Federal Commissioner of Taxation v. Reynolds Australia Alumina Ltd. & Ors.

Members: Beaumont J
Wilcox J

Burchett J

Tribunal:
Full Federal Court

Decision date: Judgment handed down 26 November 1987.

---

Burchett J.

I agree with the conclusions of Beaumont J. and, subject to what follows, with his reasons.

A central question in the appeal is the meaning and application of the expression, appearing in sec. 14(1) of the Sales Tax (Exemptions and Classifications) Act 1935, "for use in the mining industry in carrying out mining operations". In
F.C. of T. v. ICI Australia Limited 71 ATC 4253 ; 72 ATC 4213 ; (1971-1972) 127 C.L.R. 529 the High Court was concerned with the meaning of "mining operations upon a mining property", as that expression was used in sec. 122(1) of the Income Tax Assessment Act 1936. Gibbs J. (as he then was) said at 72 ATC p. 4226; C.L.R. p. 579:

"It is true that the expression `mining operations' is a popular, rather than a technical, expression (
F.C. of T. v. Broken Hill South Ltd. (1941) 65 C.L.R. 150 at p. 155 ) and should, in accordance with established principles of construction, be understood in its ordinary and natural meaning unless the provisions of the Act indicate that some departure from that meaning is intended. However, the expression is one whose ordinary and natural meaning is flexible rather than fixed."

He went on to cite authority and to conclude at ATC p. 4227; C.L.R. p. 580 that the expression was "capable of including the recovery of salt by the pumping of brine from a natural deposit in the crust of the earth". This was the view of the majority of the High Court.

The ICI case contains specific statements that the provision by sec. 122 of a deduction in respect of mining operations exemplified a policy which was relevant to questions of construction of the section. Barwick C.J., with whom McTiernan J. agreed, referred at 72 ATC p. 4219; C.L.R. p. 568 to "the policy of encouragement of mining which the Act otherwise exemplifies". Gibbs J., at 72 ATC pp. 4227-4228; C.L.R. p. 581, said:

"In my opinion, the subject matter of sec. 122 and the context in which it is found provide indications that it should be liberally construed. The section is one of the provisions of the Act whose evident purpose is to encourage the production of minerals in Australia and in the Territory of Papua and

---

ATC 5031

New Guinea; it gives effect to a legislative policy which, as was said in
N.S.W Associated Blue-Metal Quarries Ltd. v. F.C. of T. [ (1956) 94 C.L.R. 509 ] at 525 , was `to make special concessions to mining as a means of winning precious metals and valuable minerals from the soil'."

In
F.C. of T. v. BHP Minerals Ltd. 83 ATC 4407 ; (1983) 51 A.L.R. 166 , a Full Court of this Court was concerned with a claimed deduction under the Income Tax Assessment Act in respect of the provision of employee housing "at, or at a place adjacent to", the site of mining operations. At ATC p. 4411; A.L.R. p. 171 Toohey and Lockhart JJ. said:

"It has been the policy of successive Australian Governments to encourage the prospecting for and winning of certain metals and minerals and, accordingly, special concessions have been given in the Assessment Act to persons carrying on mining operations upon mining properties in Australia, by enabling them to deduct from their assessable income capital expenditure which would not otherwise be deductible."

At ATC p. 4413; A.L.R. p. 173 they said:

"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."

At ATC p. 4414; A.L.R. p. 174 they commented that: "The tax incentive... was intended by the legislature to operate realistically", and they adopted what they described as "a broad approach to the question of the definition of the expression under consideration in this case". See also
F.C. of T. v. Northwest Iron Co. Ltd. 86 ATC 4202 at p. 4209; (1986) 9 F.C.R. 463 at p. 473 .

