The case for compensation

It is timely to look at what the Government needs to consider if they are to legalise ride share.


The battle by Uber to be legitimised, at minimum cost to itself, went up a notch with the surprising release in February of a self serving, Uber funded report, purportedly from a reputable independent organisation. 

It goes to show that Uber wields a very big stick. 

We have seen this Uber influence in the way in which other states have moved forward on the issue of ride sharing. 

Hearteningly, the Victorian Government is refusing to be bullied, and is still considering its position in relation to regulating Uber. 

Perhaps the report was intended to influence the Government's decision?

The Deloitte Access Economics report argues that Uber is creating new customers, not converting existing taxi customers, and that this is due primarily to the innovation of the Uber X platform and its cost competitiveness.  Lets call this for what it is, a thinly veiled attempt to pressure Government into a lenient regulatory response. 

Combine this with Brenner's Uber funded appeal from the decision of the Melbourne Magistrates' Court of his conviction for breaches of the Transport Act, and it's clear that Uber does not intend to back down, and considers the battle still underway.  That is worth remembering. 

Perhaps, therefore, it is timely to look at what the Government needs to consider when "legalising" ride share. 

Let's start with the current differences in Victoria between regulated taxi services, and the rogue ride sharing service.

 

Taxis

Ridesharing services

 Establishment and  license  costs/obligations

-   Operator accreditation required

-   License plate required (purchased or leased)

-   Vehicle (quality standards)

-   Special vehicle registration

-   Knowledge test

-   Fit out/livery costs

-   EFTPOS machine

-   Safety cameras

-   Vehicle registration (no additional cost to private vehicle)

-   Vehicle (quality standards lower than taxis)

-   App on mobile phone (no cost)

 Ongoing  compliance  costs

-   Annual vehicle inspections

-   Conformity with safety regulations (GPS tracking, 24 hour monitoring, emergency response capability)

-   Complaints handling system

-   Lost property

-   Maintenance and repair of compulsory equipment and livery

-   Insurance (specific requirements)

-   Compliance with implied conditions in driver agreement

-   Compliance with pricing notification requirements (country/regional only)

 None, other than insurance (no  requirements additional to those  required  for private vehicle)

 Regulated fares

-   Yes (but will be deregulated, in some form,  at some time in the future)

-   Mandated 55/45 meter sharing between Owner and Driver.

 No, surge pricing model

 Who bears costs

 Owner

 Driver

 

Despite all of these additional imposts, the Deloitte Access Economics report asserts that there is only only a 15% difference between the average (regulated) taxi fare in Melbourne and the equivalent Uber fare.[1]

If Uber is legalised, the benefit a taxi would purportedly have over Uber (in other words the reason why you would subject yourself to the regulated world of the taxi industry) is that a taxi would be permitted to undertake rank and hail work, to the exclusion of Uber.

We have argued previously, however, that the Uber App amounts to an electronic hail.  It cannot be classed as a pre-booking due to its immediacy.  However, the ACCC does not appear likely to prevent Uber's reliance upon the App, despite its refusal to allow the Networks to operate a similar app [2] (and the TSC has to date shown no willingness to exercise its powers to assist the taxi industry on this point either). 

It follows therefore, as the table above shows, while taxis pay significantly higher costs to Government than it is proposed by Uber that ridesharing service providers will [3] (both at establishment and on an ongoing basis), the only exclusive benefit enjoyed solely by taxis is rank work. 

In other words, the difference between legalised ride share and a taxi would be rank work.  Taxis would have the 'exclusive' right to wait in line.

This means that, in the event of the legalisation of ride share, the value of a plate (and indeed the annual license offered by the government) will have been almost entirely eroded. 

Nevertheless, it is important to realise that there may not be a legal entitlement to compensation.  There is no equivalent in Victoria of section 51(xxxi) of the Commonwealth Constitution which states that property acquired by the Commonwealth can only be done on 'just terms'.  In fact, it is arguable whether there is in fact an acquisition of property by the Government.  Licence holders will retain their licences and the rights attached to them – it's just that now others who have not paid for the same licences will also have those rights.  Therefore, it is possible that even if ridesharing is legalised, no compensation may be paid.  Any proceeding issued by a disgruntled owner(s) of taxi license plates would need to rely upon the terms of the original purchase/auction at the time the plates were purchased, and seek to imply into that process some sort of fetter on the Government's right to issue licenses/rights that impinge upon the perceived exclusive rights of a plate holder.  That would be a difficult task.

The government has consistently denied the owners of plates any form of compensation.  The Fels inquiry cleverly avoided doing anything other than purporting to cap the price of an assignment.  However, if  the government to legalise ridesharing, it would need to understand the almost complete erosion of the value of the license plate, and compensate license plate owners for the removal of the exclusive license that they understood they were bidding for at the relevant time.

As we know, many people took out loans, and invested their superannuation in these plates.  With the legalisation of ridesharing those plates are almost valueless. 

The New South Wales Government has recognised this erosion of value.  They announced a compensation scheme for existing license holders.  A $1.00 surcharge on all "point to point" transport (taxi, hire car and ride share) trips for five years will fund a $250 million industry adjustment assistance package.  Perpetual license holders will be eligible to receive $20,000 per perpetual license (for a maximum of two licenses).  Additional business and advisory services will be offered to taxi operators to assist with the adjustment.

The Transport Minister of New South Wales, Andrew Constance, stated: "It's important that we don't forget those who have poured their savings into taxi licenses over the past decades and ensure they get equitable assistance as this industry adjusts to changes in our economy." (Sydney Morning Herald, 17 December 2015).

New South Wales has led the way by acknowledging that license holders "have bought into this industry on the basis of the significant upfront capital investment and often many have put their whole life savings into it, so it is a challenge when new technology such as this comes along." (New South Wales Premier Mike Baird, ABC News, 23 November 2015).[4] 

Therefore it is a matter of public policy that license holders receive compensation if the Victorian Government regulates to bring UberX within the law.  License holders purchased their licenses on the basis that the value of the license would be respected, realised and increased for many years to come, and paid a premium for that right. 

That would no longer be the case if ride sharing is legalised.

Brought to you by Logie-Smith Lanyon Lawyers. 


[1] Note that the source of this information is identified as Deloitte Access Economics and Uber, Deloitte Access Economics report, Economic effects of ridesharing in Australia, February 2016, available at: http://www2.deloitte.com/au/en/pages/economics/articles/economic-effects-ridesharing-australia-uber.html

[2] Australian Competition and Consumer Commission, "ACCC proposes to deny authorisation of ihail taxi booking app", 12 October 2015, available at:  http://www.accc.gov.au/media-release/accc-proposes-to-deny-authorisation-of-ihail-taxi-booking-app

[3] Uber submissions to Chief Minister The Hon Andrew Barr, "Ridesharing: A Progressive Direction for the ACT", 26 June 2015, available at: http://www.cmd.act.gov.au/__data/assets/pdf_file/0011/778385/Uber-Submission-to-ACT-Review-June-2015.pdf

[4] Brendan Trembath, "NSW taxi drivers call for compensation if Uber legalised" ABC News, 23 November 2015, available at: http://www.abc.net.au/news/2015-11-23/nsw-taxi-drivers-want-compensation-if-uber-legalised/6967314



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