MacKay,
J.:—This
is
an
appeal
from
a
reassessment
by
the
Minister
of
National
Revenue,
dated
February
18,
1985,
of
the
income
tax
return
of
the
plaintiff
corporation
for
its
1979
taxation
year.
Notice
of
objection
to
the
reassessment
was
served
on
May
3,
1985.
The
Minister
had
not
notified
the
plaintiff
that
he
had
vacated
or
confirmed
the
reassessment
when
this
action
was
commenced
by
statement
of
claim,
filed
on
August
26,
1986,
pursuant
to
then
subsection
172(2)
of
the
Income
Tax
Act,
R.S.C.
1952,
c.
148
(am.
S.C.
1970-71-72,
c.
63)
(the"Act"),
as
amended.
Only
one
of
two
issues
raised
by
the
plaintiff's
action
was
outstanding
at
the
time
of
trial.
That
outstanding
issue
was
tried
and
is
the
subject
matter
of
these
reasons.
It
concerns
the
reassessment
by
the
Minister
of
National
Revenue
whereby
he
disallowed
the
plaintiff's
claim,
in
its
1979
taxation
year
tax
return,
that
costs
amounting
to
$18,256,
incurred
for
exploration
drilling
and
tunnelling
in
development
of
the
Cardinal
River
Coal
Underground
Mine
("the
CRC
underground
mine”),
were
Canadian
exploration
expenses
as
provided
for
in
section
66.1
of
the
Income
Tax
Act
as
it
applied
in
1979.
By
this
reassessment
the
Minister
deleted
the
expense
from
the
plaintiff's
cumulative
Canadian
exploration
expense
and
reclassified
the
amount
as
the
cost
of
acquisition
of
depreciable
property
of
the
type
described
in
Class
12
of
Schedule
II
to
the
Income
Tax
Regulations.
This
reclassification
affected
the
plaintiff's
right
to
claim
certain
allowances.
The
other
matter
raised
in
the
plaintiff's
statement
of
claim
concerns
the
classification
of
income
received
by
it
from
participation
with
others
in
an
operation
to
upgrade
lignite
coal
from
the
Bienfait
Mine
in
Saskatchewan.
The
plaintiff's
income
tax
return
for
1979
in
relation
to
this
aspect
of
its
income
was
also
reassessed
by
the
Minister,
but
by
her
amended
defence
the
defendant
agrees
that
the
plaintiff's
appeal
be
allowed
"insofar
as
it
relates
to
income
earned
by
the
plaintiff
from
the
Bienfait
Mine”.
The
action
by
the
plaintiff
is
allowed
in
respect
to
that
matter
and
by
order
this
matter
is
referred
back
to
the
Minister
for
reassessment
on
the
basis
admitted
by
the
defendant
in
this
action.
In
advance
of
trial
the
plaintiff
applied
for
an
order,
pursuant
to
Rule
494(11)
that
the
Court,
in
the
presence
of
counsel
for
the
parties,
inspect
the
mining
site.
Counsel
provided
written
submissions
in
relation
to
the
application
which
the
defendant
opposed
and
counsel
were
heard
by
telephone
conference
call.
I
then
ordered
that
the
application
be
allowed
and
that
provision
for
transportation
be
made
by
the
plaintiff
for
travel
from
Edmonton
to
the
Cardinal
River
Coals
Ltd.
property
south
of
Hinton,
Alberta,
that
arrangements
for
the
inspection
tour
be
agreed
upon
by
counsel
for
the
parties
and
that
costs
of
the
inspection
of
the
property
be
borne
by
the
plaintiff
in
any
event
of
the
cause.
At
the
commencement
of
trial
in
Edmonton,
counsel
advised
the
Court
of
arrangements
that
had
been
agreed
upon,
including
that
the
second
day
scheduled
for
the
hearing
be
utilised
to
visit
the
mine
site.
This
was
done
and
the
arrangements
made
were
helpful
to
the
Court
in
gaining
an
appreciation
of
the
scope
and
scale
of
the
mining
operations
and
of
the
location
of
existing
and
earlier
open
pit
surface
operations
and
of
the
site
of
entry
to
the
underground
mine.
The
mine
was
not
fully
developed
before
it
was
abandoned
and
today
there
is
little
evidence,
except
for
the
levelled
site
and
sealed
portals,
that
substantial
work
was
done
a
decade
ago
to
establish
an
underground
mine.
In
the
amended
defence
filed
in
this
matter
on
January
3,1990,
assumptions
of
fact
relied
on
by
the
Minister
in
his
reassessment
are
set
out
as
follows.
6.
In
reassessing
the
plaintiff
as
he
did
and
with
respect
to
the
matter
here
remaining
in
issue,
the
Minister
of
National
Revenue
relied,
inter
alia,
upon
the
following
assumptions
of
fact:
(a)
that
the
plaintiff
was
involved
in
the
open
pit
method
of
extraction
of
coal
from
a
section
of
the
syncline
known
as
the
Jewel
Coal
Seam
in
the
Cardinal
River
Coal
Surface
Mine
("hereinafter
referred
to
as"the
CRC
Surface
Mine”)
at
all
material
times;
(b)
that
the
CRC
Surface
Mine
was
a
mine
that
had
come
into
production
of
a
mineral
resource
in
reasonable
commercial
quantities
by
1979;
(c)
that
in
1979,
the
plaintiff
incurred
expenses
in
the
amount
of
$18,256
for
the
purpose
of
developing
an
underground
mine(hereinafter
referred
to
as
“the
CRC
Underground
Mine")
in
the
Jewel
Coal
Seam;
(d)
that
the
CRC
Underground
Mine
was
located
in
the
same
ore
body
as
the
CRC
Surface
Mine;
(e)
that
the
CRC
Underground
Mine
was
related
to
or
was
to
be
related
to
a
potential
or
actual
extension
of
the
CRC
Surface
Mine;
(f)
that
the
plaintiff
was
aware
of
the
existence
of
the
deeper
ore
body
(later
constituting
the
CRC
Underground
Mine)
from
deep
drilling
from
the
surface
prior
to
opening
of
the
CRC
Surface
Mine;
(g)
that
the
expenses
incurred
by
the
plaintiff
in
developing
the
CRC
Underground
Mine
were
incurred
for
the
purpose
of
developing
a
mine,
shaft,
main
haulage
way
or
similar
underground
work
designed
for
the
continuing
use
of
the
CRC
Surface
Mine
or
an
extension
thereof,
sunk
or
constructed
after
the
CRC
Surface
Mine
came
into
production.
When
the
matter
came
on
for
trial
an
agreed
statement
of
facts
was
set
out
in
the
following
terms,
from
which
I
omit
only
the
references
contained
in
the
original
to
various
exhibits
filed
with
that
statement.
A.
Introduction
1.
At
issue
in
this
action
is
the
appropriate
treatment,
for
income
tax
purposes,
of
expenses
incurred
by
the
plaintiff
("Oro")
during
its
1979
taxation
year
for
surface
and
underground
development
for
the
extraction
of
coal
at
the
Cardinal
River
Coals
mine
site
(the
“
Cardinal
River
Mine").
Oro
alleges
that
these
expenses
are
"Canadian
exploration
expense"
as
defined
in
either
subparagraph
66.1(6)(a)(iii)
or
66.1(6)(a)(iii.1)
of
the
Income
Tax
Act,
as
it
read
with
respect
to
the
taxation
year
in
issue;
the
defendant
(the"department")
denies
that
this
is
the
case
on
the
basis
that
the
expenses
incurred
in
developing
the
underground
were
not
expenses
of
the
nature
contemplated
by
those
subparagraphs
and
has
reclassified
these
expenses
2.
In
1979
paragraph
66.1(6)(a)
of
the
Act
defined
"Canadian
exploration
expense"
in
part
as
follows:
66.1(6)(a)
"Canadian
exploration
expense"
of
a
taxpayer
means
any
outlay
or
expense
made
or
incurred
after
May
6,
1974
that
is:
(iii)
any
expense
incurred
by
him
for
the
purpose
of
determining
the
existence,
location,
extent
or
quality
of
a
mineral
resource
in
Canada
including
any
expense
incurred
in
the
course
of:
(A)
prospecting,
(B)
carrying
out
geological,
geophysical
or
geochemical
surveys,
(C)
drilling
by
rotary,
diamond,
percussion
or
other
methods,
or
(D)
trenching,
digging
test
pits
and
preliminary
sampling,
but
not
including
(E)
any
Canadian
development
expense,
or
(F)
any
expense
that
may
reasonably
be
considered
to
be
related
to
a
mine,
whether
or
not
owned
by
the
taxpayer,
that
has
come
into
production
in
reasonable
commercial
quantities
or
to
be
related
to
a
potential
or
existing
extension
thereof,
(iii.1)
any
expense
incurred
by
him
after
November
16,
1978
for
the
purpose
of
bringing
a
mineral
resource
in
Canada
into
production
and
incurred
prior
to
the
commencement
of
production
from
the
resource
in
reasonable
commercial
quantities,
including,
(a)
clearing,
removing
overburden
and
stripping,
and
(b)
sinking
a
mine
shaft,
constructing
an
adit
or
other
underground
entry,
Subsection
248(1)
of
the
Act
defined
"mineral
resource"
to
include
“a
coal
deposit".
3.
At
all
times
material
to
this
action
Cardinal
River
Coals
Ltd.
("CRC")
was
the
operating
company
at
the
Cardinal
River
Mine
for
the
following
group
of
joint
venturers:
|
Consolidation
Coal
Company
of
Canada
("Consol")
|
50.0
per
cent
|
|
Luscar
Ltd.
("
Luscar")
|
32.5
per
cent
|
|
Forestburg
Collieries
Ltd.
(”
Forestburg")
|
12.5
per
cent
|
|
Oro
|
5.0
per
cent
|
4.
The
expenses
incurred
in
developing
the
underground
were
allocated
amongst
and
paid
by
the
joint
venturers
in
proportion
to
their
respective
undivided
interests
in
the
Cardinal
River
Mine
and
the
outcome
of
these
proceedings
will
be
accepted
by
the
other
joint
venturers
and
by
the
Department
as
determinative
of
the
same
issue
for
all
joint
venturers
for
each
of
the
years
1979
through
1983.
5.
Total
expenses
incurred
by
the
joint
venturers
in
respect
of
the
development
of
the
underground
for
the
five
year
period
(1979-1984)
were
in
excess
of
$21,000,000.
The
reclassification
of
these
expenses
has
significant
impact
upon
the
earned
depletion
base,
resource
allowance
and
capital
cost
allowance
available
to
each
of
the
joint
venturers.
There
is
no
dispute
with
respect
to
the
amounts
of
the
proposed
adjustments.
B.
History
and
Geological
Background
6.
The
Cardinal
River
Mine
is
a
metallurgical
coal
mine
located
in
the
foothills
of
the
Canadian
Rockies,
180
miles
west
of
Edmonton.
More
precisely,
the
area
is
situated
26
miles
south
of
the
town
of
Hinton
and
4.5
miles
northeast
of
Cad-
omin.
.
.
.
7.
The
coal
is
extracted
exclusively
from
the
Jewel
Seam
which
extends
along
the
mountain
front
in
Alberta
for
a
maximum
known
distance
of
some
60
miles.
The
seam's
thickness
varies
from
26
feet
to
40
feet
in
those
areas
outlined
by
drilling.
The
Jewel
Seam
is
often
folded,
steeply
pitching,
irregular,
distorted
and
displaced
by
faults
.
.
.
Much
of
it
is
unsuitable
for
mining
because
of
its
variable
structure,
thickness
and
quality.
Only
15
to
20
per
cent
of
this
seam
is
accessible
by
open
pit
surface
mining
methods
within
the
Cardinal
River
Mine
area.
.
.
.
8.
Mining
within
the
Cardinal
River
Mine
area
was
begun
by
Luscar
in
1921
(the
"Luscar
Mine").
Mining
was
discontinued
in
1956,
after
the
introduction
of
the
diesel
locomotive
caused
a
significant
reduction
in
the
demand
for
coal.
The
Luscar
Mine
was
completely
abandoned;
however,
Luscar
maintained
its
coal
leases
in
the
area.
9.
Other
than
the
Luscar
Mine,
there
have
been
a
number
of
mines
on
the
Jewel
Seam
in
the
past
at
Cadomin,
Mountain
Park
and
on
Folding
Mountain.
The
Jewel
Seam
was
in
1979,
and
is
currently,
being
mined
not
only
within
the
Cardinal
River
Mine
area
by
the
joint
venturers,
but
also
on
coal
leases
immediately
adjacent
to
the
Cardinal
River
Mine
area
by
a
subsidiary
of
Manalta
Coal
Ltd.
