Quebec appeals ruling that held taxi permit holders were victims of disguised expropriation

A ruling that ordered Quebec to pay more than $143 million, plus interest, to compensate thousands of former taxi permit holders has been appealed both by the provincial government and class members.

Quebec Superior Court ruled last summer that the provincial government illegally expropriated the permits of taxi drivers without fair compensation after the Uber online ride-hailing service forcibly made its entry into the market a decade ago, a decision that Quebec is asking the Court of Appeal to set aside.

The decision followed on the heels of an Ontario Superior Court class action decision in May 2024 that held the City of Ottawa “capitulated to Uber’s bullying tactics” and was negligent in enforcing its own taxi bylaws from 2014 until 2016 when changes were enacted to govern ride-hailing companies like the San Francisco-based Uber. In Metro Taxi Ltd. et al. v. City of Ottawa, 2024 ONSC 2725, Ontario Superior Court Justice Marc Smith, who deferred a decision over damages, found that Ottawa “adopted a defeatist and acceptance approach to Uber’s entry into the Ottawa market.”

The Quebec class action, rather than relying on taxi bylaws, took a completely different tack to make its case. The singular ruling marks the first time in Quebec that a class action successfully relied on the notion of disguised expropriation, a notion almost akin to the common law doctrine of constructive taking.

“Uber invaded the market with complete disregard for applicable laws,” noted Montreal class action lawyer Bruce Johnston of Trudel Johnston & Lespérance LLP, one of three law firms who successfully pled the case. “They managed to corner the market, and didn’t have to pay for it. Taxi permit holders in every major Western city went through much the same thing. But it’s only in Quebec that the courts have succeeded in holding the government responsible for the financial consequences of abolishing supply management. So it’s certainly a historic judgment.”

The decision appears to broaden the application of disguised expropriation, said Marie Audren, Ad.E., of Audren Rolland LLP, a Montreal business litigation firm specializing in defending class actions. Besides the notable exception of cultural properties, expropriation and disguised expropriations almost always deal with real estate, land use and immovable property, points out Audren.

“What’s interesting about this case is that we’re talking about disguised expropriation about a taxi permit, a movable that is intangible, created by the State that had a commercial value,” said Audren. “You could buy it, could even mortgage it, and you could sell it.”

But Vincent de l’Étoile, a Montreal litigator with Langlois Lawyers LLP, believes the ruling applies long-established principles dealing with disguised expropriation and the application of article 952 of the Civil Code of Quebec. Under article 952 no owner may be compelled to transfer his ownership “except by expropriation according to law for public utility” and in return for a just and prior compensation.

“The case is of interest because, despite the fact that a taxi permit is still required to engage in this activity, and that its holders continue to hold them, the Court concluded that the permit is no longer the property it once was, resulting in the disguised expropriation of the holders and giving them the right to be compensated for their value at the time of the reform, less any compensation already offered, without further qualification,” explained de l’Étoile.

Taxi permit system

The Quebec government decided to regulate the taxi industry in 1973. It introduced a taxi permit system that divided the province into geographical areas, and limited the number of taxi permits that were issued in each agglomeration. Under the new monopoly, taxi owner permit holders were deemed to be engaged in a commercial economic activity. The value of taxi permits skyrocketed over the years. In 1976, taxi permits sold in Montreal for around $10,500, a figure that rose to $213,000 in 2006. The average market value of a taxi owner’s permit between 2006 and 2014 was $160,861, including equipment, for a total value for all of Quebec of $1,208,071,395, according to government figures. Financial institutions offered loans using the taxi permits as collateral, with some Montreal taxi permit holders able to obtain loans of over $150,000, secured by a single taxi permit.

Many testified that their taxi permits were like their nest egg, intending to rent their permit to earn income, said Johnston. Taxi permit holders could personally operate the cab or entrust the operation of their cab to a driver permit holder by entering into a lease or employment contract in exchange for remuneration by salary or commission. Government figures revealed that in 2011, 27 per cent of permit owners leased their permit without operating it personally, and another 20 per cent drove and leased their cab at the same time.

Compensation following Uber’s entry into the market

But that all came crashing down when Uber “illegally” entered into the Quebec market in 2014. Five years later, in 2019, legislation was passed that abolished the taxi permit system while integrating ride-hailing services into provincial regulations. After the passage of Bill 17, the Quebec government doled out $873 million through three different schemes to compensate taxi permit holders for the value of their permit at the time of purchase.

