Urie, J. (MacGuigan, J. concurring):—This appeal is from a judgment of the Trial Division which allowed the appeal of the respondent from reassessments for income tax made by the Minister of National Revenue (the "Minister") in respect of the respondent's 1977 and 1978 taxation years. By the reassessments the Minister reclassified certain pipes and valves which had been claimed by the respondent as assets within Class 8 of Schedule B of the Income Tax Regulations, subject to depreciation at the rate of 20 per cent, as being assets within Class 2 of Schedule B of the said regulations on the basis that they constituted "pipelines" as set out in Class 2(b) or "were distribution equipment and plant required primarily for the distribution of gas" under Class 2(d), in each of which categories the applicable depreciation rate was 6 per cent.
The Facts
The respondent, as its name implies, was incorporated in Alberta by a special act of the legislature of that province where it has its head office, in the City of Calgary. Its principal business is the transmission of natural gas within the boundaries of the Province of Alberta utilizing a network of pipes permanently welded together and for the most part buried underground to transmit its customers gas.
There are four aspects to the natural gas industry, namely: exploration, production, transmission and distribution. Exploration involves searching and drilling for and finding natural gas. Production entails drilling wells and gathering natural gas from the wells following which, usually, the gas is processed at a gas plant at the end of a gathering system.
Transportation, which is also referred to as transmission, starts at a point commonly referred to as a “field gate" which is located near the processing plant. Transmission ends when the gas enters a distribution system. In the case of the respondent's transmission system, it connects with another company's transmission system for further shipment. Distribution starts where the transmission ends, commonly at a point called the “city gate”.
In effect, the respondent, by transmitting the natural gas owned by its customers, received from the facilities of the producers, acts as a sort of common carrier for the transportation of gas to the facilities of other natural gas transmission companies. «
The transmission of natural gas is effectuated through what is termed "mainline pipes" for which purpose the respondent, in common with other transmission companies, utilizes compressors at intervals along the mainline pipes. Inlet valves control the flow of the natural gas at the commencement of the pipe connecting the mainline pipe to the compressor (called yard pipe) and outlet valves control the flow of natural gas from the co- mapressors upon its return to the mainline pipe. There are other valves between the mainline pipe and the compressor unit.
Meters are employed to measure natural gas volumes. The meters are located in series. There are valves at the inlet and outlet side of the meters. There are pipes between the inlet valves and the valves at the entry to the meters, as well as between the valves at the exit from the meters and the outlet valves.
In its tax returns for the 1977 and 1978 taxation years, the respondent claimed that the yard pipe and metering pipe, as well as the valves on the yard pipe and metering pipe, were assets within Class 8 of Schedule B of the Regulations and thus subject to depreciation at a rate of 20 per cent. It also classified as integral parts of its compressor stations, the compressors, compressor meters, suction scrubbers, cyclone separators, liquids drain tanks, utility gas pipes, fuel gas pipes and power gas pipes and the meters as Class 8 assets. The Minister did not reclassify any of the latter assets, confining his reclassification to the yard pipe, metering pipe and valves thereon as Class 2 assets (hereinafter called the pipes and valves in issue).
The parties agree that the sole function of the pipes and valves in issue related to the compressor stations is to move the natural gas from the pipeline into the compressor unit where it is compressed to facilitate its transmission and then to move the natural gas back to the pipelines.
The Minister based his reassessments on the assumption that the pipes and valves in issue were properly described as “pipeline”. The alternative claim that the assets in issue were “manufacturing and distributing equipment and plant acquired primarily for the production or distribution of gas" was first raised in the appellant’s amended pleadings.
The issue
The sole issue in this appeal is whether the pipes and valves in issue are within Class 2 or Class 8 of Schedule B of the Income Tax Regulations ("the Regulations”). The relevant clauses of Class 2 are (b) and (d) which read as follows:
Property that is
(b) a pipeline, other than gas or oil well equipment, unless, in the case of a pipeline for oil or natural gas, the Minister in consultation with the Minister of Energy, Mines and Resources, is or has been satisfied that the main source of supply for the pipeline is or was likely to be exhausted within 15 years from the date on which operation of the pipeline commenced.
