Co-Operative Group (CWS) Ltd v International Computers Ltd

A trial is unfair where a judge, without warning, adopts an unpleaded case of bad faith as a critical explanation of events and then uses that finding to determine other disputed issues. Fundamental fairness requires the affected party to have an opportunity to answer the concern.

An appellate court must assess fairness across the judgment as a whole. A retrial is required where an unsupported theory has pervaded the assessment of witnesses, facts and law so extensively that reliable findings cannot be isolated. Strong criticism or findings against one party do not themselves establish unfairness, provided they rest on material properly tested at trial and reflect an objective judicial assessment.

CWS claimed approximately £11 million from ICL for repudiatory breach of contract and misrepresentation arising from a project to integrate the information technology systems of two merged retail businesses. Following a 20-day trial, the Technology and Construction Court held that no relevant contract existed. It also held that, had there been a contract, ICL had neither repudiated it nor induced it by misrepresentation.

CWS appealed principally on the ground that the trial had been unfair. The trial judge had found that senior CWS managers were pursuing a malevolent strategy to escape their commercial relationship with ICL and exact revenge for earlier grievances. That case had not been pleaded, put to the witnesses or raised with the parties. The central issue was whether those findings had deprived CWS of a fair trial and tainted the remaining findings so extensively that a retrial was necessary.

1. Appeal allowed and retrial ordered. The court, in a joint judgment, held that the trial was unfair. The judge had fundamentally erred by adopting, without warning, an unpleaded case that senior CWS managers had acted throughout in bad faith. Fundamental fairness required that concern to be raised with the parties so that CWS could answer it.

2. The bad-faith theory was unsupported and commercially improbable. It went beyond ICL's case and had not been put to the witnesses. The judge had nevertheless treated it as a critical explanation of CWS's conduct throughout the project. The theory consequently affected his assessment of the parties' motives, the credibility of CWS's witnesses, the quality of the software and disputed questions of law.

3. The lower court's alternative conclusion on repudiation could not independently sustain the dismissal. Its reasoning placed improper weight on CWS's stated reasons for ending the relationship and on ICL's refusal to accept a liquidated-damages term. A repudiation may be justified by any valid ground existing at the time, even if the innocent party then gives an invalid reason or gives no reason. Nor would CWS's willingness to continue if ICL accepted additional terms defeat an otherwise valid right to terminate.

4. The contract analysis also failed to address the admitted alternative that the project fell under the existing umbrella agreement. Where parties already have contractual relations contemplating further work, their performance and payment for additional work are material to whether the existing agreement has been extended or varied. The absence of an entirely new agreement did not, without further analysis, dispose of that question.

5. The finding of unfairness did not rest merely on the judge having preferred ICL's evidence or decided disputed issues against CWS. It arose because untested findings of bad faith distorted the judge's objective assessment of other issues. The Court of Appeal expressed no view on the merits. Although a retrial might reach the same result, it was the only means of ensuring that the claim was decided fairly. Permission to appeal to the House of Lords was refused.

1. Court of Appeal (Civil Division): The court allowed CWS's appeal in [2003] EWCA Civ 1955, set aside the dismissal and ordered a retrial. Permission to appeal to the House of Lords was refused.
2. Technology and Construction Court: His Honour Judge Seymour QC dismissed CWS's claims in their entirety and entered judgment for ICL on its counterclaim. The citation of that decision is not stated in the judgment.