Mobil Oil Canada Ltd. v. Her Majesty the Queen, [1993] 1 CTC 158

Reed, J.:—The issue in this case is the proper interpretation of subparagraph 6(b)(i) [now 8(b)(i)] of Part XVII of Schedule III of the Excise Tax Act, R.S.C. 1970, c. E-13, as amended 1980-81-82-83, c. 68, section 40:

6. Aircraft, parts and equipment therefor, when purchased or imported for use exclusively in the provision of

(a) public air transportation of passengers, freight or mail; or

(b) air services directly related to

(i) the exploration and development of natural resources,

(ii) aerial spraying, seeding and pest control,

(iii) forestry,

(iv) fish cultivation,

(v) aerial construction operations using rotating wing aircraft,

(vi) aerial fire control, fire protection and fire fighting, or

(vii) map making operations.

6. Aéronefs, pièces et matériel pour aéronefs, lorsque achetés ou importés et devant être utilisés exclusivement pour

(a) effectuer le transport aérien en commun des personnes, du fret ou du courrier, ou

(b) fournir des services aériens directement reliés à

(i) l'exploration et la mise en valeur des ressources naturelles,

(ii) l'épandage aérien, l'ensemencement aérien et la lutte aérienne contre les parasites,

(iii) la sylviculture,

(iv) la pisciculture,

(v) la construction au moyen d’aéronefs à voilure tournante,

(vi) la surveillance, la protection et la lutte aériennes contre les incendies, ou

(vii) la cartographie.

[Emphasis added.]

The plaintiff purchased a Dash-8 aircraft in 1985 for use in connection with activities in oil and gas fields located in remote areas of northern Alberta and British Columbia. Property in the plane passed to the plaintiff on December 31, 1985. Delivery to the plaintiff occurred on June 5, 1986. The plaintiff claims that it is exempt from federal sales tax on the purchase of the Dash-8 because during the relevant period of time (June 1986 to December 1988) the plane was used for the purposes described in subparagraph 6(b)(i). [1]

Route and purpose of flights

The plane flew a regularly scheduled route, going on Mondays, Tuesdays and Fridays, from Calgary to Whitecourt to Rainbow to Sierra and then returning to Rainbow, Whitecourt and Calgary. On Thursdays additional stops were included, Edmonton, Peace River and Zama. On Wednesdays, the plane did not fly regularly, although, if there was a need to provide air services to certain drilling activities (e.g., wildcat exploration wells) the Dash-8 was used rather than chartering another aircraft for that purpose.

While Rainbow, Sierra and Zama are remote, road access is possible. Indeed when heavy equipment is needed in those areas it is taken in by truck. Also most of the material supplies used in those fields are taken in by road. The airports at Calgary, Edmonton, Whitecourt and Peace River are all public airports. The airports at Rainbow and Sierra are private, run by Mobil. That at Zama is also private, run by a consortium of which Mobil is a member.

The main purpose of the regular flights was to fly crews in and out of the Rainbow and Sierra areas where Mobil operated oil and gas fields. Crews were also flown into Zama. There is a small Mobil oil field nearby named Shekilie. These locations are all north of the 106th parallel. Rainbow which is the most southerly of the three is about 500 miles northwest of Whitecourt. Whitecourt is approximately 100 miles west and slightly north of Edmonton.

Crews that worked out of the Mobil camps in Rainbow, Sierra and Shekilie worked on a rotational basis. This might be seven days in camp and seven days out (i.e., at home), eight days in and six days out or four days in and three days out. These employees lived on a permanent basis in Whitecourt, Calgary and Edmonton.

Oil and gas field activities

A reservoir may be discovered with the drilling of a single well, other exploratory work, of course, having been done prior to the drilling. Many exploratory wells are dry. The bringing of a well into production however does not necessarily follow immediately upon the discovery that it is oil or gas producing. This may not occur until some time later. As I understand the evidence, this is illustrated by the development which took place at Shekilie in the years immediately prior to the time period relevant for the purposes of this case. A well had been drilled in that area many years previously. It was known therefore that there was oil in the area but it was not until the 1984-86 period that any attempt was made to bring that well into production or to exploit the reservoir. In 1984-86, additional testing of the well was done, then seismic testing, then more drilling to try to define the extent of the field and finally the well(s) were brought into production.

