UBER OVERTURNED COURT APPEAL RULING: What’s the impact on the London taxi industry?
The Court of Appeal has reversed a far-reaching High Court ruling that had imposed a contractual obligation on private hire vehicle operators to enter into contracts with customers when accepting bookings.
This landmark decision, handed down on 15 July, marks a victory for Veezu Holdings Ltd and Delta Merseyside Ltd, who successfully appealed against the High Court's interpretation, opposed by Uber Britannia Ltd.
The crux of the case centred on the interpretation of Part II of the Local Government (Miscellaneous Provisions) Act 1976, a pivotal piece of legislation governing private hire vehicles outside London. Previously, the High Court had ruled that operators must enter into contracts as principals with customers making bookings. Veezu and Delta challenged this interpretation, arguing that their business models, which act as intermediaries connecting passengers with licensed drivers, did not necessitate such contractual obligations.
Veezu Holdings Ltd, a significant player in the private hire market, operates across 22 local licensing authorities, providing a mix of corporate and non-corporate services. Their operational model involves acting as an intermediary, connecting passengers with licensed drivers without directly providing the transportation services. Similarly, Delta Merseyside Ltd, a major operator in the Merseyside region, follows a comparable business model, focusing on facilitating connections between passengers and drivers rather than offering direct journey services.
The regulatory framework under the Local Government (Miscellaneous Provisions) Act 1976 stipulates the licensing requirements for vehicles, drivers, and operators but does not explicitly mandate operators to enter into contracts with passengers. Section 56(1) of the Act deems that any contract of hire is made with the operator who accepted the booking, irrespective of whether they provided the vehicle. This provision had been a point of contention, leading to the High Court's initial ruling.
However, the Court of Appeal, led by Lord Justice Lewison, provided a crucial clarification. The Court determined that the deeming provision in section 56(1) does not extend to the invitation or acceptance of bookings but solely pertains to the contract of hire. According to the Court, this distinction means that operators are not required to enter into contracts at the time of booking, allowing them to maintain their current business practices.
One of the significant implications of this ruling is the impact on VAT liability. Under the overturned High Court ruling, operators would have been required to contract with passengers at the booking stage, thereby assuming the VAT liability on fares. However, the Court of Appeal's decision shifts this liability back to the drivers, who are now responsible for VAT.
For Veezu, Delta and other private hire operators outside of London, the ruling enables them to continue their current business models without the need for operational changes. Had the ruling favoured Uber, the consequences would have been far-reaching. With the previous government launching a consultation on the matter shortly before the Election was called, which is still open for responses until the beginning of August. Depending on the outcome, private hire fares across the country could have seen a 20% increase due to the addition of VAT, significantly impacting the price of these services for passengers.
What does this mean for London?
Some operators may choose to challenge this latest decision and there may well now be calls for the situation in London and the judgement that applies here on this issue to be revisited, but for now this Court of Appeal decision only has implications outside the capital.
For London-based private hire operators, the decision does not alter their immediate obligations. The regulatory environment in London remains stringent, requiring operators to maintain VAT liability and enter into direct contractual obligations with passengers. This disparity highlights the growing differing regulatory landscapes between London and other regions, with London operators facing arguably higher operational costs and compliance requirements.
The fight for London private hire operators remains focused on what percentage of VAT is to be paid. Uber and other London based operators are looking for a marginal VAT arrangement, where they pay a smaller proportion of the revenue generated from a journey on their apps.
As a result, we shouldn't expect to see minicab prices falling anytime soon.