MARETECH CMDL PTY LTD v FC of TJudges:
This is an ``appeal'' from the decision of an Administrative Appeals Tribunal constituted by Deputy President TE Barnett and Associate Professors SD Hotop and RD Fayle in which the Tribunal affirmed the decision under review. The decision was to disallow an objection against the inclusion in the applicant's fringe benefits tax return of $385,560 of taxable value said to be attributable to purported living- away-from-home allowances (``LAFHA'') paid to certain employees of the applicant during the year of income ended 31 March 1994.
The Tribunal defined the issue before it as being whether the sum of daily allowances of $31.50 per employee, paid to employees of the applicant working on an offshore vessel (``the vessel''), rigged to drill exploratory holes at sea to discover petroleum or gas hydrocarbons, is a LAFHA benefit within the terms of s 30(2) of the Fringe Benefits Tax Assessment Act 1986 (Cth) (``the FBTAA''). That subsection provides:
- (a) at a particular time after 10 October 1991, in respect of the employment of an employee of an employer, the employer pays an allowance to the employee; and
- (b) the employee's usual place of employment is on an oil rig, or other petroleum or gas installation, at sea; and
- (c) the employee is provided with residential accommodation at or near that usual place of employment; and
- (d) the allowance is expressed to be paid as a living-away-from-home allowance; and
- (e) no part of the allowance is covered by subsection (1); and
- (f) it would be concluded that the whole or a part of the allowance is in the nature of compensation to the employee for disadvantages to which the employee is subject, during a period, by reason that the employee is required to live away from his or her usual place of residence in order to perform the duties of that employment;
the payment of the whole of the allowance constitutes a benefit provided by the employer to the employee at that time.''
The applicant's contentions before the Tribunal comprised two limbs. The primary contention was that the vessel was neither ``an oil rig'' nor ``other petroleum or gas installation, at sea'' within s 30(2). The secondary contention was the accommodation provided to the workers whilst living on the vessel was not ``residential accommodation'' within the meaning of the same subsection. The second contention does not arise on this appeal. It was not in dispute between the parties before the Tribunal that pars (a) and (d) to (f) of s 30(2) of the FBTAA were not in contention or that the allowance was not within the scope of any of the exclusions in s 136(1) of the definition of ``fringe benefit'' in the FBTAA.
The Tribunal observed that none of the terms ``oil rig'' or ``petroleum or gas installation'' were defined separately in the FBTAA. From evidence before it the Tribunal accepted the term ``oil rig'' was not a term of art ordinarily used within the hydrocarbon exploration industry to refer to either an onshore or offshore drilling unit. It accepted the usual terms for that description were ``drillship'', ``rig'' or ``mobile oil drilling unit'' (``MODU''). The Tribunal also accepted that to describe the vessel as ``a ship'' was not unreasonable because that was what it essentially was. It found the evidence was to the effect the vessel had all the characteristics of a ship save and except that it had a rig.
The Tribunal noted that the term ``oil rig'', while being undefined in the FBTAA, was used twice in the Act - once in s 30(2) and again in s 47(7). The latter provides for an exempt fringe benefit in relation to the cost of providing transfer to and from ``an oil rig, or other installation, at sea'' for crew. The Tribunal continued:
``The term `oil rig' is defined in The Macquarie Dictionary as `the entire structure including all the apparatus needed in drilling for oil'. This suggests that the emphasis is on the word `rig'. `Oil' is also defined in the same reference, in the context of petroleum,
ATC 4035which is appropriate, as `some substance of oily consistency'. `Petroleum' is there defined as `an oily, usu. dark coloured liquid (a form of bitumen or mixture of various hydrocarbons), occurring naturally in various parts of the world, and commonly obtained by boring'.''
The Tribunal found there was no special commercial meaning attaching to the term ``oil rig'' and the term had no industry recognition among professional operatives so that it was necessary for the ordinary meaning of the term to be ascertained.
The Tribunal noted that s 30(2) was introduced into the FBTAA by s 6 of Act No 216 of 1991 effective 24 December 1991. It had been deemed necessary to overcome the effect of the decision of the Federal Court in
Atwood Oceanics Australia Pty Ltd v FC of T 89 ATC 4808. The Bill for that Act, which became the Taxation Laws Amendment Bill (No 3) 1991, was accompanied by an explanatory memorandum which the Tribunal found had stated the Bill ``ensures that living-away-from- home allowance paid to offshore oil and gas rig workers are treated as fringe benefits''.