10.
When
it
became
apparent
that
there
was
a
significant
market
in
Japan
for
metallurgical
coal,
Luscar
concluded
that
the
economic
climate
warranted
the
investigation
of
recommencing
mining
activities.
In
contemplation
of
carrying
out
strip
mining
operations
in
the
Cardinal
River
Mine
area,
Luscar
submitted
a
proposal
to
the
Interdepartmental
Committee
on
Mining
Taxation
in
November
of
1967
in
support
of
an
application
for
the
three
year
tax
exemption
which
was
available,
at
that
time,
for
new
mines
under
subsection
83(5)
of
the
pre-reform
Income
Tax
Act.
.
.
.
The
application
was
given
preliminary
approval
on
January
26,
1968,
and
the
Department
of
National
Revenue,
in
consultation
with
the
Department
of
Energy,
Mines
and
Resources,
subsequently
granted,
at
Luscar's
request,
a
three
year
tax
exemption
for
income
from
the
Cardinal
River
Mine
effective
September
1,
1970.
.
.
.
11.
Once
assured
that
the
tax
exemption
would
be
approved,
Luscar
entered
into
a
joint
venture
agreement
with
Consol
on
May
1,
1968
for
the
purpose
of
mining
coal
from
the
Luscar
coal
leases.
Together
the
two
companies
formed
CRC,
for
the
purpose
of
"the
construction
of
coal
preparation
facilities
and
excavating,
mining
and
preparing
coal”
from
the
Luscar
properties.
At
that
time
only
a
stripping
operation
was
contemplated.
.
.
.
12.
Subsequent
transactions
resulted
in
the
membership
of
the
joint
venture
being
as
described
in
paragraph
3.
13.
On
February
7,
1969
an
agreement
was
entered
into
with
the
Japanese
for
the
delivery
of
1,000,000
long
tons
of
"Quality
Coking
Coal"
for
15
years
requiring
the
removal
of
approximately
7,280,000
cubic
yards
of
overburden
annually.
In
satisfaction
of
the
obligation
assumed
under
this
agreement,
in
excess
of
15,000,000
tons
of
coal
was
delivered
to
the
Japanese
long
before
the
expiration
of
the
15-year
period.
14.
This
production
schedule
required
the
opening
of
a
number
of
surface
pits,
each
of
which
was
opened
and
operated
under
a
separate
licence
issued
by
the
Energy
Resources
Conservation
Board
pursuant
to
the
Coal
Conservation
Act,
S.A.
1973,
c.
65.
Each
of
these
licences
required
the
licensee
to
extract
the
maximum
quantity
of
coal
capable
of
being
economically
mined
from
the
surface.
.
.
.
The
attached
plan
.
.
.
outlines
the
coal
lease
areas
with
the
various
surface
mine
permit
and
licence
areas
superimposed,
and
provides
an
illustration
of
the
development
of
the
surface
mine
in
1979,
prior
to
the
commencement
of
work
on
the
underground.
C.
Underground
Mine
Development
15.
Anticipating
a
steadily
increasing
demand
for
coking
coal
Consol
proposed,
in
1976,
a
drilling
program
to
increase
the
confidence
of
the
surface
reserves
that
are
not
in
the
measured
category
and
to
verify
some
of
the
assumptions
used
to
calculate
the
deep
reserves
[in
the
Cardinal
River
Mine
area]”.
.
.
.
The
prospect
of
continued
strong
Japanese
markets
encouraged
the
joint
venture
to
proceed
with
such
a
drilling
program
and
plans
to
develop
the
underground.
A
preliminary
evaluation
of
two
potential
underground
mining
areas
was
completed
in
January,
1978.
16.
In
March
of
1978
Luscar
advised
Consol.
.
.
as
follows:
Our
geologists
have
carefully
examined
all
the
reserves
beyond
the
stripping
limit,
and
have
concluded
that
the
reserve
with
the
most
favourable
mining
conditions
is
the
down
dip
extension
of
pit
51-B-2.
The
syncline
continues
to
dip
six
to
eight
degrees
to
the
southeast
and
broadens
towards
the
south.
17.
A
supplementary
study,
completed
in
1979,
identified
two
additional
potential
underground
mining
areas.
.
.
Ultimately
the
area
adjacent
to
and
beyond
the
stripping
limit
of
the
51-B-2
Pit
was
selected.
.
.
.
18.
In
this
area
the
Jewel
Seam
was
continuous
and
without
serious
faults
or
displacements;
however,
the
dip
of
the
syncline
was
such
that
it
was
no
longer
economical
to
extract
the
coal
by
surface
methods
because
the
amount
of
overburden
which
would
have
to
be
removed
to
extract
the
coal
would
have
resulted
in
an
uneconomic
stripping
ratio
of
as
much
as
31:1.
.
.
.
19.
Underground
Mining
Feasibility
Studies
were
prepared
in
May
1980
.
.
.
July
1980
.
.
.
and
August
1980
.
.
.
for
the
purpose
of
assessing
the
merits
of
applying
an
hydraulic
mining
method,
in
comparison
to
other
methods
of
extraction,
and
assessing
the
economic
viability
of
such
a
project.
Ultimately
it
was
decided
that
the
development
should
proceed
and
on
September
28,
1980
CRC
submitted
to
the
Energy
Resources
Conservation
Board
its
application
for
a
licence
to
develop
an
underground
hydraulic
mine
Subject
to
some
requests
for
additional
information
the
application
was
granted
and
the
permit
and
the
licence
required
were
issued.
.
.
.
20.
A
helpful
summary
of
the
underground
is
contained
in
the
Presentation
to
the
Steel
Mills
Technical
Committee
dated
September
1980
The
actual
plans
which
served
as
the
basis
for
budgeting
purposes
throughout
the
life
of
the
project
are
the
following:
Cardinal
River
Coals
Ltd.
Preliminary
Underground
Mine
Study
—
August
1979.
.
.
.
Cardinal
River
Coals
Ltd.
Underground
Mine
Feasibility
Study
—
August
1980.
.
.
.
Underground
Mine
Study
No.
5
—
September
1982
(2
volumes).
.
.
.
Cardinal
River
Coals
Ltd.
Underground
Mine
Study
No.
7
—
August
1984.
.
.
.
21.
The
following
facilities
were
to
be
utilized
in
the
operation
of
both
the
surface
and
the
underground:
(a)
the
preparation
plant
and
its
associated
clean
coal
storage,
coal
silo
and
settling
pond;
(b)
railspur
and
loadout
facilities;
(c)
employee
transportation
facilities
between
Hinton
and
the
Cardinal
River
Mine;
(d)
road
access,
traversing
the
open
pit
operations,
to
the
junction
of
the
surface
haul
road
and
the
private
underground
access
road;
(e)
process
water
and
environmental
treatment
facilities;
(f)
electrical
substation
served
by
Calgary
Power.
22.
The
following
surface
facilities
were
to
be
utilized
exclusively
in
the
operation
of
the
underground:
(a)
the
dewatering
plant;
(b)
office
building;
(c)
equipment
maintenance
building;
(d)
underground
employee
washing
and
changing
facilities;
(e)
private
underground
access
road
from
its
junction
with
the
surface
haul
road
to
the
No
Name
Creek
portal
site;
(f)
domestic
water
supply
and
sanitation
facilities;
(g)
electrical
feedline
from
the
electrical
substation.
23.
The
construction
schedule
.
.
.
shows
the
proposed
time
frame
for
the
development
of
the
underground.
In
October
of
1980,
CRC
started
clearing
the
surface
site
for
the
underground
tunnels
at
No
Name
Creek.
In
February
of
1981
CRC
hired
Cementation
Company
(Canada)
Ltd.
and
the
underground
tunnels
were
begun.
Cementation
Company's
work
on
site
ceased
in
November
of
1982.
Development
of
the
underground
continued
until
November
of
1983,
when
all
development
work
was
suspended
due
to
the
fall
in
world
coal
prices.
Some
development
coal
had
been
extracted
during
construction
of
development
tunnels
in
the
Jewel
Seam,
but
the
underground
never
commenced
commercial
production.
The
underground
was
maintained
free
of
water
by
pumping
until
1985
when
CRC
applied
to
the
Energy
Resources
Conservation
Board
for
temporary
abandonment.
..
.
.
The
issues
In
its
statement
of
claim
the
plaintiff
objected
to
the
reclassification
of
expenses,
from
cumulative
Canadian
exploration
expenses
to
costs
of
acquisition
of
depreciable
assets
of
a
prescribed
class,
on
the
grounds
that
the
expenses
incurred
by
it
were
for
the
purpose
of
bringing
a
mineral
resource
in
Canada
into
production
and
were
expenses
incurred
prior
to
commencement
of
production
from
the
resource
in
reasonable
commercial
quantities,
as
provided
in
section
66.1
of
the
Act.
Among
other
matters
referred
to
in
the
statement
of
claim,
the
plaintiff
states
that
the
CRC
underground
mine
operations
were
self-
sufficient
and
in
all
ways
were
independent
of
the
operations
of
the
CRC
surface
mine.
The
underground
mine
is
said
to
be
a
new
mine
within
the
meaning
of
section
66.1.
As
paragraph
A.1
in
the
agreed
statement
of
facts
states,
the
plaintiff
contends
the
expenses
in
question
are
“Canadian
exploration
expense"
as
defined
in
either
subparagraph
66.1
(6)(a)(iii)
(hereinafter"subparagraph
(iii)",
for
convenience)
or
subparagraph
66.1
(6)(a)(iii.1)
(hereinafter
"subparagraph
(iii.1)",
for
convenience)
of
the
Act.
No
breakdown
of
expenses
is
provided
allocating
particular
expenses
to
one
or
other
of
those
provisions.
Counsel
for
the
defendant
urged
at
trial
that
each
of
these
two
subparagraphs
of
section
66.1
incorporates
a
different
definition
or
test.
Expenses
claimed
under
subparagraph
(iii)
must
be
of
the
sort
there
described
that
are
not
expenses
reasonably
considered
to
be
related
to
a
mine,
or
to
a
potential
or
existing
extension
of
a
mine,
that
has
come
into
production
in
reasonable
commercial
quantities.
In
short,
it
was
urged
the
expenses
must
be
in
relation
to
a
new
mine.
Under
subparagraph
(iii.1)
the
expenses
must
be
of
the
sort
described
in
that
subparagraph
in
relation
to
a
new
mineral
resource
before
commencement
of
production
in
reasonable
commercial
quantities
from
the
resource.
It
is
urged
that
the
plaintiff
must
establish
that
expenses
incurred
meet
either
of
the
two
definitions
or
tests
if
it
is
to
fully
succeed
in
its
claim.
No
argument
was
raised
concerning
the
nature
of
the
expenses
here
claimed
in
terms
of
the
sort
of
expenses
described
in
subclauses
(A)
to
(D)
of
the
first
of
those
subparagraphs,
or
within
subclauses
(a)
and
(b)
of
the
second
of
those
provisions.
Thus,
for
purposes
of
these
reasons
all
of
the
expenses
in
question
are
assumed
to
have
been
incurred
either
in
the
course
of
prospecting,
carrying
out
geological,
geophysical
or
geochemical
surveys,
drilling
by
rotary,
diamond,
percussion
or
other
methods,
trenching,
digging
test
pits
and
preliminary
sampling,
as
provided
in
subparagraphs
(iii)(A)
to
(D),
or
in
clearing,
removing
overburden
and
stripping,
or
sinking
a
mine
shaft,
constructing
an
adit
or
other
underground
entry,
as
provided
in
subparagraphs
(iii.1)(a)
and
(b).
The
pleadings
in
this
action
concern
the
reassessment
of
the
plaintiff's
income
tax
for
the
1979
taxation
year.
Yet
the
agreed
statement
of
facts
and
much
of
the
evidence
relate
not
merely
to
that
year
but
to
subsequent
years
as
well.
Counsel
for
the
parties
were
agreed
that
the
Court
should
take
into
consideration,
so
far
as
they
are
relevant,
events
and
decisions
after
1979
with
a
view
to
rendering
a
decision
that
will
be
determinative
in
relation
to
the
plaintiff's
expenses
incurred
in
the
CRC
underground
mine
for
1979
and
subsequent
years
to
and
including
1983,
as
set
out
in
paragraph
4
of
the
agreed
statement
of
facts.
Presumably,
the
classification
of
these
expenses
in
terms
of
subparagraph
(iii)
and
subparagraph
(iii.1)
of
the
Act,
for
all
years
that
may
be
under
consideration,
will
turn
upon
assessment
of
the
same
factors
as
are
raised
in
this
action
in
regard
to
reassessment
of
tax
for
the
1979
taxation
year.
