Wandoo Alliance Pty Ltd Applicant and Chief Executive Officer of Customs Respondent, Re

[2001] AATA 801

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(Decision by: Associate Professor S D Hotop, Senior Member, Mr R D Fayle, Senior Member)

Between: Wandoo Alliance Pty Ltd Applicant
And: Chief Executive Officer of Customs Respondent

Tribunal:

Associate Professor S D Hotop, Senior Member
Mr R D Fayle, Senior Member

Subject References:
customs and excise
diesel fuel rebate
'mining operations'
whether towing of a 'Concrete Gravity Structure' from Bunbury to Wandoo oilfield for installation at Wandoo 'B' site an activity 'undertaken in the preparation of a site to enable mining for minerals to commence'

Legislative References:
Customs Act 1901 - s 164(1); s 164(7)
Excise Act 1901 - s 78A(1); s 78A(7)

Case References:
Chief Executive Officer of Customs v Dyno Wesfarmers Ltd - (1997) 73 FCR 1
Chief Executive Officer of Customs v Tasmanian Electro Metallurgical Co Pty Ltd - (1997) 76 FCR 476
Chief Executive Officer of Customs v WMC Resources Ltd - (1998) 87 FCR 482
Dawson Rockwater Joint Venture between Dawson Engineering Pty Ltd and Brown & Root Pty Ltd v Chief Executive Officer of Customs - [1998] FCA 1010
Re McDermott Industries (Aust) Pty Ltd and WMC Resources Ltd and Chief Executive Officer of Customs - (AAT Decision No 12014, 7 July 1997)
Regional Director of Customs (WA) v Dampier Salt Operations Pty Ltd - (1996) 67 FCR 108
WMC Resources Ltd v Chief Executive Officer of Customs; Chief Executive Officer of Customs v McDermott Industries (Aust) Pty Ltd and WMC Resources Ltd - (unreported, Federal Court of Australia, Matter Nos WAG 79 and WAG 80 of 1997, 15 December 1997)

Hearing date: 13 & 14 November 2000
Decision date: 20 September 2001

Perth

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Decision by:
Associate Professor S D Hotop, Senior Member
Mr R D Fayle, Senior Member

REASONS FOR DECISION

Introduction

1. On 31 July 1997 Wandoo Alliance Pty Ltd ("the applicant") lodged with the Tribunal an application for review of a decision made on 3 July 1997, as amended on 8 July 1997, by an officer of the Australian Customs Service on behalf of the Chief Executive Officer of Customs ("the respondent") refusing, in part, claims made by the applicant for rebate of duty paid on diesel fuel purchased for use in certain activities in connection with the development of the Wandoo oilfield in the area known as the "North West Shelf" off the north-west coast of Western Australia.

2. At the hearing the applicant was represented by Mr J de Wijn of Queen's Counsel and the respondent was represented by Mr W Martin of Queen's Counsel. The Tribunal had before it the statement and documents ("T documents") lodged by the respondent pursuant to s37 of the Administrative Appeals Tribunal Act 1975 and the following documentary exhibits tendered by the parties:

•

Statement of Agreed Facts, dated 26 April 2000 (AR1);

•

Affidavit of John Anthony Kava, including 18 annexures, sworn on 17 October 2000 (A1);

•

2 letters from Ian Fraser, Director, Petroleum Operations Division, Department of Minerals and Energy, Western Australia to "Wandoo Asset Team Leader", dated 10 July 1996 and 12 August 1996 (A2 and A3, respectively);

•

letter from Peter Baillie, Acting Director, Petroleum Operations Division, Department of Minerals and Energy, Western Australia to "Wandoo Asset Team Leader", dated 24 December 1996 (A4);

•

brochure entitled "The Wandoo Project" (A5);

•

amended statement under s37 of the Administrative Appeals Tribunal Act 1975 (R1).

The Tribunal and the parties viewed a video tape entitled "Wandoo: Innovation in Energy" which was Annexure "JAK 14" to the abovementioned affidavit of John Anthony Kava (Exhibit A1). There were no witnesses.

The Issue

3. The sole issue raised by the parties for the Tribunal's determination in this matter is whether a rebate of duty is payable under s164(1) of the Customs Act 1901 and s78A(1) of the Excise Act 1901 to the applicant in respect of diesel fuel purchased for use by tug vessels in towing a "Concrete Gravity Structure" ("CGS") from Bunbury, on the south-west coast of Western Australia, to the Wandoo oilfield on the North West Shelf - a distance of approximately 1700 kilometres - during the period from 12 September 1996 to 5 October 1996. More specifically, the issue for the Tribunal's determination is whether the abovementioned diesel fuel was purchased for use "in mining operations" within the meaning, and for the purposes, of s164(1)(a) of the Customs Act 1901 and s78A(1)(a) of the Excise Act 1901.

The Factual Background

4. The Statement of Agreed Facts (Exhibit AR1) refers merely to the applicant's claim for rebate of duty, the respondent's decision thereon, and the applicant's application to the Tribunal for a review of that decision. The factual background to the present application is, however, fully set out in an affidavit of John Anthony Kava sworn on 17 October 2000 (Exhibit A1), the truth of whose contents was not disputed by the respondent. Mr Kava's affidavit commences by summarising his qualifications and previous employment experience and continues:

"...

2.

My involvement in the Wandoo project arose as a result of my employment with Ampolex Limited (Ampolex). Ampolex was my employer from July 1992 until April 1997. Ampolex was at all relevant times the operator of Exploration Permit WA-202-P (which covered the Wandoo oilfield).

3.

Ampolex (Legendre) Limited (Legendre) was at all relevant times a wholly owned subsidiary of Ampolex and was the registered holder of Exploration Permit WA-202-P. The Wandoo oilfield was excised from Exploration Permit WA-202-P in March 1996 when Production Licence WA-14-L was granted. At the time of swearing this affidavit, I believe that Legendre has undergone a number of name changes, having changed its name to Mobil (Legendre) Limited and now being known as Mobil (Legendre) Pty Ltd.

4.

Wandoo Alliance Pty Ltd (the Applicant) was at all relevant times a subsidiary of Legendre. I am authorised to make this affidavit on behalf of the Applicant.

5.

I joined Ampolex in July 1992 as a Senior Construction Engineer in the Ampolex Projects Group, reporting to the Ampolex Manager-Projects, in which position I worked as Project Coordinator of the extended production testing phase of the Wandoo project. This role was based in Sydney and my responsibilities included preparation of the Ampolex Projects Group's submissions to the Board of Ampolex in relation to the Wandoo project and coordinating the various tasks that were at that stage being undertaken by internal and external consultants (including the conduct of feasibility studies into the possible use of a concrete structure to exploit the Wandoo reserves). I was responsible for coordinating all project disciplines internal to the Projects Group and for liaising with external groups including Ampolex's drilling, operations, reservoir engineering and exploration groups.

6.

In January 1994 I relocated to Perth where I became Deputy Project Manager of the Wandoo Full Field Development project activities, where I was responsible for evaluating the various hardware options which had been considered for executing the project, as well as conducting the necessary estimates and planning activities for the construction of the proposed alternatives including Concrete Gravity Structures (CGSs).

7.

From September 1994 until December 1994 I worked in the role of CGS Manager where I was responsible for the design, construction and installation aspects of the CGS element, and from January 1995 until April 1997, I worked as Project Integration Manager with responsibility for integrating Ampolex's requirements into the design, construction and installation activities of the Wandoo 'B' platform as well as submitting all applications for government approval and liaising with the media. I was also responsible for negotiating the Bunbury Casting Basin Heads of Agreement and Lease.

8.

