A criticism of the CJEU’s ruling that allowing London taxis to use bus lanes while prohibiting private hire vehicles from doing so does not appear to involve State aid (Eventech, C-518/13)

Dr Albert Sanchez Graells, School of Law, University of Leicester

In its judgment of 14 January 2015 in Eventech (C-518/13, EU:C:2015:9), the Court of Justice of the EU (CJEU) ruled on the preliminary question referred by the Court of Appeal (England and Wales) in the Addison Lee “taxis in bus lanes” case [as part of the challenge of the High Court’s decision in Eventech Ltd (R on the application of) v Parking Adjudicator (2012) [2012] EWHC 1903 (Admin)]. The CJEU decided that allowing London taxis (black cabs) to use bus lanes while prohibiting private hire vehicles (PHVs) from doing so does not appear to involve State aid. While the Eventech judgment leaves a minimum scope for the Court of Appeals to find differently in view of the specific facts of the case and the parts of the file not referred to the CJEU, this is most likely the end of the dispute.

The decision comes at a time when the regulation of the taxi sector is under significant pressure due to the political and economic waves that sharing economy initiatives (such as Uber) create – or, in the words of AG Wahl in the Eventech Opinion, “taxis and PHVs are engaged in fierce competition with each other across Europe, and London is not the only city where conflicts have arisen” (EU:C:2014:2239, para 2). This is a sector where competition rules have always been difficult to enforce due to the heavy regulation to which it is subjected (OECD, Competition Roundtable on ‘Taxi Services: Competition and Regulation’, 2007). Some claim that it is a sector ripe for proper deregulation and liberalisation, while others claim the opposite [for recent discussion, see L Eskenazi, ‘The French Taxi Case: Where Competition Meets—and Overrides—Regulation’ (2014) Journal of European Competition Law & Practice, and Publicpolicy.ie, The Taxi Market in Ireland: To Regulate or Deregulate? (2014)]. The discussion on the State aid implications of certain privileges derived from such regulation in crisis, and particularly the privileged use of bus lanes, added one layer of complication that the CJEU seems to have been keen on taking off the table.

The legal dispute in front of the CJEU can be condensed to opposing views on whether allowing black cabs to use bus lanes while prohibiting PHVs from doing so infringed the prohibition in Article 107(1) TFEU. It can be further narrowed down to the two key issues of whether this policy involves a commitment of State resources and whether it confers on taxis a selective economic advantage. Both elements need to be present for the prohibition of Article 107(1) TFEU to apply. The CJEU found in the negative on both aspects and determined that the practice of permitting, “in order to establish a safe and efficient transport system, black cabs to use bus lanes on public roads during the hours when the traffic restrictions relating to those lanes are operational, while prohibiting minicabs from using those lanes, except in order to pick up and set down passengers who have pre-booked such vehicles, does not appear, though it is for the referring court to determine, to be such as to involve a commitment of State resources or to confer on black cabs a selective economic advantage for the purpose of Article 107(1) TFEU” (C-518/13, para 63).

In my view, the Eventech judgment is criticisable in both areas. It fails to address the issues of economic advantage and selectivity in a functional manner—not least because the analysis of the selectivity of the measure ultimately relies on an assessment of ‘equality’ or ‘comparability’ of the legal position of black cabs vis-à-vis PHVs that falls into a logic trap derived from the pre-existing regulation of black cabs. Moreover, the analysis of the element of transfer of State resources is very counterintuitive and seems to contradict both economic theory (particularly as the use of public goods is concerned) and the case law on access to essential facilities under private ownership.

The finding that State resources are not involved is partial and flawed

Following the Opinion of AG Wahl, the CJEU engages in a rather counterintuitive approach to the issue of the transfer of State resources, which focusses on whether the State is forfeiting revenue by not charging black cabs for access to the bus lanes or by not imposing fines on them when they use the bus lanes, as it does with PHVs (judgment, paras 36-46). This approach comes from the AG Opinion, where he had decided to assess the question from the perspective of the regulatory powers of the Member State and fundamentally concluded that, in the exercise of those regulatory powers, there is no obligation to impose a charge for access to public infrastructure (Opinion, paras 24-35).