Once a decision has been made to exploit an oil or gas field, it will undergo a constant process of upgrading, extension and development. Mr. Mathers constantly used the word development to describe this activity and, while I am conscious that he was probably coached by counsel to slip that word in as often as possible, given that the issue in this case centres around the word development, I think it is a fair use of the word to describe some of the activities in question. For example, there is a continual process of drilling more wells into a known reservoir to further define or exploit the field; wells which may have been drilled earlier but which were not brought into production may be opened up; drilling is done to try to tap into other strata where it is hoped oil bearing rock will be found; some wells are reworked (recompleted or reconditioned) after they have been producing for some time, if the quality or quantity of the production has decreased. Secondary and tertiary (or perhaps more accurately "enhanced") recovery systems are also sometimes put in place.

The information required in order to decide when and where to drill new wells, which old wells to rework or abandon and whether and when to put in secondary or enhanced recovery systems is obtained, for example, from testing done at collection centres, called satellites. Another source of such information is seismic testing. Seismic testing involves moving equipment across the surface of the earth, which equipment takes sounding into the earth to determine the presence and characteristics of the oil or gas bearing reservoir rock.

When gas or oil wells are producing, treatment of those substances is required before they leave the fields. In the case of an oil field, collection of the fluid coming from the well starts with an individual pipe (flow line) from each well to what I have called a collection centre (satellite). From there the fluid travels, commingled with the fluid coming from the other wells which have been routed through that satellite, by a larger pipe (flow line), to an installation called a battery. Equipment and instrumentation exist at the satellite to record the content of the fluid coming from each well, e.g., the amount of oil, gas and water contained therein. The information from the satellite will be directly relevant to both the management of the well as a producing well and as information upon which development decisions may be made. At the battery, the oil is treated in order to separate the gas and water from the oil. The raw crude oil which remains is then fed into a pipeline for transportation to a refinery. In both the Rainbow and Shekilie fields custody of the raw crude is given over to Rainbow Pipeline, after it has been processed through the battery, for transportation to a refinery in Edmonton.

In the Sierra gas field the process is similar, in that wells in the southern part of the field flowed into a satellite where testing occurred. Also, before any gas leaves the field, it is processed through one of three treatment facilities to remove water and bring it up to pipeline quality. The gas is then transferred to West Coast Transmission Pipelines for transport to Fort Nelson. There, it is put through a processing plant to remove more water and undesirable gases (i.e., hydrogen sulphide, carbon dioxide).

Plaintiff's activities

In 1986 the Mobil oil field in the Rainbow Lake region contained 135 producing wells. The Sierra gas field contained 14 producing wells. The Shekilie operation was much smaller. At Rainbow, Mobil was operating ten water flood recovery systems and two miscible systems. The former are referred to in the evidence as secondary recovery systems, the latter as tertiary or enhanced recovery systems.

An oil well without any secondary or enhanced recovery system will provide access to only about ten per cent of the oil which exists in the part of the reservoir tapped by that well. A larger percentage can however be recovered by secondary or enhanced recovery systems. To implement a water flood, wells are drilled at strategically placed distances from a producing well. Water is pumped via these wells into the strata of the oil reservoir and if the “ water” wells have been properly placed and the reservoir rock has the expected characteristics, the water will displace the oil in the reservoir rock and push it towards the producing well. Thus, additional oil which would not otherwise have been recovered will be accessible from the well. Water floods can result in approximately thirty per cent of the available oil in a reservoir being recovered. The water used for these water floods will be, in part at least, the water which has been separated from the oil in the battery. Thus the water floods are connected by pipe (flow lines) to the battery.

