BHP Petroleum Pty Ltd and Collector of Customs, Re

11 ALD 413
AAT No. 3194

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(Decision by: Deputy President R D Nicholson, C G Woodard (Member))

Between: BHP Petroleum Pty Ltd
And: Collector of Customs

Tribunal:

Deputy President R D Nicholson
C G Woodard (Member)

Subject References:
Customs and excise
Rebate of diesel fuel duty
Movement of drilling ship between exploration permits
Whether included within meaning of exploration
Whether an operation connected with exploration
Whether carried out in a place adjacent to exploration area
'Exploration'
'Operations connected with exploration, prospecting or mining'
'Place adjacent to'

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

Hearing date: 26, 27 August 1986 - Melbourne
Decision date: 21 January 1987

Perth

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Decision by:
Deputy President R D Nicholson
C G Woodard (Member)

The hearing in this matter was conducted before Deputy President R D Nicholson, Mr F A Pascoe AM and Mr C G Woodard. Mr Pascoe died on 22 November 1986. Pursuant to s 23 (1) (a) of the Administrative Appeals Tribunal Act 1975, the parties agreed (the President not giving a direction under s 20 of that Act reconstituting the Tribunal) that the proceeding should be completed by the Tribunal constituted by the remaining members.

Decision under review

The applicant seeks review of a decision made on behalf of the respondent refusing to pay to the applicant a rebate of duty in respect of 120,000 litres of diesel fuel claimed by the applicant to have been used by it in powering the drilling ship Regional Endeavour (the rig) 1400 km from exploration permit for petroleum NT/P2 (formerly AC/P2) to exploration permit for petroleum WA-64-P from 12 April to 20 April 1985. The decision was notified to the applicant in a letter dated 3 January 1986.

Jurisdiction

Jurisdiction arises pursuant to s 273GA (l) (ha) of the Customs Act 1901 and s 162C (l) (f) of the Excise Act 1901. The application was made within the time allowed after receipt of reasons by the applicant.

Evidence

In addition to the documents and exhibits before the Tribunal, evidence was given by John Drummond, petroleum engineer, employed by the applicant for four years, Bryan Griffith, general manager, Exploration of the applicant, and James Richard Harrison, the exploration manager (Oil and Gas) of Shell Australia Ltd.

Principal statutory provisions

Section 164 of the Customs Act 1901 provides, so far as is relevant:

164(1)

A rebate is, subject to sub-sections (2) and (3) and to such conditions and restrictions as are prescribed (being conditions and restrictions that relate to goods generally, to goods included in a class of goods that includes diesel fuel or to diesel fuel only), payable to a person who purchases diesel fuel, being diesel fuel upon which duty has been paid, 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 -

...

"duty" has the same meaning as in sub-section 163 (1);

...

"minerals" means minerals in any form, whether solid, liquid or gaseous and whether organic or inorganic;

"mining operations" means -

(a)

exploration, prospecting or mining for minerals; or

(b)

the dressing or beneficiation (at the mining site or elsewhere) of minerals, or ores bearing minerals, as an integral part of operations for their recovery,

and includes -

(c)

other operations connected with exploration, prospecting or mining for minerals that are carried out in, or at a place adjacent to, the area in which the exploration, prospecting or mining occurs;

(d)

where minerals, or ores bearing minerals, are dressed or beneficiated, at a place other than the mining site, as an integral part of operations for their recovery - the transporting of the minerals or ores from the mining site to the place where they are dressed or beneficiated;

(e)

the liquefying of natural gas;

(f)

where natural gas is liquified at a place other than the mining site - the transporting of the natural gas from the mining site to that place; or

(g)

the production of common salt by means of evaporation,

but does not include quarrying operations carried on for the sole purpose of obtaining stone for building, road making or similar purposes;

...

"use", in relation to diesel fuel in relation to a person, does not include the sale or other disposal of the disel fuel by the person to another person. (Emphasis added.)

