding the assertions as to what was not in dispute or could not be contested. What was significant, it seemed to me, was that at this stage in the closing submissions what appeared to be said – see paragraph 214 – was that the first set of alleged misrepresentations relied upon induced CWS to enter into a contract, in fact the contract for which CWS contended, while the second set of alleged misrepresentations – see paragraph 225 – induced CWS to agree to a variation of that contract. None of this was of any practical relevance, as was accepted at paragraph 212 of the submissions, if the contract for which CWS contended was found proved. Equally, bearing in mind that at this stage in the submissions what was being said was that the representations alleged induced CWS to enter into the alleged contract in the first place, and thereafter to agree to a variation of the contract, none of this was of any relevance if it were not found that the contract contended for had been concluded.
58. The real significance of the alleged misrepresentations, so far as the submissions of Mr. Mawrey and Mr. Bergin were concerned, emerged in a section of the submissions entitled "What is the position if there was no contract?". That section contained the following:-

"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."

59. The section of the closing submissions of Mr. Mawrey and Mr. Bergin which I have set out in the preceding paragraph was, in my judgment, a rather desperate attempt to salvage something from the anticipated wreckage of CWS's case as to a contract. It itself contained a number of illogicalities and misconceptions.
60. The first misconception was in relation to the basis of the counterclaim of ICL in respect of revision of the charges levied under the CRS Agreement. Paragraph 237 of the submissions proceeded on the basis that if there was no contract between the parties concerning the GlobalSTORE project somehow that caused the CRS Agreement, under which the relevant claim of ICL was made, somehow to disappear. That is just nonsense. It was common ground that the CRS Agreement had been made and that CWS had succeeded to the rights and liabilities of CRS under it. One of those liabilities was that to pay revised sums for services provided by ICL under the CRS Agreement in the event that the CRS Agreement did not run its full course.
61. The second great puzzle arising under the section of the closing submissions of Mr. Mawrey and Mr. Bergin entitled "What is the position if there was no contract?" was how logically it could be said that alleged misrepresentations which it had earlier been explained had led, on CWS's case, to CWS being induced to enter into the contract for which it contended, and thereafter to agree to a variation of that contract, gave rise to a cause of action if there was no contract. The alleged consequences could not have followed from the representations relied upon. There was an effort to blur this logical difficulty by the assertion in paragraph 239 that, "the misrepresentations induced tCG to follow a course of action which it would not have followed if the misrepresentations had not been made". That formulation prompts the question, "Well, what course of action." The answer cannot be to enter into a contract which a fortiori was not made. The answer must be to do something else, perhaps entertain the thought of the GlobalSTORE project or something along those lines. However, no such consequence was pleaded, and no evidence was directed to it, I imagine precisely because this point was a late thought on the part of Mr. Mawrey and Mr. Bergin.
62. The summary of the misrepresentations alleged at paragraph 214 of the closing submissions of Mr. Mawrey and Mr. Bergin was different from the misrepresentations pleaded at paragraph 20 of the Particulars of Claim, which I have already set out. Those pleaded misrepresentations were not in terms said to have influenced CWS to do anything. There was simply an allegation at paragraph 29 of the Particulars of Claim that they "were false and misleading". Requests were made for further information in relation to that allegation. In the Further Information the responses to those requests were:-

"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."

63. By contrast with the lack of any plea as to reliance upon the representations pleaded at paragraph 20 of the Particulars of Claim, the alleged representations said to have been made in May and June 2000 before the change from ISS400 to ISS300, pleaded at paragraph 31 of the Particulars of Claim, were said, at paragraph 33, to have been relied upon by CWS in agreeing to that change. There was, however, no plea that those representations were false.
64. The only plea in relation to alleged consequences of any misrepresentation alleged was in paragraph 42 of the Particulars of Claim:-

"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."

65. At paragraph 29 of their closing submissions Mr. Carr and Miss Reid submitted that:-

"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."

66. Mr. Mawrey in his oral closing submissions disputed that there was no pleaded claim based upon negligent misstatement. He relied upon the response to request 45 in the Further Information. In my judgment that reliance was misplaced. On a fair reading, what the responses to requests 44 and 45 were concerned with, and all they were concerned with, was the position under Misrepresentation Act 1967. The relevance of negligence under that statute is, potentially, to the availability of the statutory defence under s.2(1). I therefore accept the submission of Mr. Carr and Miss Reid that there was no pleaded case of negligent misstatement. Mr. Mawrey did not seek to address the issue of whether there was a pleaded case other than by asserting that there was. He made no application to add a plea of negligent misstatement.
67. In the circumstances it seems to me that it is unnecessary to consider further the allegations of misrepresentation contained in the Particulars of Claim. The only specifically identified consequence of any alleged misrepresentation for which CWS contended was entry into, or agreement to variation of, the contract for which it contended. I do not see how any claim could succeed in the absence of the making of the contract contended for, even if it was open to CWS to advance a case independent of Misrepresentation Act 1967 that ICL had made some negligent misstatement to it.
68. No application was made by Mr. Mawrey for permission to amend the Particulars of Claim to include a claim in restitution such as contemplated at paragraphs 240 and 241 of his written closing submissions. Those paragraphs seem to envisage that no such application was necessary. I do not share that view. In the absence of any pleaded claim I do not propose to consider the possibility of a restitutionary claim further, beyond remarking that it by no means follows from the fact that there was no concluded contract between CWS and ICL for the undertaking of the GlobalSTORE project that there was no consideration for the making of any payments which CWS actually made to ICL in connection with that project. ICL would, in principle, have a claim in restitution for payment for work done at the request of CWS. Payments made voluntarily by CWS to discharge that liability would be amply supported by consideration.

The material facts as to negotiations between CWS and ICL

69. The conclusion which I have indicated, that the contract for which CWS contended could not be established, was based, initially, simply upon a consideration of how the case for CWS as to a contract was pleaded. However, that conclusion is reinforced by a consideration of the evidence as to the facts of the negotiations between the parties. Those facts also demonstrate that the primary case of ICL, that the CRS Agreement was varied so as to encompass the undertaking of the GlobalSTORE project for CWS, was not made out. My overall conclusion is that no contract of any sort was made between CWS and ICL in relation to the carrying out of the GlobalSTORE project. Quite simply, the negotiations between the parties in respect of a contract to govern the carrying out of the GlobalSTORE project never fructified as a concluded agreement.
70. It is not necessary for the purposes of this judgment to rehearse extensively the steps in negotiations between CWS and ICL in relation to a possible contract for the undertaking by ICL of work for CWS in respect of the GlobalSTORE project. It is common ground that there were extensive negotiations over an extended period and that in the course of those negotiations a number of versions of a proposed written contract were produced. It is also common ground that no written agreement ever was signed. A major reason why negotiations never progressed beyond the stage of consideration of commercial terms to seeking legal advice on drafting on the CWS side was the refusal of ICL to agree to the payment of liquidated damages. Mr. Mawrey, in opening CWS's case, sought to deal with that question in this way:-

"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.
71. While the question of liquidated damages was probably the most important single issue raised during the course of negotiations between CWS and ICL over which agreement was not reached, it was not the only one. Associated with it logically was the question of agreement of dates for the provision of something failure to produce which on the part of ICL would trigger the obligation to pay liquidated damages. ICL's case was that no fixed dates ever were agreed, only target dates identified by CWS. Mr. Mawrey, on behalf of CWS characterised what ICL contended were only target dates as contractually binding, notwithstanding that they changed over time in the light of progress. Mr. Mawrey submitted that the correct analysis of the alteration in dates over time was that the parties had agreed variations to their contract.
72. ICL also asserted through Mr. Carr that there was never any agreement as to the exact scope of the GlobalSTORE project or what CWS would pay ICL for carrying it out. On those issues the position of Mr. Mawrey on behalf of CWS was more equivocal, no doubt because of the potential link with ICL's counterclaim for loss of profit in relation to the cancellation of the GlobalSTORE project. Essentially the position of CWS was that the scope of the GlobalSTORE was sufficiently clearly known for there to be a binding agreement in relation to it, but not sufficiently defined for ICL to be able to demonstrate what loss of profit it sustained as a result of the cancellation of it.
73. I have already mentioned the failure to agree whether the standard conditions of ICL should be incorporated into any agreement for the undertaking of the GlobalSTORE project.
74. As I have indicated, negotiations at least on the CWS side were conducted at a commercial level. The leading role in the conduct of those negotiations on that side was entrusted to Mr. Adrian Marks, who at the material time was employed by CWS as Head of IT Development, IT Retail. He reported directly to Mr. Brydon. He was assisted by Mr. Garry Goodby, who is now the deputy general manager of IT at CWS, but at the material time was head of IT services. Mr. Marks was also assisted in the negotiations by Mr. Peter Dennis, who was employed at the material time as a business systems development manager for the in-store information technology systems of CWS and who was brought into the CWS/CRS IT integration project team to take responsibility in particular for in-store systems. It seems that Mr. Brydon was in overall charge of the negotiations on the CWS side, although he himself had little involvement in the actual discussion of particular proposed provisions. His role appears to have been simply to deal with matters of principle, either directly with representatives of ICL or by giving appropriate instructions to Mr. Marks, Mr. Goodby or Mr. Dennis. However, the ultimate strategic direction of negotiations and focus of decision on matters of principle appears to have resided with Mr. Malcolm Hepworth, the Retail Controller of CWS, or with Mr. Graham Melmoth, the Chief Executive.
75. Before embarking upon a narrative of the principal relevant incidents during the negotiations between the parties it is necessary to record two important circumstances which conditioned the course of the negotiations and the aims and objectives of CWS in them. The first was that, as Miss Corinne Taylor-Smith, who at the material time was employed by CWS as an Information Systems Auditor, said in her witness statement, CWS, and in particular Mr. Brydon, was aware of the provisions of the CRS Agreement for the increase in the price of the services undertaken by ICL thereunder for CRS in the event that the CRS Agreement did not run its full course. Miss Taylor-Smith said:-

"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.
76. The second circumstance the malevolent influence of which hung over the dealings of CWS and ICL in relation to the GlobalSTORE project was the perception of Mr. Melmoth, and, it seems, of Mr. Brydon, that a grievous wrong had been done to CWS by ICL over some project concerning the funerals side of the business of CWS, and that ICL's performance under other arrangements between CWS and ICL had been less than satisfactory. This factor is obviously linked to the circumstance to which I have referred in the preceding paragraph, as it would have increased the reluctance of CWS to deal further with ICL. Exactly what the perceived injustice in relation to the funerals side of the business was did not emerge during the course of the trial before me. Mr. Hepworth told me in cross-examination that he had heard about it, but he denied that the issue influenced his own actions. I accept that evidence, but, for the reasons which will appear as I consider the course of contemporaneous communications later in this judgment, I am satisfied that the funerals issue did colour the approach of Mr. Brydon, and the terms of his reports to Mr. Hepworth, who, of course acted on the terms of those reports in good faith. To put it bluntly, I am satisfied that, in the light of whatever it was that was considered to have happened in relation to the funerals side of the business of CWS, Mr. Melmoth and Mr. Brydon would not willingly have had further dealings with ICL, but felt that they had little choice commercially because of the sums which CWS would have to pay by way of price revisions under the CRS Agreement if CWS was not able to negotiate a discharge of that agreement. Had it been necessary to do so, I should have found that CWS was in fact wholly uninfluenced by the alleged representations of ICL which were said to have induced CWS to enter into the contract for which it contended. It was the consideration to which I have referred which was the determining factor in CWS dealing with ICL at all.
77. Having been dragged reluctantly into dealing with ICL at all, there was then a concern on the part of Mr. Brydon, and, it seems, Mr. Melmoth, either to extricate CWS from its dealings with ICL in relation to the GlobalSTORE project, if that could be done without exposing CWS to risk under the CRS Agreement, or at least to seek to use any opportunity presented by the course of the GlobalSTORE project to exact revenge for what was considered to have happened on the funerals project. Either way, Mr. Brydon and Mr. Melmoth were looking for trouble, given the slightest pretext. As I shall demonstrate, the feeling of Mr. Brydon that a very firm line should be taken with ICL was communicated to his subordinates and influenced their own approach to ICL. While it seems that the festering issue of the problem over the funerals project was the main grievance of Mr. Melmoth and Mr. Brydon, they also felt aggrieved over the quality of the service which ICL had provided to CWS in relation to what were called "break fix arrangements" and in respect of some other system development, as well as "kit refurbishment". The detail of these other occasions of resentment did not emerge during the trial before me. "Break fix arrangements" were, in general terms, support and maintenance arrangements for ICL equipment installed in the existing CWS stores. The issue so far as they were concerned seemed to be a perception on the part of Mr. Brydon that the service was not provided as quickly as he felt it should be.
78. A consequence of the reluctance of Mr. Brydon to deal with ICL at all and his antipathy towards ICL as a result of the real or imagined grievances to which I have referred was that Mr. Brydon was absolutely determined that there should be a provision in any contract between CWS and ICL in relation to the GlobalSTORE project for payment by ICL of liquidated damages, or "penalties" as they were called by CWS representatives, in the event that ICL did not provide a service to CWS which Mr. Brydon considered satisfactory. Mr. Brydon's position, which he communicated to his subordinates who were charged with undertaking the negotiation of commercial terms with ICL, was quite simply, "No penalties, no agreement".
79. As discussions between CWS and ICL proceeded in relation to the GlobalSTORE project the project came to be referred to as Phase 4 of the work originally the subject of the CRS Agreement. That is perhaps understandable, given the fact that at the outset of discussions, before the transfer of engagements, and, indeed, for a time after that, ICL was continuing to perform the CRS Agreement in accordance with its terms. As discussions continued, Phase 4 was spoken of as split into two, with Phase 4A being talked about as that part of the GlobalSTORE project which CWS was minded to have implemented first so as, for example, to be able to offer the Dividend in the former CRS stores, and Phase 4B being less urgently required features of GlobalSTORE.
80. At paragraph 50 of his first witness statement Mr. Dennis explained the history of the production of drafts of proposed written agreements between ICL and CWS, so far as is presently material, as follows:-

"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.
81. In his first witness statement Mr. Marks explained that there was consideration in about November 1999 jointly between executives of CWS and executives of CRS of the relative costs of choosing GlobalSTORE as against Vision as the mechanism by which Dividend and other back-office functionality was to be provided in the former CRS stores after the anticipated merger and that following that consideration the basic objectives of CWS in negotiations with ICL were formulated. What Mr. Marks said was:-

"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."

82. At paragraph 42 of his first witness statement Mr. Marks set out the key issues for him in the commercial negotiation with ICL. He referred to the merged CWS/CRS as tCG. tCG is the abbreviation which CWS apparently now uses to refer to itself, and those initials appear at various points in the documents which have been put before me during the trial. The issues which Mr. Marks identified were:-

"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."

83. A meeting was held on 28 March 2000 between the negotiating teams from CWS and ICL. The CWS team was Mr. Marks, Mr. Goodby and Mr. Dennis. The ICL team was Mr. Pickett, Mr. Turner and Mr. David Carlin, who at that time was employed by ICL as Programme Director for all GlobalSTORE developments for co-operative societies and acted as project manager at the ICL end in relation to the GlobalSTORE project. Following the meeting notes were produced by CWS entitled "CWS/ICL Commercial Review". The notes were described as a "Summary of Action Points". A copy of those notes was put in evidence. They did not include any specific reference to liquidated damages or penalties. However item 10 was:-

"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."

84. Following the meeting of 28 March 2000 Mr. Turner sent an e-mail dated 31 March 2000 to Mr. Marks and Mr. Dennis dealing with some of the issues discussed. The e-mail did not make any comment on the question of penalties. Attached to it was a draft trading agreement, but that also was silent on the subject of liquidated damages or penalties.
85. Mr. Marks explained at paragraph 50 of his first witness statement, speaking, as I understand it, of the period of the actual transfer of engagements by CRS to CWS,

"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.
86. At paragraph 52 of his first witness statement Mr. Marks made it clear that, from his perspective at least, following the completion of his involvement in negotiating the commercial terms of an agreement with ICL, the next stage on the CWS side would be for the draft agreement which incorporated all the terms which he wanted then to go to the CWS legal department for its consideration. What he said, which I accept, was:-

"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.
87. Mr. Marks dealt with the significance of liquidated damages as an issue in the negotiations at paragraph 53 of his first witness statement. What he said was:-

"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. "

88. Mr. Marks summarised his perception of what happened in the negotiations with ICL in paragraph 56 of his first witness statement.

"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.
89. At paragraph 73 of his first witness statement Mr. Marks expressed the view that if ICL had agreed even as late as the end of January 2001 to pay penalties for failure to deliver software by a specified date an agreement could have been concluded.
90. In his first witness statement Mr. Goodby also was firm as to the significance of the question of liquidated damages, or penalties, as all of the CWS witnesses called them. He said:-

"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"."

91. The evidence of Mr. Goodby as to the importance to CWS of the issue of liquidated damages and as to the course of negotiations between CWS and ICL in the passages which I have set out in the preceding paragraph I accept. It is very important evidence. If, as I find is correct, negotiations had not been concluded by mid-July 2000 because as at that time there were "some very important sticking points", it is quite impossible to see even on CWS's own evidence how it can seriously be argued that there was a binding agreement in the terms contended for in the Particulars of Claim as at March or April 2000.
92. At paragraph 46 of his first witness statement Mr. Dennis said, and I accept:-

"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."

93. Although, as I have said, at one remove from the negotiations between CWS and ICL for much of the time, Mr. Brydon in his first witness statement gave an account consistent with that of Mr. Marks, Mr. Goodby and Mr. Dennis as to the importance of the issue of liquidated damages to CWS and as to the state of negotiations from time to time until the breakdown of relations between CWS and ICL. At paragraph 45 of his first witness statement Mr. Brydon referred to the memorandum which Mr. Davies sent him on 15 November 1999 in which he set out the basis proposed for a commercial negotiation with ICL. He summarised the effect of that memorandum in a way similar to that of Mr. Marks in his first witness statement. Between paragraphs 48 and 57 of his first witness statement Mr. Brydon gave an account of a meeting which he had with Mr. Pickett of ICL on 15 December 1999. Part of that account, which in this respect I accept, was set out at paragraph 53:-

"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."

94. Following the meeting on 15 December 1999 Mr. Brydon wrote to Mr. Pickett a letter dated 21 December 1999 confirming his understanding of the information which ICL would be providing in connection with its presentation of GlobalSTORE at the meeting. Mr. Brydon did not mention in his letter specifically any question as to the terms upon which a new agreement between CWS and ICL might be made. He simply asked Mr. Pickett:-

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

95. Mr. Pickett replied to Mr. Brydon's letter dated 21 December 1999 in the letter dated 22 December 1999 to which I have already referred and in which Mr. Pickett indicated that ICL would be prepared to cancel without penalty the CRS Agreement provided a new contract could be negotiated in respect of the new project. That letter itself made no reference to liquidated damages or penalties. However, it did include, in relation to the work the subject of the CRS Agreement:-

"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 GlobalSTORE 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.
96. The letter dated 22 December 1999 written by Mr. Pickett has acquired an almost mystic significance in this action. In his closing submissions Mr. Mawrey identified it as being an offer on the part of ICL which was accepted in some way which could not really be specified. It is manifest, in my judgment, from a consideration of the terms of the letter, substantial parts of which I have already set out, that it was intended only to indicate how ICL was minded at that stage to consider what became the GlobalSTORE project. It certainly contained nothing sufficiently definite to be capable of acceptance so as to bring into existence a legally binding contract.
97. The other importance which seems to have become attached to the letter dated 22 December 1999 is as a representation of the speed with which ICL could develop GlobalSTORE to suit the needs of CWS in the former CRS stores. It appears in that guise in paragraph 214(c) of the written closing submissions of Mr. Mawrey and Mr. Bergin, but was not pleaded in the Particulars of Claim as a source of any representation. Indeed the Particulars of Claim did not even mention an alleged representation as to anything happening within five months of sign-off of something. What was alleged at paragraph 20.2 as a representation in relation to speed of development was that "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", as to which dates the letter dated 22 December 1999 was silent.
98. Mr. Brydon told me in his oral evidence that the decision to proceed with the GlobalSTORE project was taken on 10 March 2000. That contrasts with the submission of Mr. Mawrey and Mr. Bergin at paragraph 17 of their written closing submissions that acceptance of the alleged offer in Mr. Pickett's letter dated 22 December 1999 had occurred by 3 March 2000.
99. By 10 March 2000 ISS400 had been installed in the former CRS stores, so what was contemplated at that time was that GlobalSTORE would be installed on an ISS400 platform. On that basis ICL began work on the project.
100. Having heard Mr. Brydon give evidence I am entirely satisfied that the determining factor influencing him and CWS in deciding to proceed with ICL and GlobalSTORE was the desire to mitigate the effects of the fact that CWS would, on the transfer of the engagements of CRS, inherit the liabilities of CRS under the CRS Agreement. Mr. Brydon made it clear in his cross-examination that he did not really want CWS to continue, after the transfer of the engagements of CRS to CWS, to use any of the information technology systems of CRS:-

"….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.
101. The evidence of Mr. Brydon as to his wish to utilise the information technology systems of CWS as the basis for the information technology systems of the merged group was confirmed by what Mr. Marks said at paragraph 5.2 of his first witness statement:-

"… 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."

102. The history of the work on the GlobalSTORE project I shall consider in more detail in a later section of this judgment in the context of whether it could be said that ICL's performance fell below the standard of skill and care of a reasonably competent provider of software. However, for the present it is sufficient to identify particular events which provide the background to stages in negotiations. The first particular event which needs to be mentioned is the suggestion made by ICL in mid-May 2000 that in order to overcome difficulties in specifying in detail the technical requirements of Dividend for ISS400 and to avoid the delay which resolving those difficulties could cause, it might be sensible to use ISS300, the platform in the existing CWS stores, as the platform also in the former CRS stores. Mr. Turner of ICL wrote a letter dated 15 May 2000 to Mr. Marks in relation to the suggestion. That letter included:-

"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 GlobalSTORE/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 GlobalSTORE/ISS300 solution against the solution which is currently planned; an Architectural Overview and a Development Plan for the GlobalSTORE/ISS300 solution.

ICL has suggested the GlobalSTORE/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. GlobalSTORE 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 GlobalSTORE /ISS300 solution as an alternative to ISS400 because the GlobalSTORE 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 GlobalSTORE POS application in October 2000. Note that GlobalSTORE 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" GlobalSTORE POS application as defined with the Co-op Design Club.

Should CWS choose to move away from ISS400 and install GlobalSTORE 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.
103. Mr. Brydon explained in his first witness statement that following receipt of Mr. Turner's letter within CWS he attended a demonstration of GlobalSTORE working on an ISS300 platform. He said that the demonstration was very slow, but it showed that GlobalSTORE did work on an ISS300 platform. He then prepared a briefing paper for Mr. Hepworth on the question whether CWS should accept the development of GlobalSTORE so as to operate on an ISS300 platform. A copy of the briefing paper was put in evidence. Mr. Brydon summarised its effect in paragraph 91 of his first witness statement in this way:-

"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.
104. On 24 May 2000 Mr. Robert Young, who was project manager of the GlobalSTORE project at the CWS end, forwarded to Mr. Brydon by e-mail development plans received from ICL in response to a request from Mr. Brydon for such plans. Mr. Young asked whether CWS was in a position where it could progress "the ISS300/GlobalSTORE development route". Mr. Brydon responded by e-mail to, among others, Mr. Marks, Mr. Goodby, Mr. Dennis and Mr. Young, on the same day in the following terms:-

"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".
105. Mr. Brydon was asked about the terms of the e-mail dated 24 May 2000 in cross-examination. He said:-

"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.

106. Mr. Goodby sent to Mr. Brydon an e-mail dated 29 May 2000 in relation to the discussions which he had had with Mr. Turner about liquidated damages provisions in any contract between ICL and CWS in respect of the GlobalSTORE project. What Mr. Goodby said was:-

"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.
107. The " meeting on Tuesday" referred to in Mr. Goodby's e-mail of 29 May 2000 in fact was a meeting on 30 May 2000 between Mr. Brydon, Mr. Dennis, Mr. Pickett and Mr. Turner. A copy of Mr. Brydon's notes of the meeting was put in evidence. It is plain from the notes that one of the matters discussed was penalty clauses. The next day Mr. Brydon replied to Mr. Goodby's e-mail of 29 May 2000 as follows:-

"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."

108. Following the meeting on 30 May 2000 Mr. Pickett sent to Mr. Brydon an e-mail dated 8 June 2000 and timed at 07.46. The e-mail included:-

"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. "

109. The comment made by Mr. Brydon at paragraph 94 of his first witness statement on the indication in Mr. Pickett's e-mail of 8 June 2000 that ICL did not wish to offer penalties was:-

"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."