The Tribunal then found:
``The evidence is that the term `oil rig' has common usage. The Tribunal accepts that the term is used in the industry by non- technical personnel and on occasion when technical persons are addressing non- technical personnel, such as `roughnecks'.''
The Tribunal said that having established the term has a common but not technical usage, it was necessary to examine whether, in the context of the FBTAA, there could be attributed to that term a meaning which would include a MODU such as the drillship in question.
In the course of reviewing the evidence the Tribunal had stated that there were essentially six different configurations of drilling units which were best illustrated by the following diagram of Giuliano:
Source: Francis A Giuliano (Ed) ``Introduction to Oil and Gas Technology'', International Human Resources Development Corporation, Boston; 1981, ISBN: 0-934634-48-3
In its reasons the Tribunal concluded as follows:
``32 ... the applicant submitted that the MODU in question is primarily a ship with a drilling rig and that, since there is no clear
ATC 4036technical meaning of the term `oil rig' the Tribunal is left with no choice but to find that the drill ship in question is not an `oil rig' within the meaning of s 30(2)(b) of the FBTAA because it is not within the common understanding of the meaning of that term.
33 If the Tribunal is to accept the applicant's submission in this regard then s 30(2) of the FBTAA has only limited application, as was mooted by the applicant, to offshore drilling or production platform units. That argument depends on it being reasonable to distinguish between the five offshore drilling units depicted in Giuliano's Figure 5.16 (supra). The applicant submitted that all but the `drillship' there depicted are `oil rigs' according to common usage because that terms requires an `oil rig' to have a drilling platform. The argument proceeds on the basis that the drillship, not having a drilling platform (nor a production platform for that matter), is primarily and principally a ship. The Tribunal does not dismiss this argument lightly, but concludes, on the evidence, that whilst it is reasonable to describe the drill ship as a `ship' during a voyage, that does not preclude its being described as an `oil rig' whilst in situ carrying out drilling operations. The function of the drillship at that time is identical to that of the other rigs depicted above. All are oil drilling rigs in a technical and common usage sense and hence `oil rigs' in a common, if not technical, usage sense.
34 The Tribunal therefore finds that the term `oil rig' as used in s 30(2)(b) of the FBTAA is descriptive of the vessel in question during the period for which the relevant employees carried out the drilling duties which led to the payment of the LAFHA in question.
35 It is therefore unnecessary to consider whether, in any event, the MODU in question is within the description of `or other petroleum or gas installation' in s 30(2)(b). However, the Tribunal finds as fact that because the MODU was anchored to the site for a period of about six months, it was installed there. An installation does not imply permanence; it can be temporary. The Macquarie Dictionary defines installation as `1. something installed; 2. a system of machinery or apparatus placed in position for use', and install as `1. to place in position for service or use,...'. The MODU, in relative terms, was temporary during its use in situ - it would always leave that site when its contract was completed. But that does not deny it the quality of being an `installation'. The Tribunal concludes that when the MODU was drilling for oil or gas hydrocarbons, it was within the statutory description of a `petroleum or gas installation' for the purpose of s 30(2)(b) of the FBTAA.''
The Tribunal therefore affirmed the decision under review.
Grounds of appeal
The Notice of Appeal dated 12 December 1995 state the following grounds as the basis of appeal:
- (a) The employee's usual place of employment is not on an ``oil rig'' or on an ``installation'' within the meaning of s 30(2)(b) of the FBTAA;
- (b) The provisions of s 30(2)(b) are not satisfied in the light of the provisions of the Sea Installations Act 1987 (Cth);
- (c) It is incorrect to say that ``no part of the allowance is covered by'' s 30(1) within the meaning of s 30(2)(e) of the FBTAA;
- (d) The allowance is in the nature of ``salary and wages'' within the meaning of s 221A of the Income Tax Assessment Act 1936 (Cth);
- (e) The allowance is a travel allowance and not a living-away-from-home allowance, and as the employee would be entitled to deductions under the provisions of s 51(1) of the Income Tax Assessment Act in respect of outgoings in relation to which the allowance is paid, there is no fringe benefit within the meaning of the FBTAA;
- (f) The employees are not living away from home but are travelling in the course of their employment;
- (g) Effect must be given to the provisions of ss 74A(2) and 74C(3) of the FBTAA by virtue of the fact that the Commissioner has issued a public ruling (as defined in s 14ZAAA of the Taxation Administration Act 1953 (Cth)).
