A (free) tip for Noble Energy: Give up on the stability clause!

The “offshore gas deal” is a nickname for an Israeli government decision dated August 16, 2015, regulating the production of natural gas in Israel.

By DON SOSUNOV
April 11, 2016 21:05
4 minute read.
tamar gas

Tamar gas field‏. (photo credit: MARC ISRAEL SELLEM/THE JERUSALEM POST)

Two weeks ago, the mechanism of checks and balances between the Israeli authorities had been crudely violated: a number of ministers (executive branch) and members of Knesset (legislative branch) attacked and severely criticized the Supreme Court of Israel and its judges (judicial branch) following the decision by five judges (four to one), to implement “judicial activism” at its best: ordering the cancellation of the stability clause and consequently ruling against the entire offshore gas deal (HCJ 4374/15 The Movement for Quality Government in Israel et al v. Prime Minister of Israel et al (March 27, 2016)).

The “offshore gas deal” is a nickname for an Israeli government decision dated August 16, 2015, regulating the production of natural gas in Israel. This regulation was necessary in part because the control of major natural gas discoveries “Tamar” and “Leviathan” by the partnership of US-based Noble Energy Inc. and Delek Group created a monopoly in the production of natural gas in Israel.

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Due to a petty and unnecessary persistence of the gas companies, one “stability” clause of the gas outline is currently threatening the stability of the entire Israeli democracy. According to the stability clause (Articles 5 and 6 in Chapter 10 of the agreement), the government undertakes not to initiate a fundamental change in taxation laws regarding the profits of franchisees for a period of 10 years and is committed to fight against any contrary legislation (regardless of potential shifts in the government). Well, much ado about nothing: this section, as described below, has no real legal meaning. So, my (free) advice for the gas companies is to identify the rare opportunity and use wisely the (negative) public momentum to openly declare that the benefit of all (especially state interest) stands foremost in their mind and that they give up on their demand to include the stability section in the gas deal. And then the Redeemer will come to Zion.

No one disputes that such a move would benefit everyone (in particular the American and Israeli gas companies themselves).

This declaration would satisfy the public, leading to the neutralization of a significant (negative) public discourse and depreciation of public protest against the energy companies. The gas deal will be approved in its present form in the sense that the ruling of the Supreme Court (which revoked the deal unless the Knesset amends it within a year) becomes unnecessary, the pessimistic forecast about great damage to Israel’s economy and to the gas industry will emerge as non-relevant and most importantly, the war of powers between the Knesset/ government and the Supreme Court will come to an end. This embarrassing episode certainly does no honor at all to Israel’s authorities and democracy. In fact the opposite is true. It adds a destructive leverage and allows the legislature to put pressure on the judiciary (it is no secret that during 2017, four new judges are expected to be appointed to Supreme Court with the retirement of court president Miriam Naor, Elyakim Rubinstein, Salim Joubran and Zvi Zylbertal).

In any case, as noted, the stability clause has no legal meaning. Neither lawmaker nor government can bind the next Knesset or the next government (the basic rule of administrative law prohibits restricting the discretion of the authority). Moreover, even if we held a referendum and all citizens of the country voted in favor of the approval of the stability section, it still would not bind the next Knesset (without detracting from the duty of good faith of the party to the contract). Obviously, the state must fulfill its obligations in good faith (i.e. it must continue to meet its liabilities as long as the circumstances do not change), but we should not forget that no lawmaker has more power than a new legislator.

Assuming hypothetically that the stability section remained in its current form in the gas deal, would it have any legal validity? The answer is no because it all depends on the circumstances and the “legal climate.”

Similarly, “permanent” injunctions are not awarded for life (“Rebus Sic Stantibus”).

Even a small possibility that such a section might jeopardize the national interest of the State of Israel (for example, foreign relations with Egypt) would be enough to effect change. It is rooted in law that a public authority is entitled to be released from a contract whenever essential needs require its cancellation (CA 6328/97 Regev v. Ministry of Defense, ND (5) 506, 518 (2000)). Therefore, what actually comes of it is that the dissenting opinion of Judge Noam Sohlberg is the most correct. There is no reason to delay the approval of the gas deal in its current form, because in any case there is no real legal significance to the stability section, and things are clear.

In conclusion, the hour of crisis is a golden opportunity to leverage rapid growth and the ball is in the hands of the gas companies.

Hopefully, their legal advisers do their work faithfully and explain to the decision makers that there is no logic behind or reason to insist on the stability clause.

The writer is a prominent Israeli attorney who clerked in the Supreme Court of Israel and served as a teaching fellow at the University of Haifa.


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