Suncor Inc. v. Canada, docket T-699-97

Date: 19980717

Docket: T-699-97

BETWEEN:

     SUNCOR INC.

     Plaintiff

     - and -

     HER MAJESTY THE QUEEN

     Defendant

     REASONS FOR JUDGMENT

CAMPBELL J.

[1]      These reasons must be read in conjunction with those given by me in Double N Earth Movers Ltd. v. Her Majesty the Queen (T-698-97). Although not formally joined, the appeal in Double N and the appeal in this case were heard together and argued by the same counsel on the same legal and very similar factual issues. Similar to the argument made in Double N respecting gravel extraction activities, in this case Suncor Inc. argues that certain of its oil sand extraction activities fit within the phrase "restoration of strip-mined land to a usable condition" in the definition of "mining" in s.69(1) of the Excise Tax Act , and, accordingly, it is entitled to a fuel tax rebate.¹

A. Double N Earth Movers Ltd. v. Her Majesty the Queen as precedent

[2]      All the limitations, admissions, and concessions agreed to by the parties in Double N respecting s.69 and gravel pit operations apply equally in this case respecting oil sand open-pit operations. The approaches taken by the parties in argument about the proper interpretation of s.69 are the same. Therefore, on the basis of the same analysis as conducted in Double N, I find that my conclusions reached in that case respecting the proper interpretation of the phrase "restoration of strip-mined land to a usable condition" in the definition of "mining" in s.69(1) of the Act apply in this case.

[3]      That is, I find the presumption in favour of giving the ordinary meaning to terms used in s.69 is rebutted, and the conversant persons whose opinions have weight on the meaning of terms in s.69 respecting a specific activity are those persons with precise expert knowledge of the legal and practical context in which that activity takes place.

[4]      Accordingly, the only issue left to resolve in this case concerns, in fact, which of Suncor"s activities fall within the phrase "restoration of strip-mined land to a usable condition" interpreted as just stated.

B. Suncor"s activities²

[5]      With respect to the following general description of Suncor"s activities, these terms are relevant:

Oil sand - bitumen soaked sand. Oil sand is composed of sand, bitumen, mineral rich clays and water. A hot water extraction method separates the bitumen from the oil sand.

Tailings - material remaining after the bitumen is removed from the oil sand, consisting of water, small clay particles and sand. Tailings are about 30 percent sand and 70 percent water when they come out of the bitumen extraction operation.

Tailing sand - the solid sand and clay grains that settle out from the water and clay fines.

Muskeg (organic overburden) - uppermost layer of organic topsoil materials (consisting of decaying plant material), three to fifteen feet thick, found on top of the inorganic overburden. Muskeg supports the growth of trees and grasses.

Inorganic overburden - layer of lean oil sand, sandstone, shale, and clays covering the mineable oil sand.

Stripping - operation of loading and carrying overburden and muskeg away from the oil sand deposit.

Strip-mining - the mining of oil sand by surface-mining methods utilizing bucketwheel excavators tied to conveyors.

[6]      Since 1967, Suncor has operated a synthetic crude oil facility located north of Fort McMurray where it surface strip-mines oil sand from an open-pit mine, removes bitumen from the oil sand using a hot water process, and upgrades the bitumen into synthetic crude oil. In carrying out this activity, Suncor restores its strip-mined land to a usable condition employing progressive restoration techniques, whereby surface stripped overburden and topsoil materials are placed in previously mined-out areas.

[7]      Integral elements of Suncor"s restoration process are the salvage and replacement of equivalent soil types to those that existed prior to strip-mining the oil sand. These actions ensure the land is restored to an equivalent, or better, pre-mined land capability. Restoration is achieved in compliance with and in accordance with prevailing provincial regulations.

[8]      Suncor"s pre-mined landscape consisted of 3 to 15 feet of organic muskeg, 15 to 45 feet of inorganic overburden, and 200 to 250 feet of oil sand above a limestone base. The post-mined landscape, restored to roughly the pre-mined elevation, will consist of an equivalent volume of tailing sand to supplant the 200 to 250 feet of oil sand removed, and will be capped with layers of overburden and muskeg.