In April 1996, the Wandoo Alliance Board appointed me with the additional responsibilities and role of 'CGS Completions Manager'. In this role, I was responsible for ensuring all internal teams and external parties (including government approvals) were coordinated to ensure the earliest sail-away of the CGS from Bunbury.

9.

As a result, I worked exclusively on the Wandoo project between July 1992 and April 1997 and was involved at all stages of the design, construction and commissioning of the Wandoo offshore facilities.

...

11.

The Wandoo oilfield was discovered within the area of Exploration Permit WA-202-P, which was initially granted by the Commonwealth of Australia to Arco Australia Limited (Arco) on 16 October 1986. Arco later became Legendre, following its acquisition by Ampolex in, I believe, the late 1980s. ...

12.

In November 1990, Ampolex entered into a farmin (sic) agreement with Arco pursuant to which Ampolex (among other things) acquired an interest in the Exploration Permit in consideration for meeting the cost of the exploration commitments required under the Exploration Permit's work program. In June 1991, Ampolex drilled the discovery well in the Wandoo oilfield (the Wandoo - 1 well ). The results were potentially extremely promising with a flow of heavy crude oil at approximately 600 metres below sea level from a friable sand reservoir. The Exploration Permit has been continually renewed by Legendre although interests in it have at various times been allocated to various other parties and the number of blocks within the permit area has reduced with each renewal. ...

13.

In July 1992, Ampolex drilled another two appraisal wells to help delineate the northern and eastern extensions of the Wandoo oilfield (the Wandoo - 2 and 3 wells). Testing indicated that there were significant oil reserves, although significant sand production was evident also. The oil was clearly in place but it could not be exploited unless technologies were developed, tested and proven to ensure the sand could be controlled within the well bore. In addition, there were a number of other technical difficulties due to the combination of the sandy nature of the reservoir rock, the low temperature and shallow depth of the reservoir, the relatively thin oil column and the unusual nature of the Wandoo crude. It was clear that the technical difficulties would need to be overcome at an acceptable cost and within a reasonable timeframe before a commercial development of the oilfield could take place.

14.

In particular, during the production testing of Wandoo-1 and 2 wells, significant quantities of sand were produced from the reservoir which filled up the test equipment. It was clear that effective sand control technology would be needed to develop the field. Further, the fact that the oil column is located in a thin 22 metre horizontal plane of friable sandstone reservoir rock between a layer of water at its base and a layer of gas above it meant that a vertical well would produce unacceptable quantities of water due to 'coning' of the water up through the oil saturated reservoir into the producing well. In addition, due to the Wandoo crude being of a higher viscosity (like treacle) than water, the producing well would have a greater affinity to producing water rather than oil.

15.

An Extended Production Test (EPT) was approved to evaluate and test the Wandoo field, including testing drilling and completion technologies, in order to determine the optimum field development strategy. The initial EPT was designed as a 120 day test of one deviated and one horizontal well, both producing via a well-head platform to a temporary processing and offloading facility. The initial test commenced on 17 October 1993 and ended on 14 February 1994. Production testing was subsequently extended, renamed the Early Production System (EPS) to allow continued evaluation of a number of outstanding technical issues prior to submission of a full field development plan.

...

17.

The initial concept for the EPT consisted of a steel monopod platform (the Wandoo 'A' monopod) connected to a leased floating production storage and offloading vessel via a short subsea pipeline (referred to as an FPSO). The Wandoo 'A' monopod was to be used to support the wells, surface sand filters and well controls necessary to produce safely oil for transfer to the FPSO for processing and testing. However, as negotiations to lease an FPSO were unsuccessful, Ampolex elected in February 1993 to replace the FPSO with a jack-up drilling rig (the Hakuryu VII jack-up rig) with processing facilities on board, linked by a subsea pipeline to a catenary anchor leg mooring buoy (the CALM buoy) for mooring oil tankers while loading oil.

...

19.

Installation of the Wandoo 'A' monopod commenced on 23 May 1993 and, after a significant delay caused by bad weather, was finalised on 4 July 1993. ...

...

22.

It was the financial cost incurred with the realisation of risks associated with the offshore development of the EPT (in the context of a traditional contracting methodology) that drove Ampolex to seek an alternative and eventually led it to committing to an 'Alliance' methodology.

...

28.

During 1993, in tandem with the EPT activities taking place at Wandoo 'A' to obtain information on the sub-surface aspects of the Wandoo oilfield, attention was directed to the manner in which the above surface facilities for full field development could best proceed if the EPT turned out to be favourable.

29.

Five general surface facility concepts for mining the reservoir fluids, then separating, stabilising and disposing of the oil, water and gas were considered. The key factor which was identified as having the maximum impact on the capital cost required to develop the field was the oil storage or oil transport system. Hence, options for storage of oil were studied by Ampolex, as follows:

•

an FPSO vessel;

•

an infield subsea storage (concrete or steel);

•

a conventional steel jacket/topside and a pipeline to onshore storage;

•

a conventional steel jacket/topside and offshore floating storage; and

•

an upgrade to the existing EPT/EPS facilities at Wandoo A.

30.

As the Wandoo oilfield is remote from existing oil pipeline transport infrastructure, the reservoir is located at a relatively shallow depth and possesses a very unusual combination of reservoir rock and crude characteristics, Ampolex determined that a developmental concept using offshore subsea oil storage in a CGS supporting a processing topside would be the most cost effective solution upon which to base full field development at Wandoo (ie it would deliver the highest net present value to the project). It was envisaged that a CGS could be designed to allow up to 12 wells to be drilled through one shaft. It would also have the capacity to take and process reservoir fluids extracted from Wandoo 'A' via subsea infield pipelines or flexible flowlines.

...

32.

It would not have been economically viable to construct a CGS offshore at the Wandoo oilfield location. CGSs have traditionally been constructed either:

•

completely 'in the dry'; or

•

initially in the dry and then in a sheltered deep water wet dock with the incomplete structure floating during the construction.

The first method is achieved by utilising a dry dock, casting basin or floating barge. These types of structures are usually relatively small (like the Wandoo 'B' platform) and designed for shallow waters up to 80m deep. The second dry/wet dock combination is traditionally used for massive structures like the Troll A concrete platform in the North Sea. It was constructed in a 335m deep Norwegian fjord and stands about 304m high. I believe that it required approximately 12 x 20,000 bhp tugs to move it to the oilfield.

33.

Given that the Western Australian ports and harbours are relatively shallow, (generally no deeper than 15m with a typical value being in the 12 to 13m range), any CGS design for construction in Western Australia would need to allow for the natural features and constraints of the actual casting basin or dry dock to be used. In 1994, there were no dry docks or existing casting basins capable of constructing a CGS in Western Australia. Ampolex faced the cost and technical risk of constructing a casting basin facility on a greenfield site as a key element of the preparation of Wandoo for mining operations.

34.

In considering where to construct a casting basin, Ampolex commissioned independent consultants to study the issue. Kinhill DORIS, Alistair Eddy and Evans & Peck Management Consultants each completed reports analysing the best location (ie that which would deliver the highest net present value to the project) for construction of a CGS. ... the Kinhill DORIS report ... considered the suitability of Cockburn Sound, Darwin, Port Hedland, Dampier, Geraldton and Bunbury and suggests that Bunbury would most likely be the best site for the CGS to be built. Having received these reports, Ampolex formed the view that the most cost effective and suitable place to construct a CGS, if in fact it was decided to proceed to full field development, would be Bunbury.

35.

Consideration was also given to the contracting methodology and selection of potential contractors who could participate in the design, construction and installation of any CGS that would be necessary if the decision was made to proceed to full field development.