Section 78A of the Excise Act 1901 provides to the same effect as s 164 (1) of the Customs Act 1901. Section 78A (7) of the Excise Act 1901 gives the words "mining operations" and "use" the same respective meanings as in s 164 of the Customs Act 1901.

Facts

The rig

The Regional Endeavour was described by Mr Drummond in his evidence as follows:

"The characteristics of the Regional Endeavour are in fact it was a converted ore carrier. This means in fact it is mobile under its own power and it can go up to 7 knots. It is about 150 metres long. In the middle of it it has a 7 metre square hole cut in it; a moonpool, over which the derrick is located which enables the well to pass through the centre of the vessel. There are many other modifications that are made to it from when it was an ore carrier. It has an 18,000 ton water displacement and has all the facilities of a self-contained drilling operation. The helipad living quarters for 92 people. Extensive deck space for storing equipment and the drilling derek [ sic ] and associated equipment."

It has no function other than to operate as a drill ship. It is to be contrasted with semisubmersible rigs, which are probably more prevalent than drill ships, and which require towing from one location to another.

The drilling contract

As a consequence of a drilling contract (the drilling contract) entered into on 13 March 1984, Atwood Oceanics Australia Pty Ltd (therein described as the contractor) covenanted with the applicant (therein described as the operator) to perform "the work" as required by the operator in the "area of operations" and for that purpose to furnish to the drilling vessel Regional Endeavour equipment, personnel, materials and supplies as provided for in the contract. "The work" was defined to mean:

"the drilling, workover or re-entry, and evaluating including any production or drill stem testing (as directed by operator and completion or abandonment (as specified or varied by operator) of the first well and subsequent wells during the term and performance or related activities including movements between well locations" (emphasis added).

"Area of operations" was defined to mean: the offshore petroleum permits in which operator now holds or may acquire an interest or operate on the continental shelf in waters offshore Australia.

The contract provided for the contractor to be remunerated at a moving/standby rate (being a different rate to the operating rate) in relation to periods during which, inter alia, the contractor moves the rig to or from a well location or between well locations. Sub-article 12.3 (ii) provided that "the rig shall be deemed to commence to move at the time the last anchor is racked on the rig prior to departure from a well location and to have ceased moving at the time the first anchor is dropped at the next well location'. During all relevant times to this application the Regional Endeavour was being operated on behalf of the applicant pursuant to the terms of this drilling contract.

Joint venture agreements

In entering into that contract the applicant was acting pursuant to authority vested in it on behalf of joint ventures in which it was a member. As a consequence of a farm-in agreement dated 15 August 1984, the applicant acquired an interest in exploration permit No WA-64-P under conditions which required it as operator to submit to all of the parties to a further agreement, called the operating agreement, a proposed exploration program and budget in relation to the permit. The joint venture operating agreement in respect of that permit described the authorities and duties of the operator, established an operating committee and contained provisions relating to exploration appraisal, development and production programs and budgets. The applicant as operator was subject to an obligation pursuant to sub-art 5.01 (a) to submit an annual proposed exploration program and budget.

Permit areas and wells

Examination of the search of the exploration permit for petroleum No WA-64-P shows that the applicant's interest was registered from 2 April 1985. Conditions attaching to the permit require the permittee to carry out certain minimum work requirements such as drilling wells short of the production stage. The applicant's interest is similarly noted in the exploration permit for petroleum No NT/P2 which also set certain minimum work requirements. It follows from the conditions attaching to each permit that it may contain within it several wells. The applicant, as follows from the terms of the joint venture agreements it has entered into, represents as operator a different set of joint venturers for each of these exploration permit areas.

Movement between wells

The two aforementioned permit areas are approximately 1400 km apart. Permit NT/P2 is located in what was commonly described as the Browse Basin and Permit WA-64-P is in the Carnarvon Basin off Exmouth. At 2000 hours on 12 April 1985, upon completion of the drilling of a well in the former permit, the Regional Endeavour moved to resite itself for the drilling of a well in the latter permit, dropping anchor there at 1030 hours on 20 April 1985. In so doing 120,000 litres of diesel fuel were consumed. The claim for rebate under review relates to the fuel so consumed.