110. However, Mr. Brydon did not leave it there. In an e-mail dated 8 June 2000 and timed at 11.02 to, amongst others, Mr. Marks and Mr. Goodby, Mr. Brydon reported on a meeting which he had had with Mr. Melmoth which, he told the addressees of the e-mail, "went exactly to plan, I am pleased to say". That seems to mean that Mr. Brydon had achieved from the meeting whatever his personal objectives were, presumably the agreement of Mr. Melmoth to the course of action which Mr. Brydon wished to be followed. What that course of action was emerges from the remainder of the e-mail:-

"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:

tearing up the CRS agreement on staged payments and going to a position of paying for what we get

ensuring that whatever deals are struck are applicable to the whole movement

attempting to get ICL to accept penalty clauses for late/non delivery and a reimbursement of all monies if ICL change horses from Global Store

expressing our dislike of the divide & conquer attitude that is pervasive within ICL

suing them for the Funerals fiasco"

111. Mr. Brydon was cross-examined by reference to the e-mail from which I have quoted in the preceding paragraph to the effect that he understood perfectly well that the CRS Agreement continued in force. The relevant part of the transcript of his evidence from that point is as follows:-

"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."

112. I do not for one moment accept that Mr. Brydon ever believed that the CRS Agreement was at an end at any point. It is quite plain from what he wrote during the negotiations that a major objective of the negotiations was to secure the agreement of ICL to the discharge by agreement of the CRS Agreement. Further, I do not accept that Mr. Brydon or any of the witnesses on behalf of CWS, whatever they now say, ever considered that a fresh agreement had been concluded between CWS and ICL. It is clear from the evidence of Mr. Brydon in cross-examination in the passage quoted in the preceding paragraph that he at all times knew that the issue of liquidated damages was not resolved and that CWS had no intention of concluding a binding agreement with ICL which did not include a provision for liquidated damages. According to the evidence of Mr. Brydon, which I accept on this point, a decision had been made at the highest level in CWS, Mr. Melmoth, that ICL was to agree to accept liability to pay liquidated damages.
113. The reference in the e-mail sent by Mr. Brydon on 8 June 2000 following his discussion with Mr. Melmoth to Mr. Melmoth having a meeting with Mr. Todd at which one of the subjects for discussion would be CWS suing ICL in respect of the "Funerals fiasco" only serves to highlight how large in the thinking and attitude of Mr. Melmoth and Mr. Brydon so far as ICL was concerned that episode, whatever it was, loomed.
114. In an e-mail to Mr. Young sent on 12 June 2000 Mr. Brydon explained to him, amongst other things, that:-

"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."

115. The same day Mr. Brydon replied by letter to Mr. Pickett's e-mail dated 8 June 2000. One of the points which Mr. Brydon indicated needed to be discussed when Mr. Pickett and Mr. John Bennett, who was Senior Client Director at ICL and Mr. Pickett's superior, met Mr. Brydon and Mr. Hepworth was:-

"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."

116. The meeting between Mr. Brydon, Mr. Hepworth, Mr. Pickett and Mr. Bennett took place on 27 June 2000. It is plain from Mr. Brydon's account of the meeting at paragraphs 97 and 98 of his first witness statement that nothing was forthcoming from the ICL side on the subject of liquidated damages. Perhaps the matter was not pushed too hard by Mr. Brydon and Mr. Hepworth because they knew, as was the fact, that the next day Mr. Melmoth was due to meet Mr. Todd.
117. Following the meeting between Mr. Melmoth and Mr. Todd Mr. Melmoth wrote to Mr. Todd a letter dated 28 June 2000. A copy of the letter was put in evidence. Most of the contents were fairly bland. However, the letter did mention the question of "the Funerals system". What was said was:-

"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.
118. At this stage of the GlobalSTORE project it was envisaged that software, called sometimes in the trial "code", would be delivered in three packages, called "drops". The first drop was programmed for 26 June 2000 and was made the following day. However, as Mr. Young reported to Mr. Brydon in an e-mail dated 28 June 2000, the integration check list and release documentation relating to the first drop, called "Drop 1", was not delivered until the day after the drop was made. Mr. Brydon's approach to ICL is evident from the terms of his e-mail of 28 June 2000 in reply to Mr. Young:-

"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."

119. Mr. Brydon was asked in cross-examination about the use of the expression "good – I'll let John Pickett know this afternoon that ICL fell at the first hurdle". What he said was:-

"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.
120. The discussion of liquidated damages does not seem to have made any progress in the period between about the end of June 2000 and January 2001. Before coming to the discussion in January 2001 I should notice some passages in the first witness statement of Mr. Brydon which make it abundantly clear, as it seems to me, that he understood perfectly well during the course of the negotiations that no agreement had been reached. The passages are as follows:-

"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…."

121. The evidence put before me indicated quite clearly that from about the beginning of December 2000 Mr. Brydon was plotting the downfall of ICL and its replacement by PCMS. Attached to an e-mail dated 8 December 2000 sent by Mr. Brydon to Mr. Marks, Mr. Goodby and others, was a draft of a letter which Mr. Brydon told me in his oral evidence was actually sent to Mr. Richard Christou, the acting Chief Executive of ICL, on 5 January 2001. The draft letter was described in the e-mail as "the "go away" letter to ICL". Mr. Brydon indicated that he would welcome comments on the draft and that he would also send it to the legal department of CWS for approval once he had received and considered comments. Mr. Goodby's response on the same day was:-

"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.

122. Mr. Brydon received a progress report on the project on 11 December 2000. He reacted by sending an e-mail to Mr. John Hevican, who was at the material time IT Development Manager for CWS, in which he said:-

"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."

123. On 18 December 2000 Mr. Brydon had a meeting with Mr. Pickett and Mr. Carlin. It was common ground that such a meeting took place. No notes of the meeting were apparently made by any of the participants. Mr. Brydon at paragraph 127 of his first witness statement said that at that meeting Mr. Pickett told him that a pilot date, that is to say a date upon which a pilot trial of GlobalSTORE in a store could commence, of 29 January 2001 was achievable. When Mr. Brydon asked whether he could believe ICL, he was told, according to him, "I know what will happen if we don't deliver". Mr. Pickett's evidence in paragraph 23 of his second witness statement was that he could not recall exactly what was said. That was also his position when he was cross-examined about this matter. I am inclined to accept the evidence of Mr. Brydon as to what Mr. Pickett said, as Mr. Pickett does not contest it. That account was confirmed by the terms of an e-mail dated 3 January 2001 sent by Mr. Brydon to Mr. Pickett which referred to the assurance as to which Mr. Brydon spoke having been given. Mr. Pickett replied to that e-mail in an e-mail dated 4 January 2001 and did not dispute that he had said that the date of 29 January 2001 was achievable.
124. Mr. Stephen Garner is now head of applications management in the Retail IT department of CWS, but was in 2000 services manager for applications support. He sent an e-mail dated 10 January 2001 to, amongst others, Mr. Goodby and Mr. Brydon. That e-mail recorded in some detail the results of discussions between representatives of CWS and representatives of PCMS on 9 January 2001 as to the installation by PCMS in the former CRS stores of Vision on an ISS300 platform. The terms of that e-mail show quite plainly, as it seems to me, that by that date the decision had been made in principle to terminate arrangements between CWS and ICL.
125. In an e-mail to Mr. Pickett dated 12 January 2001 Mr. Brydon told Mr. Pickett that:-

"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.
126. On 19 January 2001 a meeting took place between Mr. Brydon, Mr. Hevican, Mr. Goodby and Corinne Taylor-Smith of CWS and Mr. Brouwer, Mr. Pickett, Mr. Carlin and Barbara Dixon of ICL. It was an important meeting and was minuted by Corinne Taylor-Smith. No notes of it were made by any of those attending on behalf of ICL. Mr. Robbert Brouwer is of Dutch nationality and at the material time was the General Manager Retail Europe of ICL. It was at this meeting that Mr. Brouwer gave a cast iron guarantee that ICL would deliver by 5 February 2001. The minutes of the meeting included:-

"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."

127. While Mr. Brouwer, Mr. Pickett and Mr. Carlin in their respective witness statements expressed reservations as to the accuracy of the notes of the meeting of 19 January 2001, those reservations did not concern the recorded insistence of Mr. Brydon that agreement was required from ICL to accept a liability to pay liquidated damages. It is thus entirely clear that, objectively and notwithstanding the private intentions of Mr. Brydon or anyone else at CWS, as matters were left at the end of the meeting on 19 January 2001 CWS was insisting that ICL agree some provision for liquidated damages as the price of the project going forward. If liquidated damages were not agreed each side would just walk away.
128. Mr. Brouwer did get in touch with Mr. Brydon on 22 January 2001 as he promised. What he told Mr. Brydon about liquidated damages, according to the report made by Mr. Brydon in an e-mail to Mr. Hepworth dated 22 January 2001 was:-

"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."

129. A meeting did take place between Mr. Christou, Mr. Brydon and Mr. Hepworth on 26 January 2001. Mr. Christou was not called to give evidence before me. Beyond stating that the meeting had taken place, Mr. Brydon did not deal with it in his evidence. What Mr. Hepworth said at paragraph 32 of his witness statement about the meeting was simply:-

"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. "

130. Mr. Hepworth wrote a letter dated 29 January 2001 communicating his decision. The letter included:-

"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."

131. Those principally engaged in negotiations with CWS on behalf of ICL were Mr. Pickett, Mr. Carlin and Mr. Turner.
132. Mr. Pickett in his two witness statements was firm that no agreement resulted from the negotiations between representatives of CWS and ICL during the period March 2000 to January 2001. His view, he said, was that after the transfer of the engagements of CRS to CWS the parties were operating under the CRS Agreement. In particular, at paragraph 69 of his first witness statement, he said:-

"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. …."

133. Mr. Carlin equally took the view in his evidence that no agreement resulted from the negotiations between representatives of CWS and ICL in the period March 2000 to January 2001. He also considered that the consequence of there being no new agreement was that the parties were operating under the CRS Agreement. What he said at paragraphs 94 to 97 inclusive of his first witness statement was this:-

"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."

134. Mr. Turner was not asked to express any view as to whether he had a belief as to the basis upon which the GlobalSTORE project was undertaken, and he did not do so.
135. I accept the evidence of Mr. Pickett and that of Mr. Carlin set out above as to the nature and scope of discussions in relation to a possible new agreement between ICL and CWS in respect of the GlobalSTORE project. I also accept that those discussions never did result in the conclusion of a fresh agreement. Moreover, I accept that a consequence of the failure to make a new agreement in respect of the GlobalSTORE project was that the CRS Agreement continued in full force and effect, even if neither party took any real steps to perform it in relation to stages after the installation of ISS400 software in the former CRS stores, other than by continuing to run in two former CRS stores until the end of August 2000 a pilot trial of SSM which had commenced prior to the transfer of the engagements of CRS to CWS. However, what seems to me to quite clear is that both Mr. Pickett and Mr. Carlin were in error, at least as a matter of law, in taking the view that the work done on the GlobalSTORE project after the transfer of engagements was referable to and governed by the CRS Agreement. In my view, if understandably, both Mr. Pickett and Mr. Carlin have failed to distinguish between the question whether the CRS Agreement continued in force, and the question what, if it continued in force, it governed. The answer to the first of these questions, in my judgment, is that the CRS Agreement continued in force because the parties bound by it did not agree to discharge it. However, it could only apply to something other than its original subject matter if the parties bound by it agreed that that should be so. As to the latter question, both Mr. Pickett and Mr. Carlin were firm that no fresh agreement was made between ICL and CWS, and that means that, as a matter of law, the CRS Agreement could not have been varied so as to apply to the development of GlobalSTORE undertaken by ICL for CWS.
136. Miss Taylor-Smith and Mr. Waqas Butt, who is employed by CWS as Retail Audit Manager, in performance of their internal audit function jointly undertook what was described as an "End2End Project Lifecycle Review Globalstore". They produced a report of that review dated 15 November 2000. Both Miss Taylor-Smith and Mr. Butt gave evidence at the trial before me. There was some difference between them as to how they undertook the review and as to how they reached the conclusions expressed in it. Both agreed that they had interviewed a number of CWS employees, including both Mr. Young and Mr. Marks, and considered a number of documents. Mr. Butt felt that the conclusions which he and Miss Taylor-Smith reached were the result of their own consideration of the totality of the material available to them. Miss Taylor-Smith was more inclined to attribute the conclusion upon which Mr. Carr placed heavy reliance to views expressed to them by those whom they interviewed. That conclusion, set out at section 2.1.1 of the report was:-

"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.
137. That the parties failed to conclude a legally binding agreement in relation to the GlobalSTORE project because, principally but not entirely, of an insistence on the part of CWS that ICL agree to include in any contract some liquidated damages provision which ICL was not prepared to concede could not, it seems to me, be clearer. Thus CWS has failed to make out the contract upon which it seeks to sue. No alternative contract was contended for in the Particulars of Claim, although Mr. Mawrey in opening CWS's case did at one point suggest that I might find some other, unpleaded, contract upon which CWS might be able to succeed in its claims. In fact, for the reasons which I have given, I am satisfied that there was no contract between the parties in relation to the GlobalSTORE project. There were negotiations for a contract. No doubt, initially at least, both sides expected that such negotiations would result in a contract. However, they plainly had not done so by the time CWS decided to walk away from further dealings with ICL. Had CWS left it there, and itself borne whatever costs were thrown away as a result of a decision to revert to the solution of installing Vision on an ISS300 platform in the former CRS stores, neither side could have had any complaint against the other in relation to the termination of the GlobalSTORE project. As it is, CWS has sought to recover from ICL its perceived losses as a result of the decision to abandon the GlobalSTORE solution. To do that it has needed to establish a contract with ICL of which ICL was in breach such that CWS was entitled to treat ICL as having repudiated the contract. CWS having failed to make out the contract for which it contended, this action fails and must be dismissed.
138. At the same time, as ICL has satisfied me that the CRS Agreement was not discharged, its claims for sums due as a result of the operation of the price adjustment provisions of the CRS Agreement which are conditional upon the work for which the CRS Agreement provided not having been completed succeed and it is entitled to judgment for the sum of £1,012,422 which it is agreed is payable if those price adjustment provisions are operative.
139. Although the findings in the two preceding paragraphs are sufficient to dispose of this action, having tried the whole action and heard all of the evidence which either party wished to call in relation to any issue in it, it is appropriate that I should indicate my findings on other issues canvassed, so far as I sensibly can.

The repudiatory breach of contract alleged on behalf of CWS

140. The formulation of the case of CWS in this action does not seem to have benefited from any real legal analysis. This comment does not apply only to the failure to consider the application to the facts as to the course of negotiations as to which CWS's own witnesses of fact spoke of the English law of contract formation, but also to the formulation of the alleged breach of contract which was said to amount to a repudiatory breach and thus to have justified CWS treating the contract for which it contended as at an end.
141. The alleged repudiatory breach was pleaded at paragraph 35 of the Particulars of Claim in this way:-

"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.
142. At paragraph 36 of the Particulars of Claim was set out an alleged catalogue of events which was introduced with the words:-

"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."

143. The letter a copy of which was attached as schedule 6 to the Particulars of Claim was in the following terms:-

"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."

144. On the face of paragraph 38 of the Particulars of Claim it would seem that the breach which it was contended entitled CWS to treat ICL as having repudiated a contract was failing to prevent it becoming clear to CWS that the various matters set out in paragraph 38.1 to 38.3 inclusive of the Particulars of Claim were so. It was not alleged that it was a term of the contract contended for that ICL should prevent it becoming clear to CWS that those things, or any of them were so. It was not alleged that it was a term of the contract contended for that ICL should so act as to maintain the trust and confidence of CWS. Such a term, although well-established as a term to be implied into a contract of employment, is not one ordinarily encountered in a commercial contract.
145. The nature of the allegations contained in paragraph 36 of the Particulars of Claim was suggestive of the real nature of the case of CWS being that, time not originally being of the essence in relation to the doing by ICL of some act by some particular date, or the benefit of any stipulation as to time having been waived, as a result of long delay in performance CWS had become entitled to serve a notice making time of the essence in relation to performance, along the lines of the principle adverted to in Charles Rickards Ltd. v. Oppenheim [1950] 1 KB 616. No notice making time of the essence was pleaded, but I enquired of Mr. Mawrey during his opening how the case was put. The material exchange as recorded in the transcript was as follows:-

"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."

146. The way in which Mr. Mawrey explained the nature of the case in the passage quoted in the preceding paragraph was a considerable departure from the pleaded case. It was also wholly unsupported by any evidence. I have already set out the passage from the witness statement of Mr. Hepworth in which he dealt with the making of the decision to cease going forward with ICL. I have also quoted the letter dated 29 January 2001 written by Mr. Hepworth to Mr. Christou. What seems plain from those two pieces of evidence is that at the meeting with Mr. Christou on 26 January 2001 the question of whether ICL was prepared to agree to pay liquidated damages was raised. Mr. Christou indicated that ICL was not prepared to agree to pay such damages. On the CWS side the possibility of a cessation of relationships was then brought up. Mr. Christou indicated that ICL would be prepared to accept a termination of its association with CWS in relation to the GlobalSTORE project, if that was the wish of CWS, in which event ICL would co-operate in an orderly process of disengagement. In the letter dated 29 January 2001 Mr. Hepworth recorded that it was the wish of CWS to proceed no further with ICL. In the result, therefore, any contract between ICL and CWS in relation to the GlobalSTORE project was either terminated by consent or by reason of the failure of ICL to agree to vary it so as to include a provision for liquidated damages. While Mr. Hepworth in his letter professed a lack of confidence on the part of CWS in ICL, neither in his witness statement nor in his letter dated 29 January 2001 did he indicate that the reason for termination of any contract was that ICL had failed to do by a particular date something which it had promised to do by that date. Although Mr. Hepworth's letter to Mr. Christou was dated 29 January 2001, it would seem likely that the decision to proceed no further with ICL was in fact taken immediately after the meeting on 26 January 2001 in the light of the refusal of Mr. Christou to offer that ICL would agree to pay liquidated damages. Consequently, whatever Mr. Mawrey now says, it does not appear that in fact ICL doing something by 29 January 2001 was actually critical to CWS at all. Thus even if I had been persuaded that CWS had made out the contract for which it contends, I should have held that ICL had not, as a matter of law, repudiated that contract, because it had not, as at the date the contract came to an end, been in breach of a term of such significance as to indicate that it did not intend to be bound by its contract. Further and in any event, even if I had found that ICL had been in repudiatory breach of a contract, I should have held that CWS had not accepted such repudiation as bringing the contract to an end. Rather the contract was terminated either by mutual agreement or by CWS in breach of contract on account of the failure of ICL to agree to a variation which CWS wanted, namely the introduction of a provision that ICL should pay liquidated damages. For these reasons also, therefore, the claims of CWS in this action fail.
147. In his oral closing submissions Mr. Mawrey submitted, correctly as it seems to me, that the fact, if it proved to be the case, that CWS failed to make good the alleged repudiation for which it contended, did not disentitle it to damages for delay on the part of ICL in undertaking the GlobalSTORE project. However, in order to be entitled to damages for delay CWS would have had to establish that the delay of which it complained amounted to a breach on the part of ICL of some contractual obligation to do something by a particular date. That CWS failed to do, so Mr. Mawrey's point is not relevant.

The progress of the GlobalSTORE project

148. Much of the evidence at trial was devoted to the question of the quality of the performance by ICL of the work of development of GlobalSTORE to suit the requirements of CWS. Broadly speaking the complaints were that ICL did not produce software, or code, of acceptable quality by the dates required by CWS or indicated by ICL as achievable. A number of CWS witnesses, in particular Mr. Brydon, Mr. Young and Mr. Dennis, told me that they believed that ICL was fully informed as to the requirements of CWS in relation to what the software being developed should be capable of doing because of the fact that the ISS300 platform upon which Vision operated in the existing CWS stores was an ICL product and ICL had been the prime contractor in relation to the existing CWS system. This was notwithstanding that Vision was a product of PCMS, a commercial rival of ICL. Mr. Dennis told me that he thought that as a result of the previous work done by ICL it had within its corporate being the knowledge of what Vision did and thus should easily have been able to determine what functionality GlobalSTORE needed to possess to be able to service the Dividend and the other requirements of CWS for the software in the former CRS stores to be able to mimic the performance of the software in the existing CWS stores. I accept that that is what Mr. Dennis actually believed. He is no longer employed by CWS, and in common with other former CWS employees who were called to give evidence on behalf of CWS at the trial was noticeably more relaxed and even-handed in his evidence than those witnesses who had leading roles and who continue to be employed by CWS. It is possible that Mr. Young also genuinely believed that ICL was already in possession of all it needed to know in order to develop GlobalSTORE to suit the needs of CWS. Mr. Young gave oral evidence for some two days and so I had a good opportunity to assess him. I am quite satisfied that he was completely out of his depth as project manager of the GlobalSTORE project on the CWS side. He accepted that his technical knowledge of software was limited. This was not necessarily a deficiency in a project manager for the project, but it meant that he needed to be conscious of his need on occasion for technical input from an appropriate colleague. He seems to have given little attention to the communicated requirements of ICL for specifications and information and wholly insufficient consideration of the detail of project plans sent to him by ICL. He was inclined to regard as written in stone dates communicated to him by ICL as estimates contingent upon CWS doing something, and thus to make over-optimistic reports to his superiors. His main concern seems to have been his status. He appears to have been obsessed with the concern that he should be the sole point of communication between ICL and CWS in relation to the GlobalSTORE project. The deficiencies of Mr. Young as project manager seem to have been a major contributory cause in the course the project took. I have already commented on Mr. Brydon and his reluctance to deal with ICL at all. I do not believe his assertions that he thought that ICL already possessed the information which it needed to develop GlobalSTORE to suit the needs of CWS as a result of its earlier involvement with the provision of Vision on an ISS300 platform in the existing CWS stores. Mr. Brydon was, I find, always astute to find fault with ICL if he could. In my judgment his preferred solution to the problem of harmonising the information technology systems of CRS and CWS was installing in the former CRS stores software identical to that in the existing CWS stores. It suited his purposes for Mr. Young to overlook a vital aspect of equipping ICL to progress the GlobalSTORE development work so that Mr. Brydon could be able to criticise ICL for failing to meet its estimated dates for completion of various activities.
149. While it is not necessary to trace in great detail the course of the contacts between representatives of ICL, on the one hand, and representatives of CWS or CRS, on the other, it is right to say that from October 1999 ICL was aware that a transfer of the engagements of CRS to CWS was under active consideration, and, in particular, that the information technology implications of a merger of the two societies were the subject of discussion. ICL was invited to make presentations to representatives of CWS and CRS on 27 October 1999 and again on 15 December 1999 of possible information technology solutions to the problems which would arise on a merger of CWS and CRS. PCMS was also invited to make a presentation on 27 October 1999.
150. Following the two presentations on 27 October 1999, Mr. Gary Collier then of CRS and Mr. Peter Dennis of CWS prepared a joint paper entitled "CWS & CRS MERGER IT Commercial Workstream Project Definition Document ISS005 – Standardise In-Store Functionality" ("the Definition Document"). In the Definition Document at section 1 was set out what was then the "Project Approach".

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

To implement enhancements to the ISS400 front end and a GlobalSTORE back office to provide an equivalent functionality in store

To integrate RetailBase 2 with CWS central systems, utilising RSM as the communications platform for current CRS stores."

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.
151. Section 5 of the Definition Document was concerned with estimated time scales, dependencies and resources. The time scale then envisaged included a trial of GlobalSTORE in two stores in September 2000, a pilot of GlobalSTORE in twelve stores in October 2000 and a rollout of GlobalSTORE in all former CRS stores by the end of March 2001.
152. Section 6.3 of the Definition Document set out "Risks & Issues". A risk identified was, "Lack of co-operation and commitment between ICL and PCMS due to conflicting agendas." The impact of that was said to be, "Could result in key dates not being met and/or lack of quality solution". The way to avoid that contemplated was, "CWS/CRS ensure clear definition of roles, responsibilities, key deliverables & dates". Plainly the issue was that both ICL and PCMS had been invited to make presentations in relation to the resolution of the problem of integrating the information technology systems of CRS and CWS, the CWS system depended upon various PCMS software applications, and in particular Vision and the software application which stored details of the Dividend entitlements of cardholders, called the "Scheme Service Centre" or "SSC", and whoever was unsuccessful in the obtaining of the integration work could be expected to be reluctant to co-operate with the successful party in the integration programme. As it turned out, lack of co-operation on the part of PCMS proved to be a significant obstacle to the achievement of the development of GlobalSTORE to provide the functionality desired by CWS.
153. It was following the presentation by ICL on 15 December 1999, and in response to a letter from Mr. Brydon dated 21 December 1999, that Mr. Pickett wrote to Mr. Brydon his letter dated 22 December 1999 from which I have already quoted. In that letter Mr. Pickett indicated, amongst other things, that Phase 4 of the then current plan under the CRS Agreement provided GlobalSTORE Back Office, POS Admin, Weekly Cash Statement to CWS format, ISAs, Waste recording, Dividend and Daily Capricorn Sales Extract ready for rollout five months from "sign-off", that is to say, agreement of the specification of the software. The form in which ICL sought to identify the requirements of a customer of bespoke software was in a document which it prepared, with input from its client, called a "Functional Requirements Specification" or "FRS". As I have already recorded, Mr. Brydon's evidence was that he relied on the indication of likely time scale in deciding to embark upon the GlobalSTORE project with ICL. I have set out my findings as to the motivation of Mr. Brydon in engaging CWS in the GlobalSTORE project. I do not think that timing had anything to do with it, although no doubt Mr. Brydon wished that the former CRS stores would be able to offer to customers the same range of facilities, in particular the Dividend, as were available in the existing CWS stores as soon as possible.
154. Following the presentation on 15 December 1999 ICL prepared a document dated 25 January 2000 called "GlobalSTORE/Combo ISS400 Phase 4 Risks and Issues" ("the Risks and Issues Document"). Section 3 of the Risks and Issues Document contained a summary which was in these terms:-

"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:

Whether the function is still required as currently implemented in ISS300 Vision

Whether ISS400 can offer alternative implementation to meet requirements i.e. whether it is functionally, if not operationally, identical

Details of the requirements.

