Lien out: electronic data is not tangible property so no lien arises

Posted: 25/06/2014

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In Your Response Limited v Datateam Business Media Limited [2014] EWCA Civ 281 the Court of Appeal considered whether it is possible to exercise a common law possessory lien over an electronic database.  The right has historically applied only in respect of tangible property.  The question in Datateam was whether the right should be extended to intangible property to keep abreast of technological developments.

The Facts

Your Response publishes magazines. Datateam carries on business as a database manager. In about March 2010, Your Response engaged Datateam to hold and maintain its database of its subscribers. The contract was not embodied in a formal agreement, but was made partly orally and partly in writing by an exchange of emails.

Your Response became unhappy with the service Datateam was providing and on 17th October 2011 it purported to terminate the contract with one month's notice.

On 31st October 2011 Datateam sent Your Response an invoice for fees due as at the end of August 2011. The parties’ differences were not resolved and on 9th November 2011 Datateam stopped providing any services and refused to release the database or give Your Response access to it until all its outstanding fees were paid. Your Response refused to pay until the database was made available to it.

On 15th February 2012 Datateam commenced proceedings claiming fees alleged to be due for work carried out under the contract. Your Response counterclaimed for damages for breach of contract represented by the cost of engaging a third party to reconstitute the database.

The Decision

The Court of Appeal decided that it was not possible to exercise a common law possessory lien over an electronic database. Accordingly, Datateam acted in breach of contract in refusing to provide Your Response with a copy of the database.

Reasons

A common law lien requires actual possession of goods.

Electronic data does not constitute goods as data itself - being information - is not property at all (OBG Ltd v Allan [2007] UKHL 21 at [275] (“OBG”)).

The rights attaching to electronic data - e.g. database rights and database copyright - are intangible property rights. Such rights do not constitute property of a kind that is susceptible of actual or physical possession. Information itself is not a physical object capable of possession independently of the physical medium in which it is held.

In OBG, the House of Lords held that the tort of conversion applies only to chattels and not (save in certain limited circumstances) to intangibles.  It was not therefore open to the Court of Appeal to recognise the existence of a possessory lien over intangible property, even if it would otherwise have been right to do so, as to which the court expressed reservations.

The Implications

Parties should, as ever, have a written contract. It is in both parties’ interests, but particularly customers, for the contract to make it clear what should happen to the data when the contract comes to an end. The contract should stipulate the means by which the data should be transferred to the customer, if appropriate. Provision should also be made for what should be done with the data if a transfer to the customer is not appropriate.

Suppliers should take note of this judgment too.  Datateam was concerned only with the exercise of a common law lien. There is no reason why a contractual lien would not be effective. Suppliers should, therefore, insist upon having such a right.

In the absence of a contractual right, a party which holds electronic data for another will not be entitled to exercise a lien over that data pending payment of its outstanding fees and will be in breach of contract – possibly a repudiatory breach entitling the other party to terminate –  if it attempts to exercise such a lien.

The innocent party would, in those circumstances, be entitled to an order for delivery up against the party holding the data. In Datateam, the Court of Appeal held that it was implicit in the contract that, when it came to an end, Datateam was under an obligation to send Your Response by electronic means a copy of the database in its latest form. It was, therefore, in breach in refusing to do so. Much simpler for all concerned to have the position set out clearly in writing from the outset.

This article was published in Solicitors Journal in May 2014.

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