The
assumptions
of
fact
relied
upon
by
the
Minister
in
his
reassessment
are
of
less
significance
than
the
issues
identified
by
counsel,
and
the
considerations
underlying
those,
in
light
of
the
manner
in
which
this
action
developed,
in
particular
the
filing
of
an
amended
defence
on
January
3,
1990,
after
the
plaintiff's
reply
to
the
defence
was
filed,
and
reliance
in
the
amended
defence
upon
both
subparagraph
(iii)
and
subparagraph
(iii.1),
and
the
agreement
that
determination
of
this
action
in
relation
to
the
1979
taxation
year
is
to
be
followed
for
all
other
years
to
1983
where
the
issues
arising
are
similar.
However,
for
the
record
it
is
proper
to
deal
with
the
Minister’s
assumptions
as
accepted
by
the
parties
or
as
they
relate
to
the
issues
identified
at
trial.
Insofar
as
the
first
three
assumptions
of
the
Minister
are
concerned
the
plaintiff
does
not
dispute
that
''the
plaintiff
was
involved
in
the
open
pit
method
of
extraction
of
coal
from
a
section
of
the
syncline
known
as
the
Jewel
Coal
Seam
in
the
Cardinal
River
Coal
Surface
Mine
.
.
.
at
all
material
times”,
that
“the
CRC
Surface
Mine
was
a
mine
that
had
come
into
production
of
a
mineral
resource
in
reasonable
commercial
quantities
by
1979",
and
that,
in
that
year,
"the
plaintiff
incurred
expenses
in
the
amount
of
$18,256
for
the
purpose
of
developing
an
underground
mine.
.
.
in
the
Jewel
Coal
Seam".
The
other
assumptions
of
the
Minister
are
interrelated
with
the
two
primary
issues
raised
by
counsel.
Thus,
two
assumptions
have
significance
in
relation
to
the
question
whether
the
"resource"
developed
by
the
underground
mine
and
the
surface
mine
is
the
same,
the
issue
which
is
said
by
the
defendant
to
arise
in
relation
to
subparagraph
(iii.1).
These
assumptions
are
that
"the
CRC
Underground
Mine
was
located
in
the
same
ore
body
as
the
CRC
Surface
Mine”,
and
that
"the
plaintiff
was
aware
of
the
existence
of
the
deeper
ore
body
(later
constituting
the
CRC
Underground
Mine)
from
deep
drilling
from
the
surface
prior
to
the
opening
of
the
CRC
Surface
Mine”.
The
other
two
assumptions
have
significance
in
relation
to
the
issue
whether
the
underground
mine
is
a
"new
mine”
in
the
sense
that
it
is
not
simply
an
extension
of
the
surface
mine,
the
issue
said
by
the
defendant
to
arise
in
relation
to
subparagraph
(iii).
These
assumptions
are,
that
"the
CRC
Underground
Mine
was
related
to
or
was
to
be
related
to
a
potential
or
actual
extension
of
the
CRC
surface
mine”,
and
that
"the
expenses
incurred
by
the
plaintiff
in
developing
the
CRC
underground
mine
were
incurred
for
the
purpose
of
developing
a
mine,
shaft,
main
haulage
way
or
similar
underground
work
designed
for
the
continuing
use
of
the
CRC
surface
mine
or
an
extension
thereof,
sunk
or
constructed
after
the
CRC
surface
mine
came
into
production”.
It
bears
repeating
that
the
two
issues
on
which
the
parties
disagree
are
whether
exploration
expenses
of
the
sort
described
in
clauses
(A)
to
(D)
of
subparagraph
(iii)
were
for
purposes
of
a
new
mine
as
envisaged
in
that
subparagraph
including
in
particular,
clause
(F),
and
whether
development
expenses
of
the
sort
described
in
clauses
(a)
and
(b)
of
subparagraph
(iii.1)
were
for
purposes
of
bringing
into
production
a
“new
resource”,
that
is,
a
resource
from
which
there
was
not
previous
production
in
reasonable
commercial
quantities.
Implications
arising
from
the
history
of
relevant
legislative
provisions
Before
turning
to
these
issues
the
history
of
the
legislative
provisions
in
question
is
of
some
interest.
As
noted
in
paragraph
10
of
the
agreed
statement
of
facts,
effective
September
1,
1970,
a
three-year
tax
exemption
for
income
earned
was
granted
pursuant
to
then
subsection
83(5)
of
the
Act,
in
relation
to
the
development
of
the
then
new
Cardinal
River
surface
mine
developed
by
Cardinal
River
Coals
Ltd.
With
tax
reform
in
the
early
1970s
that
exemption,
applying
to
new
mines,
was
repealed
effective
December
31,
1973,
and
in
its
place
subparagraph
66.1
(6)(1
)(a)
was
enacted
in
1974,
including
subparagraph
(iii)
as
it
was
in
1979.
Exploration
expenses
described
within
that
subparagraph
may
be
written
off
at
100
per
cent
in
the
year
in
which
they
were
incurred.
Development
expenses
of
a
new
mine
following
1974
could
only
be
written
off
at
30
per
cent
per
annum
on
a
declining
balance
basis.
Then
in
1979,
with
effect
from
November
1978,
development
expenses
as
described
in
subparagraph
(iii.1)
were
included
as
"Canadian
exploration
expenses"
by
enactment
of
that
subparagraph,
bringing
those
expenses
within
arrangements
for
deduction
from
income
at
100
per
cent
of
the
expenses
in
the
year
in
which
they
were
incurred.
Whether
the
expenses
incurred
in
relation
to
the
CRC
underground
mine
are
classified,
as
the
plaintiff
claims,
as
Canadian
exploration
expenses
within
subparagraph
(iii)
or
subparagraph
(iii.1),
or,
as
the
Minister's
reassessment
determined,
as
costs
of
acquisition
of
depreciable
property
within
Class
12
of
Schedule
II
of
the
Regulations,
the
plaintiff
is
entitled
to
claim
the
expenses
as
deductions
from
revenue
at
the
rate
of
100
per
cent
in
calculating
income
for
the
year
in
which
the
expenses
were
incurred.
However,
if
they
are
classified
as
Canadian
exploration
expenses,
but
not
otherwise,
they
may
also
be
claimed
as
a
Cumulative
fund
against
which,
in
subsequent
years,
a
portion
may
be
claimed
as
allowances
against
income
otherwise
taxable.
In
short,
classification
as
Canadian
exploration
expenses
permits
claiming
the
expenses
twice,
fully
in
the
year
they
are
incurred,
and
in
subsequent
years
as
a
portion
of
cumulative
exploration
expenses.
The
fact
that
the
plaintiff
had
been
granted
an
exemption
from
tax
on
income
earned
in
the
first
three
years
of
operation
of
the
CRC
surface
mine,
commencing
in
1970,
under
the
former
provision
then
prevailing
for
tax
incentives,
was
not
included
as
a
factor
to
be
considered
in
the
amended
defence
filed
in
this
action.
Nevertheless,
counsel
for
the
defendant
urged
at
trial
that
it
is
relevant,
in
considering
whether
the
underground
mine
is
separate
and
apart
from
the
surface
operations,
that
the
plaintiff
had
already
received
a
three-year
holiday,
an
exemption
of
tax
on
income,
for
establishment
of
its
operations
at
the
mine
site.
The
plaintiff
urges
that
the
tax
exemption
granted
in
relation
to
the
opening
of
its
surface
mining
operations
is
irrelevant
to
the
question
of
whether
the
underground
mine
was
separate
from
its
surface
operations,
an
issue
which
depends
on
interpretation
and
application
of
subparagraph
(iii)
and
subparagraph
(iii.1)
as
these
read
in
1979.
I
agree
with
the
plaintiff's
position,
that
the
prior
exemption
in
relation
to
surface
mine
operations
is
not
relevant
to
determining
the
issues
here.
I
do
so
despite
brief
reference
in
Luscar's
application
for
that
exemption,
submitted
in
1967,
to
coal
on
the
property
which
was
recoverable
only
by
underground
mining.
In
an
eight
page
brief
that
outlines
the
project
then
under
consideration
for
surface
mining,
for
establishment
of
facilities
and
services
at
the
site,
if
a
substantial
market
in
Japan
could
be
established,
the
only
reference
to
underground
mining
is
the
following:
An
estimated
25,000,000
tons
of
coal
are
available
by
underground
mining
methods,
but
a
great
deal
of
testing
and
development
is
required
to
determine
whether
these
reserves
could
be
recovered
economically.
In
my
view,
that
brief
reference,
and
reference
to
potential
underground
reserves
in
correspondence
about
the
same
time
from
Luscar
to
its
then
proposed
joint
venturer
Consolidated,
does
not
establish
any
more
than
that
Luscar,
and
the
plaintiff
when
it
was
created,
were
aware
that
there
was
substantial
coal
within
the
leased
areas
that
was
not
recoverable
by
surface
mining.
Indeed,
Luscar
was
aware
of
this
as
a
result
of
its
earlier
operations
at
the
site
in
the
years
from
1921
to
1956
when
underground
mining
and,
in
later
years
of
that
period,
surface
mining
had
been
carried
on.
I
assume
that
the
plaintiff
was
aware,
in
a
literal
sense,
of
"the
existence
of
the
deeper
ore
body
(later
constituting
the
CRC
Underground
Mine)
from
deep
drilling
from
the
surface
prior
to
opening
of
the
CRC
Surface
Mine”
as
one
of
the
Minister's
assumptions,
(f)
above,
states.
Yet
I
do
not
consider,
for
the
evidence
does
not
support
such
a
finding,
that
it
then
knew
much
about
the
quality
of
the
coal,
or
the
dimensions
of
the
Jewel
Seam,
or
the
quantity
of
coal
that
would
be
recoverable
economically
by
underground
mining,
or
by
the
particular
underground
mine
in
question,
until
some
years
after
the
surface
mining
operations
were
underway.
Only
in
the
latter
part
of
the
1970s
decade,
when
the
prospects
of
further
expanding
markets
in
Japan
led
to
substantial
exploration
activity,
was
feasibility
planning
undertaken
for
underground
hydraulic
mining.
Paragraphs
15,
17
and
19
of
the
agreed
statement
of
acts
make
clear
that
a
preliminary
evaluation
of
two
potential
underground
mining
areas
was
completed
in
1978,
that
two
additional
potential
underground
mining
areas
were
identified
in
1979,
and
that
it
was
only
in
1980
that
feasibility
studies
concerning
utilization
of
an
hydraulic
mining
method
led
to
a
decision
to
commence
the
CRC
underground
mine
at
a
particular
location.
In
my
view,
neither
the
fact
that
Luscar
had
some
limited
knowledge
in
1967
of
coal
that
might
be
recovered
by
underground
mining,
the
economics
of
which
process
had
not
been
studied,
nor
the
fact
that
an
exemption
was
granted
under
the
former
subsection
83(5)
of
the
Act
for
income
earned
in
the
first
three
years
of
the
surface
mining
operations
at
the
Cardinal
River
property,
are
relevant
in
determining
whether
the
expenses
incurred
in
relation
to
the
CRC
underground
mine
are
properly
classified
within
subparagraph
(iii)
or
subparagraph
(iii.1).
The
legislative
provisions
in
issue:
subparagraphs
66.1
(6)(a)(iii)
and
66.1
(6)
(a)
(iii.1)
of
the
Act
The
provisions
of
the
Income
Tax
Act
in
issue
are
fully
set
out
in
the
agreed
statement
of
facts.
For
the
record
I
note
that
these
provisions
were
amended
in
1985,
but
the
changes
then
made
are
not
relevant
here
and
the
references
to
statutory
provisions
in
these
reasons
are
to
those
applicable
in
the
years
in
question.
These
are
to
be
construed
in
accord
with
the
general
principles
enunciated
by
Mr.
Justice
Estey
in
Stubart
Investments
Ltd.
v.
The
Queen,
[1984]
1
S.C.R.
536,
[1984]
C.T.C.
294,
84
D.T.C.
6305,
at
page
316
(D.T.C.
6323),
that
is,
the
statutory
language
is
to
be
interpreted
in
the
context
of
the
statute
as
a
whole,
and,
in
the
words
of
E.
A.
Driedger
in
Construction
of
Statutes
(2nd
ed.,
1983),
at
page
83:
.
.
.
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
.
...
The
use
of
terminology
used
in
the
industry
may
be
significant
where
the
Income
Tax
Act
does
not
itself
define
words
that
it
uses.
