I. Introduction:

Ride-hailing service companies have long been facing legal scrutiny of local authorities from all over the world. This new business model arising from advancements in digital technologies have sparked considerable debate on a wide array of regulatory issues. However, Tada – a Korean ride-hailing company, recently has got a rare court win after months of tension, which can be considered as a positive sign for the development of ride – hailing services in Korea.

II. Background:

Tada is an app-based ride-hailing service launched in October 2018 and has rapidly grown to become South Korea’s leading ride-offering service. SoCar’s subsidiary -Value Creators & Company (VCNC) operates Tada with vans rented from SoCar. Tada’s app boasts over 1.7 million users. It operates mostly in the Seoul metropolitan area, offering services for 11-seat vans instead of sedans.

South Korea restricts ride-hailing to only licensed taxis and bans the use of private cars for the purpose. Tada has been exploiting a rule that allows the rental of chauffer-driven 11-seaters to operate its ride-hailing services, angering the taxi lobby and regulators.

In October 2019, prosecutors indicted VCNC’s CEO, Park Jae-wook, and SoCar CEO Lee Jae-woong over allegations that the van-hailing service violates the country’s passenger transport service act. Prosecutors have sought one-year jail terms for these executives and a 20 million-won (USD 16,785) fine against its parent firm for violating transport laws. The indictments followed a string of complaints from traditional operators saying that Tada’s service harms Korea’s taxi industry.

The centerpiece of the controversy lies in whether Tada should be considered a type of rental car service or an illegal taxi service operating without a license.

III. Arguments:

Tada argued that its business is within legal boundaries based on a written exception that specifically allows rented vans — or vans with 11 to 15 seats — to be offered with drivers. Local transport laws allow rental cars with a capacity of 11-15 seats to be legally leased with a driver.

The prosecution claimed that Tada threatened taxi drivers’ livelihood and violated the transportation law that forbids rented vehicles from offering rides for profit. The local taxi industry argued that how Tada applied the rule is an arbitrary application, irrelevant to its original purpose of promoting tourism.

IV. Findings of Court:

On February 19, the Seoul Central District Court ruled in favor of Tada, acquitted Lee Jae-woong and Park Jae-wook of charges of violating the passenger transport service act. The court stated that since “Tada service is provided in a contract that offers users a tailored rental service in time of need via minute-based reservation”, it is “a rental car service based on mobile application”. The court also found that the prosecution’s interpretation of the relevant law and their application to Tada is against the principle of “no penalty without a law“.  The court is in the opinion that criminal penalty should be interpreted narrowly.

V. Conclusion

This landmark decision will likely lend support to the mobility platform industry, for which the government seeks to ease excessive regulations as part of its efforts to nurture the innovative growth. However, this decision also faced waves of protest from local drivers as they have held street rallies and threatened legal action, like they did against other mobility sharing services, such as Uber and Kakao Mobility’s carpool in Korea. Taxi associations have also requested prosecutors to conduct the appellate procedures of the case, claiming they violated domestic transportation regulations.

Meanwhile SoCar welcomed the court’s ruling, saying it will allow the mobility platform provider to continue its services to a sustainable future within the boundaries of laws and regulations. With this unexpected and significant victory, SoCar promised to focus further on improving the convenience of the underprivileged in terms of transportation, making working environments better for Tada drivers, and seek win-win synergies between Tada and taxi services.

From many experts’ view, the ruling may affect the National Assembly’s review of a bill to revise the passenger transport service act, commonly seen as a means of outlawing Tada.


DISCLAIMER

This LBN newsletter are NOT legal advice. Readers are advised to retain a qualified lawyer, should they wish to seek legal advice. VCI Legal are certainly among those and happy to be retained, yet VCI Legal is not to be hold responsible should any reader choose to interpret/apply the regulations after reading this LBN without engaging a qualified lawyer.