The risks can be summarised as:

If work proceeds on incomplete requirements, then any subsequent changes or clarification of the requirements may mean work is wasted.

Potential mismatch with actual business requirement of the merged Societies would cause a loss of credibility with CWS/CRS."

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.
155. Section 4 of the Risks and Issues Document was entitled "Issues, Risks, Questions". A number of particular matters were covered in that section. They included file transfer mechanisms, that is, the software used to move files of information between the central systems used by CWS and the back office in each store, and hosting, which is the defining of the central systems which were to be used to provide information to and collect information from the back office in each store. The file transfer mechanism used by CWS was called "Vision Hub Service" ("VHS") and was operated by PCMS. The file transfer mechanism used by CRS was called "Retail Systems Management" ("RSM") and was operated by ATOS. In the CWS structure product hosting, that is information about products, prices and suppliers, was undertaken by an application called "Corporate Trading System" ("CTS") and multisave hosting, that is to say, data in relation to promotional offers of the "Buy one, get one free" or " 100 extra points on this purchase" type, was undertaken by an application called "National Vision". National Vision was a software application of PCMS. In the CRS structure both product hosting and multisave hosting were undertaken by an application called "Retail Base 2" ("RB2"). About file transfer mechanisms and hosting Section 4 said:-

"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:

Capricorn extract

ISA extract

Dividend extracts

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

Hosting requirements need to be defined

If decision changes back to hosting by CWS, then all files transferred in/out would require a different format. Major reformatting would be needed for:

Item updates

Offer updates

If ISS400 has to supply data not currently available (eg Hub Location, REMIS code, Society code), it will require changes to RSM host applications, to add data not supplied by stores e.g. Region codes or Week numbers would need to be added/managed from a central system."

156. Section 4 of the Risks and Issues Document also dealt with the question of the Dividend. The ultimate point of origin of information relating to the Dividend was SSC. In the existing CWS information technology structure information passed to and from SSC to stores via VHS. The point of origin of information relating to the CRS loyalty scheme was an application called "Corema". Information passed from Corema to participating CRS stores via RSM. The question arose in the context of the proposed merger whether information about the Dividend should be passed to and from the former CRS stores via the existing CRS structure, so that there would be an interface between Corema and VHS, with data passing then to SSC as data from CWS stores did, or directly from the former CRS stores into VHS. At section 4.4 of the Risks and Issues Document it was made clear that:-

"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."

157. There was quite a lot of confusion at the trial before me as to what it was that ICL needed to know about the Dividend in order to be able to provide the functionality within GlobalSTORE to handle the Dividend. On the CWS side it seems to have been thought that ICL's case was that it needed information as to how Vision provided the functionality to transfer data in relation to the Dividend to and from ISS300. Thus it seems to have been thought that it was an answer to that point that ICL was aware, from its involvement in supplying ISS300 and Vision to CWS in the first place, of the requirements which needed to be met for ISS300, an ICL product, to record data at the point of sale in relation to entitlements to the Dividend, and to send and receive such data through Vision. That supposed answer was, however, based upon a misunderstanding. What actually mattered in respect of operating the Dividend in the former CRS stores was not the ability of GlobalSTORE to communicate with Vision, as to which there was no requirement at all, but the ability of GlobalSTORE to send and receive data to SSC via whatever file transfer mechanism was selected. In order for ICL to be able to configure GlobalSTORE so that it could communicate with SSC ICL would have to be told of the format of the files used in SSC.
158. It seems to me that it was made plain in the Risks and Issues Document that it would be easier to integrate the existing CRS systems into the CWS system if as much use as possible was made of the existing CRS systems. That was also what was contemplated in the Definition Document. If the use of existing CWS systems was to by maximised, the consequence would be that more work would have to be done to develop GlobalSTORE and that work would be likely to take longer. As I have already recorded, it was the firm desire of Mr. Brydon that the existing CWS systems should form the base of the information technology systems of the merged societies. It does not appear that Mr. Young appreciated the critical significance, in terms of the amount of work which would need to be done to develop GlobalSTORE and how long that work would be likely to take, of the fundamental decision as to which systems were to form the base of the information technology systems to be used after the merger in the former CRS stores. Certainly he does not seem to have raised it as an issue with Mr. Brydon when considering what would be the best course to take with a view to securing early implementation of the Dividend in the former CRS stores.
159. Under cover of an e-mail dated 26 January 2000 Mr. Carlin sent to Mr. Marks what was described as "the FRS V0.2 for ISS400 Phase 4". That was the description at that time of the GlobalSTORE project. The document ran to some 19 pages. It was quite obvious from the brevity of the document, as Mr. Young agreed in cross-examination, that at the time it was produced ICL's understanding of the requirements of CWS was limited.
160. At the same time as the possible merger between CWS and CRS was under consideration thought was being given within CWS to taking advantage of the opportunity which the merger might provide to undertake a trial in a region in which the Dividend had not previously been offered of the Revised Dividend. The region identified was the area served by Harlech Television. The trial was thus known as "the Harlech trial". Essentially the object of the exercise was, and can only have been, to assess the attractiveness to customers of having the Revised Dividend as compared with having nothing. The Harlech trial could not possibly provide information as to the impact of substituting for the Original Dividend the Revised Dividend. The relevance of the Harlech trial to the development of GlobalSTORE for use in the former CRS stores was that the stores proposed to be involved in the Harlech trial were all former CRS stores. If the Harlech trial was to take place it would depend upon the software installed in the stores in the trial being able to handle the Dividend at the rates of the Revised Dividend rather than simply at the Original Dividend rates. The Harlech trial was potentially a complicating factor in the development of GlobalSTORE because the original intention, as was made clear in the Definition Document, was that in the first instance GlobalSTORE should duplicate the Original Dividend and not provide any facilities for modifying or enhancing the Dividend offering. One of the assumptions set out in the Definition Document, at section 6.1 was:-

"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."

161. Alison Hookham of CWS sent an e-mail on 3 March 2000 to, amongst others, Mr. Brydon on the subject of a meeting with Mr. Hepworth to discuss the Harlech trial. Mr. Brydon responded the same day in an e-mail to Mr. Marks:-

"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:

not in the CWS business plan for 2000

not in the business case for merger

out of budget spend should we want to progress it at all."

162. Mr. Marks set out his reaction to the matters raised in Mr. Brydon's e-mail dated 3 March 2000 in a memorandum dated 13 March 2000 addressed to members of the Beta Steering Group, "Beta" being the CWS internal codename for the merger project with CRS, Mr. Brydon and others. He set out the "Purpose Of This Document" in the memorandum thus:-

"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:

Dividend functionality in Global Store must replicate that currently being utilised within the CRS estate

Any enhancements to Global Store to provide added Dividend functionality for trials in distinct regions must be seen as a non merger project and, therefore, delayed until resource can be made available i.e. development to start late 2000 with roll out in 2001."

163. Mr. Young prepared a "Project Status Bulletin" in respect of the GlobalSTORE project which was dated 20 March 2000. That bulletin contained a list of "New Issues/Proposed Actions". Issue 9 identified in that list was, "No file specification available for the SSC to Store dividend file (HMEIFILE)". The action recorded was, "Detailed reverse engineering of the file required within CWS". Mr. Young was cross-examined about that entry. He said that the language used was not ideal and that what the item related to was CWS trying to identify what understanding it possessed internally concerning the file specification. He agreed, however, that he knew that in order to be able to address the question of replicating the functionality of Vision concerning the Original Dividend ICL would need information from PCMS as to the file definitions of SSC relating to the Dividend. I have to say that I thought his attempt to avoid the implications of the language which he in fact used in the list of "New Issues/Proposed Actions" at item 9 was disingenuous and that he in fact meant exactly what he had written. That he wrote it is indicative, I find, of the fact that, although it was known to CWS to be critical to ICL's ability to replicate the functionality of Vision in respect of Original Dividend that ICL should be made privy to the appropriate file definitions used in SSC, CWS had not been able by the date of the bulletin to obtain the relevant information from PCMS and he appreciated that that failure was likely to have an effect on the ability of ICL to produce GlobalSTORE with the desired functionality by the date then in contemplation for the first installation of a pilot of GlobalSTORE in a store, 28 August 2000. It is plain from the terms of item 10 in the list of "New Issues/Proposed Actions" in the bulletin that Mr. Young understood perfectly well that the position of ICL at that time was that the date of 28 August 2000 for a pilot installation was only achievable if the FRS for the project were agreed by CWS and signed off by no later than 31 March 2000. Item 10 was in these terms:-

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

164. A "Weekly Project Progress Report" apparently prepared by Mr. Peter Dennis for the week ending 31 March 2000 recorded the sign-off dates for various FRS, including that relating to the Dividend, as 31 March 2000 and that the then predicted sign-off dates were up to three weeks late. In a section of the report entitled "Project Comments" were set out, amongst other things:-

"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.
165. It is clear from the terms of an e-mail dated 14 April 2000 sent by Mr. Simon O'Regan of PCMS to Mr. Carlin that by the date of the e-mail ICL had made contact with PCMS in an endeavour to obtain information concerning the file definitions of SSC relevant to the Dividend, but that PCMS was being difficult. One can well understand, and sympathise with, the position of PCMS. Essentially there was nothing in it for PCMS in co-operating with ICL and CWS and providing information as to the file definitions unless it was paid. Mr. O'Regan said in his e-mail, so far as is presently material:-

"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."

166. Mr. O'Regan's e-mail of 14 April 2000 was copied to Mr. Peter Dennis. Mr. Dennis evidently appreciated the significance of the attitude of PCMS because he copied the e-mail to Mr. Marks and commented:-

"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."

167. Mr. Young clearly understood the problem with PCMS being reluctant to release information essential to ICL concerning the Dividend, for in a progress report as at 14 April 2000, as a "Low Light" he recorded:-

"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.
168. In a letter dated 20 April 2000 to Mr. Marks Mr. Turner referred to a meeting with Mr. Marks on 11 April 2000. After dealing with some commercial issues discussed at that meeting Mr. Turner went on:-

"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."

169. A meeting was held on 28 April 2000 between representatives of CWS, including Mr. Young and Mr. Dennis, and Mr. Carlin and Mr. David Jennings, who was employed by ICL as a Development Manager and who had responsibility for the development of GlobalSTORE to meet the needs of CWS. Minutes of the meeting were put in evidence. Apart from recording the matter, important to Mr. Young, that all future communication or reporting for GlobalSTORE should be to him at the CWS end, the minutes did record at item 12 that the FRS sign off date for GlobalSTORE Dividend had been missed. By this time four weeks had passed since the date which ICL had indicated needed to be met if a pilot date of 28 August 2000 was to be achieved. There was still no sign that the Dividend FRS was about to be signed off.
170. Mr. Young's supine attitude to problems in the project which he was supposed to be managing is further exemplified by the terms of his "Weekly Project Progress Report" for the week commencing 1 May 2000. The "Project Comments" included:-

"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."

171. Mr. Young did not appear to take seriously ICL's comments that it could not sensibly begin work on adapting GlobalSTORE to accommodate the Dividend without an FRS in relation to the Dividend which, in particular, gave details of the file definitions used in SSC. His general approach to any problem seems to have been simply to have a meeting. So far as the question of an FRS is concerned, the underlying concept, as it seems to me, is not particularly challenging. It is a mechanism for identifying the precise requirements of a customer so that those requirements can be met. One can illustrate the significance of the FRS by taking the example of a car. A customer who wishes to have a manufacturer design and build a car for him can simply identify his requirement as being for a car. In such a case all decisions as to how many wheels the car should have, how many seats, what size the engine should be, whether the engine should be petrol driven or diesel, whether it should have a turbocharger or a supercharger or no enhancement, what the dimensions should be, and the like are made by the designer with no contribution from the customer. If the customer has particular wishes with regard to characteristics which the finished car should possess, then he has to make those known. If he does not, he cannot complain if some unexpressed wish is not reflected in the completed car. Coming closer to the facts of this case, if the customer wishes to have a car designed and built which is identical to one which he already possesses, he can say that to the designer, but in order for the designer to be able usefully to take account of the expressed wish he will need to be made aware of the particular characteristics of the existing vehicle. It is not enough for him to know that it is a car. It is not enough for him to be able simply to look at the outside of the existing car. Truly to be able to replicate it he will need to be able to look under the bonnet and perhaps to an extent to disassemble the car, unless he is provided with plans and specifications of the existing car. Thus, in order for ICL to be able to replicate the Dividend it needed to know not only how the Dividend was presented to a shopper in a CWS store, it needed to know how, technically, that presentation was achieved in terms of, amongst other things, the format in which data relating to the Dividend was passed from the initial point of capture at the till to the relevant software application in which data was stored, and the format in which data was transmitted from that application to the till, where that was necessary. All of this seems to have eluded Mr. Young.
172. It is not as if ICL was keeping secret its needs. The position appears to be that Mr. Young was not communicating sufficiently forcefully with his superiors, and they, or at any rate Mr. Brydon, were paying insufficient attention to monitoring what was happening if they really wished ICL to succeed in providing useable GlobalSTORE software in time for a pilot on 28 August 2000. Mr. Brydon was on holiday at the beginning of May 2000. On his return he sent an e-mail dated 10 May 2000 to a number of people including Mr. Marks and Mr. Goodby. The e-mail was entitled "are we losing the plot". It included:-

"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.
173. What were said to be the file definitions of the Dividend used in SSC were provided by PCMS to ICL on about 7 May 2000. It was later found that some of the definitions were incorrect. However it came about that incorrect file definitions were provided, the fact that incorrect definitions were provided later caused the need, once the error was appreciated, to obtain the correct definitions. Once some file definitions were made available, so Mr. Jennings told me, and I accept, it was possible for ICL to make an assessment of the work involved in producing the requisite functionality for the Dividend in GlobalSTORE on an ISS400 platform.
174. Evidence was adduced at the trial that even before the file definitions relating to the Dividend were made available to ICL ICL had identified a lack of resources available to develop ISS400 to handle the Dividend. Mr. Geoffrey Ogston, who is now retired, but was formerly employed by ICL as a Programme Manager and who had responsibility for the development of GlobalSTORE for CWS, in a "Project Progress Report" dated 11 May 2000 said, in relation to "Project Status":-

"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."

175. Mr. Jennings told me that it had been hoped that that lack of resources could be supplied from elsewhere in the organisation so that the target date for a pilot of 28 August 2000 could still be met. That was also the evidence of Mr. Ogston. I am bound to say that I have my doubts about whether there ever was any realistic expectation that additional resources could be found. It seems to me to be more likely, given that by the time the file definitions for the Dividend were provided the original date for signing off the Dividend FRS was nearly six weeks past, that ICL had in mind to obtain more time by reference to that circumstance, in the event that its proposal for a change of direction was not accepted. However that may be, I do accept the evidence of Mr. Jennings that once he had obtained the file definitions for the Dividend it was obvious that the date of 28 August 2000 could not be met without some exceptional measure being taken.
176. The exceptional measure which ICL decided to propose was a change from using a platform of ISS400 with GlobalSTORE to using a platform of ISS300. From a progress report made by Mr. Young as at 11 May 2000 the possibility of making that change had obviously been canvassed by that date, as the "Plan for next period" set out in that report included, "GlobalSTORE/ISS 300 Combo solution to be pursued". However, it is clear from other parts of the progress report that there remained other important issues which affected the ability of ICL to proceed with the development of GlobalSTORE and which either had only just been the subject of relevant decision or which remained outstanding awaiting decision. A "High Light" recorded in the report was:-

"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.
177. The formal proposal for the adoption of an ISS300 platform in place of an ISS400 platform was made in the letter dated 15 May 2000 written by Mr. Turner to Mr. Marks, the material terms of which are set out earlier in this judgment.
178. Following the despatch of Mr. Turner's letter dated 15 May 2000 a meeting was arranged for the next day to discuss the proposal. In anticipation of that meeting Mr. Carlin sent by e-mail to Mr. Marks and others at CWS a series of documents which included a "CRS GlobalSTORE/ISS300 Development Plan". In this judgment I shall refer to any document with such a title, or similar, produced by ICL as a "Development Plan". This Development Plan was dated 15 May 2000. It introduced for the first time the concept of delivery of GlobalSTORE to CWS by ICL by a series, in fact three, of what were termed "Drops". The first of these "Drops" was called in the Development Plan dated 15 May 2000, and will be called in this judgment "Drop 1". About Drop 1 section 4.4 of the Development Plan said:-

"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."

179. A software application like GlobalSTORE is composed of modules. Those modules are put together, or "integrated", on a base platform to comprise the application. Each module as it is completed is tested to see whether it performs in the way intended. This stage is called "modular testing". Once the modules have been integrated onto the base platform testing is undertaken to see whether the various modules as integrated perform together as they should. This stage is called "integration testing". Assuming that modular and integration testing produce results considered satisfactory, the next stage of testing is what is called "validation". Validation is testing by the supplier against the specification of the software, the FRS, in the case of ICL, to see whether the application meets the identified requirements of the customer. On delivery of bespoke software to customer the customer will often subject it to HAT to assess whether the software is in fit condition for the last stage of testing. The final stage of testing is UAT. This is testing by the customer to see whether the software meets his needs. It is obviously possible for validation and UAT to proceed in parallel, if that is acceptable to the supplier and the customer, and such a course has the benefit to the customer of permitting him access to the software application earlier than if it is not released to him until after validation by the supplier. The risk, if validation proceeds in parallel, is that errors in the software which would have been detected in the process of validation will still exist and may affect UAT. As I understand it, the process of validation does not directly involve correcting bugs. Rather, once bugs have been detected during the process of validation, appropriate remedial measures can be devised and implemented. At least so far as ICL was concerned, appropriate remedial measures could be implemented either for a collection of bugs in an Error Correction Release or by means of a single immediate intervention called a "Hot Fix".
180. It was, I think, ultimately common ground, but if not I find, that the following description of modular and integration testing set out at paragraph 10 of the witness statement of Mr. Roy Harverson, who is employed by ICL as a Senior Test Engineer, was accurate:-

"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."

181. What section 4.4 of the Development Plan dated 15 May 2000 thus contemplated was that, after modular and integration testing, Drop 1 would be released to CWS for UAT at the same time as ICL commenced validation. In other words, Drop 1 would not have been subject to any validation when released to CWS. The Development Plan dated 15 May 2000 also provided for release of Drop 2 and Drop 3 to CWS at the same time as validation commenced by ICL. A Development Plan dated 21 June 2000 produced by ICL and sent to CWS altered that situation. It provided for each of Drop 2 and Drop 3 to be subject to one week of validation by ICL before release to CWS. However, the position in relation to Drop 1 was unchanged in principle. Section 4.2 of the Development Plan dated 21 June 2000 was in these terms:-

"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.
182. The Dividend FRS was signed off first of all on 22 May 2000. It was subsequently reissued on 4 July 2000, on 8 August 2000, on 10 August 2000, and on 5 September 2000. The final version was signed off on 7 September 2000. The reasons for the various reissues were to an extent that some file definitions received from PCMS, in particular those for HMEO and CLOY were incorrect. However, there were also some changes to the requirements of CWS in respect of the Dividend.
183. As at the end of May 2000 the question of the Harlech trial was lurking in the background, but it does not appear that any decision had been made, at least within the Retail information technology department of CWS, that steps should be taken to facilitate it by modifying software so as to accommodate the Revised Dividend. Alison Tracey of CWS sent an e-mail dated 30 May 2000 to Mr. Dennis in which she said:-

"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?"

184. Mr. Dennis replied to Alison Tracey's e-mail in an e-mail dated 31 May 2000:-

"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."

185. In an e-mail to Mr. Marks dated 31 May 2000 Mr. Brydon said:-

"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?"

186. There was something of a flurry of e-mails on 12 June 2000 on the subject of the Harlech trial. Mr. Brydon asked Mr. Young whether the GlobalSTORE project included provision for the Revised Dividend. Mr. Kevin Williams replied on Mr. Young's behalf that, "3 and 1 (aka Harlech project) is not included within the scope of the project". Mr. Brydon then sent an e-mail to Mr. Mike Arnold in which he said, "I know this is smelly & complex, but somehow we have to deliver this functionality for Feb next year". Next Mr. Arnold sent an e-mail to Mr. Marks in which he said:-

"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."

187. In a "Project Progress Report" dated 12 June 2000 Mr. Ogston identified as one of the "Issues/Concerns" "Customer uncertainty over total integration requirement remains a serious concern".
188. On 22 June 2000, as the date for Drop 1 approached, Mr. Jennings sent to Mr. Ogston an e-mail with a rather depressing message in relation to that drop. The e-mail also dealt with other projects, but about GlobalSTORE what it said was:-

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

Most functionality is now developed (92% on my plan) – one major exception being the send of members data to the POS

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 have been struggling over the past few days – mostly with design type issues (basically there is no structured design for CWS Interim)

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

We have not tested CWS drop1 yet

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

…so it will be a very poor quality release

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

I am banking on Peter in REA24 on Monday morning – the kit is still here for him to take to CWS

I expect we will make another build during Sunday This will be the CWS drop 1 release for Peter to take to Manchester and for Roy to start validation on …..

CWS Drop 2 development

There is very little of this in progress, and even less planned or designed

So, I think the crisis is on us."

189. Mr. Jennings copied his e-mail to Mr. Ogston to Mr. Kevin Murphy of ICL. Mr. Murphy commented in an e-mail dated 23 June 2000:-

"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."

190. In the event Drop 1 was delivered by Mr. Ogston in person to CWS in Manchester on 27 June 2000, one day later than that identified in the Development Plan dated 21 June 2000. It was not accompanied by any test scripts or test results. Mr. Young spoke to Mr. Carlin on the afternoon of 27 June 2000 and confirmed their conversation in an e-mail of the same day. In respect of Drop 1 Mr. Young asked for:-

"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.
191. Mr. Hevican sent to Mr. Pickett an e-mail on 5 July 2000 of which the material part was in these terms:-

"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:

Having completed 10% of the Acceptance Testing we have found 42 bugs.

The quality of the software is poor and many errors should have been picked up in the ICL Testing of this software.

Given that we have only tested 10% of this software the eventual bug count will undoubtedly be considerably higher.

Given the number of bugs it strongly suggests that ICL testing was totally inadequate.

As pointed out, we cannot confirm that software has been tested thoroughly by ICL as no scripts/results were provided, despite it being a mandatory requirement of the CWS Supplier Framework and agreed by ALL parties.

Conclusion

The above position causes significant concern, hence Drop 1 is NOT deemed to be an acceptable quality delivery.

CWS will NOT formally accept this software.

Way Forward

This software is to be returned to ICL.

I want ICL to provide a date when a quality version of Drop 1 is available which addresses ALL the quality issues that have been highlighted.

This new release of Drop 1 should also include the required test scripts/results.

This rerelease of a quality version of Drop 1 needs to achieved [sic] in such a manner that the overall plan dates for the Global Store Pilot and Roll Out cannot be impacted.

While we are waiting for ICL to deliver this new version of Drop 1, I have asked my team to continue testing the existing version of the software. These bugs will be fed back to ICL.

All future Drops from ICL will be rejected in a similar fashion by CWS if they are not deemed to be a quality deliverable."

