Moodle Pty Ltd v Lambda Solutions Inc [No 2]
[2024] WASC 111
•4 APRIL 2024
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: MOODLE PTY LTD -v- LAMBDA SOLUTIONS INC [No 2] [2024] WASC 111
CORAM: ACTING MASTER MCDONALD
HEARD: 12 SEPTEMBER 2023
DELIVERED : 4 APRIL 2024
FILE NO/S: CIV 2157 of 2020
BETWEEN: MOODLE PTY LTD
Plaintiff
AND
LAMBDA SOLUTIONS INC
Defendant
Catchwords:
Practice and procedure - Pleadings - Strike out application - No reasonable cause of action - Construction of pleadings - Application dismissed
Legislation:
Rules of the Supreme Court 1935 (WA)
Result:
Application dismissed
Representation:
Counsel:
| Plaintiff | : | C Chenu |
| Defendant | : | T O'Leary |
Solicitors:
| Plaintiff | : | Corrs Chambers Westgarth |
| Defendant | : | Gilbert + Tobin |
Case(s) referred to in decision(s):
Vantage Holdings Group Pty Ltd v Donnelly [No 4] [2019] WASC 398
ACTING MASTER MCDONALD:
In this action, the defendant (Lambda) seeks to strike out the statement of claim filed by the plaintiff (Moodle) in whole or in part on the grounds that:
(1)no reasonable cause of action is disclosed; or alternatively
(2)because the pleading may prejudice, embarrass or delay the fair trial of the action; or alternatively
(3)it is an abuse of process.
For the reasons that follow, I would dismiss Lambda's application.
The statement of claim
In the amended statement of claim filed 4 April 2023 (Statement of Claim), Moodle pleads the following:
(1)Moodle is the creator and developer of software referred to as Moodle Software.[1]
[1] Statement of Claim 3.
(2)In September 2009, Moodle and Lambda entered into an agreement styled the Moodle Partner Agreement (Partner Agreement).[2]
[2] Statement of Claim 7.
(3)Between September 2009 and July 2017, the Partner Agreement was varied. This allegation is particularised by reference to agreements styled the Moodle Partner Agreements, each made between Moodle and Lambda, with respective effective dates of 13 September 2011, 1 August 2013, 1 August 2014, and 31 July 2015.[3]
[3] Statement of Claim 8.
(4)On or about 23 February 2016, Moodle and Lambda entered into 'the parties' most recent version of' the Partner Agreement.[4]
[4] Statement of Claim 9.
(5)Various express terms of the Partner Agreement as varied including, relevantly:[5]
[5] Statement of Claim 11.
(a)Moodle granted Lambda a limited non‑exclusive licence to use certain Moodle trademarks (Moodle Partner Marks) in connection with goods and services certified for that purpose by Moodle (Certified Services), the scope of which was set out in cl 1.[6]
[6] Statement of Claim 11(c).
(b)In exchange for use of Moodle Partner Marks, Lambda agreed to pay a royalty fee to Moodle, calculated at a sliding royalty rate applied to Lambda's revenue received from the sale of Certified Services (Licence Fees): cl 4(a).[7]
[7] Statement of Claim 11(e).
(c)Moodle was entitled, upon giving 10 days' prior written notice to Lambda, to inspect and audit Lambda's books and records to determine whether Lambda had complied with terms in the agreement as to licence fees, or licence fee terms in any prior agreement between Moodle and Lambda: cl 2(v).[8]
[8] Statement of Claim 11(k).
(d)In the event Moodle inspected and audited Lambda's books and records and discovered that Lambda's actual revenue exceeded the revenue reported to Moodle by more than 5% of the actual value, Lambda was immediately liable for the costs and fees associated with Moodle's inspection and audit (Inspection Costs) and the Licence Fees owed to Moodle pursuant to the Partner Agreement, plus interest equal to the maximum allowable under the law, compounded monthly (Adjusted Licence Fees). Lambda's failure to pay Inspection Costs and Adjusted Licence Fees within 10 days of notice constituted a material breach of the Partner Agreement: cl 4(g).[9]
(6)Following notice given by Moodle and an order of the Supreme Court of British Columbia, two officers carried out an audit on behalf of Moodle and recorded their findings in an audit report.[10]
(7)The audit report records that for the period 1 September 2009 to 31 July 2017 (Audit Period):[11]
(a)revenues of 100%, or close to 100%, produced by Lambda during the Audit Period are subject to licence fees;
(b)Lambda's actual revenue for the Audit Period was CA$13,876,089 (approximately AU$14,930,829); and
(c)the most appropriate estimate for the shortfall of licence fees was approximately CA$997,963 (approximately AU$1,077,343) as at 3 November 2019 (Shortfall License Fees).