In my opinion, the beneficial purpose of the legislation with which this appeal is concerned is as apparent as was that of Div. 10 in the cases to which I have referred. But this purpose would be stultified if the Court unrealistically refused to recognise change in the mining industry, and confined the exemption to operations conducted in a manner, once familiar or even invariable, which the progress of the industry has now (in large measure) left behind. The extension of the site of an operation, linking activities by conveyors or pipelines, in order to make the best use of available advantages and do the least damage to the ecology of the area, are everyday features of new mining ventures; while novel or improved techniques and practices are introduced from time to time to open up to exploitation mineral deposits which were previously worthless.

When the Act speaks of "mining operations", it uses an elastic expression the full meaning of which emerges from its application in a particular context; it is not frozen into an immobility that cannot accommodate changes in technology. The extent to which the technological context enables the expression to be understood, and assigned its rightful place in the characterisation of a variety of activities, distinguishing between those operations which it embraces and those it does not, is illustrated by a comparison of the decision in
F.C. of T. v. Broken Hill Proprietary Co. Ltd. 69 ATC 4028 ; (1968) 15 A.T.D. 43 ; (1967-1969) 120 C.L.R. 240 with the decision in the Northwest Iron case (supra). The technology involved in the BHP case concerned a mine producing iron ore saleable as such; but, for its better transport and utilisation, some of the ore was converted to pellets. The majority judgment (at ATC pp. 4031-4032; C.L.R. pp. 273, 275) held that the pellet making was not a mining operation. The Court distinguished between the separation of the desired product of mining from its containing rock or other material and the improvement of the product once obtained. On the other hand, in the Northwest Iron case, a new technology was employed to extract, from what until then had been a uselessly low grade material, a useable ore. That new technology also involved conversion of the ore to pellets, but it did so in the context of a continuous integrated series of operations which started with the rock containing the ore at a low grade, and ended by producing the pellets as its first saleable product. In that new context, the very same principles which were enunciated in the BHP case led the Court in the Northwest Iron case, upon an evaluation of the facts, to conclude that the activities from which the pellets emerged were all part of the mining operation. Lockhart J., with whose reasons

---

ATC 5032

Bowen C.J. and Toohey J. agreed, said at ATC pp. 4210-4211; F.C.R. pp. 474-475:

"The taxpayer adopted the method of moving the concentrated ore in a slurry form through the pipeline to Port Latta for pelletisation because it regarded it as the only economically feasible method available. The object of the taxpayer's activities is the production of pellets after treatment of the ore... [T]he mining operations extend until the completion of the pellet producing process. The process of pelletisation is integral to the whole operations of the mining venture and essential to the development of the potential of the low-grade ore of the Savage River site by means of the taxpayer's technology. The pipeline is essential to the end product. It is not different in essence from a necessary conveyor line conveying material from one section to another within a mining complex. The end product of the taxpayer's mining activities is the production of pellets."

The key to the application of the concept of "mining operations" in differing technological contexts, according to both cases, is to identify the desired end product of the mining activities, or, as it was called in the BHP case at ATC p. 4031; A.T.D. p. 228; C.L.R. p. 273, "what it is sought to obtain by mining". In doing so, the Court must not allow the beneficial purpose of the legislation to be obscured and obstructed by adhering to the implications of obsolete technological limitations rather than to the flexible legal principle which, as construed in the ICI case and the Northwest Iron case, is well able to adapt itself to the constantly changing objectives and methods of modern mining. The principle must not become stuck in the dead wood, but must be allowed to move with the sap and growth of the mining industry. The ICI case and the Northwest Iron case are striking illustrations of the capacity of the courts to apply the principle in new circumstances. In both, the identification of what was sought by the mining operation was crucial. (Cf.
F.C. of T. v. Hamersley Iron Pty. Ltd. 81 ATC 4582 at pp. 4591, 4593; (1981) 37 A.L.R. 595 at pp. 606, 609 .)

In the ICI case at 71 ATC p. 4264; C.L.R. p. 549 Walsh J. said:

"Having decided that ICI is carrying on mining operations, the further question whether all the processes up to the crystallisation of the salt fall within that description depends in my opinion upon a decision whether the object of the mining activities should be regarded as the obtaining of brine or as the obtaining of salt in crystallised form."