36.

Ampolex considered that an 'alliance approach' between the various contractors would be likely to provide a cost effective means of developing the project while also enabling an effective sharing of risk between alliance participants. ...

...

38.

By February 1994, the results of the EPT were positive. The reservoir had performed as had been modelled. The steps taken to prove well drilling and completion technology had also proved to be effective, but further steps were required if the project was to be viable. Ampolex considered that the results justified further studies on the development of the full Wandoo oilfield. Up to this stage, Ampolex had conducted its operations at the Wandoo oilfield pursuant to the Exploration Permit. To continue production testing pursuant to the EPS, Ampolex was granted approval to conduct further testing by the Western Australian Government in its capacity as the 'Designated Authority' under the Petroleum (Submerged Lands) Act 1967.

39.

Following the EPT extension into the EPS, additional wells were drilled. The EPS involved the extraction of fluid from the reservoir via the five wells beneath the Wandoo 'A' monopod and the processing of the fluid by separating out the oil on the Hakuryu VII jack-up rig. The oil was then pumped from the Hakuryu VII jack-up rig to the CALM buoy and continually off-loaded to a conventional tanker. There was no oil storage facility on either Wandoo 'A' or the Hakuryu VII jack-up rig.

40.

The results of the EPT and subsequent full field studies were presented to the Board of Ampolex on 6 September 1994. The Board approved the capital budget for the full field development of Wandoo using a CGS and approved the use of an alliance approach. ...

41.

The Ampolex Board approved the full field development plan on the basis (among other things) that development costs and delays could be minimised by forming an 'alliance' for the construction, installation and commissioning phases of the development. ...

The Wandoo Alliance

42.

It was recognised that the Wandoo oilfield would be of marginal viability due to its combination of relatively small size, its geographic location relative to other producing oilfields and the unusual reservoir rock and crude characteristics, having regard to the technology available at the time. The Wandoo Alliance was formed in September 1994 to meet Ampolex's objective of bringing the oilfield to full production as soon as possible. The Wandoo Alliance comprises an unincorporated joint venture between Ampolex, Leighton Contractors Pty Ltd (Leighton Contractors), Dawson Engineering Pty Ltd and Brown & Root Pty Ltd (t/a Dawson Brown & Root Unincorporated Joint Venture) (Dawson Brown & Root), Keppel Corporation Limited (Keppel Corporation) and Ove Arup Pty Limited (a partner of Ove Arup & Partners) (Ove Arup & Partners). The Wandoo Alliance was formed to design, construct, transport, install and commission the offshore facilities for the Wandoo oilfield.

43.

The initial concept of the CGS, as approved by the Ampolex Board, ... had 8 legs and a storage capacity of 500,000 barrels. The processing facilities and accommodation modules were to be mounted on a converted derrick barge which would sit on top of the CGS.

44.

The participants in the Wandoo Alliance considered the Ampolex proposal and reported to Ampolex in a late 1994 report (the Interim Report) that the original proposal could not be constructed at a cost which would make development of the Wandoo field economic and which suggested that either a different CGS structure or an FPSO should be used instead. ...

45.

Having received the Interim Report, Ampolex requested the participants who made up the Wandoo Alliance to consider whether there was any way that the field could economically be developed. The Alliance members reconsidered the various alternatives which might be utilised for the development of the Wandoo field and proposed to Ampolex that the concept of a CGS with topside be maintained, but in a different form. The Alliance members proposed that the CGS only have 4 legs, with 300,000 barrels storage capacity and utilising a more traditional, custom built, integrated deck topside which would be installed by floating over the CGS. This was expected to be significantly less expensive than the original proposal. ...

46.

Each participant in the Wandoo Alliance was responsible for performing the following tasks to make the Wandoo development operational:

•

Ampolex - as the operator of the Wandoo oilfield, Ampolex provided personnel with production operating experience and advice. One of my roles was to liaise between the Wandoo Alliance and the Ampolex operations and drilling groups to ensure Ampolex's needs were met by the Alliance. As the operator, Ampolex also provided advice and representation on safety, environmental, industrial and governmental issues, particularly with respect to approvals under the Petroleum (Submerged Lands) Act 1967.

•

Ove Arup & Partners - the designer of the CGS and Bunbury casting basin in which the CGS was constructed.

•

Dawson Brown & Root - the designer of the integrated deck topsides and pipelines, Dawson Brown & Root was also responsible for all offshore installation, hook-up and commissioning, providing personnel for procurement of major capital items of process equipment, project services and some project management systems.

•

Keppel Corporation - a Singaporean company which through its Far East Livingstone Shipyard (FELS) was the fabricator of the integrated deck, along with the design and construction of the accommodation quarters.

•

Leighton Contractors - the company responsible for the construction of the CGS and Bunbury casting basin.

47.

An alliance agreement was executed by each participant in the Wandoo Alliance on 28 February 1995 (the Alliance Agreement). ...

48.

The purpose of the Wandoo Alliance, as evidenced in the Alliance Agreement was to design, construct, transport, install and commission the facilities for the Wandoo field. The objective of the Alliance was to deliver a site ready for the production and storage of oil and which met certain performance criteria.

49.

The nature and extent of each participant's role in the Wandoo Alliance is regulated by the Wandoo Alliance Agreement. ...

50.

A 'gainsharing arrangement' was agreed to between the Wandoo Alliance participants and incorporated into the Alliance Agreement. ...

...

Independent confirmation of the CGS technology

58.

In March 1994, the Concrete Institute of Australia (CIA) published an independent report on the concrete offshore structure industry for Western Australia (the Stage 1 Report). The Stage 1 Report analyses the potential markets, engineering, construction and infrastructure aspects of concrete offshore structures. ...

59.

As indicated at paragraph 30 above, concrete was chosen for the Wandoo project because it was the most cost effective solution. Ampolex had considered a range of possible alternatives and concrete construction was estimated to be the most viable method enabling development of the oilfield at a cost which made the project economic. The Stage 1 Report described a number of the benefits afforded by concrete construction, specifically referring to the facts that:

•

Western Australia does not have a resident fleet of derrick barges and other large marine construction equipment needed for the installation of steel platforms (page 5 of the Stage 1 Report). Therefore, the cost of mobilising derrick barges is relatively high. In addition, considerable derrick barge time can be lost during installation of a steel platform, waiting on weather, or overcoming down-hole problems with piles. Derrick barges are not necessarily required to install concrete gravitational (sic) structures.

•

If properly constructed, a CGS requires virtually no maintenance in contrast to steel structures (page 21 of the Stage 1 Report).

•

According to popular opinion, CGSs work most effectively in depths up to 80 metres (page 17 of the Stage 1 Report). The water depth at Wandoo B is 54 metres and is therefore suitable for the use of a CGS.

•

Experience in the Carnarvon Basin has shown that at a depth of around 54 metres in the Carnarvon Basin, the seabed is flat, hard calcarenite, sometimes overlain by a loose but granular sand layer up to several metres in depth (page 17 of the Stage 1 Report). On page 18 of the Stage 1 Report, the CIA observe that:

'Subject to management of potential scour of the surface sand layer, the seabed in less than 80 metres of water in the Carnarvon Basin is generally highly suitable for gravity base structures.'

•

CGSs can be more economical in water depths up to 80 metres because they lend themselves to construction of finished platforms requiring no piling or on-site deck installation. This reduces the cost and risks of offshore work and can eliminate the need to mobilise derrick barges (pages 24-25 of the Stage 1 Report).

The Stage 1 Report concluded that a CGS could be constructed and operational in a far shorter time frame than an equivalent steel platform. ...

