ONTARIO

SUPERIOR COURT OF JUSTICE

COURT FILE NO.: CV-15-122363-00

DATE: 20151009

BETWEEN:

HONDA OF CANADA MFG.

Applicant

– and –

MICRO FOCUS (CANADA), LIMITED and MICRO FOCUS (US), INC.

Respondents

Geoff Moysa and Anna Tombs, for the Applicant

R.S.M. Woods and Jessica Lam, for the Respondents

HEARD: September 30, 2015

HEALEY J.

Nature of the Application

[1] The applicant, Honda of Canada Mfg. (“Honda”), seeks declaratory orders pursuant to r. 14.05(3)(d), declaring that:

(a) The standard Micro Focus End User License Agreement (LIC-GEN MF017) terms dated November 1, 2009, are not part of any contract with Honda and consequently are not binding on it;

(b) The standard IONA Packaged Software License Agreement terms in force between February 2003 and September 2003 (the “IONA PSLA”) are not part of any contract with Honda and consequently are not binding on it;

(c) The respondents are not entitled to any payments beyond the support and license fees already paid to date; and

(d) Honda is entitled to its costs on the application.

[2] The relief sought in 1(a) above was not pursued in Honda’s factum or argument.

The Scope of Rule 14.05(3)

[3] Honda asks this court to define the terms of the contract that govern its relationship with the respondents (collectively “Micro Focus”), and in the process, to make a finding that the standard IONA PSLA terms are not part of any contract governing its relationship with Micro Focus. Accordingly, this application seeks more than just a determination of rights dependent upon the interpretation of a contract, pursuant to r. 14.05(3)(d). Honda seeks, at a minimum, a finding of fact that the standard licensing terms were never the subject of an offer and/or acceptance between the parties that led to the formation of a contract.

[4] Honda submits that this case is appropriate for the more summary procedure afforded by r. 14, relying on the Supreme Court of Canada’s statements in Hrynik v. Mauldin, 2014 SCC 7, [2014] 1 S.C.R. 87, at para. 2:

Increasingly, there is recognition that a culture shift is required in order to create an environment promoting timely and affordable access to the civil justice system. This shift entails simplifying pre-trial procedures and moving the emphasis away from the conventional trial in favour of proportional procedures tailored to the needs of the particular case. The balance between procedure and access struck by our justice system must come to reflect modern reality and recognize that new models of adjudication can be fair and just.

[5] The foregoing statement from Hryniak does not change the fact that applications, as a quicker route to resolution than trial, are meant for cases in which the matter can be decided on the paper record. Such records may include cross-examination evidence, as is available in this case.

[6] Where the application judge is required to make findings on material issues based on disputed evidence or evidence that is capable of giving rise to competing inferences, the application must either be dismissed or the trial of an issue directed under r. 38.10(1)(b): Enticor Properties Inc. v. Quik-Run Courier Ltd., 2005 3363 (ON CA), 195 O.A.C. 138, at para. 2. During submissions, both counsel requested that the court not direct a trial in the event that the application was not granted.

[7] Although Honda does not move under subsection (h) of r. 14.05(3)(h), that subsection also underscores that the scope of the rule is meant to exclude matters involving contentious facts. Honda’s counsel requested that the scope of the rule and this court’s jurisdiction to make findings on an application be fully briefed before the court made any rulings based on such principles, as these issues were not raised by Micro Focus in its factum. However, both r. 14.05(3) and the law set out in Enticor Properties are sufficiently clear, such that no further submissions are required. Enticor Properties has not been appealed or overruled.

Factual Overview

[8] In 1998, Honda contracted with IBM to install a computer system to control its plant assembly lines. That computer system contained a piece of software called Orbix, which was created and licensed by a company called IONA Technologies, Inc. At the time of installation, Honda’s only dealings were with IBM; there is no evidence that it entered into any contract with IONA Technologies.

[9] The rights to Orbix were eventually acquired by Micro Focus in 2013. Honda paid Micro Focus and its predecessors a support and maintenance fee relating to its use of Orbix of $8,000 to $10,000 every year since its installation, through to 2014.