In my view, this line of reasoning is flawed because it dismisses clear and meritorious arguments presented to the CJEU. From an economic perspective the use of the roads entails a problem of public good utilisation. Particularly in crowded cities like London, access to the roads and, indirectly, to public transportation is a public good which use is difficult to regulate. This seems to be recognised by the CJEU when it stresses that “the measure at issue in the main proceedings concerns not the financing as such of the construction of bus lanes, but preferential access to them. […] the bus lanes were not constructed for the benefit of any specific undertaking or any particular category of undertakings, such as black cabs, or the suppliers of bus services, and were not allocated to them after their construction, but that they were constructed as part of the London road network and, primarily, with a view to facilitating public transportation by bus, irrespective of whether the organisation of that public service fell to either the public sector or the private sector” (para 45). Hence, it is really hard to understand how the CJEU can dismiss the rather obvious argument that the building and maintenance of such public good relies on State resources and, consequently, that the creation of a private right of use of the public good does indeed imply a transfer of State resources to the beneficiaries of such right (in this case, black cabs), particularly because it also imposes costs on the State derived from monitoring that non-advantaged users (PHVs) do not restrict the ability of the beneficiary to exploit the public good—that is, the CJEU completely omits the point that policing and monitoring that PHVs and private vehicles do not use bus lanes is costly, and that the State incurs in those costs particularly for the benefit of the agents that have access to the bus lanes.

The CJEU deals improperly with this issue by chopping the element of State resources in several bits, disconnecting the cost of creating the bus lanes from the costs of keeping them in good condition and, more importantly, monitoring that only privileged users access them, and ultimately considers that these issues do not “pertain to the criterion of commitment of State resources, but [concern] whether the bus lanes policy must be regarded as conferring on its beneficiaries an economic advantage […] which has an economic value which must be paid for by those beneficiaries” (para 47). When dealing with this point, the CJEU again falls into a conflation trap that links the economic advantage given to black cabs to the commercial exploitation of the bus lanes—which again does not make much sense. Indeed, the CJEU considers that “it is common ground that the right of privileged access is the right to use bus lanes; that that right has an economic value; that the right is granted by the competent traffic authority; that it is stated in the relevant road traffic legislation that the objective pursued by the legislation at issue is that of ensuring a safe and efficient transport system; that neither the road network concerned nor the bus lanes are operated commercially; that the criterion for granting that right is that of providing taxi services in London; that that criterion was established in advance and in a transparent manner and, last, that all the providers of such services are treated equally” (para 50, emphasis added).

This link, and the ensuing analysis, miss the important point that black cabs do incorporate their privileged access to bus lanes in an activity that they exploit commercially (ie the provision of taxi services) and that they engage in that activity by virtue of licences granted by the same authority that decides on bus lane use. Consequently, the restraint of these elements to the public policy sphere (ie their artificial separation from the market) is not more than a logic trick to allow the CJEU to determine that Member States, in the exercise of their competences in traffic regulation and environmental management, are free to charge or not for the permits and special use rights they assign. Once again, in my view, this is flawed.

Moreover, the ultimate background “economic” argument that AG Wahl had developed, and that may have affected the reasoning of the CJEU (although it is not expressly mentioned in the Eventech judgment) is truly unfocussed. Indeed, he considered that

If, for the sake of argument, the State aid rules were interpreted as generally requiring Member States to charge for access to public infrastructure or State-controlled resources, this might deter States from creating or opening up areas to which there has previously been no, or only limited access (sic). Equally, it might deter undertakings from participating in that process. For example, in the matter under consideration, if black cabs were required to pay for access to bus lanes, that might deter certain of them from requesting access, which might result in access being given only to the economically most resourceful, thus defeating the purpose of the policy (para 30, emphasis added).

The argument was not fully developed or particularly clear, but it goes against a consideration of economic efficiency (why wouldn’t we generally prefer economically resourceful over other competitors, provided there is no predation?). More importantly, it also avoided the obvious issue that, given the limited number of black cab licences and the difficulty in obtaining one [not least, due to the cost of the licences and the existence of quantity restrictions—at least outside London, and possibly also in London in the future; see Library of the House of Commons, Taxis: quantity restrictions (2014) and Law Commission, Taxi and Private Hire Services, Law Com No 347 (2014)], a benefit is implicitly being recognised in favour of black cabs over PHVs, which can be exactly advantaging the economically most resourceful (ie, those that manage to have a black cab licence) over others. Hence, on top of the argument being economically flawed, it is also myopic and internally inconsistent.

