Following the decision of the Court of Appeal in Your Response Limited v Datateam Business Media Limited EWCA Civ 281 service providers in the electronic data industry would do well to pay close attention to the particulars of their contractual arrangements with owners of electronic data.
In every contractual arrangement it is vital that the parties are armed with suitable weaponry to ensure their interests are protected. For those with physical possession of goods for the purposes of carrying out work on them a key weapon is the right to retain possession of the goods until any payment due for the works has been made. There is quite possibly no more effective way (without incurring a prison sentence…) to ensure payment than refusing your client access to their goods, particularly where those goods are vital to the carrying on of that client's business.
The question which the Court of Appeal tackled in Your Response was whether this principle could evolve in our ever-changing technological world in order to cover electronic data.
Datateam keep a database of subscriber information in relation to their publishing business. The subscriber information owned by Datateam requires frequent updates and for this reason Your Response were engaged as a database manager to carry out updates and maintenance on the electronic data owned by Datateam. Upon termination of the database management arrangement, by Datateam, Your Response denied Datateam access to the subscriber database until all outstanding fees had been paid.
As stated above there is a clear right of possessory lien in relation to goods in the possession of a service provider, however, there is a key distinction between a car or a watch which has been sent for repair and a database, the data in which cannot be touched or physically handled.
Considering the nature of electronic data the Court of Appeal came to the conclusion that the data in the database was not capable of physical control or physical possession in the same way as physical and tangible goods are. The Court of Appeal highlighted the fact that although Your Response had practical control over the data while it was held on their servers this did not amount to physical control or possession for the purposes of a possessory lien.
Despite this decision all is not lost for service providers who wish to brandish the powerful weapon of a lien. It is standard practice in data management and service contracts to insert a clause to the effect that possession of the electronic data will remain with the service provider until full payment is made for the services carried out.
In light of the decision last week it would be advisable for both parties to such contracts to consider the terms of their agreements, both current and future, to ensure their interests are adequately provided for.