In this matter, the trial court ruled that electrical installations on the site, which are tidy poles, are "buildings". It was also held that what comes within the framework of a structure is each and every order, and each and every column separately, as opposed to the entire area of the land on which they were erected, and thus their area must be calculated.
The question also arose as to whether the columns, parades and installations on the ground are exempt from municipal taxes in terms of infrastructure lines and connection facilities, as aforesaid In section 274B to the Ordinance as drafted at the relevant time, prior to its amendment in the Arrangements Law. The court analyzed the issue of the application of the exemption to the company's facilities, and reached the conclusion that the exemption does not apply to them. His position is that for the purpose of municipal taxes, the site as a whole should be classified and should not be dismantled into its components; From the perspective of the totality, there is no room for granting the exemption.
As to the method of measurement, it was ruled that the area of land on which each facility or structure extends must be measured. The area of each electricity pole will therefore be calculated according to the area that extends between its legs. The parties agreed that the measurement itself would be made as part of the objection and appeal proceedings. Subject to the actual area measurement, the court rejected the petition.
The company appealed this judgment before us.
Discussion and Decision
- The main point of the appeal is the central question - whether the ISBB is entitled in the circumstances of this case to be partially released from the settlement agreement it entered into with the company; Specific questions also arise regarding the characterization of the facilities located on the site for the purpose of imposing municipal taxes, the issue of the application of the exemption to these facilities, and the appropriate measurement method to be adopted. We will discuss these questions in order.
The Authority Contract and the Release Rule
- A contract between a public authority and the individual encompasses two worlds of law: the world of private law and the world of public law. In entering into an agreement, the public authority acts in its capacity as a party in private law, to which the principles of contract law apply, first and foremost the principle that agreements must be respected. On the other hand, in entering into an agreement, the public authority is not subject to any private entity, which is motivated by the aspiration to promote its own legitimate private interest, while being subject to the duties of good faith. The public authority is also responsible for the public interest in entering into an agreement governed by private law, and it does not cease to serve as the public trustee for the purpose of promoting the public good. There is a built-in internal tension between the duties of the public authority as a party to a contract governed by private law, and its duties as an entity in public law, which is responsible for promoting the public good. In various situations, there may be an internal contradiction and contradiction between the world of private law and the world of public law, which apply to the public authority in entering into a contract with the citizen. The contractual aspect of the engagement emphasizes the authority's obligation to honor its contractual obligation. The public aspect may, in certain circumstances, impose on the authority an administrative obligation to release itself from the contract, in order to promote a general public interest of weight and importance. The internal tension between these two forces, which act on the public authority as a party to an agreement with the citizen, is a built-in tension, which requires finding a proper balance that will bridge the gap that exists between these two centers of power, which pull the authority in its own direction.
- The provisions of contract law and administrative law apply to the governmental contract; a normative duality is created that characterizes the administrative contract (Civil Appeal 6490/97 Al-Haj v. Abu Akel, IsrSC 55(2) 49, 55-56 (1999); Daniel Friedman, "The Applicability of Public Law Obligations to a Public Authority Operating in the Private Sphere," Mishpatim 598 (1975); Dafna Barak-Erez, "Civil Liability on Public Bodies: Normative Duality," Law and Governance I 275 (1993); Dafna Barak-Erez, "Liberation from a Contract of an Administrative Authority: A Test Case for Normative Duality," Mishpat 11 111, 113-116 (2005)). The relative weight that should be attributed to each of the components that formulate the said duality is in dispute among scholars, and in any event, this weight varies from case to case, in accordance with the concrete balance required in a given case (Dafna Barak-Erez, "Public Law and Private Law - Boundaries and Reciprocal Influences," Law and Government 5, 95, 95-102 (1999)).