Personnel on board the rig

The personnel on the rig during drilling and during movement between wells was described by Mr Drummond as follows:

"I have just broken down the various personnel that are on board the rig during drilling and whilst the rig is moving, and they are split into three main categories. Most of the people on the rig are, in fact, from the drilling contractor and about half of these are drilling crew and half of them are marine crew. During drilling there is approximately 95 people on board the rig, of which two usually are BHP personnel - the drilling supervisor - there is ultimately in charge of the rig and the drilling engineer such as myself. You have service companies whose main role is to monitor the well as it is being drilled or they are called on to do specific services relating to the drilling of that well, and then as I say the majority are drilling contractor personnel. The drilling crew are engaged in drilling operations whilst - obviously during the drilling phase. The marine crew - or seamen as they are so called - would be involved in assisting the drilling operation in power generation, rig positioning and the maintenance of the living quarters. When the rig is being moved the manning level drops to approximately 70. The number of BHP personnel on board essentially is the same. There may only be the need for one BHP person on board the rig. The service companies are not needed during this stage, because the well is not being drilled, so they are taken off the rig - unless it is a very short rig moving, in which case they would probably be kept on board."

The evidence of Mr Drummond was that during a move:

"The drilling crew usually take this opportunity to do a maintenance and the moving of equipment around the rig that would otherwise have to be done piecemeal sometime during the course of drilling the next well."

He said that on the move, the Regional Endeavour was not drilling but was engaged in activities which would contribute to drilling the next well. He described those activities as follows:

"It is basically maintenance, reconditioning of equipment, moving drill pipe, positioning equipments and servicing the anchors so that when it arrives at the next location there is no hold-up with positioning anchors, replacing certain parts of the anchor chain."

Mr Drummond also said that no geological testing in the form of analysis of rock specimens or anything of that nature was done during movement just as it would not be done during the first two or three days at the next location when the vessel would be running anchors and positioning.

Another important duty performed during the course of a move in excess of three days is the servicing of the blow-out preventor stack, as well as servicing the pumps that are used on board the rig, and moving equipment around. The blow-out preventor stack requires continuous maintenance and supervision and if it is not operable no drilling can occur. The activities of the drilling contractors who remain on the vessel during a move of such a duration are activities that they would be engaged in and that would be required to be carried out if the vessel were stationary or if it was moving within a permit area as a matter of course.

Mr Harrison was invited to comment on the evidence of Mr Drummond:

The first witness that was called by BHP was Mr John Drummond. He said in evidence and in cross-examination that during the five day period that the vessel travels between the two wells, the drilling contractors remain on the - may perform functions such as going over the rig and preparing any faults and defects that they observe.

Q.

Is this the type of conduct that would be engaged in by drilling staff in any event if they were stationed for a long period at a well?

A.

Yes, the nature of drilling activities is such that one is dependent upon the unbroken service from highly complex and expensive machinery and I would agree with that earlier evidence that any opportunity that is available to maintain equipment is, should be taken. I would go further, that there are some statutory requirements particularly on safety matters which a drilling vessel and its related equipment must comply with before a well may be commenced.

Q.

Does that relate particularly to the prevention of blow out?

A.

Yes, and fires.

Mobilisation and demobilisation

The parameters of the exploration program in which the Regional Endeavour was engaged were determined by mobilisation and demobilisation. Article 3 of the drilling contract provides that mobilisation takes place at the positioning of the Regional Endeavour at the first well location designated by the operator and demobilisation occurs on completion of the term of the contract and removal of the operator's equipment upon the raising of the anchor. Mobilisation and demobilisation costs are usually divided out equally between the wells drilled during the period of the drilling contract.

