Rules of engagement

Gore Vidal once said that, “in middle age, litigation replaces sex”. For most of those involved in managing IT contracts, litigation – or indeed any level of dispute – does not hold such appeal.

With high-value IT projects, disputes are, unfortunately, almost inevitable. And failing to manage and resolve those disputes effectively at an early stage can destroy valuable commercial and business relationships, divert management resources and cost a great deal of time and money – even spelling the complete failure of a project.


The Co-op v ICL

In January 2003, the Co-operative Group lost a legal battle against ICL (now Fujitsu Services) that centred around a contract for point-of-sale (POS) software.

The dispute dated back to March 2000 when the Co-op commissioned ICL to establish a POS system that would work across the whole group. By January 2001, the Co-op had decided that problems with the pilot versions of the software were bad enough for it to end the contract – even though the agreed roll-out date was still two months away. In October 2001, the Co-op filed a lawsuit claiming £11 million in damages.

But when the case came to court in late 2002, there were problems with the Co-op’s case, including the lack of a formal contract, a witness that lied and inflamatory emails.

The judge ruled in ICL’s favour, awarding it damages of £1.2 million and concluding that the Co-op sought to end the contract unfairly. The Co-op is currently appealing against the judgement.  

The recent case of Co-operative Group v International Computers Limited (ICL) provides a salutary lesson on the steps both suppliers and users should take in order to manage a dispute effectively.

The background of the case is highly relevant. In early 2000, the Co-operative Group merged with Co-op Retail Services (CRS), with CRS transferring its business undertakings to the Co-op Group. As a result, the Co-op inherited a contract that CRS had with ICL for software and ancillary support services. Various discussions then took place between the Co-op and ICL with a view to replacing this contract with a new one containing additional requirements, but it seems nothing formal was agreed between the parties. Eventually, the Co-op sought to terminate its relationship with ICL, a move that led both parties to allege breach of contract by the other.

The judgment, when it came in January 2003, dealt with a number of contractual issues, such as the formation of a contract, breach, damages, foreseeability of loss, etc. But the important issues relevant to dispute management lay elsewhere. These related to the way the project, and then the dispute itself, were handled – both before and after proceedings were issued. In fact, His Honour Judge Richard Seymour QC concluded that the case should never have gone to court.

Hit the fan

There are plenty of lessons to be learnt from the case. First, at a time of potential dispute – and ideally right at the start of a project – it is important to think carefully about the manner in which any views on issues such as performance and delivery are recorded. You should always bear in mind that any documents created could be disclosable and then used in evidence against you in any subsequent litigation. If reports on problems with the contract are to be commissioned, it is better to instruct a solicitor to commission the report so that these will, in all likelihood, be protected by privilege and so not disclosable to an opponent.

In the Co-op v ICL case, many emails and internal reports were created by the parties throughout the life of the project (and indeed afterwards), and some of these turned out to be highly damaging. For example, on ICL’s side an internal email between members of the company’s project team included a reference to the delivery of software that was “a very poor quality release… functionality we have developed will be a poor fit to [the Co-op’s] requirement/expectations… be prepared for the source summary_source to hit the fan”. On the Co-op’s side, the company had commissioned an internal report from an external company that reviewed the work provided by ICL, which concluded that a successful outcome of the project was in fact likely.

Many damaging documents such as these had to be disclosed when litigation commenced in accordance with court rules, but this situation could easily have been avoided.

It is important to think carefully before committing anything to correspondence if you later wish to rely upon it in court. If you feel you have a complaint to make, think carefully about the way in which you draft that complaint. Do not list every single possible complaint that there may be, as this could be seen as pedantic and antagonistic behaviour. Instead, set out the main issues clearly


Dispute protocol

If it looks as though you may have an IT contract dispute on your hands, take the following steps as soon as possible:

1. Review the facts, consider the contract terms and check out the other parties.

2. Think carefully about the cogency and credibility of your written and oral evidence – particularly any witnesses that may be called.

3. Look at the commercial context from all angles.

4. Consider options to resolve the dispute – including flexible solutions – and understand the costs implications.

5. Formulate a strategy based on this cost/benefit analysis.

6. Avoid creating documents that may be damaging in subsequent litigation – brief the whole team so that they are fully aware of the dangers of such communications becoming disclosable.

7. Ensure that any correspondence that you send to the other side is fair, reasonable and unemotional.

Source: Eversheds



and calmly, stating that the list is non-exhaustive, if necessary. Be reasonable in your approach and refer to those complaints that clearly have an impact on the completion of the contract.

One problem that the Co-op faced in the litigation was the fact that the organisation’s IT manager had begun drafting a complaint letter to ICL’s chief executive, allegedly to justify termination, at a time when the software was still successfully undergoing testing. The judge did not find this consistent with the Co-op’s assertions at trial that it was keen for the project to succeed, and he disliked the content and tone of the letter considering it to be “calculated to cause offence… and just plain bad manners to treat the chief executive of a major company in this way”. When the letter is read in full, it does not seem the most inflammatory document that has ever been sent during a project, but clearly the judge found it inappropriate.

Falsified evidence

It is also crucially important, if a case is to proceed to trial (if not before proceedings are even commenced), that you ensure your witnesses are reliable. Remind them of the consequences of perjury. If there are any doubts in relation to a potential witness, it is vital that you discuss this with your legal advisors so that they can test the cogency and credibility of this evidence.

Certain witnesses presented by the Co-op at trial did not find favour with the judge, who considered that at least one witness had falsified his evidence. One individual stated that the software failed the testing he had performed, but the judge found that the witness had actually been on holiday during this time.

In addition to learning a lesson in dispute management from the litigation, there are a number of other steps that can be taken to ensure that disputes are managed effectively and efficiently.

It is important to identify disputes at an early stage and take immediate steps to manage them. Disputes that are left to fester become complex and difficult to resolve. Therefore, take legal advice at an early stage and think about all of the options that are open to you in the hope of achieving a resolution to the dispute. Above all, it is important to seek a resolution that has a positive impact upon your business.

In considering your options, you must ensure that you fully appreciate the facts surrounding the dispute. Verify the problem, review the contractual documentation and consider all of the parties that may be involved in the dispute, including insurers and other third parties.

Think about the commercial context. For instance, how does this dispute affect your business and how does it affect the business of your opposing party? Once you have considered the commercial context, it should be much easier to think about the options which may be available to you. Litigation is not the only option, there may be a number of other options available that will be less damaging to the commercial relationship, such as mediation, negotiation or conciliation.

Resolving a dispute without litigation will generally mean that you can be much more creative about the settlement. For example, in an IT dispute there may be the possibility of extending support and maintenance arrangements, discounting professional services rates or reducing licence fees.

Finally, it is important to assess the costs attached to any particular option that you are considering. Once you have done that, you will be able to form a strategy with your legal advisors for dealing with the dispute in the most cost-effective way possible.

Taking all of the above key steps in partnership with your legal advisors at an early stage should result in the effective management of any dispute.

Four months after this article was published, the Co-op won a re-trial of the case on appeal on the grounds that the judge in the original case had shown a consistent bias against the Co-op.

Co-op wins retrial against ICL over ‘biased’ judge (23 December 2003)

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Ben Rossi

Ben was Vitesse Media's editorial director, leading content creation and editorial strategy across all Vitesse products, including its market-leading B2B and consumer magazines, websites, research and...

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