Independent confirmation of Bunbury as appropriate for CGS construction

60.

Subsequent to the Stage 1 Report, a joint industry report was issued by the CIA and the Cement and Concrete Association of Australia (CCAA) further analysing the concrete offshore structures industry for Western Australia (the Stage 2 Report). ... The Stage 2 Report focuses on site selection for the construction of a concrete offshore structure, industrial relations issues and upon providing a cost benefit analysis of establishing a concrete offshore structures industry in Western Australia. In preparing the Stage 2 Report, the CIA and CCAA held discussions with Ampolex and Wandoo Alliance participants.

61.

The short listed locations for the potential construction of a CGS referred to in the Stage 2 Report are Albany, Bunbury, Fremantle, Cockburn Sound (Jervoise Bay) and Port Hedland. The model CGS proposed by Ampolex for use at Wandoo was taken as a model to assess each of the short listed sites in order to determine their suitability.

62.

The Stage 2 Report (Chapter 6) recommended that the Bunbury Inner Harbour was the most cost effective location in Western Australia to construct a concrete offshore structure for the reasons set out below:

•

the site could be expanded to simultaneously handle two projects of a Wandoo scale or one much larger project;

•

the future of the site could be secured for 10-15 years;

•

water depth in the exit channel and the dock was a reasonable 12 metres Low Water Mark (LWM), thereby allowing a large range of structures to be built in a single stage process;

•

the site was available for immediate development;

•

the site had the least expensive order of magnitude of development cost and had the capability for one stage construction (the table on page 22 of the Stage 2 Report indicates that the Total Development Cost of Bunbury Inner Harbour was estimated to be $9 million cheaper than Jervoise Bay and $29.7 million cheaper than Albany);

•

the site was sufficiently flexible for reshaping for alternate needs during construction, or for other projects, as the site could expand into other lands;

•

the site had the capability to cost effectively handle future structural concepts for offshore permit developments envisaged at the time of writing the report;

•

the site was both publicly and environmentally acceptable; and

•

regional labour resources were available.

...

Design of the CGS and integration with site conditions

64.

... the construction of the Wandoo 'B' platform involved five separate elements necessary to recover the oil from the Wandoo reservoir. The key construction elements of the development were:

•

the casting basin at Bunbury, Western Australia;

•

the concrete gravity substructure (sic) (CGS);

•

the 6,500 tonne processing topside;

•

five flexible sub-sea pipelines linking the platform with Wandoo 'A' and the export tanker loading buoy; and

•

transporting, installing and hooking up the CGS and topside in the open sea.

...

66.

As I stated at paragraph 30 above, Ampolex determined that the use of a CGS with topside would be the most cost effective solution upon which to base full field development at Wandoo. It would deliver the highest possible net present value to the project. This decision was made by Ampolex having regard to the particular characteristics at the site at which oil was to be produced and stored. Ampolex's views were confirmed by the Wandoo Alliance participants when they re-evaluated the available alternatives after the delivery of the Interim Report referred to in paragraph 44 above, opting for a 4 legged CGS with a 300,000 barrel storage capacity, rather than an 8 legged structure with 500,000 barrel capacity as had initially been proposed.

67.

The detailed design of the CGS was complex. It had to be designed to satisfy the specific site conditions, to take account of certain unique features of the crude involved and to allow for its safe installation and integration with the topside. The site at which the CGS was to be positioned was surveyed on a number of occasions to ensure that the CGS was designed to suit and could be satisfactorily installed at the site and to ensure that once installed, the CGS could operate safely and continuously. ...

...

78.

... the design of the CGS and topside was subject to constant adjustment and change throughout the period of construction, to take account of particular requirements of the site, the nature of the crude involved and requirements for processing and dealing with the oil and by products as further information about conditions at Wandoo 'B' progressively became known. We found that the use of the cooperative Alliance approach to prepare the Wandoo site by designing, constructing, transporting, installing and commissioning the platform broke down the barriers between different participants and allowed an integrated approach to be taken. Design engineers in Perth using video conference and high speed digital link facilities worked seamlessly with engineers constructing the CGS in Bunbury and the topside in Singapore to develop and refine the design, to incorporate the construction, transportation, installation and transportation requirements to meet the overall alliance goals. Representatives of the design engineers were also integrated into the construction teams located on-site in both Bunbury and Singapore.

79.

Changes made to the design to deal with particular technical problems, were created through the combined input of all teams' needs through dialogue at each location. For instance, adjustments were made to the topside support legs to ensure that it would be level and mate with the CGS. This followed survey of the CGS shaft connection cans at the site.

80.

The integrated approach taken to the design and construction enabled the off-shore facilities to be designed, constructed, transported, installed and commissioned in a cost effective manner while at the same time ensuring that once installed they would be capable of meeting the specific requirements needed to exploit the Wandoo reserves. All preparation had to take place at the various construction sites and design offices. By its very nature it would be virtually impossible to make any significant changes to the CGS once installed in over 54 metres of water.

81.

In every respect, the design of the topside was closely integrated with the design of the CGS - for example, ballast water and oil export pumps in the CGS had motors located in the topside and while the oil storage cells are located in the CGS, the computerised control functions are situated in the topside. The whole process was designed to ensure that once installed, the site would be fully operational.

82.

Considerable changes were encouraged if they met the Alliance goals. For example, mid-construction, a decision was made to increase the oil storage capacity of the CGS from 300,000 barrels to 400,000 barrels when a breakthrough idea identified how it could be achieved without changing the footprint size of the CGS and without affecting the estimated completion date of the construction project.

...

85.

The final CGS design, as ultimately installed at Wandoo 'B', consists of a base caisson (which is installed on the sea bed) from which 4 shafts rise to support the topsides. The base caisson is a rectangular shaped concrete box 114 metres long, 69 metres wide and 17 metres high, divided by crosswalls into approximately 11 metre square cells. The shafts, which rise 52 metres above the caisson, have a circular section and each fits within a single 11 metre square cell. The caisson is enclosed on the top and bottom by flat concrete slabs, except for 8 open ballast cells on each side, and the walls are prestressed on both the longitudinal and transverse horizontal directions. The cells are linked by the openings in the top and bottom of the walls to form 3 oil storage compartments, each of which is surrounded by pressure resisting walls up to 1.3 metres thick.

The 4 shafts of the CGS which support the topsides serve the following purposes:

•

shaft 1 is located at the north-east corner of the CGS and is dedicated to the sub-sea drilling operation of the facility having 12 wellhead conductors;

•

shaft 2 is located at the south-east corner and contains diesel storage for emergency power generation;

•

shaft 3 is located at the south-west corner under the accommodation block and is flooded with seawater which serves as ballast;

•

shaft 4 is located at the north-west corner and contains oil export product storage facility lines, ballast water inlet valves, ballast water inlet and outlet pumps, oil export pumps and interface layer treatment pumps.

Construction of the CGS

...

Hiring the Tugs to Tow the CGS

97.

Dawson Brown & Root was the Wandoo Alliance participant responsible for transporting the CGS from the Bunbury Inner Harbour to the Wandoo oilfield - a distance of approximately 1,700 kilometres. The vessels used in the tow of the CGS from Bunbury Inner Harbour to Wandoo were hired by Dawson Brown & Root from Australian Offshore Services, a division of P & O Maritime Services Pty Ltd.

98.

Dawson Brown & Root entered into uniform charter party agreements with Australian Offshore Services to hire the tugs used to tow the CGS to Wandoo. The vessels used in Dawson Brown & Root's tow of the CGS are as follows:

Lady Audrey

The Lady Audrey was utilised by Dawson Brown & Root from 9 September 1996 to 26 September 1996. The Lady Audrey consumes 41,000 litres of fuel per day when operating on four engines at full power. In towing the CGS towards Wandoo, the Lady Audrey used 541,095 litres of diesel fuel.

