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Liens and electronic data

The Court of Appeal has confirmed that suppliers do not have the right to retain their customers’ electronic data pending payment for their services

, in the absence of an express contractual right to do so.

Background

Datateam and Your Response entered into an agreement under which Your Response, being a data manager, agreed to manage, maintain and update Datateam’s electronic database.  Unusually, the agreement did not deal with how it could be terminated or, for that matter, what would happen following termination.

Datateam gave notice to terminate the agreement.  Your Response then refused to provide its data management services during the notice period, or to allow Datateam to access its database, until all outstanding charges had been paid.  Your Response sued Datateam for the outstanding charges, also arguing that Datateam’s termination notice was not “reasonable”.  Datateam counterclaimed for damages resulting from the cost of engaging a third party to rebuild its database.

At first instance, the court decided Your Response was entitled to retain Datateam’s database in order to secure payment of the outstanding charges (by exercising a “possessory lien over intangible property”).  The court pointed out that this reflected common commercial practice.  Datateam appealed to the Court of Appeal.

Court of Appeal decision

The Court of Appeal acknowledged that a party in actual physical possession of goods can, in certain circumstances retain possession of them until it has been paid for work carried out on those goods, eg a mechanic exercising a lien over the vehicle he is working on for a customer.  But there is a clear distinction between tangible property to which a lien may attach (eg a vehicle), and intangible property such as electronic data.  Having rejected all of Your Responses’ arguments that electronic data should be treated as tangible property, or that electronic data should be differentiated from other types of intangible property, the Court held that a lien could not be exercised over intangible property.  Furthermore, the Court stated that there was an implied term in the contract between Your Response and Datateam to the effect that, on termination of the contract, Your Response was obliged to return the database (in its latest iteration) to Datateam, and that Your Response’s refusal to do so amounted to a breach of contract

Conclusion

The Court of Appeal’s decision, providers of hosted services, and potentially other digital service providers, need to ensure that their Ts&Cs and supply contracts include a lien over their customers’ data.

 

Your Response Ltd v Datateam Business Media Ltd [2014] EWCA Civ 281