If, instead of using water, another fluid is used, one which will mix with oil (miscible), even greater recovery can be achieved—up to seventy per cent of the oil available in the rock may become accessible. As noted, Mobil had two such systems operating in the Rainbow field. The miscible fluid which was injected into the reservoir strata was comprised of gas which had been separated from the oil in the battery, some of which was processed there into N.G.L. (natural gas liquids), some being residue gas from that process, some being make-up gas from the plaintiff's adjacent BlueSky gas field; in addition a chemical solvent is added.

Insofar as the exploitation or recovery processes are concerned, Mr. Wak- aryk gave evidence that once the facilities for primary production (depletion) of an oil well are in place (e.g., a completed and operating oil well) there is little required in the way of manual labour to keep that well producing in the initial recovery phase. He testified that secondary and tertiary recovery systems are, however, labour intensive:

The manpower requirements during primary depletion are minimal after all the wells are drilled and are producing. However, pumps must be installed when pressure declines and modifications made to the surface gathering and separation facilities.

The manpower requirements for secondary and tertiary depletion development are extensive and continual during the life of the scheme.

While he used the term secondary and tertiary depletion "development", I take that evidence to refer to the operation of secondary and tertiary systems after they have been installed.

During the period between June 1986 and December 1988, the plaintiff carried out 711 kilometres of seismic exploration at Rainbow, at a cost of $2.4 million. It carried out 306 kilometres of seismic exploration at Sierra, at a cost of $1.4 million. During the period of time the plaintiff added three water floods to its Rainbow field. It drilled 24 wells at Rainbow and two wells at Sierra for a cost of $27 and $4.9 million respectively. It reconditioned eighteen wells at Rainbow for a cost of $3.1 million and spent $1.7 million on similar activities at Sierra. Additional compression facilities were constructed at Rainbow carrying a cost of $4.6 million. An NGL fractionator was added; additions were made to the satellite facilities because of the additional wells, at a cost of $1.8 million. At the Sierra field construction projects were performed to create increased compression, to construct a well tie-in, to install a computer to assist in the well monitoring and to implement enhancement of a number of other aspects of the facilities.

In summary capital expenditures over the period of time for Rainbow were $40.3 million and for Sierra were $18 million. Operating expenses during the same period of time were approximately $35 and $15 million respectively. As a result of the development activities in question, the plaintiff increased the oil production in the Rainbow field from 729 cubic metres per day to 1136 cubic metres. It increased gas production at Sierra from 3342 cubic metres per day to 4750 cubic metres per day. As I understand the evidence, the installation of additional wells and enhanced recovery systems result in oil that was previously classified as possible or probable reserves becoming proven reserves (an asset on the books of the company).

Capital expenditures for Shekilie were $3.5 million. Two wells were drilled in that area. One was an extension of an existing pool. The other was drilled to implement a secondary water flood recovery system. Some well recompletions (reworkings) were done. A satellite was added, as were flow lines and some compression facilities.

Mobil employees carried on the aircraft—Mobil accounting records and organization charts

The Mobil employees who were transported to Rainbow, Sierra and Zama were involved with the maintenance and operation of the equipment that was used in the secondary and enhanced recovery systems. The employees were involved with the data collection activities. They were involved with the maintenance and operation of the equipment which lifted and treated the reservoir fluids. They were also involved with any new construction which might take place, for example, supervising the construction of roads, flow lines, capital additions to equipment, installing new equipment. Mobil management employees who made decisions with respect to where and when to develop the field also used the aircraft.

Mobil's accounting records do not distinguish between operating costs involved in lifting the oil, treating the oil once it has been raised to the surface, operating secondary or enhanced treatment facilities, collecting information for the purpose of deciding how to develop the field or constructing these and other facilities. Nor do Mobil’s organization charts distinguish between what one might call development activities and production activities. On Mobil’s organization charts the employees who used the plane were described as production employees.

