The Uber Decision

Last week, Ontario’s Superior Court of Justice delivered a much noticed judgment rejecting Toronto’s claims that Uber could not operate there without registering and obtaining a license as a taxicab or limousine broker. Needless to say, the ruling is of great practical importance to Uber’s users, both passengers and drivers, as well as those who seek to regulate it out of existence. Legally, the decision, City of Toronto v Uber Canada Inc., 2015 ONSC 3572, is about a very narrow issue of statutory interpretation. Yet the recently-appointed Justice Dunphy’s thorough and well-written opinion provides us an opportunity to reflect on the importance of the Rule of Law and the processes of legal change.

The City of Toronto, like many others in Canada and elsewhere, has chosen to cartelize the transportation of persons by privately owned cars. All the cars used for that purpose are divided into the categories of “taxicabs” and “limousines.” The number of the former is fixed; the number of the latter is restricted indirectly, by imposing a variety of regulations on their owners and operators. In addition, the City requires “taxicab brokers” and “limousine service companies” to obtain licenses in order to operate within its limits. The City’s case against Uber was that Uber was acting as a “taxicab broker” or a “limousine service company,” without having done so. It asked the Court for both a declaration and an injunction that would have ordered Uber to stop its operations in Toronto. Uber, for its part, claimed that its operations were not covered by the City’s by-laws.

Justice Dunphy begins by determining whether Uber cars might be “taxicabs” or “limousines” within the meaning of the applicable by-law, chapter 545 of the City of Toronto Municipal Code. The definition if a “taxicab” is limited to categories defined by the various types of permits issued by the City. Since Uber cars lack such permits, they do not fall within this definition, reasons Justice Dunphy, and must be “limousines,” which include all cars “used for hire for the conveyance of passengers in the City of Toronto” other than “taxicabs.” To say that unlicensed cars used for that purpose are still “taxicabs” “would make nonsense of the definition of ‘limousine’ in the same enactment” [57] and thus cannot be the correct interpretation.

Having concluded that Uber cars are “limousines,” Justice Dunphy asks himself whether Uber ― or, more precisely, any one of the three members of the Uber group of companies actually sued by the City ― acted as a “limousine service company.” The by-law defines such a company as a “person or entity which accepts calls in any manner for booking, arranging or providing limousine transportation.” Uber, Justice Dunphy holds, does not “accept calls,” and thus is not covered by the definition. In Justice Dunphy’s view “accepting” a call or any sort of request “requires the intervention of some element of human discretion or judgment in the process and cannot be applied to a merely passive, mechanical role of receiving and relaying electronic messages.” [78] Yet that is precisely what Uber does.

Having provided prospective passengers and drivers with software that allows them to connect, often well in advance of any specific trip being envisioned by either party, it relays passengers’ requests for a ride to the nearest car available. Unlike a traditional taxi broker or limousine company, it cannot reject the request (for example if there are no cars available) or undertake to fulfill it. It is the driver who receives the request who takes the decision. Uber no more “accepts” requests for rides than does a phone company whose networks are used to transmit traditional calls for cabs, or automated services that connect a prospective rider with a broker. In Justice Dunphy’s view, it “is very likely” that “the by-law was drafted and the word ‘accepts’ was selected in lieu of the more generic ‘receives'” precisely in order “to exclude such businesses from the scope of the regulation.” [70]

Justice Dunphy also considers the meaning of the word “calls,” used in the definition of a “limousine service company” ― but not in that of a “taxicab broker” which, unlike the limousine company, can accept “requests.” This difference in wording, Justice Dunphy says, it must be given effect, so that “calls” cannot be taken to mean “requests.” Besides, the word “requests” is a recent innovation in the definition of a “taxicab broker,” and the City could have amended the definition of “limousine service company,” but has not done so. Online requests handled by Uber are not “calls” in any normal sense of the word, and this is an additional reason for concluding that it is not a “limousine service company.”

Although it might seem like excessive legalistic pedantry to some, I find Justice Dunphy’s analysis persuasive. Needless to say, it only applies to the specific legislative framework before him. Had the relevant definitions been drafted differently, his conclusions would presumably have been different too. But given the by-laws that were actually before him, I think that Justice Dunphy was quite right to distinguish the passive or mechanical functions of receiving or transmitting a communication and the (at least somewhat) discretionary function of accepting an order, as well as to give effect to the distinction between “calls” and “requests” which the City itself has created.

As I said in the beginning, beyond the narrow point about the meaning of the specific words used by Toronto’s city council to regulate its taxi industry, there is a broader one about the Rule of Law. As Justice Dunphy points out, “[t]he goal of statutory interpretation is not to start with the desired outcome that the regulator seeks in light of new developments to see what means can be found to stretch the words used to accomplish the goal,” [69] which as he says is what he would have had to do in order to rule for the City in this case. The Rule of Law requires, among other things, that legal rules be public and relatively stable. It also requires the government to be bound by the existing legal rules. A legal system where the meaning of the rules can change because the government wants it to, even though it cannot be bothered to follow the procedures available for legal change, is not one where the Rule of Law prevails.

It is often said that insisting on this “formal” sort of Rule of Law is not enough, because requirements as to the publicity and clarity of legislation and insistence on legal change following recognized procedures does not do much to constrain government. Government can still enact whatever rules it wants, so long as it goes about it the right way. But if it really were so easy for government to change the rules while following the applicable procedures, would it really be fighting so hard to avoid having to do so? As Justice Dunphy recognizes,

[t]he City finds itself caught between the Scylla of the existing regulatory system, with its numerous vested interests characterized by controlled supply and price, and the Charybdis of thousands of consumer/voters who do not wish to see the competition genie forced back into the bottle now that they have acquired a taste for it. [9]

Changing the rules, in this context, is not as easy as those who denigrate the formal understandings of the Rule of Law would have us believe. And so it matters a great whether

the City’s regulations, crafted in a different era, with different technologies in mind [have] created a flexible regulatory firewall around the taxi industry sufficient to resist the Uber challenge, or … instead [have] created the equivalent of a regulatory Maginot Line behind which it has retreated, neither confronting nor embracing the challenges of the new world of internet-enabled mobile communications. [12]

Justice Dunphy’s conclusion, of course, is that the City’s regulations have done the latter, and Uber is thus free to pursue its (charm) offensive. In theory, the regulatory troops can still be withdrawn from the useless, antiquated defences and thrown into the battle to stop the invaders. In practice, it may well be too late by the time they can be mobilized.

Justice Dunphy understands this, no doubt. Although he insists, as most judges not named Richard Posner are wont to do, that “[q]uestions of what policy choices the City should make or how the regulatory environment ought to respond to mobile communications technology changes are political ones” [13] and not for him to resolve, his awareness of, and willingness to mention, the conflict between “vested interests” and the “competition genie” suggest that he knows that his decision will influence the choices that will end up being made. Indeed, Justice Dunphy’s attention to the details of Uber’s technology and business model, as well as his awareness of the broader context in which the case before him fits, not to mention his rhetorical flourishes, have something at least vaguely Posnerian about them. The decision he has delivered is not only an Uber decision, meaning a decision about Uber. It’s also an über-decision ― one that is superior to what one usually sees.

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