192. It is obvious from the terms of Mr. Hevican's e-mail dated 5 July 2000 that he was under the impression that ICL was supposed to be delivering validated software. In his witness statement at paragraphs 21 and 22 Mr. Hevican indicated that the source of his information as to the state of Drop 1 was Mr. Young. An e-mail sent by Mr. Young to Mr. Hevican on 4 July 2000 included:-

"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.
193. Mr. Mawrey thought it appropriate to cross-examine both Mr. Jennings and Mr. Ogston along the lines, "How did ICL come to deliver such poor quality software in Drop 1?". In fact he was inclined to use the word "rubbish" to describe the quality of the software. I do not know what answer he was expecting to his questions. I doubt that he was expecting any of the ICL witnesses to say that a drop known to be defective was consciously sent to CWS in order to cause vexation. Perhaps he was expecting someone to say, "All right, Guv, it's a fair cop." If that was his expectation, he was disappointed. He made so bold as to suggest both to Mr. Jennings and to Mr. Ogston, after referring to Mr. Jennings's e-mail of 22 June 2000 and Mr. Murphy's e-mail of 23 June 2000, that there had not even been any modular or integration testing. That was a surprising suggestion to have made bearing in mind that Release Notes and an Integration Report were in evidence. What Mr. Ogston and Mr. Jennings said was that after the sending by Mr. Jennings of his e-mail a great deal of work was done by ICL to produce a drop fit for release. That drop was tested in the presence of Mr. Ogston himself. What Mr. Ogston said in cross-examination was:-

"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.
194. Mr. Kevin Cook is employed by a company called Accurate Data Services Ltd. His services are apparently provided to CWS through an agency called Computer People Ltd. He said in his first witness statement that he was involved, amongst other things, in the testing of Drop 1 on behalf of CWS. That witness statement included:-

"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".
195. Unfortunately, however, after dealing with the issue of confidence testing Mr. Cook went on in his witness statement to explain about the number and seriousness of the bugs found during UAT of Drop 1. In cross-examination Mr. Cook explained to me his involvement in the decision to reject Drop 1. Why this was all very unfortunate was that, as Mr. Cook accepted when shown his timesheet for the week ending 8 July 2000, which week began on 3 July 2000, he was on holiday all week. His evidence about the testing and the decision to reject was thus pure invention. I found Mr. Cook generally to be a most unsatisfactory witness and I am convinced that his evidence as to the alleged deficiencies in Drop 1 and his involvement in the decision to reject it was not advanced as a result of faulty recollection. Later in his first witness statement Mr. Cook dealt with the testing of a subsequent delivery of software on 17 October 2000 and UAT of that software during November 2000. Unhappily his timesheets showed him to have been on holiday between 30 October 2000 and 20 November 2000, both dates inclusive. It is impossible to resist the conclusion that Mr. Cook was prepared to support the case of CWS for reasons of his own with evidence which I am satisfied he knew to be false.
196. It is a worrying feature of this case that significant evidence, in particular in relation to the issue whether Mr. Young appreciated that Drop 1 would not have been subject to validation by ICL and as to the testing on behalf of CWS of software delivered by ICL, has been led on behalf of CWS which the witnesses giving it must know to be false.
197. There were in fact 43, rather than 42, alleged errors detected by CWS during testing of Drop 1. These errors were graded from A to E in accordance with a scheme described by Mr. Cook at paragraph 60 of his first witness statement in this way:-

"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.
198. During the course of his cross-examination of Mr. Pickett, Mr. Mawrey drew attention to a memorandum dated 3 July 2000 written by Mr. Bennett to, amongst others, Mr. Pickett. The memorandum was copied to Mr. Ian Hardacre, Mr. Brouwer and Mr. Carlin. The context in which the memorandum was written was that Mr. Melmoth had met Mr. Todd on 28 June 2000, the day after Drop 1, but Mr. Hevican's e-mail dated 5 July 2000 rejecting Drop 1 had not yet been received. What the memorandum said was:-

"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."

199. Mr. Mawrey suggested to Mr. Pickett that, in the light of the terms of Mr. Bennett's memorandum dated 3 July 2000, he must have been in despair when he received Mr. Hevican's e-mail of 5 July 2000. Mr. Pickett agreed that he was disappointed when he received the e-mail, but his reaction was not, as Mr. Mawrey suggested it might have been, "Oh, the technical people have let me down again". I think that what Mr. Mawrey was perhaps hoping for was some sort of admission from Mr. Pickett that the quality of Drop 1 was deficient. If so, he did not get it.
200. In all the circumstances, and in particular given that it was not supposed to be validated, it does not seem to me that there is any proper criticism which can be made of the performance of ICL in relation to the quality of the software delivered in Drop 1. That software had been developed over a shorter time scale than had originally been envisaged because of the late decisions as to network architecture and hosting and the late provision of information as to the file definitions for SSC. It did contain some errors, but not as many as CWS contended at the time and those which did exist were of less seriousness than CWS contended at the time. It was common ground between the parties and their respective experts that bespoke software will always contain some errors. Contrary to the suggestion of Mr. Mawrey that there was at the time every reason to suppose that the number of errors which would have been revealed by continued testing would have increased exponentially, it seems to me that there was in fact every reason to suppose that the apparently most significant errors were concentrated in limited areas of the software, specifically those parts related to the Dividend. Although an important part of the whole, those areas were nonetheless just a part. It was accepted by Mr. Baker in cross-examination that the inaccuracies in the file format data supplied by PCMS in relation to SSC as at the date of Drop 1 meant that it would not have been possible successfully to have tested Drop 1 with SSC anyway, quite apart from any bugs in Drop 1 itself.
201. After the rejection of Drop 1 ICL did not seek to argue with CWS as to whether rejection had been justified, but rather to satisfy it, so far as it could. Mr. Mawrey suggested that the failure to dispute the propriety of the rejection was evidence that ICL accepted at the time that rejection had been appropriate. I do not accept that. If one is in business and one has a customer who says he is dissatisfied, it seems to me just common sense that disputing with him whether he has proper cause to be dissatisfied will only make him more dissatisfied. Realistically one's options are not to deal with the customer further or to try to alleviate his expressed concerns. ICL chose at this stage to do the latter so far as CWS was concerned. To seek to elevate that business decision into some sort of admission on the part of ICL strikes me as wholly unjustified.
202. Mr. Hevican and Mr. Pickett met on 11 July 2000. At that time CWS was looking to ICL to produce a revised Development Plan which would enable GlobalSTORE to be integration tested with PCMS's SSC in the period 31 July 2000 to 11 August 2000. There were a number of e-mail exchanges between the parties as well as meetings. Following a further meeting between Mr. Hevican and Mr. Pickett on 17 July 2000 Mr. Hevican sent Mr. Pickett an e-mail on 19 July 2000 which was in these terms:-

"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."

203. On 26 July 2000 Mr. Brydon sent an e-mail to Mr. Pickett, who was in fact on holiday, in which he pressed ICL to give firm dates for delivery of GlobalSTORE. The e-mail was forwarded by Mr. Hevican, to whom it had been copied, to Mr. Turner, whom Mr. Hevican understood, correctly, to be dealing with matters at the ICL end in the absence of Mr. Pickett. Mr. Turner sent Mr. Hevican an e-mail also on 26 July 2000 which included:-

"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."

204. Mr. Brydon responded to that e-mail in an e-mail dated 27 July 2000 in which he said:-

"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."

205. It is evident that at that point ICL had a re-think about the GlobalSTORE project and how it should be undertaken thenceforth. It decided to give CWS two alternatives. The first was to continue with the "Drop" approach, but on the basis that there would be close co-operation between CWS and ICL to work towards the successful implementation of GlobalSTORE. The second was to produce a single drop of validated software, but on the basis that this would take longer than the first approach. Mr. Turner put these alternatives to Mr. Brydon in a letter dated 28 July 2000:-

"I write in response to your emails of 26^th July and 27^th July regarding delivery dates for GlobalSTORE 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 GlobalSTORE 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."

206. CWS in fact elected for the second of the two alternatives set out in Mr. Turner's letter dated 28 July 2000. That was made clear in an e-mail dated 3 August 2000 sent by Mr. Hevican to Mr. Pickett, Mr. Carlin and Mr. Turner. Following that decision ICL produced a bar chart plan on 21 August 2000 which showed, amongst other things, all FRS being signed off by CWS by 16 August 2000, a single delivery of fully validated software to CWS on 10 October 2000, confidence testing of that software by CWS over the period 11 to 13 October 2000, UAT by CWS thereafter until 15 December 2000, with pilot in January 2001 and roll out starting on 29 January 2001.
207. In an e-mail dated 3 August 2000 to Mr. Arnold of CWS Mr. Brydon was still raising a query about what he called ""3 & 1" decisions". In an e-mail of the same date to Mr. Hepworth, Mr. Braithwaite, and others Mr. Brydon said this:-

"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:

CRS stores in new regions – West, South West – when CRS stores are revamped, they will be launched as Welcome, but WILL NOT have Divi switched on – either existing 5% Divi or the new concept "3&1". The stores will (subject to software delivery) have Global Store installed as and when it is available.

CRS stores in existing regions – GNRG [Greater Nottingham], SERG [South East] – when CRS stores are revamped and launched as Welcome they WILL need Divi 5% functionality at the same time – this means that the "Vision" system will need to be installed and the Global Store software removed, due to ICL non delivery of the system. There are costs to this, I will get ICL to pick up the tab.

"Milton Keyes [sic] 12" – this is an idea from Nigel Walters, that would allow us to trial the impact of 3&1 Divi in a relatively controlled area, against 5% Divi already available in SERG – await information/decision on this from Nigel/John

Harlech 3 & 1 trial – completely reliant on Global Store software delivery & change from ISS 400 to ISS 300 – in the lap of ICL at the moment, Adrian is putting together an options pack for discussion next week.

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.
208. Mr. Bowes responded to Mr. Brydon's e-mail dated 3 August 2000, of which he was not an addressee, in an e-mail dated 4 August 2000. What he said was:-

"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.
209. In about September 2000 CWS commissioned a report from a company called OSI Services (UK) Ltd. which, as delivered, was entitled "CWS Review of ICL GlobalSTORE ISS 300 Application Development" ("the OSI Report"). For present purposes it is sufficient to set out "The Key Conclusions of the Review" and the section of the OSI Report dealing with "Key Risks and Issues".

"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.

Although the ICL GlobalSTORE Applications Development Plan was on schedule, using similar processes to those found within the CWS Supplier Management Framework Agreement, there is a slight possibility of a potential delay. This is due to five FRS documents still requiring sign off. These need to be completed within the next two weeks so as not to impact, or incur any delay to the scheduled delivery date in October 2000.

It is always anticipated that "bugs" will be found in any newly developed application software and ICL GlobalSTORE will be no exception. However, ICL have used good practice tools, methodologies, and well known processes to ensure a quality product, and any errors are, and will be kept to a minimum.

Discussions have been underway for some considerable time but to date no CWS/ICL Trading Agreement has been agreed or formally signed-off by both parties. This must be achieved as soon as possible, as both CWS and ICL are working to the spirit of the CRS/ICL Trading Agreement. THIS NEEDS TO BE RESOLVED IMMEDIATELY.

In consequence, there has been no ICL invoicing to CWS since April 2000. Senior management within CWS needs to be made aware of the financial implications, when an invoice for several million pounds will eventually have to be paid for the work carried out by ICL to date.

Although ICL have a copy of the standard CWS Supplier Management Framework Agreement for the application processes that CWS wish their service providers to use, no formal agreement is in place signed by ICL. In addition, no formal sign off procedures section can be found within the Supplier Management Framework Agreement document.

Formal procedures such as the CWS/ICL Trading Agreement, and the CWS Supplier Management Framework Agreement need to be tightened and controlled, with agreement reached between both parties and sign off as soon as possible.

CWS Acceptance Criteria are not formalised, and the format was not consistent when information was passed to ICL. This has caused some confusion within the ICL project. It is recommended that for any future applications development CWS should formalise this process. An example high level contents list can be found in Appendix B of this document.

Given the time available after delivery of the GlobalSTORE software in October 2000, with the scheduled installation of the first pilot not until January 2001, it can be expected that there will be sufficient time available to still ensure the pilot date of 8^th January 2001 is achieved even if any major issues should arise.

It is necessary that both CWS Information Technology Department and the Business Operations Management sign off the functionality and specifications when User Acceptance testing is undertaken.

Additional work will need to be undertaken by CWS to ensure that individual roles, responsibilities and functions to be carried out during the Pilot and Roll Out phase are all identified and documented to ensure a smooth transition. A Project Initiation-style document needs to be produced and formalised to ensure all external suppliers understand their roles and objectives.

There will be an issue surrounding the scheduled date of 8^th January 2001 for the installation of the software to the first pilot store. Due to the necessary two weeks training required prior to installation, all store operatives' training will have to be scheduled in December 2000, just before the Christmas and New Year period. This may cause disruption with staffing levels in the run up to Christmas. A management decision will have to be made to let training go ahead in December 2000, or to re-schedule after the Christmas and New Year period, in which case a delay of two weeks will be incurred on the first pilot implementation."

210. The OSI Report was really quite positive so far as the likelihood of a successful outcome of the GlobalSTORE project was concerned. That may have come as a surprise to some in CWS, and perhaps as a disappointment to Mr. Brydon in the context of his aim of ridding himself and CWS of ICL as long as he could at the same time rid CWS of the obligations accepted by CRS under the CRS Agreement. At all events, there was nothing in the OSI Report which could be relied upon as justifying any course being taken in September 2000 but continuing with the GlobalSTORE project.
211. The CWS Acceptance Criteria in relation to what was called "Phase 4A" of the GlobalSTORE project, that is to say, the first part to be delivered, which was that essential to enable the pilot installation to proceed, were not signed off by CWS until 29 September 2000. The Acceptance Criteria document included the following:-

"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.
212. ICL testing of the software to be delivered in October 2000, that is to say, Phase 4A, revealed the presence of some bugs. The fixing of those bugs sufficiently to enable CWS testing to commence caused a delay to the delivery of one week. Delivery should have been made on 10 October 2000, but it was not in fact made until 17 October 2000. The delay was reported by Mr. Young to Mr. Brydon in an e-mail dated 9 October 2000:-

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

ICL CAN NOT provide the fixes required for CWS to commence acceptance testing on 10/10/2000. Handover delayed to 16/10/2000.

The remaining A, B and C priority bugs will be corrected and tested by ICL and demonstrated to CWS before the application will be accepted into CWS official testing.

K. Cook to interface with ICL daily to review bug status and subsequently have a real-time view of the correction process, i.e. Are they on target to provide the corrections.

The SSC schedule needs to be moved based on 1 week slippage. ICL to commence discussions with PCMS.

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.
213. In an e-mail dated 13 October 2000 to Mr. Young Mr. Ogston informed him that:-

"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. "

214. Mr. Young copied Mr. Ogston's e-mail dated 13 October to Mr. Brydon and others. In his e-mail Mr. Young wrote:-

"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."

215. What happened from the perspective of CWS once handover testing of the software delivered on 17 October 2000 commenced was recorded in an e-mail which Mr. Young sent to Mr. Brydon and others on 20 October 2000. Mr. Young said:-

"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."

216. Thus, as at 20 October 2000, while some bugs had been identified in the GlobalSTORE software, it did not appear to CWS that there was anything too serious wrong with what had been delivered for HAT. It is, further, right to say that on the evidence of the relevant ICL witnesses, which I accept, the testing which had taken place had taken place by comparison of the outputs of GlobalSTORE with the equivalent outputs from Vision, and any difference was logged as an error. In other words, exactly those criteria were being applied which the Acceptance Criteria document stated should not be applied.
217. Mr. Brydon decided to write a letter dated 30 October 2000 to Mr. Christou which was in the following terms:-

"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;

On the 26 June 2000 ICL failed to deliver a quality version of code for the first drop of GlobalSTORE, the software was rejected by CWS as unfit for purpose and a new delivery date for the software was agreed

On the 7 October 2000 ICL delayed their now revised drop of GlobalSTORE code by a further week from 10 October to 17 October 2000.

On the 25 October after a protracted attempt to complete the acceptance testing, a process which should have taken 4 days, CWS once again had to reject the software.

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:

re-establish confidence within CWS that GlobalSTORE will be delivered?

ensure the acceptance testing can be re-time tabled?

support the CWS refit programme without any further cost to CWS?

Secure the necessary resources for a successful roll out?

I await your response with considerable urgency."

218. Mr. Christou replied to Mr. Brydon's letter dated 30 October 2000 in a letter dated 8 November 2000. The material part of the letter read:-

"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."

219. In fact CWS did agree to move into UAT with the software delivered on 17 October 2000, with such correction of errors as had been made, on or about 7 November 2000. Rather puzzlingly, it seems that, notwithstanding the assertions in Mr. Brydon's letter dated 30 October 2000 to Mr. Christou that what had been delivered by ICL on 17 October 2000 had been rejected, HAT by CWS did continue until 2 November 2000. Indeed, as at 1 November 2000 Mr. Young seemed unaware of any decision to reject the software. In an e-mail to Mr. Brydon and others dated 1 November 2000 Mr. Young wrote:-

"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.
220. The only suggestion in any contemporaneous communication that the software delivered on 17 October 2000 was at risk of being rejected was in an e-mail dated 25 October 2000 sent by Mr. Young to Mr.Brydon and others. That e-mail began:-

"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.
221. Late in the evening of 1 November 2000 Mr. Young sent an e-mail to Mr. Brydon, Mr. Marks, Mr. Hevican, Mr. Goodby and Mr. Dennis which he copied to Mr. Carlin. What Mr. Young said was:-

"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."

222. Mr. Carlin replied to Mr. Young's e-mail which I have quoted in the preceding paragraph almost at once. He said:-

"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."

223. Mr. Young sent an e-mail to Mr. Carlin on the subject of "GlobalSTORE Acceptance testing" on 2 November 2000. It appeared to take no account whatever of Mr. Carlin's e-mail of the previous night. What Mr. Young said was:-

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

ICL to fix, Unit test and Validate the outstanding GlobalSTORE Acceptance Criteria issues – including those deemed originally as "not absolutely necessary for handover".

ICL to provide test results from the above process and subsequently provide the reassurance to CWS that the issues have been resolved and tested.

ICL to execute the Acceptance criteria script to ensure no additional issues will be found once the CWS Acceptance testing is re-started and confirm that this has been achieved successfully.

ICL to supply a release date for the remaining bugs raised during the recent Acceptance process.

ICL to supply achievable dates for the above by close 06/11/2000.

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."

224. It appears that in fact CWS took a unilateral decision, despite the terms of section 4 of the Acceptance Criteria document, to cease HAT on 2 November 2000 and to withdraw its personnel from the premises of ICL at Reading at which HAT had been proceeding.
225. What seems then to have happened is that on 2 November 2000 Mr. Anthony Featherstone and Mrs. Sue McCoan of ICL re-ran the Dividend Acceptance test script used by CWS with sufficient success to justify proceeding into UAT. The results of the re-run were reported to Mr. Wadsworth and Mr. Young of CWS by Mr. Jennings in an e-mail dated 2 November 2000. Mr. Young then sent Mr. Carlin an e-mail dated 7 November 2000 in which he said:-

"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."

226. Mr. Carlin replied to Mr. Young's e-mail of 7 November 2000 in an e-mail of the next day. He said:-

"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."

227. Mr. Young forwarded Mr. Carlin's e-mail to Mr. Goodby, Mr. Hevican, Mr. Marks, Mr. Dennis and Mr. Garner under cover of an e-mail dated 9 November 2000 with this comment:-

"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.
228. From an e-mail dated 21 November 2000 sent by Mr. Warren Atkinson to Mr. Ged Carter, the general manager responsible for retail marketing of CWS, it seems that by that date, "The rollout plan for exCRS stores is being produced taking into account the requirement to implement the Harlech TV Region first".
229. Mr.Carter replied to the e-mail from Mr. Atkinson in an e-mail dated 22 November 2000. The copy of the e-mail put in evidence seemed to contain both the main text as produced by Mr. Carter and comments on that main text from Mr. Young. In the quotation below what appear to be the comments, which are in lighter text in the original, are produced in bold. The e-mail included the following:-

"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???"

230. Mr. Brydon's response to Mr. Carter's e-mail, also dated 22 November 2000, was:-

"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."

231. The exchanges on 21 and 22 November 2000 in relation to the Harlech trial to which I have referred show quite clearly, as it seems to me, that as at that date it was still unclear whether it was intended that the Harlech trial should be undertaken using GlobalSTORE on the basis that the appropriate functionality would be available on initial rollout. According to Mr. Young's comments, "this has not previously been discussed". The proposed date for the start of the Harlech trial at that time was not, as was contended on behalf of CWS in this action, 8 January 2001, but some time in May 2001. It was not then envisaged that the Revised Dividend would be offered in all CWS stores as from 8 July 2001, as was alleged in this action, but that it would be offered first in South West Region as from the fourth quarter of 2001, with there being no definite plan for any other stores. That was broadly consistent with Mr. Bowes's apparent contemplation in early August 2000 that the introduction of the Revised Dividend on a national level would take place early in 2002.
232. At some point the date for delivery of ECR1 was put back from 11 December 2000 to 18 December 2000.
233. It seems that the process of UAT on the part of CWS continued to prove satisfactory to those involved in it. Mr. Brydon, however, as I have already recorded, was plainly continuing to manoeuvre to get rid of ICL, preparing a draft of a "go away" letter as early as 8 December 2000. I have also noted Mr. Brydon's reaction to a positive progress report which he received on about 11 December 2000. Mr. Hevican's reaction to Mr. Brydon's e-mail of 11 December 2000 saying that the progress report "doesn't exactly read like a "throw ICL out or we're doomed" type message" was to send an e-mail also dated 11 December 2000 in which he said:-

"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."

234. One of the steps which needed to be taken by CWS if it was to be ready for installation of GlobalSTORE in pilot stores at the end of January 2001, as was contemplated following the delivery of software in October 2000, was the organisation of appropriate training for staff. While the evidence as to the preparations for the delivery of training was not altogether clear, e-mails exchanged in December 2000 indicated that it was at that time a matter of concern to those immediately involved in CWS. In an e-mail dated 12 December 2000 to Mr. Tim Donovan Mr. Grenville Williams said:-

"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. "

235. Mr. Williams's e-mail of 12 December 2000 was forwarded by Mr. Donovan to Mr. Young on the day it was sent. Mr. Young then sent an e-mail on 15 December 2000 to Mr. Adrian Egglestone which he copied to Mr. Williams, Mr. Marks, Mr. Hevican, Mr. Brydon and Mr. Dennis, amongst others. What he said in the e-mail was:-

"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:-

Do we have plans to secure additional training resource within the training centres and subsequently ensure no impact on GlobalSTORE Till training?

When will the offices in the training centres be available? The first pilot is scheduled for 29/01/2000 [sic] and the current plan is to train the store supervisor 2 weeks prior. The first set of training kit would need to be installed into the first training store w/c 08/01/2001 (Honley will be the first pilot store with Castleford as the nominated training store).

Can completion dates for the training centre office builds be supplied – this may need to be built into the rollout schedule.

Will the office be used solely for GlobalSTORE till training. Feedback for A. Foster informs us that other training will be taking place in parallel. Will there be sufficient space.

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

236. Mr. Egglestone replied to Mr. Young's e-mail of 15 December 2000 in an e-mail sent on 18 December 2000. Mr. Egglestone's comments were:-

"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."

237. Mr. Young forwarded Mr. Egglestone's reply to his e-mail dated 15 December 2000 to Mr. Marks and Mr. Hevican, with a copy to Mr. Dennis, attached to an e-mail dated 18 December 2000. The e-mail dated 18 December 2000 included:-

"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.
238. Mr. Young's e-mail of 18 December 2000 provoked Mr. Dennis to the following e-mail in reply:-

"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?"

239. Mr. Young was cross-examined about the exchanges of e-mails on and after 12 December 2000 concerning the lack of CWS resources for training staff to operate GlobalSTORE on and after installation in pilot stores. I have to say that I did not consider his evidence in relation to this issue remotely satisfactory. It is difficult to summarise the effect of his evidence because there were so many twists, turns and evasions. He accepted that Mr. Dennis's suggestion of arranging for ICL to provide training was followed up to the extent of obtaining a quotation for the provision of training. Perhaps the best summary of his passive approach to this problem was this answer:-

"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.
240. Part of the GlobalSTORE application was a product of Microsoft Corporation called "ActiveSTORE". ICL came to the conclusion that the reason for the slow running of GlobalSTORE with ISS300 during the demonstration to CWS representatives in May 2000 was the "ActiveSTORE" component. Work was undertaken at ICL's United States facility at Wake Forest to replace the greater part of the "ActiveSTORE" element in GlobalSTORE. Mr. Ogston told me in cross-examination that he disclosed to representatives of CWS in about October 2000 the conclusion to which ICL had come about slow running and what it intended to do about it. He said that the appropriate modification to GlobalSTORE would be made in ECR1. I accept that evidence, notwithstanding that it was vigorously disputed by Mr. Mawrey on behalf of CWS. I was impressed by Mr. Ogston as a witness and certainly the suggestion, implicit in his cross-examination by Mr. Mawrey on this issue and also in relation to the work done to prepare Drop 1 for delivery on 27 June 2000, but never plainly articulated, that he was telling lies, I resoundingly reject. It is correct that, so far as communications in writing go, it was not until Mr. Carlin sent an e-mail dated 13 December 2000 to Mr. Young that the matter of a modification to GlobalSTORE to reduce the "ActiveSTORE" element was first mentioned. What Mr. Carlin said was:-

"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."

241. In an e-mail to Mr. Mark Tracey of ICL dated 14 December 2000 Mr. Cook raised the question of when the second error correction release, ECR2, would become available. On that issue what Mr. Cook said was:-

"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?"

242. In an e-mail to Mr. Brydon and others sent on 15 December 2000 and entitled "Some Key Issues with the Global Store Devt" Mr. Hevican wrote, so far as is presently material:-

"2. EC1 Bug Fixes and Performance improvements

On Monday we are expecting the release of EC1 bug fixes which also includes some much needed performance improvement to the system.

If this delivery slips or the performance improvements are not realised there will be slippage in the timescales….

Summary

Point 2 is a key issue and will allow us to assess whether ICL can deliver quality software to agreed revised timescales

We will know by 21/12 whether the proposed performance improvements are realised.

Hence as much as I would wish to raise all of the above with ICL I would rather wait until the 21/12 and use the first few days next week to assess ICL's ability to deliver to this revised timescale."