Exploration program

Mr Griffith, when asked when he regarded an exploration program as beginning, said:

"The exploration program in the broad sense of that word has a beginning which is frequently difficult to define. In certain areas you may well regard the award of the permit as being the initiation of the exploration program, because it is at that point in time that you have the right, and indeed, the obligation to carry out various geophysical surveys initially, usually seismic in the offshore. So once you have committed, if you will, to a seismic program that is in my view at least the beginning of the exploration cycle."

He also said:

"Exploration, which is the search for and the identification, I guess, of commercial reserves of hydrocarbons, hopefully, encompasses all aspects of exploration and it can involve recognisance geophysical surveys and it can involve appraisal drilling on a specific field."

The exploration program is designed to take account of geographic location of wells to minimise the amount of transit time between them.

Mr Griffith described the components of an exploration program as follows:

"I would just like to explain to the Tribunal how an exploration program is planned and the constraints which exist on that planning process. Let me first of all say that exploration drilling really represents the culmination of the exploration cycle. And that particular cycle can take several years, and it normally includes the whole gamut of exploration activities. And we are talking here about office studies and interpretation; we are talking about the implementation of a variety of geophysical survey methods. In the offshore, of course, that is primarily seismic; and the drilling operation itself. And all of these are designed to search for and identify commercial accumulations of hydrocarbon. That is the basic objective of the exploration process. And in the offshore environment the drilling programs per se are of variable duration. They can last anywhere from six to 18 months, although of course, that is exceedingly variable. They can be considerably shorter. They can be considerably longer."

In the vernacular of the petroleum offshore world, there is no distinction between exploration and prospecting, the latter word not being used in the petroleum business.

The drilling program

The number of wells to be explored is very important because the rig has a very high daily operating cost (estimated between $150,000 and $200,000) so the numbers and location of the wells explored is critical to the economics of exploration. In the planning of such a program the concern is with movement between wells rather than permit areas.

The drilling program has to be very carefully planned to make effective use of the rig at all times. The normal method of achieving this objective is to make the exploration program as long as possible and to incorporate in it as many wells as practicably possible and economically feasible. The consequence of this is that the daily operating costs will come down significantly. The more wells involved in a particular program, the greater the likelihood that there will be more than one permit area involved.

The drilling program is part of the exploration program and falls within the exploration budget. The drilling program is a sequence of wells drilled in a set order.

Costs of movement between wells

The time moving between wells is part of the total exploration program. Those wells are costed on the basis that transportation or movement of the rig from one location to another is part of the exploration program and is included as part of the exploration budget.

When the rig moves from one location to another the cost associated with that move is usually apportioned to the cost of the well to which it is moving.

The consequence of the allocation of the cost of transport to a particular well is that such expenditure becomes allowable expenditure for the purpose of the permit obligations in connection with that well. The allocation of costs in that manner accords with national and international practice.

Examination of the authorisation for expenditure forms submitted for approval of joint venturers in permit WA-64-P and dated 22 March 1985, reveals that included as an identifiable item of expenditure was the five day rig move subsequently undertaken by the Regional Endeavour.

Onshore support

Personnel travel to the rig in permit No NT/P2 by fixed wing aircraft to Troughton Island and thence by helicopter to the rig. Supply vessels service the rig from Darwin, about 30 hours sailing time.

Administration of the drilling program takes place in Melbourne with certain operational aspects being dealt with in Darwin, Exmouth or Geraldton. Port Hedland serves as a base for heavy equipment which can be transported to the rig on supply vessels.

Where a move from well to well is projected to take three days or more, it is economically feasible to move personnel off the rig and back on again at a new location. Their equipment would normally be retained on the rig and they would usually be put on standby rates in the base town.

While much of the evidence given on behalf of the applicant addressed what was usually the position in relation to the above matters, the respondent did not seek to contest that the evidence should not be taken as applicable to the rig during the course of its movement here in question. In finding the above facts the Tribunal finds them as pertaining to that particular rig movement.