The assessment of selectivity falls into the logic trap of the existing regulation of black taxis

Once the CJEU has dismissed the points on the existence of a transfer of State resources or, indeed, an unfair economic advantage, it focusses on the point of selectivity of the bus lane policy. The CJEU indicates that “the identification of the respective situations of black cabs and minicabs and the assessment of whether those situations may be comparable is an issue which falls within the jurisdiction of the referring court, which alone has available to it all the relevant matters of fact and law”. However, it focusses the previous analysis of AG Wahl and engages in a rather detailed assessment that leads it to exclude the element of selectivity. In the words of the CJEU:

[Firstly,] the identification of the factual and legal situation of black cabs and minicabs cannot be confined to that prevailing in the market sector in which those two categories of conveyors of passengers are in direct competition, namely the pre-booking sector. It cannot seriously be doubted that all the journeys made by black cabs and minicabs are liable to affect the safety and efficiency of the transport system on all the road traffic routes in London.

Secondly, it must be taken into consideration that, by virtue of their legal status, only black cabs can ply for hire; they are subject to the rule of ‘compellability’; they must be recognisable and capable of conveying persons in wheelchairs, and their drivers must set the fares for their services by means of a taxi meter and have a particularly thorough knowledge of the city of London.

It follows that black cabs and minicabs are in factual and legal situations which are sufficiently distinct to permit the view that they are not comparable and that the bus lanes policy therefore does not confer a selective economic advantage on black cabs (paras 59-61, emphasis added).

This assessment adopts the views of AG Wahl, which are open to further criticism.

Firstly, even if it is probably common knowledge, AG Wahl stressed the fact that black cabs hold a partial monopoly on the provision of taxi services in the UK, which creates an assymetrical access to the market between them and PHVs. Indeed, “black cabs have a partial legal monopoly. They alone may ‘ply for hire’, that is to say, be picked up at a cab rank or be hailed from the street. However, both black cabs and PHVs may provide their services in respect of pre-booked journeys. As to the extent to which black cabs operate on the market for pre-bookings, according to evidence submitted to the High Court of Justice, a 2009 survey showed that 8 % of black cab journeys were pre-booked” (para 19). However, it is unclear how this can be relevant for the assessment from a State aid perspective (given the fact that everyone accepts that the ‘bus lane’ policy has a distortive effect on competition, see para 18 of the Opinion), if not to tilt it towards a finding against the existence of State aid on the basis of a lack of selectivity based on the different “legal standing” of both types of taxi undertakings. In my view, this is an important logic trap in AG Wahl’s Opinion.

Indeed, AG Wahl made this clear in his interim conclusion by stressing that “I propose that the Court should answer […] that, on a proper construction of Article 107(1) TFEU, where State authorities make a bus lane on a public road available to black cabs but not to PHVs during the hours of operation of that bus lane, that does not involve a transfer of ‘State resources’, provided that all comparable undertakings are granted access on equal terms, which falls to be verified by the referring court” (para 46, emphasis added). He then, at points reluctantly, goes on to sketch the conditions for that assessment of ‘comparability’ between black cabs and PHVs (remember the logic trap).

In order to delineate the framework for analysis, AG Wahl interpreted (rectius, rephrased) the questions referred by the Court of Appeal and considered that it “in reality wishes to know whether selectivity is to be assessed solely on the basis of the market on which both black cabs and PHVs compete (that is to say, the market for pre-bookings), or whether it ought to include the ‘ply for hire’ market. This is arguably a decisive issue in the case under consideration” (para 53). That is, AG Wahl restricted the issue to the relevance of the asymmetrical competition between black cabs and PHVs.

Even if he timidly stressed the need for any differences of treatment to be justified and proportionate (paras 72-73, ie the bus lane policy “does not amount to ‘favouring certain undertakings’, provided that those authorities show (i) that taxis and private hire vehicles are not legally and factually comparable, owing to objective considerations relating to the safety and efficiency of the transport system, and (ii) that such a measure is suitable for achieving that objective and does not go beyond what is necessary in order to achieve it”, para 74), the AG very easily accepted that “although I consider black cabs to be comparable to PHVs on the market for pre-bookings, they are not comparable in all respects. I can therefore accept, as a matter of principle, that, on the combined relevant markets, the objective consisting in the creation of a safe and efficient transport system may mean that black cabs are not comparable to PHVs” (para 70, emphasis in the original).