[9]      Because bitumen is found within the voids between the sand particles, the removal of bitumen from oil sand does not reduce the volume of sand that will be returned to the landscape. Since bitumen is separated from the sand particles with a hot water and steam process, the residue,or tailings, is a slurry of water, clay and sand particles. These liquid tailings are pumped into tailings ponds that permit the sand to settle out and be reused in the restored landscape.

[10]      The construction method that restores Suncor"s strip-mined land starts with the building of large geotechnically secure dykes. The dykes are initially constructed with inorganic overburden, thus being called "overburden starter dykes". These dykes are joined together to form the earth structure for tailings ponds.

[11]      Once the ponds" overburden starter dykes are built to a high enough level, liquid tailings are pumped through pipes and discharged, or "overboarded", onto the interior slopes of the ponds. As the solid sand grains settle out, it is "beached" onto the interior slopes of the overburden starter dykes. The water is recycled back and forth between the bitumen extraction operation and the ponds bringing more and more tailings to the ponds. Beached tailing sand is constantly bulldozed onto the dykes" plateau thereby increasing their height and size to desired elevations.

[12]      Gradually the level of tailing sand in the pond rises higher and higher until the last of the water can be drawn out from the pond leaving a dry landscape that can be capped with organic muskeg. The muskeg topsoil is capable of and is used to sustain initial erosion control plant cover, as well as supporting the growth of tree and shrub species found in the pre-mined forest community.

[13]      There is a seasonal nature to Suncor"s restoration process. Dykes are built in the spring, summer and fall as overburden and tailing sand can be compacted during above-freezing temperatures. During the winter, overburden is strategically placed along the base of the overburden starter dykes to buttress the dykes; tailing sand continues to be discharged into the ponds through the pipes and the sand naturally forms a beach from the edge of the pond.

[14]      With respect to the claim for fuel tax rebate, Suncor"s diesel powered equipment consumed fuel performing the following activities at several locations, which were at varying stages of restoration completion throughout the mine:

Gathering and loading the uppermost layer of organic topsoil (muskeg) by hydraulic shovels and loaders into off-highway trucks which carried and placed the muskeg directly onto the surface of previously established tailing pond dykes or in stockpiles for future restoration use;

Gathering and loading inorganic overburden by hydraulic shovels and loaders into off-highway trucks which carried and placed the overburden materials for use in the construction of overburden starter dykes and for capping a tailing pond sand plateau. Bulldozers and graders were used to support the operation by constructing and maintaining haul roads, and spreading and compacting dumped materials;

Beaching or dozing tailing sand with bulldozers onto the dykes; overboarding tailing sand onto dykes with support equipment.

C. History of proceedings and the issue in this case³

[15]      On July 26, 1991, Suncor applied for a fuel tax rebate on fuel consumed in the just described restoration activities. By Notice of Determination dated December 10, 1991, the Defendant, represented by the Deputy Minister of National Revenue, denied the fuel tax rebate request in its entirety on the basis that Suncor"s activities were not eligible "mining" activities.

[16]      On January 22, 1992, Suncor filed a Notice of Objection to this decision and by Notice of Decision dated April 22, 1994, the Defendant, represented by the Minister of National Revenue, allowed the objection in part. In doing so, as in Double N, the Minister made some critical concessions which allow Suncor to fit within the definition of "mining" in s.69(1), and as a result, to claim a fuel tax rebate. In this case, the Minister concedes that Suncor"s land which has undergone oil sand extraction operations is "strip-mined land", and similar to the concession in Double N respecting gravel operations, even though oil sand is a non-mineral resource, "restoration" of the land considered strip-mined in this case is considered "mining" in s.69(1) of the Act .

[17]      In assessing Suncor"s rebate claim, as in Double N , the Minister used the concept of a "minimum dump point" which is the point beyond which stripped material must be moved in order to allow sufficient room for mining practices to be conducted. In the decision rendered, the Minister denied a rebate on fuel used in the gathering and carrying of overburden materials up to a determined "minimum dump point", and denied 50% of the fuel used to carry and place overburden beyond the minimum dump point for the construction of dykes on the basis that these activities are "development" and thereby ineligible for the federal fuel tax rebate. However, the Minister allowed a fuel tax rebate on the remaining 50% of the fuel consumed beyond the "minimum dump point" on the basis that the dyke realizes the two purposes of restoration and development simultaneously, that the amount of fuel used in each activity is equal, and, therefore, 50% of the diesel fuel consumed to construct the dyke was used in "restoration".

