Much of the argument against judicial reform in Israel is an Orwellian assertion of exactly what is not true. A law that limits the power of unelected judges to overrule the decisions of the people’s representatives is attacked as anti-democratic. A law that gives elected representatives more power over the selection of judges, and reduces the power of a private guild and the same unelected judges to choose their successors, is labeled fascist. A law that requires the courts to follow the law, and bars them from deciding cases on the basis of the judges’ private opinion of what’s “reasonable,” is denounced as an attack on the rule of law.
The latest assertion that up is down, left is right, and right is wrong is the claim that the proposed judicial reforms will make Israel’s legal system less stable, thereby impairing the country’s credit rating and the strength of its high-tech sector, as investors come to fear instability and are thereby driven away from what had been the start-up nation.
This purported economic argument is exactly wrong. Two examples will suffice: The Supreme Court’s treatment of what is perhaps the most economically important decision of the Israeli court system in the last 10 years—its rejection of the Noble gas deal—and Chief Justice Aharon Barak’s single-handed reinvention of the rules of contract interpretation in Israel.
In the early 2000s, natural gas was discovered in fields in the Mediterranean Sea within Israel’s Exclusive Economic Zone (EEZ). A tremendous investment was required to make the fields productive and then to actually bring them online. After years of negotiation, Israel and oil and gas companies led by Noble Energy made a complex deal that would allow the companies to make massive development investments, dedicate years of work to bring the fields online, but also to allow for enough profit for at least 10 years so the companies could recoup their initial investment costs.
The result expected—which is the result ultimately obtained—was no less than a revolution in Israel’s economy and so a dramatic increase in the nation’s economic standing both in the region and the world. The natural gas discovery not only transformed the Jewish state from an energy importer to an energy exporter; it also gave Israel both the ability to finally establish a substantial national sovereign wealth fund and to use inexpensive energy to lower both private, transportation, and industrial energy costs, as well as to finally eliminate the water shortage that has afflicted the land of Israel from the time of Abraham (who fled the first of the Bible’s many reported droughts in the area). Now that desalination, powered by natural gas, is inexpensive, water is plentiful. Israel’s neighbors have already benefited from this advance. Israel can now export water to Jordan. Other nearby countries would benefit even more just put aside their Jew-hatred long enough.
But the deal suffered from one terrible flaw: It had been made by the Netanyahu administration, and so it was, by definition, the object of attack by Israeli organizations across the left half of the political spectrum, some of whom are largely foreign-funded. Opponents included the Supreme Court.
The Supreme Court struck down the deal, holding that the gas deal impermissibly included long term commitments to the oil company that was being asked to invest billions of dollars of its own money in the development of these fields. Why is that bad? Because, said the Supreme Court, those commitments would impermissibly bind future legislatures, and that was illegal.
Let’s hold this principle up to the light. An investor wishes to invest money. To be persuaded to do so it needs to have certainty that the property in which it is investing will not be taken from it before the investment can produce a return that justifies the amount invested. The investor needs stability. Stability means long term commitments. Long-term commitments from a government are contractual obligations that bind the government for the long term, in the same way that they would bind a private company that wanted to entice an investor to commit to a long-term project.
By ruling that long term commitments were illegal because they would improperly bind future legislatures, the Israeli Supreme Court was insisting on instability. It was demanding that the Israeli government not have the right to make such binding commitments to an investor. (Perhaps more accurately, the Court was insisting that the Netanyahu administration not have the power to make long-term commitments.)
Eventually, the Israeli government and Knesset did their best to minimize the uncertainty created by the Court’s ruling, and the modified Gas Framework Agreement was signed by all the parties in 2015—including the gas producers who understood they were held hostage by their previous vast investments.
Anyone who thinks that this was only a decision about the separation of powers, and enforcement of a limitation on the power of the executive to act without Knesset approval, need only look at the Supreme Court’s recent approval of what is in all but name a treaty—the Israel-Lebanon Maritime Delimitation Agreement, signed by the Lapid administration, ceding power over Israeli territory to Lebanon. Israeli law bars any such cession of Israeli land without Knesset approval or a national referendum—that is, it requires full participation by the People. But there was no referendum and the Knesset was not asked to approve (and would not have approved) of the Lapid administration’s action. But that didn’t matter to the Supreme Court. Somehow “democracy” was unoffended—and in this case, unnecessary.
The guiding principle here is simple: If the left does it, it’s okay. If the right does it, judicial intervention is essential to protect democracy.
A second example of the Israeli courts’ promotion of uncertainty is Chief Justice Barak’s creation of a new method of construing contracts. Contrary to the law in common law jurisdictions, including the British system from which Israel’s jurisprudence is derived, Barak decided one day that the meaning of contracts should be determined not primarily by the words in the agreement. Instead, a contract’s “objective purpose,” determined by judges, would control.
The result of this surprising judicial invention is that in Israel, courts’ determination of contracts’ purpose take precedence even over the objective language of a contract, which in common law jurisdiction is itself taken as the best evidence of the parties’ intent, and where the parties’ intent as so expressed controls.
Barak’s insertion of the judges’ own preferences in place of the parties’ own intentions creates enormous uncertainty. Proof of this is Israeli businesses’ response to this judicial invention. As explained by David Wurmser, an attorney with years of experience advising international companies doing business in Israel, “businesses have responded by adding page after page to their contracts, in an effort to nail down with scientific precision exactly what the contract requires. They hope in this way to take the power of forming contracts away from judges, and put it back in the hands of the parties to the contract.” The result of Barak’s power grab is that no business ever knows with certainty whether this additional lawyering will work to return to economic actors the power to determine the meaning of their own agreements. It all depends on what a judge thinks, not what the parties agreed.
The bottom line is clear: A system that allows judges to decide cases in whatever way they think is the most “reasonable” is inherently unstable. It can only be governed by the political biases of the judges themselves. It will shift as they shift. It will also shift depending on the politics of the administration in power at any given moment.
But there is a deeper problem afflicting Israel. The political views of the Supreme Court justices, and of the legal establishment in general, are at odds with the political views of most Israeli voters. Since Menachem Begin’s victory in 1977, most Israeli governments have been right-wing. The Court and the legal establishment are on the left. Since shortly after Begin’s Likud displaced the Labor party as the center of power, the left, acting through the Court and the rest of the legal establishment, has sought power to prevent Likud governments from implementing the platforms on which they run and for which the voters have chosen them.
The Court is, in other words, preventing the voters from choosing a government that actually governs according to the policies that the voters have chosen. This is the essence of anti-democratic action. And because the Court’s decisions are politically driven, they necessarily produce an unstable body of law. That’s how you can get the same court striking down the Noble deal and upholding the Lebanon agreement. There is no consistency between these decisions and so no stable body of law on which economic actors can rely. In Israel it all depends on who you are, who your counterparty is, and what their politics are.
That’s not stable. It’s not even law. And because that’s the current state of affairs, any instability that threatens the performance of Israel’s economy is at a maximum right now.
By opposing judicial reform as anti-democratic, the left in Israel is looking the world straight in the eye and saying the exact opposite of the truth. It’s time for that tactic to be called out. And it’s time for it to stop.
{Reposted from JNS}