The respondent took objection to proposed grounds (b)-(g) inclusive. The objection to ground 4(c) was that it was not included in the
ATC 4037taxation objection. That was accepted and the ground is no longer pursued. The other grounds were objected to on the basis they were abandoned on behalf of the applicant before the Tribunal or, if now allowed, would require the calling of additional evidence.
At the hearing I tentatively ruled that I accepted the submissions for the respondent but stated I would hold open a final ruling to enable me to reflect on the authorities which had been argued in relation to the matter. Having done so, I remain of the opinion and rule that the appeal should proceed only in relation to ground (a).
The first reason for so ruling is that it is clear that the other grounds were abandoned before the Tribunal. It is not the case that all the applicant did before the Tribunal was not advance arguments to support grounds (b)-(g). Counsel for the applicant advised the Tribunal he was not pursuing those grounds. That constituted an abandonment of them.
Not only was there abandonment but it is also clear it is not the law that a point or matter not argued below, which nonetheless goes to the ultimate issue as a question of law, can be raised on the appeal:
Port Jackson Stevedoring Pty Ltd v Salmond and Spraggon (Australia) Pty Ltd (1978) 139 CLR 231 at 241;
Water Board v Moustakas (1988) Aust Torts Reports ¶ 80-160 at 67,447; (1988) 77 ALR 193 at 196-197;
FC of T v Raymor (NSW) Pty Ltd 90 ATC 4347;
FC of T v Just Jeans Pty Ltd 87 ATC 4373. For the applicant an attempt was made to distinguish Port Jackson on the ground that it related to a conceded matter. I do not consider that is a significant point of distinction for the purposes of the rule here in issue.
In Water Board v Moustakas (supra) at Aust Torts Reports 67,447; ALR 196, Mason CJ, Wilson, Brennan & Dawson JJ held:
``More than once it has been held by this Court that a point cannot be raised for the first time upon appeal when it could possibly have been met by calling evidence below. Where all the facts have been established beyond controversy or where the point is one of construction or of law, then a court of appeal may find it expedient and in the interests of justice to entertain the point, but otherwise the rule is strictly applied...''
Counsel for the applicant submitted it was in the interests of justice to entertain the points reflected in the additional grounds so that it can be established whether there is at law a true fringe benefit tax liability upon an employer in these situations, rather than having those issues arise in a new appeal involving another taxpayer. The interests of justice are to be determined between the parties to the litigation. Whether the points have been abandoned, or, if pursued would have required evidence to be called, will be the material considerations to determining the interests of justice between them.
The Tribunal not having been invited to deal with the contentions in grounds (b)-(g), no question of law can arise with respect to them, so that there is no jurisdiction in this Court: see s 44(1) of the Administrative Appeals Tribunal Act 1975 (Cth) (``AAT Act'') and
FC of T v Raptis 89 ATC 4994 at 4999;
Secretary, Department of Social Security v Cooper (1990) 26 FCR 13 at 18;
FC of T v Perkins 93 ATC 4524 at 4525-4526. It is not the case the Tribunal made any decision on the unargued issues and reference to
FC of T v Brixius 87 ATC 4963 at 4967; (1987) 16 FCR 359 at 364 does not assist the respondent.
I am also unpersuaded by the submissions for the applicant that the additional grounds could now be argued although evidence was not called before the Tribunal with those grounds in mind.
For these reasons grounds of appeal (b)-(g) are incompetent and the appeal will be resolved only on ground (a).
Evidence of common usage
The first way in which the ground of appeal is pressed is that the conclusion of the Tribunal that the term ``oil rig'' had common usage was based on the testimony of only one witness (Bell) and was contrary to the evidence of two other witnesses (Elliott and Capelle).
In its reasons the Tribunal has said with respect to these witnesses:
``The Tribunal understands the evidence of all three witnesses to be that technical professionals within the hydrocarbon exploration and production industry, both in Australia and elsewhere, would not refer to rigs, similar to those depicted above, as `oil rigs'. However, Mr Bell qualified this by saying that in his experience, it is not unusual for the term `oil rig' to be used in discussion with non-technical personnel
ATC 4038(such as those referred to as `rough necks' who work on the rig). Neither Mr Elliott nor Capelle professed experience of such usage.''