Preliminaries

In applying the provisions of s 164 of the Customs Act 1901 and s 78A of the Excise Act 1901, sub-ss (2) and (3) of those sections have no limiting effect in this matter. There are no conditions and restrictions prescribed. There is no argument that the applicant purchased the diesel fuel for use by it or that duty has been paid on that diesel fuel. The exclusion of quarrying operations from the definition of mining operations has no limiting effect of relevance here.

Although the relevant statutory provisions refer to "minerals" it is apparent that word extends to include petroleum. The definition of "minerals" in the Act is in the widest possible form. The word "minerals" at common law includes petroleum: Earl of Lonsdale v Attorney-General [1982] 3 All ER 579 and authorities therein cited.

Exploration for minerals

The Shorter Oxford English Dictionary (1973) p 707 defines "exploration" in its relevant senses as follows:

"1.

The action of examining; scrutiny ...

3.

The action of exploring ...".

"Exploring" is defined as the action of exploration. "Explore" is defined in the relevant senses at the same page to mean:

"1.

... seek to find out; to search for; to make proof of ...

3.

... to go into or range over for the purpose of discovery ...

4.

... to conduct operations in search for."

Roget's Thesaurus of English Words and Phrases (1982) associates the word "explore" with the words "enquiry" and "discovery".

The words "exploration" and "prospecting" are not defined in the Customs Act 1901 or the Excise Act 1901 for the purposes of the principal statutory provisions relevant to this application. The Income Tax Assessment Act 1936 s 124AH (7) defines for the purposes of that section, the words "exploration or prospecting" to include geological, geophysical and geochemical surveys, exploration drilling and appraisal drilling but not to include development drilling or operations in the course of working a petroleum field. That definition is of relevance only in making apparent the elements which parliament there considered comprised exploration or prospecting in relation to petroleum for the purposes of that Act. The contrast there made is between exploration and development. Here the question is whether exploration extends beyond the making of surveys and drilling and appraisal work to include movement of the rig between sites at which exploration is incontestably conducted.

In Re Cliffs Robe River Iron Associates and Collector of Customs (1984) 6 ALN N255, the Tribunal (Toohey J, the Hon G D Clarkson QC and Mr I A Wilkins) was of the opinion that para (a) of the definition of "mining operations" identifies particular activities and that "mining" carries its ordinary meaning, namely the extraction of ore. It is appropriate therefore to approach the other words in that paragraph in the same manner. There are not, however, any authorities before the Tribunal which explain the meaning of the word "exploration" or its application to the point in issue.

In Re Western Mining Corp Ltd and Collector of Customs, Western Australia (1984) 5 ALN N456, the Tribunal placed reliance upon evidence as to the manner in which the persons in industry used the words "dressing" and "beneficiation", words used in s 164 in the definition of "mining operations". The Tribunal there said (at 22, 23 of the unreported decision):

We think it proper to give weight to the expert evidence as to the meaning of the terms 'dressing' and 'beneficiation'. 'Beneficiation' is not a word of ordinary parlance and 'dressing' is not used in the legislation in its ordinary sense. Both words are used in their trade or technical signification. Without recourse to dictionaries and to expert evidence, we could not determine their meanings. It was said by the Judicial Committee of the Privy Council in Max Cooper & Sons Pty Ltd v Sydney City Council (1980) 29 ALR 77 at 85:

'The crucial expression in this paragraph is "pay loadings". It is a technical term, or term of art, used in the building industry. It is not an expression that is used in ordinary speech; without extrinsic evidence from a witness experienced in the building industry and familiar with the technical terms used in it, a judge could only speculate as to the meaning of "pay loadings". That the ordinary meaning in which a technical expression is used in a particular industry is not a question of construction but is a question of fact to be decided upon expert evidence, has been undoubted law since it was laid down by Baron Parke in; Shore v Wilson (1842) 9 Cl and Fin 355. A question of construction (which is one of law) arises only when it becomes necessary to determine whether the particular context in which the expression is used shows that in that context it was intended to bear its ordinary technical meaning or some more extended or restricted meaning.'

See also the examination by Gobbo J in FCT v Hammersley Iron Pty Ltd (1980) 33 ALR 251 at 271-3.