In
Nova,
an
Alberta
Corp.
v.
The
Queen,
[1988]
2
C.T.C.
167,
88
D.T.C.
6386,
at
page
174
(D.T.C.
6390),
Mr.
Justice
Urie,
for
the
Court
of
Appeal
said
in
relation
to
the
word
"pipeline",
used
in
a
schedule
to
a
regulation,
a
word
he
described
as
one
in
"fairly
common
usage":
.
.
.
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
.
.
.
.
The
approach
set
out
by
Mr.
Justice
Urie,
relying
upon
the
meaning
of
words
used
in
the
Act
as
understood
by
those
in
the
industry
affected,
explains
the
role
of
expert
witnesses
in
this
case,
particularly
in
relation
to
the
word
"mine"
in
subparagraph
(iii),
and
in
relation
to
the
words"
mineral
resource"
in
subparagraph
(iii.1).
The
former
is
not
defined
in
the
Act,
but
the
latter
is
defined
in
subsection
248(1),
in
part,
as
including
"a
coal
deposit”.
Before
considering
the
evidence,
presented
by
expert
witnesses
and
otherwise,
an
examination
of
the
two
provisions
in
issue
is
warranted,
to
consider
whether,
as
the
defendant
urges,
they
import
different
tests
or
definitions,
and
if
so,
what
the
differences
are.
In
argument,
counsel
for
Her
Majesty
urged
that
the
test
under
subparagraph
(iii)
was
whether
the
expenses
were
incurred
on
a
new
mine,
that
is,
that
they
not
be
in
relation
to
a
mine,
or
to
a
potential
or
existing
extension
of
a
mine,
that
has
already
come
into
production
in
reasonable
commercial
quantities.
For
expenses
to
be
included
under
the
other
provision,
subparagraph
(iii.1),
it
was
urged
that
these
must
be
incurred
in
bringing
into
production
a
new
mineral
resource,
that
is,
one
that
has
not
earlier
come
into
production
in
reasonable
commercial
quantities.
This
distinction
was
not
really
opposed
by
the
plaintiff
who
argued
that
all
of
the
expenses
here
incurred
were
made
either
in
assessing
the
Jewel
Seam
to
determine
possible.
sites
for
underground
hydraulic
mining
as
a
mine
separate
from
surface
mining
operations,
or
in
development
of
the
underground
mine,
once
the
location
had
been
determined
and
a
provincial
permit
for
its
development
was
obtained.
In
the
plaintiff's
view
the
underground
mine
was
a
new
mine
within
subparagraph
(iii)
and
the
resource
it
was
developed
to
exploit,
while
part
of
the
Jewel
Seam
mined
by
surface
operations,
was
a
new
resource,
a
new
coal
deposit
within
subparagraph
(iii.1),
since
it
was
not
an
economic
resource
or
deposit
recoverable
by
further
surface
operations.
Without
determining
for
the
moment
either
position
advanced
by
the
plaintiff
in
regard
to
the
application
of
the
statutory
provisions,
I
am
satisfied
that
the
two
provisions
each
provide
a
separate
test
or
definition
for
Canadian
exploration
expense.
Yet
in
my
view
the
two
definitions
do
not
relate
solely
to
whether
expenses
are
incurred
in
relation
to
a“
new
mine”
or
to
a"
new
resource”.
While
another
aspect
was
not
dealt
with
in
argument,
perhaps
because
it
is
obvious
from
the
statutory
language,
it
seems
clear,
in
my
view,
that
subparagraph
(iii)
and
subparagraph
(iii.1)
also
provide
for
different
sorts
of
expenditures,
defined
by
the
purposes
for
which
they
are
incurred,
in
two
different
phases
in
the
exploration
for
and
development
of
mining
projects.
Thus,
expenses
included
under
subparagraph
(iii)
are
those
incurred
"for
the
purpose
of
determining
the
existence,
location,
extent
or
quality
of
a
mineral
resource”,
including
a
coal
deposit,
in
Canada,
but
not
including
any
expense
related
to
a
mine,
or
an
extension
thereof,
that
has
come
into
production
in
reasonable
commercial
quantities.
Certain
types
of
expenditure
are
set
out
in
clauses
(A)
to
(D)
as
illustrations,
and
by
the
descriptive
words
used
in
these
(i.e.,
"prospecting
.
.
.
geological,
geophysical
or
geochemical
surveys
.
.
.
drilling
.
.
.
or
trenching,
digging
test
pits
and
preliminary
sampling"),
the
general
purpose
already
set
out
is
emphasized.
In
my
view,
this
provision,
subparagraph
(iii),
includes
expenses
incurred
in
preliminary
activities
undertaken
in
assessing
whether
there
exists
an
ore
body
or
a
coal
deposit
which
will
warrant
in
economic
terms
the
development
of
a
mine
to
recover
marketable
minerals
or
coal.
They
need
not
be
related
to
a“
new
mine"
in
the
sense
of
leading
to
development
of
a
new
mine,
for
that
may
ultimately
prove
not
to
be
feasible,
but
they
may
not
be
related
to
an
existing
mine,
or
an
extension
of
a
mine,
that
already
has
come
into
production
in
reasonable
commercial
quantities.
Expenses
included
under
subparagraph
(iii.1),
in
my
view,
are
those
incurred
after
the
preliminary
exploration
work
is
concluded
and
a
decision
has
been
made
to
proceed
with
a
mining
project.
The
expenses
are
those
relating
to
development
of
the
project
"for
the
purpose
of
bringing
a
mineral
resource
in
Canada
into
production
and
incurred
prior
to
the
commencement
of
production
from
the
resource
in
reasonable
commercial
quantities".
The
general
introductory
words
of
the
subparagraph
appear
broad
enough
to
include
all
expenses
incurred
for
the
purpose
set
out,
but
preliminary
exploratory
expenses
are
excluded
from
subparagraph
(iii.1)
by
their
separate
definition
in
subparagraph
(iii).
Moreover,
the
examples
here
included
in
subparagraph
(iii.1),
"clearing,
removing
overburden
and
stripping”
in
clause
(a)
appear
to
relate
to
surface
mining
projects,
and
“sinking
a
mine
shaft,
constructing
an
adit
or
other
underground
entry"
in
clause
(b)
appear
to
relate
to
underground
mining,
activities
undertaken
after
a
decision
to
exploit
a
resource
or
deposit,
using
particular
methodology,
where
the
resource
has
been
established.
Expenses
incurred
for
these
purposes,"incurred
prior
to
the
commencement
of
production
from
the
resource
in
reasonable
commercial
quantities",
are
Canadian
exploration
expenses
within
subparagraph
(iii.1).
The
distinction
may
have
no
effect
upon
a
taxpayer's
claim
to
include
as
Canadian
exploration
expenses
all
the
preliminary
expenses
incurred
until
a
decision
is
made
to
initiate
a
new
mining
project,
and
all
development
expenses
of
that
project
where
a
new
mine
is
sought
to
be
developed
in
a
resource
that
has
not
earlier
yielded
production
in
reasonable
commercial
quantities.
Where,
however,
the
expenses
incurred
may
be
reasonably
considered
to
relate
to
a
mine,
or
an
extension
thereof,
that
has
come
into
production
in
reasonable
commercial
quantities,
then
preliminary
expenses
incurred
in
assessing
the
mineral
resource
may
not
be
claimed
as
Canadian
exploration
expenses.
Where
development
expenses
of
a
mining
project,
incurred
after
the
decision
to
establish
new
mine
workings,
are
determined
to
be
for
the
purpose
of
bringing
into
production
a
mineral
resource
that
has
already
yielded
production
in
reasonable
commercial
quantities,
then
those
expenses
may
not
be
claimed
as
Canadian
exploration
expenses.
Theoretically
at
least,
it
is
possible
that
in
the
circumstances
of
a
given
case,
particular
expenses
incurred
in
a
mining
project
may
be
allowable
as
Canadian
exploration
expense
under
one
or
other
of
subparagraph
(iii)
and
subparagraph
(iii.1),
or
under
neither
one.
In
this
case,
preliminary
expenses
incurred
in
assessing
the
Jewel
Seam
for
purposes
of
the
underground
mine
may
only
be
claimed
as
Canadian
exploration
expenses
if
the
underground
mine
project
is
separate
and
apart
from
and
not
an
extension
of
the
surface
mining
operations.
Further,
the
expenses
incurred
in
the
development
of
the
underground
mine,
probably
the
larger
portion
of
expenditures
here
in
issue,
can
only
be
claimed
as
Canadian
exploration
expenses
if
the
resource
the
underground
mine
was
designed
to
bring
into
production
is
determined
to
be
a
resource
that
had
not
earlier
yielded
production
in
reasonable
commercial
quantities
from
the
surface
mining
operations.
Witnesses
at
trial
In
addition
to
the
agreed
statement
of
facts
substantial
evidence
was
adduced
at
trial,
much
of
it
from
expert
witnesses.
For
the
plaintiff,
testimony
was
elicited
from
Mr.
Gordon
D.
Ulrich,
President
of
Luscar,
Ltd.
and
an
officer
of
the
plaintiff
corporation,
which
is
associated
with
Luscar
and
with
Forestburg
Collieries,
all
three
companies
being
controlled
by
the
same
persons.
The
three
companies
collectively
have
a
50
per
cent
interest
in
the
operations
of
Cardinal
River
Coals
Ltd.
and
that
interest
is
treated
as
a
single
interest
voted
by
Luscar
in
the
joint
venture
with
Consolidated
that
is
carried
on
under
the
name
of
Cardinal
River
Coals
Ltd.
Within
the
latter
corporation
major
decisions,
including
capital
expenditures,
major
planning
and
sales,
are
determined
by
joint
decisions
of
Luscar
and
Consolidated,
while
day-to-day
operating
decisions
are
left
to
the
general
manager
of
Cardinal
River
Coals
Ltd.
Mr.
Ulrich
is
a
professional
engineer
registered
in
both
British
Columbia,
where
he
holds
a
geological
specialty,
and
in
Alberta.
He
has
more
than
25
years'
experience
in
the
mining
industry
and
since
1975
he
has
been
engaged
entirely
in
the
coal
industry.
He
joined
Luscar
Ltd.
as
a
financial
analyst
in
1978
and
in
September
of
that
year
was
named
manager
of
the
corporate
planning
department.
In
1981
he
was
named
vice-president,
finance
and
planning,
and
in
1990
was
appointed
president
and
a
director
of
Luscar.
He
was
thoroughly
familiar
with
the
CRC
underground
mine
from
his
personal
involvement
with
all
phases
of
its
planning
and
development.
Other
evidence
for
the
plaintiff
was
adduced
at
trial
from
three
expert
witnesses.
Neil
J.
Duncan,
a
professional
engineer
registered
in
Manitoba,
in
Alberta
where
he
also
had
acquired
certification
as
a
mine
manager
for
underground
mines
and
for
surface
mines,
and
in
British
Columbia
where
he
had
acquired
certification
as
a
coal
mine
manager.
Mr.
Duncan,
a
qualified
mining
engineer
in
the
United
Kingdom
before
coming
to
Canada
in
1968,
worked
in
Western
Canadian
coal
mining
projects
until
1972
when
he
joined
the
Alberta
Energy
Resources
Conservation
Board
as
Senior
Mining
Engineer,
responsible
for
reviewing
all
coal
mine
development
applications
including
those
relating
to
the
CRC
underground
hydraulic
mine
here
in
question.
He
left
that
Board
in
August
1988
and
then
formed
his
own
consulting
practice
concerned
with
coal
mining,
feasibility
studies
and
general
engineering.
He
was
accepted
as
an
expert
mining
engineer
with
particular
expertise
in
coal
mining,
and
as
an
expert
in
relation
to
government
regulation
of
coal
mining
in
Alberta,
partie-
ularly
in
regard
to
safety
and
conservation,
for
the
years
that
he
served
with
the
Alberta
regulatory
board.
A
second
expert
witness
for
the
plaintiff
was
Dr.
Jerry
M.
Whiting,
Chair
of
the
Department
of
Mining,
Metallurgical
and
Petroleum
Engineering
at
the
University
of
Alberta
where
he
has
also
been
Professor
of
Mining
Engineering
since
1983.
Dr.
Whiting
joined
the
university
after
nearly
ten
years
as
a
consulting
engineer
in
relation
to
resources,
exploration,
mining,
energy
and
mineral
exploration
and
related
works,
and
for
six
of
those
years
he
was
president
of
an
independent
consulting
firm
in
the
United
States
where
most
of
his
professional
services
had
been
based
before
he
joined
the
University
of
Alberta
in
1983.