(8)In breach of the pleaded terms, Lambda has failed to pay the Adjusted Licence Fees or Inspection Costs.
[9] Statement of Claim 11(e).
[10] Statement of Claim 16.
[11] Statement of Claim 18.
On 27 April 2023, Moodle filed a response to Lambda's request for further and better particulars.
The strike‑out application: Lambda's submissions
In essence, Lambda asserts three objections to the Statement of Claim.
First, Lambda contends that Moodle has failed to plead any material facts to establish the existence of consideration for each of the pleaded variations. Perhaps ambitiously, Lambda submits that the failure to plead considerations supporting each variation means that a finding that any of the pleaded contracts exist 'is a legal impossibility' and 'alone is a sufficient basis to strike out the amended claim in its entirety'.[12] Further, Lambda submits that Moodle has not pleaded any material term of any of the earlier 'versions' of the Partner Agreement.[13]
[12] Defendant's outline of submissions [47]; see also ts 6 - 9.
[13] Defendant's outline of submissions [48] - [50]; ts 9 - 12.
Secondly, Lambda contends that Moodle has not pleaded a reasonable cause of action in respect of a breach of cl 4(g), as set out in [3](5)(d) above. That is said to be because Moodle has not pleaded as a material fact that Lambda's actual revenue exceeded the revenue reported to Moodle by more than 5%, the basis for such an allegation, and nor has Moodle pleaded that Lambda owes Shortfall Licence Fees to Moodle pursuant to the terms of the alleged Partner Agreement and the basis for such an allegation.[14]
[14] Defendant's outline of submissions [54] - [58]; ts 18 - 19, 24 - 25.
Thirdly, but relatedly, Lambda points to Moodle's response to Lambda's request for further and better particulars, emphasising that despite numerous requests, Moodle has failed to provide Lambda with particulars of any transaction or transactions which are said to give rise to Shortfall Licence Fees. Consequently, Lambda submits, Moodle's claim is an attempt by Moodle to improperly use the processes of the court to ascertain through discovery whether it has a claim against Lambda and is thus an abuse of process.[15]
[15] Defendant's outline of submissions [59] - [67]; ts 19 - 24.
Legal principles
The principles relevant to a strike‑out application are well established. I apply the principles outlined by Smith J in Vantage Holdings Group Pty Ltd v Donnelly [No 4]:[16]
[16] Vantage Holdings Group Pty Ltd v Donnelly [No 4] [2019] WASC 398 [60].
