Can I hold on to this database until I get paid?

The UK Court of Appeal has missed an opportunity to bring English law on liens up-to-date.  In the case of Your Response v Datateam Business Media, it held that a supplier providing database services had no right to hold on to the database on termination of the contract until its outstanding fees were paid, unless the contract said otherwise.

What happened in this case?

In this case, a database manager contracted to hold and manage a magazine publisher’s electronic database of subscriber information.  The contract was informal and said nothing about how it could be terminated or what would happen to the database on termination.  The publisher was unhappy with the services and terminated the contract.  The database manager refused to hand the database over to the publisher until its outstanding fees were paid.  The Court of Appeal was asked to rule on whether the database manager had a right to hold on to the database pending payment (known as a ‘common law lien’).

What did the Court of Appeal decide?

The Court of Appeal said that the database manager could not hold on to the database pending payment and must hand it over to the publisher immediately in its most up-to-date form.  In legal terms, that meant that the database manager was not entitled to exercise a common law lien over the database.  The Court of Appeal said that the essence of a lien was a supplier having physical possession of tangible property. It ruled that electronic data was intangible property. It did not exist as a physical object independently of the equipment on which it was held. Although the supplier could exercise practical control over the database, this was different from physical possession. The court also refused to overlook the need for physical possession and treat databases as a special category of property over which a lien could be exercised.

The Court of Appeal acknowledged that this ruling left the law on common law liens some way behind current technological development.  However, it said that if the law was to be extended to include databases or intangible property generally, then the UK Parliament would need to legislate.

What are the implications of this ruling?

What does this mean for suppliers?  Careful drafting of the contract is required.  Where electronic data is part of a contractual relationship, the contract must cover off what will happen to that data on termination.  Is the supplier required to hand the database back to the customer?  In what form?  What is the handover timeframe?  Who will pay the migration costs?  Also, following this judgment, if the supplier wants to be able to hold on to the database pending payment, then that right must be set out in the contract expressly.  Otherwise, the supplier will be required to hand the database over despite not having been paid (and the courts will order that).  That will significantly diminish any leverage the supplier might have in respect of the payment of its outstanding fees.