[10] At the time of installation Orbix was installed on fourteen computers and two servers. Each of these computers had a single processing unit at the time. Today, Orbix remains installed on the same number of computers and servers as it did when the assembly line control system was installed. It is an uncontested fact that Orbix allows certain computer terminals, known as graphical user interface terminals, to communicate with non-graphical user interface terminals. This feature is integral to the functioning of Honda’s assembly line control system.

[11] Due to hardware upgrades, the original computer workstations now have dual or multi-core processing units. Sometime in the early to mid-2000s, Micro Focus’ predecessors moved to a “per core” licensing model in the standard licensing agreement, subsequently adopted by Micro Focus.

[12] In 2015, Micro Focus undertook an audit relating to Honda’s use of Orbix, and concluded that Honda is only licensed to use Orbix on “2 CPU/Cores” for each of its AIX and Windows environments, whereas Honda was using Orbix on 32 AIX cores and 48 Windows cores. Micro Focus issued a summary letter to Honda, in which it took the position that Honda is now obligated to pay license fees for Orbix on a “per core” basis. Although Orbix remains in use on the same number of computer workstations and servers as when the assembly line control system was installed, Micro Focus asserts that Honda has over-deployed the licenses by a magnitude of over 70 cores. In the result, Micro Focus has delivered a demand for payment of $1,381,223.

Onus

[13] As submitted by the defendant, this application is a “pre-emptive strike” to knock out litigation threatened by Micro Focus. Honda seeks a ruling that will leave no doubt that it is not indebted to Micro Focus.

[14] Had Micro Focus commenced an action to recover the money that it says is owed by Honda, the onus would then be on Micro Focus to establish the contractual terms giving rise to its alleged damages. This would require them to prove the timing and scope of the initial licensing agreement, which Honda alleges was entered into in about 1998 through IBM’s efforts, and Micro Focus alleges may have been entered into at a later date. Currently, neither party has any documents that specifically address Honda’s rights as a licensee of Orbix for either of those time periods. Micro Focus would also have to prove the terms by which Honda was initially bound, which are potentially very different from those contained in the standard licensing terms that are alleged to have accompanied an Orbix software update in 2003. As earlier explained, those later terms would result in a radical increase in the support, maintenance and licensing costs due to Micro Focus’ introduction of the per core licensing fee model. It is common ground that the last software update was made in 2003.

[15] Instead, by initiating this application Honda has taken on the very difficult task of having to prove a negative – that it never agreed to be bound by the standard IONA PSLA terms that were created at a yet undetermined time, and which are said to have been accepted by Honda during the 2003 upgrade. It is Micro Focus’ position that in order for the Honda technician to have installed the software, he would have had to accept and agree to the standard licensing terms that were shipped with the product. As a precondition of installing the software, this technician would have had to “click-through” the license agreement and indicate acceptance by clicking an “I agree” button. Neither party has produced evidence of such an agreement, but in the course of an action, the onus would be on Micro Focus to satisfy the court on the balance of probabilities that Honda bound itself to the terms of such licensing agreement in 2003.

[16] Honda submits that on this application, the onus of proof and/or the evidentiary burden rests on Micro Focus to demonstrate that someone at Honda agreed to those standard terms when the software upgrade to Orbix was installed in 2003.

[17] The court cannot accede to this submission. As the applicant, Honda bears the onus of establishing that it is entitled to the declaration that it seeks. The attempt to shift the onus highlights why an application of this nature is a problematic procedure for attempting to establish the existence, or in this case the absence, of a contract.

Ruling

[18] The application must be dismissed because there is both insufficient and conflicting evidence regarding whether the licensing terms associated with the 2003 software upgrade were ever delivered to and accepted by Honda, which is a material issue in the proceeding.

[19] As earlier stated, Micro Focus produced general evidence that in order to successfully install the software, Honda would have had to accept and agree to the standard licensing terms that were shipped with the product. Micro Focus’ affiant, Mr. Killen, provided evidence that by 2003 software updates were primarily by way of electronic copy, downloadable through file transfer protocol. While physical shipments of software updates via CD-ROM were still available, they were becoming rarer and rarer, and required exception. As earlier stated, as a precondition of installing the software, customers would have to “click-through” the license agreement and indicate their acceptance by clicking an “I agree” button.