- Already from time immemorial, opinions have been divided on the question of whether the dominant element in the governmental contract is the law of contracts, to which the principles of administrative law are appended, or whether it is a special contract, which is governed mainly by the principles of public law (High Court of Justice 218/85 Arbiv v. Tel Aviv District Attorney's Office, IsrSC 40(2) 393, 399 (1986) (hereinafter - the Arbiv case)). The different approaches on this matter are still at odds with each other, and the dispute has not been resolved (Gabriela Shalev, Authority Contracts in Israel 27 (1999); Gad Tedeschi, "Public Administration Agreements with the Individual," Mishpatim 12 227 (1983); Gabriela Shalev, Contracts and Tenders of the Public Authority, 69-71 (1999); Yitzhak Zamir, Administrative Authority, I, 217 (1996)). For the purposes of our case, a decision in this dispute is not essential, since according to each of the approaches, it is necessary, at the end of the day, to strike a balance between the state's duty to honor a contract it has entered into, and its public responsibility to use the power and powers given to it in order to promote the public interest. Within the framework of this balance, in appropriate circumstances, the state is obligated to release itself from a contractual relationship where its continued existence is liable to harm an important public interest, and when weighing interests as a whole, the scales are tilted in favor of the general public interest over the preservation of the principle of respect for agreements (Arbiv Case, at p. 400; High Court of Justice 311/60 Miller, Agency and Import Engineer in Tax Appeal v. Minister of Transport, IsrSC 15 1989, 2002 (1961); Gabriela Shalev, "The State's Release from Contract," Sussman Book, 159 (1984); Gabriela Shalev, Contract Law 665-662 (1990); Civil Appeal 394/82 Meisler v. Nesher Local Council, IsrSC 37(4) 42, 48 (1983)). Both the "contractual model" and the "administrative model" of the governmental contract ultimately strive to achieve a similar result: to fulfill the state's obligation, to honor its contractual obligations within the framework of the principle of honoring agreements, while recognizing its power as a public authority, entrusted with the public good, to be free from the shackles of the contract in circumstances where the public interest requires it, and when the public interest in the release clearly outweighs the authority's obligation to honor its contractual obligations under contract law.
- Indeed, the state's obligation to uphold agreements to which it is a party is not absolute, but rather a relative obligation:
"It is the government's duty to manage the affairs of the state in a way that will win the confidence of the Knesset, and if the government believes that a change in fiscal policy is needed in order to satisfy the public's needs, it is obligated to ensure that such a change is made. This is the primary duty of the government, and no agreement can detract from it, for if it does not say so, it will be found that the needs of the state will be deprived due to an agreement made with the individual, and the public as a whole will be harmed. The government's duty to take care of the public interest within the framework of the law cannot be restricted by virtue of a contractual obligation" (High Court of Justice 242/70 Levib v. Minister of Finance, IsrSC 24(2) 313, 315 (1970)).
- The law recognizes, on the one hand, the duty of the governmental authority to respect agreements to which it is a party within the framework of contract law. Without meeting this condition, the value of agreements entered into by the state will be degraded, and the public's confidence in the authority's obligation to fulfill contractual obligations it undertakes is liable to be undermined. Such damage to public trust is not limited to the status of the authority in the field of contracts to which it is a party. It expands to broad areas in which the public authority operates, and is liable to harm the citizen's trust in the government as an exemplary factor for upholding and respecting the law. On the other hand, the governmental authority, within the framework of its governmental role, must consider the needs of the public and the public interest. In the event of a conflict between them, weighing and balancing interests is required (Alex Stein, "Administrative Promise," Mishpatim 14, 255 (1984); High Court of Justice 580/83 Atlantic, Fishing and Shipping Company v. Minister of Industry and Trade, IsrSC 39(1) 29, 36 (1985); Civil Appeal 64/80 Bank of Palestine-Britain (in liquidation) v. State of Israel, IsrSC 38(3) 589, 599-601 (1984)).
- The rules of administrative law apply to the discretion of the public authority regarding release from an agreement. It must consider proper and relevant considerations. It must exercise its discretion reasonably. The release of the authority from the shackles of a contract, which is within the realm of reasonableness, does not justify judicial intervention even if it could have been acted otherwise (Arbiv Case, at p. 401). Striking a balance between the obligation to honor the agreement and the public's interest in release is subject to the competent authority, and this court will not intervene in this matter unless the discretion in this matter was exercised due to improper considerations or in an extreme deviation from the realm of reasonableness.
