Appeal Petition/Administrative Claim 8183/03 Israel Electric Company Ltd. v. Golan Regional Council - part 5

Judge A.  Procaccia:

1. I have considered the totality of the circumstances of the case, and contrary to the opinion of my colleague, Justice Naor, I have come to the conclusion that it is appropriate to adopt the approach of the District Court both on the question of the respondent's right to be released from the agreement, and with regard to the various individual questions on which the court made its determinations. For the purpose of clarifying my position, I will briefly return to a background description of the matter, which is used for the purpose of my reasoning.
2. The Appellant - the Israel Electric Company in a Tax Appeal (hereinafter - the Company) - is engaged in the production, transmission and supply of electricity in Israel. Within the jurisdiction of the Respondent - the Golan Regional Council (hereinafter - the Council) - the Company operates a site called the "Kursi Water Pump", which constitutes a land division with an area of about 30,000 square meters with a command building, vacant land, roads, as well as land on which various installations have been erected, inter alia: electricity poles, parades, power lines and branching boxes (hereinafter - the Site).  Over the years, the company was required to pay municipal taxes to the council for the operation of the site, and against this background, disagreements arose between the parties on various issues.  During the years 1995 and 1996, the parties negotiated due to the aforementioned disagreements, and eventually signed a settlement agreement on December 31, 1996.  The settlement agreement defines the various facilities within the scope of the site, determines the types of areas that must be charged with municipal taxes, and the rate of property tax that the company will be charged for operating the site.  The settlement agreement is not time-limited.
3. In the tax years 1995 to 2001, the company was required to pay municipal taxes for the site, as required by the settlement agreement. In 1995, municipal taxes were paid on the area at the rate of ILS 5 per square meter; In 1996, the rate was ILS 12.6 per square meter.  in 1997 - 8 NIS; In 1998, a sum of ILS 9.35 per square meter was paid; in 1999 - ILS 10.09; The figure for 2000 is missing; In 2001 - ILS 10.17 per square meter.  In the property tax requirements for these years, the site was classified as "occupied land", even though the property by its nature belongs to the category of "offices, services and commerce".  As required by the Settlement Agreement, as of 1997, the rates of municipal taxes were raised from year to year according to the rules for updating municipal taxes in the local authorities.  In the tax year 2002, the General Arnona Law of 2002 [Temporary Order], 5762-2002 (hereinafter - the Law), was published, in which a minimum rate for general property tax that a local authority must impose within its jurisdiction was determined; with regard to the classification of "offices, services and commerce" that pertains to our case, a minimum tax rate of ILS 49.99 per square meter was set for that year.  Following the enactment of the law, and following legal advice, the local council decided to be released from the settlement agreement, and to classify the entire site as "electrical facilities", which is included in the main classification of "offices, services and commerce", and to base the property tax rate on a minimum tax rate of ILS 49.99 per square meter in accordance with the new law.  The Council enacted the Arnona Order for 2002, which included a tariff of ILS 49.99 per square meter for the site's property code, and routinely demanded municipal taxes for the company on the basis of this rate.  Thus, the arnona requirement that the company was required to pay in the 2002 tax year reached the sum of ILS 1,500,000.
4. Against this demand for the payment of municipal taxes, the company filed an administrative petition with the Nazareth District Court, requesting that the demand be declared null and void. According to her, the demand is illegal because it deviates from the settlement agreement.  It was argued that the Council should not be allowed to be released from the settlement agreement signed between it and the company.  The company also filed an objection under the Local Authorities Law (Appeal against the Determination of General Arnona), 5736-1976.
5. At the same time, a similar proceeding was being conducted in the Nazareth District Court between the company and the Mevo'ot Hermon Regional Council (Administrative Petition (Nazareth) 124/02, [published in Nevo], a judgment in the proceeding given on September 1, 2002 (hereinafter - the Mevo'ot Hermon Case)). The questions that arose in that parasha are similar to the questions that arise in the parasha before us.  In the same matter as well, the Mevo'ot Hermon Regional Council sought to be released from a similar agreement regarding municipal taxes that it had signed with the company.  The District Court, in its judgment in the Mevo'ot Hermon case, ruled that "the entire land division that constitutes the public utility complex should not be treated as 'electrical facilities' in the category of 'offices, services and commerce.'" He further ruled that "the regional council will be entitled to charge the area of land occupied by each and every one of the pillars, parades or other installations located on the site, wherever they are a 'building'." In light of these rulings, the Mevo'ot Hermon Regional Council was allowed to partially release itself from the agreement signed between it and the company in the same matter.