(a)the essential functions of a pleading are to define and limit the issues for decision, to provide the basis for determining discovery and the admissibility of evidence for trial, and to ensure a fair trial by putting the other side on notice of the case it must meet;
(b)a statement of claim must not plead allegations at too high a level of generality. A pleading must be sufficiently particular to conform with one of the primary objects of pleadings, to inform the opposing party of the case that it must meet;
(c)a statement of claim must state specifically the relief or remedy claimed;
(d)the court should proceed with caution before striking out a pleading on the ground that it does not disclose a reasonable cause of action. While the court may determine a difficult question of law on such an application, it would usually be appropriate to leave the determination of such questions for trial;
(e)in alleging no reasonable cause of action:
(i)the question to be decided is not whether the facts pleaded are in themselves sufficient to give rise to a cause of action. Rather, the question is whether it would be open to the party (on its pleadings) to prove facts at the trial which would constitute a cause of action; and
(ii)'reasonable' means reasonable according to law. If the facts pleaded conceivably give rise to relief, then the cause of action should be held to be reasonable;
(f)the mere fact that a case appears weak is not of itself sufficient to strike out the action;
(g)in considering a strike out application, it is now necessary to consider the role of pleadings in the context of case management techniques. Case management considerations are not, however, necessarily antithetical to the observance of pleading rules. The objects of O 1 r 4A and 4B of the Rules of the Supreme Court 1971 (WA) are often promoted by a clear and precise statement of the issues for decision;
(h)provided a pleading fulfils its basic functions of identifying the issues, disclosing an arguable cause of action (or defence), and apprising the parties of the case that has to be met, the court ought properly be reluctant to allow the time and resources of the parties and the limited resources of the court to be spent extensively debating the application of technical pleading rules that evolved in, and derive from, a very different case management environment;
(i)pleadings may be struck out on the ground that they may prejudice, embarrass or delay the fair trial of the action because they are evasive, they conceal or obscure the real questions in controversy, they are ambiguous or not reasonably intelligible, they raise immaterial or irrelevant issues, they fail to confine the issues or state the case of the party in question with reasonable particularity, or they raise a case in terms which are simply too general; and
(j)irrelevant or unnecessary pleas in a statement of claim will be struck out on the grounds that they will prejudice, embarrass or delay the fair trial of the action where the defendant must traverse the allegations and, thereby, raise false issues. (footnotes omitted)
Disposition
No pleaded consideration? Why Lambda's first complaint fails
Lambda's first complaint can be dealt with quite briefly, as it is without merit.
Lambda's first complaint is that no consideration has been pleaded for the variations of the Partner Agreement.
It is a reasonable inference from the terms in which the Statement of Claim is expressed that each of the 'Moodle Partner Agreements', with the various dates referred to in [3](3) above, contains provisions governing the mutual rights and obligations of the parties to it. That inference is borne out by examination of the instruments themselves, which have been produced by way of inspection pursuant to O 26 r 8 of the Rules of the Supreme Court 1935 (WA) (Rules).[17] In that light, it is plain beyond argument that each of the Partner Agreements is supported by consideration in the form of the mutual promises each agreement contains. Lambda's assertion of a need to plead consideration for a variation is divorced from the circumstances of this case.
[17] Affidavit of Jamie Ammendolea filed 11 May 2023 [24]; annexures JMA 25 ‑ JMA 30.
Both parties' submissions on this topic descended into the law concerning the question of whether a variation is properly characterised as such or whether, on a proper analysis, the 'variation' involved a discharge of the earlier agreement and its replacement with the subsequent contract.
In the present case, there is no reason to suppose that Moodle's claim depends upon any question of that kind. Moodle's claim is founded on the terms of the most recent Partner Agreement. Moodle pleads that a term of that agreement was that Moodle's entitlement to inspect and audit Lambda's books encompassed the question of whether Lambda had complied with licence fee terms in any prior agreement between Moodle and Lambda.[18] In that light, reference to the earlier versions of the Partner Agreements between the parties are material to Moodle's claim and so are properly referred to in the Statement of Claim.
[18] Statement of Claim 11(k).
For these reasons, Lambda's first objection, as summarised in [6] above, fails.
In order to consider the merits of Lambda's second and third complaints, it is necessary to give closer attention to Moodle's case, to identify the manner in which it is formulated.
Moodle's case: analysis
In pleading the term the subject of cl 4(g) of the Partner Agreement, Moodle pleads the words of the agreement, see [3](5)(d) above: 'if Moodle … discovers that Lambda's actual revenue exceeds the revenue reported'. In deploying the words of the agreement, Moodle's plea is ambiguous as to Moodle's case, as Lambda submits.[19] Two possibilities arise. The first is that if and to the extent that an audit report instituted by Moodle under the Partner Agreement concludes that Lambda's actual revenue exceeds the revenue reported to Moodle by more than 5% of the actual value, that in itself gives rise to a debt owed by Lambda to Moodle in respect of adjusted licence fees calculated on the actual revenue as concluded in the audit report, and this will be so regardless of the true position as to actual revenue. The second is that Lambda becomes liable to pay adjusted licence fees to the extent, and only to the extent, that in fact Lambda's actual revenue exceeds the revenue reported to Moodle.
[19] Defendant's outline of reply submissions [84].
The terms of the Statement of Claim could be understood in either way. As already noted, in alleging breach the Statement of Claim pleads that the audit report 'records' certain matters for the relevant audit period.
