State wins Israel Chemicals royalties arbitration

The decision could be worth NIS 2.5 billion to the state up to 2030.

The state has won a victory against Dead Sea Works of the Israel Chemicals Ltd. (TASE: ICL) group. At the end of the first stage of the arbitration proceedings between Israel Chemicals and the State of Israel, the panel of arbitrators decided that Israel Chemicals has to pay the state royalties for the past use of minerals it extracts from the Dead Sea and other sites that are natural resources belonging to the state. The decision was by a majority. Supreme Court judge (emeritus) Tova Strassberg-Cohen and Adv. Alex Hartman sided with the state, while Adv. Ram Caspi sided with the company. The amount that Israel Chemicals will have to pay is yet to be set.

Legal experts estimated today that, in the wake of the arbitrators' decision, up to 2030, when its concession for mining at the Dead Sea expires, Israel Chemicals will have to pay the state some NIS 2.5 billion.

The state demanded that Israel Chemical should pay royalties amounting to $291 million for the period from 2000 to the date the claim was filed, March 2011. A substantial portion of the claim related to bromine-based products from minerals that the company extracted at Ramat Hovav. The state argued that these were products on which Israel Chemicals owed royalties that it had avoided paying for years, even though its managers were aware of the matter and had expressed concern at board discussions that a claim might arise.

Israel Chemical argued that the state itself had exempted it in the past from paying royalties when it privatized the company and sold it to Shaul Eisenberg.

The dispute between Israel Chemicals and the state hinged on the question whether Dead Sea Works was obliged to pay royalties to the state on derivative products produced by companies in the group with plants located outside the Dead Sea area. The state argued that by virtue of the fact that these companies were part of a concern that represented a single economic entity, Dead Sea Works had to pay royalties on the derivative products that they produced, and that the geographic location of the plants had no bearing on matter.

Dead Sea Works argued that it was liable to pay royalties on derivative products only if the plants concerned were located in the Dead Sea area.

Strassberg-Cohen and Hartman accepted the state's argument. "Common sense, legal logic, and economic logic, as well as the purpose of the concession, are inconsistent with a situation in which if a compounds plant of the concern is located at the Dead Sea, Dead Sea Works pays royalties on its products, but if it is located a few meters away, Dead Sea Works will be exempt from paying royalties." Strassberg-Cohen said that Dead Sea Works' geographic approach distorted the delicate balance between its interest and the public interest.

Published by Globes [online], Israel business news - www.globes-online.com - on May 19, 2014

© Copyright of Globes Publisher Itonut (1983) Ltd. 2013

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