[20] Honda has not provided evidence to establish the process by which it upgraded the Orbix software in 2003. Neither Mr. Madden nor Mr. Chambers, the two individuals with some knowledge of the initial installation in the 1990s, had any involvement in the 2003 upgrade. The technician who installed the software, Mike Poole, did not provide evidence on the application, and there is no evidence to explain its absence. The court cannot speculate as to whether Mr. Poole would or would not have evidence regarding a licensing agreement in any format that may have accompanied this upgrade. Further, during the 2015 audit, a license file was provided by a Honda employee named Xiaofen Wang, which was used in her PC. Ms. Wang is an employee in Honda’s information systems department, and was in 2003. She provided no evidence as to whether she has any knowledge of the licensing agreement in question.

[21] Without some evidence of the receipt and acceptance of this licensing agreement, whether electronically, in hardcopy, or in downloadable or CD-ROM format, the court cannot make findings regarding the offer and acceptance of the terms of any contract. Further, it remains uncertain whether the law relied on by Honda, which imposes a higher standard on Micro Focus to show receipt or acceptance of the terms contained in a standard form agreement, is applicable in this case.

[22] Honda argues that based on the affidavit evidence of Paul Chambers, the software update was installed by Honda’s AIX co-ordinator. The AIX coordinator has a technical role within the information systems department. The role does not carry with it the authority to contract on behalf of Honda, as such authority is reserved for the department manager. The latter individual was not identified in Mr. Chambers’ affidavit, nor was evidence provided by such person with respect to the ordering or installation of the 2003 Orbix upgrade. Accordingly, the record is inadequate to make a finding that installation was performed without notice of, or reference to, any licensing agreement that may or may not have come to the attention of this department manager at the time.

[23] The affidavit evidence on this major point also conflicts. Mr. Killen’s affidavit offers generalities as to how Honda may have received notice of the standard licensing terms. Honda, through Mr. Chambers, deposed that it has no record of ever receiving any Orbix licensing terms until the audit in 2015. However, Mr. Chambers only became the group leader of the information systems department in 2008; during the relevant dates in or around 2003, he worked in various roles in Honda’s production control department. Accordingly, it is problematic for him to speak of any licensing terms that may or may not have been brought to the attention of Honda in 2003, and an assessment of his credibility may be required.

[24] Honda also argues that the court may look to the fact that there has been consistent use and payment in relation to Orbix use from 1998 to 2015, based on invoices delivered by IONA and its predecessors. Honda relies on Saint John Tug Boat Co. Ltd. v. Irving Refinery Ltd., 1964 88 (SCC), [1964] S.C.R. 614, for the proposition that an agreement may be established by the conduct of the parties, viewed objectively. Accordingly, conduct unaccompanied by any verbal or written undertaking can constitute acceptance of an offer. Honda argues that the only ascertainable pattern of conduct between the parties is Honda’s consistent annual payment of $8,000 to $10,000 over the course of nearly 20 years of using Orbix on the same number of computer workstations. The terms of the contract between the parties must therefore be viewed as consistent with that conduct.

[25] As argued by Micro Focus’ counsel, the difficulty with treating this evidence as conclusive proof of the absence of the purportedly new licensing agreement is that the annual payments were only in respect of support and maintenance, and did not constitute licensing fees. The number of licenses affects the support and maintenance fees, but Honda has failed to show that Micro Focus or its predecessors were aware of its use of the software as changes were made to hardware in the computer terminals over time. Having produced no initial licensing agreement with IONA or its predecessors, or evidence from IBM as to whether IBM may have such evidence, it is problematic for Honda to now argue that licensing requirements were not meant to change, either as a result of change in usage through increased number of processing cores or subsequent software upgrades.

[26] For the foregoing reasons, this court finds that Honda has not provided sufficient evidence to be entitled to the declaration sought. The application is dismissed.

[27] Honda’s counsel agreed that the rates and time spent as outlined in Micro Focus’ Bill of Costs are not objectionable. Based on Honda’s own Bill of Costs, this court concludes that they are within Honda’s reasonable expectations. The costs and disbursements sought by Micro Focus are reasonable for the work entailed by an application of this nature. Accordingly, this court orders that costs of this application shall be paid by Honda to Micro Focus fixed in the amount of $25,000 on a partial indemnity basis.

HEALEY J.

Released: October 9, 2015