The British High Court has ordered online music store CD-Wow to pay £41m in compensation to the British Phonographic Institute (BPI) after breaking a promise to stop selling CDs and DVDs in Britain.

The ruling stated that Music Trading Online, which owns CD-Wow, was "in substantial breach" of a 2004 agreement to stop importing CDs from places like Hong Kong and selling them to consumers in the UK at up to a third off high street prices.

The damages award is the largest ever made in favour of the BPI.

"The vibrancy of British music depends on a fair return on the investments that allow British talent to shine," said BPI chief executive Geoff Taylor. " This decision is an important step in ensuring that British music has a bright future."

However, CD-Wow denies deliberately breaking the court undertaking, and puts any breach down to human error.

The company maintained that the British courts had set a "dangerous precedent " and that the ruling "spelled disaster for millions of music fans who object to being ripped off by unnecessarily expensive albums".

The BPI has already obtained an order against CD-Wow, freezing all of its assets and bank accounts in order to recover the money it is now owed.

"CD-Wow has consistently broken the law. Clearly the courts have lost patience with this rogue retailer," said BPI lawyer Roz Groome.

"Any company seeking to engage in this type of illegal trade will face the toughest sanctions."

Henrik Wesslen, chief executive of CD-Wow, said: "I fear what is happening is an attempt to use the combined brute force of the record industry to force the retailers and, in turn, our clients, to keep lining the pockets of the fat cat executives.

"It should not matter whether we are buying from an official distributor in the UK, Europe or the Far East. What is important is that we are buying legitimate products from the record companies themselves."

CD-Wow has vowed to appeal against the ruling in the European courts and has called for a full review of copyright law.