He
was
accepted
as
an
expert
in
mining
engineering
and
as
a
mineral
economist
with
particular
experience
in
assessing
the
economies
of
the
extraction
of
coal.
The
final
expert
called
by
the
plaintiff
was
Landy
A.
Stinnett,
a
consulting
engineer
of
Lakewood,
Colorado,
offering
consulting
services
for
the
past
12
years,
primarily
in
geological
and
mining
engineering,
much
of
it
concerning
coal.
Prior
to
that
he
had
worked
for
major
producing
firms
for
about
12
years,
much
of
that
service
relating
to
coal
production.
Throughout
his
career
he
had
been
involved
in
a
variety
of
projects,
tasks
and
roles
relating
to
virtually
all
aspects
of
mining
for
coal.
He
was
accepted
as
an
expert
in
geological
engineering
as
well
as
a
mining
engineer
with
particular
experience
in
the
coal
industry.
On
behalf
of
the
defendant,
two
expert
witnesses
were
called.
Mr.
Richard
T.
Marshall,
now
a
consultant,
of
Calgary,
formerly
president,
1983-90,
of
the
Coal
Association
of
Canada,
from
1978-82
General
Manager,
Coal,
of
BP
Canada
Ltd.,
responsible
for
overall
management
of
BP's
interests
in
coal
and
potash
in
Canada,
and
from
1965-78
with
Canadian
Pacific
Companies
as
Manager
Special
Projects,
Fording
Coal
Ltd.,
Assistant
General
Manager
of
CanPac
Minerals
Ltd.,
and
as
Manager,
Engineering
and
Production,
and
formerly
Chief
Engineer,
Mining
Division
of
Canadian
Pacific
Oil
&
Gas
Ltd.,
and
from
1954-65
in
various
capacities
with
Western
Minerals
Ltd.
While
not
a
member
of
the
professional
association
of
engineers,
Mr.
Marshall
was
accepted
as
a
resource
management
consultant
with
special
expertise
in
the
area
of
coal
mining.
The
last
expert
witness,
Dr.
R.
Marc
Bustin,
Professor
of
Geological
Sciences
at
the
University
of
British
Columbia
was
accepted
as
a
geologist
with
special
expertise
in
coal
geology.
Dr.
Bustin's
research
and
his
contributions
to
geological
literature,
especially
concerning
coal
resources,
have
been
notable
and
at
the
time
of
trial
he
was
working
to
complete
a
glossary
on
Canadian
coal,
a
joint
project
of
industry,
national
agencies
and
the
academic
community
designed
to
lead
to
agreement
on
terminology
used
in
relation
to
coal
characteristics.
In
addition,
he
had
completed
portions
concerning
coal
resources
of
Western
Canada
and
of
the
Arctic
for
a
major
new
atlas
and
for
a
North
American
geological
treatise.
Much
of
the
experts'
testimony
concerned
the
use
of
terminology,
particularly
of
the
words
mine”
and“
resource",
within
the
coal
mining
industry,
in
light
of
the
terms
of
the
subparagraphs
of
the
Income
Tax
Act
here
in
question.
I
noted
at
trial
that
I
did
not
accept
the
opinions
of
any
of
the
experts
so
far
as
these
concerned
the
interpretation
of
the
Income
Tax
Act.
Determination
of
that
interpretation
is
a
task
for
the
Court,
not
for
the
expert
witnesses,
but
the
latter
may
be,
and
in
this
case
were,
helpful
in
assessing
how
words
found
in
the
Act
may
be
used
in
the
industry,
and
in
the
opinions
offered
about
the
interrelations
of
surface
and
underground
mining
operations
of
Cardinal
River
Coals
Ltd.
and
about
the
interrelation
of
the
coal
reserves
planned
for
exploitation
by
surface
and
underground
operations.
Was
the
CRC
Underground
Mine
related
to
the
surface
mine
operations
within
subparagraph
(iii)?
There
is
no
question
that
substantial
expenditures
were
incurred
by
the
plaintiff
in
preliminary
exploration,
surveying,
drilling
and
preliminary
sampling
concerning
the
Jewel
Seam
in
the
late
1970s
which
led
ultimately
to
the
decision
in
1980
to
proceed
with
the
underground
mine
by
means
of
tunnels
or
slopes
commencing
at
portals
located
at
No
Name
Creek.
This
work
and
the
planning
for
the
underground
mine
is
summarized
in
paragraphs
15
to
22
of
the
agreed
statement
of
facts.
Significant
stages
in
this
process
included
the
preliminary
evaluation
of
potential
underground
mining
areas
by
1978
and
1979,
the
decision
in
the
latter
year
or
early
in
1980
to
select
as
the
most
promising
site
for
developing
an
underground
mine
using
hydraulic
mining
technology,
then
in
use
in
only
one
other
coal
mine
in
Canada,
to
mine
coal
from
the
syncline
of
the
Jewel
Seam
as
it
dipped
downward
beyond
the
stripping
limit
of
the
51-B-2
surface
pit.
There
it
was
estimated
the
coal
seam
could
yield
more
than
20
million
tons
of
coal
of
some
38
million
R.L.T.
estimated
in
place,
if
an
hydraulic
mine
could
be
developed.
Once
that
area
had
been
selected,
feasibility
studies
for
the
underground
mine
were
undertaken
and
completed
in
May,
July
and
August
of
1980.
The
last
of
these
provided
the
basis
on
which
the
joint
venture
operators
applied
on
September
28,
1980
to
the
Alberta
Energy
Resources
Conservation
Board
for
a
permit
to
develop
and
a
licence
to
operate
the
underground
hydraulic
mine.
The
necessary
permit
was
granted
in
January
1981
and
in
December
1981
the
necessary
licence
to
operate
the
mine
was
granted
subject
to
certain
conditions
on
which
further
information
was
required.
Provincial
approval
to
commence
site
preparation
for
the
proposed
mine
portals
at
No
Name
Creek
was
granted
in
October
1980
and
work
at
that
site
on
the
surface
was
then
initiated.
From
that
time,
in
my
view,
expenses
of
the
underground
mine
project
were
in
relation
to
the
development
of
the
mine,
allowable
as
Canadian
exploration
expenses
if
they
qualify
under
subparagraph
(iii.l).
Expenses
of
the
project
until
that
time
are
said
by
the
plaintiff
to
be
Canadian
exploration
expenses
under
subparagraph
(iii),
incurred
in
relation
to
a
new
mine,
not,
as
the
defendant
contends,
in
relation
to
a
mine
or
an
extension
of
a
mine
that
had
already
come
into
production
in
reasonable
commercial
quantities.
In
the
plaintiff's
view
the
underground
mine
was
separate
and
distinct
from,
and
was
not
merely
an
extension
of,
the
surface
mine.
Counsel
for
the
parties
referred
to
judicial
decisions
dealing
with
the
question
of
what
constituted
a
"mine"
within
the
meaning
of
the
former
subsection
83(5)
of
the
Act.
It
may
be
recalled
that
it
was
under
that
provision
that
CRC
had
earlier
enjoyed
a
three-year
exemption
from
income
for
tax
purposes
of
income
earned
on
production
from
its
open
pit
surface
mining
operations.
That
provision
was
83.
(5)
Subject
to
prescribed
conditions,
there
shall
not
be
included
in
computing
the
income
of
a
corporation
income
derived
from
the
operation
of
a
mine
during
the
period
of
36
months
commencing
with
the
day
on
which
the
mine
came
into
production.
That
provision
or
its
predecessor
was
dealt
with
in
decisions
of
the
Supreme
Court
of
Canada
in
North
Bay
Mica
Co.
v.
M.N.R.,
[1958]
S.C.R.
597,
[1958]
C.T.C.
208,
58
D.T.C.
1151,
in
M.N.R.
v.
MacLean
Mining
Co.,
[1970]
S.C.R.
877,
[1970]
C.T.C.
264,
70
D.T.C.
6199,
and
in
M.N.R.
v.
Bethlehem
Copper
Corp.,
[1975]
2
S.C.R.
790,
[1974]
C.T.C.
707,
74
D.T.C.
6520,
and
by
this
Court
in
Falconbridge
Copper
Ltd.
v.
The
Queen,
[1975]
C.T.C.
561,
75
D.T.C.
5394
(F.C.T.D.),
appeal
dismissed,
[1979],
C.T.C.
307,
79
D.T.C.
5227
(F.C.A.).
In
the
North
Bay
Mica
case
the
Court
was
concerned
with
the
application
of
then
subsections
74(1)
and
(2)
of
the
Act,
the
predecessor
in
slightly
different
form
but
substantially
similar
to
the
later
subsections
83(5)
and
(6),
in
relation
to
a
mine
for
production
of
mica
from
a
property
acquired
in
1949
which
had
earlier
been
mined
by
another
who
had
ceased
operations
there
four
years
earlier.
After
acquisition
of
the
property
the
taxpayer
developed
a
project
to
mine
mica
at
a
location
in
close
proximity
to
one
mined
earlier
by
the
previous
owner
of
mining
rights
who
was
not
aware
of
the
ore
which
was
later
exploited
by
the
taxpayer.
Mr.
Justice
Cartwright
for
the
majority
of
the
Court,
held
that
the
mine
qualified
for
exemption
of
income
under
the
Act;
it
was
implicitly
not
the
same
mine
as
had
come
into
production
prior
to
1945
because
the
first
company
had
abandoned
its
mine
and
removed
supporting
buildings
so
that
the
property
was
no
longer
a
mine
when
it
was
acquired
by
the
taxpayer.
In
the
course
of
his
reasons
Cartwright,
J.
said
at
page
601
(C.T.C.
212,
D.T.C.
1152):
For
the
appellant
it
is
contended
that
the
word
mine”
as
used
in
clause
(b)
of
subsection
74(1)
means
not
"a
portion
of
the
earth
containing
mineral
deposits"
but
rather
“a
mining
concern
taken
as
a
whole,
comprising
mineral
deposits,
workings,
equipment
and
machinery,
capable
of
producing
ore".
.
.
.
incline
to
the
view
that
this
contention
is
sound;
but
be
that
as
it
may,
the
facts
appear
to
me
to
bring
the
claim
of
the
appellant
within
the
plain
words
of
the
section.
Construction
of
a
mine
thereafter,
recovering
ore
from
a
site
unknown
to
the
first
operator
on
the
property,
brought
the
work
within
the
meaning
of
"a
mine
.
.
.
that
came
into
production
of
ore
during
the
period
1946
to
1954
inclusive”
as
the
statutory
provision
then
specified
and
the
taxpayer
was
entitled
to
exemption
from
income
under
the
Act.
In
the
MacLean
Mining
case
the
Court
held
that
subsection
83(5)
of
the
Act
did
not
apply,
to
permit
an
exemption
from
earnings
from
a
mine
project
developed
on
a
property
where
the
taxpayer
had
a
number
of
mine
shafts
and
open
pit
operations
for
mining
what
were
apparently
separate
ore
bodies.
The
taxpayer
had
extended
one
mine
shaft,
the
Rothermere,
well
beyond
its
planned
depth
and
had
driven
an
exploratory
heading
from
the
deepened
shaft
to
the
new
ore
body
before
sinking
a
new
shaft
at
the
latter
site,
and
thereafter
the
Rothermere
shaft
continued
to
be
used
for
access
by
miners
to
the
working
places
in
the
new
ore
body,
to
supply
compressed
air,
ventilation
and
water
to,
and
pumping
out
of
water
from,
the
new
workings.
Mr.
Justice
Pigeon,
speaking
for
the
Court,
found
that
the
new
ore
body
was
not
developed
as
a
separate
mine.
He
said,
at
pages
881-82
(C.T.C.
267-68,
D.T.C.
6201):
It
may
be
that
the
MacLean
ore
body,
being
completely
distinct
from
the
others
and
separated
from
the
nearest
other,
the
Rothermere,
by
a
substantial
distance
of
over
1,000
feet,
could
have
been
developed
and
operated
as
a
distinct
mine.
In
my
view,
it
is
clear
that
this
is
not
what
happened
in
fact.
This
ore
body
was
developed
as
an
integral
part
of
a
mining
operation
including
the
Rothermere.
Not
only
did
its
development
proceed
as
an
expansion
of
that
underground
operation
towards
the
other
ore
body
but
it
was
not
designed
to
be
operated
otherwise
than
as
a
unit
with
the
Rothermere.
Some
essential
facilities
without
which
the
MacLean
ore
body
cannot
be
worked
at
all
are
provided
by
the
Rothermere
workings,
such
as
ventilation.
.
.
.
