Uber began operating in Ottawa in 2014. It never sought or obtained a taxicab broker license, so its business model was illegal. The city of Ottawa (the “City”) chose not to prosecute Uber for two years. Then, it passed a new by-law creating a new class of license designed for Uber.
In Metro Taxi Ltd v City of Ottawa, 2024 ONSC 2725, the Ontario Superior Court of Justice found the City liable to licensed taxicab operators for not enforcing its original by-law.
Metro Taxi suggests that there is a point at which government promises to support an industry by enforcing laws can become an actionable undertaking. This article summarizes the decision, and then provides some takeaways and unanswered questions.
The Decision
This was a common issues trial in a certified class action. Five common issues had been certified, but only three were considered at this stage, all going to liability:
(1) Was the City negligent in failing to prosecute Uber for dispatching taxicabs without a license?
(2) Did the City breach section 15 of the Charter by failing to enforce its by-law?
(3) Were the license fees paid by licensees a tax or a regulatory charge? It was common ground that the Municipal Act only gave the City the power to enact the latter.
The class prevailed on (1). This article only analyzes this issue, as it is the only part of the decision likely to have implications beyond this case.
For completeness, the City prevailed on (2) primarily because the class failed to adduce evidence that racialized licensees were more adversely affected than non-racialized licensees, and the City prevailed on (3) because there was evidence that the revenues generated from license fees were comparable to the costs of enforcing the legislative scheme.
Proximity
The plaintiffs argued that the taxicab licensing scheme was a “supply management” system that depended on enforcement, creating a proximate relationship. The court rejected this argument because the regime was not “enacted to protect the interests of the taxicab industry or ensure their economic viability”.
However, the court found a proximate relationship because the City’s relationship with the taxicab industry was “much more than a simple manifestation of the regulator-regulated relationship”. Specifically, the court pointed to the following facts:
(a) The City and industry met regularly to discuss enforcement against non-licensees (“bandits”), which was formalized when the City directed its enforcement officer to consult with a working group including industry participants;
(b) The City asked industry participants to collect evidence for it to assist in prosecutions under the by-law, including for an investigation into Uber;
(c) The City invested in a marketing campaign to fight bandits; and
(d) The City represented to the press that charging bandit drivers was insufficient to address the problems posed by bandit brokers, such as Uber.
Reasonable Foreseeability
The court found that failure to enforce the by-law would cause reasonably foreseeable harm to licensed taxicab operators because taxicab licenses were widely seen as an “asset” and as a “retirement fund” for licensees. The City was aware of the market for taxicab licenses.
Standard of Care
The City argued that it had prosecuted Uber drivers, which cost it more than $3 million in enforcement costs. The court rejected this for two reasons. First, the court held that the City had failed to prove that it “spent a considerable amount of money on its enforcement efforts against Uber or that its efforts were constrained by costs”. Second, the court held that this strategy – going after drivers instead of going after Uber itself – was inherently “an ineffective manner of dealing with an entity of this magnitude”, especially because it knew that Uber was paying the fines. Recall that the City had itself represented to the press that such a strategy would be ineffective.
The court also found that the City breached the standard of care when it adopted a “wait and see” approach before Uber entered the market, even though it knew that Uber had a history of “blatant defiance of the law” when it entered new cities.
Causation
The City argued that it could not have stopped Uber, which successfully steamrolled other cities. The court retorted, “Defeat is almost assured when one believes that defeat is inevitable” and found that with “proper planning and an effective enforcement strategy”, Uber could have been stopped from entering the market because other cities had successfully done so.
Takeaways and Unanswered Questions
For what may be the first time, a government has been held liable in negligence for failing to enforce a law. However, the court’s reasons appear to ensure that this result will only apply where (1) the government took active steps to represent to beneficiaries of the law and to the public that it would enforce that particular law; and (2) the government knew that beneficiaries invested in and heavily relied on enforcement, in this case because licenses were treated as a retirement fund.
In particular, a duty to enforce a law will not be created merely because that law inherently induces reliance by beneficiaries. However, this holding depended on the finding of fact that the purpose of the statutory scheme was not to benefit the class. It is unclear whether this holding would apply if the sole or primary purpose of a statutory scheme was to benefit a claimant group.
Either way, to limit the risk of liability, government officials should avoid making promises about enforcement, both when laws are being drafted (when it may convey the purpose of the law) and thereafter (when it may indicate a partnership). By the same token, industry lobbyists may find value in convincing government officials to make public statements about enforcement.
Once a duty to enforce a law is established, there are two possible interpretations of what standard of care and causation analysis applied. A broad interpretation is that, since the City could have prevented Uber’s entry, it had to do so. A narrow interpretation is that the City could have simply made a plan to prevent Uber’s entry and charged Uber. But even under that narrow interpretation, the City would have been required to act before Uber entered the market.
Notably, on the facts, the court did not have to address the argument that prosecuting Uber would have been a strain on the City’s finances. It is therefore unclear whether the cost of enforcement could have affected the result.
Finally, in Metro Taxi, the alleged damages were pecuniary. The court did not comment on whether these were pure economic losses, or more generally on what type of loss is necessary to complete the cause of action in negligence. It is also an open question whether non-pecuniary losses could be sufficient, which might open the door to claims from non-business classes or about regulations other than licensing schemes.
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