It is clear that there is no customary or usual meaning associated with the word development" in the oil and gas industry. Mr. Duff gave evidence that:

The definition of exploration does not present a problem; however, the usage of the word development is a very different matter and not easily addressed. In general, the petroleum industry is divided into four main functions: exploration and production, transportation, refining and marketing.

c. [The text] Introduction to Oil and Gas Production does not define development. A development well is defined as, "A well driven in proven territory in a field for the purpose of completing the desired spacing pattern of production."

d. [The] Handbook of Oil Industry Phrases defines development as, "The drilling and bringing into production of wells in addition to the discovery well on a lease". The Illustrated Petroleum Reference Dictionary also defines development as, "The drilling and bringing into production of wells in addition to the discovery well on a lease". These two references have the same author.

A development well is a well drilled within the proved area of an oil or gas reservoir to the depth of a stratigraphic horizon known to be productive. If the well is not completed for production and is abandoned, it is classified as a dry development hole.

Audit by the defendant

Mr. Lockerbie, who audited the plaintiff's claim for tax exemption for the aircraft did so by identifying, from the passenger lists, who had flown on the plane and then determining, from Mobil's telephone directory and from discussions with a Mobil tax manager whether or not the individuals were engaged in exploration. The tax manager, Mr. Dreig, wrote a letter on September 10, 1986 to Mr. Lockerbie:

The Dash 8 was purchased to replace Mobil's aging F-27 aircraft. It flies from Edmonton to Mobil's airstrips at Rainbow Lake, Alberta and Sierra, B.C. Its purpose is to transport personnel and equipment for:

(a) our production operations at Mobil’s Sierra and Rainbow Lake locations

(b) drilling operation in Northern Alberta and B.C.

If an employee was not identified, from the telephone directory and after discussion with Mr. Dreig, as having been engaged in exploration, he was not considered to have been engaged in an activity described in subparagraph 6(b)(i). On examination for discovery, on October 9, 1991, the following exchange between Mr. Lockerbie and counsel took place (page 23, lines 18-20):

Q. Does exploration and development mean the same thing to you as exploration?

A. Well, when I said it then, yes, yes.

Mobil contractors and use of the aircraft generally

In addition to Mobil employees, the aircraft also carried the employees of Mobil contractors who worked in the areas in question and employees of Rainbow Pipeline. Mobil's contracts with its contractors required that Mobil provide transportation to and from the sites for these people. Rainbow Pipeline, as has been mentioned, is the company which is responsible for transporting Mobil’s raw crude from the Rainbow and Shekilie fields to Edmonton. That company is one third owned by Mobil and one third owned by each of Imperial Oil Ltd. and Shell Canada Ltd. The Rainbow employees in question were all Mobil employees who were working under contract for Rainbow Pipeline. Rainbow Pipeline was charged a fee for the transportation of these people.

In addition, relatives and friends of Mobil employees, their contractor's employees and Rainbow Pipeline employees were carried on the airplane, on a "space available” basis only. No charge was made to these individuals.

The agreed statement of facts describes the usage of the airplane:

An analysis of the Aircraft's flight manifests maintained by its air crew indicates that during the period July 1, 1986 to December 31, 1988 the following passengers by category were carried on the Aircraft:

Plaintiff’s Employees	13,785	(45.58%)
Plaintiff's Contractors	8,210	(27.15%)
Other	5,571	(18.42%)
—Relatives of the Employees of the plaintiff,
Rainbow and Contractors
—Miscellaneous personnel
Rainbow's Employees and Contractors	2,677	(8.85%)
	30,243	(100%)

In general the Mobil contractor employees who were transported to the sites were engaged in similar activities to those of the Mobil employees. Thirty- one contractors were listed as having had employees carried on the aircraft. I do not propose to describe all of them but I will refer to the evidence with respect to a few, by way of illustration, together with the description of the activities which they performed for Mobil in the Rainbow, Sierra or Shekilie regions:

A. Aerial Recon Surveys, that was a company that supplied us outlying well surveillance for wells we had remote from our facilities, wells that had no roads into them. We do a surveillance check on them yearly, ensuring the integrity of the well sites.

