"Wuala is completely private and secure. When you store a file in Wuala, the file [..]gets encrypted before it leaves your computer. [..]Your own password is very important here: it never leaves your computer, so we do not know it. Hence, not even we can access your data."
- https://www.wuala.com/en/support/faq
But it seems pointless in light of:
"Do you plan to open the source code?
Currently not. Opening the source code of Wuala would consume quite some time and effort, and commitment to maintain it. If you are a software engineer and would like to see how Wuala works, feel free to apply for a job at Wuala."
- https://www.wuala.com/en/support/faq/c/21
It would be trivially easy for them to hide a backdoor and/or leak data in their closed-source code. So at the end of the day, the message is "Trust us." So what purpose does the client-side encryption serve? Empty marketing. At best, it makes it _slightly_ harder for them to read your files.
Tarsnap (www.tarsnap.com), which does have client source code available, doesn't suffer from this problem. Unfortunately it's a fair bit more expensive.
Also, please note that laws are often constructed such that companies can be forced to hand over data they possess, however not to collect data they do not possess yet. E.g. there are many laws in many jurisdictions that could be used to force Google to hand over data you have stored in Google Drive, but the same laws cannot be used to force us to add a backdoor to Wuala. So legally, it is much much easier to obtain data stored in Google Drive than to obtain data stored in Wuala (or another service that uses client-side encryption). Noone has ever asked us to add a backdoor to Wuala and we would fight against it if someone did.
I agree that it would be nicer to open the source code so our security would be independently verifiable, but claiming that what we do is "empty marketing" is clearly wrong.
For why not to trust a closed-source system's claims of security, see Skype. If I remember correctly what I have read, they boasted about using "end-to-end encryption", strongly implying that your Skype calls could not be wiretapped. The catch? The encryption keys were stored on the server! And there was a story where someone (a drug smuggler, I think) was busted seemingly as a result of intercepted Skype calls. The misleading claims of security didn't ruin Skype's reputation - people still use it.
I'm glad you replied to my comment as it shows you're at least thinking about these things. I hope you will consider opening your source code in the future. At that point Wuala might be of interest to me.
[1] https://www.wuala.com/
[2] http://static.deno.pl/pub/wuala-storage.png