Barwick C.J. at 72 ATC p. 4218; p. 565 said:

"the recovery of the mineral raised by the mining operation is not complete until the evaporative process has taken place..."

Gibbs J., at 72 ATC p. 4228; C.L.R. pp. 582-583, referred to the BHP case and said:

"In my opinion, the treatment of the brine after it had been pumped to the surface and before it was harvested in the crystallisers was for the purpose of separating that which it was sought to obtain by mining, viz. salt, from that which was mined with it, namely water and the calcium and magnesium salts. The object of ICI's operation was, I consider, to obtain salt, not to obtain brine."

As was true in the Northwest Iron case, this case concerns a new industry which utilises a product previously useless. The bauxite mined at Mt Saddleback is of a grade too low to be worth carrying away to the markets where bauxite is a valuable commodity. In that respect, it is like the iron ore of the Savage River. But if the gibbsite which it contains is separated from the red mud (and as part of a continuous process converted to alumina) a valuable product emerges. Low grade bauxite is no more the product sought by the mining operation than was the low grade iron ore that was removed from the ground in the Northwest Iron case.

It is irrelevant that richer bauxite is in itself an end product of other (and particularly older) mines, just as it was irrelevant to the conclusion, that pellets were the end product, in the Northwest Iron case, to consider the factual finding in the BHP case which saw pellet production as an improvement to an already existing end product, the richer ore which issued from the BHP mine. It is equally irrelevant that, in the abstract, if from the low grade material a valuable substance can be extracted by the respondent companies, the same operation could be performed by some

---

ATC 5033

other company provided it set up a large enough enterprise in the immediate vicinity of the mine. No one has done so, and the statutory background to the respondents' undertaking suggests the prospect is remote in the extreme. To argue that the purely theoretical possibility of selling it to such a company makes the bauxite a viable product of the mine is unrealistic. The very same argument appears to have been advanced in the Northwest Iron case, and was rejected by the Court at ATC p. 4208; F.C.R. p. 471.

When a new technology unlocks low grade deposits, previously worthless, it would generally accord with the normal use of language, and with the principles discussed in the BHP case and the ICI case, to regard the processes by which, in the vicinity of the mine itself, the containing material and impurities are removed in order to produce a useful commodity as part of the mining operation. In modern conditions, the distance between the mine site and the refinery site (dictated by considerations related to the environment, the availability of fresh water, and the housing and social needs of the work force) does not take the present case outside the scope of this principle. The site of the activities is an extended one. The conveyor may be compared with the pipeline in the Northwest Iron case, as indeed, by way of example, such a conveyor was compared with the pipeline by Lockhart J. in that case at ATC p. 4211; F.C.R. p. 475.

The trial Judge, Northrop J., identified the end product of this particular mining operation as alumina [at 87 ATC 4305]. He said [at p. 4332]:

"It is not appropriate to treat bauxite as the intermediate product of mining operations and the alumina as the end product of a manufacturing process separate and distinct from the mining operations... It is clear that the Worsley bauxite, of itself, has no commercial value. It must be processed to obtain alumina before a commercial product is obtained."

Later, he added that the bauxite's "only value is in its use in the production of alumina at the Worsley Refinery". These findings were well justified by the evidence, which showed that nowhere in the world is bauxite of such low grade exported in the state in which it leaves the mine.

But it is unnecessary to go quite so far. The process, by which, using caustic soda, the 30% of gibbsite is extracted from the 70% of red mud, is conceptually indistinguishable from other processes, such as the cyanide technique for the extraction of gold, which have long been accepted as part of mining operations (see, for example,
F.C. of T. v. Henderson (1943) 68 C.L.R. 29 ). The red mud is unwanted waste. There is no reason to deny this operation the true character of a separation of a desired product from the material unavoidably dug out with it (cf. BHP case at ATC p. 4031; C.L.R. p. 273), simply because it is convenient, in a continuous process, to go one step further, and produce alumina (chemical formula, Al ₂ O ₃ ) from the gibbsite (chemically, alumina trihydrate, Al ₂ O ₃ 3H ₂ O), by breaking its molecular bond and liberating water (Al ₂ O ₃ 3H ₂ O yields Al ₂ O ₃ + 3H ₂ O). And it would be contrary to reality to see the low grade bauxite as what is sought by this mining undertaking. It is sufficient to hold that the separation of the gibbsite from the red mud is part of the mining operations, in order to reach the conclusion that the conveyor is ancillary to those operations. The conveyor takes the low grade bauxite from the site where it has been removed from the ground to the nearest convenient place where a preliminary process could be performed without which the bauxite would not have been mined at all.