Q. Were these wells producing?

A. No, they were not. They would be wells that at some point in time we would develop.

Q. Badger Mechanical Services?

A. Badger's Mechanical Services supplied us with mechanics to help us maintain our assets, our pumps, our compressors, all that type of equipment that is associated with operating these miscible floods, the water lift.

Q. Black Gold Valve Specialists Ltd.?

A. Black Gold Valve would provide us with valves, valve repair for the process facilities that were involved at the battery.

Q. What purpose would these valves serve?

A. Most [of] your valves involved with high pressures, when you’re dealing with a process or reinjection, require a lot of maintenance and they were providing that type of maintenance. It’s a sour H,S environment, so you experience corrosion and valve failure.

Q. Bud's Auto Repair?

A. Bud's Auto Repair supplied us with a mechanic to maintain our automotive fleet for all the departments that were involved in the Rainbow operation.

Q. These were the automobiles or equipment you referred to that would pick people up at the airport, for example, or at the runway?

A. That and make the trips out to the construction site, servicing of the wells, drilling of wells, the operating of the wells, that type of thing.

Q. Cactus Drilling Ltd.?

A. Cactus Drilling were a drilling company that supplied drilling personnel and a rig to drill some in-field wells to support the programs we had going related to waterfloods and our enhanced recovery schemes.

Interpretation of subparagraph 6(b) (i)—"and" disjunctive or conjunctive

One issue respecting the interpretation of subparagraph 6(b)(i) which I think can be easily decided is the meaning of exploration and development". In my view, "and" is used disjunctively, not conjunctively, in that phrase. From a practical point of view it is clear that exploration and development are two distinct activities. There may be a great deal of exploration which leads to no development—the exploration simply did not result in a commercially signifi- cant discovery. Surely an aircraft which is used with respect to exploratory activity when no development ensues, qualifies for the exemption. Equally, it seems to me development activity which is distanced in time from the exploration or which does not follow immediately upon successful exploration also qualifies under that provision.

Interpretation of subparagraph 6(b)(i)—passenger/freight service

Counsel for the defendant argues that the type of activity to which subparagraph 6(b)(i) relates cannot be a passenger-freight service. He argues that Mobil was using the plane to provide a private passenger and freight carrying service. As I understand his argument, this follows from the fact that the plane travelled between several public airports (e.g., Calgary, Edmonton, Whitecourt), that it carried passengers and freight (and did not engage, for example, in aerial activities such as aerial surveys for the purpose of geological exploration), and that the places to which it flew (including Zama) were also accessible by road. This argument is based in part on the wording of 6(a) which refers to "public air transportation of passengers, freight or mail”. Counsel notes that 6(b) does not refer to the private air transportation of passengers, freight or mail. Also none of the items listed in paragraph (b) refer to private passenger services and some seem to exclude that possibility: “ aerial construction opera

I do not find that the subject matters listed in paragraph (b) clearly exclude the possibility of a passenger and freight air service being included under those headings, providing that service is directly related to the activity or subject matter described. In addition, Part XVII of Schedule III is headed "Transportation Equipment". The categories of equipment to which the provisions of the Part as a whole apply contain many references to the carriage of passengers and freight (school buses of a certain size, highway trucks of a certain size, vans for transporting handicapped individuals). I see nothing in the overall scheme of Part XVII or in the specific categories listed in paragraph 6(b) which leads me to conclude that a passenger and freight service such as that which was being provided in this case, if it is directly related to the development of natural resources, falls outside subparagraph 6(b)(i).

Interpretation of subparagraph 6(b)(i)—rainbow employees, relatives and frien ds—exclu si vity

Counsel for the defendant does not suggest, and rightly so, that the carrying of relatives and friends on a "space available” basis only, affects the status of the aircraft. This was a casual and incidental usage, peripheral to the use to which the plane was being put regardless of the scope of application given to the word "exclusive".