243. ECR1 was in fact delivered on 18 December 2000.
244. In an e-mail to Mr. Pickett and Mr. Carlin dated 19 December 2000 Mr. Hevican sought confirmation that the date of the first week in January 2001 for delivery of ECR2 would be met. There was no response in writing to that request. However, by early in January 2001 ECR2 had been split into two components, respectively called "ECR2a"and "ECR2b". The reason for the split, so Mr. Jennings explained at paragraphs 150 to 152 of his first witness statement, and I accept, was the time which it was taking CWS to undertake UAT. UAT proved to take much longer than originally anticipated. A reason, according to the evidence of Dr. Hunt on behalf of ICL, which I accept, was that CWS did not assess correctly the amount of resources which would be required for UAT.
245. Another matter which needed to be addressed and resolved by CWS before there could be any question of GlobalSTORE being installed in any pilot store was the testing of GlobalSTORE with RSM to ensure that GlobalSTORE could communicate with the relevant central information technology systems. This also was something up to which it does not appear that CWS, by which the necessary arrangements had to be made with ATOS, faced. It is probably sufficient simply to record that in relation to this issue Mr. Cook in an e-mail to Mr. Garner dated 2 January 2001 said:-

"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.
246. With the commencement of the New Year in 2001 Mr. Brydon moved to increase the pressure on ICL. In an e-mail dated 3 January 2001 to Mr. Pickett he wrote as follows:-

"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."

247. Mr. Pickett replied to Mr. Brydon's e-mail in an e-mail dated 4 January 2001. He said:-

"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. "

248. Mr. Brydon replied to Mr. Pickett's e-mail of 4 January 2001 on the same day. He piled on the pressure. What he said was:-

"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."

249. Although Mr. Brydon had said at the end of his e-mail to Mr. Pickett that he would await a presentation from ICL of its plans for the GlobalSTORE software so far as CWS was concerned before considering his approach to the future, what he in fact did the very next day, 5 January 2001, after receiving it was to write again to Mr. Christou. The letter sent was, according to Mr. Brydon's evidence in cross-examination, the "go away" letter originally drafted on or about 8 December 2000. The letter seems to have been designed to engineer what proved to be a showdown between ICL and CWS. What the letter said was this:-

"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.
250. In an e-mail to Mr. Carlin dated 8 January 2001 Mr. Young set out the CWS perception of how matters then stood.

"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:-

68 bugs have been classified as required for Pilot. Breakdown is as follows:-

Hot fixes

15 ECR1 Hot Fixes to be released to CWS on 15/01/2001.

6 RSM Fixes to be released to CWS on 15/01/2001.

EC2a

The remaining 47 will be released to CWS on 29/01/2001 providing additional information on the 9 identified within sections (6), (7), (8) is supplied to ICL by 12/01/2001. This release should be fully validated by ICL prior to delivery to CWS and will be supported by test scripts and results – in line with the agreed Supplier Management Framework

EC2b

The remaining bugs found during final testing coupled with the 4 implementation requirements will be delivered with EC2b – Estimate 62, based on further information being supplied on the 4 changes by close 12/01/2001.

The release is dependent on CWS completing testing of all functional areas by 19/01/2001. However, this is not realistic as the Hot fixes will not be released until 15/01/2001. Therefore the "cut off" date has been defined as 02/02/2001.

Based on ICL's original estimate of 3 week turnaround for ECR2b delivery, the new release date for ECR2b equates to 26/02/2001. This release should be fully validated by ICL prior to delivery to CWS and will be supported by test scripts and results.

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.
251. Mr. Carlin replied to Mr. Young's e-mail of 8 January 2001 the next day. He said:-

"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.
252. I have already set out the terms of Mr. Brydon's e-mail of 12 January 2001 to Mr. Pickett. Mr. Pickett replied also on 12 January 2001. He said:-

"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."

253. The next event of significance was the meeting on 19 January 2001 to which I have already referred. It is plain from the minutes of the meeting made by Miss Corinne Taylor-Smith of CWS, which all those witnesses who were present seem to accept as in substance accurate, albeit that Mr. Brouwer, Mr. Pickett and Mr. Carlin had reservations about some matters recorded and about the language used in some places, that Mr. Brydon began the meeting not with raising any issue concerning the GlobalSTORE project but with the performance of ICL in relation to providing service support under "break fix" arrangements between ICL and CWS. Minute 1.9 recorded that:-

"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".
254. The section of the minutes of the meeting held on 19 January 2001 which dealt specifically with the GlobalSTORE project commenced at minute 1.35. What was recorded was:-

"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."

255. What in essence happened at the meeting of 19 January 2001, which had been requested by ICL to discuss issues arising out of the GlobalSTORE project, was that its representatives were ambushed. Instead of beginning with the project which ICL had come to discuss, CWS representatives began by raising a completely different matter, complaints about the service provided under Service Level Agreements. That may have been a deliberate ploy to make the ICL representatives feel unprepared and consequently ill at ease. The CWS representatives collectively then harangued ICL about its alleged incompetence before seeking to force the long outstanding and vexed question of agreement of liquidated damages. Finally, Mr. Brydon refused point blank to permit discussion of the detail of the GlobalSTORE project, which was the one thing which the ICL representatives, and in particular Barbara Dixon, had come to the meeting to discuss. Mr. Brouwer told me in cross-examination that he considered by the time of his involvement in the GlobalSTORE project CWS had already decided to withdraw from it. Certainly the events of the meeting on 19 January 2001 lend ample support for that view. In fact, unknown to Mr. Brouwer at that time, CWS, or at least Mr. Brydon and Mr. Melmoth, had been plotting what they conceived to be the downfall of ICL for months previously.
256. I have already mentioned the e-mail which Mr. Brydon sent to Mr. Hepworth on 22 January 2001 in which he reported on a conversation that day with Mr. Brouwer. Apart from indicating the position which Mr. Brouwer had communicated in relation to liquidated damages Mr. Brydon summarised his conversation with Mr. Brouwer to Mr. Hepworth as follows:-

"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….. "

257. Mr. Brouwer in his witness statement denied that the account given by Mr. Brydon in his e-mail to Mr. Hepworth of 22 January 2001 was in all respects accurate. What he said was:-

"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"

258. In his cross-examination Mr. Brouwer repeated the substance of the paragraphs of his witness statement which I have quoted in the preceding paragraph. He also said that his approach to CWS was to avoid confrontation and to be more forthcoming in communications. I accept the evidence of Mr. Brouwer as to the conversation with Mr. Brydon. It seems to me that Mr. Brydon heard what he wanted to hear, and what it suited his purpose of justifying terminating relationships with ICL to hear, in that conversation, and reported accordingly to Mr. Hepworth.
259. The withdrawal of CWS from the GlobalSTORE project took place before any further delivery of software or error corrections was due, and no such delivery was ever made.
260. It is difficult to consider meaningfully whether ICL performed adequately in relation to the GlobalSTORE project without some yardstick by reference to which that question can be addressed. In the absence of a contract between CWS and ICL under which ICL agreed to do certain things by particular dates the issue of whether it could or should have produced better software earlier than it did does not really arise. However, it is plain, in my judgment, that the initial efforts of ICL to try to meet the requirements of CWS as to when software was required were frustrated by the failure of CWS to specify precisely what its requirements were in relation to the Dividend, and in particular the failure to obtain from PCMS the correct file formats which ICL needed if it were to be able to produce software which would enable data to be passed through to SSC and back again. CWS also dithered over the issue of hosting and in fact changed its mind, or at any rate the mind communicated to ICL, on that issue. The result was that ICL was left in about mid-May 2000 trying to produce by 28 August 2000 software which it had indicated it would need five months from sign-off of appropriate FRS to produce. ICL then tried to meet the date desired by CWS by, first, suggesting a change in the platform from ISS400 to ISS300, and, second, adopting a co-operative approach to release of software, such that the software would be released to CWS for testing at the same time as it entered validation by ICL. That laudable effort to assist its customer was thrown back in the ICL corporate face. ICL's witnesses involved in the delivery at the end of June expressed to me in cross-examination their surprise at the attitude of CWS, and in my judgment that was an entirely justified reaction in the light of the agreement of Mr. Young to the Development Plan of 15 May 2000. I am quite satisfied, despite the colourful language of Mr. Mawrey, that Drop 1 was not "rubbish", and that useful work could have been done with that drop to turn it into useable software. The experience of the rejection of Drop 1, into which so much effort had been put under difficult circumstances by Mr. Ogston, Mr. Jennings and their team must have been very disheartening. It may be that that was a relevant circumstance in the deficiencies experienced with the delivery of software made on 17 October 2000. Certainly the quality of that delivery as made left something to be desired. There were a considerable number of bugs, and Mr. Christou in his letter of 8 November 2000 accepted that as at 27 October 2000 there were still problems with the Dividend functionality which prevented that module going into UAT at that time. Nonetheless, it seems clear from the fact that testing by CWS did in fact continue until 2 November 2000, notwithstanding the phantom "rejection" of 25 October 2000 referred to in Mr. Brydon's letter to Mr. Christou of 30 October 2000, and then resumed on 7 November 2000 after a re-run of handover tests by Mr. Featherstone and Mrs. McCoan, that the deficiencies in the software delivered on 17 October 2000 were nothing like as great as CWS then, and in this action, made out. Although the delivery of the software on 17 October 2000 was a week later than ICL had predicted would be possible when making the suggestion in Mr. Turner's letter dated 28 July 2000 that there were two ways in which the project could move forward, either continuing with the drop approach, which would require co-operation between the parties, or waiting for a longer period so that ICL could validate the entirety of the software, the decision to follow the latter route was that of CWS. The delivery of ECR1 was also a week later than first predicted by ICL, but otherwise it seems to have been substantially satisfactory. That no further deliveries of corrections were made was entirely the result of the decision of CWS to terminate the GlobalSTORE project. Overall, while ICL would no doubt wish that the software as delivered from time to time had had fewer bugs, and that deliveries had been made when predicted, rather than, in the cases of the delivery of software in October 2000 and of ECR1, a week later, it does not seem to me that it is appropriate to criticise ICL for its attempts to meet the expressed needs of its customer within tight timetables.
261. In expressing the conclusions which I have in the preceding paragraph I have taken into account the evidence of Mr. Baker on behalf of CWS and that of Dr. Hunt on behalf of ICL. It was agreed between them that a total of 454 alleged errors which were reported by CWS or ICL as detected in the GlobalSTORE software during the course of the GlobalSTORE project fell to be considered for the purposes of this action. Of those, 96 were reported in relation to Drop 1, including the 43 to which I have already referred. A further 82 were identified during design reviews in the period between the rejection of Drop 1 and 17 October 2000. That period is not really relevant to any assessment of the validity of complaints of CWS as to the quality of what was delivered to it, because it was during this period that ICL was working on GlobalSTORE aiming for delivery in October 2000. 97 alleged errors were discovered during HAT, and a further 109 during UAT. The balance of 70 were said to have been found in ECR1 or in Hot Fixes subsequent to it. As classified originally by CWS or ICL, 12 of the 454 were Category A, 92 were Category B, 113 were Category C, 159 were Category D and 78 were Category E. Of the Category A bugs, 8 were those in Drop 1 upon which I have already commented. The balance were found on UAT. 22 of the Category B bugs emerged from Drop 1, 10 from design reviews, 5 from HAT, 35 from UAT and 20 from ECR1 or subsequent Hot Fixes. So far as Category C errors were concerned, 11 were found in Drop 1, 18 in design reviews, 45 on HAT, 26 on UAT and 13 in ECR1 or subsequent Hot Fixes. While perhaps I need not worry too much about Category E bugs, the breakdown for Category D was 21 in Drop 1, 40 found in design reviews, 38 on HAT, 30 on UAT and 30 in ECR1 or subsequent Hot Fixes.
262. Mr. Baker and Dr. Hunt were asked to sample 100 of the reported errors and to reassess them, with a view to extrapolating the results across the totality of 454 reported errors. The result of doing that was that Mr. Baker considered that 89% of reported errors were indeed errors, while Dr. Hunt thought that the percentage of true errors was of the order of 85%. Mr. Baker considered, and I agree, that the assessments of himself and Dr. Hunt as to the numbers of true errors represent a close measure of agreement for the type of analysis undertaken. Broadly Mr. Baker assessed the errors which he considered to be errors as being more serious than Dr. Hunt. I am satisfied that the principal reason for that difference in assessment of seriousness was the reliance which Mr. Baker placed on CWS in assessing the business impact of errors. Another reason, which both Mr. Baker and Dr. Hunt accepted during cross-examination, was probably a difference in interpretation of the relevant FRSs. Using the classification system which Mr. Baker and Dr. Hunt adopted and which I have already explained, Mr. Baker found that in the test sample there were 11 Class 1 errors, 25 Class 2, 35 Class 3, 12 Class 4, 11 Class N, 4 Class C and 2 Class U. He extrapolated from those findings that the breakdown of the total of 454 errors would be 20.2 Class 1, 88.2 Class 2, 222.9 Class 3, 62.8 Class 4, 40.7 Class N, 9.5 Class C and 9.8 Class U. Dr. Hunt's extrapolations were 2 Class 1, 51.2 Class 2, 197.7 Class 3, 124.2 Class 4, 59.8 Class N, 9.5 Class C and 9.8 Class U. In the light of the contemporaneous evidence as to how the quality of GlobalSTORE delivered to CWS in Drop 1 and on 17 October 2000 was viewed by CWS, to which I have already referred, I prefer the assessment of seriousness made by Dr. Hunt to that made by Mr. Baker. The fact is that at the time the perception of those assessing the quality of the software on behalf of CWS was pretty favourable. Even Drop 1 passed confidence testing on initial delivery with no problem.
263. Dr. Hunt told me that she considered that the results of extrapolating from the 100 sample reported errors understated the number of reported errors which were actually requests for changes. She therefore considered all 454 reported errors to see whether she considered them really to be requests for changes. As a result of this exercise she found some 64 or 65 of the 454 reported errors which she considered to be requests for changes. Her opinion as to which reported errors came within this category did fluctuate a bit. At one point she identified 71 reported errors as coming within the category. However, her ultimate position was that there were 64 or 65. I accept that revised assessment.
264. The way in which Mr. Mawrey put the case for CWS as to the quality of the software delivered was to emphasise both the numbers of errors reported and their seriousness as perceived at the time of the initial report. He submitted that, by and large, ICL did not dispute the categorisation of bugs made by CWS. That is true, but I accept the evidence of Mr. Jennings that he considered that little was to be gained by doing so. If an error existed or was perceived by CWS to exist, the matter needed to be dealt with. If it was a genuine error nothing was to be gained by an argument as to whether it was truly Category B or really Category C, for example. It needed to be fixed. I have already mentioned that it was common ground between CWS and ICL that some errors are to be expected in bespoke software. The only sensible enquiry, therefore, if an assessment has to be made as to whether the software delivered by ICL was of satisfactory quality, is what number of bugs is to be expected in bespoke software and what is the expected seriousness of those bugs. Dr. Hunt expressed the conclusion in paragraph 5.109 of her report for the purposes of this action that:-

"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."

265. Another issue with which Mr. Baker and Dr. Hunt dealt in their evidence was the causes of delays to the progress of the GlobalSTORE project. In the absence of any contractually binding deadlines for the achievement of any particular progress it does not seem that any worthwhile purpose would be served by considering, to any greater extent than I already have, why the project lasted as long as it did.
266. Of the total number of errors detected in software at any stage during the GlobalSTORE project most had, by the date of termination of the project, been remedied. Although in the event ECR2A was never delivered to CWS it was completed by ICL. Dr. Hunt undertook testing of ECR2A. She was criticised by Mr. Mawrey for departing from the agreed testing protocol, but it seemed to me that that was rather an unfair criticism. She explained to me in cross-examination that she had not understood that the agreed testing protocol was in any sense a limiting feature so far as her consideration of issues which seemed to her to be relevant was concerned. That, in my judgment, is a proper professional attitude and to be commended rather than the subject of adverse comment. Dr. Hunt expressed her conclusions following her consideration of ECR2A in paragraph 7.45 of her report in this way:-

"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.
267. Before leaving this section of this judgment I should record that, following the termination of the GlobalSTORE project, ICL, through a Mr. Alan McFall, undertook what was described as a "CWS GlobalStore Root Cause Analysis". The product of that analysis was a report ("the Post Mortem Report") dated 20 March 2001. Mr. Mawrey relied heavily upon the Post Mortem Report and the conclusions recorded in it.
268. Consideration for the purposes of the CWS GlobalStore Root Cause Analysis was under four headings, "Method", "People", "Material" and "Environment".
269. In relation to Method one of the Root Causes identified in the Post Mortem Report was:-

"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?)"

270. A Root Cause in relation to People recorded in the Post Mortem Report was:-

"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."

271. The sole Root Cause in respect of Material recorded in the Post Mortem Report was:-

"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."

272. The last Root Cause dealt with in the Post Mortem Report to which I need refer was considered in the Environment section, where it was one of two. It was:-

"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."

273. Mr. Mawrey drew attention particularly to the description of GlobalSTORE in early 2000 as "more of a concept than a product or solution kit", which appeared twice in the Post Mortem Report, and also to the characterisation of the approach of ICL to the development of GlobalSTORE for CWS as "RAD-type" rather than "End2End", which was what the Framework Document contemplated. He relied, further, upon the comments that Microsoft had advised against the use of its ActiveStore application in GlobalSTORE, that replacing ActiveStore had been difficult for ICL, and that there had been a lack of appropriately skilled resources for ICL to integrate the Dividend into ISS400. All of these factors were presented by Mr. Mawrey as being, in effect, admissions of incompetence and inability on the part of ICL.
274. The picture presented by Mr. McFall in the Post Mortem Report is considerably different from that which seems to me to be correct in the light of all the evidence which I have examined and the cross-examination of the many witnesses which I have heard. The question arises how that could be. Mr. Pickett was asked about the Post Mortem Report, and in particular about those comments in it upon which Mr. Mawrey especially relied. Mr. Pickett told me, and I accept, that he had no idea who Mr. McFall was, that he had never met him, and his only contact with him was one telephone conversation which he thought lasted about ten minutes. From the Post Mortem Report Mr. McFall seems also to have spoken to Mr. Carlin, a Mr. Coombs, Mr. Ogston, Mr. Brouwer and Mr. Bennett. These gentlemen, and Mr. Pickett, were described in the Post Mortem Report as the "Review Team", while Mr. McFall described himself in the Post Mortem Report as a "Facilitator". It was clear from the evidence of Mr. Pickett that there never was a "Review Team", in the sense of a group of people to whom was entrusted a function of reviewing collectively the GlobalSTORE project so as to draw lessons for the future. Rather Mr. McFall, whose qualifications for undertaking the task, if any, did not emerge during the trial, undertook an investigation on his own in the course of which he spoke on an individual basis, and briefly, to the members of the so-called "Review Team". Mr. McFall does not seem to have spoken at all to some people who could have made a significant contribution to the exercise on which he was engaged, such as Mr. Jennings, Mrs. McCoan and Mr. Featherstone. Mr. Jennings, in particular, explained to me during his evidence that he was unaware that Microsoft had advised against the use of ActiveSTORE in GlobalSTORE. Mr. Carlin told me, and I accept, that that was the final position of Microsoft, but only after it had found itself unable to resolve the task of rendering ActiveSTORE suitable for use in GlobalSTORE in a retail environment. Mr. Brouwer told me, and again I accept, that there are many installations using GlobalSTORE with ActiveSTORE successfully on the Continent – he especially mentioned Amsterdam – but those are warehouse installations. As he put it, "The only problem is for the food part of the business you need to increase the speed." Thus it is obvious that Mr. McFall was misinformed as to the true position concerning Active STORE. His opinion that in early 2000 GlobalSTORE was "more of a concept than a product or solution kit", was not shared by any of the ICL witnesses who were asked about it. His conclusion that the reason for changing from ISS400 to ISS300 was a "Lack of appropriately skilled resources", although part of the picture, was a long way from being the whole of it. It is difficult to resist the conclusion that the CWS GlobalStore Root Cause Analysis was a superficial undertaking which reached glib conclusions for a number of which there was little basis in fact. At all events I did not find that the Post Mortem Report was of any assistance to me in making the findings which I felt I should make as to the progress of the GlobalSTORE project.

Loss – the pleaded case

275. The latest pleaded version of the claims for damages advanced on behalf of CWS was set out in the amended Schedule 7 to the Particulars of Claim. That put the losses into three categories, namely:-

"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."

276. Each of the categories of alleged loss set out in amended Schedule 7 to the Particulars of Claim was further elaborated in that schedule.

Additional costs

277. The alleged additional costs were broken down into seven elements, as follows:-

i) "Vision 32"

ii) "Bulk printing"

iii) "RB2"

iv) "ISS300 licences"

v) "Costs of running Vision on GlobalSTORE hardware"

vi) "Harlech expedite costs"

vii) "RF".

278. The sum claimed in respect of Vision 32 was £238,532. The pleaded explanation of the claim was:-

"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."

279. The sum claimed in respect of bulk printing was £438,558. About that claim amended Schedule 7 to the Particulars of Claim said:-

"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. "

280. An amount of £53,535 was claimed in respect of RB2. How that claim was said in the amended Schedule 7 to the Particulars of Claim to be justified was:-

"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."

281. Three items in the list of alleged additional costs in amended Schedule 7 to the Particulars of Claim were grouped together as additional costs of software and hardware. These items were ISS300 licences, costs of running Vision on GlobalSTORE hardware and Harlech expedite costs. About ISS300 licences, in respect of which a sum of £608,571 was claimed, the case pleaded was:-

"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. "

282. The final element of alleged additional cost claimed, in respect of RF, or radio frequency, was put at £195,650. How that element of claim was put was:-

"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

283. Under the heading of "wasted costs" in amended Schedule 7 to the Particulars of Claim four elements were claimed. These were, respectively, "Internal staff costs incurred on the GlobalSTORE project", put at £294,812, "Contractor costs", put at £244,484, "Wasted development costs", put at £599,467, and "Wasted licences", put at £1,782,931. The allegedly wasted internal staff costs were said to have been calculated by reference to the salaries and cost of providing benefits to those CWS employees who were involved in the GlobalSTORE project. Similarly the allegedly wasted contractor costs were said to be the sums charged by people like Mr. Cook who in fact worked for CWS on the GlobalSTORE project but were technically outside contractors. The other individuals allegedly concerned were Tim Donovan, Peter Croll, Nancy Wilson, Mike Maybery and Alex Conner. The allegedly wasted development costs were said to be sums paid to ICL and PCMS for work in relation to GlobalSTORE, while the wasted licences were alleged to be licences obtained for use of GlobalSTORE software and other software for use in connection with GlobalSTORE, namely an SQL server client access licence and an SQL workstation client access licence. The licence fees in question were said to have been paid by CWS to ICL.

Loss of profits

284. The loss of profit claim set out in amended Schedule 7 to the Particulars of Claim was in two parts. The first part was a claim for damages quantified at £5,321,000. The alleged basis for that claim was:-

"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. "

285. The second part of the loss of profits claim was for a sum quantified at £222,000 for which the justification was said to be as follows:-

"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

286. In their written opening Mr. Mawrey and Mr. Bergin put the philosophy underlying the claims which were pursued at trial on behalf of CWS in this way:-

"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

287. In the ordinary case of a claim for damages for breach of contract the basic measure of damages is the sum necessary to put the claimant in the financial position in which he would have been if the contract had been performed in accordance with its terms. This is not, however, an inflexible rule, and it is open to a claimant, if he wishes, to claim as damages the amount of any expenditure which he incurred in reliance upon the due fulfilment by the other contracting party of his bargain – see, for example, Anglia Television Ltd. v. Reed [1972] 1 QB 60; C.C.C. Films (London) Ltd. v. Impact Quadrant Films Ltd. [1985] QB 16 per Hutchison J. at page 32A-D. What it is not open to a claimant to do is to claim both the sum necessary to put him in the financial position in which he would have been had the contract been performed and the amount of expenditure wasted as a result of the breach of contract. The reason why both cannot be claimed is obvious. If the contract had been performed in accordance with its terms the so-called wasted expenditure would have been incurred in any event in seeking to obtain the benefits for lack of which the sum necessary to put the claimant in the financial position in which he would have been if the contract had been performed in accordance with its terms is awarded as compensation. To award both the sum necessary to put the claimant in the financial position in which he would have been had the contract been performed and alleged wasted expenditure is to over-compensate the claimant by reimbursing expenditure which he would have incurred even if there had been no breach of contract.
288. Mr. Mawrey did not accept that it was not open to CWS on the facts of this case to claim both alleged wasted expenditure, on the one hand, and alleged additional expenditure rendered necessary, and loss of profits caused, by the alleged breaches of contract on the part of ICL. Consequently, no election was made by or on behalf of CWS as between a claim for wasted expenditure, totalling some £2,921,694, and a claim for damages for alleged additional expenditure and loss of profit totalling some £7,908,824.
289. In their written closing submissions Mr. Mawrey and Mr. Bergin dealt with the philosophy underlying the claims in respect of allegedly wasted costs in this way:-

"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."

