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We all need somebody to lien on

The control and security of electronic data has been a continual issue in technology related transactions for some time.  It is of course of particular relevance for cloud services where the perceived risk in:

  • data security;

  • unknown data locations; and

  • data format/return on exit;

are often cited as key inhibitors to customer adoption.

In mid-March the Court of Appeal, on appeal from the Brighton County Court, gave judgement in Your Response Ltd v Datateam Business Media Ltd [2014] EWCA Civ 281The appeal concerned whether a common law possessory lien can be exercised by a supplier over an electronic database it operated and maintained for a customer, where the customer owed unpaid charges.  

The previous judgement had decided that it could but the Court of Appeal has now decided a common law lien cannot be exercised over intangible data.

Why is the Judgement interesting to Tech Lawyers?

The common law concept of a possessory lien – the right to retain another’s property until a claim is met -  is well established - precedent cited in the case include reference to those Lord Ellenborough C.J. cited in Chase v Westmore [1816] 5 M. & S. 180.

On face value the position presented to the Court of Appeal to validate seemed fairly straightforward.  They were asked to extend a right that exists over tangible goods to intangible data – in this case information relating to subscribers of the publisher of a number of magazines, such as their names, addresses, the publications they receive and other information necessary to enable the publisher to operate its business efficiently.

However, in a moderate surprise to a lot of observers (including this author!), the Court of Appeal allowed the appeal and rejected that a common law lien could apply to intangible data.

"Possession” of intangible data

When looking at the case law precedent for common law lien it was clear to the Court that there is an emphasis on the actual possession of goods.  In analysis of the arguments for the physical possession on intangible data meaning the common law lien should apply to intangible data they noted:

  • it is possible to transfer physical possession of tangible property by delivery, it is not possible to deal with intangible property in the same way;

  • the database should not be regarded as a physical object.Whilst entering information into an electronic data storage system results in an alteration to the physical characteristics of the equipment, Moore-Bick LJ decided “that does not in my view render the information itself a physical object capable of possession independently of the medium in which it is held”;

  • although practical control of the database typically goes hand-in-hand with possession, they are not the same and to consider them the same would extend the possession concept “to things which the law would not regard as property at all” (Moore-Bick LJ again); and

  • as data and databases have intellectual property rights protections arising via the Copyright and Rights in Databases Regulations 1997 (creating a database right) and the Copyright, Designs and Patents Act 1988 (creating a copyright), this “reflects a clear recognition that databases do not represent tangible property of a kind that is capable of forming the subject matter of the torts that are concerned with an interference with possession” (also Moore-Bick LJ).

Other reasons for judgment

All the judgments made clear reference to how easy it would be to update 18th century case law to apply to 21st century technology, as Davis LJ said “That appeal to modernism has its attractions: indeed, it was that approach which seems to have decided matters on this issue so far as the district judge was concerned”. 

However, all three Lord Justices were not keen to expand the law where there was the potential for significant impact which hadn’t been thoroughly thought through, as Floyd LJ stated “the potential unintended consequences constitute a further reason for not taking the step which we were invited to take by the respondent”.

Key Learnings for the Tech community?

  • Suppliers who hold electronic data on behalf of their customers will not be able to rely on any common law lien right to hold electronic data as a means of forcing settlement of unpaid charges.

  • Customers can at least take comfort that a common law ransom cannot be applied to their unpaid bills.

  • The control and conduct of intangible data is not something that the contract should be silent about - especially when dealing with a contractual relationship that is terminating or in dispute.

For further information, please contact Andrew Joint - Commercial Technology Partner