But taxi permit holders felt that was unfair. They launched a class action, certified in October 2018, that sought compensation for an amount equivalent to the market value of the permits before its decline following the arrival of Uber into the province. It sought $400 million, or the difference between the estimated 2014 market value of some 7,500 taxi permits and the compensation packages offered by the government. The class action also sought $1,000 in punitive damages to each member of the group.

“The supply management was a system set up by the State and controlled by the State,” said Johnston. “Permit holders were entitled to expect that this system would be sustainable, because they relied on the system’s existence to invest a lot of money. They sometimes worked all their lives to accumulate this financial asset, which was often their only or main asset. And the government decided to abolish it, paying them the same price they had paid. On its face, this was a flagrant injustice.”

The Quebec government argued that there was no transfer or physical appropriation of the property. It also maintained that there was “no absolute denial” of property rights. Permit holders retained a “reasonable use” of their permit as they could continue to operate and earn income from their taxi business, contended Quebec. Since supply management is not guaranteed, the loss in value of the permits is not sufficient to conclude that there had been expropriation, it added.

Disguised expropriation

Quebec Superior Court Justice Silvana Conte dismissed the provincial government’s assertions in Metellus c. Procureur général du Québec, 2024 QCCS 2389. Justice Conte held that the Act respecting remunerated passenger transportation by automobile dispossessed class members of a capital asset assigned to the operation of their business, depriving them of the enjoyment of the attributes of their property rights over this asset. This, added Justice Conte, constituted a disguised expropriation.

Justice Conte, heeding guidance from the Supreme Court of Canada’s 2022 decision in Annapolis Group Inc. c. Municipalité régionale d’Halifax, 2022 CSC 36, held it is not necessary to demonstrate that there was a physical appropriation of property to prove disguised expropriation under article 952 of the Civil Code. As pointed out by the nation’s highest court, a bylaw that removes all reasonable uses of the property “suffices, on its own, to effect a disguised expropriation” in Quebec civil law.

“This finding is very important,” said Audren. “It brings new energy to this notion which is why one might think that it will go to appeal. It’s going to be interesting to see how the Quebec Court of Appeal decides the issue.”

Justice Conte also rejected the Quebec government’s contention that the new law merely caused a loss of the value of taxi permits by abolishing quotas and agglomerations. The law in fact abolished taxi permits, and by doing so, it put an end to the property status of the permit, found Justice Conte. Under article 19 of the new law, a cab owner’s permit could no longer be assigned, transferred or be the “subject” of any interest, noted Justice Conte.

The class had hoped to be compensated from the time Uber entered the Quebec market in 2014. They argued that there was a causal link between Uber’s appearance and the decline in value of the permits, particularly since the Quebec government failed to act to put an end to the unfair competition. But Justice Conte held that the Court “must determine whether a text of law was adopted with a view to expropriate. If such a link existed, the text should be considered part of the expropriation regime, and its effects excluded from the calculation of compensation.”

That finding, said Johnston, may be the subject of an appeal, if the class decides to file an appeal before the Quebec Court of Appeal. “The judgment and its reasoning is impeccable in our opinion,” said Johnston. “We are reviewing the finding about the moment the government is responsible.”

Audren too believes it is a well-crafted decision but she doubts that it will lead to a surge of class actions based on expropriations or disguised expropriations. “it’s really a unique case with a unique set of facts,” said Audren. “It’s a case about monopoly, and it was the monopoly that gave value to the movable property.”

According to de l’Étoile, the case will “undoubtedly” influence the legislator’s future actions when implementing new reforms. “In a world transformed by the resurgence of new technologies, the judgment is a sobering reminder that its transposition to other situations could give rise to other forms of claim,” said de l’Étoile. “The evolution of rules governing the functioning of society to make way for new services or new forms of economy cannot depend on compensation from market players at every opportunity if some feel they have lost an investment.”

Quebec has appealed the decision, arguing that the government should not be required to pay any amounts to taxi permit owners, other than the monies already doled out under its compensation programs.

The class action plaintiff, in response, too is asking the Quebec Appeal Court to review the decision. The class maintains that the government should be ordered to compensate taxi permit owners based on the value of their permits in 2014, rather than 2016 as Quebec Superior Court had ordered. If the Quebec Appeal Court sides with the class, that would represent a total of approximately $308 million, plus interest and additional indemnity.

This story was originally published in Law360 Canada.

Law in Quebec