290. I shall comment later in this judgment upon the suggestion that it might be appropriate to ignore the actual cost of Vision in assessing CWS's claims for alleged additional expenditure. However, the passage quoted in the preceding paragraph from the written closing submissions of Mr. Mawrey and Mr. Bergin seems to me to be no answer to the point that one cannot claim, as damages for breach of contract, alleged wasted expenditure as well as alleged expenditure arising from the alleged breach of contract and alleged loss of profits. The analogy taken by Mr. Mawrey and Mr. Bergin at paragraphs 249 and 250 of their submissions is not a true one so far as the facts of the present case are concerned. What was being claimed in this action as allegedly wasted costs was all of the alleged actual expenditure of CWS upon the GlobalSTORE project which it would have incurred anyway even if the project had been successful. The sums claimed were all of the sums paid to ICL and PCMS in connection with the project, all of the cost of the time of its own employees and contractors allegedly spent on the project, and so forth. There was no identified claim simply for some extra alleged expenditure to which CWS was said to have been put as a result of some breach of contract other than that which was said to have justified termination of the project. I therefore reject the submission that it was not necessary for CWS on the facts of this case to elect between a claim for allegedly wasted expenditure, on the assumptions that there was a contract between CWS and ICL in relation to the GlobalSTORE project and that ICL was in breach of that contract, and a claim for damages for loss of profits and for any expenditure additional to that to which CWS would in any event have been put had the project proved to have carried to a successful conclusion.
291. Had it been necessary or appropriate to consider on its merits a claim in respect of allegedly wasted expenditure, the sums allegedly paid to ICL and to PCMS for development work in connection with GlobalSTORE were not really in dispute and were supported by invoices. I should have found the amount of those payments proved in the sum claimed of a total of £589,467. However, there was no satisfactory evidence of the time spent either by contractors or by employees of CWS working on the GlobalSTORE project. No timesheets or breakdowns of hours said to have been worked by the contractors named were put in evidence. The sole evidence as to the numbers of days alleged to have been worked by each named contractor was an estimate made by Mr. Young. Although Mr. Young explained in his first witness statement what his estimate was in each case, he provided no explanation as to what justification he said there was for it. I am not satisfied that his estimates are accurate. No contemporaneous time records were kept by the CWS employees the cost of the alleged time of whom devoted the GlobalSTORE project was claimed. Rather what happened was that each relevant employee was asked, some considerable time after the event, to estimate how much of his or her time had been devoted to work on the GlobalSTORE project while it was on foot. The estimates were set out in the witness statements of the various witnesses in very broad general terms. Those estimates were all so vague that I do not accept any of them as accurate. Had it been necessary to evaluate a claim for damages in respect of the cost to CWS of employing outside contractors or personnel from its own staff in connection with the GlobalSTORE project I should have rejected these heads of claim as unproven. Finally in relation to this element of the claim, I do not see how sums paid for licences granted not to CWS as such but to CRS under the CRS Agreement could be said to be expenditure wasted by CWS in connection with the GlobalSTORE project. Those sums were due because licences were granted by ICL to CRS before the transfer of the engagements of CRS to CWS. As such they had nothing to do with the GlobalSTORE project as carried forward between CWS and ICL. I should therefore have held that this element in the alleged wasted expenditure claim failed.

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

292. It is well-known that the modern basis upon which damages are recoverable for breach of contract was first expounded by Alderson B. in Hadley v. Baxendale (1854) 9 Ex 341 in a passage in his judgment at page 354 -355. The decision is much mentioned, but relatively rarely does anyone take the trouble to remind himself or herself of what Alderson B. actually said. It is particularly unfortunate that those formulating the claims of CWS in this action did not trouble to remind themselves of the passage in question, for the failure to do so seems to have led to claims being advanced which cannot succeed on any view. The relevant passage, which has, of course, been the subject of comment and elaboration in a number of subsequent cases, is as follows:-

"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

293. The major element in the damages claimed on behalf of CWS was the amount put at some £5,321,000 which was said to be the profits lost as a result of delay in introducing the Revised Dividend in place of the Original Dividend. How this alleged loss was said to have been caused by the performance of ICL in relation to the GlobalSTORE project is extremely difficult to understand. What seemed to be said was that it was essential to the process of making a decision whether to introduce the Revised Dividend that the Harlech trial should take place, the delay in producing GlobalSTORE resulted in a delay in the Harlech trial, and thus delayed the decision which was in fact made in the light of the perceived success of the Harlech trial. It was further said that but for the defaults of ICL in failing to deliver GlobalSTORE in a condition fit for installation to commence in all former CRS stores in September 2000, the Harlech trial would have been able to commence on 8 January 2001.
294. There are a number of problems with the analysis set out in the preceding paragraph. The first is that the Harlech trial logically had nothing to do with a decision to substitute the Revised Dividend for the Original Dividend. The Harlech trial was simply an exercise which assessed the impact of introducing the Dividend in some form into an area in which there had previously been no Dividend at all, as Mr. Braithwaite accepted in cross-examination. Thus I do not accept that the decision to introduce the Revised Dividend was influenced in any way by the results of the Harlech trial. If, contrary to my finding, the decision was influenced by the results of the Harlech trial, that that was likely to be so was not foreseeable for the purposes of the rule in Hadley v. Baxendale (1854) 9 Ex 341. There was no evidence that anyone at CWS told anyone at ICL in or before March or April 2000 that a decision as to whether to introduce the Revised Dividend was dependent upon the outcome of the Harlech trial. Further, the contemporaneous internal communications of CWS to which I have already referred make plain that, from the point of view of the Retail IT Department, the modification of the GlobalSTORE and ISS400 or ISS300 to enable CWS to offer the Revised Dividend in the Harlech Television region on a test basis formed no part of the GlobalSTORE project as originally conceived, and was always contemplated as following a rollout of GlobalSTORE and ISS400 or ISS300 in the former CRS stores. Moreover, even when a pilot date for GlobalSTORE and ISS400 was envisaged as occurring on 28 August 2000, it is plain that the Harlech trial was not seen as taking place any earlier than February 2001. By November 2000, when the pilot date envisaged for GlobalSTORE was 29 January 2001, the Harlech trial was envisaged as not commencing until about May 2001. In August 2000 Mr. Bowes was contemplating introduction of the Revised Dividend on a national basis, assuming success in the Harlech trial, in early 2002. As it was, in cross-examination Mr. Bowes told me that he understood that a "quick fix" to enable the Harlech trial to proceed had been devised by the CWS Retail IT Department in about January 2001. He was quite unable to explain why, in those circumstances, the Harlech trial did not proceed in January 2001, rather than starting in July 2001, if a trial commencing in January 2001 had ever been contemplated. Thus, on the facts I find that the commencement of the Harlech trial was not delayed by any difficulty over GlobalSTORE, that the trial was never envisaged at any stage as commencing any earlier than February 2001, and that the date for implementation of the Revised Dividend on a national basis was not envisaged as being any earlier than early 2002. In addition, and in any event, the results of the Harlech trial, which I summarise later in this judgment, were in fact so variable that no sensible conclusion could be drawn from them. For that reason also I do not accept that CWS in fact took them into account in deciding to introduce the Revised Dividend in place of the Original Dividend.
295. According to the evidence of Mr. Andrew Weeks, who is employed by CWS as its marketing support manager, at paragraph 13 of his first witness statement, CWS has a concept of what are called "like for like" stores. He described the concept in this way:-

"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."

296. The Harlech trial in fact took place commencing in July 2001. There were actually some 131 ex-CRS stores in the Harlech Television region, but only 50 were involved in the trial. Those which were excluded from the trial were excluded because the particular circumstances of the store were considered to mean that including the store in question would distort the results. In other words, using the vocabulary of Mr. Weeks and CWS, they were not "like for like". 58 of the stores considered not to be "like for like" had been refurbished. In the 50 stores the sales performance of which was assessed as part of the Harlech trial the Revised Dividend was actively promoted by advertising and the like. A control group of 39 former CRS stores, considered to be "like for like" to the stores in the trial, was constituted from other stores in the former CRS South West and Wales & Border regions which were not in the Harlech Television region and not the beneficiaries of any particular advertising. The average weekly sales turnover of both the trial stores and the control group in the eight week period prior to the trial and during the period of the trial itself were compared with the turnover of the particular store in the equivalent periods of the previous year. The results of the Harlech trial were that, on average, the percentage increase in the sales turnover of the stores in which the Revised Dividend was offered over the period of the trial and the eight weeks preceding that, as compared with the sales turnover in the equivalent periods of the preceding year, was 3.61%, while the stores in the control group sustained, on average, a decrease in sales turnover of 0.47%. The difference between +3.61% and –0.47% is 4.08%, rounded to 4.1%. It was thus considered by CWS that the stores in which the Revised Dividend was tried outperformed the control stores by a growth of sales turnover of 4.1% on average. However, that average concealed a wide range of variations. In eleven of the stores in which the Revised Dividend was tried the sales turnover during the trial period as compared with the previous year was actually down. The largest decline in turnover was 12.44%, but there was also one store where the decline was 5.22%, one where it was 3.12%, three where it was more than 2% and three where it was more than 1%. All bar one of the stores in which the Revised Dividend was tried and which showed a decline in sales turnover as compared with the previous year showed declines of percentages greater than the average decline in sales turnover of the control group. Of the stores which showed an increase in sales turnover during the trial period as compared with the previous year, the largest increase was of 14.08%, two stores showed an increase of in excess of 11%, one an increase of over 10%, five showed increases of more than 8%, while nine showed increases of 2% or less, with the lowest increase being just 0.56%. Obviously, with such a wide spread of results the possibility existed of individual results having a disproportionate effect on the overall average. There was simply no discernible pattern to the results of the trial of the Revised Dividend as compared with the trading performance of the various stores in the previous year. Even in a similar geographical location, such as Bath, in which there were four stores in the trial, the results were quite different. The best performing Bath store increased its sales turnover by 8.88% during the trial of Revised Dividend as compared with the previous year, while the worst performing Bath store achieved only 1.60% increase, and the other two achieved increases of 2% and 3.75%, respectively.
297. It seems clear just as a matter of common sense that the results of the Harlech trial convey no worthwhile information as to the attractiveness to consumers of having a loyalty scheme as compared with having none. I can well imagine that decisions as to where to purchase one's groceries could be influenced by many factors. Convenience of the location of a particular store to a particular customer might well be significant. Lack of local competition could also be relevant. These unaided thoughts were confirmed by the results of market research undertaken for CWS as part of its marketing strategy review in 1997 prior to the introduction of the Original Dividend. At that time, of those respondents who indicated that they were likely to shop at a Co-op, that is CWS, store in Price Band 1 the overwhelmingly most frequently stated reason was convenience. No other reason came anywhere near in terms of popularity. The next most popular reasons were that the customer already shopped at the store and that the store had a good selection of items. Conversely, of those respondents who indicated that they were unlikely to shop at a CWS store, the overwhelmingly most frequently given answer was that it was not convenient. A poor second was that the store was perceived to be expensive.
298. In the period leading up to the decisions of CRS and CWS to merge an organisation called "The Qualitative Consultancy" was commissioned by CWS to undertake research described as "Dividend Card Development Research". One of the objectives of the research was to assess likely reaction to replacing the Original Dividend with the Revised Dividend. The report of the results of the research, called "Qualitative Debrief Document" ("the Market Research Report") set out the "Research Objectives" as being:-

"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.
299. The Market Research Report contained some information in relation to the use made by respondents of CWS stores which is interesting in the context of the claims made in this action for alleged loss of profits consequent upon alleged delay in introducing across the nation the Revised Dividend. About "Co-op Store Usage" the report said, amongst other things:-

"All were regular users of their local Co-op

most visited 2/3 times per week

significant minority visited on a daily basis

Main purchasing occasions were:

on the way home/straight after work

"popping in" when doing other shopping in the high street/town

lunch-times

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

very limited usage for "main shop" (even in Market Town stores)

Regular purchasing therefore focused on "basics"/"essentials":…

Reported average spend per visit varied

between £2 - £5 for most…"

300. A section of the Market Research Report was concerned with "Perceived Advantages/Disadvantages of Co-op". The first item in the list of advantages was, "Convenient high street location". That seems to confirm the results of earlier market research commissioned by CWS.
301. In a section of the Market Research Report entitled "General Store Repertoire" it was recorded that, "All respondents did their "main" grocery shopping at one (or more) of the local supermarket chains". The list of "Outlets preferred" which then followed seemed to be set out in some sort of order of preference. Certainly the list was not in alphabetical order. First in the list was Asda, the attraction of which was said to be "its highly competitive prices (independent of a loyalty card scheme)". Other preferred outlets which were favoured for their competitive prices, but did not offer any loyalty scheme, were Kwiksave and Aldi.
302. The Market Research Report included a section entitled "Attitudes to loyalty cards in general". That section began:-

"The majority of respondents owned a number of loyalty cards

with high levels of "passive" card acquisition apparent…

Currently, varying degrees of commitment evident

at one extreme, active and tactical use of cards to get best deals available

at other extreme, bored and cynical view of cards

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

303. The results of such market research as were put before me on behalf of CWS thus tended to support what struck me as just common sense in relation to the attractiveness of loyalty cards such as the Dividend and to provide an explanation for the extremely variable results of the Harlech trial. However, there was also put before me on behalf of ICL the expert evidence of Mr. Simon Gaysford, an economist with particular expertise in the economics of retailing and consumer goods. In his first report prepared for the purposes of this action Mr. Gaysford included this:-

"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."

304. I accept the evidence and conclusions of Mr. Gaysford in the passage quoted in the preceding paragraph. That passage was put to Mr. Bowes by Mr. Carr in cross-examination. Mr. Bowes disputed the correctness not only of Mr. Gaysford's opinion, but also the accuracy of the research to which he referred. Mr. Bowes plainly has a fundamentalist faith in the value of loyalty schemes as an attraction to customers for groceries. He went so far, in cross-examination, as to attribute the recent poor market performance of Safeway and Somerfield, which has also recently discontinued its loyalty scheme, substantially, if not entirely, to the decision of each to withdraw its loyalty scheme. Those opinions of Mr. Bowes not only are not supported by any evidence other than his own conviction, but are contradicted by the mass of evidence to which I have referred, and also by the results, to which I am about to come, of the introduction of the Revised Dividend throughout the CWS stores group as currently constituted, that is to say, including the former CRS stores. I unhesitatingly reject the evidence of Mr. Bowes as to the attractiveness to customers of grocery shops of loyalty schemes. I am satisfied that, while there may be an initial high level of take-up by customers upon the launch of a loyalty scheme, that is largely attributable to the advertising associated with the launch of a new scheme. No evidence was put before me which demonstrated that any significant number of new customers was attracted by a loyalty scheme. Rather the evidence suggested that those most likely to apply for membership of a loyalty scheme were existing customers of the offeror of the scheme. There was no evidence put before me that the amount spent on average by holders of loyalty cards increased after they had become card holders, whether assessed per spend, that is to say, by reference to the amount spent in the offering store on any given occasion, or over some chronological period, such as a week or a month or a year. Mr. Bowes did draw to my attention during his cross-examination the fact that Sainsbury has offered a loyalty scheme for a number of years and that it has recently relaunched its scheme as the "Nectar" scheme. Mr. Bowes relied upon that fact as evidence in support of his view as to the value of loyalty schemes. He told me that the "Nectar" scheme is in fact organised jointly between Sainsbury, the Debenhams stores group, BP and Barclaycard. He did not seem minded to draw any conclusion from the fact that four substantial presences in the retailing sector had felt it appropriate to co-operate to run a loyalty scheme which presumably was designed to attract custom to each of them in part by reason of their respective associations with the others. What that circumstance suggests to me is that each participant in the "Nectar" scheme considered that the well-established single group loyalty scheme did not achieve its professed aim, and so it was appropriate to seek to combine through a single loyalty scheme the activities of grocery shopping, departmental store shopping, purchasing petrol, and paying for all this enthusiastic retail therapy with a credit card. Whether the scheme succeeds remains to be seen. What is, however, quite obvious, is that the offering is completely different from any feature of the Revised Dividend.
305. The claim for £5,321,000 alleged loss of profits caused by delay in the introduction of the Revised Dividend comprised three elements.
306. The first was an amount of £145,000 in respect of alleged delay in implementing the Revised Dividend in the Harlech Television region as part of the Harlech trial. What was contended was that if the GlobalSTORE project had been completed for rollout on 28 August 2000 the Harlech trial would have commenced on 8 January 2001, whereas it in fact commenced 25 weeks later, on 2 July 2001. I have already indicated my findings of fact as to that assertion. The claim related to the period of 25 weeks between 14 January 2001 and 30 June 2001. The amount of the claim was revised in the evidence of Mr. Brian Boothroyd, an accountant called as an expert on behalf of CWS, to a total of £286,000. A number of elements went into the calculation of that figure. The first was the amount of the alleged average increase sales turnover of 4.1%, the derivation of which I have already explained. That factor of 4.1% was then applied to an earned margin said to have been calculated on a store by store basis and expressed as a percentage of actual sales turnover in the relevant period. According to Mr. Boothroyd, earned margin for each relevant store was arrived at by taking total turnover of sales, deducting cost of goods sold and leakage, and adding back retrospective income. The totals of the earned margins for each relevant store for the relevant period were then aggregated. The result was said to be £1,563,432. To that figure was added an amount of £100,787 in respect of what was described as "margin mix gain". The justification for that addition was said, in essence, to be that different product lines in the various stores produce different margins for CWS. As a result, it was contended, of the introduction of the Revised Dividend in the Harlech trial stores the mix of products sold altered in the 25 week period under consideration as compared with the mix achieved in calendar year 2000, producing an increase in margin of 0.07%. That figure was, as I understand it, applied to the total alleged sales turnover in the relevant period of stores in the Harlech trial which did not previously offer the CRS loyalty scheme, uplifted by 4.1%, to produce the figure of £100,787. The next element in the calculation was an amount of £653,968, described as "Dividend support". The alleged basis for the inclusion of this element in the calculation at all was that those who supply CWS with products which rank for the Dividend make a contribution towards the cost of paying the Dividend in the form of a rebate of part of the purchase price of the goods in question. There is not, apparently, any single rate at which rebate is allowed by suppliers. Whether any rebate, and if so at what rate, is allowed by a particular supplier is a matter for individual negotiation with that supplier. Some suppliers have been accustomed, according to Mr. Boothroyd, to contribute in effect half of the cost of the Original Dividend. Overall, according to Mr. Boothroyd, the Dividend support expressed as a percentage of the total turnover (that is, of both goods which were eligible for the Dividend and those which were not) in 2001 amounted to 0.4. That percentage was applied to the alleged total turnover in the relevant period of stores in the Harlech trial, uplifted by 4.1%, amounting to £163,491,915, to produce an amount of £653,968.The remaining positive element in the calculation of the claim in respect of the alleged delay in the commencement of the Harlech trial was an amount of £142,229 in respect of non-redemption of Dividend pay-out vouchers. This element needs to be taken with a deduction from the total so far produced by the calculation which I have explained of £1,653,822 in respect of the cost of Dividend pay-outs in stores participating in the Harlech trial which did not previously offer the CRS loyalty scheme. That cost was apparently calculated on the basis of the percentage which the costs of paying out the Revised Dividend since the actual introduction of the Revised Dividend in the Harlech trial stores represented of the turnover of each of those stores considered individually. The Dividend is paid out twice yearly in the form of vouchers exchangeable for cash or goods. CWS evidence showed that on average 8.6% by value of vouchers were not redeemed. The other elements in the calculation of the sum of £286,000 were allowances for costs saved in respect of staff costs and distribution costs, which CWS treated as, to a degree, variable with sales, and costs of administering the Revised Dividend had it been offered.
307. The next element in the calculation of the total of £5,321,000 was a figure of £5,486,000 which was said to be the loss of profit sustained as a result of the delay in introducing the Revised Dividend in stores which had previously offered the Original Dividend or in the former CRS stores not involved in the Harlech trial. The relevant stores were divided into four sub-categories, namely, (i) former CRS stores which were refurbished before 8 July 2001 and which were in areas abutting regions in which there were existing CWS stores and in which Original Dividend was introduced as soon as possible after the merger of CRS and CWS in the interests of consistency of offering by stores then within the CWS umbrella, (ii) former CWS stores in the North East and Cumbria region, (iii) other former CWS stores and (iv) other former CRS stores in areas abutting regions in which there were former CWS stores. The former CRS stores in the first of these categories numbered 33 and included 25 stores in what was called the "Vision 32" project, about which I shall have more to say a little later in this judgment. The purpose of the division between categories (i) and (iv) is obscure. In each case the claim was for alleged loss of profit over a period of 46 weeks, from 8 July 2001, when it is said that the Revised Dividend would have been made available to CWS customers nationally had the GlobalSTORE project proved successful in achieving rollout in September 2000, until 27 May 2002, when the Revised Dividend was made available to customers in all CWS stores nationally. The justification put forward for the division between categories (i) and (iv) was that the stores in category (iv), which numbered 29, were refurbished during the period 8 July 2001 and 1 May 2002 and, so it was said, would, had the GlobalSTORE project been successful at achieving rollout in September 2000, have gone on 8 July 2001 straight from offering no loyalty scheme to offering the Revised Dividend, while the stores in category (i) would have gone through a period of offering the Original Dividend before changing over to the Revised Dividend. Whether or not that is so, it was not said to affect the period over which it was appropriate to claim damages or the basis of the calculation. In the case of categories (i) and (iv) what was done to calculate the alleged loss of profits was to compare the average weekly turnover of sales of the aggregate of the relevant stores in what, in CWS terms, were weeks 1 to 19 of 2001, with the turnover of the stores in the equivalent period of the previous year, and to do the same exercise for weeks 20 to 30, initially. Subsequently the second exercise was extended to the period from week 20 to week 39. The first part of the comparison, that between weeks 1 to 19 in each of the years 2001 and 2002 was, as I understand it, designed to identify any general trend in sales prior to the introduction of the Revised Dividend. The Revised Dividend was introduced in week 20 of 2002, so that the comparison of average weekly sales turnover from week 20 in 2001 and from week 20 in 2002 was intended to assess the impact of the Revised Dividend since introduction over an equivalent period of the year. The division between categories (ii) and (iii) reflected the internal organisation of CWS. The significance of it was that CWS had no data relating to the actual performance of stores in the North East and Cumbria region, and so had simply adopted the same approach to those stores which had been brought into account in the damages calculation as had been adopted in relation to the other former CWS stores which were taken into account in the damages calculation. In fact not all former CWS stores were brought into account, but only those considered by CWS "like for like". In all 345 former CWS stores were brought into account. Similar comparisons to those which I have described in respect of the former CRS stores in categories (i) and (iv) were undertaken in relation to average weekly sales for stores in category (iii), but on a store by store basis. The average of the results of the comparison were then applied to the stores in category (ii).
308. In his second report Mr. Boothroyd explained that the average increase in weekly sales turnover in the period from week 20 to week 30 of 2002 as compared with the same period of 2001 for stores in categories (i) and (iv) of those described in the preceding paragraph ("the relevant former CRS stores") was 0.89%, while for stores in categories (ii) and (iii) ("the relevant existing CWS stores") it was 1.14%. When the matter was looked at again, taking into account performance up to week 39, the respective figures had declined to 0.22% and 0.80% respectively. Apparently the number of the relevant existing CWS stores taken into account in the later comparison was reduced to 324, the 21 stores omitted in the new evaluation having been refurbished in the interim. Mr. Boothroyd recalculated the second element of the claim for damages in respect of alleged delay in the introduction of the Revised Dividend at paragraph 2.11 of a report dated 8 November 2002 at a total of £3,815,000.
309. The methodology adopted in relation to the calculation of the loss of profits said to have been sustained by each of the categories of store included in the relevant former CRS stores or the relevant existing CWS stores was similar to that adopted in relation to the loss of profits claim in respect of stores included in the Harlech trial. The starting point in each calculation was the aggregate earned margin which it was contended would have been made on the sales turnover actually achieved as adjusted by the uplift which it was contended was appropriate. No element was included in any of the calculations for margin mix gain. Dividend support was taken into account, but in the earned margin calculation and not shown as a separate item. That notwithstanding, non-redemptions were shown separately, but as a credit item against the claim in each case. The only positive addition to the earned margin element in each calculation was a sum said to represent net savings in the cost of the loyalty scheme. Those net savings were said to result from the fact that the actual amounts which CWS would have had to pay out by way of the Dividend to card holders would be less under the Revised Dividend than under the Original Dividend. In other words, from the standpoint of the card holder, the Revised Dividend was less advantageous than the Original Dividend. I shall make further comment upon that later in this judgment. Mr. Mawrey submitted that, even if I were unpersuaded that CWS would have achieved any additional sales as a result of the introduction of the Revised Dividend, CWS had at least lost from the alleged delay in introducing the Revised Dividend the savings in the costs of the scheme as compared with the costs of the Original Dividend. Staff costs and administration costs were assumed to be unaffected by the introduction of the Revised Dividend. Allowances were made against the claim for each category of store in respect of distribution costs.
310. The calculation of an increase in sales turnover in the relevant former CRS stores of 0.89%, that is to say the original calculation based on a comparison of average weekly sales turnover in the period week 20 to week 30 of 2002 with the same period in 2001, as in the case of the results of the Harlech trial, involved bringing into account a wide range of actual results from individual stores. The best performing store achieved an increase in average weekly sales turnover of 19.84%, while the worst achieved a reduction in turnover of 23.57%. In all 27 stores sustained a reduction in average weekly sales turnover, seven of them of more than 10%. Conversely, eight stores achieved an increase of more than 10%. There was no obvious pattern to the results. The picture was identical if one considered the calculation of the increase in sales turnover in the relevant existing CWS stores of 1.14%. The highest increase was 20.06%, while the greatest decline was by 16.93%. Roughly half of the relevant existing CWS stores sustained a decline in average weekly sales turnover. Again there was no obvious pattern to the results.
311. Mr. Mawrey, in urging me to accept the average figures advanced on behalf of CWS in support of its claim for loss of profits, submitted that the methodology which produced those averages was one used by CWS over a number of years on a regular basis, and it was simply a feature of retail grocery trading that there were large divergences between particular stores. He contended that the correct view was that averaging smoothed out the divergences and produced a result with which I could be confident. That struck me as far too simplistic an approach. I have already indicated my assessment of the evidence relating to the attractiveness or otherwise of loyalty card schemes so far as the business of CWS was concerned. That assessment took into account the variability of the results of the comparisons of the performance of the individual relevant former CRS stores and relevant existing CWS stores between week 20 and week 30 in 2002 and 2001. It also took into account the fact that if one extended the comparison to week 39 the apparent average increase in weekly sales turnover in the relevant former CRS stores and the relevant existing CWS stores diminished substantially. If one were playing the percentages game, the decline in the increase in average weekly sales turnover in the relevant existing CWS stores comparing a week 20 to week 39 period with a week 20 to week 30 period was 29.83%, while in the relevant former CRS stores it was 75.29%. All of these factors indicate, in my judgment, that the comparison upon which CWS relied was completely unrealistic. The vast spread of results and the absence of any discernible pattern are, it seems to me, only consistent with a conclusion that there is no evidence that the Revised Dividend produced any increase in sales turnover whatever. Rather a whole lot of individual factors affect individual stores and on the material put before me it is not easy to isolate any particular one. All one can say with confidence is that the results of the comparisons relied on do not prove that the Revised Dividend has any beneficial effect on turnover.
312. If one wanted to assess realistically the impact of the introduction of the Revised Dividend, a logical place to start would be to see whether there had been an increased rate of take-up of Dividend cards. That would at least be some indication of whether new customers were being attracted into CWS stores. That has not been done. One could also usefully consider whether existing holders of Dividend cards had spent more after the introduction of the Revised Dividend. That, too, has not been done. Mr. Christopher Lemar, an accountant called as an expert witness on behalf of ICL, in a report dated 11 October 2002 made these points:-