(d) manufacturing and distributing equipment and plant (including structures) acquired primarily for the production or distribution of gas, except
(i) a property included in Class 10, 13 or 14,
(ii) a property acquired for the purpose of producing or distributing gas that is normally distributed in portable containers, or
(iii) a property acquired for the purpose of processing natural gas before delivery to a distribution system.
Class 8(d) reads:
Property not included in Class 2, 7, 9 or 30 that is
(d) a tangible capital asset that is not included in another class in this Schedule except:
(i) land or any part thereof or any interest therein,
(ii) an animal,
(iii) a tree shrub, herb or similar growing thing,
(iv) a gas well (other than a gas well that is part of the equipment of a farm and from which the gas produced is not sold),
(v) a mine,
The issue expressed in terms of the factual situation, is whether all pipes and valves located between the inlet and outlet connections of the main pipeline and to and from the compressor station (and metering facilities) are to be treated as integral parts of the “pipeline” or of the compressor station (or the metering facilities), for the purposes of capital cost allowance.
The Trial Judgment
At the trial the respondent called two expert witnesses and the appellant one, the evidence of all of whom was directed primarily to what the word "pipeline" signified in terms of common usage in the natural gas industry. The learned trial judge, Dubé, J. quoted the following description of a pipeline set out in the affidavit of Donald G. Olafson, an officer of the respondent.
The word "pipeline" in terms of common industry usage describes the cross country pipe utilized to convey natural gas. A pipeline can describe either a mainline or a branch line. It would include the pipe and components and appurtenances attached to it including isolating valves. It would not include a compressor station or measurement facility isolated by isolating valves from the pipeline. A compressor station starts at the downstream side of the station suction side valve and ends at the upstream side of the station discharge valve. The pipe and valves in issue serve the compressor station. Without the station they would be unneces- sary. When stations are retired for any one of a number of operating reasons these pipes and valves are almost always retired.
On this and some of the other evidence adduced from Mr. Olafson, the trial judge had this to say:
In his view, people involved in the industry use the terms "pipeline system" to describe the overall operation. The term ''pipeline" means the main pipe which runs cross-country, including valves, gauges, etc. but excluding compressor stations and metering facilities. The term “mainline” is used as opposed to “branch line” or “lateral line", (emphasis added)
Those are precisely the terms used in the Canadian Standards Association Z-184 Code for the year 1986. The word pipeline is defined as follows at page 42:
Pipeline means those facilities through which gas is conveyed and includes pipe, components, and appurtenances attached to the pipe up to and including the isolating valves used at pressure limiting, pressure regulating, pressure relief, measurement, and compressor stations.
The description of “pipeline system" appears as follows at page 43:
Pipeline system means pipelines, stations, and other facilities required for the storage, transportation, and measurement of gas.
The Code defines "compression station” as follows at page 38:
Compression station means equipment installed for the purpose of increasing the pressure in a pipeline system and includes piping and auxiliary devices such as valves, compressors, control instruments, enclosures, and ventilating equipment.
The two relevant terms with reference to distribution are described at page 39:
Distribution line means a pipeline in a distribution system that conveys gas to individual service lines or other distribution lines.
Distribution system means the distribution and service lines, and their associated control devices, through which gas is conveyed from transmission lines or from local sources of supply to a customer's meter.
Similar evidence was tendered by the respondent from the witness Wayne D. Neuss, an independent expert which was carefully reviewed by Mr. Justice Dubé.
The appellant's expert, J.R. Eckmeier, an independent consultant, filed a report in lieu of an affidavit which was entitled "Discussion Paper Industry Standards and Practices with respect to Gas Pipeline Systems" which evoked from the trial judge this comment:
It is noteworthy that, not only in the title, but throughout his report he uses the expression “pipeline system" in the same manner as the two previous witnesses and the 1986 Z-184 Code to describe the entire system including all components such as the pipeline, the compressors, the metering facilities, etc. whereas the word “pipeline” appears intermittently to describe the long cross-country pipe.