A fortiori , the conveyor is also used in the mining industry in the treatment of a product of mining operations. It is of interest to note, though the context was different, that Deane and Dawson JJ. in
R. v. Coldham ; Ex parte The Australian Workers' Union (1983) 153 C.L.R. 415 at p. 425 found it natural to describe the process involved as "treatment of bauxite".

The remaining problem relates to Item 113C. The crucial question here is whether the mine site, conveyor corridor and refinery site should together be regarded as "premises" in which a relevant processing or treatment activity is carried out. The word "premises" has a long history of use as a wide and general word referring to land or land and buildings. This is a secondary meaning derived from the fact that the lands referred to in a deed of grant were set forth in that part of the deed technically called the premises. In Blackstone's Laws of England vol. 2, p. 298 the premises of a deed are said to contain, in addition to the names of the parties,

---

ATC 5034

recitals of such matters "as are necessary to explain the reasons upon which the present transaction is founded", and the consideration, "the certainty of the grantor, grantee and the thing granted". In a conveyance, "the thing granted" was, of course, the land conveyed, which might or might not have buildings erected on it. The development in language which followed is explained by Lord Goddard C.J. in
Gardiner v. Sevenoaks Rural District Council (1950) 2 All E.R. 84 at p. 85 , where he said:

"`Premises' is, no doubt, a word which is capable of many meanings. How it originally became applied to property is, I think, generally known. It was from the habit of conveyancers when they were drawing deeds of conveyance referring to property and speaking of `parcels'. They set out the parcels in the early part of the deed, and later they would refer to `the said premises,' meaning strictly that which had gone before, and gradually by common acceptance `premises' became applied, as it generally is now, to houses, land, shops, or whatever it may be, so that the word has come to mean generally real property of one sort or another. There is no doubt that from time to time the word `premises' has been given different meanings, either extended or more restricted."

Lord Goddard went on to hold that, in an Act restricting the use of premises for the storage of film, "Parliament intended to use the widest possible word". He held that a cave, to the entrance of which a door had been attached, constituted premises within the meaning of the Act.

In
Phonographic Performance Ltd. v. Pontin's Ltd. (1967) 3 All E.R. 736 Cross J. held that a considerable area of land, containing chalets capable of accommodating over 1,000 people, a cafe, a shop, a bar, a swimming pool, tennis courts and other structures, could not be regarded as a number of separate and distinct premises, but should be regarded, as a whole, as one "premises". He took into account the common purpose, of a sort of seaside hotel, to which all these things were devoted.

It seems to me that the integrated activity carried on over the whole of a continuous area of land does, in the present case, assist in the correct characterisation of the whole area as relevantly "premises". In the Northwest Iron case (supra, at ATC p. 4213; F.C.R. p. 477) a similar view was taken. Lockhart J. said:

"The pipeline, notwithstanding its length of some 85 kilometres, is within the `premises' on which the taxpayer conducts its mining operations."

In the present case, Northrop J. concluded (at p. 4326):

"The whole of the mine site land, the refinery land and the conveyor corridor land constitute premises and the one premises to enable the applicants to carry on the one business of mining bauxite and refining it into alumina."

In my opinion, his Honour was right when he reached that conclusion.

For these reasons, I agree that the appeal should be dismissed with costs.

THE COURT ORDERS:

The appeal is dismissed with costs.