It is submitted that the reference to the witnesses Elliott and Capelle is a finding of fact that they had not experienced such usage within the industry. Consequently, it is said, the Tribunal has preferred the evidence of one witness when there were two witnesses to the contrary.
Additionally it is submitted Bell's evidence addressing the use of the term in relation to non-technical people was evidence which did not address common usage in Australia and derived from Bell's extensive experience overseas. It is correct that Bell was employed in overseas locations until 1988. From 1988 until 1995 he was Drilling Superintendent/Acting Drilling Manager of BHP Petroleum Pty Ltd in Melbourne. In 1995 he became Director, Drilling Operations of another company in Victoria. He therefore had extensive Australian experience. It cannot be the case that when questions were put to him in-chief or cross- examination he would have failed to distinguish Australian experience from international experience where there was a relevant difference. He was not cross-examined on the point.
Argument for the applicant turned to the content of Bell's evidence. In-chief he was asked to comment on Elliott's evidence that the term ``oil rig'' was not a term of art and was not an expression which meant anything to anyone in the industry. Bell testified it was a generic term used by people in the industry including drilling crews. In cross-examination he said it was a term which he had used when talking to other technical persons in the industry. However, he would not use it to convey a technical meaning. His evidence was the sort of circumstance in which he had heard the term used was discussion between rough necks and a friend or family, that is persons without technical knowledge or experience. However, such usage would not be confined to rough necks. It was a term which was more likely to be used when talking to persons outside the industry than persons within it. In re-examination he said he had used the term in conversation with people who were not necessarily working in the field and would not know the difference between a drillship, a semi- submersible, a jackup or a production platform. In re-examination he testified the description ``oil rig'' was recognised in the industry as a term or very loose description not stating what type of rig it referred to.
In response to a question from the Tribunal at the conclusion of his re-examination, Elliott testified he would not regard the term ``oil rig'' as a technical expression. Capelle's evidence in-chief was that while he had heard the vessel described as ``the rig'' he had not heard it described by the phrase ``oil rig''. Additionally, he testified it would be extremely unusual for drillships generally in the industry to be described as ``oil rigs''. He said the description was one which would be used by the uninitiated but not in the industry. In cross-examination he did not deny the term was used from time to time. In his experience the usage was by people who were not knowledgeable about the industry.
Given the evidence of Elliott and Capelle I do not accept the submission for the applicant that there is any significant inconsistency between that evidence and the evidence of Bell. It is apparent from Bell's evidence, together with the evidence of Elliott and Capelle, that there was evidence before the Tribunal which entitled it to reach the conclusion to which it came.
Whether drilling ``for oil''
The second argument advanced for the applicant is based on the Tribunal's acceptance of the Macquarie Dictionary definition of ``oil rig'' as including all the apparatus needed in ``drilling for oil''.
In this respect the case for the applicant turns to what are described as crucial factual findings made by the Tribunal in the following terms:
``All three witnesses agree that the proper technical term to be used to describe the vessel in question is `drillship' or synonymously, `drill ship'. The drill ship is in a class of drilling rigs capable of drilling holes at sea which are described in the industry as `mobile offshore drilling units' [ `MODU']. These are not production platforms but their operations are confined to the drilling at sea of exploratory or hydrocarbon production holes. Production does not involve MODU's. Once an exploratory hole is drilled, even if hydrocarbons are discovered in potentially
ATC 4039commercial quantities, the hole is cemented up, capped and abandoned by the MODU. The hole may never be used to produce hydrocarbons but, in any event, it cannot become a future production hole without removal of the cement plugging by another drilling operation. So the role of the drill ship is to drill holes... In the use made by the applicant for the year of income in question, the vessel was configured as a drill ship for hydrocarbon exploratory drilling off-shore and that was its relevant use for the period of the year during which the allowances were paid.''
Reference is also made to the fact that the daily allowances giving rise to the issue were described by the Tribunal as being paid to employees working on the vessel ``rigged to drill exploratory holes at sea''.
The submission for the applicant is that to fall within the dictionary definition the drilling must be productive of oil. Attention was directed to evidence on what would occur in the event of drilling finding hydrocarbons. In re- examination Elliott testified it was common to remove the drilling equipment in that event and reshoot the site in three dimensional seismic. He testified the drill hole would be filled with cement; that is ``plugged''. His evidence was it may be three months or so before another rig would come in and exploit the well. Capelle testified a drilling semi-submersible was not adapted to carrying out production but only to testing quantities. Bell's evidence was an exploration rig was used to drill and find reserves whereas a production facility was used for producing oil from the reservoir. In Bell's technical report, which was in evidence, it was stated ``exploration rigs are specifically used for drilling wells to prove reserves below the surface of the sea-bed not to produce oil or gas''.