In support of his contention that the "yard pipe” was "more akin to the mainline piping than it is to the compressor installation”, Mr. Eckmeier relied on definitions of “pipeline” in the National Energy Board Act, R.S.C. 1970, c. N-6 and amendments thereto and The Province of Albert Residence Act, 1975. Upon this reliance the trial judge had this to say:
In my view, the various definitions of "pipeline" in the federal and provincial acts serve merely the purposes of those acts and do not govern the interpretation of the Income Tax Act. The Act must be construed according to its own definitions, or the ordinary meaning of the words used, or the common usage by the people in the relevant industry.
Subsection 1104(2) of the Income Tax Regulations defines, for the purposes of allowances in respect of capital cost, the following properties:
2 (a) a "railway system"
(b) a "telephone system"
(c) a “telegraph system"
(d) a "tramway or trolley bus system"
The subsection does not follow at paragraph 2(e) with a “pipeline system", but with “gas or oil well equipment” which includes equipment, structures and "pipelines". If Parliament intended to treat the property in question as part of a "pipeline system" it would have done so under paragraph 2(e). The best that can be said is that the draftsmanship leads to confusion.
After giving short shrift to the appellant's reliance on the dictionary meanings of "pipeline" and of "system", His Lordship made the following finding:
The weight of the evidence is clearly to the effect that the word “pipeline” in the industry means the long cross-country pipeline carrying gas or oil. When it is intended to refer to the whole system, the people involved call it a “pipeline system", which makes more sense.
It should also be noted that the two experts produced by the plaintiff were straightforward and unshakable. On the other hand, as mentioned before, the expert called by the Crown was at times confused between the meaning of "pipeline" and “pipeline system", not only in his written report but also in cross- examination.
It is also significant that the design factors for the pipeline pipes and the yard pipes are different. Their life expectancy is different. The security requirements are different. The efficiency standards are different.
As to the alternative contention of the appellant that the yard pipes are property that is "distributing equipment and plant acquired primarily for the production or distribution of gas" within the meaning of Class 2(d) of the Schedule to the Regulations, the learned trial judge made the following finding:
In the case at bar, it has been fully established that the plaintiff is in neither the manufacturing nor the distributing business, being solely limited to "transmission" or "transportation". The plain meaning and the commercial usage of the words “manufacturing” and “distributing” clearly do not include “transmitting” or "transporting" which terms refer to a totally different operation.
The Arguments and the Conclusion
While the appellant attacks the trial judgment on six bases, in essence counsel argues that the learned trial judge erred in defining the word "pipeline" as it appears in Class 2(b) of the Regulations, in accordance with the meaning of that word, and, as well, the term "pipeline system”, as those terms are understood by those involved in the oil and gas industry rather than in accordance with their grammatical and ordinary sense. Alternatively, it is argued that if the pipes and valves in issue are not pipeline they are “distributing equipment and plant required primarily for the production or distribution of gas" under Class 2(d) of the Schedule to the Regulations.
I
There can be no doubt that in the interpretation of statutes in Canada the general principle enunciated by Estey, J. in Stubart Investments Limited v. The Queen, [1984] C.T.C. 294 at 316; 84 D.T.C. 6305 at 6323, followed in this Court in numerous cases, such as Canterra Energy Ltd. v. The Queen, [1987] 1 C.T.C. 89 at 93; 87 D.T.C. 5019 at 5022 and Lor-Wes Contracting Ltd. v. M.N.R., [1986] 1 F.C. 346 at 352; [1985] 2 C.T.C. 79 requires that the statutory language employed in particular sections of an enactment must be inter preted in the context of the statute as a whole. Mr. Justice Estey relied on the view espoused by E.A. Driedger, the learned author of Construction of Statutes, 2d. ed. (1983) who, at page 87 of his book, said:
Today there is only one principle or approach, namely, the words of an Act are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament. This principle is expressed repeatedly by modern judges, as, for example, Lor Reid in Westminster Bank Ltd. v. Zang [[1965] A.C. 182, at p. 222] and Culliton C.J. in R. v. Mojelski, [(1968) 65 W.W.R. 565 at p. 570]. Earlier expressions, though in different form, are to the same effect; Lord Atkinson in Victoria (City) v. Bishop of Vancouver Island, [[1921] A.C. 384, at p. 387] put it this way:
In the construction of statutes their words must be interpreted in their ordinary grammatical sense, unless there be something in the context, or in the object of the statute in which they occur, or in the circumstances with reference to which they are used, to show that they were used in a special sense different from their ordinary grammatical sense.