- In order to meet the requirement of administrative reasonableness in making such a balance, the public authority must relate to all the relevant considerations in full, and not miss any of them; it must take into account only relevant considerations, and refrain from relating to irrelevant considerations. It must give proper proportional weight to each of the relevant considerations, and balance them according to their relative weight with each other (High Court of Justice 389/80 Golden Pages v. Broadcasting Authority, IsrSC 35(1) 421, 444-447 (1980) (hereinafter - the Golden Pages case); Civil Appeal 3398/06 Antitrust Authority v. Dor Alon Energy in Israel, para. 34 ([published in Nevo], June 15, 2006)). The obligation to honor agreements on the one hand, and the opposing public interest on the other, bring many broad considerations into the balancing area, including the protection of the government's credibility, which has several facets, credibility in honoring agreements on the one hand, but also the credibility inherent in fulfilling the government's obligations in the field of public responsibility; Protecting the other party's reliance interest in the agreement, but at the same time being aware of the existence of a qualified reliance interest of the other party, which is supposed to anticipate the possibility that in exceptional situations, the broad public responsibility will justify release from the shackles of the contract; And a wide variety of other considerations.
- The public interest whose existence is considered in the framework of the balance is multifaceted, and its content varies from one matter to another. In light of the principle of honoring agreements, a public interest of special power is required to justify exemption from an agreement. The circumstances that justify the release of a public authority from a contract to which it is a party are not of the same skin. It is possible that the release will be due to a change in circumstances, but it is also possible that the reason underlying it will be an essential public need, even if there has not been a material change in circumstances (Civil Appeal 2761/06 Menorah v. Department of Public Works, National Roads Company in Israel ([published in Nevo], July 9, 2007); Civil Appeal 6328/97 Regev v. Ministry of Defense, IsrSC 55(5) 506, 522 (2000)).
Governmental Contract in Matters of Arnona
- An agreement between a public authority and the individual in matters of property taxes is a governmental agreement (Civil Appeal 2064/02 Aloni Complex in Tax Appeal v. Nesher Municipality, IsrSC 59(1) 111, 118 (2004) (hereinafter - the Aloni Complex Case)). It expresses a contractual arrangement between a local authority and the citizen regarding the exercise of governmental authority regarding the collection of municipal taxes. The content of the agreement relates to fiscal matters (High Court of Justice 199/99 United Steel Enterprises v. Mayor of Acre ([published in Nevo], January 3, 2001)). In a governmental contract in matters of municipal taxes, the lines of analysis and balance required between the opposing trends are usually in accordance with the approach taken in government contracts.
- The binding validity of an agreement in matters of municipal taxes does not negate the authority's ability to deviate from its contractual obligation where vital public needs justify it (Civil Appeal 250/88 Histadrut Health Fund v. Municipality of Be'er Sheva, IsrSC 44(4) 488, 492 (1989); High Court of Justice 4915/00 Reshet, Communications and Productions Co. Government of Israel, IsrSC 55(5) 452, 477 (2000)).
- The question is, what are the circumstances in which there is legal justice in the hands of the authority to be released from a binding agreement due to the need to realize a public interest whose relative weight is decisive? It is not possible to lay out in advance the variety of considerations relevant to the matter, and they focus, for the most part, on the special nature of the individual matter. The balance between the various considerations is not a rigid factor. It is influenced by the importance of the considerations and the intensity of the harm to them ( The Aloni Complex Case, at pp. 120-121). It can be said, however, that a legal justification for being released from a governmental promise in the fiscal sphere may exist where a radical change of circumstances occurred after the contractual engagement, in a situation in which the continued fulfillment of the contractual obligation, against the background of the new circumstances, substantially contradicts the requirements of justice, and is inconsistent with the basic responsibility of the public authority towards the public (High Court of Justice 4383/91 Shapkman v. Herzliya Municipality, IsrSC 46(1) 447, 455 (1992) (hereinafter - the Shepkman Case)).
- The scope of judicial review is contingent on the existence of a ground for intervention in the field of administrative law. It is therefore necessary to examine whether improper considerations guided the authority in its decision, or whether its decision is tainted by extreme unreasonableness that justifies intervention, given all the relevant considerations that must be taken into account, and taking into account the relative weight that must be attributed to each of them in the circumstances of a given case.
From the general to the individual
- In our case, the Regional Council entered into an agreement with the IEC regarding municipal tax rates for a land division in an area of 30,000 square meters (hereinafter - the complex). The complex contains a command building, vacant land, roads, and land on which electricity poles, arrays, power lines, branching boxes and more have been erected.
