Case Number

HCJ 4374/15

Date Decided

3-27-2016

Decision Type

Original

Document Type

Summary

Abstract

[This abstract is not part of the Court's opinion and is provided for the reader's convenience. It has been translated from a Hebrew version prepared by Nevo Press Ltd. and is used with its kind permission.]

The Petitions disputed the legal validity of the Gas Outline adopted by the Government in the framework of Government Decision 432 in regard to the treatment of the gas reserves (hereinafter: the Gas Outline). The state and the gas companies holding the franchises defended the Gas Outline.

The Supreme Court, sitting as High Court of Justice (in an expanded bench of five justices) ruled as follows:

The Court majority (Deputy President E. Rubinstein, Justices S. Joubran, E. Hayut, and U. Vogelman concurring, Justice N. Sohlberg dissenting) held that the regulatory stability clause, as set out in sections 5 and 6 of Chap. J of the Gas Outline, could not stand. The clause bound the Government to the Outline – including in regard to legislative changes and opposition to legislative initiatives, and primarily in regard to regulatory changes in the areas of taxation, restrictive trade practices, and export caps – for a period of ten years. The Court held that the arrangement contravened a basic rule of administrative law in regard to prohibiting the restriction of an authority’s discretion. The Court explained that the Outline’s provisions not only bound the hands of the Government – and of future governments – but also of the legislature.

In light of the above, and in view of the Respondents’ declaration that the stability clause was a sine qua non, Deputy President E. Rubinstein and Justices S. Joubran and U. Vogelman were of the opinion that the entire Outline must be annulled. However, the state would be granted one year to rectify the matter in accordance with the Court’s decision. If the matter not be rectified, the Gas Outline would be annulled.

As opposed to this, Justice E. Hayut was of the opinion that the Court should strike down the stability clause alone. In her opinion, the gas companies should be left to decide whether or not they wish to cancel the Outline under the circumstances.

In this regard, the Deputy President explained, inter alia, that when an agency is granted authority by law, that authority also comprises a duty to exercise discretion. Simply put, the Government does not have the authority to decide not to decide and not to act. This is all the more the case when the issue is one that is the subject of real political debate, and where the executive branch apparently seeks to bind the discretion of its successors, whose composition and ideology may differ from those of the incumbent government. Pursuant to that, the Court held that the Government had unlawfully discarded its discretion, and in substance, even hobbled the Knesset’s discretion due to party discipline that is often invoked, particularly in regard to sensitive political issues. The issue was also examined in light of the administrative representation doctrine, that is, the government’s ability to make binding promises (even if they may be rescinded, with sanctions, in extreme cases), in light of the announcement by the Government and the gas companies that the Outline should be viewed as such. The Court held that the promise was ultra vires. I this regard, Justice Vogelman emphasized that the scope and term of the stability clause, as well as the “price tag” attendant to its anticipatory breach create, in practice, an unlawful restriction upon administrative discretion. However, in the opinion of Justice Vogelman, nothing would prevent the Knesset form adopting a legislative solution that would permit the Government to establish the three arrangements addressed by the stability clause for a defined term, whether by specific legislation or by legislation that would expressly enable the Government to do so.

Justice Hayut found, inter alia, that the restraining provisions in the Gas Outline are particularly far-reaching, inter alia, because they tie the hands and legs of the Government, which, in practice, controls the Knesset legislative process in regard to initiating legislation. Moreover, according to Justice Hayut, the Government’s active undertaking in the provisions of the stability clause to frustrate any legislative change that would be contrary to the Outline, if enacted by means of a private-members bill, crosses all the acceptable boundaries of parliamentary democracy, and renders the restraining provisions clearly and unequivocally unconstitutional. Justice Hayut further expressed the view that, in practice, and despite the rescission doctrine, the restraining provisions create a regulatory and legislative freeze by exposing the state to a suit for significant damages for an unknown amount by the gas companies in the case of extrication from the Outline or any part thereof.

In the opinion of Justice Sohlberg, although the regulatory stability clause restricts the administrative discretion of the Government, the clause could stand. There is no need for legislating the Gas Outline, and the Government’s decision, which was approved by the Knesset plenum, is sufficient. Therefore, in his opinion, the Petitions should be dismissed.