In Johns-Manville Canada Inc. v. The Queen, [1985] 2 S.C.R. 46 at 72; [1985] 2 C.T.C. 111 at 126 Mr. Justice Estey preferred the following refinement to that principle:
... Such a determination is, furthermore, consistent with another basic concept in tax law that where the taxing statute is not explicit, reasonable uncertainty or factual ambiguity resulting from lack of explicitness in the statute should be resolved in favour of the taxpayer.
In relation to the arguments advanced in this case, the question becomes what is the grammatical and ordinary meaning of the word "pipeline" and, as well, to whom and what should a Court turn to ascertain the grammatical and ordinary meaning of words or terms in a statute? In his book, Mr. Driedger, at pages 5, 6 and 7 made these observations:
. . . A meaning may be said to be ordinary if it is to be found in the dictionary. But there may be many meanings. Compilers of dictionaries usually place first in the list of meanings of a word the meaning most commonly used. This meaning is variously called the ordinary, common, popular or primary meaning. Pollock B. in Grenfell v. Commissioners of Inland Revenue, [(1876) 1 Ex. D. 242, at p. 248] said that if a statute contains language that is capable of being construed in a popular sense, it
is not to be construed according to the strict or technical meaning of the language contained in it, but ... is to be construed in its popular sense.
Thus, in A.-G. for Ontario v. Mercer, [(1883) 8 A.C. 767 at p. 778] the Earl of Selborne L.C. said that "every word ought, prima facie, to be construed in its primary and natural sense, unless a secondary or more limited sense is required by the subject or the context". And Lord Atkinson in Victoria (City) v. Bishop of Vancouver Island [[1921] 2 A.C. 284 at p. 387] said:
In the construction of statutes their words must be interpreted in their ordinary grammatical sense, unless there be something in the context, or in the object of the statute in which they occur, or in the circumstances with reference to which they are used, to show that they were used in a special sense different from their ordinary grammatical sense.
In Great Western Railway Co. v. Carpalla United China Clay Co. Ltd. [[1909] 1 Ch. 218 at p. 236] Farwell L.J. said that:
A written instrument must be "construed according to its sense and meaning, as collected in the first place from the terms used in it, which terms are themselves to be understood in their plain, ordinary, and popular sense, unless they have generally in respect to the subject-matter, as by the known usage of trade, or the like, acquired a peculiar sense distinct from the popular sense in the same words. . . . ” [Emphasis added.]
The interpretation problem here is not strictly one, in my view, which requires a determination of whether a word used in a statue is used in its ordinary sense or in its strictly technical sense, as was required, for example, in the Canterra Energy case, supra. It is more fundamental. It is a word in fairly common usage, employed here in a Schedule to a regulation of a statute which is applicable to all corporations which may be entitled to claim capital cost allowance on various of its [sic] assets. The Income Tax Act itself applies to all taxpayers earning taxable income. Class 2 in Schedule B certainly does not relate solely to the natural gas industry. It relates also to electrical generating equipment, oil pipeline and distributing equipment for water and heat. Clause (b) relates to pipelines without reference to what is transmitted through them be it gas, oil, water, steam or solids. I would have thought that in construing it in its "popular sense" would mean that sense “which people conversant with the subject matter with which the statute is dealing [in this case those utilizing the service of the pipeline for the transmission of gas, oil, water, steam or solids] would attribute to it" not the popular sense derived from the perception of the man in the street not conversant with either the user industries or pipelines. Even if it were, I find it difficult to conceive that such a man would view a compressor station or metering facilities as part of a pipeline in its most fundamental sense.