Moodle's written and oral submissions did not, at least in a crisp fashion, remove the uncertainty as to the nature of Moodle's case. In that regard, Moodle's submissions did not always seem entirely consistent.
In these respects, Moodle's pleading does not reflect optimal practice.[20] However and appropriately, Lambda has not sought to strike out the pleading on the basis of ambiguity as to Moodle's case. Rather, Lambda asserts that on either version of Moodle's case, there is no reasonable cause of action.
[20] The root of the ambiguity would seem to lie in Moodle’s failure to plead the effect of the agreement, rather than its words, as required by O 20 r 8 of the Rules.
In the circumstances, it is appropriate to proceed by identifying Moodle's case as pleaded and explained, and then resolving Lambda's complaints. Of course, if in so proceeding I have misunderstood the substance of Moodle's claim, no doubt Moodle will amend the Statement of Claim to make clear the manner in which Moodle's case is put.
At some points, Moodle appeared to submit that, reflecting the terms in which cl 4(g) is expressed, its claim was entirely based on the results of the audit report and was of the first character outlined in [17] above. However, properly understood, that is not the effect of the pleading as explained by counsel for Moodle. Rather, Moodle's case accepts that ultimately, Lambda's liability depends upon whether and to what extent Lambda has in fact failed to pay the correct amount of licence fees on its actual revenue. That is clear from counsel's repeated and consistent acceptance of Lambda's entitlement to defend the action on the basis that the audit report is wrong and that the amount of revenue reported by Lambda was the correct amount of revenue from Moodle‑related services.[21] Nevertheless, Moodle's claim is founded on the audit report in that it relies upon, and adopts, the conclusions in the Audit Report as to the discrepancy between actual revenue and reported revenue.
[21] See, for example, ts 35, 36, 39.
In this manner, Moodle is, in effect, relying upon the audit report as having what might be understood as a prima facie effect. On Moodle's case, absent evidence or indications to the contrary, the true position should be taken to be the position reflected in the Audit Report.
This understanding of Moodle's case sits comfortably with the expression of the case in the Statement of Claim. Moodle pleads that its entitlement arises when and if it 'discovers' that Lambda's actual revenue exceeded the reported revenue by more than 5% of the actual revenue. In the ordinary and natural sense of the word, a person can only 'discover' a matter of fact if the discovered matter is in fact true.
Why Lambda's second and third complaints fail
When Moodle's claim is understood in this manner, Lambda's second and third complaints fall away.
As explained above, on Moodle's case, its claim against Lambda depends upon Moodle establishing that, in fact, Lambda owes more for licence fees than the sum it has already paid. In seeking to establish that this is so, Moodle relies upon what it says is the prima facie effect of the Audit Report.
In that regard, it is important to recognise the basis for Moodle's claim. Moodle does not seek to identify individual transactions in order to build a case demonstrating that actual revenue exceeded reported revenue. Rather, Moodle's case is that, as reported in the Audit Report, all, or close to all, of Lambda's revenue during the Audit Period was revenue that was subject to licence fees, with the consequence that its actual revenue exceeded its reported revenue.
In that regard, Moodle accepted that it had not - in so many words - pleaded that actual revenue exceeded reported revenue by more than 5% but that it was plainly implicit in the Statement of Claim and could be spelled out if it were thought necessary. I agree that this is implicit in the pleading, understood as a whole.
I would not strike out the Statement of Claim on the basis of Lambda's second complaint.
As to Lambda's third complaint, whether a request for particulars is appropriate depends upon the nature of the case being advanced by the party making the claim. I repeat what I have said at [27] above. Lambda's requests for further and better particulars as to individual transactions is founded on a misconception of the manner in which Moodle's case is put. Moodle does not seek to identify individual transactions in order to build a case demonstrating that actual revenue exceeded reported revenue. Consequently, Lambda's request misses the mark in seeking details that do not reflect the manner in which Moodle puts its case.
Conclusion
For these reasons, I would dismiss Lambda's application to strike out the Statement of Claim.
The parties should confer and attempt to agree orders. If agreement cannot be reached, parties are to file competing minutes of proposed orders by 11 April 2024.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
LR
Associate to Acting Master McDonald
4 APRIL 2024
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