In my opinion it is stretching the use of the language used in the Macquarie Dictionary definition to say that the reference to ``for oil'' requires the drilling to be production of oil as a consequence of a particular drilling. In the normal use of language an exploratory drilling to prove oil or hydrocarbon reserves would be a drilling for oil or hydrocarbons. The Macquarie Dictionary, 2nd ed, p 1511, defines ``rig'' in the relevant sense as being ``the equipment used in drilling an oil or gas well''. Interpolating this into the definition in the same dictionary at p 1237 of ``oil rig'' makes apparent that the dictionary itself is referring to apparatus needed in drilling an oil or gas well. That is the evident purpose of the exploratory drilling found as a fact by the Tribunal. I therefore accept the submission made for the respondent that ``drilling for oil'' as used in the Macquarie Dictionary definition relied upon by the Tribunal means drilling to determine whether oil exists and identifying a relevant well for that purpose.
Next it is contended for the applicant that the term ``oil rig'' necessitates having a drilling platform or a production platform which is not the case in relation to the vessel. It is said the vessel is primarily and principally a ship. In this respect the applicant's case turns to par 33 of the Tribunal's reasons, quoted above, where the Tribunal dealt with the same submission made to it.
For the applicant it is said that in par 33 of the Tribunal's reasons and elsewhere there was a tentativeness of conclusion. It is further said the fact the Tribunal characterised the function of the drillship as being identical with the other rigs does not have the consequence that the drillship is an ``oil rig''. This is followed by reference to the fact that the Tribunal then concluded all were ``oil drilling rigs'' and it is said for the applicant there is no mention of that description elsewhere in the reasons.
It is the case, as the submissions for the respondent contend, that the Tribunal was not accurate when, in par 33 of its reasons, it stated the applicants submitted that all but the ``drillship'' depicted in the Giuliano diagram were ``oil rigs''. The submission for the applicant was that none of the units constituted an ``oil rig'' with the possible exception of the jackup rig. The submission included the exclusion from the description of ``oil rig'' of a platform but not of a production platform.
Whatever imperfections par 33 of the Tribunal's reasons may contain, there is no error of law in the conclusion reached by the Tribunal on the point. There is nothing in the definition of the term ``oil rig'' requiring it to have a drilling platform. The definition of ``structure'' at p 1375 of the Macquarie Dictionary includes in the meaning of that word ``arrangement of parts, elements or constituents;... something built or constructed;... anything composed of parts arranged
ATC 4040together in some way; an organisation''. ``Apparatus'' is defined at p 78 as ``an assemblage of... machinery, appliances, materials, etc, for a particular use''. There is no reason why a seafaring drilling ship could not be referred to as a structure. The derrick on it for drilling purposes would be an apparatus.
The case for the respondent is that an ``oil rig'' is a unit to which a derrick is attached where that unit is involved either in exploring for oil or in the production of oil. However, if you take the derrick off so there is a fixed platform with no rig the contention is that there is an ``installation''. The necessity to consider this issue, which arises as a consequence of the wording of s 30(2)(b) of the FBTAA, only arises if, as the applicant contended before the Tribunal, there is some reason for thinking that the two limbs of that paragraph are to be read together. I agree with the conclusion of the Tribunal in par 35 of its reasons that the vessel having come within the term ``oil rig'' it is unnecessary to consider the issue relating to installation.
The Macquarie Dictionary defines ``installation'' as ``the fact of being installed'': see p 911. The word ``install'' is defined at the same page as ``to place in position for service or use''. There is nothing contrary to these dictionary understandings of the word in the conclusions of the Tribunal in par 35 of its reasons. It was found as a fact the vessel was anchored to the site of the drilling operations for a period of approximately six months and so was installed there.
In my opinion, none of the contentions raised on behalf of the applicant are made out so that there is no error of law established. For these reasons the ``appeal'' should be dismissed.
THE COURT ORDERS THAT:
1. The ``appeal'' be dismissed.
2. The applicant pay the costs of the respondent to be taxed.