At the same time, counsel for the defendant argues that the use of the plane by Rainbow Pipeline employees alone takes the plane out of the category of exclusive use described in subparagraph 6(b)(i). Not only were these employees not involved in development activities (they were involved with the transportation of the oil; see Leonard Pipeline Contractors Ltd. v. The Queen, [1980] C.T.C. 305, 80 D.T.C. 6236 (F.C.A.)), they were not even direct Mobil employees at the time. Also, Mobil charged Rainbow Pipelines for transporting these people.

I am not convinced that the transporting of Rainbow employees for a fee removes the aircraft from paragraph 6(b)(i). As with the carrying of relatives and friends that use was incidental and ancillary.

Interpretation of subparagraph 6(b)(i)—development

A variety of definitions of the word development were cited to me. The defendant's policy directive which describes, in her view, the aircrafts, parts and equipment which qualify for the exemption, is exceedingly narrow. It states that they should be involved in:

The search for bodies of oil or gas by geological survey, seismic survey, boring of test holes, etc., aimed at locating the presence of a body of oil or gas; the drilling of a well to obtain access to the underground body of oil or gas; the initial clearing of the oil or gas well site up to and including the installation of the drill rig pad; the construction of the initial access roads to the well site.

Mr. Duff, who appeared for the defendant, defined development as including seismic exploration, some drilling (not that which involves the work-over of a well or the deepening or abandoning of wells), oil well stimulation such as fracturing or acidization but not the installation or operation of secondary or enhanced recovery systems.

Insofar as mineral resources generally are concerned, Mr. Duff noted that the word "development" in the Glossary of Geology and Related Sciences was defined as "work done in a mine to open up ore bodies [such] as sinking shafts and driving levels, etc.” Development work is defined as, "work undertaken to open up ore bodies as distinguished from the work of actual ore extraction.”

Mr. Wakaryk, a reservoir management expert, called by the plaintiff, defined development as including any activity required to get the oil out of the rock and to the bottom of the well bore.

Counsel for the plaintiff argues that development for the purposes of subparagraph 6(b)(i) includes any activity required to extract oil and gas that has been determined to be recoverable.

Although not really relevant, it is interesting to note the definition given to development under the Inuvialuit Final Agreement (IFA), with respect to natural resources, to which counsel for the plaintiff referred me:

under IFA "development" means any commercial or industrial undertaking or venture, including support and transportation facilities relating to the extraction of non-renewable resources from the Beaufort Sea, other than commercial wildlife harvesting. [2]

Counsel for the plaintiff referred me to several Tariff Board decisions which have dealt with the concept development in subparagraph 6(b)(i) as it applies to the petroleum industry: Les Constructions du St-Laurent Ltée v. D./M.N.R. (Customs & Excise) (1980), 2 C.E.R. 104 (Tax Bd.); Conrad-Burtt Industries Ltd. Integrated Flight Services Ltd. v. D./M.N.R. (Customs & Excise) (1982), 5

C. E.R. 55, Can. S.T.R. 80-124, 8 T.B.R. 424 (Tax Bd.); Ocelot Industries Ltd. v. D./M.N.R. (Customs & Excise) (1983), 5 C.E.R. 535 (Tax Bd.). In the Ocelot case, the Board made the observation, which is equally true in this case: "the distinction between development and processing is blurred by the fact that both development and processing of the natural resource were proceeding in pari passu.”

Subparagraph 6(b)(i) does not just apply to the petroleum industry. It relates to "natural resources" in general. The term natural resources has been interpreted very broadly. It includes, for example, water and blueberries, see: Les Constructions du St-Laurent Ltée v. D./M.N.R., supra, and Bridges Bros. Ltd.—Blueberry Farm v. D./M.N.R. (1982), 4 C.E.R. 338 (Tax Bd.), rev'd [1985] 2 C.T.C. 63, 85 D.T.C. 5285 (F.C.A.).