Reference may also be made to the remarks of Sir Owen Dixon in Herbert Adams Pty Ltd v FCT (1932) 47 CLR 222 , when his Honour said, at 227-8, with respect to the customs tariff:

The popular meaning of 'pastry' appears to have been reached by a process of specialisation, and perhaps the wider trade meaning is a survival. But, whether the usage is to be explained as a persistence of an older meaning or as an extension by trade custom of that now prevailing, the legislature has expressed itself in a manner which amounts to a recognition, if not an adoption, of the trade meaning. Such a recognition might be expected, because the tax is levied by the various statutes upon persons who sell commodities in the common course of distribution, whether they manufacture or produce the goods they sell or acquire them by purchase. A revenue law directed to commerce usually employs the descriptions and adopts the meanings in use among those who exercise the trade concerned. In Marquis Camden v Commissioners of Inland Revenue [1914] 1 KB 641 at 550 Phillimore LJ says:

'In construing a modern statute, not dealing with the particular customs of a particular locality, or the practice of a particular trade, but of general application, evidence such as is sought to be adduced in this case is inadmissible';

that evidence being tendered to prove that among land agents an ordinary English expression possessed a special meaning and should be so understood in a statute of general application. But, whatever may be covered by the phrase 'practice of a particular trade', it has been considered permissible in applying a customs tariff to resort to evidence to ascertain what according to mercantile understanding are the characteristics connoted by the descriptive names used in the items as well as to identify the articles of commerce which possess them. See; Markell v Wollaston (1906) 4 CLR 141 ; Chandler & Co v Collector of Customs (1907) 4 CLR 1719 ; Robertson v Salomon (1889) 130 US 412 at 415. In the case of the schedule of exemptions to the Sales Tax Assessment Act it is only upon proof of the general meaning prevailing in the trade that an explanation appears of the use of the strange expression 'pastry ... not including cakes or biscuits,'

However, those cases were concerned with terms of a different type. "Ore dressing" and "beneficiation" are words which may be found in a dictionary but they are not words of common parlance. Similarly, there are many terms used in the customs tariff the significance of which would not be understood by an ordinary member of the community without the assistance of expert advice. See also the decision of this Tribunal in Re Pacific Film Laboratories Pty Ltd and Collector of Customs (1979) 2 ALD 144 in which it was held that to establish that an expression used in legislation was adopting a trade meaning, it is necessary to adduce evidence of such meaning as at the date of the enactment of the legislation.

The words with which we are concerned here ("exploration" and "prospecting") are not words of that type. They are words of common parlance. They are not given a juxtaposition which would indicate that they are being used other than in their ordinary sense. The words are to be interpreted, as the word "mining" in Cliffs, supra, in their everyday sense. This means that evidence given as to the manner in which the applicant itself uses the word "exploration" to encompass movement of the rig from one point at which exploration is carried out to another is not determinative for the Tribunal.

Applying the Shorter Oxford English Dictionary definition, it is apparent that movement of the rig between these points is not part of exploration. Exploration takes place when exploring is being undertaken, when the search is being conducted for the purpose of discovery. In the view of the Tribunal, it would not be said that exploration was taking place in the everyday sense of that word when the rig was moving from one point at which exploring was carried on to another at which it was proposed to be carried on. Nor would that view be changed by advertence to the evidence that maintenance and work preparatory to exploring is carried out during the course of that rig movement. In the view of the Tribunal, the applicant does not succeed by application of para (a) of the definition of "mining operations" in the relevant statutory provisions.

It does not assist the applicant in relation to this provision, in the view of the Tribunal, that in Collector of Customs v Cliffs Robe River Iron Associates (1985) 7 ALN N269;; 7 FCR 271 at 275, the Full Court of the Federal Court said:

"The relevant provisions of the Excise Act reflect a legislative policy of encouragement of mining operations and should not be given a narrow application."

To apply the dictionary definition of "exploration" is not, in our view, to give the word a narrow application.

