Supreme Court upholds restrictions on VTC (Spanish acronym of transport service through rented car with driver)

Written on 21 Jun 2018

In a controversial ruling, the Spanish Supreme Court upheld the restrictions imposed by administration on the VTC on the basis of the 'right balance' that must exist between such sector and that of the taxi.

Following the reforms introduced in the urban transport sector in 2015, the Spanish Competition Authority ("CNMC") and several companies and associations in the VTC sector filed a guarantee of market unity appeal. This appeal was finally resolved by the Spanish Supreme Court ("Spanish SC") on 4 June 2018.

In summary, four types of restrictions in the VTC sector were introduced in 2015, both in the Land Transport Regulation Act and its regulations: (i) on the one hand, administrations were allowed to maintain a ratio of 1 VTC to 30 taxi licenses; (ii) require companies to provide 80% of their services in the autonomous community where the authorisation was obtained; a minimum fleet of 7 vehicles; (iv) technical requirements to be met by vehicles (similar to those imposed to the taxi).

The position of the appellants

The claims put forward by the parties shared as a general argument against the restrictions imposed, that they lacked justification as they were not covered by overriding reasons relating to the public interest; they were disproportionate and discriminatory; and that in reality they were intended to regulate or plan the urban transport market in clear favour of the taxi sector. The applicants do not understand that it is economically justifiable to maintain the taxi monopoly.

They also believe that the protection of the public interest requires deregulation of both sectors in order to achieve a balance through competition, and not through excessive regulation. The appellants also understood that the above restrictions do not comply with the Land Transport Regulations or the Law of Guarantee of Market Unity and that they are aimed at planning the market economically.

Outcome of the appeal: The reasoning of the Spanish SC

The reasoning underlying the Spanish SC's judgement can be summarised in the following points:

  • Although the taxi is not a public service, it is a service of public interest in which the administrations try to guarantee certain levels of quality, safety and accessibility.
  • That the maintenance and safeguarding of such a service can be considered as an overriding reason in the general interest which justifies regulatory measures that may affect competition with respect to services such as those of the VTC.
  • And, finally, the premise most commonly used by the Spanish SC in its judgment is that, given that both modalities compete for the same claim, the above reasons justify the objective of guaranteeing an appropriate balance between the two.

Following the introduction of these general premises, the Spanish SC resolved on each of the restrictions as follows:

1. With regard to the 1:30 ratio, the Spanish SC believes that this measure is appropriate to ensure an appropriate balance between the two modes of urban transport.

2. With regard to the requirement to provide 80% of the services in the autonomous community where the authorisation has been obtained, the Spanish SC acknowledges that although this restriction does not have specific legal coverage, it does have a generic coverage in the Land Transport Regulation Act. It accepts that this restriction is adequate to maintain the necessary guarantee of equilibrium and that this guarantee is an overriding reason of general interest. Finally, it justifies this restriction as the only way to avoid the use of authorisations from an autonomous community, breaching the 1:30 ratio mentioned above, in another autonomous community.

3. With regard to the requirement to maintain a minimum fleet of 7 vehicles destined for the activity, the Spanish SC considers that the reasons found in the regulations, to guarantee greater solvency through this requirement, are not covered legally by the Land Transport Regulations (which only requires one or more vehicles) or relevant from the perspective of the general interest, so in this regard it agrees with the claimant, annulling this requirement.

4. Finally, with regard to the technical requirements that vehicles must meet, the Spanish SC considers that these are not requirements that can be considered as a barrier to entry to the market, given that they correspond to those of the medium range of passenger cars similar to those that administrations require the taxi sector to meet. Therefore, under the overriding reason of general interest of maintaining a balance between the two services, these requirements would be justified.

Comments on the ruling

After analysis of the ruling, we understand that the Spanish SC has put forward very few arguments and justifications for not applying, on the one hand, the Law of Guarantee of Market Unity and, on the other, for allowing economic restrictions to the urban transport services market.

While it is clear that judiciary cannot decide on the precise regulation that the administration must carry out when regulating an economic sector, we also believe that the Spanish SC could have gone into a much more in-depth analysis of the facts and that its arguments could have been more forceful.

Beyond agreeing with the Administration and mentioning on numerous occasions the idea of the necessary and adequate balance between the taxi and VTC sectors, we do not find any arguments or technical reasons supporting the Spanish SC's ruling, since in our opinion it is a ruling that seems to have a more political than legal overtone.

We believe that a good opportunity has been missed to endorse the raison d'être of the Market Unity Guarantee Act and to avoid the imposition of unnecessary barriers to innovation and the provision of better services to citizens.