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Hong Kong – Your Response Limited V Datateam Business Media Limited.

10 September, 2014

 

[England and Wales Court of Appeal (Civil Division) – B2/2013/1812]

 

Your Response Limited (Respondent) and Datateam Business Media Limited (Appellant)

 

Judgment of the Court of Appeal (Lord Justice Moore-Bick, Lord Justice Davis and Lord Justice Floyd) dated 14 March 2014

 

Electronic database – Non-payment of fees – Contract termination – Transfer of information upon termination – Possessory lien

 

The Facts

 

This is an appeal against District Judge Bell’s order made following the trial of a claim by the respondent, Your Response Ltd (“Your Response”), against the appellant, Datateam Business Media Ltd (“Datateam”), for sums alleged to be due under a contract for the management of an electronic database and damages for breach of contract.

 

Datateam published a number of magazines which were distributed to a large number of subscribers. For the purpose of managing printing and distribution, Datateam kept records containing information relating to subscribers. Information held by Datateam included the name, address and the publications subscribed and this information was stored electronically and required constant updating. Your Response Ltd was a database manager that provided the service of holding electronic databases and amending and updating them as necessary to make sure the information they contained were up-to-date. Datateam and Your Response entered into a contract in March 2010 where Your Response was responsible for managing Datateam’s database.

 

However, less than a year into the term of the contract, Datateam was dissatisfied with the level of service provided by Your Response and terminated the contract. Your Response sent Datateam an invoice for fees outstanding in October 2011 and under the contract payment was due within thirty (30) days. Datateam requested Your Response to provide certain data, but this data was never provided and thereafter there was a standstill between the parties. Your Response refused to release the database or give Datateam access to it until all outstanding fees were paid; Datateam refused to pay until the database was made available to it. As a result, Datateam engaged another company to reconstitute the database.

 

In February 2012, Your Response started proceedings, claiming fees alleged to be due for work carried out under the contract and damages for repudiation of the contract by Datateam.

 

Datateam counterclaimed for damages for breach of contract represented by the cost of reconstituting the database. The District Judge found in favour of Your Response and dismissed Datateam’s counterclaim; on the grounds that Datateam should have given notice to terminate the contract (a reasonable notice period being 3 months) and that Datateam had repudiated the contract by making clear that it would not continue to perform after November 2011. The judge also held that Your Response was entitled to withhold the data until its outstanding fees were paid and that a lien could apply to electronic data. Datateam appealed against the District Judge’s decision. The interesting issue that arose in this appeal was whether Your Response was entitled to exercise a lien over the database pending payment of its outstanding fees by Datateam.

 

The Judgement

 

The Court began by acknowledging the need for the law to keep abreast of technological developments. Datateam had argued that it was not possible to exercise a lien over intangible property such as electronic data. However, the District Judge rejected this argument, stating that it would not be appropriate for the law to ignore the development in the real world of record keeping moving from hard copy records into electronic media. The Court of Appeal examined the principles relating to the exercise of a common law lien. In Tappenden v Artus [1964] 2 QB 185 Diplock LJ described the common law possessory lien as “…a remedy for breach of contract which the common law confers upon an artificer to whom the possession of goods is lawfully given for the purpose of his doing work upon them in consideration of a money payment. If, pursuant to the contract, the artificer does his work, he is entitled to retain possession of the goods so long as his charges, whether agreed in advance or (if not so agreed) payable upon a quantum meruit, are satisfied… by an artificer who has actual possession of the goods it [the lien] is exercisable only subject to the lien.”

 

Bearing this definition in mind, the Court recognised that the emphasis was on the “actual physical possession of goods”. Your Response argued that it was irrelevant that the database is incapable of physical possession, what matters is whether the data manager is able to exercise effective control over it as against Datateam. However, the Court rejected this argument on the grounds that whilst possession is concerned with the physical control of tangible objects; practical control is a broader concept, capable of extending to intangible assets. In the present case, Your Response was entitled, subject to the terms of the contract, to exercise practical control over the information constituting the database. However, Your Response could not exercise physical control over that information, which was intangible in nature.

 

The Court held that the decision in OGB v Allan [2007] UKHL 21 prevented them from holding that intangible property is susceptible of possession so that wrongful interference can constitute the tort of conversion. Therefore, the Court held that intangible property is equally not susceptible to the exercise of a possessory lien.

 

The Court refused to interpret existing laws in a manner which would, it admitted, “have the beneficial effect of extending the protection of property rights in a way that would take account of recent technological developments”. As a result, Your Response was not entitled to exercise a common law lien on the database, and the court held that Your Response was not entitled to refuse to provide Datateam a request with a copy of the database in its current form. The refusal was a breach of contract and Datateam’s appeal was accordingly allowed.

 

Commentary

 

What do you do if somebody asks you to do or produce something for them but then fails to pay you for it? If you have property belonging to that person then you may refuse to return the property in question until payment has received. Such is the nature of possessory lien, and whilst this is a perfectly acceptable course of action if the property is one’s dry cleaning, a pair of shoes, or indeed repairs to a car, the courts have refused to extend the doctrine into the digital domain.

 
The market for intangible goods, be they a database, a music file, or indeed a weapon in an online game, is now well-established. There are entire industries creating and selling non-tangible goods. This case provided an ample opportunity for the England and Wales Court of Appeal to begin to extend and simplify the distinction between real and “virtual” goods and thereby ensure consistency across both. However the Court of Appeal refused to do so. Why?

 
Partly, this is because the Court recognised that parties will have a contract for the provision of such services. Such contracts usually include an express term in their contract that will provide such a lien or an equivalent remedy. Service providers who have not placed such terms in their standard contracts may now wish to do so.

 
Another reason that the Court may have been reluctant is the complexity of this area of law and its interaction with fast-changing technology. The Court took the view that this is an area where intervention by the British Parliament was required before the law of tangible property could be extended to intangible items. Until such action is taken, it will be important to keep a strong contractual grip on your intangibles to ensure they will be returned to your possession.

 

Pinsent Masons

 

For further information, please contact:

 

Paul Haswell, Partner, Pinsent Masons
paul.haswell@pinsentmasons.com

 

Mohammed Talib, Pinsent Masons
mohammed.talib@pinsentmasons.com

 

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