Lady Valisia

The Lady Valisia, a 12,228 brake horsepower tow boat was utilised by the Applicant from 10 September 1996 to 19 September 1996 to tow the CGS north towards Wandoo. The Lady Valisia consumes 55,000 litres of fuel per day when operating on four engines at full power. The Lady Valisia has four main Nohab Diesel F 312V engines and three auxiliary engines. The Lady Valisia used 325,409 litres of diesel fuel in towing the CGS north prior to returning to its port of Fremantle for repairs.

Far Sword

The Far Sword is a 12,720 brake horsepower tow boat which was utilised by the Applicant from 17 September 1996 to 8 October 1996 to complete the tow of the CGS to Wandoo. The Far Sword consumes 45,000 litres of fuel per day when operating at full power. The Far Sword used 461,580 litres of diesel fuel in completing the tow of the CGS to Wandoo.

Jaya 123

The Jaya 123 is a 10,000 brake horsepower tow boat which was used by the Applicant from 20 September 1996 to 7 October 1996 to assist in the tow of the CGS to Wandoo. The Jaya 123 consumes 35 tonnes of fuel per day when operating at full power. The Jaya 123 consumed 257,023 litres of diesel fuel when assisting in the tow of the CGS.

Towing the CGS to Wandoo B

99.

The CGS was towed out of Bunbury Inner Harbour on 12 September 1996 by the Lady Valisia and the Lady Audrey. At an initial speed of three nautical miles, the Lady Valisia and the Lady Audrey commenced to tow the CGS towards Wandoo. Approximately 100 kilometres out of Bunbury, bad weather swept across the south-west corner of Western Australia. With eight metre swells washing over the deck of the CGS and winds gusting at up to 100 kilometres an hour, the progress north was slowed to less than two nautical miles.

100.

At 2.00 am on 18 September 1996, the unfavourable weather caused the nylon spring section of the towing line to part between the CGS and the Lady Valisia, leaving the only the Lady Audrey to hold the CGS in storm conditions. The location was approximately 75 nautical miles west-northwest of Perth and about 50 nautical miles offshore. The Lady Audrey, attempting to hold the CGS at bay, operated at 70 per cent power to ensure that the remaining tow cable did not break. A recovery team was winched on board the CGS the next day to re-attach the tow-line to the Lady Valisia.

101.

During the recovery of the broken tow-line, part of the line fouled the starboard propeller of the Lady Valisia, resulting in damage to the starboard clutch. As a result, the Lady Valisia was forced to return to its home port at Fremantle. The Lady Valisia was replaced by the Far Sword which was mobilised from Geraldton.

102.

The CGS averaged a speed of approximately two knots per hour over the 1,700 kilometres (900 nautical miles) to Wandoo and arrived there on 5 October 1996.

Construction of the Topsides

103.

Construction of the topsides for the Wandoo 'B' platform began in Singapore in August 1995 and the topsides sailed away in late December 1996. ...

...

106.

... The topside left Singapore on 19 December 1996 and arrived at the Wandoo oilfield on 10 January 1997.

Installation and Commissioning of the CGS and Topsides

107.

After the CGS had been positioned above its intended resting place, select internal chambers of the CGS were flooded with sea water. Over a period of seven hours, the stern of the CGS was ballasted down providing the CGS with a lean of 29 degrees. Once contact was made with the ocean floor, the remaining cells of the CGS were flooded, thereby resting the CGS horizontally on the ocean floor. To adequately anchor the CGS on the ocean floor, approximately 50,000 tonnes of solid iron ore ballast was placed into the open cells of the CGS. Rock was also placed around the base of the CGS to prevent the CGS from scouring the sea bed.

108.

During the 3 month gap between when the CGS was installed in October 1996 and before the topside was installed in January 1997, three vessels were mobilised to carry out several installation/construction activities concurrently. The 'Ron Tapmeyer', a jack-up drilling rig, was positioned, jacked up and cantilevered over CGS shaft 1 and commenced pre-drilling the Wandoo 'B' wells. 'Jan Steen' a dynamically positioned rock dumping vessel commenced placing iron ore ballast into the CGS's open cells and placed the scour protection rock around the perimeter of the CGS. Finally, 'CSO Venturer' a specialist diving support and flowline installation vessel was mobilised from New Zealand to install and tie-in the five infield flexible flowlines. Three flowlines run between Wandoo 'A' and Wandoo 'B as well as the twin export lines to the CALM buoy.

109.

The Wandoo 'B' integrated deck topside was towed from Singapore on the 'Ocean Orc' transportation barge. After picking up several preinstalled moorings the Ocean Orc with topsides was reversed and manoeuvred between the four CGS concrete shafts to a safe stand off position. This was the first step of installing the Wandoo B topsides onto the CGS using the 'Hi-Deck' float-over method. The Ocean Orc was connected to pre-installed heavy moorings attached to the concrete shafts to train the barge's movements during mating. Mating of the CGS to the topside was achieved on 12 January 1997. The rising tide was used to assist the topsides to clear the 15m high CGS shafts as the barge moved into the final mating position. The heavy mooring system was pretensioned. By using the assistance of a falling tide the barge and topsides gradually closed the gap until the CGS-topside buckets and cones engaged. At this point the rapid ballast system was immediately started to ensure the barge cleared the underside of the topside quickly to prevent damage to either the topsides or the CGS from swell induced barge motions that may have damaged the topsides. Once the topsides were in place on the CGS, the Ocean Orc was towed clear. The topside was later lowered and levelled using 3,000 tonne sandjacks and then the connection to the CGS was welded-out.

...

Full Field Development.

112.

During 1995, after the decision to proceed full (sic) field development had been made, Wandoo Petroleum Pty Ltd (a company owned by the Mitsui Group of Companies) acquired a 40% interest in the Wandoo project.

113.

To enable the full field development, on 20 March 1996, Legendre and Wandoo Petroleum Pty Ltd were granted Production Licence WA-14-L in respect of the Wandoo oilfield. ...

114.

The full field development produces the Wandoo reservoir from two surface locations, as follows:

•

At Wandoo 'A', a total of five production wells are located; and

•

At Wandoo 'B' a total of twelve well slots are available for eleven production wells and one gas re-injection well.

First oil flowed onto Wandoo 'B' from Wandoo 'A' on 10 March 1997.

115.

Prior to the development at Wandoo 'B', Ampolex had been extracting (at its peak) approximately 14,000 barrels of oil a day from the Wandoo 'A' monopod. After the switch to full field development and the use of the Wandoo 'B' platform, typical production rates from the Wandoo oilfield increased to approximately 40,000 barrels of oil per day, peaking at up to 50,000 barrels per day.

...".

5. The only other evidentiary matters to which reference need be made are letters from the Petroleum Operations Division of the Department of Minerals and Energy, Western Australia, dated 10 July 1996, 12 August 1996 and 24 December 1996 (Exhibits A2, A3 and A4, respectively) informing the applicant that the Minister, in his capacity as the "Designated Authority", had granted consent to the installation of the CGS (letter of 12 August 1996) and of the fixed platform or "topside" (letter of 24 December 1996) at Wandoo "B" in the Wandoo oilfield, pursuant to cl 305(1) of the Schedule - "Specific Requirements as to Offshore Petroleum Exploration and Production: 18 December 1995" - to the Petroleum (Submerged Lands) Acts.