There
is
also
the
fact
that
ore
is
not
carried
to
the
surface
until
it
reaches
the
Lucky
Strike
shaft
at
the
end
of
an
underground
haulage
way
and
is
then
treated
in
a
common
mill
after
being
mixed
with
the
ore
from
the
other
pits.
However,
these
factors
may
not
be
decisive.
Mining
itself
is
complete
by
the
production
and
hoisting
of
the
ore
and
one
can
well
conceive
of
a
single
mill
serving
several
mines.
The
building
of
an
underground
haulage
way
rather
than
a
surface
road
or
railway
as
means
of
transporting
the
ore
from
a
mine
to
a
common
mill
may
possibly
make
no
difference.
Those
questions
are
therefore
left
open.
What
I
find
decisive
against
the
view
that
the
MacLean
workings
are
a
separate
mine
is
the
fact
that
those
workings
were
developed
from
the
Rothermere
workings
which
were
substantially
altered
for
the
purpose
of
developing
the
MacLean
ore
body
and
of
exploiting
it
for
producing
ore.
Some
800
feet
of
the
Rothermere
shaft
and
the
whole
of
the
exploratory
heading
were
dug
for
that
sole
purpose.
Those
parts
of
the
Rothermere
workings
are
really
integral
parts
of
the
MacLean
workings
without
which
the
latter
could
not
be
operated
and
would
not
be
producing
ore.
In
Bethlehem
Copper
Mr.
Justice
Martland
for
the
Court
held
that
subsection
83(5)
was
applicable
to
a
surface
mine
developed
to
exploit
a
second
ore
body
after
a
serious
slide
had
halted
work
at
a
mine,
previously
granted
an
exemption
under
subsection
83(5),
even
though
the
second
ore
body
was
known
when
the
first
mine
operations
were
initiated,
and
despite
the
fact
that
ore
from
the
later
second
mine
was
processed
at
the
same
mill
erected
on
the
surface
at
the
site
when
the
first
mining
operation
was
commenced.
The
proximity
of
the
two
ore
bodies,
in
this
case
approximately
1,000
feet,
and
the
use
of
the
same
processing
mill,
though
modified
to
deal
with
a
different
quality,
a
lower
grade,
of
ore
from
the
second
ore
body,
did
not
mean
that
the
second
and
first
operations
were
one
or
that
the
second
was
an
extension
of
the
first.
They
utilized
separate
facilities
and
works,
different
techniques
were
used
in
the
two
mines,
and
it
was
not
feasible
to
work
the
two
ore
bodies,
which
differed
significantly
in
their
composition,
as
one,
or
to
extend
the
operations
of
the
first.
Martland,
J.
defined
a"
mine"
within
subsection
83(5)
in
the
following
terms,
at
pages
803-04
(C.T.C.
714-15,
D.T.C.
6525):
In
my
opinion
there
is
"a
mine”
within
the
meaning
of
subsection
83(5)
if
there
is
a
body
of
ore
together
with
the
workings,
equipment
and
machinery
capable
of
producing
it.
The
Jersey
was
not
a
mine
merely
because
of
the
existence
of
a
body
of
ore,
separate
from
the
East
Jersey
ore
body.
It
would
not
have
become
a
separate
mine
if
the
Jersey
ore
had
been
extracted
as
a
result
of
the
further
development
of
the
East
Jersey
mine.
But
it
became
a
mine
when
its
separate
body
of
ore
commenced
to
be
extracted
by
means
of
its
separate
and
distinct
extraction
facilities.
The
fact
that
it
was
operated
by
the
same
Company
which
had
operated
East
Jersey
does
not
preclude
a
claim
under
s.
83(5)
in
respect
of
it.
.
.
.
The
fact
that
the
Company
used
the
same
mill
for
processing
the
Jersey
ore
as
it
had
used
for
the
East
Jersey
ore
does
not
affect
the
position.
As
has
already
been
noted,
the
mining
process
is
completed
by
the
production
of
the
ore.
.
.
.
In
Falconbridge
Copper,
Mr.
Justice
Heald
of
this
Court
(as
he
then
was)
held
that
subsection
83(5)
was
not
applicable
in
the
case
of
a
mine
which,
though
constructed
to
mine
a
separate
ore
body
from
one
also
mined
by
the
taxpayer
approximately
one
half
mile
away,
in
circumstances
where
the
later
mining
project
was
undertaken
in
a
manner
that
he
found
on
the
evidence
to
be
an
extension
of
the
first
mine.
The
two
were
interconnected
at
three
levels
underground;
essential
services
were
provided
for
the
later
project
through
the
original
mine
shafts;
ore,
which
was
essentially
the
same
in
the
two
ore
bodies
was
brought
together
from
both
ore
bodies,
and
partially
crushed
underground
and
then
lifted,
and
waste
water
was
pumped,
through
the
mine
shafts
at
the
original
workings.
Working
crews
were
to
some
extent
interchangeable.
The
operation
of
the
later
workings
was
substantially
dependent
upon
use
of
facilities
and
services
of
the
first
mine
workings,
and
the
later
workings
were
not
a
separate
mine.
The
jurisprudence
is
helpful
in
suggesting
factors
which
might
by
analogy
be
considered
in
determining
whether
particular
mine
workings
constitute
a
mine
separate
from
an
existing
mine
that
has
already
come
into
production
in
reasonable
commercial
quantities.
Factors
which
the
defendant
submits
in
this
case
are
supportive
of
the
conclusion
that
the
expenses
here
in
question
were
related
to
an
extension
of
an
existing
mine
include
the
following:
1.
The
location
of
the
coal
to
be
mined
by
the
underground
mine
was
in
the
Jewel
Seam
as
it
dipped
in
a
syncline
southeast
from
the
limit
planned
for
recovery
of
coal
by
surface
mining
at
the
51-B-2
open
pit.
The
coal
to
be
mined
was
within
the
coal
leases
already
mined
by
several
open
pit
operations,
for
which
an
exemption
from
tax
of
income
earned
had
already
been
granted
under
subsection
83(5).
As
I
have
noted
the
last
of
these
factors,
the
exemption
previously
granted,
is
not
relevant
to
the
application
of
subparagraph
(iii),
in
my
view.
2.
The
underground
project
was
undertaken
by
the
same
joint
venture
operation
as
was
already
in
substantial
commercial
production
by
surface
mining
in
a
number
of
open
pit
operations
exploiting
the
Jewel
Seam,
and
without
any
new
agreement
relating
to
the
underground
project.
The
defendant
urged
that
ownership
of
the
resource
is
an
important
factor
in
assessing
whether
expenses
are
incurred
in
relation
to
an
existing
mine
or
a
new
mine.
I
am
not
persuaded
that
it
is
necessarily
an
important
factor
in
the
application
of
the
statutory
provisions
in
question.
3.
The
fact
that
it
was
the
same
coal
seam,
continuing
in
a
syncline,
for
both
the
open
pit
and
the
planned
underground
operations,
meant
that
CRC
relied
in
part
on
information
and
observations
from
its
open
pit
operations
in
inferring
information
about
the
quality
of
coal,
the
dimensions
of
the
seam,
its
slope
and
the
quality
of
ground
conditions
above
and
below
the
seam
which
were
important
in
planning
access
by
underground
tunnels.
Admittedly,
such
information
was
helpful,
but
by
no
means
sufficient
without
the
substantial
drilling
operations
to
further
explore
the
coal
deposit
in
the
area
where
underground
operations
were
ultimately
planned.
4.
Surface
facilities
supportive
of
CRC's
operations
at
the
site,
including
those
set
out
in
paragraph
21
of
the
agreed
statement
of
facts,
were
to
be
utilized
in
both
the
surface
and
underground
operations.
These
included
the
preparation
plant,
which
had
been
substantially
expanded
and
almost
doubled
in
capacity
in
1979,
and
the
associated
clean
coal
storage,
coal
silo
and
settling
pond,
the
railspur
ana
loadout
facilities
and
others,
including
CRC's
substantial
facilities
to
support
its
surface
operations.
However,
in
my
view,
none
of
the
facilities
there
referred
to,
which
I
would
describe
as
general
infrastructure
of
the
company’s
operations,
can
be
any
more
directly
related
to
the
lifting
of
coal
from
the
underground
than
to
the
removal
of
coal
from
any
of
the
particular
surface
pits
at
the
property.
In
the
words
of
Pigeon,
J.
in
MacLean
Mining,
quoted
earlier,
"Mining
itself
is
complete
by
the
production
and
hoisting
of
the
ore
and
one
can
well
conceive
of
a
single
mill
serving
several
mines".
The
latter
phrase,
in
my
view,
is
equally
referable
to
all
of
the
general
infrastructure
supporting
a
mining
operation,
which
is
not
in
itself
an
integral
part
of
the
process
for
production
and
lifting
of
coal.
5.
Plans
for
the
underground
mine
from
the
feasibility
study
of
August
1980,
up
to
and
including
the
final
revised
plan
dated
August
1984
used
for
budgeting
purposes,
included
provision
for
access
to
the
underground
by
means
of
portals
and
tunnels
from
the
base
of
the
high
wall
of
the
51-B-2
open
pit.
These
plans
were
heavily
relied
on
by
Mr.
Marshall
and
by
the
defendant
in
argument
that
the
underground
mine
was
an
extension
of
the
mine
from
the
51-B-2
open
pit.
The
last
of
these
factors
warrants
brief
review.
The
proposal
to
provide
access
to
the
underground
mine
from
portals
at
the
51-B-2
open
pit
first
appears
in
the
Underground
Mine
Feasibility
Study
of
August
1980
which
became
the
basis
for
the
submission
by
CRC
to
the
provincial
board
in
September
of
that
year.
The
proposal
is
included
in
the
submission
then
made
to
the
Board.
Mr.
Ulrich,
in
his
testimony
for
the
plaintiff,
indicated
that
at
that
stage
the
proposal
for
portals
from
the
open
pit
was
designed
to
facilitate
rapid
development
of
the
underground
mine
by
providing
a
second
access
way
through
portals
and
tunnelling
in
what
would
otherwise
have
been
a
200
to
300
foot
barrier
left
in
place
between
the
workings
of
the
open
pit
and
the
underground.
The
area
in
the
seam
closest
to
the
open
pit
would
have
been
the
first
mined
and
by
developing
that
area
from
portals
in
the
open
pit,
while
proceeding
to
develop
the
main
access
from
the
other
direction,
from
tunnels
commencing
at
No
Name
Creek,
would
have
facilitated
more
rapid
development
of
the
underground
workings.
At
some
later
stages
proposals
were
considered
within
CRC
for
utilizing
portals
from
the
open
pit
as
a
principal
means
of
access
for
extraction
of
the
underground
coal,
a
concept
first
abandoned
with
the
decision
to
proceed
from
tunnels
at
No
Name
Creek,
but
later
revived
and
reflected
in
the
September
1982
mine
plan
document
when,
because
of
financial
uncertainties,
it
appeared
that
the
original
plans
for
hydraulic
mining
might
have
to
be
abandoned.
At
a
still
later
stage,
in
the
final
plan
of
August
1984,
access
from
the
51-B-2
open
pit
was
still
included,
but
then
primarily
as
a
means
for
ventilation
of
the
early
underground
workings,
were
the
mine
to
proceed.
In
1981
culverts
were
actually
purchased
by
CRC
for
use
as
portal
entry
installations
for
the
site
at
the
51-B-2
open
pit,
though
they
were
never
installed
and
budget
provisions
for
entries
from
the
open
pit
were
struck
out
at
the
end
of
1982.
Throughout
its
dealings
with
the
Alberta
Board
until
abandonment
of
the
project,
CRC
continued
periodic
reference
to
the
possible
provision
of
access
from
the
51-B-2
pit.
Despite
the
evidence
of
continuing
interest
in
entry
to
the
underground
from
that
open
pit,
Mr.
Ulrich
testified
that
the
joint
venture
had
never
formally
approved
that
an
entry
be
made
from
the
open
pit,
and
that
such
an
entry
had
never
been
approved
by
the
Alberta
Board.
The
permit
granted
on
January
21,
1981
by
that
Board
makes
no
specific
reference
to
this
matter
though
it
did
have
conditions,
including
a
requirement
for
a
detailed
mining
plan
to
be
submitted
in
the
third
quarter
of
each
calendar
year
and
a
report
on
the
previous
year's
operation
to
be
submitted
by
February
15
in
each
year,
and
it
reserved
to
the
Board
power
to
cancel
or
suspend
the
permit
or
to
amend
it
as
the
Board
deemed
appropriate.