In the opinion of Justice Sohlberg, the stability clause does not restrict the Knesset’s legislative power, and the Knesset is sovereign to legislate as it sees fit. The stability clause restricts the discretion of the Government, and it is, indeed, exceptional in its term, scope and the expected economic consequences of its breach. However, even the combined force of those characteristics do not result in the absolute restriction of the Government’s discretion by the stability clause. A restriction of discretion is an inevitable consequence of the very existence of administrative contracts and promises, and the balance is expressed by the administrative rescission doctrine, and the possibility of withdrawing an administrative promise. Thus, the Government continues to enjoy a certain margin of future discretion, and in any case, a stability clause grounded in a governmental decision is more flexible than one grounded in a statute. The government has the authority and the professional tools for deciding upon the optimal approach to exploiting gas resources, which is a decision that requires establishing a multidimensional policy. The subject at hand is at the heart of administrative discretion. The Government is permitted to act in that regard in advancing legislation. The regulatory stability clause is part of a “package deal” that resulted from lengthy, complex professional negotiations conducted between the state and the gas companies. In the case of enormous investments of the type under concern, a ten-year undertaking is reasonable, and is required in order to establish policy and act for the realization of important long-term projects. Moreover, under the State Property Law, the Government can, in principle, sell the gas reserves in whole or in part, and such a sale would constitute an absolute restraint of future discretion. If the Government is authorized to do the maximum (to sell), it can certainly do a lesser part thereof (the Gas Outline, including its regulatory stability clause).

By a majority opinion of Justices E. Hayut, U. Vogelman, and N. Sohlberg, against the dissenting opinion of Deputy President E. Rubinstein and Justice S. Joubran, the Court held that the validity of the entire Outline (as opposed to the stability clause) is not contingent upon enacting primary legislation.

In this regard, in the opinion of the Deputy President and Justice S. Joubran, the Outline (as distinct from the stability clause) constitutes a primary arrangement that requires that it be grounded, in its entirety, in primary legislation rather than in a governmental decision. In the opinion of Justice Sohlberg, while it is a primary arrangement, the existing legislation suffices to empower the Government to decide upon the matter of the Gas Outline, and no further legislation is necessary. In the opinion of Justice Vogelman, even if it would be proper from a public perspective that the Outline be brought before the Knesset in the form of primary legislation, there is no legal obligation to do so under the circumstances. In the opinion of Justice Vogelman, the question of whether the Outline constitutes a primary arrangement must not be examined in accordance with the “overall picture” that arises therefrom, but rather with attention to its concrete details, while focusing upon the aspects that concern the structural changes that may be expected in the gas market and the promotion of competition. In this regard, Justice Vogelman was of the opinion that inasmuch as the Gas Outline is a framework that unites the activities of all the relevant regulators in the natural gas market, each in its area of expertise – in a sort of pooling of regulatory powers – it is legally possible to arrange it in the framework of a governmental decision. Moreover, Justice Vogelman was of the opinion that it is questionable whether the economic-market importance of the Outline and the public debate that accompanied it require, in and of themselves, a finding that the Outline constitutes a primary arrangement. In any case, even if we assume for the sake of argument that the Outline constitutes a primary arrangement, there is sufficient authority for it to be established without need for primary legislation. This authority derives from the combination of all the legal provisions that expressly authorize governmental agencies to make each and every one of the arrangements established in the Outline individually.

Under the circumstances, the Court – with the exception of certain comment by Justice Joubran – did not see any problem in the use made of sec. 52 of the Restrictive Trade Practices Law, which grants the Minister of the Economy authority to exempt a restrictive trade practice from the provisions of the Restrictive Trade Practices Law for foreign relations and security considerations. The Deputy President noted that this is also the case – although not unproblematically – in regard to the issues of taxation, price supervision, and export, each in its own right.

In regard to the use of the said sec. 52, the Deputy President explained, inter alia, that in such exceptional situations in which there are significant matters of security and state, those matters must be weighed – after determining the issue of authority – against the harm that may be caused to competition (which is the purpose of the Restrictive Trade Practices Law) by making recourse to the section. The issue that must be addressed is the public good. In other words, once the “bar of exceptions” has been successfully cleared in terms of authority, there is a sort of “parallelogram of force” between the interest in competition and the state and security interests. The greater the harm to competition, the greater the need for weighty state or security interests in order to justify recourse to sec. 52. Under the circumstances, and despite the significant harm to the interest in competition, the Court held that the state and security interests were significant, and it therefore cannot be said that recourse to the section was unreasonable. Although recourse to sec. 52 should be limited to exceptional circumstances, the matter before the Court fell within that scope.

In conclusion, the Court struck down the Gas Outline due to the stability clause (without finding cause for judicial intervention in any of the other issues), while holding its ruling in abeyance for a period of one year in order to allow time for rectifying the matter.

It should be noted that the Deputy President emphasized throughout his opinion that the Court would not examine the economic wisdom of the Outline, and would not express its opinion on the matter. The issue addressed by the Court was a legal one – the limits of governmental authority in a democratic regime, and the extent to which a government may stretch its residual authority – its general authority to act – in the absence of express authority granted by the legislature in regard to a matter of extraordinary, unprecedented economic consequences.

Keywords

Administrative Law -- Discretion, Antitrust, Constitutional Law -- Basic Law: The Government, Constitutional Law -- Legislation

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