- On June 2, 1996, the ministers allowed the council to amend the municipal property tax rates in relation to the company in such a way that in 1996 the tariff for the complex was ILS 12.6 per square meter. The aforementioned tariff was very close to the tariff for occupied (unbuilt) land, and fell much lower than the minimum tariff for other buildings, even though the complex is classified as industrial, service and commerce.
- According to the contract, it was agreed that for the site, the company would pay the following rates per square meter for the following years: 1995 - 5 NIS; 1996 - 12.6 ILS and 1997 - 8 ILS. It was also agreed that as of 1997, the rates would be raised according to the rate of increase that applies to "occupied land" in the Arrangements Regulations. For 1998, the company was charged ILS 9.35 per square meter, and for the following years, until 2001, ILS 10.09 and ILS 10.17 per square meter. The Act of Release came into effect as a result of the entry into force of the General Arnona Law of 2002 (Temporary Order), 5762-2002. The law stipulates a minimum amount for general property taxes that a local authority must impose within its boundaries. In the field of offices, services and commerce, a minimum amount of ILS 49.99 has been set for the 2002 tax year. The gap created by the new law between the minimum amount to be collected in relation to all residents and the rates agreed upon in the contract is close to five times.
- Following the court's decision in the Mevo'ot Hermon case, the council in our case decided to release from the agreement with the company only partially. The release relates to an area of 667 square meters out of the entire complex, which stands at 30,000 square meters. For the year 2002, it charged the appellant at a rate of ILS 10.42 per square meter for an area of 29,233 square meters and ILS 49.99 per square meter for an area of 667 square meters, according to the minimum tariff of the new Arnona Order issued following the Arnona Law of 2002.
- The area in dispute, for which the council decided to be released from the agreement, consists of two types of facilities: a command building with an area of 180 square meters and a land of about 480 square meters, on which the various facilities were built at the site. The rest of the area, which is the bulk of the complex, remains in the original property tax assessment according to the agreement, and is not in dispute in this proceeding.
- Is the council's decision to partially release the settlement agreement with the company tainted by administrative impropriety? Does it go beyond the requirement of reasonableness? That's the question before us.
- The release of the governmental authority from its contractual obligations is not in itself tainted by improper considerations or extraneous motives. The act of release in this case is intended for the purpose of achieving an important public goal, which is to create equality in collection among the residents of the local authority. Achieving this goal is not an improper consideration or an extraneous motive. Another question is whether, in the special circumstances of this case, the public authority deviated radically from the realm of reasonableness in deciding to partially release itself from the aforementioned agreement. The requirement of reasonableness requires that all the relevant considerations were addressed, and that appropriate proportional weight was given to each of the aforementioned considerations for the purpose of balancing them.
- In our case, the Council should have considered, on the one hand, the significance of its contractual obligation under the agreement, in which it undertook to charge the company very low municipal tax rates in relation to the complex, without any time limitation. The council did not deny its contractual liability to the company, and did not underestimate the value and weight that should be attributed to the honoring of agreements not only by individuals, but also by the public authority. Weight has been given to the factor of governmental credibility, which is related, inter alia, to the government's commitment to keep its promises and to fulfill agreements it has signed with the citizen, as well as agreements on fiscal issues, including The authority's release from a fiscal agreement harms contractual security, detracts from the stability and certainty of contractual relations, and is likely to harm the credibility of the government in the eyes of the citizen not only on the contractual level but also on the public level. The release is liable to harm the citizen's willingness to reach agreements with the public authority in the future.
- On the other hand, a number of public considerations support the Council's release from the Arnona Agreement, and they are:
- First, the agreement in question must be evaluated and perceived according to the state of affairs that existed at the time it was formulated. In June 1996, the ministers decided to set the municipal tax rate for the company at ILS 12.6 per square meter. Against this background, the agreement was reached, in which a tariff of ILS 5 was set for 1995; for 1996 - 12.6 per square meter, which complied with the ministerial order, and in 1997 the tariff was reduced to ILS 8 per square meter. Under these circumstances, the gaps between the rates approved by the ministers and the contract rates were not particularly large, although it was not clarified why, in the first place, the ministers agreed to approve such a low rate for the site, which falls under the category of industry, services and commerce, suitable for "occupied land" that is not used for anything.
The said contractual arrangement extended over 7 years, and during this long period, the company received a reduced tariff by virtue of the agreement, according to an inappropriate classification, without clarifying the substantive justification for the matter.