The Queen v. Fibreco Export Inc., 95 DTC 5412, [1995] 2 CTC 172 (FCA)

Hugessen J.A.:—This is an appeal from a judgment of the trial division which allowed the respondents’ appeals against their assessments for income tax. The sole question before the trial division was to know whether a certain chemical pulp mill was a "certified property" within the meaning of subsection 127(9) of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act") so as to entitle the respondents to an investment tax credit at a rate higher than what the Minister was prepared to grant. The definition of certified property is as follows:

127(9) “certified property" of a taxpayer means any property (other than an approved project property) described in paragraph (a) or (b) of the definition “qualified property"

(a) that was acquired by the taxpayer

(i) after October 28, 1980 and

(A) before 1987, or

(B) before 1988 where the property is

(I) a building under construction before 1987, or

(II) machinery and equipment ordered in writing by the taxpayer before 1987, or

(ii) after 1986, other than a property included in subparagraph (i), and that has not been used, or acquired for use or lease, for any purpose whatever before it was acquired by him, and

(b) that is part of a facility as defined for the purposes of the Regional Development Incentives Act and was acquired primarily for use by the taxpayer in a prescribed area.

It is common ground that the respondents’ mill is in a prescribed area and meets the requirements of paragraph (a); the only issue is as to whether it also meets those of the first part of paragraph (b). That paragraph in its turn refers us to the Regional Development Incentives Act, R.S.C. 1971, c. R-3 (RDIA) and the definition of "facility" in section 2 thereof:

2. "Facility" means the structures, machinery and equipment that constitute the necessary components of a manufacturing or processing operation other than an initial processing operation in a resource-based industry.

[Emphasis added. ]

The RDIA specifically empowers the Governor in Council to make regulations defining the expressions ’’manufacturing or processing operation’’, ’’initial processing operation” and "resource-based industry". Of particular concern for present purposes are the two latter definitions which are as follows:

“Initial processing operation” means an operation the product of which is a fossil fuel or a material mainly used for further processing or manufacturing, and includes the refining of petroleum, the production of newsprint and the processing of ores to form mineral concentrates, but does not include:

(a) the processing by roasting, leaching or smelting of mineral concentrates to produce metals,

(b) the processing of wood by the sulphite process into bleached sulphite pulp in a pulp mill that prior to January 1, 1972 produced dissolving and high alpha cellulose pulp on a regular basis,

(c) the converting of wood pulp into paperboard or paper other than newsprint, or

(d) the processing, other than petroleum refining, of a product resulting in a significant chemical change in the principal material used.

"Resource-based industry" means an industry that uses as a principal material a material

(a) the original location of which is not the consequence of human design,

and

(b) that is in or close to its natural state.

[Emphasis added. ]

It is common ground between the parties that if the respondents’ pulp mill is not an initial processing operation in a resource- based industry, it otherwise meets the requirements of the definition of facility in the RDIA and, therefore, also meets the definition of certified property in subsection 127(9) of the Income Tax Act. The learned trial judge held that the respondents’ mill was not an initial processing operation, that it was not in a resource-based industry, and that, in consequence, the respondents’ appeals should succeed.

We have very serious doubts about the trial judge’s view that the pulp mill is not part of a "resource-based industry". We also think that the trial judge was wrong to do as he did and refuse to admit certain proffered evidence as to administrative practice and parliamentary history; while the law appears to us to be in a state of some uncertainty as to the use which may be made of such materials in the interpretation of statutes, [1] it seems to us that the debate turns upon questions of weight rather than of admissibility, and that it is error for a trial judge to exclude such evidence. The error, however, is of small consequence here because, on the one hand, a good deal of the material has gotten into the record in any event or otherwise been placed before us and, on the other hand, counsel for the appellant does not seek a new trial.

More important still, in our view, is the fact that the trial judge correctly construed the definition of initial processing operation and, in particular, the scope of the exception in paragraph (d) thereof; if the result is right, the fact that he rejected the evidence of parliamentary debates and administrative practice is irrelevant.

We reproduce again the pertinent words of paragraph (d) of the definition:

(d) the processing...of a product resulting in a significant chemical change in the principal material used.

These are not difficult words and their meaning does not seem to us to be obscure. While it may be argued that any text is ambiguous because of the inherent elasticity of language, there is no doubt in our minds that words are intended to convey meanings and, in fact, do so. The words used here convey a meaning to us which is not difficult to fathom: the processing of a product which results in a significant chemical change in the principal material used is not an initial processing operation. Obviously, the regulation seeks to favour and encourage the establishment in designated areas of sophisticated industries which effect significant chemical transformation of materials.

It is admitted in an agreed statement of facts that the respondents’ mill processes wood chips into pulp and that that results in a significant chemical change in the wood chips. The evidence is that the mill uses a new technology, known as the BCTMP process, which is vastly more efficient than the former mechanical or chemical pulping processes. The question is to know whether it is an "initial processing operation" as defined.

The word "product" is used in the opening words of the definition to describe the thing that results from the operation. Assuming, as the trial judge did, in our view correctly, that it is used in the same sense in paragraph (d), the mill processes pulp resulting in a significant chemical change to the principal material which is wood chips. Assuming, however, as appellant’s counsel argues, that "product" in paragraph (d) is used to describe the object of the processing in the same way as "mineral concentrates" in paragraph (a) and "wood" in paragraph (b), the result does not advance the appellant’s case. On that reading, the wood chips which are being processed are themselves the product of another operation, namely sawing or chipping, and the principal material used, being wood, undergoes a significant chemical change. Either way, therefore, what takes place is not an "initial processing operation".

Parliamentary debates and evidence of administrative practice are only useful as interpretative tools where the text is ambiguous (See McIntosh, supra; Canada v. Antosko, [1994] 2 S.C.R. 312, [1994] 2 C.T.C. 25, 94 D.T.C. 6314). They cannot be used, as appellant’s counsel seeks to do, to create ambiguity. In our view, this text is not ambiguous. While there is no doubt that the officials responsible for administering the RDIA were of the view that pulp mills (at least those that used the old technology) were initial processing operations and were not covered by the exception in paragraph (d) (which explains the subsequent inclusion of the specific exception which now appears as paragraph (b)), it is quite clear to us that mills using the BCTMP technology must be covered by the plain words of paragraph (d). Furthermore, since the RDIA was, in any event, a system of discretionary grants, there was no way in which the official view of the regulation could be challenged; it was only with the incorporation by reference of the definition of "facility" into the Income Tax Act [2] that the matter became one of right; we are told that the present case is the first occasion for a judicial challenge to the administrative interpretation of the regulations.

We would add, as well, that much of the parliamentary material offered is of no possible assistance since the definition with which we are concerned is found not in the statute itself but in the subsequent regulations. Those regulations were not before Parliament and were not the subject of discussion and debate.

For all the foregoing reasons and while specifically not endorsing the trial judge’s interpretation of "resource-based industry" or his rejection of evidence relating to administrative practice, we think that he reached the correct result.

The appeals will be dismissed with costs. Since the hearings in each division of the Court were common to all three files, the taxing officer is directed to allow only a single set of costs in relation to the trial in the Court below and to the hearing in this Court.

Appeals dismissed with costs.