The whole of Schedule B is directed to special factual situations where terms are used in respect of depreciable assets which have particular meanings to those conversant with those assets. For example, Class 3 refers to property that is a dock, a wharf, a jetty and a trestle, all of which to a person unfamiliar with, or having only a passing familiarity with, such structures, might appear to be synonymous. However, to persons familiar with maritime structures they probably have specific meanings which are the ordinary meanings to them so that, again, I I would have thought that it would be from persons conversant with such structures that evidence might be adduced to assist in resolving disputes as to the meanings of the terms. Dictionary meanings are, of course, relevant, as other aids to construction just as the evidence of those conversant with the industry provides assistance to the ultimate arbiter, the Court.
In this case, the learned trial judge permitted evidence to be adduced as to the meanings of the term within the natural gas industry. If the industry involved had been, for example, the oil industry, the experts undoubtedly would have been those familiar with that industry. Since it is the gas industry which is involved witnesses conversant with that industry were called upon to testify as to their understanding of the meanings of the terms. Having seen and heard the witnesses called by each of the parties, he expressed a preference for the evidence of the respondent's two experts to that of the appellant's witness and accepted their evidence as to meanings of the terms.
While both the Grenfell case and the Great Western Railway case, which were referred to in the quotations from Mr. Driedger's book earlier set out herein, provide authorities from the English courts for the propriety of ascertaining the known usage in trade as to the meanings of words and terms in statutes, this Court too has provided some supporting authority in Controlled Foods Corporation Limited v. The Queen, [1980] C.T.C. 491; 80 D.T.C. 6373. In that unanimous judgment it was said at page 495 (D.T.C. 6376) of the report that:
. . . a line of authorities of Canadian jurisprudence extending back as far as 60 years, has held that “it is not improper to consider as an aid the generally accepted commercial view of the operation under review" . . .
I am of the opinion that, as a matter of law, he [the Trial Judge] correctly found that to determine the questions here in issue, he was entitled to examine the generally accepted commercial view of the nature of a restaurant operation as well as the dictionary definitions of those terms.
It is true that the Court cited as one of the authorities for this proposition the decision of this Court in The Royal Bank of Canada v. M.N.R., [1979] C.T.C. 342; 79 D.T.C. 5263, which was subsequently reversed by the Supreme Court of Canada on other grounds. However, the validity of using that form of construction aid was not challenged or commented upon by Mclnytre, J. in the Supreme Court judgment.
What I find ultimately decisive in this case is that Dubé J. had before him evidence of the dictionary meanings of the word “pipeline” and of the word “system” used in conjunction with pipeline. While he referred only to the definitions in the Shorter Oxford Dictionary it appears clear that counsel for the parties referred him to definitions in other English and American dictionaries. In my view, and, I think impliedly in his view, the dictionary meanings to which both he and this Court were referred varied sufficiently that they could fairly be described as inconclusive. He was, therefore, entitled to accord those meanings little weight and to accept the evidence of the respondent's experts as persons familiar with the subject, that the pipes and valves in issue in their ordinary signification were integral parts of the compressor stations and metering facilities rather than integral parts of the pipeline.
His findings that
the weight of the evidence is clearly to the effect that the word "pipeline in the industry means the long cross-country pipeline carrying gas or oil. When it is intended to refer to the whole system, the people involved call it a “pipeline system", which makes more sense.
encompasses not only the concept of the pipes and valves in issue in practice being integral to the compressor station and not to the mainline itself but also that they are part of the function of the former rather than the latter, contrary to what was argued by the appellant. There was, in my view, ample evidence, which Dubé J. accepted, to support those findings.
Further buttressing that evidence, of course, was evidence of the terminology employed in the Canadian Standards Association Z-184 Code for the year 1986, to which reference was made in the excerpt from the trial judgment earlier referred to. In essence it provides an industry dictionary or lexicon for those familiar with the industry who thus are "conversant with” that industry. The terms therein, incidentally, were utilized by the appellant's expert, Mr. Eckmeier, as well as by the respondent's two experts.