There
was
a
condition
included
in
the
licence
granted
to
CRC
to
operate
the
underground
mine,
in
December
1981,
that
before
commencement
of
drivage
of
entries
from
the
open
pit
approval
of
the
Board
was
required,
and
CRC
was
to
submit
specific
details
about
its
plans,
and
about
sequencing
of
combined
operations
of
the
underground
mine
and
the
open
pit,
which
was
required
to
be
filled
and
reclaimed.
No
such
plans
were
ever
submitted
to
the
Board.
The
Board
did
not
approve
the
openings
from
the
open
pit.
The
testimony
of
Mr.
Duncan,
from
his
experience
as
a
senior
member
of
the
Board
staff
was
that
the
Board
would
not
ever
have
approved
openings
from
the
open
pit
which,
in
his
view,
would
have
created
substantial
safety
concerns
for
the
underground
operations.
The
latter
concern
was
echoed
by
Dr.
Whiting.
While
there
is
evidence
that
in
its
planning
CRC
continued
throughout
the
life
of
the
project
to
include
proposals
for
portals
and
entry
from
the
open
pit
mine,
I
accept
that
these
were
never
formally
approved
by
the
joint
venture.
More
significantly,
CRC
never
sought
approval
for
these
plans
which
the
provincial
Board
had
indicated
would
be
necessary
before
proceeding,
and
no
approval
for
these
proposed
entries
was
ever
given
by
the
Board.
None
of
the
planning
proposals
were
ever
brought
to
fruition.
There
was
thus
no
physical
interconnection
between
the
open
pit
and
the
proposed
underground
workings.
The
various
factors
relied
on
by
the
defendant
to
link
the
expenses
incurred
on
the
underground
mine
with
existing
mining
operations
by
CRC
do
not,
in
my
view,
outweigh
the
factors
that
support
the
conclusion
that
these
were
expenses
related
to
a
mine
separate
and
apart
from
other
operations
of
CRC.
The
latter
factors
include
the
following:
1.
Aside
from
proposals,
never
brought
to
fruition,
for
entries
to
the
underground
area
from
the
base
of
the
51-B-2
pit,
planning
for
the
underground
mine,
and
development
of
those
plans,
was
undertaken
with
a
view
to
establishing
a
project
that
financially
and
otherwise
would
produce
coal
independently
from
CRC's
other
operations.
The
only
lasting
interrelations
envisaged
with
those
other,
surface,
operations
were
to
ensure
that
access
to
the
underground
area
did
not
compromise
the
possibility
of
future
recovery
from
open
pit
operations,
and,
if
the
underground
mine
were
as
productive
as
its
planners
hoped,
to
reduce
some
measure
of
production
in
the
more
costly
portions
of
surface
operations.
Each
of
the
surface
open
pits
had
a
life
span
up
to
five
or
six
years
whereas
the
underground
mine
was
planned
with
a
view
to
exploiting
the
coal
available
in
a
period
of
15
years
or
more.
In
the
August
1980
feasibility
study
it
was
anticipated
the
underground
mine
would
come
into
production
in
1983,
just
one
year
before
the
end
of
the
anticipated
life
of
the
51-B-2
pit.
Mr.
Ulrich
testified
that
the
scheduling
for
that
pit’s
operations
was
not
affected
by
the
planning
and
development
of
the
underground
mine,
including
the
scheduling
of
filling
and
reclamation
of
the
pit
site.
2.
By
1981
some
97
million
dollars
had
been
expended
by
CRC
on
capital
account
in
its
surface
operations
through
a
series
of
open
pits
each
of
which
was
subsequently
backfilled
in
accordance
with
reclamation
steps
approved
by
the
province.
For
the
underground
mine
it
was
anticipated
some
80
million
dollars
would
be
required
in
development
of
the
mine
over
a
five-
year
period,
so
that
it
was
a
project
which
in
capital
terms
was
nearly
as
large
as
all
of
the
surface
operations
up
to
that
time.
3.
The
coal
to
be
recovered
by
the
Jewel
Seam
by
underground
mining
was
beyond
the
limits
of
economic
recovery
by
known
surface
mining
methods.
Dr.
Whiting
and
Mr.
Stinnett,
who
appeared
for
the
plaintiff,
each
stressed
the
economic
feasibility
of
extraction
from
a
known
ore
body
or
coal
seam
as
a
key
to
the
existence
of
a
mine,
and
here
the
coal
accessible
by
underground
mining
could
not
be
considered
a
part
of
the
surface
mining
operations.
4.
The
staff
for
the
underground
operations,
including
the
mine
manager
and
all
underground
personnel
each
required
special
certification
for
underground
work
which
was
not
required
of
surface
crew
members.
Thus,
the
work
force
employed
in
surface
mining
and
in
underground
operations
was
essentially
not
interchangeable.
5.
Once
development
of
the
mine
was
completed
the
underground
operations
were
planned
to
utilize
hydraulic
mining
methods
for
mining
and
removing
the
coal.
All
equipment
and
services
planned
were
different
from
those
utilized
in
surface
mining
and
the
equipment
used
in
the
open
pit
operations
could
not
be
used
in
development
or
recovery
of
coal
from
the
underground
mine.
6.
Entirely
different
safety
considerations
applied
to
the
underground
mine
from
those
applicable
in
surface
mining
operations,
including,
for
the
underground,
dealing
with
the
dangers
from
methane
gas,
possibilities
of
spontaneous
combustion
and
rockfalls,
and
these
in
turn
dictated
entirely
support
services
and
facilities.
7.
The
underground
mine
was
planned
with
its
separate
surface
support
and
operating
facilities
at
No
Name
Creek.
A
dewatering
plant,
to
be
located
near
the
processing
plant,
was
required
to
handle
the
slurry
of
coal
and
water
pumped
from
the
underground
mine,
before
the
coal
could
be
transferred
to
the
processing
plant
or
to
storage.
The
underground
mine
was
conceived,
with
the
exception
of
the
proposals
to
provide
entry
portals
from
the
51-B-2
pit,
with
a
200
to
300
foot
barrier
of
ground,
including
the
coal
seam,
left
in
place
between
the
underground
workings
and
the
open
pit
operation
and
between
those
workings
and
any
previous
underground
mines.
This
barrier
was,
in
the
view
of
at
least
Mr.
Duncan
and
Mr.
Stinnett,
an
important
safety
feature
to
provide
stability
and
minimize
possibilities
of
flooding
in
the
underground
workings.
Evidence
was
adduced
that
in
the
early
1980s
Mr.
Ulrich
had
written
an
intracompany
memorandum
recommending
against
seeking
a
tax
ruling
in
advance
in
relation
to
the
underground
mine
since
the
Minister
might
not
agree
in
advance
that
the
planned
operation
was
a
separate
mine.
Evidence
was
also
adduced
that
at
one
stage
in
the
mid-1980s
the
Department
of
Revenue
had
consulted
the
Department
of
Energy,
Mines
&
Resources
whose
experts
on
coal
mining
had
advised
that
in
their
judgment
the
underground
mine
was
separate
from
other
mines
and
was
not
an
extension
of
any
mine
at
the
site.
In
my
view,
neither
of
these
opinions
rendered
to
the
parties
has
any
significance
for
assessing
whether,
on
the
facts,
the
expenses
here
incurred
were
in
relation
to
an
existing
mine
or
an
extension
of
a
mine,
under
subparagraph
(iii).
Similarly,
for
construing
the
statutory
provision,
there
is
no
relevance
in
the
evidence
of
certain
publications
of
CRC,
designed
as
general
information
for
anyone
interested
in
the
operations
including
visitors
to
the
property,
which
used
the
term
"mine"
with
reference
to
the
entire
operation
at
the
property
and
within
that
term
described
the
surface
operations
and
underground
development.
I
find,
after
considering
all
of
the
evidence,
that
in
the
circumstances
of
this
case
the
preliminary
exploratory
expenses
incurred
in
relation
to
the
underground
mine
were
not
related
to
a
mine,
or
to
a
potential
or
existing
extension
of
a
mine,
that
had
come
into
production
in
reasonable
commercial
quantities.
Thus,
in
my.
view,
the
preliminary
expenses
incurred
in
exploration
for
the
underground
mine
do
constitute
Canadian
exploration
expense
within
the
meaning
of
subparagraph
(iii)
of
the
Act.
Were
expenses
incurred
in
development
of
the
underground
mine
incurred
prior
to
the
commencement
of
production
from
the
resource
in
reasonable
commercial
quantities,
within
subparagraph
(iii.
1)?
As
I
have
construed
subparagraph
(iii.1),
insofar
as
expenses
were
incurred
after
October
1980,
when
CRC
started
clearing
the
surface
site
at
No
Name
Creek
for
the
portals
for
underground
tunnels,
for
the
purpose
of
bringing
a
mineral
resource
into
production,
they
were
what
I
have
described
as
development
expenses.
Significant
stages
in
this
development,
summarized
in
paragraph
23
of
the
agreed
statement
of
facts,
included
the
hiring
of
Cementation
Company
(Canada)
Ltd.
to
excavate
the
tunnels,
work
which
was
terminated
in
November
1982
when
the
tunnels
had
been
extended
about
4000
feet
to
a
point
below
the
coal
seam.
From
there
further
development
was
to
be
undertaken
by
CRC,
including
the
excavation
of
the
slurry
pumping
station
at
the
bottom
of
the
workings,
and
development
of
tunnels
below
the
seam
from
which
working
places
could
be
established.
Development
work
was
continued
until
November
1983,
but
at
a
rate
slower
and
on
a
scale
reduced
from
that
originally
planned.
Initially,
the
work
was
slowed
by
budget
considerations
arising
from
financing
changes
for
one
of
the
joint
venture
partners
and
soon
thereafter,
early
in
1983,
as
a
result
of
falling
market
prices
for
coal.
At
the
end
of
1982
the
project
budget
for
the
next
year
was
cut
back,
excluding
expenditures
originally
projected
for
acquisition
of
underground
mining
equipment,
for
all
surface
installations
and
for
entries
from
the
51-B-2
open
pit.
Tunnelling
was
not
completed
and
the
slurry
station
was
not
excavated
before
all
development
was
suspended
towards
the
end
of
1983
because
of
rapid
deterioration
in
world
markets
for
coal
with
no
prospect
for
improvement
in
the
near
term.
The
underground
was
maintained
free
of
water
by
pumping
until
1985
when
CRC
applied
for
and
was
granted
approval
by
the
Alberta
Board
to
abandon
the
mine.
Since
then
no
maintenance
was
carried
on,
the
underground
tunnels
were
left
free
to
flooding
and
the
mine
was
sealed
to
preclude
access
from
the
portal
site
at
No
Name
Creek.
Even
though
the
underground
mine
was
not
completed
as
planned
and
it
never
commenced
commercial
production,
no
argument
was
directed
to
the
purpose
of
the
expenses
incurred
in
developing
the
mine,
and,
in
my
view,
these
expenses
were
incurred
for
the
purpose
of
bringing
a
coal
deposit
into
commercial
production.
Were
the
expenses
incurred
"prior
to
the
commencement
of
production
from
the
resource
in
reasonable
commercial
quantities’?
No
jurisprudence
was
cited
for
guidance
on
this
question.
Opinions
of
the
expert
witnesses
called
by
the
parties
were
offered.
For
them
as
for
the
parties,
a
key
factor
in
dealing
with
this
issue
is
the
significance
to
be
given
to
the
fact
that
all
of
the
coal
recoverable
from
the
CRC
property
was
from
the
Jewel
Seam.
It
was
the
source
of
production
mainly
by
underground
mining
methods
in
the
1921-1956
era.
Where
the
seam
is
accessible
by
surface
mining
technology
it
is
the
source
of
open
pit
mine
production
since
1970.
It
is
the
same
seam,
mined
at
the
surface
by
the
51-B-2
pit
and
continuing
from
the
limit
of
that
pit
in
a
syncline,
which
was
to
be
the
source
of
production
from
the
hydraulic
underground
mine.
In
the
opinions
of
both
Mr.
Marshall
and
Dr.
Bustin,
witnesses
called
by
the
defendant,
the
continuity
of
the
Jewel
Seam
from
the
51-B-2
pit
to
the
nearby
area
to
be
exploited
by
the
underground
mine
led
to
the
conclusion
that
the
two
areas
were
of
the
same
resource.
For
Mr.
Marshall
the
plaintiff's
contemplated
entries
from
the
base
of
the
51-B-2
pit
was
also
a
factor.
For
Dr.