Other operations connected with exploration

Degree of connection

Paragraph (c) of the definition of "mining operations" was the subject of judicial comment by the Full Court of the Federal Court in the Cliffs case, supra That paragraph requires that there be other operations "connected with exploration or prospecting". The court said at FCR 275:

"The meaning of the word 'connection' is both wide and imprecise. One of its common meanings is 'relation between things one of which is bound up with, or involved, in another' (Shorter Oxford English Dictionary)."

The court concluded that the generation of electricity to the township of Pannawonica was so bound up with and involved in the mining for minerals that it was an operation connected with such mining. The court rejected the Collector's argument that it was necessary to construe para (c) as requiring a more direct connection between the "other operations" and the extraction or treatment of minerals so that the operations must be ones directly connected or associated with the physical extraction or treatment of the mineral. It was in that context that the court said that the relevant provisions should not be given a narrow application.

The question here therefore becomes whether the movement of the rig from one point of exploration to another in the circumstances made apparent to the Tribunal was so bound up with and involved in the exploration for minerals (in the form of petroleum) that it was an operation "connected with" the mining for minerals.

It is at this point that the evidence succeeds in establishing that the movement of the rig and the servicing and maintenance activities undertaken on board it during that movement were so bound up with and involved in the exploration as to be an operation connected with it.

The planning by the applicant of an exploration program as a continuous program planned in advance and operating to a schedule is further proof of such connection, the movement of the rig being an essential part of such a program. In our opinion the applicant has established that the movement of the rig is an operation "connected with" exploration.

The respondent accepts that position but argues that the applicant cannot satisfy the remaining requirements of para (c) of the definition of "mining operations".

Adjacency

The remaining requirements of para (c) are that the other operations so found to be connected with exploration "are carried out in, or at a place adjacent to, the area in which the exploration, prospecting or mining occurs". There is no contest that the movement of the rig comes within the words "other operations".

It is apparent that the other operations are not carried out "in" the area in which the exploration occurs. Even if "the area" is taken to be coterminus with each of permits NT/P2 and WA-64-P it is apparent from the evidence that the rig in the course of its movement passed out of permit area NT/P2 through another sedimentary basin, the Exmouth Plateau, in which is located a number of other permit areas in none of which the applicant was conducting current exploratory works before it reached permit area WA-64-P. In any event the words "the area" may more appropriately be read as relating to the area at which exploration actually takes place so that an even more restrictive application of the words would be appropriate. Since even on the more expansive application of the words it cannot be said that the other operations were carried out "in" "the area", we are not called upon to decide precisely the meaning to be given to the words "the area" in this application.

The applicant argues that the other operations connected with exploration are carried out "at a place adjacent to" the area in which the exploration occurs. In FCT v BHP Minerals Ltd (1983) 51 ALR 166 , the Full Court of the Federal Court of Australia (Fox, Toohey and Lockhart JJ) were called upon to decide whether residential accommodation was "at a place adjacent to the site of prescribed mining operations" within s 122 (1) of the Income Tax Assessment Act 1936. In their majority judgment, Toohey and Lockhart JJ said at 172-4 in relation to the concept of adjacency:

A great deal of attention was devoted in argument before us to the meaning of the expression '... or at a place adjacent to, the site of prescribed mining operations carried on by the taxpayer ...', and in particular to the meaning of the word 'adjacent'. The Assessment Act does not define 'adjacent'. The Oxford English Dictionary defines the word as:

'1.

Lying near or close (to); adjoining; contiguous, bordering. (Not necessarily touching though this is by no means precluded.) ...'

The Macquarie Dictionary defines the word as:

'Lying near, close or contiguous; adjoining, neighbouring: a field adjacent to the main road ...'

... 'Adjacent' is a word that is capable of a broad connotation. It can suggest a relationship like that indicated by 'neighbouring'; but it can also be used in a sense akin to 'contiguous'. We do not think any useful purpose is served by dwelling too long on the dictionary definitions of the word 'adjacent' or synonyms, as ultimately the inquiry is to determine the meaning of the word in the context in which it appears, in this case s 122 (1) of the Assessment Act. However, the first task must be to determine the ordinary meaning of the word and then see if that meaning needs to be displaced or qualified in some way by the context in which it appears.