The Legislation

6. Section 164 of the Customs Act 1901, and s78A of the Excise Act 1901, provide for the payment of a rebate of customs duty and excise duty, respectively, paid on diesel fuel purchased for use for certain purposes, including "mining operations". Section 164 of the Customs Act (as in force at the time of the applicant's claim for rebate) relevantly provided:

"164(1)

A rebate is, ... payable to a person who purchases diesel fuel for use by him:

(a)

in mining operations (otherwise than for the purpose of propelling a road vehicle on a public road);

...

(7)

In this section:

...

'minerals' means minerals in any form, whether solid, liquid or gaseous and whether organic or inorganic, except:

(a)

sand, sandstone, soil, slate, clay (other than bentonite or kaolin), basalt, granite, gravel or water; or

(b)

limestone (other than agricultural use limestone).

'mining operations' means:

(a)

exploration, prospecting or mining for minerals, or the removal of overburden and other activities undertaken in the preparation of a site to enable mining for minerals to commence; or

...".

Section 78A(1)(a) of the Excise Act was, at the relevant time, in the same terms as s164(1)(a) of the Customs Act (above) and s78A(7) of the Excise Act provided that the phrase "mining operations" in that section had the same meaning as in s164 of the Customs Act.

The Submissions

7. The submission of the parties centred on the issue whether the towing of the CGS from Bunbury to the Wandoo oilfield, for which the relevant diesel fuel had been purchased, was an activity undertaken "in mining for minerals" or "in the preparation of a site to enable mining for minerals to commence", within the meaning of para (a) of the definition of "mining operations" in s164(7) of the Customs Act. Each party made extensive oral submissions, and cited numerous authorities, in relation to the abovementioned issue. The essence of those submissions and authorities will be addressed in the following section of the Tribunal's reasons.

Consideration and Findings

8. It is common ground that, for present purposes, the overall "site", within the meaning of the definition of "mining operations" in s164(7) of the Customs Act, is the Wandoo oilfield (comprising the Wandoo "A" and Wandoo "B" sites) located within the area covered by Exploration Permit No WA-202-P in the Carnarvon Basin on the North West Shelf, approximately 80 kilometres north west of Karratha, Western Australia. It is also common ground that the crude oil extracted in the Wandoo oilfield falls within the definition of "minerals" in s164(7) of the Customs Act and that the extracting of that crude oil constitutes "mining for minerals" and, accordingly, falls within para (a) of the definition of "mining operations" in that subsection. The question is, however, whether the towing of the CGS from Bunbury to the Wandoo oilfield for the purpose of installation at the Wandoo "B" site was an activity "in mining operations" within the meaning, and for the purposes, of s164(1)(a) of the Customs Act and s78A(1)(a) of the Excise Act.

9. The following propositions are established by the authorities:

•

the appropriate meaning of the preposition "in" in para (a) of s164(1) of the Customs Act and para (a) of s78A(1) of the Excise Act is given in The Shorter Oxford English Dictionary as: "In the process or act of": Chief Executive Officer of Customs v Dyno Wesfarmers Ltd (1997) 73 FCR 1 at 5;

•

the abovementioned statutory provisions "reflect a legislative policy of encouragement of mining operations and should not be given a narrow application": Regional Director of Customs (WA) v Dampier Salt Operations Pty Ltd (1996) 67 FCR 108 at 120; Chief Executive Officer of Customs v Tasmanian Electro Metallurgical Co Pty Ltd (1997) 76 FCR 476 at 485;

•

activities falling within the definition of "mining operations" in s164(7) of the Customs Act may take place at a location other than the relevant mining site: Dyno Wesfarmers (above) at 7.

10. In the Tribunal's opinion its previous decision in Re McDermott Industries (Aust) Pty Ltd and WMC Resources Ltd and Chief Executive Officer of Customs (Decision No 12014, 7 July 1997) and the subsequent decisions of the Federal Court of Australia on appeal - namely, WMC Resources Ltd v Chief Executive Officer of Customs; Chief Executive Officer of Customs v McDermott Industries (Aust) Pty Ltd and WMC Resources Ltd (unreported, Matter Nos WAG 79 and WAG 80 of 1997, 15 December 1997, Lee J), and Chief Executive Officer of Customs v WMC Resources Ltd (1998) 87 FCR 482 (Full Court) - are most instructive for present purposes.

11. In Re McDermott Industries (Aust) Pty Ltd (above) the applicants claimed rebate of duty paid on diesel fuel purchased for use by vessels and cargo barges involved in the installation of an underwater pipeline whereby raw gas extracted from production wells in the East Spar gas field reservoir on the North West Shelf was to be conveyed to Varanus Island - a total distance of approximately 65 kilometres - for processing. WMC Resources Ltd also claimed rebate of duty paid on diesel fuel purchased for use by vessels involved in the transporting of construction materials from the nearest mainland port of Onslow to Varanus Island for use in the construction of the facilities (including the abovementioned pipeline) required for the extracting and processing of the raw gas. The Tribunal decided that rebate of duty was payable under s164(1)(a) of the Customs Act and s78A(1)(a) of the Excise Act in respect of the diesel fuel purchased for use in the installation of the pipeline (which included transporting the component parts of the pipeline from Varanus Island and laying them on the seabed over the distance between the production wells and Varanus Island) on the basis that those activities were activities in "mining for minerals" and were also "activities undertaken in the preparation of a site to enable mining for minerals to commence", and accordingly fell within para (a) of the definition of "mining operations" in s164(7) of the Customs Act.

The Tribunal also decided, however, that rebate of duty was not payable under the abovementioned statutory provisions in respect of the diesel fuel purchased for use in the transporting of the relevant construction materials from Onslow to Varanus Island on the basis that that activity was antecedent to, and did not form part of or occur in the course of, the relevant "mining operations" (as defined in para (a) of the abovementioned statutory definition) and, accordingly, was not an activity "in mining operations" within the meaning, and for the purposes, of s164(1)(a) of the Customs Act and s78A(1)(a) of the Excise Act.

12. On appeal by all parties to the Federal Court of Australia, Lee J held that, as regards its decision that rebate of duty was payable in respect of the diesel fuel purchased for use in the installation of the pipeline, the Tribunal had not erred in its understanding of the proper construction to be applied to s164(1)(a) of the Customs Act and, in particular, the scope of the phrase "mining operations", as defined in para (a) of the relevant definition in s164(7) of that Act, and that it had been "open to the Tribunal to find that the installation of the pipeline was an activity in mining or in the preparation of a mining site". The appeal by the Chief Executive Officer of Customs was therefore dismissed. His Honour also held, however, that, as regards its decision that rebate of duty was not payable in respect of the diesel fuel purchased for use in the transporting of the relevant construction materials from Onslow to Varanus Island, it had been open to the Tribunal to find that that "act of transportation was an activity undertaken in preparation of a site to enable mining for minerals to commence" (within the meaning of para (a) of the definition of "mining operations" in s164(7) of the Customs Act) but that the Tribunal had "misunderstood the proper construction of s164(7) when it determined that WMC was not entitled to a rebate for fuel used in transporting construction materials ... to Varanus Island" in that the Tribunal's understanding was that "unless the activity in which fuel was used had a temporal relationship with a 'mining or processing activity', no entitlement to a rebate could arise". The appeal by WMC Resources Ltd was therefore allowed.