"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.
313. Mr. Bowes and Mr. Braithwaite were asked by Mr. Carr in cross-examination about the points made by Mr. Lemar in paragraphs 2.14 to 2.16 inclusive of his report dated 11 October 2002. Each confirmed that the data to which Mr. Lemar referred was held by CWS, although not routinely analysed by CWS for its own purposes. When the points were put to Mr. Boothroyd in cross-examination it seemed to me that he had no real answer to them. He made a half-hearted attempt to suggest that analysis of the data might actually increase the amount of the loss of profits sustained by CWS. This attempt involved conjuring up one of the mythical figures of this action, the Dividend card holder who never used his card during the period of the Original Dividend because all he bought was cigarettes and a newspaper on his way to work, or cigarettes and lager on his way home. This phantom personage, it was suggested, was an existing card holder whose purchases of his cigarettes and beer, if continued at their level during the period of the Original Dividend, when they would not rank for the Dividend, would show during the period of the Revised Dividend, when they would rank for the Dividend, as increased purchases. While it may be that there were some people who held Dividend cards during the period of the Original Dividend who for practical purposes never used them, it seems to me to be far more likely that someone most, or all, of whose purchases did not rank for the Dividend would be unlikely to have taken the trouble to apply for a Dividend card in the first place. Certainly the explanation offered did not seem to me to be remotely satisfactory as a reason for not undertaking investigations which were both possible and extremely significant. There was a suggestion from Mr. Boothroyd that the production of the information to which Mr. Lemar referred would be expensive. Mr. Lemar disputed that, saying that all that was involved, at most, was writing a simple software program to search out the data required from that which was already stored by CWS. I accept the evidence of Mr. Lemar on this point in preference to the assertion of Mr. Boothroyd. I have a strong suspicion that the real reason why such investigations were not undertaken was that it was believed within CWS that the results would not be helpful to the claim for damages for loss of profits as a result of the alleged delay in introducing the Revised Dividend.
314. There are two principal reasons for the suspicion which I have expressed at the end of the preceding paragraph. I have already drawn attention to the facts that the results of averaging a very broad range of both positive and negative figures for growth of sales turnover at particular stores on an average weekly basis was to produce very small positive percentages of growth, and that the effect of considering a longer period than that first considered as indicating the impact of the introduction of the Revised Dividend was that those percentages decreased so that each was less than 1, in one case barely above zero. The question therefore arises what was the reason or were the reasons for that limited average growth in the initial period of the Revised Dividend, which was introduced nationally on 27 May 2002, and what might explain how the initial burst of growth, if that is not overstating what even on CWS's figures amounted to little more than a shoot of growth breaking cover, thereafter subsided. Logic would suggest that perhaps something or some things occurring in the period of the introduction of the Revised Dividend or immediately thereafter could be relevant. That certainly seems to be how CWS sees it. The interim report of the Co-operative Group for 2002 was put in evidence. My attention was drawn to a section in that report dealing with "Co-operative Group Trading". The "Operational review" in that section said this:-

"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.
315. The second reason for the suspicion which I have expressed as to why the data to which Mr. Lemar referred and which is available was not produced is that the introduction of the Revised Dividend was never actually envisaged or intended as a means of increasing the volume of sales turnover. The intention, as Mr. Bowes made plain in his cross-examination, was simply to save money. I have already indicated that it was in the event accepted by Mr. Braithwaite that the Harlech trial could provide no worthwhile information on any view as to the likely impact of replacing the Original Dividend with the Revised Dividend so far as attractiveness to actual or potential customers of CWS was concerned. Mr. Bowes gave evidence that a trial ("the Hatfield trial") was undertaken in former CWS stores in the Hatfield area to seek to assess directly the impact of replacing the Original Dividend with the Revised Dividend. The trial sample was small, only 11 stores in which the Revised Dividend was introduced and 10 "like for like" control stores in which the Original Dividend was retained. It was, I think, accepted by the end of the trial of the action, at least by Mr. Boothroyd, that the size of the sample for the Hatfield trial was too small for anything worthwhile to be derived from the results. The point about the limited value of the Hatfield trial was put to Mr. Bowes in cross-examination. What Mr. Bowes said in response was:-

"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."

316. The reduction of the cost to CWS of operating the Dividend by introducing the Revised Dividend was sought to be achieved by a combination of two principal means. The first was a reduction of the total amount paid out to Dividend card holders as the Dividend. The second depended on Dividend support. The hope was that those suppliers who allowed a rebate to CWS in respect of Dividend support in connection with the Original Dividend, at 5% on Co-op brand goods, and who might, and in some cases did, contribute half of the Dividend amount, or 2½% of the retail price of the goods, would be prepared to continue to contribute at the same rate notwithstanding that the rate of the Dividend paid to card holders on Co-op brand goods was to reduce to 3%. To the extent that this hope was realised, therefore, the bulk of the burden of the cost of the Dividend on those items would be transferred from CWS to its suppliers. In addition, the extension of the net of the Dividend into other branded products potentially introduced new providers of Dividend support to CWS. However, whatever the success of CWS in relation to Dividend support for the Revised Dividend, no secret was made at the trial before me of the fact that actually the expectation was that the Revised Dividend scheme would result in smaller payouts to cardholders. Although commendable frankness was shown to me in relation to this reality, the same cannot be said of how the Revised Dividend was presented to current and potential card holders. Mr. Carr put it to Mr. Bowes that what the public was told was that the offer with the Revised Dividend was better than the offer with the Original Dividend. As Mr. Bowes candidly replied:-

"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."

317. What it comes to, therefore, is that current card holders and potential card holders were, in effect, exposed to the risk of becoming the victims of a confidence trick, whereunder the benefits of the Revised Dividend, which were actually expected to be less than those of the Original Dividend, were presented as being greater. I see no reason to suppose that this deception would not have been detected by at least a significant number of those at whom the Revised Dividend was directed. The reduction of the rate at which the Dividend was paid on Co-op brand goods from 5% to 3%, but the inclusion of a Dividend of 1% in place of nothing on other branded goods, made it difficult for customers to assess the relative attractiveness of the two schemes. That point was picked up in the Market Research Report, paragraph 6 of the "Conclusions and Recommendations" section of which included:-

"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.
318. I have already explained how the benefits of the Dividend are distributed twice yearly in voucher form to card holders. The first distribution of vouchers after the introduction of the Revised Dividend was to take place in December 2002. That would be the first occasion upon which card holders familiar with the Original Dividend would be able to make some definite evaluation of whether they individually have been better off with the Revised Dividend than with the Original Dividend. Given that it is not expected that on average they will be, some adverse reaction could prudently be anticipated. Anything other than a minimal adverse reaction would be sufficient to eliminate entirely the extremely modest overall average increase in weekly sales turnover now put forward as having resulted from the introduction of the Revised Dividend. It could also eliminate the benefit of the reduction in the cost of the Revised Dividend, as compared with the cost of the Original Dividend, to CWS if a decline in profits counterbalanced the savings in costs. I am not, therefore, satisfied that Mr. Mawrey's submission that CWS had on any view lost the benefit of the cost savings brought about by the introduction of the Revised Dividend was well-founded.
319. Mr. Bowes agreed in cross-examination that any retail incentive scheme such as the Dividend has an attractiveness limited in point of time. After a while any scheme has to be, to use the jargon of marketing, "refreshed". That can involve a relaunch of the existing scheme or the introduction of some completely new scheme. The "Nectar" scheme is, so far as Sainsbury's is concerned, a "refreshing" of its previous Reward Card scheme. In the light of the point that any scheme has a life limited in point of time, Mr. Carr submitted that the claims for loss of profits on the part of CWS were in any event misconceived. The calculation of the claims proceeded on the basis that the profits said to have been lost were lost forever. In fact, submitted Mr. Carr, those profits, if otherwise there would have been any, were not lost forever, but merely deferred. If one supposed that the effective life of the Revised Dividend was five years, then it was still five years, even if the period of five years commenced at a date later than that originally anticipated. I accept that submission. The logic of it is impeccable. It would follow that, even if any reduction in sales turnover during the period, or some part of the period, which formed the basis of the claim for loss of profits in stores other than those involved in the Harlech trial, as compared with what they would have been had the Revised Dividend been introduced, had been shown, the appropriate basis of assessment of compensation would be deferred receipt rather than total loss. It would essentially be a claim for loss of interest on the amount of demonstrated reduction in profits for whatever was the period of delay in receipt.
320. For the reasons which I have set out at some length, I reject the claim for damages for loss of profits allegedly sustained as a result of the alleged delay in the commencement of the Harlech trial or the alleged delay in the introduction of the Revised Dividend, even if I had been satisfied that ICL had been in breach of some contract with CWS which potentially entitled CWS to claim damages in respect of those matters. I am satisfied on the totality of the evidence that no loss of profits has been sustained, or was likely to have been sustained, as a result of delay in the introduction of the Revised Dividend, even if I had been satisfied that there had been such a delay. In the circumstances I need say nothing about the third element in the original calculation of the sum of £5,321,000 claimed in respect of the alleged delay in the introduction of the Revised Dividend, namely a credit of £310,000 offered because the timing of the introduction of the Revised Dividend nationally meant that information about it could be sent out at the same time as the mailing of vouchers to existing cardholders in respect of the first Dividend distribution of 2002.
321. It remains, in relation to this part of the claim, to consider the sum claimed in respect of the alleged delay in receiving the benefit of a reduction in the sums charged by PCMS for administering the Dividend scheme. The pleaded claim was for an amount of £222,000. However, from the report of Mr. Boothroyd dated 8 November 2002 it seems that the amount of this element of claim has been reduced to £204,000.
322. By an agreement ("the Original PCMS Agreement") contained in a letter dated 21 July 1998 written by Mr. Simon O'Regan of PCMS to Mr. Goodby, but signed to record agreement by Mr. Richard Smith of PCMS and Mr. Brydon, PCMS agreed to provide SSC for CWS. By clause 4.0 of the Original PCMS agreement it was provided that the agreement should continue in force for a minimum of three years, apparently from 1 July 1998. By clause 2.6 one of the services to be provided by PCMS under the agreement was:-

"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."
323. At paragraph 59 of his first witness statement Mr. Bowes said:-

"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."

324. A draft of an unexecuted agreement ("the New PCMS Agreement") dated 4 February 2002 between CWS and PCMS entitled "Dividend Scheme Service" was put in evidence. The effective date of the New PCMS Agreement was said in Section 16 to be 1 July 2001, that is to say, the earliest date upon which the Original PCMS Agreement could have been terminated by CWS. Various services to be provided by PCMS were set out in Schedule 1 to the New PCMS Agreement. These included the provision of a helpline service. The basis of charging set out in the New PCMS Agreement was somewhat different from that set out in the Original PCMS Agreement in that it provided for payment of an amount per card holder per month on the basis that the helpline service was provided within stated standards, namely "Average call durations are 2.0-2.5 minutes. Average call numbers for all opening hours are 130,000-150,000 per calendar quarter." Opening hours were stated as 09.00 to 17.30 Monday to Friday, with an answering service out of hours on weekdays, and on Saturdays, but with no service of any kind on Sundays or Bank Holidays. The amount of service provided by PCMS under the New PCMS Agreement in respect of the helpline for the flat fees paid thus was substantially less than that for which the Original PCMS Agreement provided. Quite apart from the reduction in the out of hours and weekend service, answering time per call was reduced from an average 5.12 minutes to an average 2 to 2½ minutes, and the number of calls answered per calendar quarter from 156,000 (12,000 per week for 13 weeks), to a maximum of 150,000. In terms of potential "on the telephone minutes", as it were, under the New PCMS Agreement what the flat fees covered was 375,000 minutes per quarter (150,000 maximum calls multiplied by 2.5 maximum minutes), whereas under the Original PCMS Agreement what the flat fees covered was 798,720 minutes per quarter (156,000 calls multiplied by 5.12 minutes average call duration).
325. The way in which the claim for delay in receipt of benefits from cost savings in the administration of the Dividend scheme was put in the second report of Mr. Boothroyd was this:-

"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.
326. While I do not regard as remotely satisfactory the fact that the New PCMS Agreement has not been executed, but was said to have come into force on 1 July 2001, even accepting that it did, this element of claim strikes me as bordering on the nonsensical. As I have already pointed out, assuming that the New PCMS Agreement came into force on 1 July 2001, it succeeded the Original PCMS Agreement on the earliest date that that agreement could have been terminated by CWS. It is obviously possible that PCMS would have been inclined to renegotiate the Original PCMS Agreement during the period in which it could not have been terminated in accordance with its terms, but no evidence has been put before me to indicate that that was in fact so. Unless PCMS was prepared to forgo the benefit of its existing contractual rights under the Original PCMS Agreement, the New PCMS Agreement came into force at the earliest date it could possibly have done. On that basis there is no conceivable basis for this element of claim. In any event the reduction in levels of charge under the New PCMS Agreement by something of the order of £0.30 per card holder per annum, or about 22%, at best (comparing the charge of £1.38 under the Original PCMS Agreement for up to 1.25 million cardholders with £1.08 per annum under the New PCMS Agreement for up to one million cardholders) seems to reflect a reduction in levels of service to card holders on the helpline of some 113% in terms of "on the telephone minutes". When the latter point was put, not in those terms, to Mr. Bowes by Mr. Carr, Mr. Bowes had no real answer to it.
327. In the result the claim in respect of alleged delay in achieving cost savings in relation to the administration of the Dividend scheme, if otherwise potentially ICL was liable in respect of it, would in any event fail both because on the evidence there is no reason to suppose that the benefits of the New PCMS Agreement, whatever they may be, to CWS, could have been received any earlier than they in fact were, and because those benefits seem somewhat illusory in any event. My analysis suggests that CWS is paying under the New PCMS Agreement proportionately more for a significantly worse service for its card holders.

Additional costs – the law and the facts

328. Conventionally, in a case in which equipment which is alleged to have been defective has been supplied in breach of contract and it is said that it was necessary to replace the defective equipment with other equipment, a major plank of the resultant damages claim is the alleged additional cost, if any, of the replacement equipment as compared with what the defective equipment would have cost, if paid for, or the excess of the cost of obtaining the replacement equipment over what was actually paid for the defective equipment. The force of the expression "additional cost, if any" is that the replacement equipment may not actually cost any more than would have had to be paid for the defective equipment if it had not been defective. Indeed it may be cheaper or result in savings in operational costs as compared with the expense of operating the defective equipment if it had not been defective. Such was the situation in the leading case of British Westinghouse Electric and Manufacturing Co. Ltd. v. Underground Electric Railways Co. of London Ltd. [1912] AC 673. In that case turbines supplied by a manufacturer to a railway company were deficient in power and in fuel economy as compared with the standard required by the relevant contract. The claimant, having used the turbines for a time, replaced them with others of a different make and design which were more powerful and more economical to use. Thus the claimant was better off with the new turbines than it would have been even if the original turbines had been up to the contract standard. It claimed the cost of the replacement turbines. The issue was whether it was appropriate to set off against the claim for the price of the replacement turbines the economic benefits derived by the claimant from having those turbines instead of the turbines originally ordered. In the course of his speech Viscount Haldane said, at page 689:-

"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.
329. The implicit assumption which I have set out at the end of the preceding paragraph does not appear to be justified by the evidence put before me. According to the evidence of Mr. Mel Dutton, who is a contract project manager whose services are provided to CWS through an organisation called Project One Consulting, in his first witness statement, the total cost of what was called "Vision 420", which was the project to install ISS300 and Vision in those former CRS stores which had not participated in Vision 32, was £6,956,238. For the purposes of seeking to evaluate the counterclaim of ICL for loss of profits on the assumption that the termination of the GlobalSTORE project amounted to a breach of the CRS Agreement, Mr. Lemar sought out documents which indicated what the total revenue anticipated by ICL from the GlobalSTORE project was. There was a lamentable paucity of documentation, but Mr. Lemar did find three draft budgets apparently produced with a view to being attached to an agreement between ICL and CWS in relation to the GlobalSTORE project, had such an agreement been executed. The budgets were dated, respectively, 14 June 2000, 19 October 2000 and 18 December 2000. The total budgeted revenue in each of those budgets, respectively, was £13,149,000, £12,989,000 and £12,994,000. Each of those figures suggests that it is likely that CWS achieved very substantial savings by adopting the ISS300 and Vision solution as compared with completing the GlobalSTORE project. However, it is fair to say that very little attention was given at the trial before me to the precise composition of the various budgets or their accuracy as an indication of the likely cost to CWS of completing the GlobalSTORE project. It is also right to say that no point was taken on behalf of ICL that CWS was overall better off by following the course it did than by completing the GlobalSTORE project. I therefore proceed to consider the individual claims for additional costs on their merits, on the assumption, of course, that CWS otherwise has a valid claim against ICL for damages for breach of some contract.

Vision 32

330. The sum claimed in respect of Vision 32 was what was said to be the additional cost to CWS of carrying out the Vision 32 project separately from the Vision 420 project in order to meet its commercial need for former CRS stores adjacent to former CWS stores to start to trade as soon as possible as CWS stores offering the Dividend. The Vision 32 project was in fact carried out by ICL. The validity of the claim in principle, on the assumption that CWS otherwise has a claim for damages for breach of contract, was disputed on the ground that the alleged loss was not foreseeable at the date of the contract for which CWS contended. I do not consider that that ground of objection would be sound if one supposed, as one has to for the purpose of considering the possible validity of this head of claim, that ICL had bound itself by contract to do something by a particular date which, had it been done, would have rendered the Vision 32 programme unnecessary. On that assumption the loss in respect of this element of claim would plainly have been foreseeable. If something agreed to be done by a particular date had not been done by that date and the failure to do it had implications for the business of CWS, it is obvious that steps might have to be taken to mitigate the effect of the breach by providing in some other way that which should have been provided.
331. Mr. Lemar accepted in his evidence on behalf of ICL that, if and insofar as it would have been cheaper for CWS to install ISS300 and Vision in the stores which participated in the Vision 32 project as part of an enlarged Vision 420 project, that is to say, if and insofar as CWS was put to additional expense as a result of installing ISS300 and Vision in the former CRS stores in two programmes rather than one, that cost should be recoverable. On the assumption that the need for two programmes arose because of a failure on the part of ICL to do by a date which it had contracted to meet something which, had it been done, would have rendered the Vision 32 project unnecessary, I agree with that analysis.
332. Mr. Boothroyd evaluated the additional cost of installing ISS300 and Vision in the stores which participated in the Vision 32 programme separately rather than as part of an enlarged Vision 420 programme at £238,532, the pleaded sum. Mr. Lemar raised two points on that quantification. The first was that it had been made on the basis that only the variable costs of the Vision 420 project would have increased if the Vision 32 stores had been included in an enlarged programme, and the fixed costs would have been unaffected. While he agreed with that approach in principle, he considered that the description, in a schedule prepared by Mr. Dutton, of some of what were contended to be fixed costs indicated that they were in fact variable costs. The second point was that there may have been some benefit to the managers involved in the Vision 420 project from experience gained in the Vision 32 programme, and that some allowance should be made for that in evaluating the worth of the Vision 32 claim.
333. I had sympathy with the first of Mr. Lemar's points. The descriptions to which he drew attention, namely "Additional PCMS resource", "ICL tills", and "ICL peripherals" did indeed look like descriptions of variable costs. Mr. Dutton was cross-examined by Mr. Carr about these items. He explained that CWS held a stock of tills and peripherals which was in effect recycled. He also said that the additional PCMS resource to which he had referred in his listing related to a contribution sought by PCMS to costs which were allegedly being incurred as part of rollout. I accept the evidence of Mr. Dutton on these points. Mr. Lemar in his cross-examination by Mr. Mawrey was effectively asked to assume that the facts of which Mr. Dutton spoke in relation to each of these items were correct, and, on the basis that the assumed facts were true, invited to agree that his concerns were misplaced. That he did. In the result I am satisfied that the first of Mr. Lemar's points had no substance on the facts.
334. The second of Mr. Lemar's points struck me as rather theoretical. In principle it could be valid, but it would depend upon the same managers being involved in Vision 420 as had been involved in Vision 32, and involved sufficiently soon after their involvement in Vision 32 not to have forgotten the experience which they had gained. There was no real evidence about this and in the end it seemed to me to be all rather hypothetical.
335. In the result, had it been appropriate to consider whether the Vision 32 claim had been established in the sum claimed of £238,532, I should have held that it had.

Bulk printing

336. The next item of alleged additional cost concerned what proved to be the rather vexed question of bulk printing, specifically of shelf edge labels ("SELs"), but also of other items, including price books, Multisave newsletters and order books. As I have already mentioned, CRS effectively outsourced its information technology requirements to ATOS, in fact under an agreement between them dated 30 June 1998. Following the transfer of the engagements of CRS to CWS CWS had a requirement for the format of, and information contained in, SELs in former CRS stores to match that used in former CWS stores. The information technology systems in place in and serving the former CRS stores were not able to provide this facility, although there were printers in the stores which could have undertaken the physical printing if the desired message as to what to print could have been communicated. Consequently, it was necessary for SELs to be printed at a central location in bulk and then distributed to individual stores weekly. One of the facilities which the GlobalSTORE project was supposed to provide to former CRS stores was the ability to print SELs in the format required by CWS in store. However, until that facility was available it was arranged by an agreement ("the Memorandum of Understanding") dated 31 May 2000 and made between CWS and ATOS that ATOS would continue to provide various services formerly provided under the agreement with CRS dated 30 June 1998 to CWS until 28 February 2001, with an option granted to CWS to extend that term until 30 April 2001. The services which ATOS continued to provide included bulk printing and distribution of SELs.
337. As it became clear that the former CRS stores would not be able to print their own SELs in the desired format in store by about the end of February 2001 a fresh agreement was made between ATOS, which by now had changed its name to Origin UK Ltd., and CWS specifically for ATOS to provide what was called a "Store Documentation Printing Service" to CWS for the former CRS stores. This new agreement took effect from 1 January 2001 and continued in force until 31 August 2001, with CWS having the option to continue the agreement for further periods of one month at a time. In the event, according to the first witness statement of Mr. Alan Foster, who is employed by CWS as a retail business manager, the agreement continued in force until 30 November 2001.
338. The facts in relation to SELs which I have set out so far were not controversial. Nor was it controversial that the sums in fact paid by CWS to ATOS in respect of the bulk printing and distribution of SELs totalled £469,948. The latter figure was agreed between Mr. Boothroyd and Mr. Lemar. What was controversial was what Mr. Foster contended would have been the cost of printing SELs in the format desired by CWS in the former CRS stores in the period January 2001 to November 2001 if the facility for such printing had been in existence. That cost Mr. Foster put in his second witness statement at just £87.41 per store per year, which would mean that the cost of printing SELs in the former CRS stores in the period January 2001 to November 2001 would have been only £29,843. The costs included in the calculation of that figure were only cost of paper and cost of additional toners for the in-store printers. Mr. Lemar's position was that the reduction in alleged costs was so great that it just could not possibly be right. He identified various likely costs of printing in-store which did not appear to have been included. In particular, Mr. Lemar noted that there was no allowance for cost of distribution of the paper or toners, no allowance for additional printer maintenance, no allowance for extra printer depreciation and no allowance for the labour cost of printing. The answers suggested to these points were, first, as appeared from the breakdown of the actual costs incurred by CWS in respect of bulk printing of SELs in the period January 2001 to November 2001 set out at paragraph 6.33 of Mr. Boothroyd's second report, the largest single element in those costs, amounting to almost half, was the cost of distributing printed SELs to stores. Apart from that, it was suggested to Mr. Lemar, and he agreed, that if the paper and additional toners, the delivery of which was not time-critical, were sent to stores when there happened to be space available on a delivery vehicle which was going to the store anyway, there was really no marginal cost of distribution. Again, it was suggested to Mr. Lemar, and he agreed, that if the additional printer usage resulting from printing SELs in-store was of the order of 7%, there may well not have been any significant need for additional printer maintenance. It was also suggested that the contract which CWS had for printer maintenance was fixed price regardless of the number of call-outs. As for printer depreciation, I think that Mr. Lemar accepted that, at the suggested level of increased usage, there was no need to adjust the basis upon which printers were depreciated. Finally, Mr. Lemar accepted that, broadly speaking, the labour cost of loading paper into a printer, switching it on and thereafter removing the printed SELs, would be likely to be equivalent to the labour cost of receiving printed SELs from a delivery vehicle, opening the package or packages, and putting the SELs in order.
339. In the end, while I share, and sympathise with, Mr. Lemar's unease about the dramatic alleged savings resulting from being able to print SELs in-store in the former CRS stores, unless one can put one's finger on what was wrong with the calculation performed by Mr. Foster, upon which Mr. Boothroyd based his calculation, there is no reason not to accept it. Thus, had it been necessary, I should have assessed the value of this part of the claim at the sum which is the arithmetical result of subtracting from the agreed actual cost of £469,948 the cost calculated by Mr. Boothroyd for in-store printing of SELs during the period January 2001 to November 2001 of £29,843, namely £440,105.