[18]      On July 20, 1994, Suncor appealed the Minister"s Notice of Decision to the Canadian International Trade Tribunal (CITT) for the fuel that was disallowed. By decision dated December 19, 1996, the CITT allowed the appeal in part. On April 14, 1997, Suncor commenced this appeal.

[19]      The issue in this appeal is whether Suncor"s activities of gathering and carrying muskeg and overburden up to a "minimum dump point" constitutes "restoration" within the meaning of s.69(1).

D. Suncor"s appeal position

[20]      As in Double N, the decision under appeal here is that of the Minister. Suncor"s position in this appeal is that the "restoration of strip-mined land to a usable condition" is a process that factually begins with the gathering of organic muskeg and inorganic overburden materials, the placement of these materials in mined-out areas for construction of overburden starter dykes, and the beaching of tailing sand through to the final placement of organic muskeg soil. Suncor argues that it is only as a result of these activities that it can return their strip-mined lands to a stable, productive landscape.

[21]      In support of this position, Suncor relies heavily on the evidence of Mr. Len Knapik, a senior mining and oil and gas industry consultant with extensive experience in the reclamation of land in Alberta. Mr. Knapik testified before the CITT in Double N and this case, and, by agreement, his evidence so given in both cases is evidence on this appeal.

E. Analysis

[22]      On the basis of Mr. Knapik"s evidence before the CITT in this case, I find that his evidence as quoted in Double N respecting reclamation requirements for gravel pits in Alberta is equally applicable to oil sands in Alberta.⁴ Indeed, Suncor"s Development and Reclamation Approval under the Alberta Land Surface Conservation and Reclamation Act⁵ requires that:

Through appropriate conservation of soil materials; spoil [sic] placement, backfilling and recontouring; soil replacement; revegetation; and reclamation research; the reclaimed land surface shall have characteristics and properties (topography, drainage, soils, vegetation) that will result in the return of a land capability that is equivalent to or better than that which existed prior to disturbance.⁶

[23]      As stated at the outset of these reasons, I find that the conversant persons whose opinions have weight on the meaning of terms in s.69 respecting a specific activity are those persons with precise expert knowledge of the legal and practical context in which that activity takes place. I also find that Mr. Knapik and his opinions certainly meet this test for Suncor"s activities in Alberta.

[24]      Accordingly, applying the evidence of Mr. Knapik, I find in this case that "restoration" begins with the gathering of organic muskeg and inorganic overburden materials from their source. Therefore, I also find that Suncor"s activities of gathering and carrying muskeg and overburden up to a "minimum dump point" constitutes "restoration" within the meaning of s.69(1).

[25]      Similar to the decision in Double N, in this case the Minister found that the restoration of land strip-mined for oil sand is considered "mining" for the purposes of the fuel tax rebate. For the same reasons as stated in Double N , I give no weight to the Defendant"s argument respecting an apparent conflict arising from the fact that "restoration" is also "development".

F. Relief

[26]      For the above reasons, pursuant to s.81.31(1) of the Act, I allow Suncor"s appeal, dismiss the Defendant"s counterclaim, and grant Suncor"s request for the following relief:

a)      a declaration that the activities of Suncor which are the subject of this appeal constitute "restoration of strip-mined land to a usable condition";

b)      a declaration that Suncor is entitled to a federal fuel tax rebate with respect to these "restoration" activities;

c)      an order that the Defendant, as represented by the Minister of National Revenue, recalculate the fuel tax rebate due to Suncor in accordance with these reasons and relief granted, and forthwith pay to Suncor any unpaid rebate;

d)      costs of this action.

                                  Judge

OTTAWA, ONTARIO

__________________

¹      The Excise Tax Act R.S.C. 1985, c.E-15 is referred to in these reasons as "the Act", and Suncor Inc. is referred to as "Suncor".

²      The description in this section is adapted from the statements in the Plaintiff"s Brief, pp.1-3, and p.5.

³      Ibid, pp. 5-6.

⁴      Canadian International Trade Tribunal, Transcript of Hearing, March 6, 1996, p.61.

⁵      Revised Statutes of Alberta 1980, Chapter L-3.

⁶      Plaintiff"s Book of Supporting Documents, Tab 6, p.6.