13. The Chief Executive Officer of Customs then appealed to the Full Court of the Federal Court of Australia, the appeal being confined to Lee J's abovementioned decision to allow the appeal by WMC Resources Ltd. The Full Court (Carr and R D Nicholson JJ; French J dissenting) allowed the appeal: see (1998) 87 FCR 342 . Carr and R D Nicholson JJ held that the Tribunal, in finding that the transportation of the relevant construction materials from Onslow to Varanus Island was not an activity in "mining operations" (as defined in para (a) of the definition in s164(7) of the Customs Act), correctly understood the proper construction of the statutory definition of "mining operations", applied the correct test and did not err in law. French J (dissenting) held that, in making the abovementioned finding, the Tribunal "did not address in terms the question whether the transportation of the material was an activity 'undertaken in the preparation of a site to enable mining for minerals to commence' within the meaning of s164(7)(a) of the Act" (at 494), and it failed to consider that question and, accordingly, erred in law.

14. Having carefully considered those judgments of the abovementioned judges of the Federal Court, the Tribunal notes that Lee, French and Carr JJ were all of the opinion that it was open to the Tribunal in that case to find that the act of transporting the relevant construction materials from Onslow to Varanus Island was an activity "undertaken in the preparation of a site to enable mining for minerals to commence" within the meaning of para (a) of the definition of "mining operations" in s164(7) of the Customs Act. Indeed, French J appeared to go further when he said (87 FCR at 495):

"In my opinion, upon a proper and less restrictive approach to construction than that adopted by the Tribunal in this case, the transportation of construction materials for the purpose of establishing those land based facilities is part of the preparation of the site."

In contrast, R D Nicholson J did not think that such a finding was open to the Tribunal. He characterised the relevant transport activity as follows (87 FCR at 507):

"The act of transportation was not itself an act in preparation of the relevant site... It was an act preparatory thereto."

15. The task of the Tribunal in the present case is, as noted expressly by French and Carr JJ in WMC Resources Ltd (87 FCR at 492-3 and 499, respectively), essentially an evaluative one - that is, it involves characterising the relevant activity and determining as a matter of judgment whether it is within or outside the range of activities that properly fall within para (a) of the definition of "mining operations" in s164(7) of the Customs Act. It involves, in other words, a line-drawing exercise, the question for the Tribunal's determination being, as posed by Mr Martin (for the respondent) in his submissions, "upon which side of the rebateable line" the relevant activity falls.

16. Mr de Wijn (for the applicant) submitted that the activity of towing the CGS from Bunbury to the Wandoo oilfield was, in the circumstances of this case, appropriately characterised as part of the process of installing the CGS at Wandoo "B", and not simply as transportation, and on that basis it was an activity in mining for minerals and also an activity undertaken in the preparation of the Wandoo "B" site to enable mining for minerals to commence at that site, within the meaning of para (a) of the definition of "mining operations" in s164(7) of the Customs Act. Mr Martin (for the respondent) submitted that the abovementioned towing activity was an activity antecedent to, and not forming part of, either the mining for minerals or the preparation of the relevant site to enable mining for minerals to commence and, accordingly, was not an activity "in mining operations" within the meaning, and for the purposes, of s164(1)(a) of the Customs Act and s78A(1)(a) of the Excise Act. He submitted that that towing activity was analogous to the activity of transporting the construction materials in WMC Resources Ltd and should be characterised in the same way as the latter activity was characterised by the Tribunal in that case (see paragraph 11 above).

Was the towing of the CGS from Bunbury to the Wandoo oilfield an activity "undertaken in the preparation of a site to enable mining for minerals to commence"?

17. In the Tribunal's opinion it is appropriate, in this case, first to consider and determine whether the towing of the CGS from Bunbury to the Wandoo oilfield was an activity "undertaken in the preparation of a site to enable mining for minerals to commence", within the meaning of para (a) of the definition of "mining operations" in s164(7) of the Customs Act.

18. In WMC Resources Ltd Carr J pointed out (87 FCR at 499) that such a characterisation process involves the making of a "factual assessment" in which various relevant factors - including the place where the relevant activities were carried out and the "temporal relationship" between those activities and the preparation of the site - are weighed up. In the same case French J, referring to the definition of "mining operations" in s164(7) of the Customs Act, said (at 494):

"... the activity must be functionally integrated with the physical activity of mining. Thus, any eligible activity undertaken 'in the preparation of a site to enable mining for minerals to occur (sic)' will be functionally integrated with that preparation. To put it another way, it will be part of that preparation. ...

...

If eligible preparatory activities are to be identified by their functional relationship to preparation for and conduct of the mining operation there is a variety of factors which can be taken into account in making that identification. These factors will include temporal and geographical proximity...".

19. In the present case a factor which was ultimately pressed by Mr Martin in support of his submission that the relevant towing activity was properly to be characterised as transportation antecedent to site preparation, and not part of site preparation, was the "geographical remoteness" of the port of Bunbury from the Wandoo oilfield. He submitted that the fundamental nature of the relevant towing activity was that of transport and, in that circumstance, the long distance of the tow (namely, approximately 1700 kilometres) was a factor of great significance and pointed "inexorably" to the conclusion that that towing activity should be characterised as transportation antecedent to the preparation of the relevant site, and not part of that preparation. Mr de Wijn, on the other hand, submitted that although the distance of the tow was a relevant factor it was not of itself determinative of the appropriate characterisation of that towing activity. He submitted that other relevant circumstances (referred to below) in this case, which emerge from Mr Kava's affidavit (Exhibit A1), dictate that the appropriate characterisation of the towing activity is that it was part of the installation of the CGS at Wandoo "B" and, therefore, part of the preparation of that site to enable mining for minerals to commence at that site.

20. The other relevant circumstances referred to by Mr de Wijn, which were not disputed by the respondent, and which the Tribunal accepts as factual on the basis of Mr Kava's affidavit (Exhibit A1), include the following:

•

the CGS, which was the subject of the relevant towing activity, was specifically designed and purpose-built for installation at the Wandoo "B" site;

•

the purpose of the installation of the CGS at Wandoo "B" was to achieve full development of the Wandoo oilfield - that is, to maximise oil production in the Wandoo oilfield - not only by commencing the extraction of crude oil at Wandoo "B" but also by providing storage and processing facilities for all the crude oil extracted in the Wandoo oilfield (including the crude oil already being extracted at Wandoo "A");

•

the concept of an offshore CGS, and an integrated deck or "topside" supported by it, was, after consideration of various options, objectively assessed to be the most cost-effective means of achieving full field production of crude oil at Wandoo;

•

after the advantages and disadvantages of various alternative possible locations for the construction of the CGS were considered, Bunbury was objectively determined to be the most cost-effective location in Western Australia for that construction to take place; and

•

upon completion of the construction of the CGS in August 1996 the towing of the CGS to the Wandoo oilfield was commenced and completed as soon as was practicable, namely, on 12 September 1996 and 5 October 1996, respectively.

21. Having regard to all the relevant circumstances of this case the Tribunal's assessment is that the activity of towing the CGS from Bunbury to the Wandoo oilfield was an activity "undertaken in the preparation of a site to enable mining for minerals to commence" within the meaning of para (a) of the definition of "mining operations" in s164(7) of the Customs Act. That towing activity was, in the Tribunal's assessment, undertaken as an essential part of a carefully planned and integrated operation whose sole purpose was to achieve full development of the Wandoo oilfield by preparing the Wandoo "B" site so that, inter alia, the extraction of crude oil could be commenced at that site. In making that assessment the Tribunal has also had regard to the long distance covered in that towing activity but in the Tribunal's opinion that factor is satisfactorily explained by the compelling economic and practical considerations which dictated that Bunbury was the most appropriate site for the construction of the CGS, and, accordingly, does not militate against the characterisation of that towing activity as an activity undertaken in the preparation of the Wandoo "B" site to enable mining for minerals to commence at that site, rather than as merely a transport activity antecedent to such site preparation.