RB2

340. RB2 was the software application which produced price update files for the former CRS stores prior to the transfer of the engagements of CRS to CWS. The equivalent application within the existing CWS information technology system was CTS. Once the decision had been made by CWS that hosting of price update files should be by means of CTS rather than RB2 for the former CRS stores, one of the objectives of the GlobalSTORE project was that CTS should replace RB2 for the former CRS stores. RB2 was originally provided to CRS by ATOS. ATOS subcontracted the provision of support to CRS for RB2 to a company called AIM Commercial Systems Ltd. ("AIM"). By an agreement contained in a deed of novation dated 29 December 2000 made between (1) CWS (2) ATOS and (3) AIM ATOS assigned to CWS the benefit of its subcontracts with AIM for the provision of support to RB2 and CWS accepted the burden of those subcontracts. Strictly, therefore, the relevant subcontracts were novated as between CWS and AIM. Subsequently, by an agreement contained in an order and agreement form numbered 01/02/11980 made between AIM and CWS AIM agreed to provide out of hours support to RB2 from 1 March 2001 at a price of £17,845 per quarter. The agreement was signed on behalf of CWS on 16 February 2001. It was an express term of that agreement that:-

"Contract is payable quarterly in advance and is subject to a 13-week notice period for any review or termination."

341. In his first witness statement Mr. Stephen Garner, who is employed by CWS as head of applications management in the retail information technology systems department, said about RB2 and the agreement between CWS and AIM:-

"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."

342. There was no dispute that CWS did in fact maintain the support arrangements with AIM in place until 28 February 2002 and that the sum paid to AIM in respect of the period 1 June 2001 to 28 February 2002 was £53,535. The issues in relation to this element of claim were, first, whether, given the fact that at the date of the contract for which CWS contended the intention had been to retain RB2 in use in the former CRS stores, and not to replace it with CTS, this element of loss was foreseeable; second, whether had GlobalSTORE been installed in the former CRS stores by the end of March 2001, CWS would in fact have sought to terminate the arrangements with AIM on 28 February 2001; and third, as a sort of wrinkle, bearing in mind what happened when CWS actually sought to terminate the arrangements, whether CWS in fact appreciated that it was necessary to give 13 weeks notice to terminate.
343. An employee of CWS named Sean Pearson seems to have sent an e-mail dated 9 November 2001 to AIM which was passed to Mr. Stephen Farnill and which indicated that CWS at that time no longer wished to continue the support arrangements. No copy of the relevant e-mail was put in evidence, but it was referred to in the reply of Mr. Farnill in an e-mail dated 12 November 2001. The material part of that e-mail read:-

"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."

344. Receipt of the e-mail from Mr. Farnill dated 12 November 2001 prompted Mr. Pearson to enquire in an e-mail dated 13 November 2001 when CWS could cancel the support arrangements. Mr. Farnill replied in an e-mail also dated 13 November 2001 that:-

"The cancellation can take affect [sic] from the 1^st December 2001 and this correspondence can be taken as your intention to serve notice."

345. It is, I think, plain from the exchange of e-mails between Mr. Pearson and AIM to which I have referred that Mr. Pearson was unaware of the need for CWS to give 13 weeks notice to terminate the support arrangements with AIM. It was suggested by Mr. Boothroyd in answer to cross-examination from Mr. Carr on this item of claim that he had been told that had the need to give notice arisen in about February 2001 it would not have been Mr. Pearson who would have dealt with it, but a Mr. Hardman. Mr. Hardman was not called to give evidence, so it is a matter of speculation whether, as was suggested, Mr. Hardman would have appreciated the need to give 13 weeks notice under the arrangements made in February 2001. What seems more relevant is that new arrangements were made between CWS and AIM just at the time when Mr. Garner suggested that notice would otherwise have been given to terminate the support agreement. No evidence was led of what notice, if any, was required to be given under the sub-contracts originally made between ATOS and AIM which were novated as between CWS and AIM. It seems to me realistic, if the factual foundation for this head of claim was otherwise sound, that is to say ICL had been in breach of a contractual obligation to enable pilot to take place on 28 August 2000, which, had it happened, would have enabled CWS to complete the installation of GlobalSTORE in former CRS stores by the end of March 2001, to suppose that the new arrangements made in February 2001 would never have been made. However, if one then assumes that the new arrangements were made in an attempt to mitigate loss, prima facie the sum paid under the new arrangements, in respect of which it seems notice to terminate was given as soon as it was considered prudent, would be recoverable in full, subject to the foreseeability point. Consequently, the issues raised by Mr. Lemar do not really arise. Whatever the position was under the previous arrangements, new arrangements were made which did require 13 weeks notice. Mr. Pearson evidently did not appreciate the notice period required. However, accepting as prudent Mr. Lemar's point that CWS could not really be expected to give notice to terminate the support arrangements until it was confident they were no longer needed, it is difficult to see any scope for criticism of CWS for not raising the prospect of termination any earlier than it did. At that time the earliest date upon which effective notice could begin to run was 1 December 2001, and notice was given which did run from that date. However, the point as to foreseeability raised by Mr. Carr in relation to this item seems to me to be a complete answer, no matter how reasonable the steps actually taken by CWS. Even if CWS had established the contract for which it contended and breach of that contract I should have held that this item of claim failed.

Software and hardware

(a) ISS300 licences

346. The alleged foundation for this element of claim was that, at the time of the change in the GlobalSTORE project from using an ISS400 platform to using an ISS300 platform ICL agreed that there would be no additional cost to CWS in respect of the provision of licences for ISS300. That is indeed so, so far as licences for ISS300 used in connection with GlobalSTORE is concerned. However, the contention upon which this item of claim was based was, as it were, that ICL was bound to grant licences free of charge to CWS to use ISS300 in the former CRS stores whether or not used in connection with GlobalSTORE. Thus, so it was said, because when PCMS was employed to undertake the Vision 420 programme it had to obtain ISS300 licences from ICL which it passed on to CWS at a cost, that cost should be recoverable as damages from ICL. The Vision 32 programme was undertaken by ICL itself and no issue was alleged to arise in relation to the provision of the licences to use ISS300 installed as part of that programme.
347. In effect what CWS was saying in respect of this item was that under the contract for which CWS contended, as varied, ICL agreed to make CWS a present of licences for ISS300 for the former CRS stores, which gift it had failed to make, but was still bound to make. That is a false analysis. Once a contract has been broken and brought to an end, as CWS contended the contract which it alleged with ICL had been, there is no surviving obligation on either party to perform it. In place of any obligation to perform the contract there is substituted an obligation on a party in breach of contract to pay damages by way of compensation. The amount of those damages depends upon proof of loss, as I have already said. No loss, no damages, no matter how flagrant the breach. CWS not having attempted to demonstrate that the sum paid to PCMS for providing ISS300, with licences, and Vision to the former CRS stores included in the Vision 420 programme exceeded the sum which would have been payable to ICL for providing ISS400, with licences, or ISS300, with licences, and GlobalSTORE to those stores, can recover no damages in respect of this item.
348. Even if in principle it was open to CWS to recover damages in respect of the failure of ICL to provide free of charge licences to CWS in respect of ISS300 use in former CRS stores included in the Vision 420 programme, in my judgment CWS failed to prove what the cost of such licences was. There was put in evidence a copy of a letter dated 27 March 2002 written by Mr. Smith of PCMS to Mr. Kevin Bean of ICL, which letter set out an agreement which had been countersigned by Mr. Bean to indicate agreement to the contents. That letter included, as clause 3.1:-

"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

349. Under this heading were claimed the costs of what were said to be necessary modifications to software in respect of Item File Conversion, OLA/Allied Telesyn router development work, electronic journals and remote software distribution, as well as the costs of additional modems, DAT drives, routers, Stallion ports and additional memory. That PCMS in fact undertook the modifications to software and charged £100,000 for doing so was not in dispute. Again, it was not in dispute that outside contractors, such as Mr. Croll, were also involved in this work and charged £19,750 in respect of their involvement. There was a dispute as to the sum which it was sought to charge in respect of the time allegedly spent by CWS employees on this work, a total of £12,103. The issue was whether there was reliable evidence of how much time was spent, given the absence of time records. Once again, in my judgment the absence of contemporary records of time spent, and the reliance upon vague estimates of how long it was, in this case provided by Mr. Garner, is fatal to proof of that part of the claim. The main issues in relation to each of the alleged items of software development were whether it would have been necessary in any event if CWS had elected not to engage in the GlobalSTORE project and what prompted it. Those were also the real issues in respect of the claims in relation to supply of additional hardware.
350. I accept the submission of Mr. Carr that each of the relevant items of software development and each of the relevant items of hardware, if necessary as a result of using an ISS300 platform rather than the ISS400 platform already installed in the former CRS stores under the CRS Agreement, would have been necessary if the GlobalSTORE project had never undertaken. However, there remains the question whether they would have been necessary if the GlobalSTORE project in its original form, that is to say, using an ISS400 platform, had been completed successfully.
351. It is convenient to consider separately in relation to each of the relevant items of software and hardware what are the facts which are relevant to it and what connection it has with the change from ISS400 to ISS300.
352. There was a degree of inconsistency as to CWS's case in relation to Item File Conversion. Mr. Cook in his first witness statement at paragraph 128 said that:-

"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.
353. "OLA" is an abbreviation of the expression "On Line Authorisation". OLA is essentially the procedure for obtaining, where necessary, the authority of a financial institution for the use of a credit or debit card as a means of payment. A "router" is a device which links two parts of a network. The routers in question in connection with the item under consideration were links between tills in the former CRS stores and the relevant financial institutions. Mr. Cook, at paragraph 129 of his first witness statement, said:-

"…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.
354. While there is some possible difference between the accounts of Mr. Cook in his first witness statement concerning electronic journals, and that of Mr. Garner, my impression is that in relation to this item, at least, they were trying to describe the same thing. The clearer explanation was that of Mr. Garner in his first witness statement:-

"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.
355. "Remote Software Distribution" in fact describes a problem the nature of which is fairly easy to grasp. The tills in former CRS stores did not have visual display units – television type screens – but rather a two line display for customers. That meant that it was not possible to upgrade software at the till remotely using the existing CWS system of sending it with instructions displayed on the screen which could then be followed. Some alternative means of remote upgrading, or remote software distribution, was necessary. The solution was for Vision software to be modified so that remote upgrading could take place without the need for someone to follow instructions on a screen. GlobalSTORE was supposed, according to the evidence of Mr. Cook, to include the functionality to do this. Thus, on the case of CWS, the cost of employing PCMS to develop Vision was a cost consequent upon the failure of ICL to produce GlobalSTORE. It seems to me that that contention is well-founded on the hypothesis upon which all of the items of alleged additional cost are being considered.
356. For the reasons which I have set out, had it been necessary to consider whether any, and if so which, of the claims in respect of alleged additional software costs had been proved, I should have held that three out of the four elements raised had been demonstrated on the evidence. The sums claimed in respect of these items were not broken down between the individual items. All I could do in those circumstances would have been to treat each as having equal value, and thus awarded three-quarters of the costs which I found proved, namely the sum paid to PCMS and the sum charged by contractors, making a total of £89,812.50.
357. The alleged basis of the claim in respect of modems is that, if GlobalSTORE had been successfully installed in the Vision 420 stores, the overnight collection of batch files recording credit and debit card transactions would have taken place by means of the router to RSM, whereas Vision had no similar facility. That meant, according to Mr. Cook and Mr. Garner, that modems had to be installed in each of the stores in the Vision 420 programme to enable remote collection of the relevant files. Thus, on the hypothesis that, save in relation to the items claimed as additional costs in the amended Schedule 7 to the Particulars of Claim, the costs of the installation of Vision on an ISS300 platform were the same as the costs of completing the GlobalSTORE project, this element of cost does seem to me to be an extra the need to incur which was the change from GlobalSTORE to Vision.
358. A DAT drive is, in essence, a means of recording on a magnetic tape cartridge a copy of the information held on the back office system so that in the event of the loss of the information held on that system there is another copy kept safe. Vision utilised DAT drives for the purpose which I have described. GlobalSTORE used a more modern means of backing up information and so did not need a DAT drive. As a consequence of the change from GlobalSTORE to Vision DAT drives had to be provided, so it was said, in each of the former CRS stores which participated in the Vision 420 programme. Again, therefore, on the hypothesis which I have adopted in a consideration of this part of the claims of CWS, the claimed cost of DAT drives would be recoverable if there had been a contract and ICL had been in breach of it.
359. The claim in respect of the cost of routers as hardware is simply in respect of the cost of the hardware associated with the claim in relation to OLA which I have already explained. Consequently, the cost of the actual routers would be recoverable on the same basis as the software costs of developing a solution to the problem of routing. However, as Mr. Garner accepted in cross-examination, the existing CISCO routers had a resale value. What that value was was not established. It seems to me that against the cost of the new routers should be set the resale value of the old ones. As that was not done I am not satisfied that any element of loss has been established in relation to routers.
360. The justification for the claim in respect of Stallion ports was explained by Mr. Garner in his first witness statement in this way:-

"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."

361. In his second witness statement Mr. Featherstone disputed the accuracy of the evidence of Mr. Garner as to the need for additional ports. He said that not all former CRS stores had an "intelligent" port, and those that did not did not need any additional port. Mr. Featherstone did not support his doubts with any specific information and so, with some hesitation, because in relation to other matters of alleged additional cost of which he gave evidence Mr. Garner did not seem to be particularly well-informed, I accept the evidence of Mr. Garner in relation to Stallion ports. Thus I should have found the cost of Stallion ports to be recoverable had I found that there was a contract between CWS and ICL and that ICL was in breach of it.
362. The last element of claim in respect of the alleged additional costs of hardware which had to be acquired as a result of the change from GlobalSTORE to Vision was in respect of additional memory. What Mr. Cook said about this at paragraph 137 of his first witness statement was:-

"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."

363. In his second witness statement at paragraph 12 Mr. Featherstone said that, while he was uncertain exactly what point was sought to be made in connection with this element of claim, ISS400 tills had at least 64MB of memory which was more than was needed for the operation of ISS300, so no memory upgrade was necessary. Mr. Cook was cross-examined on this issue by Mr. Carr. During the course of his cross-examination (Transcript page 652 line 24) Mr. Cook was asked how much memory ISS400 tills had. He said that he had no idea. He was also asked (Transcript page 653 line 21) what was the memory requirement for ISS300. He said that he did not know. He did say that he was confident that extra memory was in fact provided, but in the light of his answers in relation to the actual memory of ISS400 tills and as to the memory requirement for ISS300, I am not satisfied that it was actually necessary for CWS to provide extra memory for ISS400 tills consequent upon the change from ISS400 as a platform to ISS300. This element would, therefore, fail in any event.
364. According to the first witness statement of Mr. Dutton at paragraphs 20 and 21, the figure of £635,240 which is the total claimed in respect of additional hardware costs was made up of actual cost to PCMS of £535,000 plus an apportionment of an agreed overhead of £300,000, which apportionment amounted to £100,240, or a mark-up of 18.736%. The values agreed between CWS and PCMS before addition of overhead, according to Mr. Dutton, whose evidence on this issue I accept, was £56,000 for modems, £208,000 for DAT drives, £147,000 for routers, £44,000 for Stallion ports and £80,000 for memory. In the light of my findings as to hardware, the otherwise agreed figure of £635,240 would fall to be reduced by an amount of £269,530.72, being the aggregate of £174,541.92 (£147,000 plus a mark-up of £27,541.92, or 18.736%) in respect of the failure to prove the claim in respect of routers and £94,988.80 (£80,000 plus a mark-up of £14,988.80 or18.736%) in respect of the failure to prove the claim in respect of additional memory, if otherwise the claim for damages in relation to alleged additional hardware costs succeeded.

(c) Harlech expedite costs

365. It was agreed that the sum of £63,885 claimed under this head in respect of the extra charges of PCMS of £50,000 and of a Mr. Robin Withey of £13,885 in relation to meeting the deadline of CWS for installing Vision in the trial stores in the Harlech Television region so that the trial of the Revised Dividend could commence on 1 July 2001 was actually spent. However, it was contended on behalf of ICL that the otherwise agreed sum was not recoverable in any event for two reasons. The first was that it was not foreseeable at the date of the contract contended for on behalf of CWS, namely March or April 2000, that CWS would want to proceed with the Harlech trial as part of the installation of GlobalSTORE, or at a time fixed on the assumption that particular progress would be made with GlobalSTORE. On the totality of the evidence it seems to me that that submission is well-founded. It is plain, in my judgment, from the contemporaneous communications between the information technology department of CWS Retail, on the one hand, and Mr. Bowes, on the other, that while Mr. Bowes wished the Harlech trial to take place starting in February, not January, as now alleged, 2001, the information technology department was not prepared to commit itself to anything. Moreover, there was no evidence that it was ever made clear to ICL at the time of the alleged agreement that the date of the Harlech trial was in any way fixed, dependent upon the conclusion of the GlobalSTORE project. Thus it seems to me that the first ground of objection to this item of damage taken on behalf of ICL was well-founded, and that the claim fails on that account. In my judgment it also failed for the second reason advanced on behalf of ICL, namely, that on the facts, in the light of the evidence of Mr. Bowes in cross-examination (Transcript page 962 line 19 to page 963 line 13), it seems that the necessary modification to the software already in the former CRS stores in the Harlech Television region to enable the Harlech trial to proceed had been made in, or at least shortly after, January 2001. Mr. Garner's evidence, at paragraphs 72 to 74 of his first witness statement, was that the Harlech trial was facilitated by a "workaround" devised by the information technology department of CWS Retail and in respect of which a Project Initiation Document was produced on 9 February 2001. There was no satisfactory explanation as to why the Harlech trial did not proceed when Mr. Bowes had originally wanted it in the light of the fact that it seems that it was then technically possible to have proceeded.

RF

366. So far as is material for present purposes, tills in a retail store can communicate with each other and with the back office in one of two ways. The first, traditional, method is by means of signals sent down cables – what is called "hard wiring". The second, more modern, method, is by radio frequency, "RF", transmissions over a Local Area Network or "LAN". The way in which the issue surrounding RF arose in the present case was described in the first witness statement of Mr. Garner:-

"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."

367. The alleged justification for the claim in respect of RF seemed to be that the need to hard-wire was caused entirely by the decision to change from an ISS400 platform to an ISS300 platform. It seemed to be contended that while RF would work perfectly satisfactorily with an ISS400 platform, it would not with an ISS300 platform. That contention was disputed by ICL on technical grounds. Mr. Christopher Kent, who is an employee of ICL who is expert in the field of RF, was called to give evidence in relation both to the supposed problem and in relation to investigations which he made at the time of the complaints of CWS about problems with RF. Mr. Kent's witness statement included the following:-

"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."

368. The evidence of Mr. Kent which I have quoted was not contradicted on technical grounds by any evidence led on behalf of CWS. Mr. Kent was cross-examined but faintly by Mr. Mawrey, and there was no suggestion made to him that his technical conclusions expressed in his witness statement were flawed. Rather the line taken by Mr. Mawrey in cross-examination of Mr. Kent was that Mr. Kent was not a retail grocer and so he could not say that it was unreasonable of CWS to want to have functioning tills in its stores. That wholly missed the point of what CWS had to show in order to succeed in this item of claim, which was that, however reasonable the decision of CWS to go for hard-wiring, the need for it was the result of some default on the part of ICL. That was not shown, and so this head of claim would have failed even if there had been a contract between CWS and ICL and ICL had been in breach of it.

Conclusion

369. This action fails in its entirety and is dismissed. For the reasons which I have set out in this judgment, it seems to me that the claims made in this action were ill-considered and misconceived. In the absence of a contract between CWS and ICL there could be no question of ICL being in breach of contract or of CWS having been induced to enter into a contract by misrepresentation. The formidable problems of showing a contract seem never to have been seriously addressed before the trial of this action, and even at the trial Mr. Mawrey showed no enthusiasm for grappling with them. The whole focus of CWS's case was how outrageous it was that ICL could have conducted itself as it did, as if indignation would carry the claims forward past the legal and factual difficulties. No attention appears to have been given to the issue whether, assuming that the contract for which CWS contended was made out, CWS was in law justified in treating that contract as having been repudiated at the time the decision to proceed no further with the GlobalSTORE project was taken. No one even seems to have looked at CWS's own evidence as to the ground upon which it was actually decided to proceed no further and to have wondered whether that ground could seriously be presented as acceptance of some repudiation of the contract contended for. In the formulation of the claims for damages elementary principles as to quantification, foreseeability and the circumstances in which allegedly wasted costs can be claimed were disregarded. The approach to considering the quality of the evidence as to causation of alleged loss of profits was in my judgment so far deficient as to involve a wholesale suspension of disbelief when looking at what conclusions could fairly be drawn from the results of the Harlech trial and the introduction of the Revised Dividend. The result is that there was not merely a fatal flaw in CWS's case from the outset, but that that flaw was compounded rather than mitigated by looking at other parts of the case. Making the most generous assessment of the totality of the evidence CWS's case was not worth anything like the sum which it needed to be worth to justify the cost incurred in the litigation.
370. For the reasons which I have given the Counterclaim for a revision of the sums due under the CRS Agreement succeeds and there will be judgment for ICL for the agreed amount of the revision, £1,012,422, together with interest, as to which I will hear Counsel.

Organisation of trial bundles

371. Although this is already a very long judgment, in particular having regard to my conclusion on the contract issue which was fatal to the claims in the action on its own, I find it necessary to add a paragraph on the organisation of the trial bundles in this case. What was thought appropriate, I know not by whom, was to organise the bundles so that the statements of a factual witness who made more than one statement were found in different bundles and that attached to each statement of each witness of fact, again in bundles separate from the statement itself, were copies of the documents to which reference was made in the statement. There was no bundle or series of bundles in which was to be found a straightforward collection arranged in chronological order of contemporaneous documentation of any particular category, such as communications between the parties, records of tests, specifications or the like. Some contemporaneous material was to be found in bundles annexed to expert's reports. The first avoidable consequence of the approach which was adopted to the preparation of the bundles was that there was far too much physical material in the bundles. Each document which was referred to by more than one witness was copied separately for each witness who referred to it. That had the consequence that any given document had a number of different references in the bundles, so that the same document could be, and was, identified during the trial by a number of different page and bundle references, which does not assist comprehension. The failure to organise the bundles of contemporaneous material in chronological runs meant that, during cross-examination, it was often necessary to have open three or four bundles simultaneously in order for a line of cross-examination based on a particular sequence of exchanges between the parties to be pursued. It has also meant that it has been quite unnecessarily difficult for me to organise the material which I have needed to consider for the purpose of preparing this judgment. In short, the way in which it was decided to organise the trial bundles seemed to have been contrived to make life as difficult as possible for anyone who actually had to use the bundles, rather than to charge for their preparation. Given the conclusions which I have reached in this case, it may be that there is no separate need to consider a special order for costs in relation to the mindless and wasteful way in which the trial bundles were prepared. However, it is a matter which those responsible for preparing bundles for use at a trial should consider carefully, for on any occasion upon which it does matter, it may be expected that the court will take an unfavourable view of bundles which contain needless numbers of copies of the same document and are organised so as to be as difficult to use as could be devised.