6. Following the court's rulings in the Mevoot Hermon case, which became conclusive since no appeal was filed, the Council issued an amended municipal tax demand to the company in our case. This requirement maintains the principle set out in the settlement agreement with respect to most of the site's area (29,233 square meters) - which was charged at a rate of ILS 10.42 per square meter - but not with respect to an area of 667 square meters, which was charged at the minimum rate of ILS 49.99 per square meter, according to the classification of "building".  Thus, the amended municipal tax requirement reached an amount of ILS 332,950 for the 2002 tax year, instead of the sum of ILS 312,600 that would have been received if the settlement agreement had been maintained in full, even with respect to an area of 667 square meters.  The total increase in the property tax rate, due to the partial deviation from the settlement agreement, therefore amounts to only ILS 25,350.
7. In our case, the company argued in the trial court that it should be insisted that the settlement agreement be fulfilled as written and worded, and that the council was not entitled to be released from it at all, even if the total increase in the rate of municipal taxes received as a result of the deviation was not great. Moreover; Despite the rulings set out in the judgment of the District Court in the Mevoot Hermon case, which was not appealed, the company argues in this case, as it also claimed in the same matter, that the electrical installations scattered throughout the site are not a "building", and therefore it is a mistake to charge this part of the site according to this classification.  Alternatively, it argues that even if these installations are a "structure", their area should be calculated according to the area actually occupied by each and every one of the feet of the electrical installation, and the area delimited between the legs of the installation should not be taken into account.  Alternatively, the Company claims that the facilities on the site are exempt from municipal taxes as they are infrastructure lines and connection lines within the meaning of Section 274B of the Municipalities Ordinance [New Version] (hereinafter - the Municipalities Ordinance).
8. On the issue of release from the contract, the trial court ruled that, as a rule, a contractual obligation must be honored, and this also applies to a governmental authority. However, such an authority has a public obligation to release an agreement when essential public needs require it.  The discharge rule is applied as an implied condition in a government contract, and a contract on the subject of property taxes is included in the framework of such a governmental agreement.
9. The court examined the background to the conclusion of the agreement between the council and the company. He determined that there are two decisive reasons that support the Council's partial release from the agreement: first, it is an unusual and illegal discount to the company; Second, in amending the classification of an area that was determined in the agreement in violation of the law.  The classification of land on which buildings are built as "occupied land" is inconsistent with the law.  Correction of an error in a classification that was made improperly does not contradict theדובר Arrangements in the State Economy Regulations (General Property Tax in Local Authorities in 1995), 5755-1994, which prohibit, although unlawful classification changes for the purpose of municipal taxes, but do not prohibit the correction of errors and distortions in classifications, which lead to distortions in tax collection, as aforesaid.  The court ruled that the partial release of the authority indicates balanced and proper discretion from its point of view, especially since the act of the release was not initiated retroactively.  He added that in striking a balance between the need to protect the existence of contracts, and the duty to protect the public interest, the public authority acted reasonably, and its action was approved by the court, which ruled that the council's release from the agreement pertains to the parts of the site classified as a "structure".

The trial court further ruled that the "command building" in an area of 180 square meters should be classified as a "building", and therefore this building should be charged with the increased municipal tax from 2002.  The main dispute revolved around the rest of the area, which included installations and columns.  There is a question about them as to whether they are a "building" or "occupied land".  And if they are a building, how should their area be calculated, and whether they benefit from an exemption for infrastructure lines.