22. The Tribunal notes that, in WMC Resources Ltd (as discussed in paragraphs 12-14 above), Lee, French and Carr JJ were of the opinion that it was open to the Tribunal in that case to find that the act of transporting the relevant construction materials from Onslow to Varanus Island was an activity "undertaken in the preparation of a site to enable mining for minerals to commence" within the meaning of para (a) of the definition of "mining operations" in s164(7) of the Customs Act. In the Tribunal's opinion such a finding in relation to the relevant towing activity in the present case is more clearly open because that activity involved transportation of a purpose-built CGS specifically designed for installation, and crude oil extraction and storage, at the relevant mining site, rather than transportation merely of materials for the construction thereof. That towing activity is, in the Tribunal's opinion, more analogous to the activity of transporting the component parts of the pipeline from Varanus Island after their construction for the purpose of laying them on the seabed at the relevant mining site - which activity was found by the Tribunal in Re McDermott Industries (see paragraph 11 above) to fall within para (a) of the definition of "mining operations" in s164(7) of the Customs Act. That decision of the Tribunal was upheld by Lee J on appeal and was not a subject of the subsequent appeal to the Full Federal Court.

23. The Tribunal also notes the minority view of R D Nicholson J in WMC Resources Ltd that it was not open to the Tribunal in that case to find that the relevant transportation of construction materials was an activity "undertaken in the preparation of a site to enable mining for minerals to commence" because that transportation was an act preparatory to the preparation of the relevant site and was not an act in preparation of that site. In the Tribunal's opinion, however, its finding in the present case that the activity of towing the CGS from Bunbury to the Wandoo oilfield was an activity "undertaken in the preparation of a site to enable mining for minerals to commence" is not inconsistent with R D Nicholson J's view in WMC Resources Ltd having regard to the abovementioned distinction between the two cases - namely, that in the present case the relevant activity involved transportation of a purpose-built CGS specifically designed for installation, and crude oil extraction and storage, at the relevant mining site, rather than (as in WMC Resources Ltd) transportation merely of materials for the construction of the relevant structure that was subsequently to be transported to, and installed at, the relevant mining site.

24. Finally, the Tribunal notes the decision of the Federal Court of Australia (Merkel J) in Dawson Rockwater Joint Venture between Dawson Engineering Pty Ltd and Brown & Root Pty Ltd v Chief Executive Officer of Customs (unreported, Matter No VG186 of 1998, 21 August 1998). In that case rebate of duty was claimed under s164(1)(a) of the Customs Act and s78A(1)(a) of the Excise Act in respect of diesel fuel purchased for use in outward journeys by 2 tug vessels from Fremantle in Western Australia to Port Kembla in New South Wales and by 2 other tug vessels from Fremantle to Barry's Beach Marine Terminal in Victoria, and in return journeys by 3 of those tug vessels from Barry's Beach Marine Terminal to Fremantle. The abovementioned tug vessels were required, pursuant to a contract between the Dawson Rockwater Joint Venture and Esso Australia Ltd, to tow CGSs from their places of construction at Port Kembla and Barry's Beach to the Bass Strait oilfield where they were to be installed, and the abovementioned outward and return journeys in which the relevant diesel fuel was used were made in relation to the fulfilment of that contractual obligation.

[The Tribunal notes that diesel fuel purchased for use by the tug vessels in the towing and installation of the CGSs was not the subject of the claim for rebate of duty in that case. The Tribunal understands, however, that that diesel fuel was the subject of a separate claim for rebate of duty which was refused by the respondent and that that decision is the subject of a separate appeal to the Tribunal which has not yet been determined.]

The Tribunal decided that, although the activities undertaken by Esso Australia Ltd in extracting oil and gas in the Bass Strait oilfield were "mining operations" (as defined in para (a) of the definition of that phrase in s164(7) of the Customs Act), the "activities of getting the tugs to and from a point where those tugs (could) be used to transport a concrete gravity structure from its point of manufacture to the oil field" did not fall within that definition because those activities were "too remote to be accepted as contemplated by the definition of 'mining operations'" and, accordingly, duty paid on diesel fuel purchased for use in those activities was not rebateable pursuant to s164(1)(a) of the Customs Act and s78A(1)(a) of the Excise Act: unreported, Application Nos V97/1213 and V97/1494, 27 March 1998. On appeal to the Federal Court of Australia the decision of the Tribunal was upheld. Merkel J said that in substance the Tribunal had determined that the outward and return journeys of the tug vessels were not activities "in mining operations" but instead were either antecedent or subsequent to "mining operations" as statutorily defined - more specifically, those activities were antecedent or subsequent to "activities undertaken in the preparation of a site to enable mining for minerals to commence" - and that that determination had been open to the Tribunal on the evidence before it. His Honour added (obiter), however, as regards the activities of the tug vessels in towing the CGSs from Port Kembla and Barry's Beach to the Bass Strait oilfield for installation purposes (at p8):

"Those towing and installation activities may be said to be part of the integrated process by which the site was prepared for mincing (sic) to commence."

25. Although the Tribunal in the present case is not aware of all the facts and circumstances relevant to the construction, towing and installation of the CGSs in Dawson Rockwater, it would seem that the activity of towing the CGS in the present case from Bunbury to the Wandoo oilfield is analogous to the activity of towing the CGSs in Dawson Rockwater from Port Kembla and Barry's Beach to the Bass Strait oilfield which, according to Merkel J in that case, may be said to be part of the integrated process by which the relevant site was prepared for mining to commence. The Tribunal's characterising of the towing activity in the present case as an activity "undertaken in the preparation of a site (namely, Wandoo "B") to enable mining for minerals to commence" within the meaning of para (a) of the definition of "mining operations" in s164(7) of the Customs Act seems, therefore, to be consistent with the abovementioned obiter dicta of Merkel J in Dawson Rockwater.

Conclusion

26. Accordingly, the Tribunal finds that:

•

the activity of towing the CGS from Bunbury to the Wandoo oilfield for the purpose of its installation at the Wandoo "B" site was an activity "undertaken in the preparation of a site to enable mining for minerals to commence", within the meaning of para (a) of the definition of "mining operations" in s164(7) of the Customs Act; and

•

the diesel fuel purchased for use by the relevant tug vessels in that towing activity was purchased for use "in mining operations" within the meaning, and for the purposes, of s164(1)(a) of the Customs Act and s78A(1)(a) of the Excise Act.

Having made that finding, it is not necessary for the Tribunal to consider and determine whether that towing activity was an activity in "mining for minerals", within the meaning of para (a) of the definition of "mining operations" in s164(7) of the Customs Act.

27. The Tribunal determines, therefore, that a rebate of duty is payable, under s164(1)(a) of the Customs Act and s78A(1)(a) of the Excise Act, to the applicant in respect of the diesel fuel purchased for use by the tug vessels in the abovementioned towing activity. It is common ground that the total quantity of diesel fuel so used was 1,585,107 litres (see para 6 of the Statement of Agreed Facts (Exhibit AR1) and para 98 of Mr Kava's affidavit (Exhibit A1)).

Decision

28. For the above reasons the Tribunal sets aside the decision under review to refuse the applicant's claim for rebate of duty in respect of diesel fuel used in the towing of the CGS from Bunbury to the Wandoo oilfield and, in substitution for that decision, decides that a rebate of duty is payable, under s164(1)(a) of the Customs Act and s78A(1)(a) of the Excise Act, to the applicant in respect of 1,585,107 litres of diesel fuel purchased for use in the towing of the CGS from Bunbury to the Wandoo oilfield during the period from 12 September 1996 to 5 October 1996.