However, in my view, this derives from a logically flawed argument that derives from the weight given to the pre-existing regulation of the taxi market. Indeed, it is worth stressing that AG Wahl accepted the lack of comparability in principle on the basis of the following:

[…] taxis provide a service which supplements the existing methods of public transportation and which, in some ways, can arguably be assimilated to a universal public service. At a time when methods of communication were less developed, being able to hail a taxi from the street or to pick one up from a cab rank was an essential alternative to the other methods of transportation available. This is the reason why black cabs traditionally have a monopoly on ‘ply for hire’ journeys, and the same reason why taxis in many cities across Europe enjoy similar privileges, including the right to use bus lanes.

Moreover […] a mere 8 % of black cab journeys are pre-booked. Accordingly, I am not persuaded that the pre-booked market is the only significant market on which black cabs operate. In this connection, although it does not appear self-evident to me, it has not escaped my attention that the High Court in its judgment found that ‘[i]t would clearly not be possible to legislate that … black cabs could not use the bus lane when carrying a pre-booked passenger’. With that in mind, there appears to be no justification for limiting the assessment to the market for pre-bookings alone (paras 61-62, footnotes omitted and emphasis added).

What I think escaped the AG’s attention is that the relevant setting is not to determine where do black cabs operate, but where do they compete. If that is kept in mind, but for the anachronistic and currently unjustified exclusive right to carry out ‘ply for hire’ journeys that black cabs retain (only as a result of existing sector regulation), either all journeys would become pre-booked (if their right was simply erased and no taxi could be hailed on the streets, which is not plausible) or both black cabs and PHVs would compete for all services, which would erase the issue of comparability and asymmetrical competition. Hence, making the whole analysis rely on the existence of a currently unjustified regulatory restriction makes the argument very weak and difficult to justify, particularly if a measure that distorts competition in the only market where PHVs can be present is being analysed, as is the case in Eventech. In that regard, it is really regrettable that the CJEU simply followed the AG’s view, without entering into any further assessment.

The analysis contradicts the case law on access to essential facilities under private ownership

A final point worth stressing is that, more generally and perhaps more importantly, the tests applied by AG Wahl and then adopted by the CJUE in Eventech deviate from the general test applicable under art 102 TFEU to access to essential facilities under private property. In my view, the CJEU’s judgment in IMS Health (C-418/01, EU:C:2004:257) must be taken into consideration. Importantly, under that line of case law, one of the paramount issues when assessing the withholding of access to an essential facility that results in the reserve of an activity to the owner of the facility is to consider whether there is (potential or unsatisfied) consumer demand for a service that is not being provided (or not in sufficient amounts).

Moreover, under similar regulatory conditions (ie where there is a partial reserve of certain services but an open market for others), the CJEU’s judgment in Höfner and Elser v Macrotron (C-41/90, EU:C:1991:161) is also relevant. Here, the CJEU determined that it is unjustified to reserve the provision of a given service in favour of an undertaking (or an emanation of the State) that is unable to meet demand for that service–or, in the words of the Court, where the beneficiary of the reserved activity is “manifestly incapable of satisfying demand prevailing on the market for such activities.”

In my view, the combined rationale of these lines of case law should have been taken into account in the Eventech case. Given that only 8% of pre-booked taxi services are carried out by black cabs, it is plain to see that a rule that can potentially reserve to them a larger tranche of the market is bound to create problems of sufficient provision and consumer satisfaction. Moreover, at least as a matter of principle, consistency in the rules applicable to publicly and privately owned essential facilities should be pursued.

Conclusion

I hope it is by now clear that the analysis of the economic exploitation of the bus lanes carried out by the AG and the CJEU in the Eventech case is particularly weak, as it completely avoids the clear issue that black cabs do use that infrastructure in order to develop an economic activity – which, consequently, creates important issues of free access to public goods that the CJEU has simply disregarded. It can just be lamented that the CJEU did not identify the logical traps that affected the AG Opinion and deviated from them. Maybe, at least, the case can be used as yet another clear indication of the need to involve economists in the decision-making process of the CJEU [for some exploratory thoughts, see A Sanchez Graells, The Importance of Assessing the Economic Impact of the Case Law of the Court of Justice of the European Union: Some Exploratory Thoughts (April 18, 2013)].


This post is based on Albert’s previous criticism of the AG Opinion and the judgment of the case itself in his personal blog: howtocrackanut.blogspot.co.uk

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