The meaning of the term "development" with respect to blueberry plants, for the purposes of subparagraph 6(b)(i), was addressed by the Federal Court of Appeal in the Bridges Bros’ case, supra. In that case, the plaintiff exploited 8,000 acres of blueberry fields. The plaintiff used a helicopter, in the spring, to inspect the plants and to decide what type of spraying was required. The plaintiff used the helicopter, in the fall, to direct fire crews, which crews burned the plants every other year as a form of pruning. The plaintiff also used the helicopter to patrol for and control trespassers (snowmobilers) and to fly in hunters to shoot bears that threatened the plants. The helicopter was not used for harvesting purposes, e.g., flying berry pickers into the fields or taking the crop out. The majority decision of Tariff Board, at page 343, held that the helicopter was not providing air services related to the exploration and development of a natural resource:

This operation, in the Board's view, has long since ceased to be the initial development of a natural resource within the meaning of Part XVII and has become an annual agricultural operation on a large commercial scale analogous to other agricultural operations employing spraying, pruning, weeding, pollinating and harvesting.

A dissenting member of the Board wrote, at page 346:

"Development" is a word of broad meaning with a number of ordinary and technical usages. Included in dictionary definitions of its use in its ordinary sense are the following:

The Shorter Oxford English Dictionary, 3rd Edition: A developed or well grown condition.

Funk and Wagnalls New Standard Dictionary: Gradual growth or enlargement, as of plant or animal life, . . .

I am satisfied that all of the uses of the helicopter in the applicant's blueberry operations are for the enhancement or protection of the blueberry plants. The ordinary meaning of the expression "development of natural resources" in section 6(b)(i) would apply to the use of the helicopter for those purposes in that it enables the plants to mature and the berries to ripen so that the owner achieves the greatest possible economic beneift [sic] from the resources.

I would therefore have found that all of the uses of the helicopter by the applicant disclosed in the evidence are in the provision of air services directly related to one or other or more than one of the activities enumerated in section 6(b) of Part XVII of Schedule III to the Act and that it is therefore used exclusively in the provision of those services.

The Federal Court of Appeal upheld this minority decision, allowing the plaintiff's appeal from the Tariff Board's majority decision at page 63 (D.T.C. 5285):

In the opinion of the Court the majority of the Tariff Board applied an unduly narrow interpretation of the word "development" in subparagraph 6(b)(1) of Part XVII of Schedule III of the Excise Tax Act and compounded the error by confining the meaning to "initial" development, thus adding a limiting expression not found in the statute. For the reasons given by the learned dissenting member, Mr. Gorman, the appeal will be allowed and it will be declared that the importation of the helicopter in question is exempt under subsection 29(1) of the Act from consumption or sales tax.

The question I have to ask myself is whether the Federal Court of Appeal's decision means that development in its broadest sense is used in 6(b)(i) and, consequently, that counsel for the plaintiff's argument is correct when he asserts that all the activities being carried on in the oil and gas fields, before those resources leave the fields, is development. Alternatively, is a narrower definition of the word "development" in the context of oil and gas fields the proper one. I recognize that eventually this case will likely reach the Court of Appeal and that this issue will ultimately be resolved. In the meantime, I adopt the following interpretation.

I recognize that "development" is a very general word. In its broadest sense, it would seem to include all processing of natural gas and oil, even at the refinery stage. That is clearly not what was intended by 6(b)(i). The term must be interpreted by reference to the category of natural resources to which it is referable. I accept that the definition of development as found in the Glossary of Geology and Related Sciences is pertinent: development is work done to open up a mine or ore body as opposed to the actual extraction of the Ore. I was referred also to the Oxford English Dictionary definition of development:

the act or process of developing (see develop v.3f) a mine, site, estate, property or the like . . .

Develop is defined as:

To realize the potentialities of (a site, estate, property or the like) by laying it out, building, mining etc., to convert (a tract of land) to new purpose or to make it suitable for residential, industrial, business etc. purposes.

