Does a Service Provider Have a Lien Over Customer Data?
On 19 November, Datateam won permission to appeal from an unreported decision of District Judge Bell sitting in the Reigate County Court on 12 June. The facts of the case, which related to unpaid invoices for database maintenance services, are not of interest except to say that the services agreement did not establish a contractual lien over the customer’s data, that is, it did not contain an express term requiring the return of the data to the customer at the end of the contract period.) What is of interest is that when it hears the appeal, the Court of Appeal will consider “whether or not a service provider can claim a [common law] lien over electronic data which it manages.”
In English law, a common law lien normally arises in respect of tangible property but not in the case of intangible property such as intellectual property. The classic example is a mechanic who is entitled to exercise a lien over (hold onto) a customer’s car until the customer settles his bill. However, electronic data is intangible property. In granting Datateam permission to appeal, Lady Justice Arden commented that there is no English authority “which establishes that a [common law] lien is exercisable over intangible property.” She thought this was “a point of law… worthy of consideration… since it could have very considerable implications if there was no lien.”
The Court of Appeal’s decision is eagerly awaited.
If the Court rules that a common law lien can arise over electronic data it will reflect the commercial reality of the day. Service providers often insist on payment in full as a precondition of returning data to a customer regardless of the actual contractual position. Establishing a common law lien could affect not just database maintenance services but a wide range of data-related services in this regard, including cloud services, where a customer hands over data to a service provider for hosting and/or processing.
If the Court instead decides that no such lien exists, a service provider faced with unpaid invoices and a demand to return a customer’s data upon termination must be careful not to overstep its contractual rights.