One approaches the task of defining the word 'adjacent' with the knowledge that Div 10 in which it appears gives legislative expression to the Australian Government's policy to encourage the search for and winning of metals and minerals and thus affords special concessions to the mining industry.

...

In our view the inquiry as to the definition of the expression 'at a place adjacent to, the site of prescribed mining operations ...' calls for a broad approach and not one that is narrow or pedantic ... The expression is not one which is capable of a precise or uniform meaning ...

An ordinary and natural meaning of the word 'adjacent' is 'near' or 'close'. We think it is in this sense that the word is used in s 122 (1) (a) ... But to be provided at a place adjacent to the site of mining operations does not require contiguity or abutment. Nor does it necessarily require very close proximity. It is sufficient that it is near or close to the site.

...

It becomes a question of impression and fact in each case whether the residential accommodation provided by the taxpayer is at a place adjacent to the site of the prescribed mining operations.

The manner in which this Tribunal is to approach the provisions of the legislation relevant here, has been expressed by the Full Court of the Federal Court in the Cliffs case, supra, and has been already referred to in these reasons. The court said that the relevant provisions reflect a legislative policy of encouragement of mining operations and should not be given a narrow application. There is therefore great similarity between the approach to be taken to the relevant provisions here and that taken by the majority of the Full Court of the Federal Court in the; BHP Minerals case, supra

Approaching the provision in that manner, we do not consider that the ordinary meaning of the word "adjacent" construed in its context in that manner, extends to including within either of the areas in which exploration is conducted (taking that to include the whole of permits NT/P2 and WA-64-P) the operations constituted by the movement of the rig over a distance of 1400 km between those areas, during which distance it traverses another basin containing other permit areas. Even less so is this the case if the areas are the places at which exploration is actually conducted, that is the drilling sites between which movement occurred. Without applying the word "adjacent" so as to require an adjoining relationship there is not, in our opinion, as a matter of impression and fact, adjacency between those areas and the places traversed by the rig in the course of its movement constituting the other operations.

It is true that in the path of movement between the drilling sites and the permits it could, as a matter of impression and fact, be said that the movement of the rig was adjacent to the site and area from which movement commenced or neared completion. That, however, would mean only that a limited part of the "other operations" had about them the necessary quality of adjacency. In our view the paragraph requires that the other operations as a whole have that quality. It is not appropriate therefore for us to define the point at which adjacency exists at either end of the rig movement nor was argument directed to enabling us to do so.

It is true that para (c) refers to a "place" as requiring the quality of adjacency. In the BHP Minerals case, supra, at 174, Toohey and Lockhart JJ did not attach any particular significance to the presence of that word saying that it was probably used by the draftsman in the relevant sub-paragraph of the Income Tax Assessment Act 1936 under consideration by them, as a matter of style to draw a distinction between the actual site of the mining operations itself and somewhere else. We do not consider that the use of the word "place" in para (c) precludes consideration of the area traversed by the rig in the course of its movement merely because movement was involved and it could not be said to be stationary at any one "place".

Conclusion

The view of the Tribunal is that the movement of the rig Regional Endeavour from NT/P2 to WA-64-P does not come within exploration or prospecting in para (a) of the definition of "mining operation", that it is an operation connected with exploration within para (c) of that definition but it is not an operation carried out in, or at a place adjacent to, the area in which the exploration or prospecting occurs. The consequence is that the diesel fuel expended in the course of that rig movement is not eligible for a rebate. The decision under review will therefore be affirmed.

A significant part of the documentary evidence was tendered in confidence to the Tribunal. A direction will therefore be made to give the applicant and its legal advisers the opportunity to consider whether whole or part of the reasons should remain confidential after the expiration of the period referred to in the direction.