Collecting property taxes from a resident of a local authority that is lower, by a multiple of 5, than the minimum rate of property tax, which is obligated by law to every other resident, creates an extremely unequal reality between the owner of the benefit by virtue of the agreement, and an ordinary resident, who is required to pay municipal taxes that are not less than the minimum rate in accordance with the law. Such an unequal situation, with such considerable gaps, constitutes a weighty consideration for the release of the public authority from the shackles of the contract. This factor derives its strength from the principle of equality in tax collection, which constitutes a fundamental value in the entire system (High Court of Justice 9333/03 Kaniel v. Government of Israel, Piskei Din S(1) 277, 287-288 (2006); Civil Appeal Authority 3784/00 Shikem v. Haifa Municipal Council, Piskei Din 57(2) 481, 494-495 (2003)). The value of equality in the tax burden among citizens is of a constitutional nature. It naturally reflects on a governmental agreement regarding tax collection, its content, and the duration of its validity. When, against the background of the principle of equality in collection, a tax reform is carried out, which transforms the contractual arrangement into an arrangement that radically deviates from the general arrangement, this has a significant impact on the degree of justification for the public authority's continued subordination to the discriminatory contractual provisions. The need for this distorted correction touches on questions of public morality and the correction of an injustice in the relationship between the party to the governmental agreement and the other residents of the local authority, who meet the burden of paying the full tax.
- Second, the possibility that there may be another possible reason for the council's release from the agreement, which is rooted in the fact that the governmental contract was tainted from the outset by exceeding the authority's authority, by defining the entire complex as "occupied land" while there were buildings on it that required a different classification. Not only did the agreement regulate discounted rates for municipal taxes, but its classification of the land was incorrect, since it did not take into account the "buildings" on the complex, whose correct classification would have necessitated, in any case, increased property tax rates. A governmental undertaking, which from the outset suffers from a deviation from authority, may justify a release from the constraints of the agreement (Civil Appeal 2553/01 Vegetable Growers Organization v. State of Israel, IsrSC 59(5) 481, 528-529 (Judgment of Deputy President Matza) (2005)). The need to correct a mistake or distortion that adhered to the Authority's action in entering into an agreement must be weighed against the public's interest in ensuring the stability and certainty of the Authority's action, and its credibility in respecting agreements to which it is a party (The Shepkman Case, at pp. 454-455).
- Third, the practical and public reason for drafting the beneficial agreement between the Council and the IEC has never been fully clarified. It is not at all clear why the local authority agreed in 1996 to commit to the future with an unlimited commitment in time to limit the property tax rate for the area of the compound on the basis of the classification of "occupied land", when part of the area is structures, and why contractual rates were set so low that they have no connection to the rates that apply by law to the other residents of the local authority. The rationale and justification for the very drafting of the agreement and its content, as formulated at the time of the engagement, is still unclear. Perpetuating such an agreement for many years without a clear reason is contrary to the public interest.
- Fourth, the appellant, the Electric Company, is a government company with most of its shares in the hands of the State of Israel. It is intended to promote clear public goals for the benefit of the public. This is not, therefore, a weak party entering into an agreement with the public authority, in circumstances in which its obligation to comply with the customary municipal tax rates under the law may make it difficult for it to function.
- Fifth, in the circumstances of the case, the interest of the IEC in relation to the duration of the agreement is limited. It cannot be said that the company had a legitimate expectation that this agreement would last forever.
The Electric Company, like any party to a governmental agreement, is held to be aware of the fact that a tax agreement it has entered into with the local authority, which is not limited in time, may one day be terminated, especially if the circumstances change, which may justify the release of the public authority from the shackles of the agreement. A substantial nationwide reform of the basic principles of municipal property tax collection, while setting minimum amounts for municipal property tax rates that are binding on all local authorities and all their residents, inevitably reflects on the content of a previous governmental agreement relating to municipal taxes. The possibility of the Authority being freed from the shackles of such an agreement is within the scope of the other party's reasonable expectation of an agreement. The IEC should not have reasonably assumed that a contractual rate for municipal taxes, at a very low rate for its facilities, which corresponds to "occupied land", would be a right for it forever, while all residents of the local authority pay five times or more for properties belonging to the same classification. The company should have foreseen that a drastic increase in the gap between the contractual rates promised to it and the tariffs that apply to all residents by virtue of the law, might justify breaking free from the shackles of the contract. In this sense, the company's reliance on the continuity of the agreement without a time limit is qualified and limited in advance.