Australia: Top tips for vetting cloud providers

Last Updated: 21 March 2012
Article by Jim FitzSimons

Jim FitzSimons talks to BRR Media about the legal issues in cloud computing and how to get the best out of it. Click here to listen

Disclaimer Clayton Utz Audio is produced by Clayton Utz. They are intended to provide general information in summary form on legal topics, current at the time of publication. The contents do not constitute legal advice and should not be relied upon as such. Formal legal advice should be sought in particular matters. Persons listed may not be admitted in all states or territories.

David Bushby

Today BRR Media speaks with Jim FitzSimons. He is the National Head of the Intellectual Property and Information Technology Team at Clayton Utz in Sydney. Welcome to BRR Media Jim.

Jim when notorious file sharing site Megaupload was suddenly closed down in January this year leaving millions of users without access to their files we were again given a harsh reminder about the risks using cloud services. What's been the big lesson for business here?

Jim Fitzsimons

Well I guess for business you wouldn't trust something for nothing. And if you're going to put your business data somewhere you want to have control of what happens. Of course something like Megaupload where they have a "trust me" sort of outlook is never going to be good enough for business. If you're going to put your data on the cloud somewhere then you're going to want to have it subject to a contract which you control. And of course if you're paying for the service then you get a greater measure of control.

David Bushby

Absolutely. Well in general with cloud providers is there any legal recourse available for users to recover their information when events like this happen?

Jim Fitzsimons

Well yes I mean subject to your contract and of course it's easy to say "yes, you know you can sue on your contract". Of course the more difficult thing may well be, given the very nature of what we're talking about, to find the counterparty. So if you have as your service provider a reputable business here in Australia and there's a contract which says they will do certain things, and they don't do those things, then of course you've got your normal recourse in the courts here in Australia. If on the other hand your service provider is based in the Netherlands Antilles and runs a server based in Slovenia and has principals who live in Russia then you're going to have much greater difficulty actually enforcing your rights.

David Bushby

And just looking at the terms and conditions with your more reputable contracts or reputable companies both here and overseas, what are the most crucial things to look out for in those T&Cs or contracts involving the cloud service?

Jim Fitzsimons

Well look it depends very much on what you want to get out of it. I mean clearly service levels are one thing you'll be looking for, so that if you're using a cloud service then it's the same as if you're using software which is provided to you on your own computer – you want a certain level of service to be available and that can be measured in certain ways. Response times is one but there's also the ability to cope with large amounts of data and there's a whole host of things that you can measure in a Service Level Contract with outsourcing or cloud or software on your own system. So that would clearly be top of many lists.

But then you might also want to specify that the cloud service provider has their own access to backup so that the data that they're storing on their system and their data centre is not the only copy. You might want to specify that they have a backup system, that it's working and operable, and of course if you're a big enough business you may well go to the trouble of testing it at some stage and having a right to test their backup systems.

Another area that sounds a bit negative but in common with outsourcing agreements we always put a bit of time into it is transition-out. So that if there comes a day when you want to leave the outsourcing service or the cloud service then you're ubstantially going to need help transferring the data off. I mean it may be something as simple as you just downloading your data but, depending on the service you're getting, it may be more complicated than that. And so you may need the contractual right to obtain other services which will help you establish your new platform after you leave the cloud service provider.

Beyond that of course there are the normal things that you want in any such contract such as the level of functionality that's available certain areas. I mentioned data already but due to the amount of data your going to store on the cloud you'll want to make sure that that's adequately covered. You certainly don't want to get to a stage where you've used up your allotted amount and suddenly they're going to charge you an arm and three legs to get any more. You want to get those things sorted out before you enter into the cloud agreement.

David Bushby

Absolutely there's plenty there in the T&Cs but can a business actually negotiate those terms or are they largely set in stone?

Jim Fitzsimons

Well look I act for people who provide cloud services and I can tell you for a big enough client they are obviously willing to negotiate. Now they provide services which are very much to be used by very small businesses and frankly nobody expects a small business to have the time – you know, my client doesn't have the time to negotiate either. So that what they sell for small businesses are very much commoditised products: here's a service, here are the attributes of it, take it or leave it.

If you're getting to be a big business of course – and I don't mean very big but beyond even $10-15,000 a month, that sort of figure – then you could expect to have some input into the precise service you get and therefore the contract that you enter into. And of course at the end of the day the contract is the deal – you need to be able to read the contract and say well that's what I signed up for. And so whilst indemnities and things are important, the sort of things we've been talking about in answer to your last question are important too. You need to be able to say yes there is an obligation that they back up the data. There is an obligation that they in fact have an uninterruptable power source so that they will survive a blackout. Those sorts of things that are important you will want to see in the contract.

David Bushby

Absolutely. Well some useful insights, we'll leave it there for now and thanks again for your time today Jim. That was Jim FitzSimons the National Head of the Intellectual Property and Information Technology Team at Clayton Utz. He is based in Sydney. Listeners if you have any questions for Jim please send a to Jim at

Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this bulletin. Persons listed may not be admitted in all states and territories.

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