Bustin
the
coal
in
that
open
pit
and
in
the
planned
underground
mine
were
the
same
deposit
and
the
same
resource
in
light
of
their
proximity
and
geological
considerations,
including
the
continuity
of
the
Jewel
Seam,
essentially
the
same
quality
of
coal,
dipping
to
the
southeast
from
the
open
pit
without
apparent
structural
interruptions
in
the
seam
or
in
the
rock
in
which
it
was
deposited.
Each
of
the
expert
witnesses
called
by
the
plaintiff,
all
mining
engineers
and
one
of
them
qualified
as
a
mineral
economist,
stressed
the
importance
to
those
in
the
industry
of
the
economic
aspect
of
mining.
In
their
view,
mining
was
an
activity
carried
on
by
investment
of
capital
and
labour
in
the
production
of
minerals
for
a
profitable
return.
While
a
mineral
resource
might
be
acknowledged
as
existing,
it
was
not
a
resource
of
primary
interest
for
development
by
those
in
the
industry
until
its
existence
was
reasonably
established
and
feasibility
studies
led
to
the
conclusion
it
could
be
exploited
for
production
at
a
profit.
Thus,
a
resource
which
could
only
be
recovered,
at
a
profit,
by
thoroughly
planned
and
developed
underground
mining
methods,
was
in
their
view
separate
from
a
resource
recoverable
by
surface
mining
methods.
As
Mr.
Duncan
expressed
it
in
his
report,
the
coal
deposit
in
relation
to
which
the
joint
venture
incurred
underground
development
expenses
is"a
distinct
entity,
both
physically
and
economically,
from
the
coal
deposits
elsewhere
on
the
CRC
leases
which
are
worked
by
open
pit
methods”.
That
opinion
would
appear
to
be
heavily
influenced
by
the
methods,
either
underground
or
surface
mining,
by
which
it
was
judged
the
coal
could
be
recovered.
That
distinction
may
have
merit
in
certain
respects.
It
would,
for
example,
preclude
any
claim
that
each
of
the
sites
of
open
pit
operations
dealt
with
a
separate
resource,
for
each
produces
coal
from
the
Jewel
Seam
where
it
may
be
accessible
by
surface
mining
using
the
same
basic
techniques
and
equipment,
moving
on
to
a
new
promising
site
for
an
open
pit
and
back-filling
one
that
has
been
completely
mined
or
nearly
so.
More
significantly,
in
my
view,
the
opinions
of
Dr.
Whiting
and
Mr.
Stinnett
emphasized
the
importance
of
economic
planning
for
major
mining
operations,
by
qualified
staff,
which
the
series
of
studies
for
CRC
clearly
indicated
had
been
engaged
in
the
project.
The
process,
in
their
opinion,
led
ultimately
to
the
establishment
of
a
particular
portion
of
the
Jewel
Seam
as
a
discrete
resource
or
deposit
to
be
exploited
by
a
particular
method,
hydraulic
mining,
and
careful
development
of
the
underground
mine,
as
a
project
which
could
yield
a
profitable
return
from
production.
Dr.
Bustin's
evidence
was
helpful
in
providing
an
understanding
of
the
geological
classification
of
coal
resources.
That
classification
was
derived
in
part
from
Coal
Resources
and
Reserves
of
Canada,
(Ottawa,
1979)
Report
ER
79-9,
Energy,
Mines
and
Resources
Canada,
or
later
departmental
publications,
and
it
is
widely
accepted
in
the
coal
industry.
That
classification
includes
resources
by
category
according
to
the
feasibility
of
exploitation
and
the
level
of
assurance
of
existence
of
the
resources.
Coal
resources
of
immediate
interest,
as
contrasted
with
those
of
future
interest,
are
seams
of
coal
that
because
of
thickness,
depth,
quality
and
location
are
considered
to
be
of
immediate
interest
for
exploitation.
Included
in
that
category
of
coal
resources,
are
reserves,
which
feasibility
studies
have
established
to
be
mineable
with
current
technological
and
economic
conditions
and
for
which
there
is
no
legal
impediment
to
mining.
In
Dr.
Bustin's
view,
CRC
treated
the
resources
of
the
underground
mine
as
reserves,
for
the
coal
deposit
to
support
the
mine
had
been
measured
and
established,
by
exploratory
drilling
and
from
observations
from
the
51-B-2
open
pit,
and
those
resources
were
deemed
recoverable
by
particular
underground
methods.
In
the
terms
of
Dr.
Whiting
and
Mr.
Stinnett
they
were
resources
deemed
recoverable
at
a
profit.
Dr.
Bustin
acknowledged
that
his
own
expertise
did
not
extend
to
assessing
profitability
of
mining
operations,
a
matter
that
lies
in
the
competence
of
mining
engineers,
assisted
by
others.
Counsel
for
the
defendant
suggested
that
the
opinion
of
Dr.
Whiting
and
Mr.
Stinnett
about
a
resource,
a
coal
deposit,
was
limited
to
a
reserve,
within
the
classification
provided
by
Dr.
Bustin.
Further,
it
was
limited
by
the
methodology
of
recovery,
whether
by
underground
or
surface
mining
methods,
a
limitation
which
ignored
the
possibility
that
a
given
deposit
might
in
certain
circumstances
be
recoverable
by
surface
mining
and
in
other
circumstances
be
recoverable
by
underground
mining.
While
that
may
well
prove
to
be
the
case
over
time,
as
the
operations
at
the
CRC
property
since
1921
would
indicate,
nevertheless
I
am
persuaded
that
within
the
mining
industry,
resources
likely
to
be
developed
are
those,
classified
by
Dr.
Bustin
as
reserves,
which
are
established
and
for
which
feasibility
studies
indicate
promise
of
a
profitable
return
on
the
investment
of
capital
and
labour
by
a
chosen
mining
method.
That
concept
of
a
mineral
resource,
or
a
coal
deposit,
as
a
restricted
portion
of
the
resources
of
interest
to
a
geologist,
in
my
view,
has
significance
for
the
application
of
subparagraph
(iii.1).
Earlier,
in
construing
subparagraph
(iii)
and
subparagraph
(iii.1)
I
have
distinguished
those
provisions
as
related
to
different
kinds
of
expenses,
described
as
exploration
and
as
development
expenses
respectively,
concerned
with
different
phases
in
the
development
of
a
mining
project.
In
my
view,
the
expenditures
included
under
subparagraph
(iii.1)
are
those
incurred
in
development
of
a
mine
after
the
decision
is
made,
based
on
feasibility
studies,
to
proceed
with
a
planned,
specific
project.
At
that
stage
the
operator
has
established
the
resource,
in
this
case
a
portion
of
the
coal
deposit
known
as
the
Jewel
Seam,
which
is
relied
upon
to
support
investment
in
the
project
with
the
expectation
of
profit.
That
resource
is
a
reserve,
in
Dr.
Bustin's
classification,
established
in
relation
to
the
project
to
be
undertaken.
The
Act
provides
in
subparagraph
(iii.1)
for
expenses
incurred
“for
the
purpose
of
bringing
a
mineral
resource
[in
this
case
a
coal
deposit]
in
Canada
into
production
and
incurred
prior
to
the
commencement
of
production
from
the
resource
[the
coal
deposit]
in
reasonable
commercial
quantities
.
.
.”.
In
my
view,
this
provision
is
to
be
interpreted
as
it
would
be
understood
in
the
mining
industry,
for
which
Parliament
included
Canadian
exploration
expense
as
defined
in
subparagraph
(iii.1)
as
a
benefit
to
attract
investment
in
resource
production.
Within
that
industry
development
expenses
would
be
committed
only
when
a
reserve
has
been
established
that
is
considered
to
be
likely
to
produce
a
Satisfactory
profit
from
production
as
a
result
of
planned
investment
in
a
specific
project.
Resources
which
lie
within
the
ambit
of
the
reserve
to
be
recoverable
by
a
particular
development
project,
in
my
view,
are
the
"mineral
resource”
or
coal
deposit
intended
by
subparagraph
(iii.1).
Resources
which
lie
beyond
that
ambit,
beyond
the
limits
of
the
resource
to
be
recovered
by
a
specific
project,
may
lie
in
the
same
geological
ore
body
or
in
the
same
geological
coal
deposit
or
seam,
but
if
they
were
included
in
the
meaning
of
"mineral
resource"
in
subparagraph
(iii.1),
then
only
the
first
commercial
mining
development
in
the
geological
resource,
or
at
most
only
the
first
such
development
on
a
property
owned
or
leased
by
a
particular
developer,
regardless
of
the
size
of
the
property
if
it
includes
only
a
single
ore
body
or
coal
seam,
would
qualify
as
Canadian
exploration
expense.
That
would
significantly
restrict
the
application
of
subparagraph
(iii.1),
and
would
be
of
little
interest
to
those
concerned
to
develop
mineral
resources.
In
this
case
the
limits
of
the
coal
deposit
recoverable
from
the
51-B-2
pit
were
defined.
They
did
not
include
the
area
of
the
coal
deposit
to
be
recovered
by
underground
mining
and
the
limits
of
that
area
were
also
defined,
separate
from
the
limits
of
the
51-B-2
pit.
Proximity
of
the
two
was
a
coincidence
of
timing
in
the
sense
that
the
underground
mining
deposit
could
have
been
defined
even
if
the
51-B-2
pit
had
not
yet
been
in
production,
just
as
other
areas
for
possible
exploitation
by
underground
mining
were
defined
in
1979.
If
one
of
those
other
areas
had
been
selected
by
CRC
for
underground
development,
rather
than
the
area
actually
selected,
would
expenses
of
a
mine
at
that
other
site
be
treated
differently
under
subparagraph
(iii.1)?
In
my
view,
the
proximity
of
the
portions
of
the
Jewel
Seam,
the
coal
deposits,
to
be
exploited
by
the
underground
mine
and
the
51-B-2
pit
should
have
little
significance
for
the
application
of
the
statute.
In
my
opinion,
the
expenses
incurred
in
development
of
the
underground
mine,
after
the
decision
to
proceed
with
the
project,
to
bring
into
production
that
portion
of
the
coal
deposit
defined
for
extraction
by
that
mine,
were
incurred
prior
to
production
in
reasonable
commercial
quantities
from
that
deposit
and
are
Canadian
exploration
expense
within
the
meaning
of
subparagraph
(iii.1).
Conclusion
For
the
reasons
set
out
it
is
my
conclusion
that
exploration
expenses
of
the
sort
described
within
subparagraph
(iii),
for
preliminary
planning
in
relation
to
the
CRC
underground
mine,
were
incurred
in
relation
to
determining
the
coal
deposit
that
was
later
to
be
exploited
by
the
planned
underground
hydraulic
mine
and
were
not
related
to
a
mine
that
had
come
into
production
in
reasonable
commercial
quantities
or
related
to
a
potential
or
existing
extension
thereof.
They
qualify
as
Canadian
exploration
expense
within
subparagraph
66.1(6)(a)(iii)
of
the
Act.
Further,
expenses
incurred
in
development
of
the
underground
mine,
after
the
decision
to
proceed
with
that
project,
of
the
sort
described
in
subparagraph
(iii.1),
were
expenses
incurred
for
the
purpose
of
bringing
a
mineral
resource
in
Canada
into
production
and
they
were
incurred
prior
to
the
commencement
of
production
from
the
resource
in
reasonable
commercial
quantities.
They
qualify
as
Canadian
exploration
expense
within
subparagraph
66.1(6)(a)(iii.1)
of
the
Act.
By
separate
judgment
the
appeal
of
the
plaintiff
is
allowed,
with
costs,
excluding
any
costs
associated
with
the
view
of
the
mining
site
by
the
Court
which
are
to
be
borne
by
the
plaintiff.
The
reassessment
of
the
Minister
is
vacated
and
the
matter
is
referred
to
the
Minister
for
reconsideration
and
reassessment,
in
light
of
these
reasons,
on
the
basis
that
1.
the
appeal
of
the
plaintiff
is
allowed
insofar
as
it
relates
to
income
earned
by
the
plaintiff
from
the
Bienfait
Mine
is
accepted
in
accord
with
the
defendant's
amended
defence,
2.
expenses
incurred
by
the
plaintiff
in
exploration
activities
related
to
the
Cardinal
River
Coals
Underground
Mine
are
Canadian
exploration
expenses
as
defined
by
subparagraph
66.1(6)(a)(iii)
of
the
Income
Tax
Act,
as
it
applied
at
the
relevant
times;
and
3.
expenses
incurred
by
the
plaintiff
in
development
related
to
the
CRC
Underground
Mine
are
Canadian
exploration
expenses
as
defined
by
subparagraph
66.1(6)(a)(iii.1)
of
the
Income
Tax
Act,
as
it
applied
at
the
relevant
times.
Appeal
allowed.
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