Virtual possession: electronic data is not tangible property

The Court of Appeal considered whether it is possible to exercise a common law possessory lien over an electronic database in Your Response Ltd v Datateam Business Media Ltd [2014]
EWCA Civ 281. Historically,
the right has only applied 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.

Your Response, which publishes magazines, engaged database manager Datateam to hold and maintain its subscriber list around March 2010. The contract was not embodied
in a formal agreement but was made partly orally and partly in writing by email exchange. Your Response became unhappy with Datateam’s service and on 17 October 2011 it purported to terminate the contract with
one month’s notice.

On 31 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 9 November 2011, Datateam stopped providing any services and refused to release the database or give
Your Response access to it until all outstanding fees were paid. Your Response refused to pay until the database was made available.

Datateam commenced proceedings on 15 February 2012 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 Court of Appeal
decided that it was not
possible to exercise a
common law possessory
lien over an electronic database. Accordingly, Datateam was
in breach of contract by
refusing to provide a copy of
the database to Your Response.

Actual possession

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].

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.

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.

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 insist on having such a right.

Without a contractual right, a party holding 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.

In Datateam, the Court of Appeal held that it was implicit in the contract that, when it came to an end, Datateam was obliged to send Your Response an electronic copy of the database in its latest form and 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. SJ

Mark Lewis is a partner at Penningtons Manches