Counsel for the appellant argued, as an alternative, that if the industry's use of the word “pipeline” was to be adopted, then the trial judge erred in finding that the interpretation of the gas industry should be applied to the word “pipeline” since the regulation is applicable to any pipeline used in any industry, i.e. the scope of Class 2 makes it clear that various industries are subject to the subsection and, accordingly, the interpretation of the gas industry alone is inappropriate.
The short answer to that submission is that there was no suggestion, let alone evidence, that the meaning of the term “pipeline” differs from industry to industry. The respondent adduced evidence from those familiar with its industry, which the trial judge was entitled to accept or reject. One of the bases for rejection could have been, of course, that the meanings attributable to the terms in the gas industry were not those necessarily applicable in the transmission by pipeline of oil, steam, water or any other commodity. The appellant made no effort to adduce evidence to support such a proposition. The trial judge was entitled, therefore, to accept or reject the only evidence from those conversant with the subject that he had before him. He chose to accept it and I do not think that, in the circumstances to which I have already referred, it can be said that he erred in doing so.
For all of the foregoing reasons, I am of the opinion that the trial judge did not err in holding the pipes and valves in issue did not fall into Schedule B, Class 2 assets but rather ought to have been property classified under Class 8 of Schedule B of the Regulations.
II
The appellant’s alternative position if its Class 2(b) argument fails, as it has, is that the pipes and valves in issue constitute “distributing equipment and plant acquired primarily for the production or distribution of gas" in accordance with Class 2(d) of Schedule B.
The basis for the appellant's contention is that the words “distributing”, “distributed” and “distribution”, all of which appear in Class 2, are used to describe property acquired by taxpayers involved in the production and distribution of electricity, heat, water and gas. Consequently, the words are to be construed, in counsel's submission, in their ordinary and grammatical sense and not in a technical sense applicable in a particular industry. "Distribution" is defined in the Shorter Oxford English Dictionary, in part, as:
the action of distributing, dealing out, or bestowing in portions among a number; apportionment, allotment ... the dispersal among consumers of commodities produced, opposite to production.
Given this meaning, in appellant counsel's submission, the terms "distributing equipment" and “distribution system” in Class 2(d) encompass all equipment, plant and structures in the transmission phase of the natural gas industry.
There can be no doubt, and the trial judge found as a fact that, the respondent is neither a producer nor manufacturer of gas. It is not disputed that its sole business is to transmit (i.e., to transport) natural gas produced and owned by others through its pipelines for delivery on behalf of the owner to the facilities of other natural gas transmission companies. It does not apportion or allot in portions among a number. Nor is it a distributor, or involved in the distribution of gas, in the sense in which those terms are used in the natural gas industry. Distribution, according to the evidence means conveying gas to individual user lines or to other distribution lines. It is a function entirely different from the transmission or transportation of gas. As observed earlier, the service performed by the respondent is akin to that of common carrier without any relationship with the ultimate user. Therefore, the function performed by the respondent is not distribution within either the dictionary meaning of that word or in the sense in which the term is used in the industry.
On those facts then, this case differs from those involved in Northern and Central Gas Corporation Limited v. The Queen, [1987] 2 C.T.C. 241 at 245; 87 D.T.C. 5439 at 5442. Unlike the respondent here, the appellant in that case purchased natural gas from a gas transmission company for delivery to it near North Bay, Ontario, and from where it was transported on a transmission line owned by it. A liquified natural gas plant also owned by the appellant was used to store the natural gas purchased by the appellant in low-demand periods for sale to the appellant's customers during high demand months. The gas was stored in liquid form for reconversion and delivery to its customers. In these circumstances, this court found that the liquified natural gas plant there in issue was “acquired primarily for the distribution of gas.” Here, no matter whether the dictionary or industry meaning of "distribution" or “distributing” is utilized, the respondent is not engaged therein. The pipes and valves in issue, consequently, are neither manufacturing nor distributing equipment. Neither were they acquired primarily (or otherwise) for the production or distribution of gas. The two preconditions for the classification of property under Class 2(d) of Schedule B have not, therefore, been met. The appellant thus fails on the second ground of its appeal.
Accordingly, the appeal should be dismissed with costs.