This, in my view, insofar as the exploitation of mineral resources is concerned, is consonant with the view that development of an oil or gas field involves work done to open up the "ore" body—that is, give access to the oil or gas as the case might be—but does not include the ongoing operation of the facilities which are used to extract the oil or gas, once those facilities have been put in place. Thus, development would not include the treatment or processing of oil and gas in the field before transmission to a refinery occurs. It would not include the operation of secondary and enhanced recovery systems once they had been installed. I think this distinction accords with the French text of subparagraph 6(b)(i), "l'exploration et la mise en valeur des ressources naturelles". I do not accept the suggestions, made in this case, that oil and gas have no commercial value until they reach the well head or until they are processed in the field before being placed in the pipeline.

In reaching this conclusion with respect to the meaning of the word development in the context of this case, I have been mindful that taxing statutes are to be interpreted in accordance with the principle set out in Stubart Investments Ltd. v. The Queen, [1984] 1 S.C.R. 536, [1984] C.T.C. 294, 84 D.T.C. 6305: 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. In reaching my conclusion I have applied that principle.

Application to the present case

That leaves for consideration the essential issue in this case: whether the plaintiff's carrying of crews, both its own and its contractors, into the Rainbow, Sierra and Zama areas, constituted use exclusively in the provision of air services directly related to development activities.

Counsel for the plaintiff argues that it is sufficient if the plaintiff disproves the assumptions on which the defendant relied in taxing the plaintiff. Counsel asserts in this regard, that it is only necessary to disprove the assumptions on which the auditor relied in making his assessment: that employees who were classified by the company as production employees were not involved in development. It is trite law that the way people or activities are labelled by a plaintiff, or by others, is not determinative. The crucial consideration is the nature of the activity in which they were engaged.

I was referred to no case in which it has been decided that disproving the defendant's assumptions was sufficient in an excise tax assessment case. More importantly however, the defendant's statement of defence specifically states in answer to the statement of claim as a whole:

(a) by the notice of decision referred to in paragraph 13 of the statement of claim the Minister of National Revenue confirmed the Notice of Assessment referred to in paragraph 11 of the Statement of Claim on the basis that the plaintiff failed to establish that the aircraft was used exclusively in the provision of air services directly related to the exploration and development of natural resources.

[Emphasis added.]

I think this results in the burden of proof being placed on the plaintiff to prove that its use of the aircraft falls within 6(b)(i). It is not sufficient to merely prove that the auditor's method of proceeding was incorrect.

I cannot conclude that the plaintiff has met the burden of proof. I cannot conclude that the aircraft was being used exclusively for the provision of air services directly related to development. As noted, development includes the installation of production facilities such as additional wells, flow lines, compressor facilities and enhanced recovery systems but not the operation of production facilities, such as wells, flow lines, compression facilities once installed. It does not include the operation of enhanced recovery systems once installed. It does not include the operation of the treatment facilities in the gas fields and in the batteries in the oil fields.

In the present case, the plaintiff did not try to establish that the plane was being used primarily or mainly for carrying employees engaged in deciding how and when new facilities should be installed or engaged in installing such facilities. The plaintiff simply asserted that the employees in question worked both at operating the existing facilities and that they were involved with any new construction which took place. Mr. Wakaryk's evidence was that the operation of secondary enhanced recovery systems was labour intensive. As noted, there were two miscible systems operating at Rainbow during the period of time in question and ten water floods. The plaintiff did not try to establish that the employees in question would necessarily have spent more time involved in development work than in the ongoing operation of the facilities. Indeed, when asked which employees would be given precedence if space on the plane were limited, the plaintiff's witness answered that those involved in operating the facilities would be given precedence over those involved in construction. I cannot conclude that the plaintiff has met the burden of proof which is on it and established that the Dash-8 was purchased “for use exclusively in the provision of. . . air services directly related to" the development of the oil and gas fields in question.

Appeal dismissed.