Tangible vs intangible: can a lien exist over electronic data?

This article was produced by Olswang LLP, which joined with CMS on 1 May 2017.

Introduction

It is settled law that a person who lawfully holds the property of another for the purpose of doing work to it can exercise a possessory lien over that property in respect of an unpaid debt. The classic example of this is the dry cleaner or the car mechanic retaining a customer's items in the event of non-payment.

English law has long made a distinction for these purposes between tangible and intangible property. A possessory lien can generally be exercised over tangible property but not over intangible property (see Tappenden v Artus [1964] 2 QB 185). However, in its recent decision in Your Response Limited v Datateam Business Media Limited [2014] EWCA Civ 281, the Court of Appeal considered whether a possessory lien could be exercised over an electronic database.

Facts

Datateam Business Media Limited ("Datateam") was a publisher of magazines that were distributed to a large number of different subscribers. To manage information in respect of its subscriber base, Datateam maintained an electronic database that was regularly updated (the"Database"). Sometimes hundreds of amendments were made per day.

Your Response Limited ("Your Response") was a database manager engaged by Datateam to hold and maintain the Database.

The agreement between the parties was partly written and partly oral. It did not deal with how the Database would be transferred to Datateam if and when the agreement came to an end. Datateam subsequently became unhappy with the service provided by Your Response, and it purported to terminate the agreement between them. Your Response sought payment of all outstanding sums due in respect of its work on the Database.

Following discussions between the parties, Datateam failed to pay the sums demanded by Your Response. The parties reached an impasse in which Your Response refused to release the Database or give Datateam access to it before it paid the sums owed, and Datateam refused to pay until the Database was made available to it.

One of the questions that came before the Court was whether Your Response was entitled to exercise a lien over the Database until Datateam settled its outstanding fees in full.

Decision

At first instance the district judge held that a lien could exist over electronic data in a person's possession in much the same way as a lien could exist over hard copy records. Lord Justice Moore-Bick, giving the leading judgment in the Court of Appeal, noted his sympathy for the district judge's view, but considered that it was not the correct interpretation of the law.

Moore-Bick LJ drew heavily from the House of Lord's decision in OBG Ltd v Allan [2007] UKHL 21 as authority that the law has always drawn a "sharp" distinction between tangible and intangible property. It was held in OBG that the tort of conversion (the wrongful interference with tangible property) applies only to chattels, and not choses in action (intangible rights over property). By extension, Moore-Bick LJ held in this case that intangible objects are "equally not susceptible to the exercise of a possessory lien".

The Court further held that:

• information is not a physical object capable of possession independently of the medium on which it is stored;
• control of a database and control of a chattel are not the same concepts and therefore it cannot be said that control of a database gives rise to possession;
• a database is not a form of intangible property different from a chose in action; and
• an electronic database cannot be considered analogous to a physical document.

Moore-Bick LJ rejected Your Response's argument that there should be a third category of property (other than the distinction between tangible and intangible property currently recognised by law) to which the tort of conversion and the possibility of a possessory lien would apply. Although Moore-Bick LJ acknowledged that a third category might have potential benefits in the realm of digital property rights, he considered it to be too great a departure from the settled law.

Comment

There is clearly an acknowledgment from the judiciary that the law cannot exist in a vacuum untouched by the realities of modern technological development. This is borne out by the first instance judgment and Moore-Bick LJ's comments recognising the potential benefits of extending property rights to take account of technological development.

Nevertheless, the Court was reluctant to extend the scope of the law in relation to liens, with Moore-Bick LJ going as far to say that it was a matter for Parliament to resolve. Lord Justice Davis, in agreement with Moore-Bick LJ, warned of the implications of extending the scope of the law, particularly in the areas of insolvency and IT contracts.